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2023 (9) TMI 1439
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....32(1) of the Act on goodwill recognized pursuant to amalgamation sanctioned by Hon'ble High Court of Gujarat and also in rejecting the appellant's reliance on various judicial precedents including that of Hon'ble Supreme Court, Jurisdictional Gujarat High Court and Jurisdictional ITAT, wherein it has been held that goodwill is a depreciable asset under Explanation 3(b) to section 32(1) of the Act. It is therefore prayed that depreciation on goodwill may kindly be granted. 2. The Id. CIT(A) has erred in facts and circumstances of the case and in law, the Id. AO has erred in passing the assessment order in the name of KIFS International Private Limited ('KIPL') which was a non-existent entity as on the date of passing the assessment order. The Id. CIT(A) rejected Appellant's reliance on various judicial precedents including that of Hon'ble Supreme Court, Jurisdictional Gujarat High Court and Jurisdictional ITAT. Assessment Order passed by Ld. AO as well as Appellate Order passed by CIT(A) of non-existing entity is bad in law and liable to be quashed. 3. Your appellant craves liberty to add, to alter, to modify, to amend or to withdraw / d....
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....eration was subject to scrutiny assessment under section 143(3) of the Act. The AO framed the assessment order dated 30th December 2018 under section 143(3) of the Act in the name of the erstwhile company namely M/s KIFS International Pvt. Ltd. 5. The Ld. AR before us has filed two paper books. One paper book, containing documents filed before the lower authorities, running from pages 1 to 488 and other legal paper book running from pages 1 to 54, besides the chart of 7 pages containing the line of arguments. The ld. AR has challenged the validity of the assessment order framed by the AO under section 143(3) of the Act dated 30th December 2018 on the reasoning that it was framed in the name of erstwhile company which was a non-existent entity at that point of time. It was also pointed out by the learned AR that the fact about the conversion of the status of the assessee from private limited company to LLP was very much known to the AO which is evident from the assessment order. 6. On the other hand, the Ld. DR has strongly objected the ground of appeal of assessee on the reasoning that the assessee filed its original and revised return of income in the name of the erstwhile c....
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....ent has been framed by the AO in the name of amalgamating company which ceased to exist and not in the name of the amalgamated company which eventually converted to LLP. 8.2 The Hon'ble Supreme Court observed and agreed in the case PCIT Vs. Maruti Suzuki India Limited reported in 416 ITR 613 to the ratio laid down in Saraswati Industrial Syndicate Ltd. v. CIT [1990] 53 Taxman 92/186 ITR 278 (SC), wherein the Hon'ble Apex court observed that once the amalgamation is sanctioned, the amalgamating company is dissolved without winding up, in terms of Section 394 of the Companies Act, 1956. The amalgamating company ceases to exist in the eyes of law, thus becoming non-existent. Since it does not exist in the eyes of law, it cannot be regarded as a 'person' (under Section 2(31) of The Act) against whom assessment proceedings can be initiated or an order passed. Therefore, the assessing officer does not have jurisdiction to issue such notice or pass any order against a non-existent entity. The rationale can also be applied to a dead individual. Since a deceased would not be considered as a 'person' under The Act, thus any such notice/order issued in that name will be....
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....be created only by fulfilment of the condition precedent as in the present case. Therefore, no question of finality of the remand order could ever arise in the present context, if the mandatory conditions for founding jurisdiction for initiating reassessment proceeding were absent. 8.4 Thus, the mistake committed by the assessee does not empower the Revenue to also commit the same mistake especially in a situation where the fact about the scheme of amalgamation and conversion of the assessee into LLP was known by the AO which is evident from the assessment order. In other words, the department was aware of the complete fact that the company was no longer in existence, yet the AO has framed the assessment in the name of non-existing company. Therefore, in the given facts and circumstances, the contention of the learned DR fails on this count that the assessee has also made a mistake in filing the returns of income and appeal papers in the name of non-existing company. 8.5 We also note that this Tribunal in case of Urmin marketing (P) Ltd. Vs. DCIT reported in 122 taxmann.com 40 has already decided the identical issue in favor of assessee on the similar facts and circumstances.....
