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2016 (2) TMI 84 - ITAT DELHI

2016 (2) TMI 84 - ITAT DELHI - TMI - Addition on account of depreciation on goodwill - CIT(A) deleted the disallwoance - Held that:- The issue in controversy has already been decided by the Coordinate Bench in the case of Nitrex Chemical India Ltd. (2015 (11) TMI 340 - ITAT DELHI ) by relying upon the judgement delivered by Hon'ble Supreme Court in case of CIT Vs SMIF Securities Ltd. in SLP (2012 (8) TMI 713 - SUPREME COURT) to the effect that "the goodwill is an asset under Explanation (3 b) to .....

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ourt, we are of the considered view that there is no illegality or perversity in the findings returned by Ld. CIT(A) hence, ground is determined against the Revenue.

Addition on account of royalty paid - revenue v/s capital - CIT(A) deleted the addition - Held that:- Held that:- In the instant case, benefit of enduring nature has to be transferred to the assessee company as is evident from Article 6 of the Agreement. Transfree company i.e. CEIPL would get 3% of the net selling price o .....

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JUDICIAL MEMBER For The Appellant by : Ms. Kesang Y Shirpa, Sr. DR For The Respondent by :Ms. Lalitha Krishnamurthy, CA Ms. Vidhi Agarwal, CA ORDER PER KULDIP SINGH, JM: The appellant, ACIT, Circle 3(1) New Delhi (hereinafter referred to as 'the Revenue') by filing the present appeal sought to set aside the impugned order dated 24.10.2011 passed by Ld. CIT(A) VI, New Delhi qua the assessment year 2008-09 on the grounds inter alia that: " 1. The Ld. CIT(A) has erred on facts and in l .....

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tionnaire, were served upon the assessee and in response thereto, Mrs. Vandana Gopal Sharda, CA/ AR appeared on behalf of the assessee, filed necessary details. 3. The assessee company is into the business of manufacturing and fabrication of various accessories of steel and other metal used in HV AC and other industries. Scrutiny of depreciation chart transpires that the assessee company has claimed depreciation @ 25% on 'goodwill' to the extent of ₹ 1,73,50,0001-, whereas under th .....

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wed the same and consequently, made addition of Rs.l ,37,50,000/- to the total income of the assessee. 4. Scrutiny of P & L account transpires that assessee has paid royalty of ₹ 58,15,200/- to Ruskin Co. (Ruskin) and the entire amount has been debited in P & L account under the head 'Admn. & other expenses'. The assessee filed submissions to the query raised during assessment proceedings and assessee relied upon Articles 4 & 5 of the agreement. Finding the explanat .....

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ing the addition of ₹ 1,73,50,000/- on account of depreciation on goodwill and deleting the addition of ₹ 58,15,200/- on account of royalty paid; that since the assessee was having enduring benefit of goodwill and the claim was made for non compete fee, the assessee was benefited so, the Assessing Officer has rightly disallowed the depreciation on 'goodwill. Ld. D.R. relied on the order passed by Assessing Officer. Ld. D.R. relied on the decision of Hon'ble Supreme Court in t .....

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provisions contained U/S 2(11) and Section 32(1), disallowed the claim of the assessee on the ground that since goodwill is not included in the intangible assets the depreciation on the same is not allowable. However, on the other hand, Ld. CIT(A) took the opposite view. 9. Undisputedly, as per business transfer agreement, assessee has taken over the ADP business of CEIPL from 00.00 hours on 03.05.2007. By virtue of clause 5 of the business transfer agreement dated 28th June 2007, the assessee c .....

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ome apparently clear that the assessee company has paid an amount of ₹ 6.94 crores for the purchase of right to use the brand name 'CARYAIR' on the basis of non assignable licence. 10. Now the first question arises for determination in this case is, "as to whether the consideration of ₹ 6.94 crores paid by the assessee for purchase of 'goodwill' is in the nature of intangible asset falling in the classification of assets as per Section 32(1 )(ii) of the Act for t .....

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tality of the facts and discussed hereinabove set aside the findings of the Ld. CIT(A) on this issue and upheld the view taken by the Assessing Officer that the non- compete fee of ₹ 6.80 crores was nothing but goodwill of the business and a capital expenditure. Now question arises as to whether the assessee is eligible for depreciation on the goodwill. In this regard, it is relevant to point out that the Hon'ble Supreme Court in the case of CIT, Kolkata Vs SMIF Securities Ltd. in SLP .....

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y was enjoying in order to retain its existing clientele. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ('Act', for short). We quote here in below Explanation 3 to Section 32 (1) of the Act: "Explanation 3: For the purposes of this sub- section, the expressions 'assets' and 'block of assets' shall mean; (a) Tangible assets, being buildings, machinery, plant or furniture; (b) Intangib .....

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goodwill would fall under the expression (any other business or commercial right of a similar nature '. The principle of ejusdem generis could strictly apply while interpreting the said expression which finds place in Explanation 3 (b). In the circumstances, we are of the view that (Goodwill' is an asset under Explanation 3 (b) to Section 32 (1) of the Act. " 33. In view of the above, we hold that the non-compete fee amounting to ₹ 6.80 crores paid by the assessee was capital .....

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being know how, patent, copyright, trade mark licence, franchise and other business or commercial right of similar nature, the same is eligible for depreciation u/s 32 of the Act as claimed by the assessee. Since Ld. D.R. has failed to bring on record if the order passed by Coordinate Bench in I.T.A. No. 3388/Del/2009 in case of DCIT Vs Nitrex Chemical India Ltd. (supra) has been challenged or any contrary order has been passed on the question of law decided by the Hon'ble Supreme Court, we .....

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ment. However, Assessing Officer disallowed the claim of assessee by relying upon the judgement cited as Southern Switch Gear Ltd. V s CIT, 232 ITR 359 by holding that the right to manufacture certain goods exclusively in India should be taken to be an independent right, secured by the assessee from the foreign co., which was of an enduring nature. 13. Undisputedly, the amount of 'royalty' of ₹ 58,15,2001- was paid by the assessee on the basis of turnover @ 3% of the net selling pr .....

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