TMI Blog2016 (11) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety by paying a lump sum consideration of ₹ 6 Crore consisting of two parts- ₹ 4 Crore paid as a client creation cost @ ₹ 400 per customer and ₹ 2 Crore paid towards brand, logo, intellectual property, internal control systems, and related procedure based recovery systems. The assessee treated the same as deferred revenue expenditure as per the accounting policy stated at 2 (g) - of the Significant Accounting Policies in Schedule 17 Annexed to the Annual Financial Statements i.e., Balance Sheet as on 31.03.2009, Income and Expenditure Account for the Year ended 31.03.2009 and Cash Flow Statement for the year ended 31.03.2009. Accordingly, assessee followed the policy of treating the same as deferred revenue expenditure by grouping the same under Miscellaneous Expenditure (to the extent not written off or adjusted) in the Balance Sheet and followed the policy of writing off the same to the extent either ₹ 120 Lakhs or 30% of the Profit Before Interest and Tax whichever is less. Accordingly, the assessee charged ₹ 56,19,306 being 30% of the PBIT to the profit and loss account of the relevant Previous Year. The assessee in the computation of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved by the order of the CIT(A), the assessee is in appeal before the Tribunal in which the main relief is claimed in ground No.3 which is as under : On the facts and in the circumstances of the case the Ld. CIT(A) ought to have appreciated that the said payment is the payment for acquisition of business or commercial rights and accordingly fall within the scope of clause (b) of Explanation- 3 to sub-section (1) of section 32 of Income Tax Act, 1961, accordingly depreciation ought to have been allowed under section 32(1)(ii) of the said Act. 3.1. Ground Nos. 4 and 5 are alternate grounds that the amount can be allowed as deferred revenue expenditure proportionately as treated by the assessee or even allowed as expenditure under section 37(1) in the year of acquisition of the client base. 4. Learned Counsel for the assessee reiterated the submissions made before the authorities and relied on the Coordinate Bench decision in the case of SKS Micro Finance Ltd., vs. DCIT, Circle-3(2), Hyderabad (2013) 145 ITD 111 (ITAT-HYD) wherein on similar facts the Coordinate Bench has allowed the claim of depreciation. He also relied on the decision of the Hon ble Supreme Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S ASSOCIATED WITH ITS MICRO FINANCE BUSINESS 5.1. SWAWS also hereby transfers its brand name established as SWAWS as well as associated logos etc. and allows SCCI Ltd. to use the logo, trademarks and' other inscriptions, method of writing, by-lines stating the product and. mission, objectives etc. presently being used by SWAWS for its micro finance program and the Brand name SWAW$ itself, to be used in all states and elsewhere in India and abroad for the micro finance program being presently executed by SWAWS. SCCI LTD shall be free to use these brand name and logo for their operations elsewhere in India or- the world at its discretion. 6. CONSIDERATION FOR TRANSFER, FEE, ROYALTY: 6.1. SWAWS shall be entitled to charge the following fee and consideration. 6.1.1. One time reimbursement of customer creation costs, for having identified, motivated, trained, credit checked and risk filtered, approximately 100,000 customers on December 31, 2007, since all of these customers are generating net positive revenue for SWAWS at present, aggregating to ₹ 40.00 Million at the rate of approximately ₹ 400 per customer. 6.1.1.1. This consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and fixtures more particularly set out in Annexure A comprises the Portfolio. The Portfolio has been valued by the Statutory Auditor of SKS Society and based on such valuation, the Parties agree to the following consideration payable for the Portfolio transfer to SKS Company. One time reimbursement of customer transfer costs ₹ 39.70 Million for having identified, motivated, trained, credit checked and risk-filtered, approximately 113,270 customers on August 31, 2005, or at the cost of ₹ 350.50 per customer, since all of these customers are generating net positive revenue for SKS at present. (b) One time reimbursement of an amount of ₹ 8.25 million towards cost of internal controls systems, computer software and related procedure based recovery systems etc. (c) Towards corporate services including strategic planning, all technical matters of group formation, addressing recovery issues, identification of new markets, market surveys, change in the method and procedures of financial services, introduction of new products, impact assessment, avenues for negotiation of new loans from prospective funders, generation additional revenues through g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned, it appears from facts on record that the assessee has acquired the asset after 1-4-1998. The assets are owned wholly by the assessee and it is also used for the purpose of business or profession of the assessee. Therefore, the only requirement for allowability of depreciation is whether the cost paid for acquisition of clients can be considered as an intangible asset as per the definition u/s 32(1)(ii) of the Act. It is not disputed that the assessee has acquired the entire business and commercial asset of SKS on payment of lumpsum consideration which included the cost of acquisition of the existing customer base of SKS Society. It is also a fact that, the customer base acquired by the assessee has provided an impetus to the business of the assessee as the customers acquired are with proven track record since they have already been trained, motivated, credit checked and risk filtered. They are source of assured economic benefit to the assessee and certainly are tools of the trade which facilitates the assessee to carry on the business smoothly and effectively. Therefore, by acquiring the customer base the assessee has acquired business and commercial rights of similar natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; business information; business records; contracts; employees; and know-how, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets are, therefore, comparable to a licence to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares and Stocks Ltd. (2010) 327 ITR 323 (SC) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a licence or akin to a licence which is one of the items falling in section 32(1) (ii) of the Act. In view of the above discussion, we are of the view that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and as such depreciation is allowable on such intangible asset. 13. It will be pertinent to mention here that the CIT (A) while coming to his conclusion that the clients creation cost paid by the assessee is not an intangible asset has relied upon the decision of Hon ble Bombay High Court in case of CIT vs. Techno Shares and Stocks Ltd. And Others (225 CTR 337) wherein the Hon ble Bombay High Court while considering the issue of transfer of membership card of Bombay Stock Exchange has held that it does not constitute an intangible asset. However, this decision of the Hon ble High Court has been reversed by the Hon ble Supreme Court in Techno Shares and Stocks Ltd. Vs. CIT (327 ITR 323). 14. The learned departmental representative has relied upon a decision of Hon ble Delhi High Court in case of Sharp Business Systems vs. CIT (ITA.No.492/Del/2012 dated 5-11-2012) wherein the Hon ble Delhi High Court has held that depreciation cannot be allowed on non compete fee as it does not come within the meaning of intangible asset as provided u/s 32(1)(ii) of the Act. However, a reading of the aforesaid judgment would make it clear that the Hon ble Delhi High court came t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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