DY.CIT, CIRCLE-1(1), CHANDIGARH vs. M/S GLAXOSMITHKLINE CONSUMER PVT. LTD., NABHA

3 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha

3. The Ld. CIT(A) has erred on facts and circumstances of the case in allowing depreciation at 100% of prescribed rate as claimed by the assessee during assessment/appellate proceedings on assets acquired during the years solely on the basis of date of “Completion Notice" dated 30.09.2015 whereas assessee has not brought on record any documentary evidence to show the actual date of possession as well as date when these tangible assets were put to use.

goodwill was disallowed. The assessee has entered into a slump sale transaction with Novartis India Ltd. during the AY 2016-17 and the excess consideration paid over and above the FMV of tangible assets taken over was classified as goodwill, on which depreciation was claimed, but was disallowed by the AO. against claim in computation for half the year. The AO also rejected claim of depreciation proceedings, i.e of depreciation on tangible fixed assets at rate applicable for the full year, as on goodwill in another transaction of purchase of assets from Novartis Health Pvt Ltd (NHPL), wherein the excess consideration paid over the FMV of assets purchased was written off in its books as ‘Impairment Loss’ and duly added back in the computation of total income, but during assessment proceedings, the assessee claimed this to be goodwill and therefore eligible for depreciation.

5 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha

3. Although the Revenue has taken three grounds of appeal but the only issue i.e., involved in all these three grounds are against the CIT(A)’s order in allowing ‘depreciation on goodwill’ @ 100% of the prescribed rates instead of 50% as prescribed in second proviso to section 32(1) of the Income Tax Act, 1961 (in short 'the Act').

6 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha “SUBMISSIONS Re (I): Slump sale does not fall within the definition of succession as per section 170 of the Act 2. Section 170(1) deals with succession to business by any person otherwise than by way of death as opposed to transfer of assets and liabilities of a business. It will be appreciated, that section 170(1) provides that a person carrying on business and profession has been succeeded therein by another person; that is, to say, that the person carrying on the business or profession has itself been succeeded by the successor. Further, sub-section (2) and (2A) to section 170 provide that where the predecessor cannot be found, the successor can be assessed to tax in place of the predecessor.

3. It would thus be appreciated that succession in terms of section 170 of the Act covers cases where the predecessor entity is subsumed in the successor entity; i.e., the predecessor loses its identity and ceases to exist on succession.

4. To illustrate, the following cases fall within the meaning of succession as provided for in section 170 of the Act inasmuch as all such cases, the predecessor entity ceases to exist on succession:

7 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha • Amalgamation of companies; • Conversion of sole proprietorship into a Partnership Firm; • Conversion of Partnership firm into Limited Liability Partnership ['LLP']; • Succession of a Partnership firm by conversion into company [Chapter XXI of Companies Act,2013; section 47(xiii) of the Act]; • Conversion of a LLP into a company [Chapter XXI of Companies Act, 2013]; • Conversion of a company into LLP [section 56 and 57 of LLP Act 2008; section 47(xiiib) of the Act]; • Succession of sole proprietorship by conversion into company [section 47(xiv) of the Act] 5. In all the aforesaid cases, it will be appreciated that the predecessor, on such succession, ceases to exist in the eyes and the successor becomes assessable on behalf of the predecessor.

8. K.H. Chambers: [1965] 55 ITR 674 held that the transfer of sole proprietor business by father to his son would qualify as succession under the erstwhile section 25(4) of the Income Tax Act, 1922 since the business was subjected to tax under the provision of the Income Tax Act 1918. The provisions of section 9 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha 25(4) of the Income Tax Act, 1922 were invoked by the assessee to claim refund of the taxes paid by the father under the Income Tax Act 1918 since, in terms of section 25(4), the taxes were to be paid by the successor in the case of succession. The aforesaid judgement, it is submitted, has no applicability inasmuch as it was not dealing with a case of a company having a separate legal entity transferring its business undertaken to another entity for a lumpsum consideration and no taxes were payable by the purchaser assessee.

