TMI Blog2011 (1) TMI 1426X X X X Extracts X X X X X X X X Extracts X X X X ..... ramed by the AO despite the fact that the AO has considered each and every aspect of the case and has framed the assessment only after making proper inquiries and after considering the submissions made by the appellant. 3. The ld CIT erred in fact and in law in directing the AO to disallow depreciation of ₹ 1,27,53,830 on goodwill being bought goodwill on the ground that the said item is not covered under the head Intangible Assets and, therefore, not eligible for depreciation. 3. The material facts of the case, so far as relevant to the issue in appeal before us, are as follows. In this case, the assessment under section 143 (3) was completed on 28th December, 2006. However, when Commissioner perused the assessment record, he noted that the assessee has been granted depreciation of ₹ 127.54 lakhs in respect of goodwill, but as judicially held by Ahmedabad and Delhi benches of the Tribunal, depreciation on goodwill is not allowable as it is not covered under the items specified for the purpose of allowance of depreciation . Accordingly, learned Commissioner required the assessee to show cause as to why the assessment framed under section 143(3) not be sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e written down value of the relevant block of assets. Elaborate submission was made on the merits on admissibility of claim of deduction. A reference was also made to the decision of the Tribunal in the case of Skyline Caterers Pvt Ltd v ITO, 306 ITR (AT) 369, which points out that the nomenclature given to the entries in books of account is not relevant for ascertaining the real nature of the transactions as was held by Hon ble Supreme Court in the case of Kedarnath Jute mfg. Co. Ltd. v CIT (82 ITR363). It was submitted that in the said case, the Tribunal had come to the conclusion intangible assets specified in section 32 are tools of the trade which facilitate the assessee s carrying on the business. None of these submissions impressed the Commissioner. It was observed by the Commissioner that the AO had not raised any specific query with regard to the admissibility of depreciation of goodwill so far as the assessment year 2004-05 was concerned and a query to that effect having not been made in the assessment year 2003-04 is not relevant for the purpose of revision proceedings in the present assessment year. The Commissioner also noted that there is no evidence to show that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer by another possible view of the Commissioner. Thereafter, on the question whether depreciation being granted on goodwill constitutes a possible view of the matter, Their Lordships observed as under : 17. The present factual matrix is to be tested on the anvil of the aforesaid enunciation of law. As is discernible, during the relevant assessment year, the respondent assessee claimed ₹ 70,63,93,292/- as depreciation on goodwill treating the same as an intangible asset and, hence, depreciable under Section 32(1)(ii) of the Act. The assessee had proferred complete justification for the claim of depreciation at the time of filing of return. In the notes to the income-tax return, it has been mentioned as follows: Goodwill of the company comprises of (a) payment made to bottlers at the time of acquisition of their business and (b) the difference between the consideration paid for business and the value of tangible assets determined by a reputed valuer. The specific payment for goodwill referred to in (a) above represents the consideration for the marketing and trading reputation, trading style and name, marketing and distribution territorial know how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erritorial know-how and information of territory. It includes know-how related to acquired business, customer data base, distribution net work, contract and other commercial rights. Intangible assets like know-how, patent, copyrights, trademark, licenses, franchisee or any other business or commercial rights of similar nature acquired after 1.4.1998 are eligible for depreciation. 19. The assessing officer, after examination of the annual accounts, audit report in Form 3CA, notes to the return and reply dated 8.1.2004, took the view that the assessee's claim for depreciation on goodwill was allowable more so considering that similar claim of depreciation had been allowed for the assessment years 1999-2000 and 2000-2001. The Commissioner, while exercising the power under Section 263 of the Act, has held that the assessment order framed under Section 143(3) of the Act was erroneous as the assessing officer had allowed depreciation though the same had been wrongly claimed and allowed inasmuch as Explanation 3 to Section 32 of the Act never regards goodwill as an intangible asset. The tribunal in its order referred to the audit report wherein the assessee had made the disclosu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42:] [Provided further that where an asset referred to in clause (i) [or clause (ii) or clause (iia)], as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) [or clause (ii) or clause (iia)], as the case may be:] [Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998, but before the 1st day of April, 1999, and is put to use before the 1st day of April, 1999, for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed: Explanation: For the purposes of this proviso, (a) the expression commercial ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purposes of the business or profession on the construction of any structure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure of work is a building owned by the assessee.] [Explanation 2 .- [For the purposes of this sub-section] written down value of the block of assets shall have the same meaning as in clause (c)* of sub-section (6) of section 43:] [Explanation 3.- For the purposes of this sub-section, [the expressions assets ] shall mean - (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature.] [Explanation 4.- For the purposes of this sub-section, the expression know-how means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto);] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness and also from one business to another. No business commenced for the first time possesses goodwill from the start. It is generated as the business is carried on and may be augmented with the passage of time. Lawson in his Introduction to the Law of Property describes it as property of a highly peculiar kind. In CIT v. Chunilal Prabhudas Co. [1970] 76 ITR 566 the Calcutta High Court reviewed the different approaches to the concept (pp.577, 578): It has been horticulturally and botanically viewed as 'a seed sprouting' or an 'acorn growing into the mighty oak of goodwill'. It has been geographically described by locality. It has been historically described by locality. It has been historically explained as growing and crystallizing traditions in the business. It has been described in terms of a magnet as the 'attracting force'. In terms of comparative dynamics, goodwill has been described as the 'differential return of profit'. Philosophically it has been held to be intangible. Though immaterial, it is materially valued. Physically and psychologically, it is a 'habit' and sociologically it is a 'custom'. Biologically, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valued, agreement under which it has been acquired, what intangible asset it represents, namely, trademark, right, patent, etc. and further whether it would come within the clause, namely, 'any other business or commercial rights which are of similar nature' are to be borne in mind. 23. On a scrutiny of the order passed by the tribunal, it is clear as crystal that the depreciation was claimed on goodwill by the assessee on account of payment made for the marketing and trading reputation, trade style and name, marketing and distribution, territorial know-how, including information or consumption patterns and habits of consumers in the territory and the difference between the consideration paid for business and value of tangible assets. The tribunal has treated the same to be valuable commercial asset similar to other intangibles mentioned in the definition of the block of assets and, hence, eligible to depreciation. It has also been noted by the tribunal that the said facts were stated by the assessee in the audit report and the assessing officer had examined the audit report and also made queries and accepted the explanation preferred by the assessee. The acceptance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra) and Commissioner of Income-Tax v. Vimgi Investment P. Ltd. [2007] 290 ITR 505 (Delhi) once a plausible view is taken, it is not open to the Commissioner to exercise the power under Section 263 of the Act. 25. In view of the aforesaid analysis, we are of the considered opinion that the order passed by the tribunal is justified in the facts and circumstances of the case and the questions which have been raised by the revenue as substantial questions of law really do not arise. Resultantly, the appeals have to pave the path of dismissal which we direct. There shall be no order as to costs. 6. No contrary decision by the Hon ble Jurisdictional High Court or for that purpose by any other Hon ble High Courts has been cited before us. To the best of our understanding, that is the only High Court decision on the issue. The only point of difference in the case before us vis- -vis the Hindustan Coca Cola s case (supra) is that whereas no specific questions were asked in the course of the assessment proceedings in this case, in Coca Cola s case the Assessing Officer did ask the specific questions in the assessment proceedings. That, however, does not make any material d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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