TaxTMI 
TaxTMI 
2023 (5) TMI 1209
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....and served on the assessee to which the AR of the assessee appeared before the Assessing Officer from time to time and filed the requisite details. 3. During the course of assessment proceedings, the Assessing Officer noted that Kewill India Pvt. Ltd (herein after referred to as Kewill India) formerly known as Transport IT Solutions Pvt. Ltd. (IPL) was incorporated on 31.07.2013 as a wholly owned subsidiary of Kewill Limited headquartered in UK and ultimately owned by fransico partners, a US based private equity. Kewill India is primarily engaged in provision of software development services and distribution of software products of parent company. 4. He noted that during the year under consideration the assessee company Kewill India entered into a business acquisition agreement to acquire the business of Four Soft Limited (herein after referred to as Four Soft) as a going concern on a slump sale basis for a consideration of Rs.113,53,42,477/- and the acquisition was completed on 4th October 2013. The transaction was accounted as a business acquisition and purchase consideration was allocated to tangible, intangible assets and liabilities at fair value as determined by an inde....
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....goodwill". Relying on various decisions, it was submitted that goodwill could be classified as an intangible asset. It was submitted that in the instant case also, Kewill India acquired Four Soft Limited's business pursuant to a business transfer agreement. The consideration paid in excess of the book value of the assets acquired represents the additional benefits accrued to Kewill India in the form of technical knowledge, designs, and other information available with Four Soft Limited, right to documents, business correspondence of business taken over and the right to enjoy all the advantages of established business of Four Soft Limited. Thus, the consideration paid in excess of the book value of the assets acquired inter alia consists of the attributes of goodwill. Accordingly, it was submitted that goodwill acquired by Kewill India pursuant to business transfer agreement is an "intangible asset" and is eligible for depreciation. Relying on the decision of the Hon'ble Supreme Court in the case of SMIFS Securities Ltd, it was argued that goodwill is an intangible asset and depreciation on goodwill is allowable. The assessee also relied on various other decisions to support....
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....ce figure. He noted that the assessee in the instant case has acquired intellectual property (eproducts) of Rs. 62,40,77,295/- and other assets of Rs. 8,11,32,473/- totaling net assets Rs.70,52,09, 768/- vide acquisition agreement dated 10.8.2013. Subsequently the assessee has transferred the intangible assets of Rs.62,40,77,295/-to its holding company Kewill UK at book value. He noted that intangible assets form around 90% of total assets acquired from company Four soft Ltd. The assessee company has transferred valuable underlying asset to the holding company and has retained assets worth Rs.8,11,32,473/- only. Therefore, the assessee has transferred the valuable assets and retained only the balancing figure in the asset schedule and claiming it as Goodwill. According to him, when the underlying asset itself is not available with the assessee then the question of existence of Goodwill doesn't arise in the instant case. Further since the holding company Kewill UK has acquired the asset to which Goodwill, if any, is attached then depreciation on Goodwill should be allowed, if applicable, in the hands of the holding company only and not to the assessee. 12. So far as assessee&....
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....s of the case and in law, the CIT(A) is correct in allowing the deprecation on so called good will when the underlying valuable asset (e products) itself is transferred to the holding company and the assessee is left with no valuable asset?. 3. "Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in placing reliance on the decision of the Hon'ble Supreme Court in the case of CIT Vs Smifs Securities Ltd?" 4. Any other ground that may be urged during the course of appellate proceedings. " 15. The learned DR while strongly supporting the order of the Assessing Officer opposed the order of the learned CIT (A) in deleting the disallowance of depreciation on goodwill. He submitted that the business acquisition agreement dated 24.10.2013 to acquire the business of Four Soft Ltd as a going concern on a slump sale basis was for a consideration of Rs.113.53 crores. The assessee has considered the excess of purchase consideration over the fair value of the net assets acquired as Goodwill of Rs.43.01 crores and accordingly claimed depreciation proportionately on the goodwill. However, there was no asset of goodwill in the hands of the t....
