Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCHES ‘A’ BENCH DELHI
Before: SHRI S.V. MEHROTRA & SHRI SUDHANSHU SRIVASTAVA
order passed by the Ld. CIT(A)-IV, New Delhi vide dated 16.02.2012 and pertains to assessment year 2008-09.
The assessee is a public listed company incorporated in 1940 which was engaged in four distinct businesses, viz.
Assessment year 2008-09 manufacturing and trading of Banaspati and edible oils; manufacturing of all classes of writing and printing paper; manufacturing, processing and trading of dairy milk and milk products. The assessee company acquired following six established paper brands from M/s Amrit Banaspati Company Ltd. (ABCL) in the year 2005-06 for Rs. 603.52 lacs:-
(i) ABC Gold; (ii) Aqua Sapphire; (iii) Pearl White; (iv) Diamond Colour;
(v) Blue Diamond; and (vi) Amrit Ledger Deluxe 2.1 The above acquisition of the six paper brands of ABCL by the assessee company was in terms of a Scheme of Arrangement approved by the Hon’ble High Courts of Allahabad, Delhi and Chandigarh, whereby the paper undertaking of ABCL was demerged and vested in the assessee company w.e.f. 1st April 2006. The assessee had shown the above brands as capital asset and had claimed depreciation of Rs.99,01,500/- for the year under consideration @ 25% applicable to intangible assets.
The above treatment of the brands by the assessee and Assessment year 2008-09 depreciation claimed @ 25% on the same was allowed by the AO in the earlier two assessment years, viz. A.Y. 2006-07 and 2007-
However, during the year under consideration, the AO has accepted the assessee’s claim that the above brands were capital assets, but the claim of depreciation was disallowed by holding that “brands” are not covered under the “intangible assets” as per Section 32(1) (ii) of the Act. Further, the Assessing Officer also disallowed the claim of depreciation amounting to Rs. 7,44,36,109/- on chemical recovery plant on the ground that the said plant was not put to use during the year under consideration as certain assets were still under construction/testing stage.
2.2 Aggrieved, the assessee had preferred an appeal before the Ld. CIT (A) wherein the Ld. CIT (A) was pleased to delete these two additions. Now, the department has approached the ITAT and has raised the following grounds of appeal:-
1. The Id. CIT (A) has erred on facts and in law in deleting addition of Rs. 99,01,500/- on account of depreciation on paper brand.
2. The Id. CIT (A) has erred on facts and in law in deleting addition of Rs.7,44,36,109/- on account of disallowance of depreciation on chemical recovery plant.”
Assessment year 2008-09 3. Ld. DR submitted that the paper brand was a capital expense but was not a depreciable asset and was rather an appreciable asset whose asset value enhanced with time. It was further submitted that the paper brand did not fall within the meaning of section 32(1) of the Income Tax Act and, therefore, was not eligible for depreciation. It was further submitted that the Ld. CIT (A) had erred in directing that this addition be deleted and depreciation be allowed.
3.1. On the second ground before the ITAT, it was submitted that the basic condition of claiming depreciation of any asset was that the asset must have been put to use during the relevant assessment year. Ld. DR submitted that in case the asset is not put to use, depreciation will not be allowable. Ld. DR submitted that construction and testing are prior to the asset being put to use and since the chemical recovery plant is a complete plant, it cannot be used if many of its parts were still at construction/testing stage as observed by the Assessing Officer in Para 5.5.3 of the assessment order.
In response, Ld. AR submitted that as far as the issue of depreciation on paper brand was concerned, the same had been accepted by the department in later years and therefore,the same Assessment year 2008-09 should be allowed in this year also. Reliance was also placed on the findings of the Ld. CIT (A) on this issue. On the issue of depreciation on chemical recovery plant, the Ld. AR drew the Bench’s attention to pages 89-91, 92, 93, 94, 97, 99, 100, 101, 103 and 233 in the paper book and submitted that these documents were submitted before the Ld. CIT (A) in support of the assessee’s claim that the chemical recovery had been put to use before the end of the financial year. It was further submitted that the Assessing Officer had verified these documents in his remand report and as such, the finding by the Ld. CIT(A) thereafter was conclusive and in favour of the assessee. It was submitted that in view of the factual finding categorically stated by the Ld. CIT(A) in the impugned order, the impugned action of the Ld. CIT(A) be upheld.
