TaxTMI 
TaxTMI 
2012 (2) TMI 694
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....2.99 crores and also claiming depreciation on goodwill of Rs. 1.46 crores. During the course of assessment proceedings, the assessee was required to justify its claim for depreciation on goodwill. After due consideration of the assessee's contentions as recorded in his impugned order under consideration, the ld. AO had, extensively quoting the provisions of section 32(1), analyzing the interpretation of intangible assets, taking refuge on various case laws and also detailing the assessee's submissions, observed: 8.13. From the above, it may be seen that what the assessee has actually paid for, is a consideration for acquisition of assets at a higher price and the difference in book value and consideration fixed in all three cases has been stated as goodwill. This, as discussed in not in the nature of intangible assets contemplated under section 32 for allowing depreciation. 8.14. Accordingly, the claim of the assessee for depreciation on goodwill of Rs. 1,46,50,834/-is disallowed..... 4. Agitated, the assessee took up the issue, among others, with the ld.CIT (A) for relief. After duly analyzing the assessee's contentions coupled with various judicia....
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....em. 5. as per clause-5 of the agreements, appellant became entitled to all rights, entitlements, business assignments, permissions, licenses etc., concerning the business of these firms and after acquisition, all these were completely vested in the appellant. 6. After acquisition, appellant became entitled to catering rights of Karnavati Club Ltd earlier enjoyed by TGB Resort Karnavati. All the rights of catering in the club which is in the nature of commercial right became the property of the appellant. 7. Outdoor catering business which was earlier done by Bhagwati Caterers Private Ltd became the business of the appellant with its clients spread over Gujarat and other parts of the country. Appellant continued the same brand name for this business and the transferor company stopped outdoor catering business by surrendering registration number etc. With this acquisition, appellant got commercial right to carry on outdoor catering business in the name of Bhagwati Caterers with existing customer base which has its brand value. 8. All these concerns were having substantial turnover and profit as per the details given in appellant's submission. B....
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.... the Kerala High Court in the case of B Ravindran Pillai v. CIT 234 CTR 80 which is quoted in the appellant's submission. In this case also assessee paid over and above tangible assets and the difference was treated as goodwill. Honorable Court held that the purpose of paying a very huge amount for goodwill is for the maintenance of the continued reputation of hospital which was run in the same name for several years. The High Court concluded that The assessee's intention is only to earn good business in the hospital and so much so, purchased the hospital as a going concern with its name and trademark is nothing but acquisition of goodwill earned by the hospital and it cannot be termed anything other than a commercial or business right. In fact, if the previous owner of the hospital wanted to retain the name, logo or trademark of the hospital even after sale of the building and premises, he could have retained the same without transferring it to the assessee. ............. When goodwill paid is for ensuring retention and continued business in hospital it is certainly for acquiring business and commercial rights and it is certainly comparable with ....
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.... AO in rejecting the assessee's claim and found fault with the findings of the ld.CIT (A). The ld. D R also put strong stress on the wordings of the provisions of section 32(1) and argued that the assessee had nowhere established that it had acquired any know-how, patents, copyright, trademark etc., to match with the provisions of section 32(1) of the Act to entitle it to claim depreciation on alleged goodwill. It was, therefore, pleaded that the stand of the ld.AO which has the backing of sound judicial views requires to be sustained. 5.1. On the other hand, the ld. A R reiterated more or less what was portrayed before the first appellate authority. In support of his claim, he had furnished a copy of valuation report of three business entities which were acquired by the assessee along with numerous judicial precedents on a similar issue. In conclusion, it was pleaded that the findings of the ld.CIT(A) deserve to be sustained. 5.2. We have carefully considered the rival submissions, duly perused the relevant case records, copy of the valuation report and also the case laws on which the ld. A R had placed unstinted confidence. 5.3. For appreciation of facts, the issue, ....
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....s to acquire the business and commercial rights of the said company. 5.6. In consonance with the agreement entered into with TGB Resorts Karnavati, the assessee had paid Rs. 1.93 crores to acquire plant and machinery, commercial vehicles and commercial rights of TGB Resorts-Karnavai to continue the same business with Karnavati Club. Before acquiring, the TGB was in agreement with the said Club to run its restaurants of different types - Gujarat Restaurant, Thai & Continental Restaurant, side-walk cafo?= etc. - and also to maintain room services and having exclusive rights to run all the restaurants. The assessee had paid Rs. 1.93 crores to TGB Resorts to acquire all business rights from Karnavati Club which were vested with TGB Resorts. Likewise, the assessee as per agreement, paid Rs. 2.77 lakhs to BI to acquire its rights to run the restaurant under its banner. Considering the above aspects, it emerges that - (i) the assessee had paid more than book value of assets for acquiring their business rights along with assets; (ii) the additional amounts paid were accounted for as 'goodwill' which were the consideration for acquiring intangible rights; ....
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....e the assets which are not manufactured or produced overnight but are brought into existence by experience and reputation. They assume importance in the commercial world as customers associate with such assets. Similarly, goodwill is nothing but positive reputation built by a person/company/business house over a period of time. Thus, goodwill is a 'business or commercial right of similar nature.' The name 'Kotak' has tremendous importance as the assessee company was to be benefited by the usage of the said name sand it has gone as far as amending its name by including Kotak in its name. Therefore, it is of commercial value for which the assessee has paid the amount of Rs. 1.88 crores as goodwill. Once it is held that the goodwill is also an intangible asset of the similar nature referred to in cl.(ii) of s. 32(1) depreciation is consequently allowable on the same... (2) In the case of B. Raveendran Pillai v. CIT reported in (2010) 194 Taxman 477/(2011) 237 CTR (Ker) 80, the Hon'ble High Court of Kerala has ruled that: ...The question now to be considered is whether the facts in this case can lead to the conclusion that the purchase of the hospi....
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....ts wisdom, in the case of CIT v. Hindustan Coco Cola Beverages (P) Ltd reported in (2011) 311 ITR 192(Del)/ (2011) 238 CTR (Del) 1, has ruled thus: The scope of s. 32 has been widened by the Finance (No. 2) Act, 1998 whereby depreciation is now allowed on intangible assets acquired on or after 1st April, 1998. As per s. 32(1)(ii), depreciation is allowable in respect of know-how, patent, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature being intangible assets. Scanning the anatomy of the section, it can safely be stated that the provision allows depreciation on both tangible and intangible assets and cl. (ii) enumerates the intangible assets on which depreciation is allowable. The assets which are included in the definition of 'intangible assets' include, along with other things, any other business or commercial rights of similar nature. On a scrutiny of the order passed by the Tribunal, it is clear as crystal that the depreciation was claimed on goodwill by the assessee on account of payment made for the marketing and trading reputation, trade style and name, marketing and distribution, territorial....