TMI Blog2012 (5) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... gory of intangible asset as contemplated u/s 32(1)(ii) of the IT Act. - Decided in favor of assessee. - IT Appeal No. 3571 (Mum.) of 2011 - - - Dated:- 30-3-2012 - J. SUDHAKAR REDDY, VIJAY PAL RAO, JJ. For the Appellant: Shri A.K. Nayak For the Respondent; Shri Vijay Mehta ORDER Vijay Pal Rao, Judicial Member This appeal by the revenue is directed against the order dated 17.3.2011 of the CIT(A) for the AY 2007-08. 2. The revenue has raised the only ground in this appeal is as under: Whether on the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of depreciation of ₹ 68,87,500/-claimed u/s 32(1)(ii) of the act. 3. The assessee company is engaged in the business of dealing in foreign exchange, money transfer and wind power generation etc. During the year under consideration, the assessee company had acquired franchise from AFL Pvt Ltd (ALF) vide agreement dated 9.1.2007 for a consideration of ₹ 5.51 crores. The assessee claimed deprecation @ 25% (12.5 % on for half yearly) on the said amount u/s 32(1)(ii) of the Act. The Assessing Officer asked the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of sec. 32(1)(ii) of the I T Act and submitted that the depreciation is allowable on any business or commercial rights. He has further submitted that the assessee acquired the commission business rights of similar nature vide transfer agreement dt 9.1.2007. The ld AR has referred by various clauses of the agreement and submitted that as per clause A B of the recital of the agreement, the assessee and AFL are the representatives of Western Union network and also having sub representative in respect of the business of money transfer. The ld AR has further pointed out that by virtue of transfer agreement, the assessee replaces AFL being the representative of Western Union and acquired the network of sub representative of AFL. He has referred to clause 1.1 of the agreement which contains the definition of asset and submitted that the assets which are subjected to transfer between the parties are described in the agreement. The ld AR has submitted that basically the assessee has acquired the agreement with the sub representative which is a marketing network of business of money transfer. The ld AR has pointed that there is no dispute on the point that the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce sheet; however, the Tribunal held that merely because the assessee showed the said payment on account of goodwill in the books of account, no adverse inference could be drawn against the assessee. It was held that the payment was for acquiring all the business rights under the catering contract between R and HLL which is eligible for depreciation being on business or commercial rights. 4.5 The ld AR has also relied upon the decision of the Hon'ble Delhi High Court in the case of CIT v. Hindustan Coca Cola Beverages (P.) Ltd. [2011] 331 ITR 192/198 Taxman 104/9 taxmann.com 104 and submitted that the Hon'ble Delhi High Court has observed that the meaning of business or commercial rights of similar nature has to be understood in the backdrop of section 32(1)(ii) of the Act and such rights which are obtained for carrying on the business with effectiveness is likely to fall or come within the sweep of meaning of intangible asset. 4.6 The ld AR has also referred the decision of the Hon'ble Gujarat High Court in the case of CIT v. Elecon Engg. Co. Ltd. [1974] 96 ITR 672 and submitted that the said decision has been upheld by the Hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eror amongst their other businesses is also engaged in offering Western Union branded Money Transfer Service in India as one of the representatives of Western Union. The Transferor also possesses the necessary approvals from Reserve Bank of India to offer such Money Transfer Service. 6.2 It is clear from the starting word of the clause (B) that money transfer services is one of the various businesses of AFL and not the sole and only business. 6.3 Similarly, clause (C) of the recital of the agreement contains the subject matter of transfer between the parties as under: (C). The Transferor has agreed to assign and transfer and the Transferee has agreed to purchase and acquire the licenses and franchises consisting of Representation Agreement executed with Western Union facilitating the Transferor to function as one of the representatives of Western Union offering Western Union Money Transfer Service Business (as defined hereinafter) and the Sub Representation Agreements executed between the Transferor and the Sub Representatives to enable the said Sub Representatives to function as the representatives of the Transferor in the matter of offering Western Union Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature but denied the claim of depreciation on the ground that such advantage does not suffer and wear tear. 7.3 It is pertinent to mention at this stage that in the case of intangible asset physical wear tear is not necessary and also not required for allowing the claim of depreciation u/s 32(1)(ii). Further, no such conditions is provided under the provisions of the Act that deprecation on intangible asset is allowable only if there is wear tear in the value. The Chennai Bench of the Tribunal in the case of Medicorp Technologies India Ltd. ( supra ) in para 15.3 and 15.4 has held as under: 15.3 The above examples, show that the provisions of s. 32 do not necessarily follow the traditional concept of an 'asset', and an accountant's approach to 'depreciation'. In fact, the taxation laws are known to have been used as a tool for implementing the economic/fiscal policies of the State. 15.4 It becomes clear from the above discussion that capability to have a market value, assignability, transferability, diminution in value, are no more the 'touch stones' on which the admissibility for depreciation under s. 32 of the Act has to te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion paid by the assessee. As mentioned in clause (C) of the recital of the agreement, the assessee purchased rights vested with AFL with regard to the Franchise/license of doing business of money transfer services being the representative of Western Union network including rights of AFL, qua sub representative. After the transaction of transfer the assessee acquired the right to become representative of Western Union in place of AFL and consequently to deal with and to do the business through the sub representative earlier working with AFL. In this way, the assessee gets the rights to have access with the marketing network consisting of sub representative having infrastructure, customer lists, marketing strategies etc. Hence, by virtue of agreement of transfer, the assessee acquired the rights to avail the infrastructure of the networking earlier available to AFL for doing the business of money transfer being representative of Western Union. This right has been understood by the parties as explained in the definition of asset under clause 1.1 of the agreement as under: 1.1. Definitions. Unless otherwise defined in this Agreement, the following capitalised terms shall be used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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. 12.1 In the above said case, the Tribunal has held that the term 'any other business or commercial rights of similar nature' used in sec. 32(1)(ii) would include such right which can be used as tool to carry on the business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Accountant's Hand Book by Dickson, fourth edition, section 17.2 and Principles of Accountancy by Filney and Miller, fifth edition, pages 282-90). Apart from accounting practice or principles, section 32(1)(iii) itself speaks of allowance in the case of any plant which is discarded in the previous year and the word discarded has been understood to cover the case of obsolescence. It appears to us, therefore, that it would not be correct to limit the meaning of the word plant in section 32 to only such articles as are capable of diminution in value year after year by reason of wear and tear in the course of their application for the purposes of the assessee's business or profession. It would also take in other articles which diminish in value on account of other known factors such as obsolescence. It cannot be disputed that know-how, in whatever form it may be, is capable of diminishing in value over years by obsolescence. It would, therefore, be included within the meaning of the word plant in section 32. 13.1 As observed by the Hon'ble High Court in the above case the meaning of the word plant would not be limited to the articles which are capab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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