TaxTMI 
TaxTMI 
2021 (3) TMI 919
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....ecord and relying upon decisions which are distinguishable on facts. 3. That on facts and in circumstances of the case and in law, Ld. CIT(A) and Ld. AO has erred in disregarding material placed on record, submissions including various agreements and proceeded to deny Appellant' s legitimate claims on mere suspicions, conjectures and surmises. 4. That Ld. CIT(A) erred in dismissing appeal without considering various intangible assets acquired by Appellant under Business Transfer Agreement ("BTA") and their apparent financial benefits to Appellant in early years of its operations. 5. That Ld. CIT(A) has erred in not appreciating that gain arising to transferor company under BTA amounting to Rs. 107 .82 crores has already been offered to tax and amount of Rs. 24 .43 crores has already been discharged as tax liability for AY 2015 - 16 by transferor company, which fact has not also been disputed by either of lower authorities. 6. That on facts and in circumstances of the case and in law, Ld. CIT(A) and Ld. AO has erred in not following decisions of Hon' ble Courts and granting relief as prayed. 7. The Ld. AO has erred on facts and in law in proposing to levy interest under se....
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....gally bounded to pay the consideration. 8. Before the AO, the assessee filed, the "Business purchase agreement" dated 24 .09.2014 as executed between M/s Tide water oil Company (India) Limited, assessee company and M/s JX Nippon Oil & Energy corporation (JX NOE). After perusal of the business transfer agreement, the AO noted the following points: a. Under the business transfer agreement the assessee, M/ s Tide water oil Company (India) Limited and M/ s JX Nippon Oil & Energy corporation (Japan) are the parties to the agreement. b. M/s Tide water oil Company (India) Limited is being a transferor and assessee company is the transferee company to the contract pursuant to which the transferor intend to sell the business undertaking on a slump sale under section 2 (42C) of the act to reorganize the SF oils Business at the total consideration for the amount of Rs. 108 crore. c. The agreement further stated that the assessee shall enter into the technical assistance agreement with JX NOE pursuant to which the JX NOE shall grant to the transferee a royalty bearing the right and license to use JX NOE technology, knowhow and trademarks to manufacturing) including though toll manufactu....
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....WO" and pointed out the following facts in the agreement: i. The assessee shall have the exclusive right to supply the lubricant oils for automobile, agricultural machine and construction machinery within India to Japanese and Korean OEMs listed in annexure of the JV agreement. ii. The assessee is responsible for defining the strategy with respect to the SF oils Business within this arrangement. iii. The transferor desired to use the technology, trademarks and trade names and intellectual property and avail itself of the strategic services and marketing and sales support function in conducting the SF oils business in the territory and assessee is willing to grant the franchisee to the transferor to conduct the SF oils business using the aforesaid intellectual property. iv. The franchisee agreement contain the non-exclusive sublicense grants clause under which the assessee company grants transferor company a non-exclusive and non- transferable license to service the customers in relation to the SF oils business in the territory. 13. The Assessing Officer referred to the business transfer agreement and the franchisee agreement and drew the following conclusions: a. The ass....
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....ment (EBS) to the assessee and observed that the Eneos brand was in fact owned by JX NOE, Japan since its incorporation. The Assessing Officer also referred to the valuation report provided by the assessee and pointed out that the valuation report did not contain any analogy regarding the commercial rights which "Two" who was having. The Assessing Officer pointed out that the assessee did not purchase or acquire any rights under the agreement and in fact the agreement between the assessee and Two would cease to exist once JX NOE cancels the license of intellectual property in terms of Eneos as in that case "Two" would not be able to manufacture and market the product. The Assessing Officer observed that the assessee did not bring any cogent material apart from the business purchase agreement to show that any intangible benefit on account of this agreement. The Assessing Officer referred to the valuation report filed by the assessee and pointed out that there was no reference with regard to the determination intangible asset in the valuation report. There was no material to support any valuation of intangibles acquired by the assessee. The Assessing Officer referred to the decision ....
