TMI Blog2023 (5) TMI 1209X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, argument of the Revenue that the underlying asset consisting goodwill is transferred cannot be accepted as IP in entirety did not result in creation of goodwill and the goodwill is a sum paid for acquisition of all the assets and rights i.e. the Business Commercial Rights acquired from Four Soft. As find from the details furnished by the assessee that post transfer of IP to Blujay UK, IP platform licence access was provided back to Blujay India which is in turn providing software development support distribution services in India to domestic third parties. 50% of such income has also been offered to tax in India. From the details furnished by the assessee, we find it is only the ownership of the IP that is transferred to Blujay UK and Blujay India is still benefitting out of the other assets acquired namely business contracts, employees, business permits, policies, readymade business etc. - Transfer of IP to UK was on back-to-back basis without any capital gains and the assessee has not claimed any depreciation on the IP transferred during the year. We find merit in the argument of assessee that the net balance of purchase consideration paid, and the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Rs.113,53,42,477/- and the acquisition was completed on 4th October 2013. The transaction was accounted as a business acquisition and purchase consideration was allocated to tangible, intangible assets and liabilities at fair value as determined by an independent valuer. The excess of purchase consideration over the fair value of net assets acquired has been recognized as Goodwill. The acquisition of tangible assets and liabilities was done on book value basis. As regards the intangible property, sale consideration was mutually agreed between parties based on valuation report obtained from independent valuer. 5. He noted that the assessee has considered excess of purchase consideration over the fair value of net assets as goodwill and has furnished the computation as below: Particulars Amount (in Rs.) Net assets acquired (A) 8,11,32,473 Intellectual property(B) 62,40,77,295 Total value of net assets (C) C=A+B 70,52,09,768 Purchase consideration (D) 1,13,53,42,477 Goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r alia consists of the attributes of goodwill. Accordingly, it was submitted that goodwill acquired by Kewill India pursuant to business transfer agreement is an intangible asset and is eligible for depreciation. Relying on the decision of the Hon'ble Supreme Court in the case of SMIFS Securities Ltd, it was argued that goodwill is an intangible asset and depreciation on goodwill is allowable. The assessee also relied on various other decisions to support his case that the excess amount paid over and above the asset acquired is to be treated as goodwill and the assessee is entitled to claim depreciation on the same. 9. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He noted that in August 2013, Kewill announced its acquisition of the assets of Foursoft Limited, a publicly listed Solutions provider based in India. As part of the transaction, a newly established Indian subsidiary of Kewill (Kewill India) has been formed to acquire the assets, including intellectual property, largely software from Foursoft Ltd. The eproducts consisting of innovative and market-leading software solutions developed by Foursoft in-house on the-new t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to him, when the underlying asset itself is not available with the assessee then the question of existence of Goodwill doesn't arise in the instant case. Further since the holding company Kewill UK has acquired the asset to which Goodwill, if any, is attached then depreciation on Goodwill should be allowed, if applicable, in the hands of the holding company only and not to the assessee. 12. So far as assessee's reliance in case of CIT Vs Smifs Securities is concerned, he noted that the Hon'ble Supreme Court has categorically mentioned that CIT(A) the Tribunal held that the difference between the cost of an asset and the amount paid in the process of amalgamation constituted goodwill and this aspect was not challenged by department before the High Court. Therefore, the Hon'ble Supreme Court has not discussed the issue whether the difference between the cost of an asset and the amount paid in process of amalgamation constituted goodwill or not which is eligible for depreciation. Therefore, reliance placed by assessee on Hon'ble Supreme Court judgment in case of CIT vs Smifs Security was held by him as not tenable. Rejecting the various explanation gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.10.2013 to acquire the business of Four Soft Ltd as a going concern on a slump sale basis was for a consideration of Rs.113.53 crores. The assessee has considered the excess of purchase