2019 (10) TMI 1519

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....hased Imidachlorpid business on slump sale basis from Mitsu Industries for Rs.27,50,38,000/- during the year under consideration which inter-alia included land cost at Rs.1,82,05,643/-, building value at Rs.7,50,36,771/-, manufacturing and process know how Rs.16,18,00,600/- , Registration and commercial rights of Rs.1,83,14,986/- and others of Rs.16,80,000/-. As against this the value in books was at Rs.7,19,85,974/- . Therefore, the assessee company was asked to explain the basis for ascribing to each of the assets acquired by it since the value of assets in the books of Mitsu Industries was only Rs.7,19,85,974/-. It was explained that the Mitsu industries is not related party under section 40A(2)(b) of the Act and the assessee has acquired profit earning apparatus from Mitsu Industries Ltd. which cannot be based on book value of tangible assets debited in the books of seller. The assessee company has acquired international product registration as well as domestic registration approval and license and manufacturing and process of know-how, intellectual properties and other intangible assets such as commercial rights, registration and license for which composite consideration has b....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... under consideration. As per the Business Transfer Agreement, the assets following part included: Particulars Book value in Mitsu Ltd. Imidacloprid Business Value 1. Land 56,78,283 1,82,05,643 2. Building 6,38,80,263 7,50,36,771 3. Architects Fees 22,69,000   4. Manufacturing and process Know How   16,18,00,600 5. Registration and commercial rights.   1,83,14,986 6. Others 1,58,428 16,80,000 Total 7,19,85,974 27,50,38,000 116. The assessee company was asked to explain the basis for ascribing to each of the assets acquired by it since the value of assets in the books of Mitsu Industries was only Rs. 7,19,85,974. It was explained that the Mitsu industries are not a related party under section 40A(2)(b) of the Act and the assessee has acquired profit earning apparatus from Mitsu Industries Ltd. which cannot be based on book value of tangible assets debited in the books of seller. The assessee company has acquired international product registration as well as domestic registration approval and license and manufacturing and process of know-how, intellectual properties and other intangible ass....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....PRID Business means the Manufacturing rights, Marketing Rights, other commercial rights, Intellectual properties and Assets of the sellers relating to development, manufacture, registration, use, sale marketing and distribution of the product". 117. Thus, we are of the view that the lump-sum consideration was for all rights such as manufacturing rights, marketing rights, other commercial rights, intellectual properties and other assets of the seller relating to development, manufacturing process, registration, use, sale marketing and distribution of products apart from tangible assets such as Land, Building and other assets. We further note that M/s. Mitsu Limited was not a related concerns as per the provision of Section 40(A)(2)(b) of the Income-tax Act, 1961 as the point of sales. The learned counsel submitted that assets acquired under slump sale were capitalized in books of account as per generally accepted accounting principles in a slump sale several assets are purchased for a consolidated price and price is paid for the entire business as a whole. Hence, value to individual assets cannot be assigned directly. The valuation of intangible assets and marketing rights ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ave a non defaulting containing and continuing member a right to access the exchange and to participate therein ns in that sense it was a license or akin to a license in terms of section 32(1)(ii). Such right vested in the exchange only on default /demise in terms of Rules and Bye Laws of the BSE, as they stood at the relevant time. However, it should not be understood to mean that every 'business or commercial right' would constitute a license or a franchise in terms of section 32(1)(ii)of the Act. Further reliance is placed in the case of M/s. Trio Elevators Company (India ) Ltd. v. ACIT Circle 8 Ahmedabad [2016] 67 taxmann.com 348 (Ahmedabad -Trib) wherein it was held that admissibility of depreciation of trademark is not contingent upon its registration in the name of the assessee inasmuch as description of intangible assets is Part -B of depreciation schedule describe the same merely of 'know-how' 'patents' copyright , trademark licenses franchises or any other business or commercial rights of similar nature. Further the Hon`ble Jurisdictional High Court of Gujarat in the case of Pr. CIT v. Swastik Industries [2016] 68 taxmann.com 329 (Gujarat) held that payment of compensatio....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... assessee that the AO and Ld. CIT (A) were not justified is disallowing depreciation claimed by the appellant company to the tune of Rs.2,25,14,448 on intangible assets and Rs. 2,29,30,000 on marketing rights purchased by the assessee company. The AO is, therefore, directed to allow depreciation on intangible assets ns marketing rights as claimed by the assessee. In view of these facts and circumstances, the grounds of appeal no. 16 to 19 of the appeal are, therefore, allowed." 8. In view of the above, we find that the issue is covered in favour of the assesse by order of this bench as mentioned above, which has also been upheld by the Hon'ble Gujarat High Court in Tax Appeal No.166 of 2019 dated 22.04.2019, therefore respectfully following the decision of the Hon'ble High Court the above ground is allowed in favour of the assessee. 9. Ground No.4 is against confirming the action of the A.O. in reallocating the personal expenses of Rs.1,46,40,623/- foreign travelling expenses of Rs.8,74,176/-, staff welfare expenses of Rs.81,14,448/-, Oil and Petrol expenses of Rs.15,73,169/- and other common expenses of Rs.37,34,274/-between Bilag unit and BEOU in the turnover ratio. 10. ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....es, and other common expenses. 12. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee submitted that in respect of personal expenses, foreign travelling expenses, staff welfare, oil petrol expenses and other common expenses the tribunal has restricted the allocation to 10% and considered as fair in I.T.A.No. 2446&2584/AHD/2007 for the assessment year 2004-05 dated 28.06.2018 and in A.Y. 2005-06 in ITA No.1486 & 1366/Ahd/2010 dated 27.08.2019. However, the Assessee itself has allocated expenses to 17.96% in respect of personal, foreign travel, staff welfare and oil petrol expenses, hence the addition may be deleted. With regard to other common expenses the Assessing Officer may be directed to restrict the allocation to 10% as per finding of the Tribunal in earlier year. 13. We have heard the rival submissions and perused the relevant material on record. We find that turnover ratio of BEOU is 35.89% as compared to Bilag unit at 64.11%. However, the tribunal in the case of the assessee has restricted the allocation to 10% in assessment year 2004-05 in ITA No.2446 & 2584/Ahd/2007 and in A.Y.2005-06. Therefore, following the c....