TaxTMI 
TaxTMI 
2023 (9) TMI 1600
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....e tax (appeals) erred in upholding an addition of Rs. 338,302/- in respect of transactions appearing in the IRS statement alleged as unreconciled by treating the same as income of the appellant 2) on the facts and in the circumstances of the case and in law, the learned CIT - A 14 ignoring that the reconciliation of transactions reported in the AI are statement could not be accomplished by the appellant in absence of details and information from the third parties DEPRECIATION ON GOODWILL ARISING ON AMALGAMATION OF ERSTWHILE WYETH LTD WYETH Rs. 271, 63, 00,000 3) on the facts and in the circumstances of the case and in law, the learned CIT (A) erred in disallowing the claim of depreciation on goodwill arising on amalgamation of Wyeth amounting to Rs. 2,716,300,000 4) on the facts and in the circumstances of the case and in law, the learned CIT (A) order in not following the decision of the honourable Supreme Court in the case of CIT V Smif securities Ltd (2012) 348 ITR 302 5) without prejudice to the above grounds of appeal and in the alternative, the learned CIT (A) order in disallowing the aforesaid claim of depreciation by invoking the erstw....
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....O an opportunity to consider fresh submissions made by assessee during appellate proceedings 04. Cross objection number 110/M/19 is filed by assessee raising following grounds of appeal:- "Disallowance of payments made to Drs in alleged violation of Indian medical Council (professional conduct, adequate and ethics) regulations, 2002 (IMC regulations) - Rs. 11,60,34,713/- if it is held that IMC regulations and the CBDT circular number 5 of 2012 are applicable to the assessee, as prayed by the Department in ground number 1 of the appeal bearing ITA number 2108/M/2018, then:- 1. on the facts and in the circumstances of the case and in law, the expenditure on brand reminders on purchase of medical books and journals to not fall within the scope of the IMC regulations and ought to be allowed as a business expenditure The respondent here by reserves the right to add to, alter or amplify the above grounds of cross objections" 05. Brief facts of the case shows that assessee is a company engaged in the business of manufacturing, sale of pharmaceutical including over-the-counter [OTC] pharmaceuticals, cosmetics and allied consumer products and tradin....
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....n, which is prohibited by IMC regulations. iii. The learned AO further found that the honourable High Court has passed the order sanctioning the amalgamation of Wyeth Limited with the assessee. Therefore, the income of Wyeth limited and Pfizer Ltd as described in the original return of income is added to the total income of the assessee. Learned AO noted that originally the assessee filed the return income of Rs. 3,422,546,533, which was revised to Rs. 1,939,382,340 whereas the Wyeth Limited has filed its original return of income at Rs. 141,04,95,520 and the revised return filed on 30/3/2016 are Rs. Nil. The AO noted that the combined income of both these entities is Rs. 4,833,042,050/- as per the original return of income of both the entities whereas when the return was revised of both the entities total income are now returned at Rs. 1,939,382,340/- only. The learned assessing officer questioned the decline in amount of income in the return of income of assessee. The assessee submitted that the payment of Rs. 1186,52,00,000/- was made to the erstwhile shareholders of Wyeth Ltd on account of goodwill and depreciation at the prevailing rate as per income tax account is am....
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....made detailed submission before the appellate authority stating that the information was sought by the learned assessing officer belatedly, therefore assessee could not submit the detail in time. However, when details were submitted, the learned AO informed the assessee that Assessment order has already been passed. The learned CIT - A on perusal of the letter dated 31 December 2016 categorically noted that the learned AO has written by hand that the letter was submitted by the assessee after passing of /dispatch of the assessment order. The learned CIT - A asked the assessing officer by letter dated 13/11/2017 to give his comments. The learned AO submitted remand report on 6/12/2017 that though there are no sufficient materials available on record for the quantification of goodwill, the assessee is not eligible to claim depreciation over and above the depreciation allowable to the Wyeth Ltd before the merger as claim is in violation of proviso 5 to section 32 (1) of The Income Tax Act. The AO further submitted that the decision of the coordinate bench in ITA number 722/BANG/2014 [ United Breweries Limited] for assessment year 2007 - 08 held that an amalgamated company cannot claim....
