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TMI Blog2025 (3) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 32 of the Income Tax Act, 1961 [Act] ['Act'] and more particularly the Finance Act, 2021 in terms of which the phrase 'not being goodwill of a business or profession' came to be inserted. 3. We are thus concerned with a period where Section 32 (1) stretched the principle of depreciation to any business or commercial rights including pertaining to intangible assets. 4. The appeal before the Income Tax Appellate Tribunal [Tribunal] ['Tribunal'] itself related to Assessment Years ['AYs'] 2015-16 and 2016-17. The question of depreciation itself arose in the context of a Scheme of Arrangement which came to be sanctioned on 05 October 2012. In terms of the covenants comprised in that Scheme, the appointed date was prescribed to be 01 April 2013. 5. Insofar as the apportionment of depreciation between the amalgamating entity and the resultant company is concerned and relevant to AY 2014-15, there is no dispute. The solitary question, which thus arose for consideration of the Tribunal, was the depreciation claimed by the appellant for AYs 2015-16 and 2016-17. 6. On facts, the Tribunal has found that the appellant had acquired the malt production units of Malt Company India Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assets 51,72,993 Capital Work in Progress 12,17,04,012 Non Current Investments 70,000 Long Term Loans and Advances 3,94,59,698 Inventories 5,68,79,698 Trade Receivables 15,04,66,263 Other Current Assets 5,90,56,353 Total Assets 1,31,01,77,069 II LIABILITIES Long Term Borrowings 1,05,96,54,849 Deferred Tax Liability 9,36,70,517 Long term provisions 10,35,325 Trade Payables 5,79,65,825 Other Current Liabilities 15,06,16,758 Short term provisions 97,708 Total Liabilities 1,36,30,40,982 III Net Assets (-) 5,28,63,913 9. It has thereafter in paragraph 14 observed as follows: "14. The Act provides that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or Section 170 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t day of April, 2001], unless it is used- (i) in a business of running it on hire for tourists ; or (ii) outside India in his business or profession in another country ; and (b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42 :] [Provided further that where an asset referred to in clause (i) or clause (ii) [or clause (iia)] [or the first proviso to clause (iia)], as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) [or clause (iia)], as the case may be :] [Provided also that where an asset referred to in clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), clause (xiiib) and clause (xiv)] of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them.] [Explanation 1.-Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been substituted :] Provided [further] that no deduction shall be allowed in respect of- (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year;] [(iii) in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof : Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.]" 11. As is apparent from a bare reading of the Fifth Proviso, the same pertains to aggregate deduction that may be claimed in respect of intangible assets "allowable to the predecessor and the successor in the case of succession". The said provision proceeds further to speak of the amalgamating company, the amalgamated company as well as the demerged and resultant company as the case may be. The proscription which is thereafter introduced is that the aggregate deduction of depreciation shall not exceed in any previous year the deduction calculated as if the succession, amalgamation or demerger as the case may be had not taken place. The Proviso thus clearly seeks to regulate affairs which would obtain in the year immediately following the process of merger or demerger as the case may be. 12. As was noticed in the preceding parts of this decision, we are concerned with a Scheme which came into effect in FY 2013-14 and the Proviso thus being pertinent only for AY 2014-15. The said provision could have ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the partnership firm and to the assessee, respectively, shall not exceed in any previous year, the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor. This was applicable only to the assessment year 2008-2009 when the succession took place as for later years, it would not be the case as the assets would no longer belong to the predecessor but only the successor, i.e., the assessee, who can claim depreciation. 8. In this case, for the assessment year 2008-2009, predecessor, i.e., the partnership firm has claimed depreciation for five months from April 1, 2007 to August 31, 2007 and the successor, i.e., the assessee has claimed depreciation for the assessment year 2008-2009 for the period from September 1, 2007 to August 31, 2008. By way of illustration, if succession had not taken place during the assessment year 2008-2009 and the predecessor, i.e., the partnership firm would have claimed Rs. 1 crore as depreciation, both predecessor and successor for that year could claim together only Rs. 1 crore as dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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