TMI Blog2009 (8) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... odwill simpliciter is valued at ₹ 3,05,91,000 and there were no business or commercial rights involved in that goodwill accounted by the assessee. In view of this while agreeing with the principle laid down in the abovesaid case that goodwill simpliciter is not eligible for depreciation we are not in agreement with the proposition laid down by the learned counsel that the amount accounted for by the assessee can be bifurcated into goodwill simpliciter at ₹ 50 lakhs and the balance for other commercial rights. Since no commercial rights are said to have been acquired by the assessee company under the scheme of amalgamation, we are not persuaded by the submissions of the learned counsel. Moreover in the provisions of s. 32(1)(ii) while mentioning the various intangible assets specifically and also mentioning business or commercial rights of similar nature, the legislature has specifically excluded the word 'goodwill' because it cannot be considered as a commercial or business right. Moreover, as rightly considered by the AO this goodwill is not purchased from any other person but has been acquired in the course of amalgamation in assessee's own books of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year of claim of depreciation on goodwill, the facts are as under : During the year relevant to asst. yr. 2001-02 on 7th Sept., 2001 three group companies of the assessee have merged into the assessee company under the scheme of amalgamation. The company created an asset in the balance sheet by way of goodwill of ₹ 3,05,91,000 and claimed depreciation @ 25 per cent under s. 32(1)(ii). The AO was of the view that the Act does not explicitly mention that goodwill is eligible for depreciation and s. 32(1)(ii) is exclusively for know-how, patents, copyrights, trade marks, licences, franchise or any other business or commercial rights of similar nature. The assessee's contention is that the amount paid is towards licence or any other business or commercial rights of similar nature. The AO went on to analyse the claim of the assessee and held that the goodwill in this case is self-generated and not purchased and the assessee's contentions regarding goodwill and Accounting Standards are not applicable to the facts of the case in claiming the depreciation on goodwill. The CIT(A) has further analysed the issue and upheld the order of the AO and hence the assessee is aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,87,83,021.07 Goodwill 2,70,00,000.00 Supreme Graphic Creations (P.) Ltd. Particulars Secured loans 15,33,683.00 Unsecured loans 0.00 Reserves 22,70,350.68 Shares allotted as per valuation report 36,72,000.00 75,66,033.68 Fixed assets 7,97,622.50 Current assets (net of current liabilities) 27,22,300.18 Investments 4,55,111.00 39,75,033.68 Goodwill 35,91,000.00 5. It was submitted that the AO has disallowed the depreciation on three distinctions between rights specified in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the two decisions in this regard, one is the decision of the Hon'ble SMC Bench in the case of Skyline Caterers ( P) Ltd. v . ITO (2008) 118 TTJ (Mumbai) 344 : (2008) 13 DTR (Mumbai) (Trib) 150 : (2008) 116 ITD 348 (Mumbai) for the proposition that the rights acquired under the amalgamation, even though termed as goodwill, are actually business/commercial rights, hence eligible for depreciation as an intangible asset and further in the case of Guruji Entertainment Network Ltd. v. Asstt. CIT (2007) 108 TTJ (Delhi) 180 : (2007) 14 SOT 556 (Delhi) wherein the issue of allowability of depreciation on goodwill and copyrights were considered. The learned counsel elaborately explained the facts of the cases and propositions to submit that the assessee is entitled for depreciation on the commercial or business rights. While conceding that the goodwill simpliciter is not entitled for depreciation, the learned counsel made a proposition that on the basis of the decision of the Tribunal in Guruji Entertainment Network Ltd. (supra) the issue can be segregated into goodwill simpliciter on the basis of two years profit earning capacity of the two companies, i.e., two years purchase value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 35,91,000 in the case of SGCPL which are balancing figures in the books of account of the assessee company in the scheme of amalgamation. 10. The AO discussed these issues in detail in parawise comments and mainly the objection is with reference to the wording in s. 32(1)(ii) regarding any other business or commercial rights of similar nature . It was the contention of the AO that the expression of 'similar nature' found in cl. (ii) of s. 32(1) restricts the meaning of specific words and these specific words form a separate category and unless other business or commercial rights fall in this distinct category they cannot be brought within the group of the said clause and the goodwill paid by the assessee company does fall in the 'rights' either commercial or business rights. Further, his objection is with reference to the words 'acquiring on or after 1st April, 1998' used in the cl. (ii) of s. 32(1). Since it is a