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....ngly, bad debts written off out of the provisions amounting to Rs. 151,101,570/- was allowed. v. Another issue was raised before the learned CIT - A about deduction under section 35 (DD) of the act in respect of amalgamation expenditure amounting to Rs. 25,739890/-. The learned CIT - A asked for the remand report of the learned assessing officer wherein it was stated that assessee has not been able to completely justify the entire expenditure of Rs. 286,99,915/- in addition, many invoices and bills referred to the "project Echo" /"Project Echo 1". It is unclear that whether this project has any relation to the amalgamation expenses. The ld. CIT - A held that if the expenditure is related to the amalgamation than 1/5 of deduction under section 35DD may be granted. The response of the assessee was also obtained and after that the learned CIT - A as per paragraph number 9.3 of the order has dealt with this issue. He held that that assessee has stated by letter dated 19/1/2018 that the certificate has been issued by the Ernst & young LLP that the invoice of Rs. 159,396,000 issued by that company pertaining to that project is in relation to the tax advisory services provided in....
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....India Ltd [187 ITR 688] and of the Honourable Bombay High Court in Ahmedabad Electricity Co Ltd [199 ITR 351]. 013. Arguing for the admission of this additional ground assessee submitted that i. Assessee has paid an interim and final dividend, which is available and properly disclosed in the financial statements of the assessee. ii. Similar dividends declared by the amalgamating company are also disclosed in schedule of Dividend Distribution Tax and in the financial statement. iii. Shareholders are non-resident entities are properly disclosed in Notes to the share capital wherein the details of shareholders are mentioned and further in related party transaction disclosures are made. iv. In case of Pfizer Ltd Pfizer investments, Netherlands BV is holding 29.52% and in case of Wyeth Ltd John Wyeth brothers, Ltd of United Kingdom holds 5.55% of the equity. v. details of dividend paid to the aforesaid shareholders along with the corresponding dividend distribution tax liability is disclosed in the return of income vi. Details are available on record that assessee has non-resident equity shareholders and dividend is paid to them a....
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....ducts Ltd 88 ITR 192 and thereby admitted the additional ground of appeal on identical facts and circumstances. Therefore there is no reason that why above ground cannot be admitted 016. We have carefully considered the rival contention and perused the available records. We find that assessee has disclosed the details of declaration of dividend (final as well as interim) in its financial statements along with the provision for Dividend Distribution Tax. In the return of income filed by the assessee the details of dividend distribution tax, the applicable rate under section 115O of the act, the date of declaration of the dividend, date of payment of dividend distributed and tax thereon are disclosed. In the share capital schedule in financial statements, it is evident that there are non-resident shareholders. However, whether those shareholders are eligible to claim the benefit of double taxation avoidance agreement between the country of their residence and country of the residence of the assessee is not clear, however, for the purpose of adjudication of the ground, enough details are available on record. Assessee has submitted several judicial precedents wherein identical addit....
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....e OECD India should limit its taxation at source on dividends, interests, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention. iv. India has entered into a Double Taxation Avoidance Agreement with Hungary wherein in article 2 (3) provides that "dividend tax" has been included in taxes covered. v. Further, as per article 10 dividends can be taxed in source country; such dividend tax cannot exceed 10% of the gross amount of dividends. vi. Protocol further provides that when the company paying the dividends is a resident of India, the tax on distributed profits shall be deemed to be taxed in the hands of the shareholders and it shall not exceed 10 per cent of the gross amount of dividend. vii. The dividend distribution tax paid by the assessee on distribution of dividend to ....
