TaxTMI 
TaxTMI 
2025 (9) TMI 782
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.... disregarding the valuation reports and concluding that such manufacturing and supply contracts are not an intangible asset as per Accounting Standard (AS.)-26 issued by the Institute of Chartered Accountants of India 4. without prejudice, erred in not considering the value of manufacturing and supply contracts as goodwill acquired from GSK. pursuant to slump sale, which is eligible for depreciation under section 32(1) r.w.s. 2(11) of the Act. Disallowance of depreciation amounting to Rs. 1641,402/ on contracts acquired from Chemito Technologies Private Limited (CTPL) 5. erred in riot granting depreciation of Rs 16,-11.10.'/ on the written down value of the contracts under section 32(1) of the Act. 6. erred in disregarding the fact that such contracts are self - generated by CTPL and have been transferred to the Appellant as a part of slump sale 7. erred in disregarding the valuation report and concluding that such contracts are not an intangible asset as per Accounting Standard ('AS')-26 issued by the Institute of Chartered Accountants of India 8. without prejudice, erred in not considering the value of such contrac....
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....preciation amounting to Rs. 73,06,263/- is disallowed and added back to the total income. 5.2 During the course of appellate proceedings, it is submitted that the appellant acquired Qualigens Fine Chemicals Division from Glaxosmithkline Pharmaceuticals Limited under business Transfer agreement (BTA) dated 26.7.2007 on a slump sale basis. On slump sale of Qualigens, amongst various assets as a part of the BTA, GSK also transferred manufacturing and supply/service contracts to the appellant. The appellant claimed depreciation @ 25% amounting to Rs. 56,64,861/- on the opening written down value as on 1st April, 2019 for the manufacturing and supply contracts it took over as a part of slump sale by GSK. The appellant also acquired Analytical Technologies and Environmental Instrumentation Division from Chemito Technologies P Ltd. under BTA dtd. 27.05.2008. On slump sale of the AT & El division. amongst various assets as a part of the BTA. CTPL also transferred various sales, annual maintenance contracts and comprehensive maintenance contracts with its customers which were under execution to the appellant. Accordingly, Thermo Fisher claimed depreciation @ 25% amounting to Rs. 16....
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....d that the DRP has in the earlier years also not allowed depreciation on manufacturing contracts and supply/maintenance contracts. In view of this, the present DRP is unable to find any fault with the finding of the AO and hence no directions are being issued to the AO on this issue. In view of this, the present DRP is unable to find any fault with the finding of the AO and hence no directions are being issued to the AO on this issue. " 5.3.2 Material facts remain the same during the year under reference. Hence, following the views and findings of the DRP on this issue in the appellant's own case for the A.Y. 2016-17, the approach of the AO is held as justified and I am of the opinion that no interference is required in the assessment order. Hence, the addition of Rs. 73,06,263/- is upheld and the ground No 2 and 3 are dismissed." 4. Aggrieved with the aforesaid decision by the Ld. CIT(Appeals)/NFAC, the assessee preferred an appeal before the Tribunal, which is under consideration in the present matter. 5. At the very outset, the Ld. Counsel for the assessee company submitted that the issue regarding disallowance of depreciation on contracts acquired fr....
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....ntenance contracts and goodwill pursuant to the acquisition of two undertakings in a slump sale arrangement in earlier years. 7. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in the manufacturing, installation and sale (including trading) of scientific/medical laboratory equipment and chemicals. For the year under consideration, the assessee filed its return of income on 30/03/2011, declaring a total loss of INR 21,55,61,952. During the assessment proceedings, upon perusal of the details of depreciation claimed by the assessee, it was observed that the assessee has claimed depreciation on manufacturing contracts and supply/maintenance contracts based on acquisition of undertakings from GSK Pharma Ltd and Chemito Technologies Pvt. Ltd. Accordingly, the assessee was asked to justify the allowability of claim of depreciation on manufacturing contracts and supply/maintenance contracts. In its response, the assessee placed reliance upon the Business Transfer Agreements, Valuation Report, and some judicial rulings. The Assessing Officer ("AO"), vide draft assessment order dated 24/03/2014 passed under section 143....
