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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN & SHRI RAVISH SOOD
The present appeal has been filed by the Revenue challenging the order dated 20th April 2017, passed by the learned Commissioner of Income Tax (Appeals)–3, Mumbai, pertaining to the assessment year 2009–10.
The sole issue in dispute is with regard to the direction of the learned Commissioner (Appeals) in holding that the assessee is 2 NKGSB Co–operative Bank Ltd.
entitled for depreciation under section 32(1)(ii) of the Act which is to be amortized in the five consecutive years.
Before us, this is the second round of appeal. The facts of the case are, the assessee is a Co–operative Bank engaged in the Co– operative Banking business. During the second round of proceedings before the Assessing Officer, as it appears from the assessment order dated 30th March 2016, the assessee for the year under consideration filed its return of income on 30th September 2009, declaring total income of ` 31,06,87,200. Subsequently, the return of income was processed under section 143(1) of the Income Tax Act, 1961 (for short "the Act") and the case was selected for scrutiny which was assessed under section 143(3) of the Act at a total income of ` 36,61,48,880, vide assessment order dated 21st November 2011. Against this order, the assessee filed appeal before the learned Commissioner (Appeals) who confirmed the assessment order. The assessee went in further appeal before the second appellate authority, wherein the Tribunal restored the issue involved in the additional ground of appeal to the file of the Assessing Officer for the limited purpose of deciding the specific ground relating to excess of the liability over the assets of SSCBL Bank which, according to the assessee, represents intangible asset eligible for depreciation under section 32(1)(ii) of the Act. The Tribunal found merit in the said ground as it involves legal
3 NKGSB Co–operative Bank Ltd. implications. Since this ground was for the first time raised before the second appellate authority, the Tribunal admitting the said ground involving legal issue which requires examination by the authorities below, restored the issue back to the file of the Assessing Officer to adjudicate the issue on merit after considering the submissions and information to be furnished by the assessee and directed to take appropriate decision in accordance with law.
Now, during the second round of litigation, the Assessing Officer observed that the assessee acquired Shri Shahu Cooperative Bank Ltd. (SSCBL) for a total consideration of ` 657.77 lakhs under the directions of the Reserve Bank of India. The cost on acquisition was to be amortized over a period of five years. However, considering the growth of bank for the year, the entire amount was debited in the Profit & Loss Account during the year itself. In the computation of income the cost has been added back while at the same time an amount of Rs.4,29,69,47/- has been deducted from the total income under the head "Cost on acquisition of SSCBL". The Assessing Officer disallowed the claim of the assessee after relying on the decision of the Hon'ble Mumbai High Court in the case of CIT Vs. Techno Shares & Stocks Ltd. (ITA No.971/2006 and 218/2007), wherein It has been held that the assets in the nature know-how, trade-marks, franchises, copyrights are in the nature of intellectual
4 NKGSB Co–operative Bank Ltd. property right and the asset in the form of license must be in the nature of intellectual property rights only, to fall within the provisions of section u/s 32(1)(ii) of the Act. It was held that since the stock exchange membership card was not in the nature of intellectual property rights, the same was not eligible for depreciation. The Assessing Officer after considering the submissions of the assessee and relying upon various judicial pronouncements besides the decision of the Hon'ble Supreme Court in Techno Shares & Stocks Ltd. v/s CIT, [2010] 327 ITR 323 wherein it has been held that the asset in the nature of know–how, trade–marks, franchises, copyrights are in the nature of intellectual property right and the asset in the form of license must be in the nature of intellectual property rights only, to fall within the provisions of section 32(1)(ii) of the Act. It was held that since the stock exchange membership card was not in the nature of intellectual property, the same was not eligible for depreciation. Accordingly, the addition on account of depreciation was made by the Assessing Officer.
The assessee filed appeal before the first appellate authority wherein the learned Commissioner (Appeals) allowed assessee’s appeal by observing as under:–
“6.4 I have carefully considered the rival submissions and facts of the case. The matter was earlier went upto the Tribunal on the issue of denial of depreciation on the acquisition of the Bank,
5 NKGSB Co–operative Bank Ltd. namely Shri Shahu Co-operative Bank Ltd. A.Y. 2008-09 and also the expenditure claim. The matter was remand back to the A.O. with the direction to examine the claim of the appellant by duly considering the submissions made and information furnished by the appellant and take appropriate decision in accordance with the law. However, the A.O. has made the assessment u/s 143(3) r.w.s. 254 of the I.T. Act on 30.03.2016 maintaining the status of the assessment order dated 21.11.2011 at Rs.36,61,48,880/-. 6.5 As regard, the A.O. relied on the judgement of M/s Techno Shares and Stock Ltd. is concerned, my attention was invited by the appellant and submitted that "The appellant would like to submit that while relying on the Bombay High Court judgment in the case of Techno Shares, the assessing officer has shown ignorance about the Supreme Court Judgment which reversed the Bombay High Court judgment relied upon by him. The Supreme court in Techno Shares & Stocks Ltd. Vs CIT - 2010) 327 ITR 323 clearly held that right of membership in a stock exchange was 'business or commercial rights' in that it was a license or akin to license. And hence, depreciation was allowed. As such, the reliance by the assessing officer on the Bombay High Court judgment was totally misplaced." 6.6 Since the issue has been went upto the Supreme Court which decided in favour of the appellant, the A.O. has wrongly applied the judgement of Bombay High Court in the case of Techno Shares & Stock Ltd. As regard the expenditure claimed by the appellant on acquisition of the bank is not at all the revenue expenditure but a capital one. The Authorised representative has invited my attention in the case of M/s Cosmos Co-operative Bank Ltd. Vs DCII (64 SOT 90) in which it was held that the cost of acquisition was intangible in nature. It was on account of business or commercial rights of similar nature' covered u/s 32(1)(ii). The relevant portion is reproduced as under:- "14. Therefore, the moot question is as to whether the aforesaid business/commercial advantages, namely, taking over of huge client base, licenses, operational bank branches in different areas, etc. can be considered to fall within the expression "business or commercial rights of similar nature" contained in section 32(1)(ii) of the Act. In this context, one may refer to the judgement of the Hon'ble Delhi High Court in the case of Areva T & D India Ltd. Ors.(supra). In the case before the Hon'ble High Court assessee company acquired the business of the transferor lock, stock and barrel under a slump sale agreement. The amount of consideration paid in excess
6 NKGSB Co–operative Bank Ltd. of the net value of tangible assets transferred, was claimed as payment made by the assessee for acquisition of various business and commercial rights, which comprised of business claims; business information; business records; contracts; skilled employees; ad, knowhow. Such acquisition was claimed to be an asset in the nature of 'business or commercial rights' contained in section 32(1)(ii) of the Act. The Hon'ble High Court concurred with the assessee and held that the assets in question, being intangible assets acquired under slump sale agreement were in the nature of business of commercial right of similar nature" specified in section 32(1)(ii) of the Act and were accordingly held eligible for depreciation.