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....unt of tax have to be lodged with the competent authority of the State having levied the tax, within a period of three years after the expiration of the calendar year in which the tax has been levied." iv. The most-favoured-nation clause has not been notified by the government of India and therefore assessee cannot invoke that clause of the double taxation avoidance agreement between India and Hungary. It was further stated that identical issue is pending before the honourable Supreme Court made the decision is awaited. He submitted that the stand of the revenue has been clarified in all the arguments made before the honourable Supreme Court that most favoured nation clause can only be invoked as and when notified by the government. v. Even otherwise, if for any reason it is held that the tax under section 115 O should have been 10% as per the Double Taxation Avoidance Agreement coupled with most-favoured-nation clause of Netherlands Treaty importing Hungary Double Taxation Avoidance Agreement in case of Netherlands resident shareholder, then, the situation may arise that if an Indian resident, earning dividend income from Pfizer, has income below the taxable limi....
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....entative vehemently relied upon the paragraph number [7] of the decision of the coordinate bench in [2021] 127 taxmann.com 774 (Mumbai - Trib.) In case of TOTAL OIL LTD wherein reference was made to the special bench. It was stated that those arguments raised by the learned departmental representative therein are also relevant herein. He submitted that before the Total Oil, the issue was with respect to India France double taxation avoidance agreement and there was no reference to Hungary India double taxation avoidance agreement and therefore now the issue of most-favoured-nation clause would be any addition to those reasons. It was stated that special bench has stopped by saying that it is not an income in the hence of shareholder whereas, the coordinate bench where the reference was made to the special bench, has clearly held that benefit of double taxation avoidance agreement cannot be invoked so far as the issue of dividend distribution tax is concerned. He specifically referred to paragraph number 10 of that decision wherein several reasons are given which negative the claim of the assessee. That observation of the bench binds this bench. Therefore, on this ground also the be....
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....nefits them, however Indian company cannot invoke provisions of double taxation avoidance agreement, as held by the special bench Therefore any attempt by the assessee to invoke the provisions of double taxation avoidance agreement is contrary to the decision of the special bench and therefore all those arguments deserves to be rejected which refers to the articles of double taxation avoidance agreement by the assessee i.e. an Indian company. Therefore, Indian company is deprived of referring to the Double Taxation Avoidance Agreement with respect to dividend distribution tax under section 115O of the act. 023. In view of the above discussion, respectfully following the decision of the special bench and various observations made with respect to the applicability of double taxation avoidance agreement, we dismiss the additional ground raised by the assessee. 024. Coming to the appeal of the learned assessing officer wherein the solitary issue is with respect to payment made for customer gifts etc. to Drs, the learned departmental representative submitted that that assessee has debited a sum of Rs. 482,612,000 as advertisement expenses in the profit and loss account. On examina....
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....2 ITR I (SC), the Hon'ble Supreme Court proceeded with the admission of both parties to the said decision that 'there was violation of MCI regulations and the Board Circular' and the entire decision of the Hon'ble Supreme Court is based on this very admission Nowhere in that decision there appears any reference to the violation of law of IMC Regulations' to be in dispute The only dispute the Hon'ble Supreme Court was called upon to decide was whether IMC Regulations are applicable to pharmaceutical companies or not even prior to CBDT Circular i.e. from the date of amended IMC Regulations. 026. We have carefully considered the rival contention and perused the orders of the lower authorities. We do not find any reason to uphold the order of the learned and CIT - A which is now been decided by the honourable Supreme Court holding that any free gifts in any manner is prohibited by the provisions of Indian medical Council's rules and therefore same is not allowable under section 37 (1) of the act Brand reminder is in the purchase of medical books and journals for the medical professionals are specifically covered under the gift prohibited by the rules of India....
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.... gifts and Rs. 28,080,940 of purchase of medical books and journals for the medical professionals i.e. doctors. Accordingly, ground number 1 - 3 of the appeal of the learned assessing officer is allowed. 027. Ground number 4 of the appeal is with respect to allowance of write-off of bad debts. The only grievance of the learned AO is that the deduction is allowed to the assessee without granting assessing officer and opportunity to consider the submissions made by the assessee during the appellate proceedings. We find that it is not the claim of the revenue that the allowance of writeoff of bad that is granted to the assessee by the learned first appellate authority is not sustainable in law. For the 11's of bad debts the AO was directed to furnish remand report, it was furnished on 8/1/2018 as stated in paragraph number 8.1 of the learned CIT appeal's order. Therefore, it is incorrect to say that no opportunity was available to the assessing officer for verification of the claim. In any case, when there is no grievance that the claim allowed to the assessee by the first appellate authority is easy in accordance with the law, we failed to understand what purpose it would achieve ....
