THE COMMISSIONER OF INCOME-TAX vs. M/S HEWLETT PACKARD INDIA SALES PVT LTD

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 30TH DAY OF NOVEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.250 OF 2011 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX

JSS TOWERS

BSK III STAGE

BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX

CIRCLE - 11(2)

JSS TOWERS

BSK III STAGE

BANGALORE. ... APPELLANTS (BY SRI.K.V.ARAVIND, ADV.,) AND: M/S HEWLETT PACKARD INDIA SALES PVT. LTD. (FORMERLY COMPAQ COMPUTERS INDIA P. LTD.) NO.24, SALARPURIA ARENA HOSUR MAIN ROAD ADUGODI BANGALORE - 560 030. ... RESPONDENT (BY SRI.T.SURYANARAYANA, ADV.) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 25.02.2011 PASSED IN ITA

2 NO.249/BANG/2010 FOR THE ASSESSMENT YEAR 2000-01, PRAYING TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (II) ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE IN ITA NO.249/BANG/2010 DATED 25.02.2011 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, BANGALORE, IN THE NTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2000-01. The appeal was admitted by a bench of this Court vide order dated 30.01.2012 on the following substantial question of law: (i) Whether the Tribunal was correct in holding that assessee is entitled to claim depreciation under Section 32(1)(ii) of the Act in respect of intangible assets of Rs.9,07,25,000/- when the same is not identical, and is based on adhoc estimate basis and not on actual cost as per Section

3 43(1) of the Act? 2. Facts leading to filing of this appeal briefly stated are that the assessee is in the business of trading in computer systems and components. The assessee filed the return of income for the Assessment Year 2000- 01, in which a total income of Rs.6,12,69,280/- was declared and refund of Rs.4,56,71,694/- was sought. The return was processed under Section 143(1) of the Act and refund of Rs.5,01,05,332/- was issued. The assessee filed its return along with audit report on 09.04.2001. Therefore, a show cause notice under Section 271(B) of the Act was issued on 15.05.2001. The Assessing Officer after considering the reply submitted by the assessee levied a penalty under Section 271(B) of the Act by an order dated 29.11.2001 and issued a notice demanding a sum of Rs.1,00,000/-. In the meanwhile, the case was selected for scrutiny and notices under Section 143(2) and 142(1) were issued on 26.11.2001. The Assessing Officer by an order dated

4 31.03.2003 inter alia held that Digital Equipment Corporation, United States of America was taken over by the assessee for an amount of Rs.83.99 Crores and the details of net assets taken over and the particulars of liability, loans etc were furnished in the agreement. However, no particulars with regard to depreciation claim on intangible assets of RS.9,07,25,000/- were furnished. The Assessing Officer held that the assessee was not entitled to depreciation on intangible assets under Section 32(1)(ii) of the Act. 3. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 13.11.2009 allowed the appeal preferred by the assessee by placing reliance on earlier decision of the tribunal and held the assessee to be entitled to depreciation. The revenue approached the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The tribunal by an order dated 25.02.2011 dismissed the appeal preferred by the

5 revenue. In the aforesaid factual background, the revenue is in appeal before us. 4. Learned counsel for the revenue submitted that the Commissioner of Income Tax (Appeals) as well as the tribunal ought to have appreciated that the assessee had not furnished the particulars of intangible assets. It is also urged that the assessee initially considered unallocable consideration as goodwill. However, subsequently, under the guise of revaluation part of the unallocable consideration claimed the goodwill as intangible assets without specifying the intangible assets, which were acquired. It is contended that if the argument of the assessee is accepted that unallocable expenditure is towards acquisition of intangible assets, the very purpose of specifying acquired assets as intangible assets would be defeated. It is argued that depreciation is permissible in respect of intangible assets owned and used in the business unless the assessee furnishes the particulars of intangible

6 assets acquired and used in the business and the assessee is not entitled to depreciation in the absence of particulars of intangible assets. It is also urged that reliance placed by the assessee on the decision of the Supreme Court in 'COMMISSIONER OF INCOME-TAX, KOLKATA VS. SMIFS SECURITIES LTD.', (2012) 24 TAXMANN.COM 222 (SC) pertains to unallocable expenditure towards goodwill, which is of no assistance to the assessee in the fact situation of the case. 5. On the other hand, learned Senior counsel for the assessee submitted that the Assessing Officer itself has found that goodwill has been calculated and has been allotted to tangibles and the issue whether goodwill is an asset under Explanation 3(b) to Section 32(1) of the Act is no longer res integra and the same has already been answered by Supreme Court in SMIFS SECURTIES LTD. Supra. It is also urged that the tribunal has upheld the decision of the Commissioner of Income Tax (Appeals) by following the previous decision

7 of the Delhi Bench of the Tribunal, which has been upheld by the High Court of Delhi in COMMISSIONER OF INCOME-TAX-IV VS. HINDUSTAN COCA COLA BEVERAGES (P.) LTD., (2011) 198 TAXMAN 104 (DELHI). 6. We have considered the submissions made by learned counsel for the parties and have perused the record. Section 32 deals with depreciation. The relevant extract of Section 32(1) of the Act, reads as under: 32(1) In respect of depreciation of - (i) buildings, machinery, plant or furniture, being intangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial right of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed - 7. The Supreme Court in SMIFS SECURTIES

8 LTD. Supra held that good will is an asset under Section 32(1) of the Act and is thus eligible for depreciation. Therefore, the aforesaid issue is no longer res integra. The only contention which has been raised by learned counsel for the revenue is that the assessee has not disclosed the particulars of intangible assets, which have been acquired by it and therefore, it is not entitled for the benefit of depreciation under Section 32(1) of the Act. We may refer to the relevant extract of the order passed by the Assessing Officer, which reads as under: What transpires from the above is that Digital Equipment Corporation USA has been taken over by Compaq Computer Corporation. Digital as an entity does not exist after the said takeover except in India where only the hardware unit was taken over by Compaq. Whatever business

agreement existed between Digital Equipment Corporation and Digital Stand transferred to Compaq Computer Corporation as a result of the Global takeover. Whatever logos, patents,

9 licences where granted to Digitial and which were entitled for the use of Compaq already stand transferred to Compaq Computers USA as a result of the takeover. CCIPL being a 100% subsidiary of Compaq Computer Corporation USA just inherits these patents, licences, logos and technical know how by virtue of the business transfer agreement. xxxxxx Goodwill has been calculated and remaining amount of consideration has been allotted to intangibles. 8. Thus, from perusal of the order passed by the Assessing Officer itself it is axiomatic that he has found that the goodwill has been calculated and has been allotted to intangibles. For yet another reason, the order passed by the tribunal has to be upheld. It is pertinent to note that the order passed by the tribunal is based on the decision of the Delhi Bench of Tribunal which has been upheld by High Court of Delhi in Hindustan Coca Cola Beverages (p) Ltd.

10 In view of preceding analysis, the substantial question of law framed by a bench of this court is answered against the revenue and in favour of the assessee. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss