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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
Before: HON’BLE, SHRI G.D. AGRAWAL & SHRI KULDIP SINGH
ASSESSEE BY : Shri Anil Bhalla, CA REVENUE BY : Shri V.R. Sonbhadra, Senior DR Date of Hearing : 08.06.2016 Date of Order : 22.06.2016
O R D E R PER KULDIP SINGH, JUDICIAL MEMBER :
The Appellant, M/s. Controls & Switchgear Contractors Limited (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 08.12.2010 passed by the Commissioner of Income-tax (Appeals)- VI, New Delhi qua the assessment year 2007-08. 2. Pursuant to order dated 04.10.2013 passed by the ITAT, Delhi Bench ‘E’, New Delhi in MA No.331/Del/2012 in AY 200708 order dated 04.10.2013, the present appeal has been listed to decide the ground no.4 which is as under:-
“4. The learned Commissioner of Income Tax (Appeals) has erred both of facts and in law in upholding the actions of the learned assessing Officer in disallowing Rs.3,44,531/- being depreciation on goodwill allegedly on the ground that the same cannot be treated as intangible asset as per the provisions Section 32 of the Income Tax Act, 1961.”
Briefly stated the facts of this case are : during the scrutiny proceedings, notice under section 143(2) and 142(1) of the Income- tax Act, 1961 (hereinafter ‘the Act’) were issued and in response thereto, Shri Amarjeet Singh, CA from J.C. Bhalla & Co., Mr. Anandi Prasad and Subodh Khanna, ARs put in appearance, filed necessary details, books of account and also discussed the case. The assessee company is into the business of manufacturing of control gears and switchgears products used in regulation and control of electrical current for saving the end equipment from the fluctuation in voltage.
Assessee claimed depreciation on goodwill amounting to Rs.7,13,672/- (the actual figure of depreciation is Rs.3,44,531/-) @ 25% on Rs.28,54,688/- shown as intangible assets. AO observed that as per accounting standard, goodwill is not considered as intangible assets for the purpose of amortization and thereby disallowed the same by making addition of Rs.7,13,672/-.
Assessee carried the matter before the ld. CIT (A) who has partly allowed the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Ld. AR for the assessee challenging the impugned order passed by the ld. CIT (A) qua ground no.4 contended that assessee’s case is squarely covered by the judgment cited as Areva T and D India Ltd. vs. DCIT – (2012) 345 ITR 421 (Delhi). However, on the other hand, ld. DR relied upon the order passed by the revenue authorities below.
Assessee claimed the depreciation on goodwill amounting to Rs.3,44531/- in terms of section 32(1)(ii) of the Act, consisting of ‘Type Test Certification Fees’ and ‘Customer Approval Fees’ but CIT (A) has rejected the contention of the assessee on the ground that this submission has not been substantiated and the nature of the goodwill has not been explained by the documents.
Now, the sole question arises for determination in this case is “as to whether ‘Type Test Certification Fees’ and ‘Customer Approval Fees’ claimed by the assessee are eligible for depreciation u/s 32 of the Act?”
10. Hon’ble jurisdictional High Court in judgment cited as Areva T and D India Ltd. (supra) examined the identical issue, the operative part of which is reproduced as under :- “The principle of ejusdem generis provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind. For interpreting the expression “business or commercial rights of similar nature” specified in Section 32(1)(ii) of the Act, such rights need not answer the description of “knowhow, patents, trademarks, licenses or franchises” but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(1)(ii) of the Act preceding the term “business or commercial rights of similar nature”, it is seen that the intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words “business or commercial rights of similar nature” have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of “business or commercial rights” cannot be restricted only to the six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of “business or commercial rights” can be of the same genus in which all the six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business.
Held, that in the case of the assessee, intangible assets, viz., business claims; business information; business records; contracts; employees; and knowhow, were all assets, which are invaluable and resulted in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The intangible assets were, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor. In the absence of the intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the business rights along with the tangible assets, the assessee got an up and running business. The specified intangible assets acquired under the slump sale agreement were in the nature of “business or commercial rights of similar nature” specified in section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that section. In the case of J the commercial rights acquired to sell products under the trade name and through the network created by the seller for sale in India were entitled to depreciation.”
Ratio of the judgment cited as Areva T and D India Ltd. (supra) delivered by the Hon’ble jurisdictional High Court squarely applies to the facts and circumstances of the case and we are of the considered view that ‘Type Test Certification Fees’ and ‘Customer Approval Fees’ are certainly intangible assets being business claims, business information, contracts and know-how etc., which were intangible and without which the assessee would have no business to start with. Thus, rights of the similar nature specified in section 32(1)(ii) of the Act are eligible for depreciation.
In view of what has been discussed above, we are of the considered view that CIT (A) has erred in affirming the order passed by AO in disallowing the amount of Rs.3,44,531/- on account of depreciation on goodwill. Consequently, ground no.4 is determined in favour of the assessee and present appeal qua ground no.4 stands allowed for statistical purposes. Order pronounced in open court on this 22nd day of June, 2016.