TMI Blog2020 (10) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has been in error in holding that the case laws are not applicable here. - Decided in favour of assessee. Provision for warranty as claimed as expenditure - Claim denied by AO on the ground that it is an unascertained liability and a contingent liability - CIT(A) in principal upheld the action of AO but directed that only the provision made during the year should be disallowed - HELD THAT:- As relying on case ROTORK CONTROLS INDIA (P) LTD. case [ 2009 (5) TMI 16 - SUPREME COURT] authorities below have erred in considering the provisions of warranty as contingent liability. As already submitted by learned Counsel of the assessee in assessee's own case, subsequently revenue authorities have allowed the expenditure on the basis of same Hon'ble Supreme Court decision. Hence, we set aside the order of the authority below and decide the issue in favour of the assessee. Depreciation in respect of customer contracts - assessee had claimed that the customer contracts are valuable right and therefore capital asset - Claim denied by the authorities below it was held that the assessee cannot be allowed depreciation as intangible asset u/s 32(1)(ii) as this does not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y debited to the profit and loss account. 5. The learned Commissioner (Appeals) erred in disallowing the depreciation of ₹ 90,10,000 claimed by the appellant in respect of customer contracts. 6. The learned Commissioner (Appeals) erred in holding that the customer contracts cannot he said to be a commercial right or business right which is a depreciable intangible right qualifying for deduction under section 32(1)(ii). 7. Without prejudice to the above, the Id. CIT(A) ought to have appreciated that the expenditure of ₹ 72,080,000 incurred for acquiring commercial rights should be allowed as revenue expenditure. 8. The Id. CIT(A) erred in not commenting on the following ground: 14. The learned Assistant Commissioner erred in initiating penalty proceedings under section 271(1)(c) 9. Each one of the above ground of appeal is without prejudice to the other. 3. Grounds of appeal in assessment year 2005-06 read as under :- The appellant objects to the order dated 24th November 2009 passed by the Learned Commissioner of the Income-tax (Appeals) - 12 on the following among other grounds of appeals : 1. The Learned Commissioner (Appeals) erred in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed in the Schedule attached with the agreement. The appellant submits that the appellant had incurred the stamp duty of ₹ 59,17,000 for the purpose of the business of the appellant and therefore the same shall be allowed as a deduction. The appellant submits that the fact that the stamp duty had been paid in respect of agreement for assignment of receivables pertaining to 1ST business on and from 1 January 2004 shall not make the payment of stamp duty as a capital expenditure. The appellant inter-alia relies on the following decisions:- 1. CIT v Bombay Dyeing and Manufacturing Co. Ltd. 219 ITR 521 (SC). The facts in the said decision were that a company was amalgamated with the assessee company. In connection with the amalgamation, the assessee incurred an expenditure of ₹ 10,350 towards professional charges. The appellant claimed deduction for the said amount. The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim of the assessee but the Tribunal allowed the claim on the ground that as both the companies were carrying on complementary business and their amalgamation was necessary for the smooth and efficient conduct of the business, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jee Wadia Ginning Pressing Co. was necessary for the smooth and efficient conduct of the assessee's business. Following the ratio of the aforementioned decisions of the Court, we hold that the expenditure incurred towards professional charges of the solicitors firm for the services rendered in connection with the said amalgamation was in the course of carrying on of the assessee's business and, therefore, deductible as a revenue expenditure. 2. India Cements Limited v CIT 60 ITR 52 (SC). The facts in the said decision were that the assessee obtained a loan of ₹ 40 lakhs from the Industrial Finance Corporation secured by a charge on fixed assets. In connection therewith the assessee spent a sum of ₹ 84,633 towards stamp duty, registration fees, lawyer's fees etc. and claimed the same as a deduction. In the books of account the amounts were capitalized. However, for the purpose of income tax, the expenditure was claimed as a deduction. The Supreme Court in the above decision held that it was irrelevant to consider the object with which the loan was obtained. The expenditure of ₹ 84,633 was incurred for the purpose of assessee's business a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure was incurred in course of carrying on business and it has arisen in revenue field. The appellant's case on the other hand is strikingly different in its factual foundation in the sense that the appellant company has acquired an income generating capital apparatus which is altogether operating in capital field. It is to be appreciated that the purchasing of a industrial unit from other company is altogether a different commercial decision in total contrast of the process of amalgamation between the two companies. These are two different situation of commercial happening which are incomparable in substance operational in two different fields. Therefore. I am in total consonance with the view of the AO that the ratio of the decision of CIT v. Bombay Dyeing Mfg. cannot be made applicable in this case. Further, I also find that the decision of India Cement Ltd. v. CIT, 60 ITR 52 (SC) was in different context where the stamp duty professional charge was allowed as a revenue expenditure. ' 3.4 In this connection, I am inclined to refer the decision of Supreme Court in the case of Brooke