consideration over the fair value of the net assets acquired as Goodwill of Rs.43.01 crores and accordingly claimed depreciation proportionately on the goodwill. However, there was no asset of goodwill in the hands of the transferor company and subsequently there is no purchase of the same as an identifiable asset. The acquisition agreement dated 10.8.2016 also does not discuss about the goodwill or quantify the same. He submitted that the assessee has not produced any other basis of valuation of goodwill. He submitted that goodwill is not populated as an identifiable asset in the books of account of Four Soft, goodwill has neither been quantified in the books of Four Soft Ltd or in the acquisition agreement. It is only appropriated that the price paid above the fair market value of assets of Four Soft is due to advantages arising from the assets of Four Soft Ltd. Therefore, the valuation of goodwill is to be apportioned to the most valued products of Four Soft i.e. 4S extra, 4S elog, 4S virilog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing rights: a) Right to take over employees; b) Right to use technical knowledge, designs and other information available with Four Soft Limited; c) Rights to documents and business correspondence of business taken over; and d) Right to enjoy all advantages of established trade. 20. He submitted that the assessee has reduced the value of sale consideration of the Intellectual Property paid to Blujay Solutions Limited, UK from the block of fixed assets. Thereby there is no depreciation claimed on the Intellectual Property purchased from Four Soft India and sold to its Parent Company i.e., BluJay Solutions Ltd, UK. The assessee has transferred the Property of INR 62,40,77,295 at book value to its Parent Company i.e., BluJay Solutions Limited, UK and has not claimed any benefit of depreciation. 21. The learned Counsel for the assessee submitted that the assessee has transferred the Intellectual Property to its Parent Company because all the IP is held by the Group as per the Group Policy. This is the general structure in the MNEs, where the Parent entity holds all the IP and not the captive service provider. The assessee which is the captive service provider will st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India (P) Ltd vs. Dy.CIT in ITA No.1507/PUN/2012. 18) CIT vs. RFCL Ltd (ITA 4, 12, 13 15 of 2014) Himachal Pradesh. 19) ITAT Delhi in Continental Device India Ltd vs. ACIUT (2015) 63 Taxmann.com 364 (Del.) 20) Hon'ble Kerala High Court in the case of B. Raveendran Pillai vs. CIT (ITA 1741 of 2009) 21) Hon'ble Bombay High Court in the case of CIT vs. Birla Global Asset Finance Co. Ltd (ITA 6835 of 2010) 22) ITAT Delhi in the case of Cyber India Online Ltd vs. ACIT (ITA 1299 of 2010) 23) ITAT Delhi in the case of Hindustan Coca Cola Beverages (P) Ltd vs. DCIT (ITA 1884 of 2006) 24) ITAT Ahmedabad in the case of Urmin Marketing (P) Ltd vs. DCIT (ITA 1806/Ahd/2019) 24. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has entered into a business acquisition agreement to acquire business of Foursoft India Ltd as a going concern on a slump sale basis for a consideration of Rs.113,53,42,477/- and the acquisition was completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 of the Paper Book filed by the Revenue shows that as per clause 6.2.2. the above acquisition has constituted transfer of entire business of Four Soft consisting of the following: 1. All the business assets 2. All the Business Contracts as on the date of acquisition 3. Existing Permits and support for fresh application for Permits 4. All the Employees 5. Registered Trademarks and Copyrights 6. Business Intellectual Property 7. Books and Records 8. Original Deeds and documents of title 9. Business Liabilities, duties and Obligations 10. Insurance Policies 27. We therefore, find merit in the argument of the learned Counsel for the assessee that the purchase consideration of INR 113 crores was attributed to the business acquired from Four Soft which is a bundle of the components as listed above and described in Clause 6.2.2. of the BTA. We further find from the details furnished by the learned Counsel for the assessee in the paper book that with the above benefits accrued on transfer of business, the business of the assessee has increased substantially from financial year 2013-14 to 2020-21, the details of which are as under: Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established, Depreciation on such goodwill cannot be questioned further. 