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....ld have enquired from those parties by looking at their TDS returns. He submits that the assessee has categorically denied having received such sum. It was further claimed that merely because information appears in ITS data of the assessee, which is not, populated by the assessee but by others, cannot result into the income of the assessee. He further referred to the ITS data and submitted that in that data in most of the entries of the Hong Kong and Shanghai banking Corporation, proper addresses also not available of such tax deduct he submitted that merely state is mentioned. He submitted that wherever the addresses are available the assessee has made communication with them but they failed to reply to the request of the assessee. Therefore, the confirmation of addition by the learned CIT - A is not proper. It deserves to be deleted. 034. The learned departmental representative vehemently supported the orders of the lower authorities and submitted that where the ITS data is populated though by the others but it pertains to the permanent account number of the assessee and therefore it is for assessee to show that there is no transaction with those parties. As assessee has faile....
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....able Bombay High Court on 31 October 2014. The fair valuation of the assets of Wyeth Ltd were derived at Rs. 83,780 lakhs and total liabilities were determined at 61,053 lakhs therefore the net assets taken over by the Pfizer Ltd of Wyeth Ltd were Rs. 22,727 lakhs. As per paragraph number 6 of the scheme the exchange ratio was determined wherein the assessee allotted seven equity shares of Rs. 10 each fully paid up in it is capital in respect of every 10 equity shares of Rs. 10 each fully paid up in the equity share capital of Wyeth Ltd. Undoubtedly this exchange ratio was determined by the recommendation of fair equity share exchange ratio report By S R Batliboi & CO LLP and Deloitte Haskins and Sells as per the report dated 23 November 2013. The accounting treatment was passed by the assessee in terms of clause 7 of the scheme wherein in clause 7.3 it was stated that any excess of the fair value of the shares issued by the assessee is a consideration over the value of the net assets of Wyeth Ltd acquired by the assessee shall be adjusted in the assessee company's financial statement as goodwill arising on amalgamation. The valuation report dated 27/12/2014 was obtained of movable....
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....s arise in India books of the assessee company on amalgamation as assessee has paid higher price than the fair value of the assets acquired from Wyeth Ltd. He referred to the valuation report determining the fair value of tangible assets as well as intangible assets. He also referred to the relevant financial statement to show that how the fact of the scheme of the amalgamation was given there in. He submitted that the honourable Supreme Court in case of 348 ITR 302 in case of smiffs securities Ltd has categorically held that goodwill is an intangible asset on which depreciation is allowable to the assessee. He submitted that the goodwill is arising in the books of the assessee by payment of purchase consideration, which is higher than the fair market value of assets acquired. He further referred to the object of amalgamation and stated that such difference is in the nature of goodwill on which assessee is entitled for the appreciation. He submitted that the learned lower authorities have denied the depreciation on this goodwill by invoking the sixth proviso to section 32 (1) of the act. For this proposition the revenue authorities of relied upon the decision of Bangalore bench in ....
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....acquisition deals. The acquisition price is generally based on the fair market value of business. The excess price is paid on account of various factors such as brand, clientele, combined synergies, etc., which may not be recorded in the books of account by the target. Such excess price, i.e., purchase price that exceeds the value of net assets, is recorded as 'goodwill' in the books of account of the acquirer. However depreciation on such recorded goodwill is not allowable. 1.2 Let us start by taking an example. P Co is the parent company and S Co is its subsidiary. Both are Indian companies. S Co gets merged with P Co. The merger qualifies as amalgamation under section 2(1B) of the Income-tax Act (hereinafter referred to as "the Act"). Thus P co is amalgamated company and S co is amalgamating company. The investment of P Co in S co was appearing as asset before amalgamation; let us say at Rs 100. At the time of merger, the valuation of S Co is done and it comes to Rs 1000. P Co would not show the acquired assets at Rs 100 and the balance 900 would appear on the asset side as "Goodwill" and on liability side as "Capital Reserve". Thus, without any physical exchang....
