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Income Tax Appellate Tribunal, DELHI BENCH “I-1” NEW DELHI
per clause 4 of the agreement with Usha International Ltd. consideration for exclusive business right payable to Usha International Ltd. was Rs. 1,73,00,000/- and for other business and commercial rights of Rs. 27,00,000/- was capitalized as goodwill in the books of a/c. She noted that in AY 2001-02 the Tribunal had allowed the assessee’s claim and following the same she allowed the assessee’s claim of Rs. 28,12,500/-.
Having heard both the parties, we find that the issue relating to depreciation on WDV of goodwill paid to Usha International Ltd., is covered in favour of the assessee by earlier decisions of the Tribunal. We find that The ITAT Delhi Bench ‘B’ vide its order dated 23.12.2011 rendered in & 1404/Del/2010 has decided the issue in favour of the assessee by observing as under: 4. In the ground no.2 of revenue's appeal, the issue involved is deleting the addition of Rs.37,50,000/- made by the Assessing Officer claimed as 'Goodwill' by the assessee on account of depreciation on WDV paid to Usha International Ltd. for acquiring business and commercial rights. 5. Ld. DR relied on the order of the Assessing Officer. On the other hand, the learned AR submitted that the assessee company has purchased marketing , rights along with employees and premises and also trade names etc. from 'Usha International Ltd under the business agreement dated 1st May, 2000. As per the agreement, the Usha International Ltd. was not to compete with the assessee company for 20 years in the marketing of air-conditioners and water coolers of M/s. SIEL Aircon Ltd. The learned AR submitted that this agreement was for business rights, therefore, eligible for depreciation under section 32 of the Income-tax Act as intangible assets. He further pleaded that the exclusive business rights as defined in the agreement were represented as carrying on the business as successor to Usha International Ltd. which include all records of business including records of suppliers and customers; the benefit of the current orders; the benefit of all bids and proposals that have been made by Usha International Ltd. and all rights to Usha International Ltd. distribution network for the business excluding Usha International Ltd.'s company shop.
The consideration for exclusive business rights was payable of Rs.l,73,00,000/-. For other business and commercial rights Rs.27,00,000/- was paid. These amounts were capitalized as goodwill in books of accounts. These amounts were paid to Usha International Ltd. during the period relevant to assessment year 2001-02. These amounts were capitalized as Goodwill in the books of account. F or computing the taxable income, depreciation was claimed @ 250/0 as prescribed in schedule of depreciation rates in respect of the intangible assets. The depreciation in the year 2001-02 was claimed at Rs.50,00,000/- and in assessment year 2002-03 at Rs.37,50,000/-. For the assessment year 2001-02, the CIT (A) 'granted the relief. The revenue went in appeal before the IT AT wherein the ITAT had dismissed the revenue's appeal by upholding the order of the CIT (A). The ITAT has held as under :- “A perusal of the business purchase agreement also clearly shows that UIL as agreed to sell to the assessee and. the assessee agreed to purchase the business and the goodwill and the other assets thereof. A perusal of the consideration also clearly shows that the agreement is for selling S items, first one being the business, second goodwill and third other assets. The purchase consideration also shows the computation of such 3 items being the exclusive business rights for a consideration of Rs.l,73,00,000/-, 27,00,0001- Without any specifications and (c) the transferable deposits which would have to be considered as other assets. This being as the amount of Rs.27,00,000/- as shown in the purchase price has not been shown to be in relation to either exclusive business rights or for transferable deposits. The same would have to be treated as being towards "goodwill". This being so, we are of the view that the amount ofRs.27,00,0001- as paid by the assessee would have to be treated as goodwill. In regard to the balance of 1.73 Crores, it is for the exclusive business rights." The ITAT vide Para 7 of their order held as under: "In these circumstances, we are of the view that the ld. CIT(A) was right in holding that the assessee was entitled to the depreciation in regard to the purchase of the exclusive business rights to the extent of Rs.1,73,00,000 and directing the AO to grant depreciation on the same. In regard to the amount of Rs.27,00,000 as paid by the assessee, as it has not been shown that this amount had been paid for any specific rights, the same would have to be treated as goodwill and the depreciation on the same cannot be granted. In the circumstances, the findings of the Ld. CIT(A) on this issue is modified to the extent that the AO is directed to grant the depreciation on the consideration of Rs.173,00,000/- paid to UIL for the purchase of the exclusive business rights which are to be treated as intangible assets. The action of the AO in disallowing the depreciation on the goodwill to the extent of Rs.27,00,000 is confirmed." Ld. AR pleaded that the facts are same and there is no change in the circumstances, therefore, the order of the CI'I' (A) may be upheld: 6. We have heard both sides and perused the material on record. Since the assessee has got the relief f from ITAT in the preceding year, on the same facts. The issue remains the same, therefore, respectfully following the decision of I'I'A'T, we dismiss this ground of revenue's appeal.” 28. No change in facts, for the assessment year in question, have been brought to our notice. Therefore, respectfully following the earlier orders of the Tribunal in assessee’s own case, we uphold the order of CIT(A). Ground is dismissed.