12 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha Re (2): Even otherwise, sixth proviso to section 32(1) of the Act not applicable 13. Even otherwise, it is submitted that the sixth proviso to section 32(1) is a restrictive provision providing that aggregate depreciation allowable to the predecessor and successor in case of succession referred to in section 47(xiii)/(xiiib)/(xiv) or section 170 of the Act or in case of amalgamation and demerger, would be apportioned in the ratio of number of days for which the assets were being used by the respective entities and would not exceed the amount allowable at the prescribed rate, as if the succession or amalgamation or demerger had not taken place.

15 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha (b) Clearance from Competition Commission of India received vide order dated 12.12.2014 (c) Completion Notice was duly signed by both the parties, viz., the assessee and Novartis India Ltd on 30.09.2015.

16 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha the claim of depreciation on goodwill at 100% of the prescribed rate. It is, with all emphasis at command, respectfully submitted that the aforesaid note relied upon by the DR is merely a disclosure made by the auditor; the same, in no way, constitutes a qualifying remark made by the auditor as has been alleged by the DR. Had that been the case, the auditor, it is submitted, would not have specified the date when assets were put to use as '01.10.2015' in his report issued under section 44 AB of the Act, as appearing on page 51 of the PB.

17 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha tangible and intangible assets acquired as part of the slump sale.

6. We have considered the findings given by the Assessing Officer in the assessment order and by the ld. CIT(A) in the appellant order. We have also considered the written submissions filed by the ld. Counsel for the Assessee. We have taken into consideration the arguments made during the proceedings before us, both by the Revenue and the Counsel of the Assessee. We find that the Ld. CIT(A) has given a detailed findings in his appellate order starting from pages 4 to 28 of the order dated 2.1.2023. The decision of the CIT. CIT(A) is reproduced as under: - “6.3 The facts are clear and are that the assessee purchased. certain assets and liabilities from NHPL through agreement dated 20/03/2015. This agreement is at pages 67 to 122 of the PB and is titled as "Asset Sale and purchase agreement". As per this agreement, certain assets and certain liabilities of NHPL have been purchased for a consideration. However, this is not a slump sale agreement as the OTC Development related assets and liabilities of R and D division of NHPL have not been taken over as a going concern. The agreement is clearly

18 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha only regarding purchase of certain assets along with liabilities of a particular division of NHPL. The assets taken over are listed in Part A of Schedule 1 (Transferring Assets & Liabilities), while the liabilities taken over are in Part B of that Schedule. The assets taken over are contracts as per Schedule 4 (60 contracts), Plant & Equipment as per Schedule 5, real estate as per Schedule 6, employees and accounts receivable. The liabilities taken over are the accounts payable. It is therefore amply clear that this agreement is not a slump sale agreement as no business has been taken over as a going concern. The assessee paid Rs 24,84,62,000 towards this agreement and also paid Rs 80.14 lakhs as VAT and Rs 197.85 lakhs towards Service Tax on this transaction. The total consideration paid by the assessee for acquisition of these assets therefore is Rs 2762.61 lakhs. The assessee has valued the Assets taken over at Rs 1995.12 lakhs, and has claimed the difference of Rs 767.49 lakhs as goodwill generated in his hands as a result of this purchase. In the P&L A/c, this amount was written off as "Write off of intangibles in books", and in the computation of income, this amount was added back to the income. During assessment proceedings, the assessee has claimed this to be goodwill and made a claim of depreciation before the AO, on the same reasoning as that for goodwill resulting from Slump Sale with Novartis India Ltd. The AO has rejected this claim for the same reasons as in Grounds above, i.e. that this claim was not 19 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha made through a revised return, the provisions of the 6th proviso to sec 32(1) will apply to this transaction also, holding this to be a succession u/s 170. Crucially, while advancing such reasons, the AO has held this asset purchase agreement to be a Slump Sale agreement. The AO in para 7.2 has held that as the assessee has paid a lumpsum consideration, it indicates that the assessee has acquired a division from NHPL as a going concern. He then applied the same reasoning as for the slump sale agreement with Novartis India to deny the claim of depreciation on goodwill. 6.4 It appears that the AO has not appreciated the facts correctly and has not paid attention to the Asset sale and purchase agreement dated 20/03/2015. This is clearly not a slump sale agreement at all, as no undertaking or business has been acquired as a going concern. Very clearly, only certain assets and liabilities related to the OTC R&D division have been taken over. The AO has ignored the fact that the entire R&D Division has not been taken over, but only certain assets and liabilities have been taken over for a consideration. The description of such assets and liabilities is in para 6.3 above. On these facts, it is evident that this transaction cannot be categorized as a slump sale agreement. In fact, the assessee is also not claiming this to be a slump sale agreement. I therefore do not agree with the AO that this transaction is like a slump sale agreement. The other reasons cited by the AO are that the claim

