TaxTMI 
TaxTMI 
2018 (5) TMI 2076
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....M/s.Mtandt Ltd, through a scheme of demerger approved by Hon'ble Jurisdictional High Court on 19th October, 2012 with effective date 1st January, 2012, had hived off one of its division engaged in rental of equipment, to the assessee company. M/s.Mtandt Ltd had three segments of business, depicted hereunder:- (a) Sale of tools, equipments and safety products (b) Sale of access machines and equipments; and (c) Rental of access equipments (hereinafter referred to as the ''Demerged undertaking'' or ''Rental Division'' or ''Renal Division Undertaking'') Through the scheme of demerger, the third segment of business was transferred to the assessee company. Net worth of the rental division of M/s. Mtandt ltd as on 31.12.2011 was Rs. 11....
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.... 10 each. Hence the ratio of allotment of the shares to the share holders of M/s. Mtandt Ltd was 1,13,25,515: 12,00,000. This came to 9.43: 1. In other words the assessee company had to issue 9.43 equity shares for every equity share held by the shareholders M/s. Mtandt Ltd in M/s. Mtandt Ltd. Since 9.43 had a decimal, assessee company allotted 10 fully paid up equity shares for each share held by shareholders of M/s. Mtandt Ltd in M/s. Mtandt Ltd. Thus, the value of the shares allotted came to Rs. 12 Crores, against value of Rs. 11,04,23,771/- of the rental division taken over. Balance sum of Rs. 95,76,229/- was treated by the assessee as goodwill. Depreciation claimed by the assessee on such goodwill for assessment year 2013-14 was allowe....
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....id for acquiring the goodwill. The amount of goodwill taken into the books of the demerged assessee company is merely an adjustment entry between the asset value and value of share allotment. To this extent, the depreciation amount is an artificially created amount without any basis or without the assessee company having to pay for it. The goodwill amount could as well have been Rs. 1.95 Crores or at Rs. 8.95 Crores if one were to consider value of share allotment at Rs. 13 Crores or Rs. 20 Crores respectively. The depreciation allowed goes to reduce the taxable profits of the assessee for the year. The depreciation is a real figure. However, the goodwill arrived at is an artificial figure arrived at during the process of demerger of the la....
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....unting entries did not give a right to the assessee to claim depreciation on goodwill (intangible asset). Chowgule & Co. P. Ltd. Vs ACIT (ITAT, Panaji) 9 ITR (Trib) 21; 131 IT 545 Assets of firm taken over by assessee company - Assets revalued and depreciation claimed on enhanced value - Not allowed. CIT vs. Poulose and Mathen (Pvt) Lte (Ker) 236 ITR 416. If circumstances exist showing that a fictitious price has been put on the asst or there is collusion between the vendor and assessee and there has been inflation/ deflation of value for ulterior purposes, it is open to ITO to reject and ascertain the actual cost. JCIT Vs Mahindra Sona Lod. (ITA T, Mum) 96 ITD 303, Giizdar Kajora Coal Mines Ltd. Vs CIT (Supreme Court) 85 ITR 599 Depr....
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....ble High Courts of Bombay and Calcutta) with retrospective effect from 1st April, 1998, assets and liabilities of YSN Shares and Securities (P.) Ltd. were transferred to and vest in the company. In the process goodwill has arisen in the books of the company." 7. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities P. Ltd. (amalgamating company) should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the amalgamating company was enjoying in order to retain its existing clientele. 8. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 t....
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....) has come to the conclusion that the authorised representatives had filed copies of the orders of the High Court ordering amalgamation of the above two companies ; that the assets and liabilities of M/s. YSN Shares and Securities P. Ltd. were transferred to the assessee for a consideration ; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assesseecompany stood increased. This finding has also been upheld by the Income-tax Appellate Tribunal ("the ITAT", for short). We see no reason to interfere with the factual finding. 13. One more aspect whi....