TMI Blog2017 (11) TMI 1914X X X X Extracts X X X X X X X X Extracts X X X X ..... of new shares issued was added to General Reserve - HELD THAT:- A perusal of the provisions of Sec.28(iv) shows that the said provision is to treat the income as profits gains of business or profession, the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of profession. In the present case, it is clearly shows that the acquisition, more so, the amalgamation of the three companies with the assessee company is not the business of the assessee company. Consequently, it cannot be said that the provisions of Sec.28(1)(iv) of the Act applied to the excess of the net book value of the entities over the consideration paid in any way nor is it income liable to tax under the head profits gains of business in the hands of the assessee company. Further clearly, the Revenue has not been able to point out any defects in the findings of the Ld.CIT(A) on this issue. Disallowance of the contributions made to the Employee Welfare Funds - AO had disallowed the contributions to the various Employees Welfare Funds on the ground that the payments were not statutory obligations - HELD THAT:- As it is noticed that it has been categ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue to be on a right footing. CIT(A) has accepted the claim of the assessee that the sale of the non T D business was on a slump sale by applying the provisions of Sec.50B and the liabilities which have been claimed for deduction now have also not crystallized during the year as also the issue that the claim of the assessee is in respect of the provisions and mere provisions cannot be allowed as a deduction. This being so, the finding of the Ld.CIT(A) the AO on this issue stands confirmed. In the result, Ground Nos.6 7 of the assessee s appeal stands dismissed. Taxing under capital gains - excess consideration received on the transfer of the non-T D business - HELD THAT:- the consideration of the transfer has been specified in the said scheme at ₹ 41.30 Crs. How this difference of ₹ 10.00 Crs. has taken place, has not been explained by the assessee? Nor the assessee has been able to explain as to why the additional sum of ₹ 10.00 Crs. has been paid. If at all, it can be considered as an exchange, the question that arises is when the total net assets only ₹ 31.30 Crs. why the shares of the value of ₹ 41.30 Crs. has been allotted. Though, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) ought to have upheld the decision of the Assessing Officer. A.B.Mauri India Pvt. Ltd. ITA No.1293/Mds/2006 - dated 23.11.2007 Pentasoft Technologies Ltd. ITA No.1325/Mds/2006 - dated 06.02.2008 4. The learned CIT(A) erred in deleting the addition made by the Assessing Officer towards the amount taken to general reserve by the assessee on a sum of ₹ 54,26,56,000/- representing the difference between the value of assets over the value of liabilities of the transferor companies, after adjusting the aggregate face value of new shares issued was added to General Reserve. 4.1. The Learned CIT(A) failed to note that the amount taken to General Reserve by the assessee was due to net asset value consequent to amalgamations scheme. The amalgamation was completed as per business expediency and in the course of ongoing business. Thus, the amount is clearly taxable u/s.28 (iv) of the IT Act. 4.2. Having regard to the decision of the jurisdictional High Court in the case of M/s.Aries Advertising Co. Ltd. (255 ITR 510) wherein, it was observed that (quoting from the Supreme Court s decision in the case of Vazir Sultan Tobacco Co. Ltd. - (133 ITR 559) any amount trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s.SSB Industries. It was a submission that the AO had disallowed the depreciation on non-compete fee on the ground that it was not a business or commercial right, which the assessee had received. It was a submission that on appeal the Ld.CIT(A) had allowed the assessee s claim by following the decision of the Co-ordinate Bench of this Tribunal in the case of M/s.Medicorp Technologies India Ltd., in 2009-TIOL-203-ITAT MAD dated 16.01.2009 wherein it has been held that the non-compete right acquired by the assessee company was eligible for depreciation. It was a submission that the order of the AO was liable to be restored. 6.1 In reply, the Ld.AR drew our attention to the decision of the Hon ble Jurisdictional High Court in the case of M/s.Pentasoft Technologies Ltd., reported in [2014] 41 taxmann.com 120 (Mad) wherein it has been held that the non-compete fee is in the nature of commercial right of similar nature such as patents, copyrights and trademarks and therefore, the assessee was entitled to the depreciation. 6.2 We have considered the rival submissions. As it is noticed that the issue is squarely covered by the decision of the Hon ble Jurisdictional High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of those entities, the assessee had reflected the book value of the assets liabilities of the three merger entities in its book and credit the difference between the net book value of the assets and the value of the shares allotted to them to its reserve. The Ld.CIT(A) had held that the assessee has only purchased three entities and therefore, there was no question of making any profit on the said transaction. Consequently, the Ld.CIT(A) had deleted the addition. The Ld.DR vehemently supported the order of AO. 7.1 In reply, the Ld.AR submitted that the AO had held that the excess of the net book value of the three entities as against the consideration paid as income in the Revenue field. It was a submission that the assessee having acquired the three companies, the excess of the net book value over the consideration paid was, in effect, a capital receipt which was liable to be adjusted only to the General Reserve. He vehemently supported the order of the Ld.CIT(A) on this issue. 7.2 We have considered the rival submissions. A perusal of the provisions of Sec.28(iv) shows that the said provision is to treat the income as profits gains of business or profession, the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. a. Provision for Bad Debts amounting to ₹ 6,90,00,001/-. b. Provision for unamortized portion of Voluntary Retirement Scheme - ₹ 44,22,000/- c. Provision for Warranties - ₹ 4,02,21,000/- d. Provision for Contract Losses ₹ 36,84,000/- e. Provision for Vacation Pay - ₹ 66,28,000/- 7. The learned officer has erred in not appreciating the fact that by transferring the above said provisions by accepting a lower consideration, the appellant had in fact discharged its liabilities should be entitled to full deduction. 