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....arious clauses of business transfer agreement which are as under: * TWO shall transfer the Business undertaking relating to sale of FF and SF oil to OEMs namely 'Eneos business segment' by way of 'Slump sale' (as defined u/s 2 (42C) of the Act) for consideration of INR 108 crores. * TWO shall transfer to the assessee all its business relationships with the OEMs as mentioned above relating to supply of FF oils to such OEMs. Also, TWO and the assessee would enter into a separate agreement namely "Manufacturing Agreement" whereby TWO has agreed to act as a toll manufacturer of FF oils. TWO shall have no responsibility to provide any services or assume any liability in relation to the supply of FF Oils to OEMs. * TWO shall transfer to Assessee certain assets exclusively used for the "Eneos business segment'. These assets only includes storage tank installed at Honda car premises. Thus the only asset transferred was a Storage tank installed at Honda car premises. * As a part of BTA, TWO and the Assessee entered into a "Franchise Agreement" whereby TWO has agreed to be appointed as industrial franchisee of the Assessee in respect of the SF Oils Business. Thus, TWO will be manufac....
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....Tokyo Stock Exchange. JXTG group offers petroleum products and services throughout the world. Through partnerships with world class customers, JX NOE produces technologically advanced motor oils and transmission fluids that reduce carbon emissions, improve fuel economy and reduce wear on critical components. ENEOS is the brand name for products manufactured and sold by JX NOE, the largest oil company in Japan. ENEOS products are the high quality lubricants available in the marketplace today. 19. Over the period, TWO entered into agreements with various two wheelers automobile companies as well as certain non-automotive clients (OEMs). Pursuant to these agreements, OEMs have granted to TWO, right and license to use certain trademarks and other related intellectual property of such OEMs in connection with the manufacturing, marketing, distributing and/or selling the Eneas Oil. The lists of clients being served by TWO were as under: * Honda Motorcycle & Scooter India Private Limited * Hero Moto Corp Limited * Honda Siel Power Products Limited * India Yamaha Motor Private Limited * Honda Siel Cars India Limited * Kobelco Construction Equipment India Private Limited *....
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....o be appointed as industrial franchisee of the Assessee in respect of the SF Oils Business Thus, TWO will be manufacturing SF Oils and provide warehouse & logistics, sales, invoicing, accounting & collection for the SF Oils business. * TWO shall also distribute and sell such SF Oils using its sales and distribution network and sales and distribution network of OEMs. Assessee would undertake the marketing activities relating to SF oils and provide TWO with certain strategic support and services in relation to undertaking of the SFs Oils Business. * Thus, by virtue of the above agreements assessee has been able to take care of the manufacturing as well marketing activities as part of the BTA. Had TWO not agreed for the above functions it was impossible for the assessee to earn profit from day one. In a competitive market the assessee would have incurred losses for first few years to make an entry into a new segment, develop its reputation and brand. Thus, the assessee has got a huge benefit in terms of theBTA. * TWO shall doing the same on a "risk neutral" basis in accordance with manufacturing and distribution plans prepared by the Assessee in consultation with TWO, Assessee s....
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.... Ltd. (a listed company) is excess and if so whether the goodwill raised by the assessee in the books of accounts over and above the value of the net asset obtained out of such agreement is correct as per the accounting standard and if so whether such goodwill raised is eligible for depreciation u/s 32(1)(ii) of the I.T. Act" 29. With regard to the amount paid by the assessee for BTA, we have gone through the valuation report. Valuation of the TWO-EBS: 30. We have gone through the report of the PWC dated 14.07.2014 which went through the value analysis by taking into consideration where average cost of the capital and financial performance of the EBS. The "TWO" holding structure consists of 26 % of the company "Andrew Yule & Co. Ltd." as promoter, institutional public share holding at 14% and non- institutional public shareholding of the remaining 60%. The company is l isted in BSE and NSE and for the purpose of the case manufactures and markets lubricants under the brand " Eneos". The "TWO" has marketing and distribution network of 100 distributors, 300 dealers and 20000 sub-dealers across India. The brand was established in 2001 and owned by JX and OE which are sold by the com....
