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TMI Blog2012 (5) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to justify the claim of depreciation on the intangible assets. The assessee, vide letter dated 19.1.2009 has furnished its elaborate reply. The Assessing Officer did not accept the contention of the assessee and disallowed the claim of depreciation on intangible assets. 3.1 On appeal, the CIT(A) allowed the claim of the assessee by following the decision of the Tribunal in the case of Kotak Forex Brokerage Ltd. v Asstt. CIT [2009] 33 SOT 237 (Mum.) 4. Before us, the ld DR has submitted that this is a case of transfer of on-going concern to another on-going concern and not merely a transfer of intangible assets. AFL had transferred its entire network to the assessee for which no valuation has been done. The ld DR has submitted that the entire consideration for acquiring the network also includes the payment for non-compete fee. However, the assessee has not shown any bifurcation of the consideration paid for non-compete fee to AFL. The ld DR has further submitted that since the assessee has acquired only the network and not name of the seller; therefore, no payment has been made for goodwill as it was in the case of Kotak Forex Brokerage Ltd., (supra) relied upon by the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y goodwill; therefore, there is no payment for goodwill. He has contended that when the agreement is salient on a point, then nothing can be read into the agreement. He has relied upon the decision of the Hon'ble supreme Court in the case of Vodafone International Holdings B.V. v. Union of India [2012] 341 ITR 1/204 Taxman 408/17 taxmann.com 202. 4.3 The ld AR has objected to the question raised by the ld DR on the point of valuation first time at this stage. He has submitted that the issue of valuation was not raised by the Assessing Officer and hence, it cannot be raised first time at this stage before the Tribunal. No separate valuation or amount agreed between the parties for non-compete fee and the consideration is a composite amount and transfer agreement is also a composite agreement. The ld AR referred the observations at page 249 of the decision of the Supreme Court in the case of Vodafone International Holdings B.V (supra) in support of his contention. It has been submitted by the ld AR that all the sub representatives of AFL became sub representatives of the assessee because of the transfer of the franchise and license. He has drawn our attention to clause 2.3 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has observed that depreciation u/s 32 is a statutory allowance not confined expressly to diminution in value of the asset by reason of wear and tear. 4.7 The ld AR has further submitted that the objection raised by the ld DR is not relevant in respect of third party beneficiary and enforceability of the agreement against the sub representative because the condition for allowability of depreciation is the acquisition and use of asset and not the vulnerability of it to outside force. 5. In rebuttal, the ld DR has submitted that principle of ejusdem generis is applicable and therefore, any tangible asset in the nature of the rights similar to patents, license etc, is eligible for depreciation as per sec. 32(1)(ii) of the act. He has further submitted that the observation made in the case of Vodafone International Holdings B.V. (supra) are not applicable in the case of the assessee because in the said case, the revenue wanted to assess the income whereas in the case of the assessee, the assessee has claimed depreciation on intangible asset. Therefore, the assessee has to establish the claim and the onus is not on the revenue to establish otherwise. He has reiterated the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is (i) license and franchisee consisting of representative agreement with Western Union held by AFL (ii) sub representative agreement with AFL and sub representative in respect of the business of Western Union Money transfer services. In this way, AFL transferred its rights of business and business network with respect to the money transfer business being the representative of the Western Union network. It is clear that it is not the case of entire on going concern i.e AFL or its brand name; but only business rights in respect of one of its various businesses. 7. The second objection of the ld DR is valuation of intangible assets and non-compete fee. 7.1 It is pertinent to note that there is no averment in the agreement for such transaction of goodwill or any consideration for non-compete fee. Further, no such claim is made by the assessee. The Assessing Officer has also not doubted the consideration paid for acquiring the business assets and not for goodwill in para 5 of the assessment as under: "5. The reply of the assessee has been considered but not found acceptable for the reasons mentioned hereinbelow:. (i) The said agreement is for purchase of dealership netw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve truly kept pace with the change." Therefore, in the case of intangible asset being commercial/business rights diminution in value or physical wear and tear is not an essential condition for admissibility for depreciation u/s 32, if the assets used as a business tool for earning the income. 8. The third argument of the ld DR is regarding the assessee having no right to sue the third party especially Western Union and sub representative and the transfer agreement cannot be enforced against them. 8.1 It is to be noted that the agreement is enforceable against the parties to the agreement. If a right has been acquired under an agreement by one party from the other party, then the said right is legally enforceable as per the terms of the agreement against the party to the agreement as well as against the outer word so far as the legality and enjoyment of the right having purchased under the agreement is concerned. Therefore, there is no gain saying that the agreement is not enforceable against the third party. When the parties to the agreement can otherwise enforce agreement against each other and have legal remedy in case of breach of terms and conditions by either of the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all of the Transferor's assets relating to the Western Union Money Transfer Service Business viz.: (i) any and all pending contracts, licenses and franchises as detailed in Schedule I annexed hereto; (ii) the distribution network, customer lists, marketing strategies, and software, if any, (iii) services of all of the Company Personnel attached to the Western Union Money Transfer Service of Transferor as detailed in Schedule 2 annexed hereto." The definition of the asset which is a subject matter of the transfer consists of all contract, licenses, franchises, distribution network, customer lists, marketing strategies and software etc., relating to Western Union business. Thus, the transfer involves a composite asset including all rights relating to Western Union business which certainly a business/commercial rights having an enduring benefit to the assessee as admitted by the Assessing Officer. 12. In the case of Skyline Caterers (P.) Ltd (supra), the Tribunal has dealt with the issue of allowability of depreciation of intangible assets in para 9 as under: "9. The next question for consideration is whether the rights acquired under the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Co Ltd. (supra) has held at page 709 & 710 as under: "It is apparent that an allowance in the nature of depreciation could have been claimed by the taxpayer in those cases only if the machinery or plant used for the purposes of the trade had diminished in value by reason of wear and tear during the relevant year and that it was for the Commissioners having jurisdiction in the matter to allow such deduction as they considered just and reasonable. It was in the light of this statutory requirement and the facts of those cases that it was held that the claim made there was not sustainable. However, the position is entirely different under section 32 of the Income-tax Act. The depreciation allowance thereunder is a statutory allowance not confined expressly to diminution in value of the asset by reason of wear and tear and the assessee is thereunder entitled as of right to the full amount of prescribed allowance once the conditions laid down therein are satisfied irrespective of whether there has in fact been any depreciation in the value of the asset by wear and tear or otherwise. The allowance can be claimed if the asset in question is shown to be capable of diminishing in value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of business or commercial rights of similar nature has to be understood in the backdrop of section 32(1)(ii) of the Act. Commercial rights are such rights which are obtained for effectively carrying on the business and commerce, and commerce, as is understood, is a wider term which encompasses in its fold many a facet. Studied in this background, any right which is obtained for carrying on the business with effectiveness is likely to fall or come within the sweep of meaning of intangible asset. The dictionary clause clearly stipulates that business or commercial rights should be of similar nature as know-how, patents, copyrights, trademarks, licences, franchises, etc. and all these assets which are not manufactured or produced overnight but are brought into existence by experience and reputation. They gain significance in the commercial world as they represent a particular benefit or advantage or reputation built over a certain span of time and the customers associate with such assets. Goodwill, when appositely understood, does convey a positive reputation built by a person/company/business concern over a period of time. Regard being had to the wider expansion of the definition a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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