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....ly shares in the ratio of 500:1 issued which are of Rs. 123.50/- per share (face value Rs. 10/- and share premium Rs. 113.5/- per share). 3.3. It is seen from the Balance Sheet as on 31-3-2015, (Fixed Assets) that during the year under consideration the assessee has created goodwill of Rs. 468,73,56,913/- in the books of accounts by virtue of amalgamation of M/s Unicorn Packers (P.) Ltd. (UPPL) (hereinafter called as UPPL or Transferor Company) with Urmin Marketing (P.) Ltd. (UMPL or Transferee Company). The excess consideration discharged by UMPL, over book value of UPPL Transferor Company, was recorded as goodwill in the books of UPPL, Transferee Company. In terms of the scheme, All the assets of UPPL transferred to and vested in UMPL pursuant to the Scheme have been recorded at the book value and all the liabilities of UPPL transferred to and vested in UMPL pursuant to the Scheme have been recorded at the book value. The difference of Rs. 4,68,73,56,913/- between net value of assets over consideration has been debited to goodwill account in the books of the company." 10. The AO vide letter dated 25-1-2017 bearing No. ITO/Wd.4(1)(4)/AHD/Advance Tax/2016-17 has a....
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....of 70% and 30%. Such joint venture was incorporated as Suzuki Motor India Ltd. Subsequently w.e.f. 8th June 2005 its name was changed to SPIL. On 28th November 2012 SPIL has filed its return of income. Upto this date no amalgamation had taken place. On 29th January 2013 a scheme for amalgamation of SPIL and MSIL was approved by the Hon'ble High Court w.e.f. 1st April 2012. The terms of approval scheme provided that all liability and duties of the transferor company shall stand transferred to the transferee company. On scheme being coming into effect, the transferor company was to stand dissolved without winding up. The scheme stipulated that the order of amalgamation will not be construed as an order granted exemption from the payment of stamp duty or taxes, or any other charges, if any payable in accordance with law. The AO has initiated the assessment proceedings by issuance of notice under section 143(2) on 26th September 2013 followed by a notice under section 142(1) of the Act to the amalgamating company. MSIL participated in the assessment proceedings of erstwhile amalgamating entity i.e. SPIL through its authorized representative and officers. The assessment was framed. ....
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....s not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See: Halsbury's Laws of England (4th edition volume 7 para 1539). Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity;" (iv) Fourthly, upon the amalgamating company ceasing to exist, it cannot be regarded as a person under section 2(31) of the Act 1961 against whom assessment proceedings can be initiated or an order of assessment passed; (v) Fifthly, a notice under section 143(2) was issued on 26 September 2013. To the amalgamating company, SPIL, which was followed by a notice to it under section 142(1); (vi) Sixthly, prior to the date on which the jurisdictional notice under section 143(2) was issued, the scheme of amalgamation had been approved on 29 January 2....
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....sment is framed in the name of non-existing entity, it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act." Following the decision in Spice Entertainment, (supra) the Delhi High Court quashed assessment orders which were framed in the name of the amalgamating company in: (i) Dimension Apparels (supra); (ii) Micron Steels; and (supra) (iii) Micra India (supra). 21. In Dimension Apparels, (supra) a Division Bench of the Delhi High Court affirmed the quashing of an assessment order dated 31 December 2010. The Respondent had amalgamated with another company and thus, ceased to exist from 7 December 2009. The Court rejected the argument of the Revenue that the assessment was in substance and effect in conformity with the Act by reason of the fact that the assessing officer had used correct nomenclature in addressing the Assessee; stated the fact that the company had amalgamated and mentioned the correct address of the amalgamated company. It was the Revenue's contention that the omission on the part of the assessing officer to mention the name of the amalgamat....
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....'ble Supreme Court has dealt with this judgment and explained its impact. Hon'ble Supreme Court ultimately upheld the judgment of Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. (supra) and held that assessment order passed subsequently in the name of non-existing company would be without jurisdiction and a nullity. Concluding paragraph of the judgment is worth to note which reads as under: "33. In the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation. Participation in the proceedings by the appellant in the circumstances cannot operate as an estoppel against law. This position now holds the field in view of the judgment of a coordinate Bench of two learned judges which dismissed the appeal of the Revenue in Spice Enfotainment (supra) on 2 November 2017. The decision in Spice Enfotainment ha....
