TMI Blog2022 (1) TMI 424X X X X Extracts X X X X X X X X Extracts X X X X ..... has held that since the term Cess is not included in clause (ii) of section 40(a)of the I.T. Act, 1961, there is no prohibition in claiming the same as a deduction in computing income chargeable under head of profits and gains of business or profession. Similar view has been taken by the Hon ble Rajasthan High Court in the case PCIT vs., Chambal Fertilizers and Chemicals Ltd.[ 2018 (10) TMI 589 - RAJASTHAN HIGH COURT] wherein it has been held that education cess is not a disallowable expenditure under section 40(a)(ii) - we are of the considered opinion that education cess and secondary education cess paid on income tax is an allowable expenditure. Accordingly, the additional ground raised by the assessee is allowed. - ITA No. 4771/Del./2018 - - - Dated:- 10-1-2022 - SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER For the Assessee : Shri Vishal Kalra, Advocate For the Revenue : Shri Kumar Padmapani Bora, Sr. DR ORDER PER R.K. PANDA, A.M. This appeal filed by the Assessee is directed against the order dated 20.04.2018 of the Ld. CIT(A)-4, New Delhi, relating to the A.Y. 2013-2014. 2. The grounds raised by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of depreciation on goodwill. 5.1. Facts of the case, in brief, are that the assessee is a company engaged in the business of transportation of time sensitive packages, documents and cargo to domestic and international destinations. It filed its return of income on 29.11.2013 declaring total income of ₹ 15,87,13,620/-. During the course of assessment proceedings, the A.O. noted that assessee company has claimed depreciation on goodwill of ₹ 6,21,39,561/- @ 25% which comes to ₹ 1,55,34,890/-. Since goodwill is not covered within the meaning of intangible assets which means only know-how, patent, copyrights, trademarks, license, franchisee on any other business or commercial rights of similar nature, therefore, the A.O. asked the assessee company to show cause as to why the same should not be disallowed. 5.2. In response to the same, the assessee company filed the following reply : Geodis group entered into' Master Asset Purchase Agreement' dated December 1, 2008 with International Business Machine ( BM ) to acquire its logistics division world-wide. Pursuant to such agreement, the company had entered into an acquisition agreement dated Marc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken over/transferred from IBM (India) Pvt. Ltd., Network Solutions (P) Ltd., IBM Daksh Business Process Services Pvt. Ltd., list of which has been given in schedule 2.01(B) of the local Acquisition Agreement - India dated 31/03/2009. 6.2. It is important to note that the term 'Goodwill' is not present specifically in the definition of 'Intangible asset' given in explanation 3to section 32. As per the said explanation intangible asset includes 'know-how, patents, copyright, trade mark, licences, franchises or any other business or commercial rights of similar nature. 6.3. The appellant has failed to explain under which limb of the definition does its case fall and which rights constitute goodwill in this case and at which value. Depending on the circumstances of a case, as held by Hon'ble Apex Court in CIT vs. Smifs Securities Ltd. [2012] 348 ITR 302 (SC), goodwill is an asset but there must exist a direct correlation between the right acquired and corresponding value of such rights. 6.4. Since the appellant is claiming depreciation on such intangible asset, the onus is on the appellant to establish that value of such asset has rightly been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation report. 6.8. Even during the appellate proceeding, the appellant has failed to counter the above observations of the AO. 6.9. Further, the judicial pronouncement relied upon by the appellant in the written submission has already been dealt in and distinguished by the Assessing Officer in the assessment order one by one. The appellant in its written submission has not explained as to why the distinguishing factors explained by the AO in the assessment order are not correct. 6.10. In view of the above discussion, I am of the considered view that addition of ₹ 1,53,34,890/- made by the AO by disallowing depreciation on goodwill is justified and deserve to be upheld. 6.11. Accordingly, addition of ₹ 1,53,34,890/- is confirmed. The ground of appeal No.1 (including 1.1 to 1.5 is dismissed. 6. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal. 7. Learned Counsel for the Assessee referring to the decision of the Tribunal in assessee s own case for the A.Ys. 2010-11, 2011-12 and 2012-13, copies of which are placed at page numbers.75 to 145 of the PB submitted that the issue has already been decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of ₹ 14.72 crores paid by the appellant represents the value of transferred workforce and supplier contracts including the right to provide logistics services to IBM India for a maximum period of 15 years. The appellant has characterised these as goodwill and claimed depreciation on the same at the rate of 25% under section 32(i)(ii) of the Act. 20. However, the claim of the assessee was dismissed by the Assessing Officer who was of the firm belief that the depreciation on goodwill was not allowable as a deduction in light of the provisions of Explanation 3 to section 32(1) of the Act. 21. Before us, the ld. counsel for the assessee brought to our notice the decision of the co-ordinate bench in assessee s own case in ITA No. 2305/DEL/2015 for A.Y 2010-11 and pointed out that Tribunal has decided this issue in favour of the appellant. 