TMI Blog2015 (11) TMI 1218X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchaser. Such goodwill is also commonly understood as the value of the whole undertaking less the sum total of its parts. Thus we are inclined to accept the contention advanced on behalf of the Assessee that the consideration paid by the Assessee in excess of its value of tangible assets was rightly classified as goodwill In the facts of the present case, the ITAT has rejected the view that the slump sale agreement was a colourable device. Once having held so, the agreement between the parties must be accepted in its totality. The Agreement itself does not provide for splitting up of the intangibles into separate components. Indisputably, the transaction in question is a slump sale which does not contemplate separate values to be ascribed to various assets (tangible and intangible) that constitute the business undertaking, which is sold and purchased. The Agreement itself indicates that slump sale included sale of goodwill and the balance sheet drawn up on 22nd September, 2006 specifically recorded goodwill at ₹ 40,58,75,529.40/-. As indicated hereinbefore Goodwill includes a host of intangible assets, which a person acquires, on acquiring a business as a going conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g any other value to goodwill does not arise. 4. The aforesaid controversy arises in the backdrop from the following facts:- 4.1 The Assessee Company (formerly known as Saijem Triune Energy Pvt. Ltd.) was incorporated during the financial year 2006-07. Fifty percent (50%) of the issued and subscribed share capital of the Assessee Company are held by M/s Saipem, Italy and a balance 50% are held by one Mr Binoy Jacob. The Assessee is a Design Engineering and Consultancy Company servicing industries engaged in Oil and Gas production and processing (offshore and onshore), Petroleum Refining, Petroleum Storage and Transportation, Chemicals and Petrochemicals. 4.2 Mr Binoy Jacob was also, at the material time, one of the principal shareholders/promoters of the company Triune Projects Pvt. Ltd. (hereafter TPPL ) and held 76.42% of the issued and subscribed share capital of TPPL. 4.3 TPPL was also a company, inter alia, engaged in providing engineering and design services to the oil and gas industry. On 22nd September, 2006, the Assessee company entered into a slump sale/business transfer agreement (hereafter also referred to as the Agreement ) in terms of which TPPL sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .7 Aggrieved by the decision of the AO, the Assessee preferred an appeal before CIT(A). The CIT(A) observed that Mr Binoy Jacob was a principal promoter of TPPL and also held 50% shares in the Assessee Company. He also observed that while Mr Binoy Jacob had acquired 50% shares of the Assessee at ₹ 10 per share, the other investor, M/s Saipem, Italy had acquired the balance 50% shares at a premium of ₹ 45,840/- per share of ₹ 10/- each. Further, almost the entire sum collected from M/s Saipem, Italy had been paid to TPPL. On the aforesaid basis, CIT(A) concluded that the provisions of Section 40A of the Act were applicable and the purchase price paid by the Assessee to TPPL was excessive and unreasonable. The CIT(A) further upheld the AO s view that the Agreement was a colourable device entered into only for the purposes of obtaining an undue tax advantage. The CIT(A) also did not accept the valuation report whereby the value of goodwill had been bifurcated into different components. The CIT(A) rejected the Assessee s claim that it had acquired any knowhow from TPPL and in any event found that the valuation of ₹ 26.20 was exaggerated. Similarly, the CIT(A) di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly reflected ₹ 40,58,75,529/- as goodwill. He referred to the decision of the Supreme Court in Smifs Securities Ltd. (supra) in support of his contention that the depreciation was allowable on goodwill. He submitted that the scope of Section 32 had been widened by Finance Act (2) Act, 1988 and depreciation was now allowable on intangible assets acquired on or after 1st April, 1998. He further submitted that the consideration paid by the Assessee in excess of the value of tangible assets was attributable to the corporate name, the business set up, various licenses and commercial rights acquired by the Assessee as a part of the going concern of TPPL. Mr Sabharwal also referred to Accounting Standard 10 in support of his contention that the excess amount payable was to be accounted as goodwill. 6. Mr Rohit Madan did not dispute that the depreciation was allowable on goodwill and he without prejudice to the Revenue s contention in ITA 189/2015, supported the ITAT s conclusion to remand the matter for valuation of goodwill. 7. Ms Suruchi Aggarwal, learned senior standing counsel appearing for the Revenue in ITA 189/2015 submitted that the ITAT had erred in holding that S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied the business of TPPL, which was sold to the Assessee. Apart from the tangible assets the said Schedule also included the following:- 3) TPPL Contracts: The benefits and liabilities of TPPL s ongoing contracts as well as any other letters of intent/contracts/orders related to the Business up to the 22nd September 2006 and any revenue to be still received on 22nd September 2006. The ongoing TPPL contracts are listed in Appendix 4 to this Schedule. A copy of each of the contracts listed in Appendix 4 as well as any other letters of intent/contracts/orders related the business upto 22nd September 2006 shall be provided within 22nd September 2006. 4) TPPL Business Records and Know How: Know how, expertise, capabilities, references, track records related to clients and/or suppliers, agents, distributors, business and production plans, forecast, correspondence, orders, inquiries, proprietary information, patent, data, archives, design specification, manuals, research data, instructions, all past and present information and whatever can be directly or indirectly referred to the Business etc, including the books, records and material embodying the above. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g business it may begin to wane. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It is also impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its impact may not be visibly felt for an undefined period. Imperceptible at birth it exists enwrapped in a concept, growing or fluctuating with the numerous imponderables pouring into, and affecting, the business. 15. From an accounting perspective, it is well established that goodwill is an intangible asset, which is required to be accounted for when a purchaser acquires a business as a going concern by paying more than the fair market value of the net tangible assets, that is, assets less liabilities. The difference in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of net assets of YSN Shares and Securities (P.) Ltd. acquired by the Assessee, was accounted as goodwill. 19. In view of the above, we are inclined to accept the contention advanced on behalf of the Assessee that the consideration paid by the Assessee in excess of its value of tangible assets was rightly classified as goodwill. 20. In the facts of the present case, the ITAT has rejected the view that the slump sale agreement was a colourable device. Once having held so, the agreement between the parties must be accepted in its totality. The Agreement itself does not provide for splitting up of the intangibles into separate components. Indisputably, the transaction in question is a slump sale which does not contemplate separate values to be ascribed to various assets (tangible and intangible) that constitute the business undertaking, which is sold and purchased. The Agreement itself indicates that slump sale included sale of goodwill and the balance sheet drawn up on 22nd September, 2006 specifically recorded goodwill at ₹ 40,58,75,529.40/-. As indicated hereinbefore Goodwill includes a host of intangible assets, which a person acquires, on acquiring a business as a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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