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....f the above discussion, we analyze the facts of the case on hand. It is undoubtedly the assessment was made by the Assessing Officer on non-existing entity which is void ab-initio and nullity in the eye of law. The assessment framed against a nonexisting entity goes to the root of the matter and it is not a procedural irregularity but a jurisdictional defect and there cannot be any assessment against a non-existing entity or a dead person. Therefore, the decision of the Hon'ble Supreme Court in the case of Maruti Suzuki India Ltd. (supra) squarely applies to the facts of the assessee's case. Respectfully following the decisions of various courts as discussed above, we hold that the assessment made by the Assessing Officer in the name of the Urmin Marketing (P.) Ltd. under section 143(3) read with section 144C of the Act vide order dated 27th December 2018 for the year under consideration is void ab-initio and bad in law. Hence the assessment order is a nullity in the eye of law and the same is quashed. The additional ground raised by the assessee is allowed. 8.6 In view of the above, we note that the assessment framed under section 143(3) of the Act is not sustainable. H....
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....ged by same promoters/directors. Furthermore, both the companies were also registered at the same address. The AO further observed that there was no business in the amalgamated company i.e. assessee (KIPL) on the date of amalgamation as there was no vendor or customers in its books of accounts. Similarly, there was no goodwill recorded in the books of accounts of both the companies prior to the amalgamation. Accordingly, there should not be any question of goodwill owing to the close connection between both the companies in the scheme of amalgamation. 10.3 In addition to the above, the AO also observed that the proviso 5 to section 32(1) of the Act requires that the depreciation on the assets in case of amalgamation should be allowed to the amalgamated company to the extent what should have been allowed in case if amalgamating company would have continued. 10.4 Similarly the provisions of section 43(1) & (6) require that the actual cost of the transferred assets and WDV should remain the same as it was there in the .books of amalgamating company prior to the amalgamation. Accordingly, the AO believed, as there was no goodwill in the books of KSPL prior to amalgamation, theref....
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....pplicability of the above provisions does not arise. As such, the provisions of section 43(1) and 43(6) of the Act deal with the assets already recorded in the books of accounts of the transferor/amalgamating company. In other words, such provisions do not deal with the intangible assets emerging in the scheme of amalgamation. 10.10 The assessee also claimed by referring to the AS-14 and Ind AS-103 that these standards recognize goodwill arising out of amalgamation as an asset. As per AS-14 goodwill arising in a scheme of amalgamation represents the consideration paid against future anticipated income. 10.11 The assessee further submitted that the scheme of amalgamation has been approved by the Hon'ble Gujarat High Court. The FMV and exchange of shares were determined by the expert valuer. Based on such valuation and approval, the goodwill came to be recorded in the books of accounts of the assessee. 10.12 The assessee with respect to its claim of depreciation on goodwill acquired in process of amalgamation placed its reliance on the various judgment placed on page no 17 & 18 of the AO order 10.13 The assessee, in view of above judgments, claimed that the depreciation o....
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.... of KSPL has been made using the income/market approach method whereas the net assets value approach has been used in the case of KIPL which is contradictory to each other. As such, a similar approach for determining the value of the shares should have been adopted, particularly in the given situation where the management of both the companies were common. But the assessee has used different approaches to determine the high value of equity shares in the case of KSPL in order to get the higher value of goodwill. b. No comparable was selected by the valuer in the valuation report for WACC calculation. c. Similarly, the discount factors used for valuation such as 15.22% were without any base. Valuer did not file any base of working for the same. d. Valuer has valued the company as on 25-09-2015 although the appointed date of amalgamation is 31-03-2015. e. The valuation report issued by the SSPA & Co. is not signed by any chartered accountant, no membership number is mentioned on valuation certificate to know who issued the certificate. f. Based on the above discrepancies in the valuation report it emerged that the valuation was done intenti....
