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VIMALACHAL PRINT AND PACK PVT LTD Versus DEPUTY COMMISSIONER OF INCOME TAX - CIRCLE - 8

2016 (7) TMI 174 - GUJARAT HIGH COURT

Depreciation u/s 32 on Goodwill - Held that:- Depreciation on goodwill allowed relying on Supreme Court in Smifs Securities [2012 (8) TMI 713 - SUPREME COURT] wherein it was held that the difference between the cost of assets and the amount paid constituted goodwill and that the assessee-Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased - Decided in favour of assessee. - TAX APPEAL .....

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rder of the Income-tax Appellate Tribunal (hereinafter referred to as the Tribunal ). Tax Appeal Nos. 47 of 2009 to 51 of 2009, 1975 of 2009 and 346 of 2010 are preferred by the assessee against the order of the Tribunal whereas Tax Appeal Nos. 470 of 2012 and 182 of 2014 have been filed by the revenue challenging the order of the Tribunal. 2. Both these groups of appeals, namely, one preferred by the assessee and the other preferred by the revenue, have been admitted by this court. While admitt .....

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for depreciation? 3. This court, while admitting the appeals of the revenue, framed the following substantial questions of law: 1. Whether, in the facts and circumstances of the case, the learned ITAT has erred in law in confirming the order of the CIT(A) deleting the disallowance of depreciation of goodwill ? 2. Whether, in the facts and circumstances of the case, the learned ITAT has erred in accepting to the effect that goodwill falls under the category any other business or commercial right .....

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see. Against the disallowance of the claim of the assessee, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) who allowed the appeal by holding that the assessee is entitled to depreciation on intangible assets. Against the order of the Commissioner of Income-tax (Appeals), the revenue preferred appeal before the Tribunal. The assessee also filed Cross-Objection in the Tribunal. The Tribunal, after hearing the parties, following its own decision in the cas .....

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before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax deleted the disallowance of depreciation on goodwill. Against that order, the revenue carried the matter in appeal before the Tribunal. The Tribunal after hearing the parties, dismissed the appeal of the revenue by confirming the order of the Commissioner of Income-tax (Appeals). Hence the revenue is before us. 6. The learned counsel for the appellant-assessee has contended that the authorities below have disallowed .....

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section 32 of the Income-tax Act, 1961, on the goodwill acquired by the assessee? (2) Whether, in the facts and under the circumstances of the case, goodwill is an intangible asset within the meaning of section 32(1)(ii) of the Income-tax Act, 1961 so to be eligible for depreciation? 7. The learned counsel for the assessee has contended that, in the said appeal, this court had considered the decision of the Apex Court in the case of Commissioner of Income-tax, Kolkata v. Smifs Securities Ltd., .....

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igh Court ordering amalgamation of the above two Companies, that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an assets and the amount paid constituted goodwill and that the assessee -Company in the process of amalgamation had acquited a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also b .....

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ital account, the assessee was not entitled to deduction on account of bad debt. Both the CIT(A) as well as ITAT concluded that the assessee has satisfied the provisions of Section 36(1)(vii) of the Act. They have held that bad debt claimed by the assessee was incurred in the normal course of business and, therefore, the assessee was entitled to deduction under Section 36(1)(vii) of the Act. It is well settled now by a catena of decisions that the manner in which the assessee maintains its accou .....

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ned counsel for the respondent Mr. Varun Patel has taken us through page No. 76 of the appeal and contended that the calculation which is made is false. The relevant portion page No. 76 is extracted below: The amalgamation has been accounted for under Pooling of interest method . Accordingly the assets, liabilities and reserves of VLPL as at 1st April, 1998 have been taken over at their book value and the equity shares in the company have been issued as consideration therefore at the following s .....

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transferor company shall be credited in the books of the transferor company to a separate account to be named and styled as Amalgamation Reserve Account . The said account shall be considered as a free reserve and shall form part of the net worth of the transferee company. He has further contended that this amalgamated account is not permissible. He has taken us through the accounting for amalgamations at page No. 147, particularly, sub-paragraphs (e) and (f) which are extracted below: (e) Amal .....

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es) become equity shareholders of the transferee company by virtue of the amalgamation. (iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company except that cash may be paid in respect of any fractional shares. (iv) The business of the transferor company is intended to be carr .....

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given in paragraph No. 4 is extracted below: Generally speaking, amalgamations fall into tow broad categories. In the first category are those amalgamations where there is a genuine pooling not merely of the assets and liabilities of the amalgamating companies but also of the shareholders interests and of the business of these companies. Such amalgamations are amalgamations which are in the nature of merger and the accounting treatment of such amalgamations should ensure that the resultant figur .....

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