2007 (12) TMI 308 - ITAT MUMBAI

Depreciation on goodwill - Goodwill is intangible assets or not - expression ‘any other business or commercial rights of similar nature’ - rule of ejusdem generis - Whether the assessee can be said to have acquired the commercial right in terms of section 32(1)(ii) of the Act so as to claim the depreciation? - HELD THAT:- There is no dispute to the legal proposition that the nomenclature given to the entries in the books of account is not relevant for ascertaining the real nature of the transaction as held by the Hon’ble Supreme Court in the case of Kedamath Jute Mfg. Co. Ltd. v. CIT[1971 (8) TMI 10 - SUPREME COURT]. Therefore, in my opinion, the nature of transaction should be ascertained on the basis of the agreement between the parties.

In my opinion, no adverse inference can be drawn on this ground. In the commercial agreements when the rights under the contract are transferred then mutual understanding is usually arrived at between the parties in such a way that joint efforts are made to make the transaction and agreement effectively. No doubt, the assessee was required to obtain the confirmation of HLL but at the same time, Mr. Smith was required to assist the assessee in getting the contract transferred in assessee’s name, (clause 2 of the agreement). It also appears from clause 4 which provides that Mr. Smith shall inform HLL that he is still involved in the assessee-company.

All this arrangement was made in order to get the said contract transferred in the name of assessee so as to make the agreement effective. That does not mean that payment was not made for acquiring the rights under the contract. The substance of the agreement was to acquire all the rights in the contract. Accordingly, it is held that the payment done by the assessee for acquiring all the rights in the said contract as well as all the articles and paraphernalia belonging to Mr. Smith which were lying at the canteen.

The rule of ejusdem generis would apply. The scope of the rule is that words of a general nature following specific and particular words should be construed as limited to things which are of the same nature as those specified. The general words take the colour from the specific words. The specific words in the above section reveal the similarity in the sense that all the intangible assets specified are tools of the trade which facilitate the assessee carrying on the business.

Therefore, in my opinion, the expression ‘any other business or commercial rights of similar nature’ would include such rights which can be used as a tool to carry on the business. If this test is applied, then the rights acquired by the assessee under the agreement would fall within the expression mentioned above, since catering business at HLL canteen could be carried on only with the help of such rights under the contract and consequently, the assessee would be entitled to depreciation.

At this stage, it may be mentioned even for the sake of repetition that assessee had not only acquired the rights under the contract but also articles and paraphernalia lying in the canteen of HLL as stated in clause 5 of the agreement. Such articles being tangible assets would be eligible for depreciation under the clause (i) of section 32(1) and therefore value of the same will have to be ascertained by the Assessing Officer and the balance amount shall be allocated for the intangible asset for the purpose of granting depreciation under clause (ii) of section 32(1).

Thus, the order of the learned CIT(A) is set aside and the Assessing Officer is directed to allow the depreciation in the light of this order.

In the result, the appeal of the assessee stands allowed.