TaxTMI 
TaxTMI 
2002 (12) TMI 34
X X X X Extracts X X X X
X X X X Extracts X X X X
....ness of the erstwhile dissolved firm became that of the present assessee. Thus, during the previous year for the assessment year 1995-96, from April 1, 1994 to November 20, 1994, the business was being carried on for and on behalf of the association of persons comprised of the erstwhile 13 partners (i.e., for 234 days). But for the period November 21, 1994 to March 31, 1995, the business was carried on by and on behalf of the purchasing association of persons i.e., the assessee (for 131 days). Before entering into the facts in detail, we find it advantageous to clarify the basic facts which had led to a certain amount of confusion at all stages of the proceedings. This confusion had arisen primarily because of the name "Mangalore Ganesha Beedi Works" (in short "MGBW") successively adopted by three different taxable entities, namely, a partnership firm, an AOPs consisted of 13 members and another AOPs consisting of 3 members. For the sake of convenience, we will be referring to the said taxable entities as "the firm", "the AOPs-13" and "the AOPs-3". At this very stage, we may state that in the year 1993, the number of members of the AOPs-13 reduced to twelve because one of its me....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....50% 7. M. Suresh Rao 7.55% 8. M. Vishwanath Rao 7.55% 9. M. Ramanatha Rao 2.50% 10. Jaganath Shenoy 2.50% 11. Vatsala Shenoy, D/o. M. Janardhana Rao 7.55% 12. M. Gopinath Shenoy 2.50% 13. Arathi Shenoy, D/o. M. Janardhana Rao 7.55% Clause (3) of the partnership deed provided for the duration of the firm. This clause reads as under: "3. The duration of the partnership shall be five years in the first instance; but by mutual agreement the parties hereto may extend the said duration. If during the subsistence of this partnership any of the partners desire to retire from the partnership he or she can do so, if all the other partners agree to the said retirement. However, if all the other partners do not agree to the said retirement, the partner intending to retire shall give six months' notice in writing of his or her intention to retire and on expiration of the period of the said notice the said partner shall cease to be a partner and subject to para. 14 infra from that date all his or her liabilities and rights as a partner of the firm sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nue the business as an interim arrangement till the completion of winding up proceedings. Subsequently, under order dated June 14, 1991, this court framed the scheme for winding up of the affairs of the firm by selling its assets as a going concern. Paragraph 29 of the order contains the scheme. Clauses (i), (iii) and (v) of this scheme are material for the present purposes and accordingly are being reproduced hereunder: "(i) The dissolved partnership firm-Mangalore Ganesh Beedi Works as a going concern shall be sold to such of its partner/s, who makes an offer of a highest price, the same not being less than the minimum (reserved) price of Rs. 30 crores (rupees thirty crores) within July 11, 1991 accepting further liability to pay interest at 15 per cent. per annum towards the amount of the price payable to partner/s from December 6, 1987 till the date of deposit:... (iii) If no offer for purchase of the dissolved partnership firm as a going concern, adverted to in clause (ii) above, is received within the stipulated time or if any of the offers made by the partner/s is not accepted by the court, the official liquidator shall invite offers for purchase of the dissolved partn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ember 21, 1994 read as under: "The highest bid amount of rupees ninety-two crores is accepted and the group of partners offering the said amount are directed to deposit that part of the bid amount of rupees ninety two crores which is proportionate to the shares held by the out-going partners together with profits on the same basis from December 6, 1987 till the date of deposit, within a period of 60 days from September 29, 1994 in any of the nationalised banks in the name of the official liquidator. The rest of our order dated September 21, 1994 remains intact." Pursuant to the above order, the AOPs-3 deposited the bid amount on November 17, 1994, with the official liquidator. As per the order passed by this court the assets of the firm as a going concern were to be treated as having been sold to the "purchasing AOP" on November 20, 1994. It is again a matter of record that the business of the firm along with its assets were handed over by the official liquidator attached to this court to the AOPs-3 on January 7, 1995, vide his report 10 of 1995 and sale proceeds along with bank interest accrued thereon were distributed by the official liquidator under the orders of this cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rned, the income assessable is the actual profits earned for the year ended March 31, 1995. Question No. (ii).--Whether the Tribunal was right in holding that the assessee was entitled to deduction of Rs. 13,96,08,653 as revenue expenditure being interest and service charges paid to financial institutions? It is not in dispute and is borne from the records that the members of assessee AOPs-3 had jointly borrowed a sum of Rs. 113.75 crores from banks and other financial institutions in their collective names for making payments against the purchase of the assets of the dissolved firm as a going concern. Keeping in view these facts, the Commissioner of Income-tax (Appeals) found the claim to be admissible as a revenue expenditure. The Tribunal could not find any error on this account. Since, the facts are admitted, inference drawn therefrom on deductions claimed are of revenue in nature, in our opinion, the finding of the Tribunal has to be upheld. Question No. (iii).--Whether Rs. 12,24,700 claimed as revenue expenditure by the AOPs constituted by the three partners by the erstwhile firm, MGBW, can be allowed as permissible deduction in the hands of the said AOPs under secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iness right from April 1, 1994. This is clearly an error of record. Accordingly, we hold that the assessee was entitled to only 50 per cent. depreciation on the depreciable assets acquired by it. Question No. (v).--Whether the assessee was entitled to claim any deduction on the alleged expenditure of acquisition of patent rights, copy rights and know-how in terms of sections 35A and 35AB of the Act? In our judgment rendered in Income-tax Appeal in B. Raghurama Prabhu Estate v. Joint CIT [2003] 264 ITR 124 (Karn) (I.T.A. No. 134 of 2000) and connected appeals, which have been disposed of by us on this day, we have held that in the present case there was no occasion for transfer of any knowhow. It is further clear that in this case, there was no patent right to be acquired. "Patent" is defined under the Patents Act, 1970, according to which only inventions can be patented. Beedi rolling or beedi manufacturing is not an invention which can be patented or create any patent right. Further, expenses on trade mark is not covered either under section 35A or section 35AB of the Act. It seems to us that these have been created by the valuers of the assessee-AOPs-3 just to device a clai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as well as the Commissioner of Income-tax (Appeals) rejected the claim of the assessee-AOPs-3 that they can claim any depreciation or deduction in respect of trade marks, copyright and technical know-how. But, the Vice-President without giving any good reasons has directed that the trade mark, copyright and technical know-how should be treated as part of plant and machinery and self-assessed value given by the assessee should be capitalised and accordingly depreciation should be granted. In our opinion, the direction given by the Tribunal is bereft of any acceptable reasoning. It is also not supported by the orders passed by this court in the winding up proceedings and the stand taken by the parties in these proceedings. It is quite apparent to us that the valuer had split the goodwill into 3 parts and assigned values to them by rule of thumb. Obviously, for enabling the assessee AOPs-3 to take benefits of depreciation and deductions under sections 35A and 35AB of the Act. In our considered opinion, the alleged value of the trade mark, copyright and technical know-how cannot be capitalised for grant of depreciation. Accordingly, the direction given by the Tribunal is set aside. ....