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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is preferred by Deputy Commissioner of Income Tax, Circle – 8 (1), New Delhi (hereinafter referred to as the Ld. AO) against the order of the Commissioner of Income Tax (Appeals) –XI, New Delhi (hereinafter referred to as the CIT (A)) passed on 21/4/2014 for assessment year 2010- 11, wherein the disallowance of Rs. 34437935/– made by the AO on account of depreciation on business intellectual property rights disallowed by the Ld. Assessing Officer under the pretext that assessee has not used these assets towards manufacturing activities.
The solitary issue involved in this appeal is whether the depreciation on intangible assets of business intellectual property rights is allowable to the assessee or not.
Facts of the case shows that assessee is a company which is wholly owned subsidiary of Sinochem International (overseas) Pte Ltd, Singapore. It is engaged in manufacturing through job work and trading in agrochemical i.e. pesticides etc. Assessee filed its return of income on 30/9/2010 declaring loss of Rs. 40844572/-.
During the course of assessment proceedings it was noted that appellant has during the year claimed depreciation on business intellectual property rights amounting to Rs. 56614759/- acquired from Monsanto India Ltd for Rs. 354506220/-. The Ld. AO asked assessee to explain the claim of the depreciation as it has not been put to use by the company. The Page | 1 DCIT Vs. Sinochem India Company Pvt. Ltd, (Assessment Year: 2010-11)
assessee explained before the ld. Assessing Officer that same has been used by the assessee for trading and commercial purposes and accordingly the depreciation is allowable. The Ld. Assessing Officer disallowed the appellant’s claim for depreciation for the reason that this asset is not used for the commercial purposes since inception of the company and therefore no depreciation is allowable to the assessee. Consequently, the Ld. Assessing Officer passed an assessment order Under Section 143 (3) of the Income Tax Act on 18/2/2013 wherein the loss was assessed at Rs. 6406640/– against the returned loss of Rs. 40844572/-.
Aggrieved, assessee preferred an appeal before the Ld. CIT(A) who vide order dated 21/4/2014 allowed the claim of the assessee. Therefore, revenue aggrieved with the order of the Ld. CIT (A) has preferred an appeal before us.
The Ld. Departmental Representative vehemently contested the order of the Ld. CIT(A) and stated that when the assets are not used for the purpose of the business, then no depreciation is allowable as the basic condition provided Under Section 32(1) of the Income Tax Act are not satisfied.
The Ld. authorised representative vehemently stated that the assets have been used by the assessee for the purpose of the business of the assessee. Therefore, the conditions specified Under Section 32(1) has been satisfied. It was further stated that the intangible assets acquired was in the form of know-how, patents, copyrights, trademark, licenses, franchisees or any other business or under any other commercial right of similar nature as prescribed for depreciation allowance Under Section 32 of the Income Tax Act. Since the appellant is using the patent and trademark obtained from Monsanto India Ltd, it was an intangible asset on which depreciation at the rate of 30% was allowable. It was further stated by him that the company is engaged in the manufacturing and trading of agrochemicals and during the year the appellant has claimed the depreciation on the asset acquired during the year. It was further stated that the company has been using this intangible asset for commercial purposes since last year and for the last year depreciation has already been allowed by the AO on similar facts. Explaining the business of the assessee it was stated that the company purchased agrochemicals business of Monsanto India Ltd with several brand names and the intangible asset so acquired in the form of product registration, right to reference and used the registration data and in support of the product registration, benefits of the continuing business, contracts, business information, business intellectual property rights, trademarks and all the sellers right against the 3rd parties, including the rights and warranties, conditions, guarantees or indemnities relating to any of the assets. He stated that though no Page | 2 DCIT Vs. Sinochem India Company Pvt. Ltd, (Assessment Year: 2010-11)
manufacturing activities were undertaken by the appellant during the year but it purchased the products from Monsanto India limited and sold it in the Indian market with the trademark obtained from Monsanto India private limited. The goods were traded through the dealers and retailers and also advertised in farmer’s fairs. He further referred to the turnover achieved by the company during the year. He therefore stated that the brands have already been utilised and used for the purpose of the business of the assessee and therefore the claim of the depreciation of the assessee is allowable.
We have carefully considered the rival contention as well as perused the orders of the lower authorities. Admittedly during the year the appellant has claimed depreciation on business intellectual property right amounting to Rs. 56614759/- as acquired from Monsanto India Ltd for Rs. 345506220/–. The company is admittedly using this brand for the past year also and the depreciation for the earlier assessment year has already been allowed to the assessee on similar facts. These facts have not been disputed by the ld. Departmental Representative or by the Assessing Officer. Further, the Ld. CIT (A) has also mentioned that no remedial action has been taken by the Ld. Assessing Officer for assessment year 2009-10, in which the original depreciation was allowed by the Ld. Assessing Officer. The Ld. CIT(A) allowed the claim of the assessee holding that assessee is engaged in the trading activity of such products which have definitely taken place during the year under consideration, as well as in the immediately preceding previous year. Further, according to him as there is no distinction between the trading business or manufacturing business of the assessee as the amounts have been used for the purposes of the trading business the appellant is entitled for depreciation under section 32 (1) of the Act. He alternatively relied upon the decision of the Hon’ble Delhi High Court in case of Capital Bus Services Private Ltd Vs. CIT, wherein it is held that the allowance of depreciation does not depend upon the actual use of the assets but it is sufficient if the asset in question is By the appellant “ready for actually using” the profit making apparatus the movement a need arises. However, he has held that appellant case is on stronger footing since the business intellectual property rights were in hand with the appellant for manufacturing the products and also the appellant has used it for the trading purposes under the seal of its own by using the brand name of Monsanto. In view of the above facts we do not find any infirmity in the order of the Ld. CIT (A) and none has been pointed out by the Ld. departmental representative. It could not be controverted by the revenue that the assessee has used these brands for the purpose of its trading business. Furthermore, no provision could be shown before us that if the assets have been used for the Page | 3