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....y BluJay Solutions Limited, UK ("Parent entity"), the Appellant i.e., Kewill India Pvt Ltd ("Buyer") would have paid a consideration of INR 51,12,65,182 (Net assets of INR 8,11,32,472 and Goodwill of INR 43,01,32,710) to Four Soft India. Therefore, the Goodwill amount of INR 43,01,32,710 paid by Kewill India Pvt Ltd ("Buyer") to Four Soft India ("Seller") would have been the same. 19. The learned Counsel for the assessee referring to the Business Transfer Agreement submitted that Goodwill is not dependent on the Intellectual Property that is purchased by Appellant from Seller and sold to its Parent entity. Goodwill is the excess consideration paid and negotiation by the Appellant with the Seller for acquiring its business which has awarded the assessee with the following rights: a) Right to take over employees; b) Right to use technical knowledge, designs and other information available with Four Soft Limited; c) Rights to documents and business correspondence of business taken over; and d) Right to enjoy all advantages of established trade. 20. He submitted that the assessee has reduced the value of sale consideration of the Intellectual P....
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....s. CLC & Sons (P) Ltd vs. ACIT in ITA No.1976/Del/2006. 8) Hyderabad Bench of the ITAT in Mylan Laboratories Ltd vs. Dy.CIT in ITA No.2335/Hyd/2018. 9) Hyderabad Bench of the ITAT in Dr. Reddy's Laboratories Ltd vs. Add.CIT in ITA nos.2229/Hyd/2011 & 85/Hyd/2013. 10) Hyderabad Bench of the ITAT Apna Incable Broad Band Services (P) Ltd vs. Dy.CIT in ITA 800/Hyd/2016. 11) Dy.CIT vs. Zydus Wellness Ltd (ITA 1959/Ahd/2013) 12) ACIT vs. Dorma India (P) Ltd (ITA Nos.1664 to 1666/ Chny/2019 13) India Capital Markets (P) Ltd vs. DCIT (ITA No.2948/Mum/2010) 14) Skyline Caters (P) Ltd vs. Income Tax Officer (ITA 2965/Mum/2007) 15) Tam Media Research (P) Ltd vs. Income Tax Officer (ITA 6035/Mum/2009) 16) Dy.CIT vs. Toyo Engg. India Ltd (ITA 3279/Mum/2008) 17) Johnson Mathey Chemicals India (P) Ltd vs. Dy.CIT in ITA No.1507/PUN/2012. 18) CIT vs. RFCL Ltd (ITA 4, 12, 13 & 15 of 2014) Himachal Pradesh. 19) ITAT Delhi in Continental Device India Ltd vs. ACIUT (2015) 63 Taxmann.com 364 (Del.) 20) Hon'ble Kerala High Court in the case of B. Raveendran Pillai vs. CIT (ITA 1741 of ....
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....essee are in the form of business commercial rights and are eligible for claim of depreciation. It is also his submission that even if the Intellectual Property of INR 62,40,77,295 Four Soft Ltd (Seller) is acquired directly by Blujay Solutions Ltd, UK (parent entity), the assessee i.e. Blujay Solutions India (P) Ltd (Buyer) would have paid a consideration of INR 51,12,65,182 (net assets of INR 8,11,32,472 and goodwill of INR 43,01,32,710 to Four Soft India. Therefore, the goodwill amount of INR 43,01,32,710 paid by Blujay Solutions India (P) Ltd (buyer) to Four Soft India (seller) would have been the same. 26. We find some force in the above arguments of the learned Counsel for the assessee. We find Blujay India acquired the business of Four Soft on slump sale basis through a Business Transfer Agreement. A perusal of the business transfer agreement, copy of which is placed at page 149 of the Paper Book filed by the Revenue shows that as per clause 6.2.2. the above acquisition has constituted transfer of entire business of Four Soft consisting of the following: 1. All the business assets 2. All the Business Contracts as on the date of acquisition 3. Ex....