In the aforesaid light, factually speaking, in the present case, it can be seen that the assessee by acquiring the four co-operative banks has acquired existing running banking businesses complete with the required statutory licenses, operational bank branches, customers base as also the employees, besides other assets. The plea of the Revenue is that the difference paid by the assessee in excess of liabilities over the realizable values of the assets taken-over does not represent payment for any business or commercial rights is untenable. In faot, the impugned sum reflects the amount paid by the assessee over and above the net worth of the banks which have been taken-over, which ostensibly is a reflection of the value of the aforesaid intangible advantages obtained by the assessee. Such advantages are to be considered in the nature of "business or commercial rights of similar nature" specified in section (i)(ii) of the Act, having regard to the parity of reasoning laid down by the Hon'ble Delhi High Court in the case of Areva T&D India Ltd. & Ors.(supra). In the case of SKS Micro Finance Ltd. (supra), assessee acquired a running business under a slump sale agreement and the consideration paid included, sum paid for acquiring the client base of the transferor. The acquisition of rights over the assets of the transferor, inclusive of its customers base was held to be an 'intangible asset' being 'business or commercial rights of similar nature' contemplated in section 32(1)(ii) of the Act and was held eligible for depreciation. Following the aforesaid discussion, in the present case, the business advantages detailed earlier, are liable to be considered as an intangible asset, being 'business or commercial rights of similar nature' contemplated u/s 32(1)(ii) of the 7 NKGSB Co–operative Bank Ltd.
Act. In our considered opinion, the plea of the assessee for allowance of depreciation in terms of section 32(1)(ii) of the Act cannot be faulted either in law or on facts.
The other objection of the ClT(A) to the effect that the amalgamation intention is not by way of purchase but is an amalgamation by merger, in our Jew, is no ground to deny the claim of the assessee, which is otherwise well founded. Therefore, having regard to the aforesaid discussion, in our view, on facts and in law the assessee is entitled for deprecation in the impugned sum for acquisition of business of commercial rights contemplated in section 32(1)(ii) of the Act. Thus on the Ground of Appeal No.3, assessee succeeds." 6.7 In view of the judgment of the ITAT, Pune Bench as well as Bombay Tribunal in case of ACIT vs. Elster Metering Pvt. Ltd., the appellant has entitled for depreciation u/s 32(1)(ii) of the I.T Act which is to be amortized in the five consecutive years. In view of the same, Ground No. 1, 2 & 3 are allowed.”
The Revenue being aggrieved by the aforesaid order of the learned Commissioner (Appeals) is in further appeal before the Tribunal.
The learned Departmental Representative supported the findings of the Assessing Officer and submitted that the cases relied by the learned Commissioner (Appeals) are distinguishable on facts.
Before us, the leaned Counsel for the assessee reiterating the submissions made before the authorities below and relying upon various judicial decisions, submitted that the difference of ` 4,29,69,471, was on account of excess of liabilities over the tangible assets and had to be treated on account of intangible asset being on 8 NKGSB Co–operative Bank Ltd.
account of business or commercial rights of similar nature covered under section 31(1)(ii) of the Act and the depreciation should be allowed on the same.
Considered the rival submissions and perused the material on record. We find that the Assessing Officer was not justified in applying the ratio laid down by the Hon'ble Jurisdictional High Court in Techno Shares & Stock Ltd. The expenditure claimed by the assessee on acquisition of the Bank is capital in nature which is corroborated by the decision of the Tribunal, Pune Bench, in M/s. Cosmos Co–operative Bank Ltd. v/s DCIT, 64 SOT 90 (Pune), wherein it has been held that the cost of acquisition was intangible in nature and it was on account of business or commercial rights of similar nature which is covered under section 32(1)(ii) of the Act. Consequently, we do not find any infirmity in the order passed by the learned Commissioner (Appeals) by allowing the claim of the assessee. We also note that the facts of the decision of the Hon'ble Supreme Court in Techno Shares and Stock Ltd. v/s CIT, [2010] 327 ITR 322 (SC) are distinguishable in nature insofar as the facts of the present issue is concerned. Therefore, the case law relied upon by the Revenue is not applicable to the facts of the present appeal. Accordingly, the order of the learned Commissioner (Appeals) is hereby upheld by dismissing the grounds raised by the Revenue.
9 NKGSB Co–operative Bank Ltd.
In the result, Revenue’s appeal is dismissed. Order pronounced open court on 5.3.2021