DSST CIT CIR 3(3)(1), MUMBAI vs. RICOH INDIA LTD, MUMBAI

This appeal is filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-8, Mumbai [(hereinafter referred to as the CIT(A)] dated 21.03.2016 for the assessment year 2005-06.

The only issue in the appeal of the Revenue is that the Ld. CIT(A) is not justified in holding that the assessee is entitled to claim of amortization of depreciation on goodwill without appreciating the fact that the goodwill is depreciable under section 32 of the Act only if any consideration is paid for its acquisition and the assessee has not earmarked any specific amount towards such goodwill at the time of amalgamation.

The Ld. Counsel for the assessee at the outset submits that an identical issue has been decided in assessee’s favour by the co-ordinate bench in 2 M/s. Ricoh India Ltd. assessee’s own case for the assessment year 2009-10 in ITA No.4700 of 2015 vide order dated 17.08.16 wherein the Revenue’s appeal has been dismissed. The copy of the order is placed on record.

The Ld. D.R. fairly submits that identical issue has been decided for the assessment year 2009-10 by the Tribunal.

We have perused the orders of the authorities below and the co-ordinate bench decision for the assessment year 2009-10 in of 2015. In the Revenue’s appeal for the assessment year 2009-10 an identical grounds have been raised as under: “1. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A)-8, Mumbai, was justified in holding that the assessee is entitled to the claim of amortization/depreciation on Goodwill of Rs.3,58,16,000/- without appreciating the fact that Goodwill is depreciable u/s 32 of the Act only if any consideration is paid for its acquisition and the assessee has not earmarked any specific amount towards such goodwill at the time of amalgamation.

The ground before us in this appeal is exactly the ground which was decided in assessment year 2009-10 and the co-ordinate bench dismissed the Revenue’s appeal holding as under: “8. We have carefully considered the rival submissions. The relevant facts are that in terms of scheme of arrangement for merger of GIL with the assessee approved by the Hon'ble High Courts of Calcutta and Mumbai, assessee acquired the assets and liabilities of GIL. Before the CIT(A), assessee referred to para 13.4 of the scheme of arrangement whereby "the deficit, if any, in the value of the assets over the value of the liabilities of the Transferor Company vested in the Transferee Company, pursuant to this scheme, as recorded in the books of accounts of the Transferee Company shall, after adjusting the aggregate face value of the new equity shares issued by the Transferee Company to the members of the Transferor Company pursuant to this scheme and the amounts recorded in terms of clause 13.3. above, be treated as Goodwill in the books of the Transferee Company. The aforesaid Goodwill shall be duly reflected in the Profit & Loss Account of the Transferee Company only as an amortization over a period of 5 years." On the basis of the aforesaid, assessee pointed out that it determined the value of goodwill at Rs.17,90,82,000/- which was in accordance with the scheme of arrangement approved by the Hon'ble High Courts. Accordingly, 20% thereof, i.e., Rs.3,58,16,400/- was amortized in each of the 5 years starting from Assessment

Quite clearly, in terms of scheme of amalgamation, the assets and liabilities of GIL stood transferred to the assessee. Further, the deficit in the value of assets over the value of liabilities of GIL taken over after adjusting the aggregate value of the equity shares issued to the members of GIL, was treated as goodwill in the books of the assessee-company. In view of the authoritative pronouncement of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra), it cannot be denied that 'goodwill' is an asset qualifying for depreciation u/s 32(1)(ii) of the Act. The plea of the Revenue that no amount has been paid for its acquisition does not defeat the claim of depreciation allowed by CIT(A). Notably, 'goodwill' has arisen in the present case consequent to a scheme of amalgamation approved by the Hon'ble High Court and so was the situation in the case of Smifs Securities Ltd. (supra) also. Apart therefrom, the CIT(A) has also relied upon the judgments of (i) Hon'ble Kerala High Court in the case of R. Raveendran Pillai, 332 ITR 531; (ii) Hon'ble Delhi High Court in the case of Areva T&D India Ltd., 345 ITR 421; (iii) Hon'ble Delhi High Court in the case of Hindustan Coca Cola Beverages Pvt. Ltd., 331 ITR 192; and (iv) Hon'ble Bombay High Court in the case of Taj Sats Air Catering Ltd. (supra) in holding that goodwill is an intangible asset qualifying for depreciation u/s 32 of the Act. We find no reason to interfere with the aforesaid action of CIT(A), which is hereby affirmed. As a consequence, we affirm the ultimate direction of the CIT(A) to allow depreciation on goodwill as per the Income Tax Rules, 1962 by working out the figure of WDV of goodwill for the year under consideration.

In the result, appeal of the Revenue is dismissed, as above.” 7. Respectfully following the said decision we affirm the order of the Ld. CIT(A) on this issue.

In the result Revenue’s appeal is dismissed.