20 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha was not made by the assessee through a revised return and therefore cannot be entertained. This argument of the AO has also been addressed by me in para 5 above, wherein I have pointed out decisions of the Hon'ble Supreme Court and the jurisdictional Chandigarh ITAT wherein it has been held that such claims made outside of a revised return can be considered by appellate authorities. I therefore reject this reason cited by the AO and admit this claim of the Assessee to be considered on merits. 6.5 On merits, it is the claim of the assessee that he has paid consideration over and above the FMV of assets acquired and that difference should be classified as goodwill as done in the Slump Sale transaction with Novartis. The AO, on the other hand has classified this transaction as slump sale and then applied 6th proviso to sec 32(1). I am not in agreement with neither the AO nor the assessee on this issue. I have already discussed in detail in para 4 above as to why the transaction of purchase through slump sale, between two unrelated principals, for a negotiated price, cannot be considered as amalgamation, demerger or "succession" either u/s 170 or u/ 47(xiii), (xiiia) or (xiv). The same reasoning applies to this transaction also, which is a plain and simple asset purchase agreement. I do not see how can this be called an amalgamation, demerger or "succession", so as to come under the mischief of the 6th proviso to sec 32(1). For the same reasons as discussed in paras 4.7 to 4.9, I am of the view that the 6th

21 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha proviso to sec 32(1) cannot be applied to this transaction. I am therefore not in agreement with any of the reasons cited by the AO for denial of depreciation on this so-called goodwill. 6.6 It now remains to examine the case of the assessee, which is that the excess consideration is goodwill. Having held that this transaction is a plain asset purchase agreement, and not a slump sale, and further that no undertaking of NHPL has been acquired by the assessee as a going concern, there is no question of any goodwill being generated on such acquisition. It could be seen that various courts have held that excess consideration over FMV is towards goodwill of the undertaking purchased, on the very important premise that the undertakings so purchased are as a going concern, which means that the whole of the business has been purchased including the goodwill. In the instant agreement, no particular undertaking has been purchased as a going concern, but only certain assets and liabilities of a particular division of NHPL have been purchased. It is therefore evident that the goodwill pertaining to the R&D Division has not flown to the assessee at all. That goodwill would have flown only if the entire R&D Division was acquired by the assessee, which is admittedly not the case. On these facts therefore, I am of the view that there is no goodwill generated in this transaction and the claim of the assessee is to be rejected even though on for different reasons than those mentioned by the AO. Based on this discussion, I am of the considered view that there

22 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha is no goodwill attached to the purchase of certain assets of the R& D Division of NHPL, neither is there any goodwill generated through this plain vanilla asset purchase agreement. I therefore uphold the rejection of the claim towards depreciation on the excess consideration paid over the FMV claimed to be goodwill.”

7. In our considered view two important aspects or facts which are relevant for the point of view of claiming deduction @ 100% had been brought on record by the Counsel of the Assessee are - (i) finally that the assets purchased on 30.11.2015 were put to use by the appellant w.e.f 01.10.2015. Thus, from 01.10.2015 to 31.3.2016, the total number of days for the use of such assets come to 183 which is more than 180 days as required by law for claiming depreciation @ 100% and (ii) that the company which sold such assets on 30.9.2015 did not claim any depreciation on them. Keeping in view these two important facts and various case laws brought on record by the Revenue as well as by the appellant, we find no reason to interfere with the 23 121-Chd-2023 M/s Glaxosmithkline Consumer Pvt. Ltd, Nabha findings given by the Ld. CIT(A) on this issue. Accordingly, Revenue’s appeal on this issue is dismissed.

Order pronounced on 16.10.2025