We have heard the rival submissions and have perused the relevant material on record. It is seen that the Ld. CIT (A) has discussed and adjudicated the issue relating to depreciation on the paper brand in Para 5.2 of the impugned order which reads as under:- “ 5.2 I have carefully considered the assessment order and the submissions made by the Id. AR on the above issue. For the sake of clarity, I would like to reproduce the provisions Assessment year 2008-09 of Section 32(1 )(ii) of the Act which is as under:
“32. (1) In respect of depreciation of- (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights 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" As can be seen from the above, the definition of “intangible assets” under Section 32(1 )(ii) is an inclusive definition which not only includes know-how, patents, copyrights, trademarks, licences, franchises but also any other business or commercial rights of similar nature. Therefore, the interpretation of the AO - that since “brand” is not specifically mentioned in Section 32(1) (ii), it cannot be equated with “trade mark” and hence, depreciation on the same is not admissible - appears to be based on lack of proper appreciation of the provisions of the above Section which specifically includes not only “trade mark’’ but also “any other business or commercial rights of similar nature”. Further, since “trade mark” has not been specifically defined under the I T. Act, as pointed out by the Ld. AR vide written submission reproduced supra, we have to rely on the definition of “trade mark” under the Trade Marks Act, 1999. As per Section 2(zb) of the Trade Marks Act, 1999 “trade mark” includes “mark” and the definition of “mark” as per Section 2(m) of the above Act specifically includes “brand” as follows:
Assessment year 2008-09 "mark" includes a device, brand, heading, label, ticket, name, signature, or any combination thereof."
Further, as pointed out by the Ld. AR, as per para 7, 8 and 9 of the Accounting Standard 26 (AS 26) issued by the ICAI, the definition of “intangible asset" and trade mark specifically includes “brand names”. Even, the dictionary meaning of “brand name" as per the Illustrated Oxford Dictionary is “an identifying trade mark”, “label” etc. The Ld. AR has also relied upon a large number of case laws, viz. in the case of KEC International Ltd. Vs. Addl. CIT (ITA no. 4420/Mum/2009) wherein it was held by the Hon’ble Mumbai Tribunal that brand is an intangible asset eligible for depreciation under Section 32 of the Act. Further, the Hon’ble Bombay High Court in CIT Vs. Techno Shares and Stocks Ltd. (ITR 323(69) Mumbai) held that “brand” is an intellectual property which can be equated with “trade mark”. Further, the Hon’ble ITAT, Pune vide its recent order dated 23.08.2011 in the case of M/s Dilbris International Pvt. Ltd. Vs. DCIT (ITA no. 1361 PN/2010) relying on the decision of the Hon’ble ITAT, Delhi in Hindustan Coca Cola Beverages (P) Ltd. Vs. DCIT has held that brand name is eligible for depreciation. The relevant portion of the order is extracted below:
“The special Bench of the Tribunal in the case of Amway India has held that if the software is useable/used for more than 2 years, it is a capital expenditure and if it is for less than 2 years, it is revenue expenditure. We thus following the ratio laid down therein come to the conclusion that in the present case, since the assessee had purchased the user of brand name, trademark, logo for 3 years and similarly, the intellectual property right such as design, drawings, manufacturing processes and technical Assessment year 2008-09 knowhow in respect of the products manufactured by unit was acquired, we hold that the expenditure incurred in this regard as valued by the approved valuer is capital expenditure on which the claimed depreciation was allowable. In this regard we also find support from the cited decision of Delhi Bench of the Tribunal in the case of Hindustan Coca Cola Beverages (P) Ltd Vs. DCIT holding that even if an amount is termed as ‘goodwill’ in the books of account but it is a business or commercial right in the nature of know-how, patent, copyrights, trademarks, licenses, franchises, the claim of depreciation is indeed admissible thereupon. We accordingly direct the A.O to allow the claimed depreciation on the above assets.”
In view of the facts and circumstances and statutory provisions as discussed above and respectfully following the judicial pronouncements on the issue cited supra and also considering the rule of consistency as the assessee’s claim for depreciation on the said brands has been allowed by the AO in the earlier two assessment years, I find that the impugned addition of Rs.99,01,500/- made by the AO cannot be sustained. The same is, therefore, deleted.”
5.1 This finding of the Ld. CIT (A) could not be controverted by the department before us. The department also could not point out any judicial precedents in favour of the revenue on this issue. We, therefore, uphold the finding of the Ld. CIT (A) on this issue and dismiss this ground of appeal of the department.
Assessment year 2008-09 5.2 Similarly, the issue relating to depreciation on the chemical recovery plant has been discussed at length in Para 6.5 and 6.6 of the impugned order which are being reproduced hereunder for a ready reference: -
“6.5 I have carefully considered the assessment order and the remand report of the AO and the submissions made by the Ld. AR alongwith the documents placed on record. I find that the additional evidence submitted by the appellant are merely by way of further corroboration of the claim of the assessee made in the return of income and during assessment proceeding that the said Chemical Recovery Plant had been commissioned and put to use during the year under consideration, thereby making the assessee eligible for depreciation and additional depreciation on the same as per rules. Further, the said evidences were provided to the AO and were duly examined and verified by the AO during the remand proceeding. The said evidences are also related to the issue on which the addition has been made and the grounds of appeal. It is also submitted by the appellant that the said evidences could not be produced during the assessment stage due to paucity of time as the assessment proceedings were taken up by hearings conducted on 16.12.2010 to 26.12.2010 and the depreciation issue was raised by the AO at the very fag end of the assessment proceeding. Considering the Assessment year 2008-09 above, the said additional evidences are admitted in the interest of natural justice under Rule 46A of the I.T. Rules, 1962.
