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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: SHRI G.S. PANNU & SHRI AMARJIT SINGH
The captioned appeal by the Revenue is directed against the order of CIT(A)-8, Mumbai dated 29.05.2015, pertaining to the Assessment Year 2009-10, which in turn has arisen from the order passed by the Assessing Officer dated 20.03.2013 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
In this appeal, Revenue has raised the following Grounds of appeal:
“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.
2. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored.”
The solitary controversy in this appeal arises from the action of CIT(A) in directing that depreciation u/s 32 of the Act be allowed to the assessee on goodwill.
Briefly put, the relevant facts are that the respondent-assessee is a company incorporated under the provisions of Companies Act, 1956 and is engaged in the business of manufacture of duplicating machines and trading of copiers, fax machines, photographic printing and other allied equipment. The Assessing Officer noticed that assessee had debited an expenditure in the Profit & Loss Account on account of amortization of goodwill of Rs.3,58,16,000/- (4th year) whereas the same was added back while computing the total income at the time of filing the original return of income on 27.9.2009. However, in the revised return filed on 21.3.2011 assessee claimed deduction of amortization of goodwill of Rs.3,58,16,000/-. On being show caused to justify the claim, assessee submitted that in terms of a scheme of arrangement of merger of M/s. Gestetner India Ltd. (GIL) with assessee, the assets and liabilities of GIL were acquired and the goodwill amount which had arisen was written-off in each of the 5 years starting from Assessment Year 2005-06. Assessee also made an alternate claim that, in any case, goodwill was an ‘intangible asset’ and it was eligible for depreciation in terms of Sec. 32(1)(ii) of the Act. The Assessing Officer noted that similar claim of the assessee for deduction on account of amortization of goodwill was rejected in Assessment Years 2006-07, 2007-08 and 2008-09 and accordingly, the claim was rejected in the instant year also.
Before the CIT(A), assessee made multiple claims; firstly, claiming deduction of 1/5th cost of goodwill in terms of amalgamation scheme approved by the Hon'ble High Court and alternatively, claimed depreciation on the goodwill. The CIT(A) affirmed the disallowance of claim of amortization of goodwill of Rs.3,58,16,000/-, but he allowed the claim of depreciation following the ratio of the judgment of the Hon'ble Supreme Court in the case of Smifs Securities Ltd., 348 ITR 302 (SC). Against the action of CIT(A) in allowing the claim of depreciation, Revenue is in appeal before us.
Before us, the only plea of the Revenue is that in the present case assessee has not paid any consideration for acquisition of goodwill at the time of amalgamation and, therefore, the claim of depreciation has been wrongly allowed.
On the other hand, the learned representative for the respondent-assessee placed reliance on the order of the CIT(A), wherein the claim has been allowed following the judgment of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Taj Sats Air Catering Ltd., of 2012 dated 3.9.2012.
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 Year 2005-06 by way of debit in the Profit & Loss Account. Thus, in the instant year assessee claimed amortization of Rs.3,58,16,400/- by contending that the claim was in terms of the directions of Hon'ble High Court passed while approving the scheme of arrangement. The said claim has been denied by the Assessing Officer and also by the CIT(A) and it is not the subject matter of consideration before us. The CIT(A), in the alternate, allowed assessee’s claim for depreciation on the element of ‘goodwill’ with reference to the figure of WDV which was to be reworked for each year starting from Assessment Year 2005-06. Against such a decision, Revenue is in appeal before us.
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.
Order pronounced in the open court on 17th August, 2016.