31. We find an identical issue had come up before the Tribunal in the case of M/s. Avis Hospitals India Ltd vs. ACIT in ITA No.1390/Hyd/2019 order dated 27.06.2022 and the Tribunal has allowed the claim of depreciation on goodwill by observing as under: 13. We have considered the rival arguments made by both the sides, perused the orders of the AO and ld.CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has acquired Hyderabad business of Beams Hospitals Private Limited as a going concern and on a slump sale basis by paying a consideration of Rs. 7.94 crores as per the slump sale agreement between AVIS Hospitals India Limited and Beams Hospitals Private Limited dated 30.03.2015 copy of which is placed in the paper book at page at 78 to 99. We find the assessee in the return of income filed has taken the value of fixed assets at Rs. 3,31,23,000/- as per the depreciation schedule and the difference amount of Rs. 3,96,87,209/- after deducting the value of security deposits etc. was treated as goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also been upheld by Income Tax Appellate Tribunal['ITAT', for short]. We see no reason to interfere with the factual finding. 7. 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. 8. For the afore-stated reasons, we answer Question No.[b] also in favour of the assessee. 15. We find the Hon'ble Supreme Court in the case of PCIT vs. Zydus Wellness Ltd.(supra) has observed as under:- 3. The remaining questions no. (E) to (I) relate to the assessee's claim of depreciation. In the return filed for the assessment year 2010-11, the assessee had not raised such a claim. However, during the course of assessment proceedings, the assessee presented revised computation which included the assessee's claim of depreciation of Rs.7.19 crores on the goodwill expanded at the time of amalgamation of the companies. The assessee pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have a reference to an argument touching a question of fact or a question of law or mixed question of law or facts. A legal contention would ordinarily be a pure question of law without raising any dispute about the facts. Not only such additional ground or contention, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the first time though not made before the assessing officer. Income Tax proceedings are not strictly speaking adversarial in nature and the intention of the Revenue would be to tax real income. 39. This is primarily on the premise that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the assessing officer. 40. Therefore, any ground, legal contention or even a claim would be permissible to be raised for the first time before the appellate authority or the Tribunal when facts necessary to examine such ground, contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge between the cost of an investment shown as an asset in the acquirer's own financial statements and the values attributed to the acquired assets and liabilities in the consolidated financial statements . 16. The abovementioned Financial Reporting Standard 10 also provides for accounting of purchased goodwill as the difference between the cost of an acquired entity and the aggregate of the fair values of that entity's identifiable assets and liabilities. Positive goodwill arises when the acquisition cost exceeds the aggregate fair values of the identifiable assets and liabilities. Negative goodwill arises when the aggregate fair values of the identifiable assets and liabilities of the entity exceed the acquisition cost. 17. At this stage, it is also relevant to refer to Accounting Standard 10 as issued by the Institute of Chartered Accountants of India. The relevant extract of which reads as under:- 16.1 Goodwill, in general, is recorded in the books only when some consideration in money or money's worth has been paid for it. Whenever a business id acquired for a price (payable either in cash or in shares or otherwise) which is in excess of the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting the claim of depreciation on goodwill has given certain observations, which are not present in the instant case. The Tribunal in the said case has reproduced the valuation made by an independent valuer, who have given their report based on the information provided by the client and have not independently verified or checked the accuracy or timeliness of the same as per para 7.4 of the order. Similarly, the Tribunal at para 7.13 of the order has observed that the basis for transfer price is in the individual knowledge of the transferor and transferee and both the parties are under the control of same management, which indicate that the claim of fictional goodwill is nothing but deriving undue benefit out of oneself at the cost of the revenue. Similarly, the Tribunal observed at para 7.14 of the order that the parent company appointed the valuer and not the assessee and there is unfair fixation of transfer price to benefit the transferor at the cost of the assessee, the matter being an affair between parent of the assessee and the assessee. At para 7.18 of the order, the Tribunal had given a clear finding that clause 10.2 of the second valuation report clearly indicate that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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