Bond India Ltd. v. CIT, 225 ITR 798 (SC) wherein the expenditure on fees paid for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signment is admittedly for facilitating the business of the assessee by assigning receivables and as the assessee has acquired the said industrial unit for a lump sum consideration. The expenditure is in connection with facilitating recovery of receivables which is a part of current asset. Hence the expenditure in this regard cannot be said to be in the capital filed of acquiring business. It is in fact for facilitating the business of the assessee and in this view of the matter expenditure is allowable as business expenditure. The case laws referred by learned counsel of the assessee in the case of Bombay Dyeing Mfg. (supra) and India Cements Ltd. (supra) are accordingly germane and support the case of the assessee. Learned CIT(A) has been in error in holding that the case laws are not applicable here. Apropos ground No. 3 and 4. 9. The assessee had made provision for warranty of ₹ 2,76,18,000/-which was claimed as expenditure. The same was denied by the Assessing Officer on the ground that it is an unascertained liability and a contingent liability. Learned CIT(A) in principal upheld the action of the Assessing Officer but directed that only the provision made during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a present obligation which results in an enterprise having no alternative to settling that obligation. 12. Examining the present case on the touchstone of above decision we find that the authorities below have erred in considering the provisions of warranty as contingent liability. As already submitted by learned Counsel of the assessee in assessee's own case, subsequently revenue authorities have allowed the expenditure on the basis of same Hon'ble Supreme Court decision. Hence, we set aside the order of the authority below and decide the issue in favour of the assessee. Apropos ground Nos. 5 and 6 additional ground 13. The assessee has claimed depreciation in respect of customer contracts. The assessee had claimed that the customer contracts are valuable right and therefore capital asset. In this regard assessee referred to the provisions of section 2(11) 32(1)(ii) of the Act. This was denied by the authorities below it was held that the assessee cannot be allowed depreciation as intangible asset under section 32(1)(ii) on this, as this does not fall under the definition of intangible asset as contained in section 2(11). We may refer to the order of learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract is such commercial advantage conferred by a business entity which value depends upon the degree of commercial activity carried on by the particular business organisation. Generally, the customer contract has a inherent tendency to go up if the business activity of the entity is intensified in its volume and scope of business. Therefore, it can be concluded that it is not a depreciable asset. 5.8 Further, it may also be pointed out that the connotation any other business or commercial right of similar nature has to derive meaning from words know-how, patent, copyright, trademark, licence, franchisee. Here the principle of ejusdem generis applies. The maxim ejusdem generis serves to restrict the meaning of a general word to things or matters of the same genus as the preceeding particular words (CIT v. Statesman Ltd. [1992] 198 ITR 582 (Cal.). It is a well recognised rule of construction that when two or more words which are susceptible of analogous meaning are coupled together noscitur a sociis, they are understood to be used in their cognate sense. They take their colour from each other that is, the more general is restricted to a sense analogous to the less general. The w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lstom worldwide during 2003. In India, as a part of this global transaction, the Company acquired the Industrial Steam Turbine ('1ST') business of Alstom effective 1 January 2004 for a purchase consideration of ₹ 260,507 thousand. This purchase consideration has been allocated to fixed and intangible assets at fair values based on an independent valuation carried out. All other current assets and liabilities been taken over at carrying values at the date of the transaction net of fair value adjustments as identified by management. The apportionment of purchase consideration to individual assets and liabilities is as set out below: ₹ 000 Fixed assets 25,122 Technical know-how 48,520 Customer contracts 72,080 Deferred tax asset net 19,297 Receivables net 184,147 Inventories net 178,462 Loans and advances 146,401 Cash 150 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply while interpreting the expression business or commercial rights of similar nature . Consequently, goodwill is an asset under Explanation 3(b) to section 32(1) of the Act and is accordingly eligible for depreciation. 20. Here we note that the above decisions are applicable for depreciation on goodwill and similar intangible assets which have been purchased. The customer contract is reflected in page No. 81 of the paper book extracted above is a fair value done by valuer. We note that it is the claim of learned counsel that goodwill arising out of slump sale agreement and customer contract which are akin to the goodwill being an intangible asset are also eligible for depreciation. Although we find that there is no dispute now that goodwill is eligible for depreciation. It will be pertinent to remember here that goodwill has arisen pursuant to slump sale agreement wherein the assessee has acquired assets, on a purchase consideration of ₹ 7,60,5,07,000/-. In the case of Areva T D India Ltd. v. CIT in ITA No. 315/2010 and others, Hon'ble High Court has held that excess amount paid over and above tangible asset for acquisition of various business and commercial rig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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