6.6 Coming to the merit of the case, I find that the AO has disallowed the above claim of depreciation by taking a view that the Chemical Recovery Plant was not put to use during the year under consideration as certain parts were still under construction / testing stage as per details retrieved from “details of addition of fixed assets” submitted by the assessee on sample basis. However, as argued by the Id. AR, the total depreciation (including additional depreciation) claimed by the assessee for the above plant was Rs.7,67,09,481/- which included depreciation on factory building at Rs.22,73,462/- and depreciation on plant and machinery at Rs.7,44,36,109/-. T h e A s s e s s i n g O f f i c e r h a s disallowed the depreciation on plant and machinery, but has allowed depreciation on the factory building which is part and parcel of the same Chemical Recovery Plant. It is argued by the Ld. AR, both the building and plant and machinery were compositely completed and put to use together in March 2008. It is argued that the AO’s action in partly allowing depreciation on the above factory while disallowing depreciation on the remaining part is bad in law and facts. Further, it is argued by the Ld. AR that the said Chemical Recovery Plant was fully commissioned on 21.03.2008 and it started its operations from the said date. The said plant generated Assessment year 2008-09 1823 tonnes of steam and 33 tonnes of caustic soda totaling Rs.21,49,205/- during the year ended 31.03.2008. Further, the said expansion project was appraised and financed by the State Bank Group led by SBI which appointed M/s R.R. Dehra & Associates, an independent firm of Chartered Engineers to monitor the implementation of above project and to submit periodical reports / certificates with regard to the progress of the said project. A copy of the reports / certificates dated 30.04.2008 issued by the above Chartered Engineer firm certifying that the said project was commissioned on 21.03.2008 was filed before the AO during the assessment proceeding, copy of which is filed by the appellant as part of the Paper Book. It is further argued by the Id. AR that a copy of the publication regarding status of implementation of the above project as per the Stock Exchange and SEBI guidelines was also submitted before the AO. Further, copy of Board Resolution of the assessee company dated 29.04.2008 stating that the date of commissioning of the Chemical Recovery Plant was 21.03.2008 was also filed before the AO. The assessee has also charged in its book an amount of Rs. 19,98,090/- as depreciation on the above plant for the period of one month as per the Companies Act. Copies of al! the bills relating to addition to fixed assets including machineries for the above plant were produced before the AO. It is submitted by the Id. AR that the AO’s observation that some assets were still under Assessment year 2008-09 construction / testing stage based on some samples of bills is completely erroneous as the said bills nowhere mentioned that the assets were at construction / testing stage. Further, the appellant during the appellate proceeding submitted copy of the relevant records of the Central Excise registers and statutory returns filed with the Central Excise Department for the purpose of Cenvat credit as well as the Inward Gate Passes (IGP) showing receipt of incoming materials / items in the factory premises. Copies of the IGPs in respect of items contained in the invoices mentioned by the AO in the assessment order were also submitted. As mentioned earlier in this order, the above documentary evidences were forwarded to the AO during the remand proceeding for examination. The AO vide his remand report dated 31.01.2012 has mentioned that he has duly verified the statutory Excise returns filed with the Central Excise Department alongwith Cenvat credit records wherein the said Cenvat credit pertaining the Chemical Recovery Plant (CRP) was entered and also its corresponding entries in the Excise records - RG 23 C Part II (Entry book of duty credit of capital goods) and tallied the same with the Central Excise records, original invoices and original IGPs. The original IGPs which are made at the time receipt of the material were also produced before the AO during the remand proceeding and were duly verified by him and tallied with the relevant invoices. The AO has not made any adverse comment whatsoever Assessment year 2008-09 on merit. Considering the above, I find that the impugned addition of Rs.7,44,36,109/- made by the AO cannot be sustained on facts or in law. The same is, therefore, deleted.”
5.3 The factual finding of the Ld. CIT)A) on this issue also could not be controverted by the department during the proceedings before us and we, therefore, find no reason to interfere with the findings of the Ld. CIT(A) on this issue as well and while upholding the same, we dismiss this ground also.
In the result, the appeal filed by the department stands dismissed.
Order pronounced in the open court on 11th May, 2017.