22. Per contra, the ld. DR supported the findings of the DRP. 23. We find force in the contention of the ld. counsel for the assessee. We are of the considered opinion that this is not the initial year of claim of depreciation and in this year, the assessee has claimed depreciation on the written down value. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;business or commercial rights of similar nature' specified in section 32(1)(ii) and are accordingly eligible for depreciation under that section. 43. The relevant observation of the Hon ble High Court from para 12 to 15 are as under:- 12. In the present case, it is seen that the assessee vide slump sale agreement dated 30th June, 2004, acquired, as a going concern, the transmission and distribution business of the transferor Company w.e.f. 1 st April, 2004. As a result thereof, the running business of transmission and distribution was acquired by the transferee lock, stock and barrel minus the trademark of the transferor which was retained by the transferor, for lump sum consideration of ₹ 44.7 Crores. It is further seen that the book value of the net tangible assets (assets minus liabilities) acquired was recorded in the balance sheet of the transferor as on the date of transfer as ₹ 28.11 Crores. The said assets and liabilities were recorded in the books of transferee at the same value as appeared in the books of the transferor. The balance payment of ₹ 16,58,76,000/- over and above the book value of net tangible assets, was allocated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial rights of similar nature , it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. 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. In the circumstances, the nature of business or commercial rights cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of business or commercial rights can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in case of the assessee, intangible assets, viz., business claims; business information; business records; contracts; employees; and know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the specified intangible assets enshrined in the provision include know-how, patent and copyrights ITA No.1976/Del/2006 etc., the unspecified intangible assets have been described with the expression 'or any other business or commercial rights of similar nature.' It is nobody's case that goodwill is a specified intangible asset. The assessee has sought to cover `goodwill' within the expression deployed to define unspecified intangible assets. Au contraire, the A.O. has canvassed a view that the expression used in the provision for defining unspecified intangible assets cannot embrace something which is inextricably linked with the business of the assessee. He bolstered his point of view by noting that the specified assets in the provision are such which are detachable from the business of the assessee and transferrable individually and separately. In this light, he held that the expression 'or any other business or commercial rights of similar nature' would include only such assets which are transferrable distinctly. Goodwill of a business, being, an intangible asset which cannot be transferred separately de hors the transfer of business, was, ergo, held to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the order of the Ld. CIT(A) and direct the A.O. to allow depreciation on goodwill. Accordingly, grounds raised by the assessee are allowed. 9.2. Grounds of appeal number.4 being mandatory and consequential in nature is dismissed. 10. So far as the additional ground is concerned, the same relates to allowability of education cess and higher secondary education cess as an expenditure. 11. After hearing both the sides, we find the Hon ble Bombay High Court in the case of Sesa Goa Limited vs., JCIT [2020] 107 CCH 375 (Bom.) has held that since the term Cess is not included in clause (ii) of section 40(a)of the I.T. Act, 1961, there is no prohibition in claiming the same as a deduction in computing income chargeable under head of profits and gains of business or profession. Similar view has been taken by the Hon ble Rajasthan High Court in the case PCIT vs., Chambal Fertilizers and Chemicals Ltd. ITA.No.52 of 2018 wherein it has been held that education cess is not a disallowable expenditure under section 40(a)(ii) of the I.T. Act, 1961. We find the Coordinate Bench of the Delhi Tribunal in case of Sicpa India Private Ltd vs., Addl. CIT ITA Nos.704/Kol/2015 and 1586/Kol/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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