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....allowed" shall not include depreciation allowed under sub- clauses (a), (b) and (c) of clause (vi) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written down value for the purposes of the said clause (vi); (c) in the case of any block of assets,- (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,- (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as r....
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.... to hold the capital asset for the purpose of its own business. Since the actual cost of goodwill in the case of amalgamating company (5 Co) is zero, the actual cost in the case of amalgamated company (P Co) shall also be zero (and not the amount it paid to acquire the goodwill). 1.8 To clarify further, Explanation 2 to clause 43(6)(c) reads as under Explanation 2.-Where in any previous year, any block of assets is transferred,- (a) by a holding company to its subsidiary company or by a subsidiary company to its holding company and the conditions of clause (lv) or, as the case may be, of clause (v) of section 47 are satisfied; or (b) by the amalgamating company to the amalgamated company in a scheme of amalgamation, and the amalgamated company is an Indian company, then, notwithstanding anything contained in clause (1), the actual cost of the block of assets in the case of the transferee-company or the amalgamated company, as the case may be, shall be the written down value of the block of assets as in the case of the transferor-company or the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciatio....
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....ace. Since in the hand of the amalgamating company the depreciation would have been zero, there cannot be depreciation in the hand of the amalgamated company. This issue was also dealt by ITAT Bangalore vide its order dated 30 Sept 2016, in the case of United Breweries Limited in I.T. A. No.722, 801 & 1065/Bang/2014. The relevant discussion in the ITAT order is produced below: "11............The assessee is in the business of production and sale of Beer. During the previous year relevant to assessment year under consideration, the assessee's subsidiaries namely Karnataka Breweries & Distillery Ltd. (KBDL), London Draft Pubs Pvt. Ltd. (LDPPL) and London Pillsner Breweries Pvt. Ltd. (LPBPL) were amalgamated with the assessee. The assessee claimed depreciation of Rs. 15,57,54,392 on goodwill of Rs. 62,30,17,566. Thus goodwill was shown as a result of merger / amalgamation of KBDL. Therefore this dispute is confined only with respect to the valuation of the assets recorded by the assessee in its books post amalgamation which were taken from KBDL. The Assessing Officer asked the assessee to explain how this goodwill came to be added to the fixed assets. It was explained tha....
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....the goodwill in the books of the KBDL is only Rs. 7.45 Crores which has been shown by the assessee at Rs. 62.30 Crores. The CIT (Appeals) was of the view that when the financial results of the KBDL shows that there was a profit of Rs. 2.14 Crores for the Assessment Year 200405 and loss of Rs. 1.89 Crores for the Assessment Year 2005-06 then the assessee has failed to justify the valuation of goodwill estimated at Rs. 62.30 Crores with reference to the average profit. Thus the CIT (Appeals) held that there is no justification for adopting the balance figure of excess consideration over the net asset without admitting to support the said valuation. 12. Before us, the Id. AR of the assessee has submitted that issue of depreciation on goodwill is concerned; the same is covered by the judgment of Hon'ble Supreme Court in the case of CIT Vs. Smifs Securities Ltd. 252 CTR 233 (SC). He has further submitted that valuation of goodwill is nothing but the differential figure between the consideration and the FMV of the tangible asset and therefore the claim of depreciation cannot be denied on the ground that there is no goodwill and the assessee has failed to show the justificati....
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....as the power to examine the valuation of the assets acquired by the assessee if these assets were already in use for business purpose and if the Assessing Officer is satisfied that the main purpose of transfer of such assets was the reduction of the liability to Income-tax then the actual cost of the asset to the assessee shall be such an amount as the Assessing Officer determines. Therefore the Assessing Officer has rightly determined the valuation of the goodwill at NIL and the assessee has failed to substantiate the valuation of the goodwill. The Id. DR has relied upon the orders of the authorities below. 13.1 In a rejoinder the Id. AR of the assessee has submitted that when the assets are introduced in the books of the assessee being the balancing figure of excess consideration over the value of the tangible assets then 5th proviso to Section 32(1) is not applicable. He has further submitted that in all the cases before the Hon'ble Supreme Court as well as Hon'ble High Courts, the revenue has not raised this objection of restricting the claim of depreciation by applying 5th proviso to Section 32(1) of the Act. Therefore the revenue cannot raise this objection w....