8. The learned officer has erred in taxing under capital gains, the excess consideration received on transfer of business ignoring the submissions of the appellant that the transfer of business under a Scheme of Arrangement did not attract capital gains u/s.50B. 9. The learned officer has erred in not granting deduction for Excise duty paid on Closing Stock. He has further erred in ignoring all the judicial precedents in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion club 1,71,437/- 3 Contribution to death benefit fund 1,70,880/- Total 6,45,541/- The Assessing Officer held that these contributions were not allowable as they were specifically barred by the provisions of Sec.40A(9) of the Act. The Commissioner (Appeals), relying on the earlier decision, deleted the addition. Copy of the earlier decision was not placed before us. The learned Departmental Representative relied on the decision of the Tribunal rendered in assessee s own case for the assessment year 1998-99 in ITA No.154(Mds)/2003 dated 28-3-2005. In that case, the assessee did not produce the settlement deed and the agreement entered into with the labour union and has also not demonstrated that the payment was in accordance with the Industrial Disputes Act and was for the discharge of statutory obligation. As such the appeal was dismissed. The learned counsel for the assessee submitted that in the present case all the documents were produced and as such the earlier order should not be applied to adjudicate the issue involved in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s India Ltd., had paid an additional consideration in respect of the business taken over of M/s.ALSTOM Projects India Ltd., on the additional consideration paid which was treated as goodwill by the assessee in its book. The assessee had claimed depreciation and the same had been disallowed on the ground that the depreciation was not a business or commercial right of similar nature specified in Sec.32(1)(ii) of the Act. It was a submission that the issue had been held against the assessee in ITAT Delhi Benches. It was a submission that on appeal the Hon ble Delhi High Court in the assessee s own case in ITA No.315/2010 dated 30.03.2012 had held that the depreciation was an intangible asset acquired under slump sale agreement and was in the nature of business or commercial right of similar nature specified in Sec.32(1)(ii) of the Act and was accordingly eligible for depreciation. It was a submission that in view of the decision of the Hon ble Delhi High Court in the assessee s own case for the AY 2005-06, the assessee was entitled to the claim of the depreciation. 11.1 In reply, the Ld.DR vehemently supported the order of the AO and the Ld.CIT(A). 11.2 We have considered the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial rights of similar nature used in Explanation 3(b) to Section 32(1) has to take colour from the preceding words knowhow, patents, copyrights, trademarks, licenses, franchises . It was urged that the Supreme Court had clearly held in Techno Shares and Stocks Ltd.(supra) that Our judgment should not be understood to mean that every business or commercial right would constitute a licence or a franchise in terms of section 32(1)(ii) of 1961 Act . 13. In the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression business or commercial rights of similar nature specified in Section 32(1)(ii) of the Act, it is seen that such rights need not answer the description of knowhow, patents, trademarks, licenses or franchises but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(1)(ii) of the Act preceding the term business or commercial rights of similar nature , it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature specified in Section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that Section. 15. In view of the above, it is not necessary to decide the alternative submission made on behalf of the assessee that goodwill per se is eligible for depreciation under Section 32(1)(ii) of the Act. In the circumstances, the substantial question of law is decided in the affirmative and this appeal is allowed in favour of the assessee and against the Revenue and the impugned order is set aside. 11.3 As it is noticed that the Hon ble Delhi High Court has decided this issue in favour of the assessee for the AY 2005-06, respectfully following the decision of the Hon ble Delhi High Court, the findings of the Ld.CIT(A) on this issue stands reversed. The AO is directed to grant the assessee the benefit of depreciation on the goodwill as claimed. In the result, Ground No.5 of the assessee s appeal stands allowed. 12. In regard to Ground Nos.6 7, it was submitted by the Ld.AR that the issue was against the action of the Ld.CIT(A) in confirming the disallowance of various provisions which had been claimed as an expenditure in respect of the non-transmission and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 41.30 Crs. Once the whole of the non-T D business has been transferred then admittedly there is nothing left of the said business representing a liability which is liable to be allowed in the assessee s hands in respect of the said business. This being so, we find that the order of the Ld.CIT(A) and the AO on this issue to be on a right footing. Further, it is noticed that the Ld.CIT(A) has accepted the claim of the assessee that the sale of the nonT D business was on a slump sale by applying the provisions of Sec.50B and the liabilities which have been claimed for deduction now have also not crystallized during the year as also the issue that the claim of the assessee is in respect of the provisions and mere provisions cannot be allowed as a deduction. This being so, the finding of the Ld.CIT(A) the AO on this issue stands confirmed. In the result, Ground Nos.6 7 of the assessee s appeal stands dismissed. 13. In regard to Ground No.8, it was submitted by the Ld.AR that the issue was against the action of the Ld.CIT(A) in taxing under capital gains, the excess consideration received on the transfer of the non-T D business. It was a submission that the transfer of non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-T D business has been determined at ₹ 31.30 Crs. in the said scheme. However, the consideration of the transfer has been specified in the said scheme at ₹ 41.30 Crs. How this difference of ₹ 10.00 Crs. has taken place, has not been explained by the assessee? Nor the assessee has been able to explain as to why the additional sum of ₹ 10.00 Crs. has been paid. If at all, it can be considered as an exchange, the question that arises is when the total net assets only ₹ 31.30 Crs. why the shares of the value of ₹ 41.30 Crs. has been allotted. Though, the assessee has mentioned that the valuation is as per the valuation done by the Accountants still the valuation arrived at by the Accountants is to an extent of ₹ 41.70 Crs. and even that is not the consideration of the transfer because as per the Scheme, the consideration for the transfer is shown at ₹ 41.30 Crs. Even otherwise, a perusal of the Scheme clearly shows that the term used is consideration for the transfer , the words are not exchange . This being so, we find no error in the findings of the AO and the Ld.CIT(A) on this issue and the same stands confirmed. In the resul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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