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.... Further, if an asset emerges in the books of amalgamated company which did not exist in the books of amalgamating company, such an asset emerges only due to revaluation of assets & liabilities for which amalgamated company does not incur any cost. Hence, as per the provision of section 55(2)(a)(ii) the value of an asset which has been acquired without incurring any cost should be taken at NIL. Similarly, there would not be any possibility of allowing the deduction for the depreciation on the assets resulting on account of revaluation of assets. 10.19 The AO Further observed that as per AS-14, there are two methods of accounting namely pooling of interest method and purchase method which are applied for recording the transaction arising in the scheme of amalgamation of companies. In case the condition, in a scheme of amalgamation prescribed under para 3(e) of AS 14 are fulfilled, then pooling of interest method of accounting should be applicable. Under the pooling of interest method any difference between purchase consideration and book value of assets & liabilities should be recognized as an amalgamation reserve. As such no concept of goodwill is available in this method of acc....
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....py of the same is placed on page 70 of the paper book. 12.1 Similarly, the ld. AR also submitted that there was no objection raised by the Revenue in the scheme of amalgamation as evident from the judgment of Hon'ble Gujarat High Court dated 21-12-2015, the relevant extract is placed on page 31 of the paper book. Accordingly, the learned AR claimed that the AO had no jurisdiction for disturbing the impugned amount of goodwill as there was not any violation in the implementation of the scheme which is approved by the Hon'ble Gujarat High Court. 12.2 It was also pointed out that all the details about the management / ownership/ shareholding patterns /control pre and post amalgamation about both the companies were available in the public domain and nothing was concealed in the impugned scheme of amalgamation. Furthermore, the reasons and the rationale behind the impugned scheme of amalgamation was duly explained in the scheme of amalgamation. Therefore, the common ownership/control/management cannot be a reason for not allowing the claim of goodwill on the assumption of that the entire scheme was a colorable device. The amalgamated company was earning huge amount of profit and i....
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....res of the transferor company which were available before the AO. In the event of any doubt on the genuineness of such report, the revenue was empowered under the provisions of the Act to carry out necessary verification, but it has not been done so. Thus, no doubt can be raised on the credentials of the valuation report. As such the valuation of the business requires distinct technical expertise and the AO does not possess such technical expertise. Therefore, the AO was under the obligation to take the assistance of the valuer in the event of being dissatisfied with valuation. The learned AR in support of his contention referred to the orders of this tribunal in case of Synbiotics Ltd. vs. ACIT reported in 48 ITR (T) 210 (Ahd) and order of Delhi tribunal in case Cinestaan Entertainment Pvt. Ltd. vs. ITO reported in 177 ITD 809. 12.7 The learned AR further contended that there is no violation of proviso 5 to section 32(1) of the Act as the impugned amount of goodwill was not shown by the amalgamating company. As such the amount of goodwill was generated by the assessee company in the process of amalgamation. Thus, the question of apportioning the depreciation on the goodwill bet....
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....s recording all the assets and liabilities of the amalgamated company at book value. Furthermore para 19 of accounting standard 14 recognizes the goodwill arising in the process of amalgamation on account of the payment made in the anticipation of future income. 12.12 Similarly, the allegation of the AO that the amalgamated company is a paper company is far from the truth because the existence of the company has been admitted by the AO himself by making the assessment. Furthermore, the existence of the company has also been admitted by the Hon'ble Gujarat High Court and therefore its existence cannot be doubted. In view of the above the learned AR submitted that the claim of the assessee for the depreciation on the goodwill being intangible assets should be allowed under the provisions of section 32 of the Act. 13. On the other hand, the learned DR submitted that the scheme of amalgamation is tax neutral exercise and therefore there cannot be any question of goodwill arising in such a scheme. The learned DR also argued that the assessment proceedings and the amalgamation proceedings are different exercises. In the amalgamation proceedings, there was no question raised about t....
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....should become the shareholders of the amalgamated company. The provision of section 2 (1B) of the Act reads as under: (1B) "amalgamation", in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that- (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsi-diary) become shareholder....
