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2020 (3) TMI 576 - AT - Income TaxAllowability of depreciation on the actual cost of the assets arrived at by virtue of revaluation of the trade mark - firm is succeeded by a company falling u/s 47(xiii) - Revenue has not been able to produce the copy of approval from Joint CIT for invocation of Explanation 3 to section 43(1) - HELD THAT:- Once there is a categorical finding in this regard, the invocation of Explanation 3 to section 43(1) fails. Accordingly we hold that that the disallowance of depreciation by invocation of Explanation 3 to section 43(1) in this regard fails on account of lack of jurisdiction. Applicability of 5th proviso to section 32(1) - Even in case as the present one where the firm is succeeded by a company falling u/s 47(xiii), the Act mandates that the aggregate deduction in respect of the concern asset shall not exceed in any previous year, the deduction calculated at the prescribed rates as if the succession has not taken place and such deduction shall be apportioned between the predecessor and successor in the ratio of the number of days for which the assets were used by them. In the present case the predecessor is the firm M/s Veeky Industries. The trade mark “PIK” standing in its books had a cost of ₹ 100/- It had a revaluation figure of ₹ 5.52 crores and the amount of revaluation was transferred to reserve account. As per the provisions of Law, the firm cannot claim depreciation on any revaluation figure. The depreciation has to be claimed on the cost incurred by it. By no stretch of imagination ₹ 5.52 crores less ₹ 100/- was the cost incurred by the assessee firm. Hence the assessee firm was not entitled to depreciation on the revaluation figure of ₹ 5.52 crores. Now the firm i.e. the predecessor has been succeeded by assessee company on 01-02- 1999 and the company has claimed depreciation on the value of trade mark in its books at ₹ 5.52 crores. If the succession had not taken place, there would not have been any depreciation allowance on the revaluation figure. In other words, the revaluation of ₹ 5.52 crores (less ₹ 100/-) cannot be taken into account for granting depreciation to the successor i.e. the assessee company. As per the plain reading of the Law, the 5th Proviso to section 32(1) debars the assessee company to claim depreciation on the amount which was represented by revaluation in the books of the predecessor. The various arguments given by the learned counsel of the assessee are not at all sustainable on the plain meaning of the provision of the statute. In situation such as in the present case where a firm has been successed by the company the depreciation is to be provided as if the succession has not taken place. As the depreciation is to be allowed in the same manner as it would have been allowed in the hands of the predecessor firm. Since the predecessor firm was not entitled to depreciation on the amount of trade mark presented by revaluation reserve, depreciation to that extent is also not available in the hands of the assessee company also. The scheme of the Act in this regard does not require any valuation report to be obtained by the Revenue. As a matter of fact, learned counsel of the assessee in his submissions in item No. B above is mentioning that “Thus for 5th proviso to be applicable both the predecessor and the successor company should be capable/eligible for claiming depreciation. In the facts of the present case, the predecessor company could not have claimed depreciation on the revalued amount. Hence 5th proviso to section 32(1) cannot apply.” We find that the above is a distortion of the proviso. No where the proviso mentions that the predecessor has always to be a company. It specifically covers transfer under section 47(xiii). This section deals with succession of a firm by a company. When learned counsel of the assessee is himself admitting that the predecessor could not have claimed on the revalued amount, there is no question of the assessee company getting depreciation on the revalued amount. In the present case as the facts indicated that the said trade mark was acquired at a cost of ₹ 100/-, no further addition on account of revaluation for the purpose of depreciation is allowable in the hands of the assessee. - Decided against assessee
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