As regards depreciation on WDV of patent, trademark and intellectual property rights paid to Ciel Aircon Ltd. is concerned, ld. CIT(A) noted that assessee company vide business purchase agreement entered on 8.8.2000 purchased the manufacturing business of Siel Aircon Ltd. and the consideration for the Intellectual Property Rights, paid by the assessee was Rs. 109,300,000 to SAL. The assessee pointed out that as per provision of Trademark Act, 1999, a person is entitled to assign use of trademark. In this regard reference was made to sections 37 & 38 of the Trademarks Act, 1999.
It was further pointed out that there was no statutory requirement under the law to get the trademark registered under the Trademarks Act, 1999 so as to enjoy the legal ownership thereof. It was pointed out that registration of trademarks was desirable but not a statutory compulsion. The assessee had relied on various judicial pronouncements wherein it was held that the registration of an asset in the name of purchaser was not necessary for the purpose of claiming depreciation. Following the Tribunal’s decision for AY 2001-02 the ld. CIT(A) allowed the assessee’s appeal.
Having heard both the parties we find that we find that the issue relating to depreciation on patents, trademarks and intellectual property rights acquired by the assessee from Siel Aircon Ltd. is covered in favour of the assessee by earlier decisions of the Tribunal. The ITAT Delhi Bench ‘B’ vide its order dated 23.12.2011 rendered in & 1404/Del/2010 has decided the issue in favoaur of the assessee by observing as under:
“8. The assessee company has purchased manufacturing business of M/s. SIEL Aircon Ltd. as a going concern vide agreement dated 08.08.2000. As a part of this agreement, the assessee company also acquired intellectual property rights which include patents, trademarks, etc. etc. and paid Rs.10,93,00,000/-. The amount was capitalized in books as pat fit and trademark and the same is treated as' intangible assets. These intellectual property rights have not been registered in the name of assessee company. The assessee company claimed depreciation as per section 32 of Income-tax Act read with Schedule for depreciation @ 25%. The Assessing Officer disallowed the same by following the order of earlier year. The CIT (A) has granted the relief to the assessee by following the decision of ITAT in assessee's own case for assessment year 2001-02 where the ITAT has held as under:- “A perusal of the purchase price consideration as per the business purchase agreement entered into between the assessee and SAL shows that the consideration has been 'paid for the intellectual property rights. Intellectual property rights are immovable asset. It is also an intangible asset as per the provisions of section 32 (1) (ii) of the Act. It is also undisputed that the 'assessee has used the intellectual property rights in its business and there has been no claim against the assessee for the use of the said trademarks. In fact as per the agreement in clause 8.1 (a)(i) it has been specifically agreed that on completion duly executed instruments of transfer, assignment etc. as the assessee may reasonably be required to complete the transfer, assignment and conveyance of the asset in accordance with the provisions of this agreement shall be delivered to the assessee at a place nominated by the assessee. This clearly shows that once the completion of the agreement is done by payment of the consideration as on the completion date specified in the agreement the assessee would be in possession of the duly executed instruments of transfer, assignment and Conveyances of the assets as specified in the agreement which are basically the intellectual property' rights and the fixed assets. This being so, as also the principles as laid down by the Hon'ble Supreme Court in the case of Mysore Minerals Ltd. referred to supra and reaffirmed the decision of Dalmia cements" it would have to be held that the assessee was the owner of the property and the assessee having used the same in its business was entitled to depreciation on the same. In the circumstances the finding of the Ld. CIT(A) on this issue stands confirmed."
Since the revenue has failed to brought on record any distinction of facts from the earlier year, i.e., 2001-02, therefore, respectfully following the decision of ITAT, we dismiss this ground of revenue's appeal also. 31. There being no change in facts and circumstances of the case and the order of ld. CIT(A) being in conformity with the earlier order of the Tribunal in assessee’s own case, we uphold the order of CIT(A) on the issue in question. Ground is dismissed.
In the result, assessee’s appeal is allowed for statistical purposes and the revenue’s appeal stands dismissed. Order pronouncement in open court on 12/02/2016.