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2014 (9) TMI 280 - ITAT DELHIDepreciation in intangible assets disallowed u/s 32(1)(ii) - Whether consideration paid to acquire rights under the contract did not represent depreciable intangible asset, in terms of Section 32(1)(ii) of the Act – Held that:- The assessee has acquired maintenance contracts for 3578 elevators which is the main source of revenue for the assessee, and maintenance contracts for 1001 elevators which are under warranty period and which will start yielding revenue once the warranty period expires - the Assessee has acquired exclusive right to execute the maintenance contracts as it constitutes the very backbone of the business as per the “Undertaking and Sale Agreement” between the parties - the Assessee has obtained all Intellectual Property Rights in the form of know- how relating to the complete business of the “Maintenance Division” of ECE Ltd. - apart from IPR”s, the Assessee has also received leases, licenses, offers and purchase orders etc. relating to the said Maintenance Division of ECE Ltd. Likewise, the Assessee has also obtained various rights, permits, authorizations etc. relating to the business of Maintenance Division of ECE Ltd. including the benefits accruing from existing and prospective service contracts with third parties in whose premises the products of the vendor have been installed. AMCs would not fall under any of the specified intangible assets such as know-how, patents, copyrights, trademarks, licenses and franchises listed under Section 32(1)(ii) of the Act - the present Agreement represent a bundle of rights in the form of “commercial rights” which eventually constitute the basic income earning apparatus of the Assessee – the contention of the assessee is accepted that AMCs are commercial rights and the same should rightly be categorized as “business or commercial rights” for the purposes of Section 32(1)(ii) of the Act - AMCs should get covered within the expression" business or commercial rights of similar nature" specified u/s 32(1)(ii) of the Act and accordingly eligible for depreciation – Decided in faovur of assessee. Admission of additional ground - Depreciation in goodwill u/s 32(1)(ii) – Held that:- Following the decision in Commissioner of Income Tax, Kolkata Versus Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] - the assessee became aware of its rights to claim depreciation in terms of Sec. 32 on “goodwill of business” and moved an application for admission of additional grounds before us for the first time - the value ascribed to “goodwill” was always part of the accounts of the Assessee in terms of audited balance sheets of the Assessee for the year ending 31.03.2003 and the same were part of the purchase consideration as could be seen from Article 3.1 of the said Agreement – admission of application for additional ground as non- allowance could result in denial of justice – Decided in favour of assessee. Following the decision in Srinivasa Shetty [1981 (2) TMI 1 - SUPREME Court] - because of its intangible nature it (goodwill) remains insubstantial in form and nebulous in character - Its value may fluctuate from one moment to another depending on the changes in the reputation of business - the cumulative amount as shown in the Undertaking and Sale Agreement is inclusive of “goodwill” though this is not specifically the subject matter of slump-sale in the Undertaking Sale Agreement - on the one end the amount of goodwill is not reflected in the Undertaking and Sale Agreement but a cumulative amount inclusive of the value of goodwill is mentioned while, on the other end the balance sheets of the assessee disclose ₹ 1,85,44,612/- as “goodwill” and ₹ 18,34,74,000/- as value for “maintenance portfolio” – thus, excess consideration paid by the assessee over and above the value of net assets should be considered as “goodwill” of business, since “goodwill” is duly accounted for in the audited accounts of the assessee for period ending 31.03.2003 and the valuation made during “slump-sale” of business has factored the value of “goodwill” in the composite value of “Maintenance portfolio” - “goodwill” being in the nature of excess consideration should get covered within the expression "business or commercial rights of similar nature" as specified u/s 32(1)(ii) of the Act and accordingly be eligible for depreciation – Decided in favour of assessee.
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