TMI Blog2016 (2) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income Tax Vs. Smifs Securities Ltd. (2012 (8) TMI 713 - SUPREME COURT ), the Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Birla Global Asset Finance Co. Ltd. (2012 (8) TMI 773 - BOMBAY HIGH COURT ) held that depreciation in respect of intangible assets constituting goodwill is allowable. - ITA No. 1317/PN/2010, ITA No. 7547/PN/2010 - - - Dated:- 1-1-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Assessee by : Shri P.J. Pardiwala and Basanti Patel For The Revenue by : Shri S.K. Rastogi ORDER PER VIKAS AWASTHY, JM : These cross appeals have been filed by the Revenue and the assessee against the order of Commissioner of Income Tax (Appeals)-I, Thane dated 30-07-2010 for the assessment year 2003-04. 2. The facts of the case as emanating from the records are: The assessee is a private limited company and is engaged in manufacturing and sale of Nickel hydrogenated catalysts, Naptha reforming catalysts and Gas reforming catalysts. For the impugned assessment year, the assessee filed return of income on 28-11-2003 declaring loss of ₹ 10,11,17,770/-. Thereafter, the assessee filed revised return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the issue of shares for public subscription, which is a mandatory condition to be satisfied before allowing deduction u/s. 35D(2)(c)(iv). 4. Shri S.K. Rastogi representing the Department submitted that the issue with regard to expenditure incurred towards payment of fees to ROC for increasing authorized share capital has been decided by the Hon'ble Supreme Court of India in favour of the Revenue. The ld. DR placed reliance on the decision rendered in the case of Punjab State Industrial Development Corporation Ltd. Vs. Commissioner of Income Tax (supra). The ld. DR further submitted that a perusal of the provisions of section 35D(2)(c)(iv) would clearly show that such expenditure is not allowable. 5. On the other hand Shri P.J. Pardiwala and Basanti Patel appearing on behalf of the assessee vehemently supported the findings of Commissioner of Income Tax (Appeals) on the issue and also placed reliance on the judgment of Hon'ble Rajasthan High Court in the case of Autolite India Ltd. Vs. Commissioner of Income Tax (supra). 6. Both the sides heard. Orders of the authorities below perused. We find that the issue relating to payment of fees to ROC for increasing aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he increase in the capital was to meet the need for working funds for the assessee company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was undertaken by the assessee in order to meet the need for more working funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business. In any event, the above quoted observations of this court in Punjab State Industrial Development Corporation Ltd.'s case [1997] 225 ITR 792 clearly indicate that though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. Now, it is a well settled law that the expenditure incurred on issue of fresh share and expansion of capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m) (MAG.) and in the case of Toyo Engineering India Limited Vs. The Dy. Commissioner of Income Tax reported as Income Tax Appeal (L) No. 1330 of 2012 decided on 30-10-2012. 10. On the other hand the ld. DR vehemently defended the orders of authorities below in rejecting the depreciation claimed by the assessee on non-compete payment and goodwill. The ld. DR submitted that goodwill increase with the period of time in a growing business. It is only in the case where there is a sharp decline in the business, the value of goodwill may come down. In the case of assessee it is evident from the records that the assessee is having progressive business. Therefore, there is no question of goodwill getting depreciated. The ld. DR in support of is submissions placed reliance on the following decisions: i. Sharp Business Systems (India) Ltd. Vs. Dy. Commissioner of Income Tax, 133 ITD 275 (Delhi); and ii. Arkema Peroxides India (P.) Ltd. Vs. Assistant Commissioner of Income Tax, 31 taxmann.com 4 (Chennai-Trib.). 11. The ld. AR rebutting the submissions made by the ld. DR submitted that the decisions on which the Revenue has placed reliance have not considered the decisions rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of specified intangible assets, but also to other categories of intangible assets which were neither feasible nor possible to exhaustively enumerate. The words 'similar nature' is a significant expression. The Apex Court in the case of Nat Steel Equipment (P.) Ltd. (supra) explaining the meaning of the word 'similar', held that it does not mean identical but it means corresponding to or resembling to in many respects somewhat like or having a general likeness. The statute does not contemplate that goods classified under the words of similar description, shall in all respects be the same. If it did, these words would be unnecessary. 8. Therefore what is to be seen is, what are the nature of intangible assets which would constitute business or commercial rights to be eligible for depreciation. In this regard, it is necessary to notice that the intangible assets enumerated in Sec.32 of the Act effectively confer a right upon an assessee for carrying on a business more efficiently by utilizing an available knowledge or by carrying on a business to the exclusion of another assessee. A non-compete right encompasses a right under which one person is prohibited from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that, the other businessman can compete with the first businessman. When by payment of non-compete fee, the businessman gets his right what he is practically getting is kind of monopoly to run his-business without bothering about the competition. Generally, non-compete fee is paid for a definite period. The idea is that by that time, the business would stand firmly on its own footing and can sustain later on. This clearly shows that the commercial right comes into existence whenever the assessee makes payment for non-compete fee. Therefore that right which the assessee acquires on payment of noncompete fee confers in him a commercial or a business right which is held to be similar in nature to know-how, patents, copyrights, trade marks, licences, franchises. Therefore the commercial right thus acquired by the assessee unambiguously falls in the category of an 'intangible asset'. Their right to carry on business without competition has an economic interest and money value. The term 'or any other business or commercial rights of similar nature' has to be interpreted in such a way that it would have some similarities as other assets mentioned in Cl.(b) of Expln.3. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation which the Amalgamating Company 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 hereinbelow 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] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. Explanation 3 states that the expression `asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words `any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression `any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while ..... X X X X Extracts X X X X X X X X Extracts X X X X
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