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..... The use of the pooling of interests method is confined to circumstances which meet the criteria referred to in paragraph 3(e) for an amalgamation in the nature of merger. 14.4 Under the pooling of interest method the difference between purchase considerations and the net assets taken over by the amalgamated company is adjusted with reserve. On the other hand, in the case of purchase method if purchase consideration exceeds net value of assets taken over then such difference is to be as recognized as goodwill or vise-versa as capital reserve. 14.5 Goodwill may be described as the aggregate of those intangible assets of a business which contributes to its superior earning capacity over a normal return on investment. It may arise from such attributes as favourable locations, the ability and skill of its employees and management, quality of its products and services, customer satisfaction etc. 14.6 Para 19 of AS-14 describes goodwill arising in a scheme of amalgamation as extra amount paid in anticipation of future income and suggests treating the same as an asset, hence provide for systematic amortization of same over the period of useful life. The para 19 of AS-14 reads as....
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....g shares in Transferor company and whose name appear in the Register of Members on the Appointed Date or to such of their respective heirs, executors, administrators or other legal representative or other successors in title as may be recognized by the respective Board of Directors in the following manner: 2 (Two) fully paid Equity Shares of Rs. 1Q/- each of Transferee. Company-2 shall be issued and allotted, for every 1 (.One) Equity Shares of Rs. 10/- each held in Transferor Company. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 23.5 Upon Scheme being effective and on allotment of new Equity Shares by Transaction Company-2, the share certificate representing shares held in Transferor Company shall stand automatically cancelled. The new Equity Shares shall be issued by Transferee Company-2 to the shareholders of Transferor Company at a premium of Rupees two hundered and twenty five per share. Approval of this Scheme by the shareholders of transferee company 2 shall be deemed to be the due compliance of the provisions of Section 62 and Section 42 of the Companies Act, 2013 and other relevant and applicable provisions of the Act for....
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...., as the case may be in books of Transferee Company-2. 14.11 At this juncture, it is also important to note that the Hon'ble Gujarat High Court in the impugned scheme of amalgamation while approving has also observed that the Regional Director, Ministry of Corporate affairs vide letter dated 3rd December 2015, has invited objections from the Income Tax Department if any in the scheme of amalgamation. But the Income Tax Department did not reply within the time limit of 15 days, hence it was assumed that the Income Tax Department has no objection in connection with the impugned scheme of amalgamation. This fact can be verified from the order of the Hon'ble High Court, the relevant finding is reproduced as under: The next observation of the Regional Director vide paragraph 2(e), pertains to the letter dated 3rd December 2015 sent by the Regional Director to the Income Tax Department to inviting their objections, if any. Since the statutory period of 15 days, as envisaged by the relevant circular of the Ministry of Corporate Affairs is over, it can be presumed that the Income Tax Department has no objection to the proposed Scheme of arrangement. The petitioner companies hav....
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.... received respectively from the Registrar of Companies and the Official Liquidator under the first and second provisos to Section 394(1). A joint reading of Sections 394 and 394A makes it clear that the duties to be performed by the Registrar and Official Liquidator under Section 394 and of the Regional Director concerned acting on behalf of the Central Government under Section 394A are quite different. 3. An instance has recently come to light wherein a Regional Director did not project the objections of the Income Tax Department in a case under Section 394. The matter has been examined and it is decided that while responding to notices on behalf of the Central Government under Section 394A, the Regional Director concerned shall invite specific comments from Income Tax Department within 15 days of receipt of notice before filing his response to the Court. If no response from the Income Tax Department is forthcoming, it may be presumed that the Income Tax Department has no objection to the action proposed under Section 391 or 394 as the case may be. The Regional Directors must also see if in a particular case feedback from any other sectoral Regulator is to be obtained and....
