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2015 (5) TMI 85 - DELHI HIGH COURT

2015 (5) TMI 85 - DELHI HIGH COURT - TMI - Depreciation on 'goodwill' - whether nature of the marketing rights were such that there was no similarity or identity with the enumerated rights set out in Explanation 3 (b) and having regard to these facts, unless the assessee demonstrated and proved that such rights were akin to the intangible assets mentioned, it could not claim depreciation? - CIT(A) allowed claim also confirmed by ITAT - Held that:- The structure of the definition, or rather expan .....

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t, i.e., ₹ 9 Crores was paid by the assessee to the transferor who owned commercial rights towards the network and the facilities. The consideration was a specific value but for which the network would not have been otherwise transferred. In that sense, it constituted business or commercial rights which were similar to the enumerated intangible assets. In so concluding, however, this Court does not lay down the general or particular principle that every such claim has to be necessarily all .....

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therwise available but for the terms of the arrangement. So viewed, this Court is satisfied that the conclusions arrived at by the CIT (A) and the ITAT cannot be faulted. No substantial question of law arises - Decided in favour of assessee. - ITA 496/2014 - Dated:- 15-4-2015 - S. Ravindra Bhat And R.K. Gauba JJ. For the Appellant : Mr. Kamal Sawhney, Sr. Standing Counsel with Mr. Sanjay Kumar, Jr. Standing Counsel and Mr. Mukul Mathur, Advocates. For the Respondent : Mr. Kaanan Kapur with Mr. B .....

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2000, the assessee acquired the shares of M/s Siemens Telecom Ltd. ( STL‟). The consideration paid by the assessee, inter alia, included the sum of ₹ 9 Crores for the marketing, customer support, distribution and associate setups of STL. It is a conceded fact that for the previous assessment years, i.e., 2002-03, 2003-04 and 2004-05, the depreciation claim of the assessee was allowed and had acquired finality. In these circumstances when the returns for AY 2006-07 were considered by .....

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ve user of such acquisition be gauged from the agreement. It would be pertinent to note that one of the stipulated conditions of the aforesaid agreement is non disclosure of this agreement to any third party without prior written consent. 3.8 From the totality of events and circumstances, it IS axiomatically held that what has been acquired is not the ownership right but an arrangement for use of such network. In view of this, no depreciation can be allowed on such payment which has euphemistica .....

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depreciation claims. The CIT (A) also considered the relevant statutory provisions and the decision of this Court in CIT v. Hindustan Coca Cola Beverages Pvt. Ltd., (2011) 331 ITR 192. The ITAT by the impugned order affirmed the findings of the CIT (A). 5. It is urged by Mr. Kamal Sawhney, Sr. Standing Counsel that given the nature of the definition of asset under Section 32 (1), Explanation 3 (b), only intangible assets which are akin to those enumerated, i.e., know-how, patents, copyrights, tr .....

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assets mentioned, it could not claim depreciation. 7. Mr. Kaanan Kapur, learned counsel for the assessee, on the other hand, relied upon the ruling in Hindustan Coca Cola Beverages (supra) and also pointed out that Supreme Court s ruling in CIT v. M/s Smifs Securities Limited, (2012) 348 ITR 302 ( SC) has held that the claim for depreciation of goodwill is admissible. 8. The relevant provision, i.e., definition of assets in Section 32 which enables the assessee to claim depreciation reads as fol .....

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purposes of this sub-section, [the expression assets shall mean - (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. 9. In Hindustan Coca Cola Beverages (supra), this Court had an occasion to consider Explanation 3 (b) in the specific context of claim for depreciation of goodwill. The Division Bench noticed the various decis .....

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see and the delineation thereon by the tribunal are to be scanned and appreciated. The claim of the Assessee-Respondent, as is discernible, is that the assessing officer had treated the transactions keeping in view the concept of business or commercial rights of similar nature and put it in the compartment of intangible assets. To effectively understand what would constitute an intangible asset, certain aspects, like the nature of goodwill involved, how the goodwill has been generated, how it ha .....

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putation, trade style and name, marketing and distribution, territorial know-how, including information or consumption patterns and habits of consumers in the territory and the difference between the consideration paid for business and value of tangible assets. The tribunal has treated the same to be valuable commercial asset similar to other intangibles mentioned in the definition of the block of assets and, hence, eligible to depreciation. It has also been noted by the tribunal that the said f .....

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e identifiable as a separate asset. They can be in the form of copyrights, patents, trademarks, goodwill, trade secrets, customer lists, marketing rights, franchises, etc. which either arise on acquisition or are internally generated. 24. It is worth noting 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. Commercial rights are such rights which are obtained for effectively carrying on the business and commer .....

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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 after the amendment of S .....

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d nothing else. As has been held by the Apex Court in Malabar Industrial Co. Ltd. (supra), Max India Ltd. (supra) and Commissioner of Income Tax v. Vimgi Investment P.Ltd. [2007] 290 ITR 505 (Delhi) once a plausible view is taken, it is not open to the Commissioner to exercise the power under Section 263 of the Act. 10. In Smifs (supra), the Court was pointedly answering the questions as to whether goodwill would be within the meaning of Section 32. After quoting Explanation (3) to Section 32 (1 .....

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s and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the Assessee for a consideration; that the difference 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 [ ITAT', for short]. We see .....

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f the Assessee. From the above discussion, it is apparent that the question as to whether the claim for depreciation confirms to one or the other description under Section 32, especially Explanation 3 has to be examined with reference to what is put forward by the assessee in the given facts of each case. The structure of the definition, or rather expanded definition, which by Explanation 3 spells out what are intangible assets (know-how, patents, copyrights, trademarks, licences, franchises etc .....

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