self-generated goodwill on amalgamation the AO's objection is that the goodwill is not acquired. He further analysed the meaning of goodwill and the Accounting Standards elaborately in his order. The CIT(A) also has upheld the contentions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose companies cannot be considered as a basis for determining the goodwill, as suggested by the learned counsel. In fact there is nothing on record to establish that the assessee has acquired any special rights of business or commercial nature. Para 3.7 of the report does indicate that the products manufactured by the companies do not require a licence. Having regard to the nature of the products manufactured by the company, viz., cartons, the report indicates that there are no figures of installed capacity. This confirms the view that since the business does not require any licence the amount paid cannot be considered as amount towards licence. Further, since all of them are in the same business and all of them are group companies having only different units at different places, we are not persuaded by the argument that the amount paid involves any business or commercial rights. Since there are no business or commercial rights involved in paying the amount and the goodwill is being a balancing amount in the scheme of amalgamation after the fair value arrived at for merger of the companies, the facts of the case do fall within the propositions laid by the Hon'ble Tribunal in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case, the amount paid by the assessee as goodwill did not result into acquisition of any know-how, patents, copyrights, trade marks, etc. as prescribed in that behalf. Consequently, the assessee was not entitled to claim depreciation. 13. In the case of Skyline Caterers (P) Ltd. v. ITO (supra), the Hon'ble Single Member Bench also accepted the proposition that goodwill per se is not eligible for depreciation but in the facts of that case it was held that : The perusal of the above shows that legislature has specified certain intangible assets on which depreciation can be claimed namely know-how, patents, copyrights, trade marks, licences, franchises. These specific intangible assets are followed by the expression 'any other business or commercial rights of similar nature'. The expression mentioned above by itself would include all kinds of commercial rights but for the words 'similar nature'. In such situation, the rule of ejusdem generis would apply. The scope of the rule is that words of a general nature following specific and particular words should be construed as limited to things which are of the same nature as those specified. The general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company's first balance sheet goodwill was shown at ₹ 3 crores. The assessee company filed a valuation report by M/s Anand Parikh Co., chartered accountants, Mumbai before the AO to explain the valuation of goodwill. The AO held that it was clear from the provisions of s. 32(1) that goodwill is not included in the intangible assets on which depreciation is allowable. It does not fall in the category of assets mentioned in the provisions as any other business or commercial rights of similar nature . The words 'similar nature' are to be read in continuity of the assets mentioned in the provision. It cannot be said to be an asset similar in nature to those mentioned in the said part of the section. The AO took the view that goodwill is not a depreciable asset as it is not included in the section specifically and also it does not fall in the clause 'business or commercial right of similar nature'. The AO also examined the method of valuation adopted by the consultants hired by the assessee. The valuer based himself on the fact that the proprietorship firm owned a software library of approximately 400 hours. This software consists of 657 episodes of 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation as this could not fit into the definition of intangible assets attributed to copyrights, telecasting rights, commercial rights, etc. on which the Hon'ble Tribunal upheld the claim of depreciation. The goodwill valued by the AO at ₹ 1.59 lakhs itself was not considered for allowing depreciation. 18. In the present case the goodwill simpliciter is valued at ₹ 3,05,91,000 and there were no business or commercial rights involved in that goodwill accounted by the assessee. In view of this while agreeing with the principle laid down in the abovesaid case that goodwill simpliciter is not eligible for depreciation we are not in agreement with the proposition laid down by the learned counsel that the amount accounted for by the assessee can be bifurcated into goodwill simpliciter at ₹ 50 lakhs and the balance for other commercial rights. Since no commercial rights are said to have been acquired by the assessee company under the scheme of amalgamation, we are not persuaded by the submissions of the learned counsel. 19. It is admitted that goodwill is a capital asset and all the case laws relied upon by the assessee before the authorities were with referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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