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.... to defraud the Revenue and consequently being prejudicial to public interest. It has further been said that the Regional Directors would invite specific comments from the Income Tax Department within 15 days of receipt of notice before filing response to the Court. It is emphasised that this is the only opportunity with the Department to object to the scheme of amalgamation if the some is found prejudicial to the interest of Revenue and therefore, it is desired that the comments/objections of the Department are sent by the concerned CIT to Regional Director, MCA for incorporating them in its response to the Court, immediately after receiving information about any scheme of amalgamation or reconstruction etc. 4. This issues with approval of Member (A&J). 14.15 From the above circular, it is transpired that the Revenue was conscious about the fact that there was the possibility of misusing the provisions of the income tax Act in the name of the scheme of amalgamation as provided under section 2(1B) causing prejudice to the Revenue. But the Revenue, despite having the opportunity in its hand did not raise any objection within the time allowed by the MCA or subsequently by....
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....huge tax liability as pointed out by the income department etc. 38. From the above analysis of the financials of Gabs, the bench noted that with an equity share capital of only 1,91,100 the promoters/share holders of Gabs who are also the common promoters of APL, by way of this proposed scheme of amalgamation and arrangement would get the shares of APL worth ?1477.50 Crores (market value as on 31.03.2017 ) and that too without paying any Income Tax, Stamp Duty etc. for which the bench is of the considered view that the same is not in the public interest, thousands of shareholders of Transferee company especially retail shareholders. The market value of the same number of shares as at 31.03.2016 was 1,182.59 Crores. 39. Since Income Tax department (IT) has raised strong objections about tax benefit, tax avoidance, tax loss as discussed above, we are of the opinion that it would be www.taxguru.in advisable to settle the important/crucial issue of huge tax liability before sanctioning the scheme by the Tribunal rather than disputing the same at a later stage after the scheme is sanctioned by the Tribunal. It is mandatory as per section 230 (5) of the Companies Act, 2....
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.... are not convinced with the orders of the authorities below on this preliminary issue. 15. Now, the next question arises for our consideration whether the value of goodwill should be taken at NIL under the provision of Income Tax Act in the books of amalgamated company as no such goodwill was available in the books of amalgamating company prior to amalgamation and such goodwill emerged in the books of amalgamated company on account of valuation and revaluation of business as no cost incurred by the amalgamated company for such goodwill. In this connection, we are inclined to refer certain provisions of the Act in the context of the scheme of amalgamation as provided under section 2(1B) of the Act as detailed under: Depreciation. ^1932. (1) ^20[In respect of depreciation of- (i) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned^21, wholly or partly, by the assessee^21 and used for the purposes of the business^21 or profession, the following de....
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....ill continue to be the same as it would have been in the hands of the amalgamated company in the event, had there not been any amalgamation. The relevant extract of the explanation 7 to section 43(1) reads as under: Definitions of certain terms relevant to income from profits and gains of business or profession. 43. In sections 28 to 41 and in this section, unless the context otherwise requires 3- ^4(1) "actual cost" means the actual cost 3 of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met3 directly or indirectly by any other person or authority: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX ^14[Explanation 7.-Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company and the amalgamated company is an Indian company, the actual cost of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamating company had continued to hold the capital asset for the purposes of its own business.] 15.3 We further note that the WDV of the a....
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.... same as in the hands of the amalgamating company either as capital asset or stock in trade as provided under section 43C of the Act. iii. Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc under the provisions of section 72A of the Act. iv. Exemption of capital gains in the hands of shareholders of amalgamating company on transfer of shares of amalgamating company in the scheme of amalgamation under the provisions of section 47 (vii) of the Act. v. Cost of capital assets to be the same as in the hands of previous owner where capital assets became the assets of the successor as a result of transfer under section 47(vi) r.w.s. 49(1)(iii)(e) of the Act. vi. Cost of shares of amalgamated company in the hands of shareholders, received as consideration for transfer of shares of amalgamating company, to be same as the cost of shares of amalgamating company under section 49(2) of the Act. 15.6 From the above, the intent of the Legislature is to make amalgamation a tax neutral scheme for companies as well as for the shareholders and not to provide a tax planning m....