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.... Qualigens Fine Chemicals Division from GSK Pharma Ltd. Further, during the assessment year 2009-10, the assessee acquired on a slump sale basis the Analytical Technologies and Environmental Instrumentation Division from Chemito Technologies Pvt. Ltd. As per the assessee, amongst various other assets acquired as part of the above-mentioned slump sale acquisitions, the assessee, inter-alia, acquired certain business/commercial rights in the form of certain manufacturing contracts, supply contracts and maintenance contracts, which were recognised by the assessee as intangible assets in the financial statements of the concerned year in accordance with the asset recognition criteria as stipulated under Accounting Standard-26. Further, the assessee treated the difference between the purchase consideration paid and the value of all assets (tangible and intangible assets) acquired in the slump sale as goodwill in its financial statements. In support of the submission that the impugned contracts qualify as intangible assets as per the Accounting Standard-26 and were accordingly recorded in the assessee's books of accounts as separate intangible assets, the assessee placed reliance upon the....
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....e supply contracts, the learned AR submitted that the Qualigens business enjoys a leadership position with about 30% market share in the specialty chemicals market, and thus, even though supply contracts entered into on an annual basis, majority of these relationships with customers/distributors date back to 30 to 40 years and thus expected to be renewed and continued on year-on-year basis. Further, as regards the maintenance contracts, the learned AR submitted that these contracts were entered into with customers for annual maintenance of the products sold by Chemito Technologies Pvt. Ltd. business and were entered on the expiry of the warranty period of the products, normally for a period of 5 years. Thus, it was submitted that the maintenance contracts that were unexpired on the date of transfer of business were transferred to the assessee and have been valued on the basis of the discounted net contribution arising from the maintenance contracts. Further, the learned AR by referring to the sample copy of these contracts submitted that these contracts continued between the parties and the assessee beyond the period mentioned in the Business Transfer Agreements, which clearly demo....
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....re for purchase of unit for lumpsum consideration, as going concerns in the nature of slump sale, which is subject to capital gain tax us 50B in the hand of seller. Whereas the according the Assessing officer the acquisitions are in the nature of amalgamation. Before us, the learned counsel has referred to various clauses of business transfer agreement (BTA) in respect of units acquired from GSK and CTPL respectively. On perusal of relevant clauses referred, we find that transaction in both the cases are of slump sale and not, amalgamation as stated by the Assessing Officer. 5.19 The learned Assessing Officer has further relied on the Explanation 7 to section 43(1) of the Act, to hold that assessee is not entitled for depreciation on the Goodwill recognised. For ready reference, the relevant explanation is reproduced as under: "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 compa....
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....ble assets or know-how, 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 (xiiib) 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." 5.24 On plain reading of the above proviso, it is clear that same is in relation to allocation of the depreciation on the asset between predecessor and successor entities, whereas in the instant case good....
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....e bench of the Tribunal. Accordingly, accepting the alternative plea of the assessee and respectfully following the decision of the coordinate bench of the Tribunal rendered in assessee's own case, we direct the AO to treat the excess of consideration paid over and above the fair value of the assets and liabilities as goodwill and allow the depreciation on same to the assessee under the provisions of the Act. On similar lines, the depreciation on goodwill amounting to INR 15,96,20,019claimed by the assessee in the year under consideration is also allowed. As a result, grounds no.2-5, raised in assessee's appeal, are allowed. 5.3. It is admitted position that the depreciation claimed by the Assessee for the Assessment Year 2015-2016 pertains to the same business/commercial rights in respect of which depreciation claim of the Assessee has already been allowed in the appeal preferred by the Assessee for the Assessment Year 2010-2011. The Revenue has failed to bring on record any material to differentiate the above decision of the Tribunal either on facts or in law. Therefore, respectfully following the decision of the Tribunal in the case of the Assessee for the Assessment Ye....