TMI Blog2012 (12) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... that:- following the decision of court in case of Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax [2011 (11) TMI 267 - DELHI HIGH COURT] it is fair and appropriate to set aside the order of CIT(A) and restore the matter to his file for deciding the issue, afresh in accordance with law in the light of aforesaid judicial pronouncements, after allowing sufficient opportunity to both the parties - In result, appeal for the AY 2004-05 is allowed but appeal for the AY 2005-06 is allowed partly for statistical purposes. - ITA Nos.2889 & 2890/Del/2009 - - - Dated:- 2-11-2012 - SHRI RAJPAL YADAV, SHRI A.N. PAHUJA, JJ. Revenue by Shri Anoop Kr. Singh,DR O R D E R A.N.Pahuja:- These two appeals filed on 15th June, 2009 by the assessee against two separate orders dated 23-03-2009 26.3.2009 of the ld. CIT(A)-IX, New Delhi, for the AYs 2004-05 2005-06 respectively, raise the following grounds:- I.T.A. no.2889/Del./2009 AY 2004-05 1. That on the facts and circumstances of the case, the learned CIT(A) erred in holding that notice u/s 148 was issued validly and proceedings u/s 147 are in order. 2. That the learned CIT(A) ought to have seen that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .11.2004. Subsequently, the Assessing Officer (A.O. in short) noticed that the assessee claimed depreciation amounting to Rs.42,68,583/- on goodwill which was intangible asset and in his opinion the said depreciation was wrongly allowed. Accordingly, the AO after recording reasons in writing in terms of provisions of section 148(2) of the Act, issued a notice dated 17.4.2008 in terms of provisions of sec. 147/148 of the Act. In response, the assesseee sought a copy of reasons recorded which were supplied on 23.04.2008. During the course of reassessment proceedings, to a query by the AO, the assessee replied that the assessee [MBIL] ,in the business of manufacturing beer, in 2002 took over the assets and liabilities of Millenium Alcobev Pvt. Ltd.[MAPL] and paid goodwill, being difference between the assets and liabilities, MAPL was trading in breweries goods and had distribution network all over India. Accordingly, the assessee claimed that in terms of provisions of section 32 of the Act, the assessee was entitled to depreciation on the amount paid for goodwill. However, the AO did not accept the submissions of the assessee and added back depreciation on goodwill, in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only remaining category is the residual one "any other business or commercial rights of similar nature". It is to be seen that any other business or commercial rights are not by themselves intangible acquisition of goodwill then the said payment does not come under either know-how, assets eligible for depreciation. Those rights must be of similar natureto know-how, patents, copyrights, trademarks, licences, franchises. Any business or commercial rights not similar in nature to the above mentioned six items cannot be treated as intangible assets qualified for depreciation. 4.6 This is because "any other business or commercial rights of similar nature" provided as a residual category is found in the company of expression like know-how, patents, copyrights, trademarks, licences, franchises, and therefore, in view, of the principle of 'ejusdem generis', the above expression "'any other business or commercial rights" has to be read in the consonance with preceding words. 'Ejusdem generis' rule is the rule of generic words following more specific one. The rule is that when general words follow specific words of same nature, the general words must be confined to the things of the same k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d orders of the ld. CIT(A) in these two years, even when he was pointed out a decision dated 22.8.2012 of the Hon ble Apex Court in . CIT Vs Smifs Securities Ltd. in CIVIL APPEAL NO.5961 OF 2012 6. We have heard the learned DR and gone through the facts of the case as also the aforesaid decision of the Hon ble Apex Court.. We find that in the case of Smifs Securities Ltd.(supra) ,inter alia, following question of law was placed for answer by the Hon ble Court:- Question No.[b]: "Whether goodwill is an asset within the meaning of Section 32 of the Income Tax Act, 1961, and whether depreciation on Rs.goodwill' is allowable under the said Section?" 6.1 Hon ble Apex Court answered the question in the following terms: In the present case, the assessee had claimed deduction of Rs.54,85,430/- as depreciation on goodwill. In the course of hearing, the explanation regarding origin of such goodwill was given as under: "In accordance with Scheme of Amalgamation of YSN Shares Securities (P) Ltd with Smifs Securities Ltd (duly sanctioned by Hon'ble High Courts of Bombay and Calcutta) with retrospective efect from 1st April, 1998, assets and liabilities of YSN Shares Securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence between the cost of an asset and the amount paid constituted goodwill and that the assessee- Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal [Rs.ITAT', for short]. We see no reason to interfere with the factual finding. One more aspect which needs to be mentioned is that, against the decision of ITAT, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove. For the afore-stated reasons, we answer Question No.[b] also in favour of the assessee. 7. In the light of view taken by the Hon ble Apex Court that Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act, we have no hesitation in vacating the findings of the ld. CIT(A) and accordingly, direct the AO to allow the claim of depreciation on goodwill in terms of aforesaid decision of the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or otherwise. As held by the Hon ble Gujrat High Court in their decision in Saurashtra Cement Chemical Industries Ltd. vs. CIT, 213 ITR 523(Guj) ,merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are maintained on the mercantile basis it has to be found in respect of any claim, whether such liability was crystallized and quantified during the previous year so as to be required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years it cannot be disallowed as deduction merely on the basis the accounts are maintained on mercantile basis and that it related to a transaction of the previous year, the Hon ble High Court observed. It was further concluded that it is actually known income or expenses, the right to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stock Brokers (P.) Ltd. ,326 ITR 1, inter alia, observed that for attracting sect ion 14A of the Act there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. 11.2 Hon ble Punjab Haryana High Court in their decision in CIT vs. Hero Cycles Ltd., 323 ITR 518 have observed that disallowance under sect ion 14A requires finding of incur ring of expenditure and where it is found that for earning exempted income no expenditure has been incurred, disallowance under sect ion 14A cannot stand. 11.3 In the light of view taken in the aforesaid decisions, Hon ble jurisdictional High Court in a recent decision dated 18.11.2011 in Maxopp Investment Ltd. vs. CIT, [2011] (Delhi) held as under: 35. We are of the view that Rule 8D would operate prospectively. We agree with the submissions made by Dr Rakesh Gupta that if the said Rule were to have retrospective effect, nothing prevented the Central Board of Direct Taxes from saying so, particularly, in view of the fact that it had the power to make a rule retrospective by virtue of Section 295(4) of the said Act. Instead of making Rule 8D retrospective, clause 1(2) of the Income-tax (Fifth Amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mained an empty shell until the introduction of Rule 8D on 24.03.2008 which gave content to the expression "such method as may be prescribed" appearing in Section 14A(2) of the said Act. 40. From the above discussion, it is clear that, in effect, the provisions of sub sections (2) and (3) of Section 14A would be workable only with effect from the date of introduction of Rule 8D. This is so because prior to that date, there was no prescribed method and sub-sections (2) and (3) of Section 14A remained unworkable. 12. Since the the ld. CIT(A) did not have the benefit of aforesaid decisions including that of the Hon ble jurisdictional High Court in Maxopp Investment Ltd.(supra), we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issue, afresh in accordance with law in the light of aforesaid judicial pronouncements, after allowing sufficient opportunity to both the parties. Needless to say that while re-deciding the appeal, the ld. CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act . With these observations, ground no. 1 in the appeal is di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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