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....the provisions of section 32 of the Act. In this connection, we are inclined to refer to the provisions of section 32(1) of the Act which reads as under: 32. (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- 15.8 On perusal of the above provisions, we note that the word goodwill has nowhere been mentioned. However, we note that, the Hon'ble Supreme Court in the case of CIT vs. Smifs Securities Ltd reported in 348 ITR 302 has held that the goodwill falls within the definition of the assets under the category of any other business or commercial rights of similar nature. The relevant extract reads as under: Explanation 3 to section 32(1) states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyright....
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....acts and circumstances, in the case of CIT Vs. M/s Eltek SGS Pvt. Ltd. in ITA No. 475- 476/2022 has decided the issue in favour of the assessee by observing as under: 7. Before us, learned counsel appearing in support of the appeal contended that it would be the provisions of Section 49 of the Act which would apply and that both the CIT (Appeals) as well as the ITAT have clearly erred in holding otherwise. Learned counsel referred to the definition of "cost of acquisition" as spelt out in Section 55(2) of the Act and which had defined that expression to also include goodwill of a business or profession or a trademark or brand name associated with the business or profession or any other intangible asset. It is in the aforesaid context that learned counsel for the appellant had sought to rely upon Section 49 and more particularly Section 49(1)(e) thereof. 8. The aforesaid submission, however, clearly loses sight of the fact that Section 47 in express terms excludes the transfer of a capital asset in terms of a scheme of amalgamation. We further find that the provisions of the Act referred to by learned counsel for the appellant are placed in a Chapter dealing with t....
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...., in the event he is not satisfied about the claim of the assessee. Both the authorities below are not justified in adopting the rate as the assessee had furnished a report from an expert, i.e., Government approved valuer. 16.1 The subsequent allegation of the AO is that both the companies i.e. amalgamated and the amalgamating companies were controlled and managed by the same group of person pre and post amalgamation. Thus, the issue arises whether it was a colourable device adopted by the assessee to create goodwill in the books of accounts and claim such huge amount of depreciation. In this regard we note that both the companies, namely KSPL and KIPL were registered on 27th January 1995 and 27th December 2007 respectively with the Ministry of corporate affairs. These 2 companies were filing separate income tax returns. Both the companies being body corporate have a separate legal identity. All these details were duly disclosed in the scheme of amalgamation which was duly approved by the Hon'ble Gujarat High Court vide order dated 21st December 2015. 16.2 We also note that vide letter dated 3rd December 2015 the regional director of ministry of corporate affair (MCA) has als....
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....common and prevailing in the corporate world for synergizing resources, control, eliminate the competition etc. (iii) Even where individual transactions of the device are legal/ legitimate, whether combination of these steps creates an effect which is abnormal in the business world and could not have been otherwise undertaken in normal circumstances: Ans. In the present case there was no reference made by the authorities below suggesting that the transaction is carried out illegally. As the transactions in the instant case were within the ambit of the law as per the provision of section 2(1B) of the Act. (iv) These individual transactions create an effect which is contrary to human probabilities: Ans. The transactions carried out by the parties were very much normal transaction. (v) Whether actions of the parties finally are at variance with the terms of the agreement: Ans. There was no variance in the impugned transaction with regard to the terms of the agreement. 16.5 It is also important to highlight the fact that there is no prohibition under the Act for disallowing the depreciation on the goodwill generated in the scheme of amalg....
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.... it was recognized in the books of accounts by way of accounting entries. Thus, we hold that the impugned transaction cannot be regarded as colorable device merely on the reasoning that the assessee claimed the depreciation on the goodwill in the scheme of amalgamation. 16.8 We also note that this Tribunal in case of Urmin marketing (P) Ltd. Vs. DCIT reported in 122 taxmann.com 40 has already decided the issue in favor of assessee on the similar facts and circumstances. 16.9 It is important to note that there was an amendment to section 32, section 2(11) of the Act and other relevant sections of the Income Tax Act from the Finance Act 2021, effective from AY 2021-22. The amendment was brought into section 32 of the Act to exclude goodwill from depreciable assets. The relevant portion of the amendments in section 32 is reproduced as under: 32. (1) ^97[In respect of depreciation of- (i) xxxxxxxx (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature^98, being intangible assets acquired on or after the 1st day of April, 1998, ^99[not being goodwill of a business or profession,]....