TaxTMI 
TaxTMI 
2020 (10) TMI 1009
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....provision for warranty of Rs. 2,76,18,000. 4. Without prejudice, the learned Commissioner (Appeals) ought to have specifically restricted the disallowance of provision for warranty to Rs. 44,10,000 which was actually debited to the profit and loss account. 5. The learned Commissioner (Appeals) erred in disallowing the depreciation of Rs. 90,10,000 claimed by the appellant in respect of customer contracts. 6. The learned Commissioner (Appeals) erred in holding that the customer contracts cannot he said to be a commercial right or business right which is a depreciable intangible right qualifying for deduction under section 32(1)(ii). 7. Without prejudice to the above, the Id. CIT(A) ought to have appreciated that the expenditure of Rs. 72,080,000 incurred for acquiring commercial rights should be allowed as revenue expenditure. 8. The Id. CIT(A) erred in not commenting on the following ground: "14. The learned Assistant Commissioner erred in initiating penalty proceedings under section 271(1)(c) " 9. Each one of the above ground of appeal is without prejudice to the other. 3. Grounds of appeal in assessment year 2005-0....
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....greement. A copy of the agreement is enclosed at pages 8 to 12 of the compilation. As stated in the said agreement, Alstom agreed to acquire with effect from 31 December 2003 1ST business including the receivables relating thereto which were outstanding and described in the Schedule attached with the agreement. The appellant submits that the appellant had incurred the stamp duty of Rs. 59,17,000 for the purpose of the business of the appellant and therefore the same shall be allowed as a deduction. The appellant submits that the fact that the stamp duty had been paid in respect of agreement for assignment of receivables pertaining to 1ST business on and from 1 January 2004 shall not make the payment of stamp duty as a capital expenditure. The appellant inter-alia relies on the following decisions:- 1. CIT v Bombay Dyeing and Manufacturing Co. Ltd 219 ITR 521 (SC). The facts in the said decision were that a company was amalgamated with the assessee company. In connection with the amalgamation, the assessee incurred an expenditure of Rs. 10,350 towards professional charges. The appellant claimed deduction for the said amount. The Income tax Officer and the Appellate....
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....ame time that inasmuch as the acquisition of the other company was in the course of carrying on of the assessee's business, the interest paid thereon was deductible under s. 10(2)(xv) of the Act. In this case too, the Tribunal has recorded a finding that the acquisition of Nawrosjee Wadia Ginning & Pressing Co. was necessary for the smooth and efficient conduct of the assessee's business. Following the ratio of the aforementioned decisions of the Court, we hold that the expenditure incurred towards professional charges of the solicitors firm for the services rendered in connection with the said amalgamation was in the course of carrying on of the assessee's business and, therefore, deductible as a revenue expenditure." 2. India Cements Limited v CIT 60 ITR 52 (SC). The facts in the said decision were that the assessee obtained a loan of Rs. 40 lakhs from the Industrial Finance Corporation secured by a charge on fixed assets. In connection therewith the assessee spent a sum of Rs. 84,633 towards stamp duty, registration fees, lawyer's fees etc. and claimed the same as a deduction. In the books of account the amounts were capitalized. Howeve....
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.... was a revenue expenditure laid out wholly & exclusively for the purpose of business as the two companies were carrying on complimentary businesses and their amalgamation was necessary for smooth & efficient conduct of business. In this way, the Hon'ble Supreme Court held that the amalgamation expenditure was incurred in course of carrying on business and it has arisen in revenue field. The appellant's case on the other hand is strikingly different in its factual foundation in the sense that the appellant company has acquired an income generating capital apparatus which is altogether operating in capital field. It is to be appreciated that the purchasing of a industrial unit from other company is altogether a different commercial decision in total contrast of the process of amalgamation between the two companies. These are two different situation of commercial happening which are incomparable in substance operational in two different fields. Therefore. I am in total consonance with the view of the AO that the ratio of the decision of CIT v. Bombay Dyeing Mfg. cannot be made applicable in this case. Further, I also find that the decision of India Cement Ltd. v. CIT, 60 ITR 5....