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....tion 43(1) of the Act. However, the Assessing Officer chose to examine the valuation of goodwill alone in order to disallow the claim of depreciation on the enhanced value of goodwill. We find that the Assessing Officer has not adopted any prescribed or well accepted method for valuation or actual cost of the goodwill in the hands of the assessee but he has doubted the valuation of the tangible assets and was of the view that the assessee has deflated the valuation of the tangible assets by the method of cost of replacement instead of FMV. The scope and objective of the Expl.3 of Section 43(1) of the Act is to check the excess claim of depreciation by enhancing cost of assets acquired which were already in use by other person. Therefore in case of valuation of goodwill the Assessing Officer ought to have examined the valuation of all the assets taken over by the assessee under the amalgamation and thereby to determine the actual cost to the assessee for the purpose of claim of depreciation. In this case there is no doubt that the value of the goodwill was shown in the books of the KBDL at Rs. 7.45 Crores which has been enhanced in the books of accounts of the assessee to Rs. 62.30 ....
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....of buildings, machinery, plant or furniture, being tangible assets or knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xillb) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them." This proviso provides that depreciation allowable in the case of succession, amalgamation or merger, demerger should not exceed the depreciation allo....
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....s) has also concurred with the view of the Assessing Officer regarding the applicability of the 5th proviso to Section 32(1) of the Act in para 5.4 as under:- 5.4 It is also highlighted both in the assessment order and remand report that no depreciation on goodwill was claimed by KBDL before amalgamation. Therefore, as per the 5th proviso to Section 32(1)(i), the appellant is not entitled to depreciation. This is a valid and relevant argument and appellant has not offered any rebuttal to this contention of the A.0." It is not the case of the assessee that the subsidiary has claimed any depreciation of goodwill. Therefore by virtue of 5th proviso to Section 32(1), the depreciation on the hands of the assessee is allowable only to the extent if such succession has not taken place. Therefore the assessee being amalgamated company cannot claim or be allowed depreciation on the assets acquired in the scheme of amalgamation more than the depreciation is allowable to the amalgamating company. As regards the decision of Hon'ble Supreme Court in the case of CIT Vs. Smiff Securities Ltd. (2012) 348 ITR 302, the said ruling of the Hon'ble Supreme Court is only on the....
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....ets of the amalgamating company, as "goodwill" and claimed depreciation on it. The depreciation on goodwill was claimed treating the same as an intangible asset u/s 32 of the IT Act. Explanation 3 to Sec 32(1) states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. The AO rejected the claim on the basis that "goodwill" was not an "intangible asset" as defined in Explanation 3 to Sec 32(1) and the assessee had not paid anything for the same. The CIT (A) and ITAT ruled in favour of the assessee, that the difference between the cost of the assets and the amount paid in the process of amalgamation constituted "goodwill. Further, it was held that the assessee in the process of amalgamation had acquired capital right in the form of goodwill, because of which the market worth of the assessee stood increased. This aspect was not challenged by the department during further appeal before the HC. HC affirmed the claim of the assessee and the IT department filed a SLP before SC. Ruling on favour of the assessee, SC held that 'goodwill' w....
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...., whereas every lawyer must acknowledge that the law is not always logical at all." 2.4. This decision of House of Lords was quoted with approval by the Constitution Bench of Supreme Court in the case of State of Orissa v. Sudhansu Sekhar Misra, (1968) 2 SCR 154(SC) wherein It stated that a decision is only an authority for what it actually decides. Thus we must appreciate that Hon'ble SC in Smiff Securities only decided that goodwill is depreciable. Whether other sections of the Act restrict depreciation in case of goodwill acquired during amalgamation, was not an issue before Hon'ble SC and therefore the decision of Hon'ble SC should not be extended to such issues which it never decided. 2.5. Further, it is submitted that in the case of Rameshwar Lal Sanwarmal v. CIT 122 ITR1(SC), Hon'ble SC had held that it is open to reconsidering its earlier decision if new arguments or facts are brought before it. The SC held that: "It would be staining logic to an absurd limit to say that though this contention was not raised, not argued, not discussed, not decided, yet it must be held to have been implicitly decided because through an error committ....