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.... business permits, policies, readymade business etc., We further find the transfer of IP to UK was on back-to-back basis without any capital gains and the assessee has not claimed any depreciation on the IP transferred during the year. 30. In view of the above, we find merit in the argument of the learned Counsel for the assessee that the net balance of purchase consideration paid, and the value of net assets acquired is Goodwill and the transfer of IP to BluJay UK cannot affect the value of goodwill as the Goodwill is rightly attributed to all the assets acquired from Four Soft and benefits accrued to BluJay India. Once the existence of Goodwill is established, Depreciation on such goodwill cannot be questioned further. 31. We find an identical issue had come up before the Tribunal in the case of M/s. Avis Hospitals India Ltd vs. ACIT in ITA No.1390/Hyd/2019 order dated 27.06.2022 and the Tribunal has allowed the claim of depreciation on goodwill by observing as under: 13. We have considered the rival arguments made by both the sides, perused the orders of the AO and ld.CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various de....
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....a factual finding. The Commissioner of Income Tax(Appeals)['CIT', for short] has come to the conclusion that the authorized 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 Private Limited 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 assessee-Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal['ITAT', for short]. We see no reason to interfere with the factual finding. 7. One more aspect which needs to be mentioned is that, against the decision of ITAT, the Revenue had preferred an appeal to the High court in which it had raised only the question as to whether goodwill is an asset under section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove. ....
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....ision of the Supreme Court in the case of Goetze (India) Ltd vs. Commissioner of Income-tax (supra) is confined to the powers of the assessing officer and accepting a claim without revised return. This is what Supreme Court observed in the said judgment while distinguishing the judgment in the case of National Thermal Power Co. Ltd. vs. Commissioner of Income-tax (supra) and that is how various High Courts have viewed the dictum of the decision in the case of Goetze (India) Ltd. vs. Commissioner of Income-tax (supra). When it comes to the power of Appellate Commissioner or the Tribunal, the Courts have recognized their jurisdiction to entertain a new ground or a legal contention. A ground would have a reference to an argument touching a question of fact or a question of law or mixed question of law or facts. A legal contention would ordinarily be a pure question of law without raising any dispute about the facts. Not only such additional ground or contention, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the first time though not made before the assessing officer. Income Tax proceedings are no....
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....ies. The difference in the purchase consideration and the net value of assets and liabilities is attributable to the commercial benefit that is acquired by the purchaser. Such goodwill is also commonly understood as the value of the whole undertaking less the sum total of its parts. The 'Financial Reporting Standard 10' issued by Accounting Standard Board which is applicable in United Kingdom and by Institute of Chartered Accountants of Ireland in respect of its application in the Republic of Ireland, explains that "the accounting requirements for goodwill reflect the view that goodwill arising on an acquisition is neither an asset like other assets nor an immediate loss in value. Rather, it forms the bridge between the cost of an investment shown as an asset in the acquirer's own financial statements and the values attributed to the acquired assets and liabilities in the consolidated financial statements". 16. The abovementioned Financial Reporting Standard 10 also provides for accounting of purchased goodwill as "the difference between the cost of an acquired entity and the aggregate of the fair values of that entity's identifiable assets and liabilities.....
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....tangible assets, which a person acquires, on acquiring a business as a going concern and valuing the same at the excess consideration paid over and above the value of net tangible assets is an acceptable accounting practice. Thus, a further exercise to value the goodwill is not warranted. 21. In view of the aforesaid, the question framed is answered in the negative, that is, in favour of the Assessee and against the Revenue. The Assessee's appeal (ITA 40/2015) is, accordingly, allowed. 17. So far as the decision relied on by the ld.CIT-DR in the case of Signode India Ltd.(supra) is concerned, the same in our opinion is distinguishable and not applicable to the facts of the present case. In that case, the Tribunal while rejecting the claim of depreciation on goodwill has given certain observations, which are not present in the instant case. The Tribunal in the said case has reproduced the valuation made by an independent valuer, who have given their report based on the information provided by the client and have not independently verified or checked the accuracy or timeliness of the same as per para 7.4 of the order. Similarly, the Tribunal at para 7.13 of the ....