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....enditure is for acquiring capital asset and hence in the capital field, and consequently cannot be allowed as revenue expenditure and are not applicable here. However, learned CIT(A)'s conclusion that the expenditure is to cure and complete the title to capital is without appreciating the facts of the case. This assignment is admittedly for facilitating the business of the assessee by assigning receivables and as the assessee has acquired the said industrial unit for a lump sum consideration. The expenditure is in connection with facilitating recovery of receivables which is a part of current asset. Hence the expenditure in this regard cannot be said to be in the capital filed of acquiring business. It is in fact for facilitating the business of the assessee and in this view of the matter expenditure is allowable as business expenditure. The case laws referred by learned counsel of the assessee in the case of Bombay Dyeing Mfg. (supra) and India Cements Ltd. (supra) are accordingly germane and support the case of the assessee. Learned CIT(A) has been in error in holding that the case laws are not applicable here. Apropos ground No. 3 and 4. 9. The assessee had made provision ....
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.... sale of one single item the provision for warranty could constitute a contingent liability not entitled to deduction u/s 37 of the said Act. However, when there is manufacture and sale of an army of items running into thousands of units of sophisticated goods, the past event of defects being detected in some of such items leads to a present obligation which results in an enterprise having no alternative to settling that obligation." 12. Examining the present case on the touchstone of above decision we find that the authorities below have erred in considering the provisions of warranty as contingent liability. As already submitted by learned Counsel of the assessee in assessee's own case, subsequently revenue authorities have allowed the expenditure on the basis of same Hon'ble Supreme Court decision. Hence, we set aside the order of the authority below and decide the issue in favour of the assessee. Apropos ground No. 5 and 6 & additional ground 13. The assessee has claimed depreciation in respect of customer contracts. The assessee had claimed that the customer contracts are valuable right and therefore capital asset. In this regard assessee referred to the pro....
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....aluation report. From the close reading of Sec. 2(11) & Sec.32(1)(ii), I find that depreciation has been contemplated to provide on such intangible asset which has inherent property to get depreciated with the passage of time. The customer contract is not such depreciable intangible asset by any stretch of logic. In fact, the customer contract is such commercial advantage conferred by a business entity which value depends upon the degree of commercial activity carried on by the particular business organisation. Generally, the customer contract has a inherent tendency to go up if the business activity of the entity is intensified in its volume and scope of business. Therefore, it can be concluded that it is not a depreciable asset. 5.8 Further, it may also be pointed out that the connotation "any other business or commercial right of similar nature" has to derive meaning from words know-how, patent, copyright, trademark, licence, franchisee. Here the principle of ejusdem generis applies. The maxim ejusdem generis serves to restrict the meaning of a general word to things or matters of the same genus as the preceeding particular words (CIT v. Statesman Ltd. (1992) 198 ITR 58....
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....in the case of CIT Vs. Smifs Securities Ltd. (supra) 17. Brief facts as to bow this goodwill and customer contract arose is emanating out of schedules to the financial statement continued in paper book page 81 as under :- Acquisition of the industrial steam turbines business of Alstom Siemens AG acquired the steam and gas turbine business of Alstom worldwide during 2003. In India, as a part of this global transaction, the Company acquired the Industrial Steam Turbine ('1ST') business of Alstom effective 1 January 2004 for a purchase consideration of Rs. 260,507 thousand. This purchase consideration has been allocated to fixed and intangible assets at fair values based on an independent valuation carried out. All other current assets and liabilities been taken over at carrying values at the date of the transaction net of fair value adjustments as identified by management. The apportionment of purchase consideration to individual assets and liabilities is as set out below: Rs. 000 Fixed assets 25,122 Technical know-how 48,520 Customer contracts 72,080 Deferred tax asset net 19,297 Receivables net 184,147 Inventories ne....
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....ture". Consequently, "goodwill" is an asset under Explanation 3(b) to section 32(1) of the Act and is accordingly eligible for depreciation. 20. Here we note that the above decisions are applicable for depreciation on goodwill and similar intangible assets which have been purchased. The customer contract is reflected in page No. 81 of the paper book extracted above is a fair value done by valuer. We note that it is the claim of learned counsel that goodwill arising out of slump sale agreement and customer contract which are akin to the goodwill being an intangible asset are also eligible for depreciation. Although we find that there is no dispute now that goodwill is eligible for depreciation. It will be pertinent to remember here that goodwill has arisen pursuant to slump sale agreement wherein the assessee has acquired assets, on a purchase consideration of Rs. 7,60,5,07,000/-. In the case of Areva T&D India Ltd. Vs. CIT in ITA No. 315/2010 and others, Hon'ble High Court has held that excess amount paid over and above tangible asset for acquisition of various business and commercial rights and slump sale can be categorised under the goodwill and difference between purchase....