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....hat the appeal of the assessee on this ground may be dismissed." 040. The learned departmental representative vehementally submitted that there is no question of granting depreciation to the assessee over and above the assets acquired by the assessee from the target company. He submitted that as per section 32(1) of the income tax Act 'depreciation' is to be computed on 'actual cost'/'written down value of the block of assets'. Such returned down value of the block of assets is required to be ascertained in accordance with section 43. In respect of 'capital assets' transferred by the target company to the successor company, the cost/written down value of the transferred capital asset to the successor company shall be taken to be the same as it would have been had the target company continued to hold the capital asset for the purposes of its own business. Therefore, there is no question of providing depreciation on the goodwill. 041. It was further stated that goodwill is merely an accounting entry, assessee has failed to justify that it acquired any assets by paying the goodwill of Rs. 11180 million. It was further submitted that valuation repo....
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....hares of Rs. 12,810 crores, balance sum of Rs. 11,180 crores was treated as same is located to the intangible asset. Out of the above sum of 11,180 crores assessee has identified value of intangible assets in the form of various brands/trademark et cetera of Rs. 4272 crores. The balance sum of Rs. 6908 crores was accounted for as Goodwill. This is supported by a report of Deloitte Touch and Tomastu India private limited dated 9 March 2015 placed at paper book page number 246 and relevant data. Page number 277 of the paper book. When the value of goodwill was put at Rs. 6908 crores, apparently it is a balancing figure, for which the report says that goodwill is also an intangible asset of the business and we have been informed by the management that the same represents the value of various intangible assets/aspects of Wyeth which we have not been valued separately as at the valuation date including workforce, synergies, customer relationships, distribution network, vendor relationships, contract et cetera. This was also recorded in financial statements signed by BSR and Co LLP on 30 March 2015 post amalgamation. In note number 11 of fixed assets, the same was also accounted for in t....
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....erein fifth proviso to section 32 was discussed as under:- "9. Thus, it is evident that 5th proviso to section 32 of the Act restricts aggregate deduction both by the predecessor and the successor and if in a particular year there is no aggregate deduction, the 5th proviso does not apply. Thus, it is axiomatic that until and unless it is the case of aggregate deduction, the proviso has no role to play. The 5th proviso in any case will apply only in the year of succession and not in subsequent years and also in respect of overall quantum of depreciation in the year of succession. Accordingly, the third substantial question of law is answered in favour of the assessee and against the revenue." 044. Further that proviso applies in the case of the appointed date being in between the previous year. When on the first day of previous year, the assets are transferred, then in such case fifth proviso to section 32 cannot apply because in case of predecessor company there cannot be any claim of depreciation. In the present case also the date of transfer of the asset is at the beginning of the previous year, therefore proviso 5 to section 32 does not apply. 045. However the lea....
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....tangible assets the presence goodwill. Therefore it is apparent that the surplus price paid by the purchaser is towards buying the goodwill of the business which is self generated. The valuation report also suggest that a sum of Rs. 6908 crores though classified as a goodwill is also including valuation of workforce, synergies, customer relationships, distribution network, vendor relationships, contacts et cetera. It also says that goodwill is primarily arise in also due to the future earning capacity of the business to generate profits and returns to the shareholders. Therefore it is not clear whether in the valuation of goodwill of Rs. 6908 crores there are any other intangible assets or it is purely goodwill. Though assessee has accounted for in the books of account Rs. 6908 crores as goodwill, however for the purpose of depreciation the accounting entries do not either supports the case of the assessee or goes against the assessee. However when the income tax act requires the cost of acquisition of the assets to be recorded at a particular price in a particular manner, regard shall be made to those specific provisions of the act. In view of this, we set-aside the issue back to ....