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....d customer loyalty. Business goodwill is an intangible asset that adds value to a company. Factors such as proprietary or intellectual property and brand recognition are reflected in goodwill. While goodwill is not easily quantifiable, it is calculated by subtracting the difference between the fair market value of a company's assets and liabilities from its purchase price. Companies must record the value of goodwill on their financial statements and record any impairment. 34. The presence of goodwill implies that a company's value is greater than its combined raw assets. The effect of goodwill on a company's value is better understood by learning the factors that create business goodwill. The three factors in the creation of a company's goodwill include its going concern value, excess business income, and the expectation of future economic benefits. 1. The going concern value indicates that the company can produce income by applying existing capital (equipment, employees, management, and resources) effectively. 2. The excess business income implies that a company is earning additional income due to the presence of its goodwill. 3. The overall value further in....
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....c) not shown in the balance sheet of the society (d) not falling within the purview of Sec.32 . 41. In this regard, it is relevant to understand what constitutes goodwill. The Hon' ble High Court of Delhi in the case of Areva T& D India Ltd. &Ors. Vs. DCIT (345 ITR 421) has discussed the nature of goodwill and the relevant discussion is extracted as under: 42. In this regard, it would not be out of place to refer to the decision in CIT Vs B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) wherein the concept of goodwill has been understood in the following terms: "Goodwill denotes the benefit arising from connection and reputation. The original definition by Lord Eldon in Cruttwell v. Lye [1810] 17 Ves 335 that goodwill was nothing more than "the probability that the old customers would resort to the old places" was expanded by Wood V.C. in Churton v. Douglas [1859] John 174 to encompass every positive advantage 'that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business'. In Trego v. Hunt ....
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....ard, it is relevant to refer to the discussion of the Hon'ble Apex Court on the issue whether goodwill is an asset within the meaning of Sec. 32 of the I.T. Act. The Hon'ble Apex Court in the case of CIT Vs. Smifs Securities 348 ITR 302 discussed as under: Question No. [b] "Whether goodwill is an asset within the meaning of Section 32 of the Income Tax Act, 1961 and whether depreciation on "goodwill" is allowable under the said Section:" Answer: In the present case, the assesse had claimed the deduction of Rs. 54 ,85 ,430/- as depreciation on goodwill. In the course of hearing, the explanation regarding origin of such goodwill was given as under: "In accordance with Scheme of Amalgamation of YSN Shares & Securities (P) Ltd with Smifs Securities Ltd (duly sanctioned by Hon' ble High Courts of Bombay and Calcutta) with retrospective effect from 1 st April, 1998, assets and liabilities of YSN Shares & Securities (P) Ltd were transferred to and vest in the company. In the process goodwill has arisen in the books of the company." 46. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Priva....
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....ee- Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal. We see no reason to interfere with the factual finding". 50. In the instant case ,the revenue has taken the view that the impugned intangible rights do not fall within the purview of any of the clauses of Sec.32(1) and is not in the 'nature of commercial or business right' so as to be eligible to claim deprecation u/s 32. 51. In this regard, it is relevant to refer to the decision of the Hon' ble ITAT, Hyderabad bench in the case of M/ s SKS Micro Finance Ltd. 52. The facts in that case are that the assessee company acquired the micro finance business from the society Swayamkrishisangam and has paid Rs. 3 .97 crores towards customer costs, one time reimbursement of Rs. 82 lakh towards cost of Internal control systems, computer software and towards corporate, services including strategic planning, market survey, introduction of new products, impact assessment etc. The AO therein took the view that the client acquisition cost of Rs. 3 .97 crores would not be eligible for depreciation as it is not in the nature of intangible asset or in the nature of commercial business rights. The Ld. ....