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TMI Blog2021 (8) TMI 1243X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of Nickel hydrogenated catalysts, Naptha reforming catalysts and Gas reforming catalyst. The AO/TPO asked the assessee to produce the details of services availed, the date of availing of services, the allocation key used by the assessee and the evidence in support of its claim of utilization of services and also to furnish the benefit test i.e. whether the services requested, when and how such services for rendered by the AE, at what rate these are available in the local market and justification of using these services. The assessee filed its submissions dated 12-01-2016 and the relevant portions were reproduced by the TPO in its order. On examination of such submissions, the TPO proposed upward adjustment by holding that the assessee did not prove receipt of services, quantification of such services and determination of arm's length price. The AO/TPO made upward transfer pricing adjustment of Rs. 1,88,58,689/- on account of CCR services. Before the DRP, the assessee filed additional evidences in support of its claim. The DRP sought remand report from the TPO and based on such remand report as submitted by the TPO, the DRP upheld the action of TPO in determining the ALP of CC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect and PI configuration. The names of team members were also reflected in the said details. Further, in the same way the details of names of software details of IT services are also reflected. Further, the list of ID created for Panki Plant and Taloja are placed on record from Page Nos. 308 to 311 of the paper book. The screenshot displaying of general data of customers of SAP at placed at Page No. 316 and 317 of the paper book. The details of plant application of WINLIMS Lab application are put up from Page Nos. 328 to 336 of the paper book. The visitors itinerary also provided from Page Nos. 348 to 355 of the paper book wherein correspondence between Mr. Alister Scott regarding group health audit and recommendation are at Page No. 353 of the paper book. Further, Mr. Terry Symington visited India for the purpose of implementation of SAP Prana project. In Page No. 362 we find the correspondence between Mr. Rowan Ian and Mr. Ajay Goel and others regarding Emerson FAT package. The said Mr. Rowan Ian arrived in India on 12th April, 2011 and returned to UK on 21-04-2011. Screenshot at Page No. 405 of the paper book reveals emails from Mr. Garry Tobiss regarding the procedures for auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue raised in the appeal of the assessee is with regard to disallowance of depreciation claimed on goodwill u/s. 32(1)(ii) of the Act. In the case of Commissioner of Income Tax Vs. Smifs Securities Ltd. (supra) one of the question before the Hon'ble Apex Court for adjudication was: "Whether goodwill is an asset within the meaning of section 32 of the Income Tax Act, 1961, and whether depreciation on goodwill is allowable under the said section?" The Hon'ble Supreme Court of India answered the question in affirmative as under: "Answer: In the present case, the assessee had claimed deduction of Rs. 54,85,430/- as depreciation on goodwill. In the course of hearing, the explanation regarding origin of such goodwill was given as under: "In accordance with Scheme of Amalgamation of YSN Shares & Securities (P) Ltd with Smifs Securities Ltd (duly sanctioned by Hon'ble High Courts of Bombay and Calcutta) with retrospective efect from 1st April, 1998, assets and liabilities of YSN Shares & Securities (P) Ltd were transferred to and vest in the company. In the process goodwill has arisen in the books of the company." It was further explained that excess consideration p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal [`ITAT', for short]. We see no reason to interfere with the factual finding. One more aspect which needs to be mentioned is that, against the decision of ITAT, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove. For the afore-stated reasons, we answer Question No.[b] also in favour of the assessee." Following the decision rendered in the case of Commissioner of Income Tax Vs. Smifs Securities Ltd. (supra), the Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Birla Global Asset Finance Co. Ltd. (supra) and in the case of Toyo Engineering India Limited Vs. The Dy. Commissioner of Income Tax (supra) held that depreciation in respect of intangible assets constituting goodwill is allowable. 15. In view of the law laid down by the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al rights of similar nature. Therefore the expression 'business or commercial rights of similar nature' need not answer the description of know-how, patents, copyrights, trade marks, licences, franchises, but must be of similar nature as the specified assets. The fact that after 'the specified intangible assets', the words 'business or commercial rights of similar nature' have been additionally used, clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible assets, but also to other categories of intangible assets which were neither feasible nor possible to exhaustively enumerate. The words 'similar nature' is a significant expression. The Apex Court in the case of Nat Steel Equipment (P.) Ltd. (supra) explaining the meaning of the word 'similar', held that it does not mean identical but it means corresponding to or resembling to in many respects somewhat like or having a general likeness. The statute does not contemplate that goods classified under the words of similar description, shall in all respects be the same. If it did, these words would be unnecessary. 8. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is acquired essentially for trade and commerce and therefore it will also qualify as a commercial right. A right acquired by way of non-compete can be transferred to any other person in the sense that the acquirer gets the right to enforce the performance of the terms of agreement under which a person is restrained from competing. When a businessman pays money to another businessman for restraining the other businessman from competing with the assessee, he gets a vested right which can be enforced under law and without that, the other businessman can compete with the first businessman. When by payment of non-compete fee, the businessman gets his right what he is practically getting is kind of monopoly to run his-business without bothering about the competition. Generally, non-compete fee is paid for a definite period. The idea is that by that time, the business would stand firmly on its own footing and can sustain later on. This clearly shows that the commercial right comes into existence whenever the assessee makes payment for non-compete fee. Therefore that right which the assessee acquires on payment of non-compete fee confers in him a commercial or a business right which is h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ascertainable. Referring to the definition of slump sale in section 2(42C) of the Act, where the cost of assets were not known, then the steps to be taken. He also referred to the definition of excluded assets which does not include know-how. Referring to para 6.4.5 of CIT(A)‟s order, the learned Authorized Representative for the assessee pointed out that business was taken over by the assessee and not the plant & machinery and plot of land at Panki; hence the know-how had to be taken, otherwise, how the business would go on. In para 6.4.7, the CIT(A) refers to the Toll Agreement and license to be given to ICI India Ltd. to manufacture on assessee‟s behalf. The assessee became the owner of know-how under the BTA and that is how it could give same to ICI India Ltd. under Toll Agreement. 36. The learned Authorized Representative for the assessee distinguished the reliance placed upon by the learned Departmental Representative for the Revenue. He further pointed out that for period of four years after perusing the details given by the assessee, the Assessing Officer was satisfied and no addition was made. In the fourth year, the Commissioner exercised jurisdiction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eller and hence, so-called payment of noncompete fees at Rs. 3.51 crores was nothing but part of composite price paid for acquisition of entire business of ICI India Ltd., which had to be clubbed with total slump sale price of Rs. 153.18 crores. The second observations of the CIT(A) was that there was no explicit payment for goodwill as per the BTA and/or the payment towards non-compete fees, hence the assessee was not eligible to claim depreciation on goodwill; since it was not specifically mentioned in the list of intangible assets under section 32(1)(ii) of the Act, which talked about know-how, patents, copyrights, trademarks, license, franchise, etc. Further goodwill was also not covered by the expression "any other business or commercial rights‟ of similar nature. The CIT(A) thus, denied the depreciation on goodwill and non-compete fees. Further, during the appellate proceedings, the CIT(A) issued enhancement notice to the assessee under section 251 of the Act vis-à-vis claim of depreciation on knowhow, trademark and patents, which was allowed by the Assessing Officer. The objection of CIT(A) was that two-fold that it was neither owned nor used by the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of assets both tangible and intangible in the same. His main plank of decision was the value of assets i.e. lands at Panki and Taloja. After deliberations, he was of the view that the purchase price of Rs. 153.18 crores paid by the assessee included consideration paid for the rights in land and hence, after working out the market value of identifiable tangible assets, he was of the view that where the market value of said tangible assets worked out to Rs. 231.85 crores as against slump price of Rs. 153.18 crores, then no balance amount was left to be allocated to intangible assets. He was of the view that the assessee had not acquired any intangible assets in consolidated slump price of Rs. 153.18 crores. Accordingly, he did not accept the working of asset vis-à-vis value allocated to intangible assets including know-how, patents, trademarks, etc. and rejecting the report of the Valuer who was assigned this job of bifurcating value of tangible and intangible assets, the CIT(A) held that the assessee was not eligible for any depreciation on knowhow, trademarks and patents. Accordingly, he made enhancement of Rs. 21.93 crores. The second issue for enhancement which was con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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