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The ACIT, Circle-5, Jaipur Versus M/s Jai Drinks Pvt. Ltd.

Depreciation on intangible assets - Held that:- The assessee has not purchased any good will but has purchased license, interest, privilege, franchise etc. from M/s. DKD which are undisputedly covered by section 32(1)(ii) and, therefore, the depreciation is allowable and the ld. CIT (A) has allowed the depreciation on these intangible assets, and we have no hesitation in confirming the order of ld. CIT (A) on this aspect. Accordingly we confirm the order of ld. CIT (A). - Decided in favour of as .....

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of depreciation claim on intangible assets. 2. In this case the ld AR of the assessee has submitted that the issue under considering is covered by the order of the Hon ble ITAT, Jaipur Bench, Jaipur passed in the assessee s own case in ITA Nos. 405, 503, 504, 505, 506 & 507/JP/2010, Asstt. Years 2001-02, 07-08, 02-03, 03-04, 04-05, 05-06 order dated 30/09/2011 wherein the Hon ble Bench has been pleased to delete similar addition. Therefore, he prayed to uphold the order of the ld CIT(A). 3. .....

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e portion of the Coordinate Bench s order is reproduced as under:- 8. We have heard rival submissions and considered them carefully. After considering the rival submissions and perusing the material on record, we find that the objection raised by AO which has been reiterated here before the Tribunal by ld. CIT D/R has already been met with by ld. CIT (A) while disposing the appeal of the assessee. The objection raised by AO were explained by ld. Counsel of the assessee before ld. CIT (A) in writ .....

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CIT (A) found that the assessee has purchased license and franchise rights from Pepsi Food Ltd. which are intangible assets on which depreciation is allowable as per provisions of law. The ld. CIT (A) thereafter by taking into consideration the decision of Hindustan Coca Cola Beverages Pvt. Ltd. (supra) held that even if the contention of the AO is accepted that this is a goodwill, even in goodwill the depreciation is allowable and this decision has been affirmed by Hon ble Delhi High Court. The .....

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intent executed on the same date i.e. 26.8.2000 given by Pepsi Food Ltd. to the appellant company. The assessing officer has raised the question of desirability to issue letter of intent if license and franchise rights devolved upon the assessee through the business transfer agreement According to AO since no agreement of license or franchise rights have devolved upon the assessee from Pepsi Food Ltd. therefore, the depreciation claim on license and franchise rights was held as not admissible. .....

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.2000 between Dhillon Kool Drinks and Beverages Ltd. with the appellant, letter of intent issued by Pepsi Food Ltd. to the appellant on 26.8.2000 and agreement dated 10.8.2000 between Pepsico India Holding Ltd. with the appellant. Pepsico India Holding Ltd. is a subsidiary company of Pepsico Inc New York who is engaged in the business of manufacturing and distribution of Soft Drinks Beverages and Syrup Mix sold under the trade mark LEHAR owned by Pepsi Food Ltd. Pepsi Food Ltd. and Pepsico Inc g .....

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nal Capital Territory of Delhi for which the appellant company offered to purchase the said business as a going concern subject to the seller arranging in favour of appellant company by Pepsi Food Ltd. of the license and franchise rights to use the trademarks of Pepsi brand of the Soft drinks. In view of these intentions an agreement was entered in between Pepsico India Holding Ltd. and the assessee on 10.8.2000 in which PIH had agreed to nominate the appellant to acquire Delhi business from DKD .....

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the appellant company has stepped into the shoes of the seller and commenced the business of manufacturing and distribution of soft drinks brands owned by Pepsi Food Ltd. Without proper rights of license / franchise it is impossible for the appellant to carry out such business activity. Further, Pepsi Foods Pvt. Ltd. vide their letter dated 29. 3.2004 addressed to the appellant company has referred their earlier letter of intent dated 26.8.2000 as amended from time to time and the validity of th .....

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syrup mix supported with letter of intent issued by Pepsi. Food Ltd. then obviously the licenses and franchise rights were also devolved upon the appellant. With such factual developments in my considered view the assessing officer was not justified in holding that no license and franchise rights were devolved upon the appellant company because for this purpose there is no agreement between the appellant and the seller namely DKD. In my considered view the assessing officer was also not justifie .....

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pellant and therefore, this payment cannot be construed as payment for goodwill as held by assessing officer while giving a finding that no depreciation is allowable on such payment since, it is a goodwill. Further, on this issue there is direct judgment of ITAT Delhi Bench C in the case of Hindustan Coca Cola Beverages Pvt. Ltd. v/s DCIT Circle - 12(1) New Delhi dt.25.8.2009 in which Hon ble ITAT has held that true basis of depreciation allowance is character of an asset and not its description .....

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t of goodwill then depreciation was correctly allowed because even if an amount is termed as goodwill but if it is a business or commercial right in the nature of know how, patent, copy right, trade mark, license, franchise then the claim of depreciation is indeed admissible thereupon and further the goodwill is not specifically excluded from the intangible assets eligible for depreciation and therefore, even if an asset is described as goodwill then also depreciation is to be granted on the sam .....

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above position goodwill is also to be treated as an intangible assets of similar nature referred to in Clause II of S.32(1) and consequently, depreciation would be allowable on same. In the background of these 2 cases also if even the contention of assessing officer is accepted that said payment of ₹ 28 crore was made for goodwill then also the appellant is entitled for depreciation @ 25% of the same within the meaning of S.32(1)(ii) of I.T Act. With this discussion the AO is directed to .....

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red to purchase the said business as a going concern subject to the seller arranging in favour of the assessee company by Pepsi Food Ltd. of the license and franchise rights to use the trademarks of Pepsi brand of the soft drinks. In view of these intentions an agreement was entered in between Pepsico India Holding Ltd. (PIH) and the assessee on 10.8.2000 in which PIH had agreed to nominate the assessee to acquire Delhi business from Dhillon Kool Drinks & Beverages Ltd. (DKD) and the formal .....

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t is further noted that M/s. DKD was in bad shape and they had to pay an amount of ₹ 20 crores to M/s. Pepsico India Holding Ltd. and, therefore, they were interested in selling their Delhi business along with rights, interest, privileges, assets and liabilities in the National Capital Territory of Delhi for which the assessee company offered to purchase the said business. Since there was a liability of more than ₹ 20 crores, in our considered view, there cannot be any good will and, .....

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T D/R has argued that it was a good will and the AO was right in denying the depreciation being purchase of good will by the assessee. The ld. CIT D/R has stated that the decision in case of Hindustan Coca Cola (supra) is not applicable as facts of the present case as in this case the proceedings under section 263 were initiated. We have gone through this order of the Tribunal in case of Hindustan Coca Cola which has been approved by Hon ble Delhi High Court also and found that though the appeal .....

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