TMI Blog2019 (5) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... cquiring or bringing into existence an asset or advantage for the enduring benefits of the business, it is properly attributable to capital and is of the nature of capital expenditure. However, if it is made for running the business or working with a view to produce the profits, it is a revenue expenditure. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. In view of this test laid down, the court, therefore, held that the payment of entrance fee for becoming a member of the sports club cannot be termed as a capital expenditure. In view of above settled legal position, it cannot be said that the Tribunal has committed any error of law in allowing membership fees paid to club by the Chairman and the Managing Director as revenue expenditure. Allowability of depreciation intangible rights/assets - company had purchased Imidachlorpid business on slump sale - whether manufacturing rights, marketing rights, other commercial rights and other assets relating to development, manufacturing process, registration, use, sale marketing and distribution of product are intangible assets - HELD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther on the facts and circumstances of the case and in law, the Hon'ble ITAT has erred in deleting the disallowance on account of legal professional fees pertaining to buyback of shares. ( B) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT has erred in deleting on account of Membership Fee. ( C) Whether manufacturing rights, marketing rights, other commercial rights and other assets relating to development, manufacturing process, registration, use, sale marketing and distribution of product are intangible assets eligible for depreciation? ( D) Whether the Hon'ble ITAT erred in deleting the disallowance of depreciation claimed by the assessee to the tune of ₹ 2,25,14,448/on intangible assets purchased by the Appellant company and depreciation claimed by the appellant to the tune of ₹ 2,29,30,000/on marketing rights purchased by the appellant company; without considering the fact that neither any specific detail of the nature of such intangible assets purchased was submitted nor any business benefit was derived from such intangib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure incurred for proceeding of implementation of buyback of shares which would not in any manner enhance the capital structure of the assessee but there is outflow of capital and no deduction is claimed for outflow of capital. Therefore, Tribunal has rightly allowed such expenditure as revenue expenditure. 4. Insofar as question No. (B) is concerned, the assessee company has claimed membership fees of ₹ 22,000/paid to club by the Chairman and the Managing Director for increasing its business and business development. 4.1 Assessing Officer disallowed such expenditure by observing that club membership fees of director is personal in nature. 4.2 In the appeal, the CIT (Appeals) also upheld such disallowance on the same logic. 4.3 The assessee company therefore, filed appeal before the Tribunal. The Tribunal allowed the said expenditure as customary expenses allowable under section 37 of the Act. 4.4 The Tribunal relied upon the decision of this Court in case of Gujarat State Export Corporation Ltd v. CIT reported in (1994) 209 ITR 649, wherein the payment of fees to the Sports Club of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to explain the basis for ascribing value to each of the assets acquired by it since the value of assets in the books of Mitsu Industries Ltd. was only ₹ 7,19,85,974/. The assessee company submitted that Mitsu Industries Ltd. is not a related party as per the provisions of section 40A(2)(b) of the Act and the assessee has acquired the profit earning apparatus from Mitsu Industries Ltd for the consideration for which value cannot be based only on the book value of tangible assets debited in the books of seller as it has acquired various international product registrations as well as domestic registration and other approvals/licenses from various authorities. Moreover, it was submitted by the assessee that it has acquired manufacturing and process knowhow and the cost of benefits is embedded in the lumpsum consideration paid by them. It was further submitted that intellectual properties such as manufacturing and process know how and other intangible assets such as commercial right, registrations and licenses have not been considered as an asset and the amount paid by the assessee was a composite consideration for acquisition of a set of assets which constitutes a separate bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d directly. The valuation of Intangible assets and marketing rights have been done in accordance with the Accounting Standard10 (ASlO) issued by the Institute of Chartered Accountants of India (ICAI) the company has assigned the values to the various assets on a fair basis. The payments made for acquisition of lmidachloropid products business pursuant to transfer of Business Transfer Agreement and intangible assets was allocated on the basis of valuation report from independent valuer M/s. Bansi S. Mehta Et Co. who had assigned the value of individual assets in accordance with ASlO. This valuation of items are placed at Paper Book Page No. 105 to 111. We are of the view that depreciation on intangible assets is allowable as per Section 32 of the Act. We also note that that Ahmedabad Tribunal in the case of M/s. Mitsu Ltd., the seller company, in ITA. No. 1672/Ahd/2007 A.Y. 200405( PB3170) vide order dated 01.08.2008 has considered the sale of business to the assessee as slump sales and observed that the assessee has transferred machinery and infrastructure including licenses and right to manufacture products for the year 1999 onwards and even on date of sale. This fact is not dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16] 68 taxmann.com 329 (Gujarat) held that payment of compensation made by the assesseefirm to retiring partner was to be treated as goodwill and since, goodwill is an asset under Explanation(1), assessee s claim for depreciation on said payment was to be allowed. 118. We further observed that the Seller company has sold and transferred various assets under a Business Transfer Agreement for which valuable consideration has been paid by the appellant company. The AO has not given any factual finding as regards her observation that the assesseecompany could not justify in any logical and convincing way, the basis on which such huge payment was made to acquire what the appellant company terms intangible assets' based on which inference the assessment order has been framed. The assessee company has purchased intangible assets in the form of marketing rights, right to carry on business, right to manufacture and technical of knowhow for carrying on lmidacloprid Business. The Seller company is also engaged in manufacturing pesticides for the last 15 years and the assessee company is also manufacturing pesticides for the last 3 years. This very facts means that the seller company was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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