Income Tax Appellate Tribunal - Jaipur
Jai Drinks Pvt. Ltd., Jaipur vs Department Of Income Tax on 12 February, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM
vk;dj vihy la-@ITA No. 981/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2008-09
A.C.I.T., cuke M/s Jai Drinks Pvt. Ltd.,
Circle-5, Jaipur. Vs. Jawahar Lal Nehru Marg, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAACJ 4639 F
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri Kailash Mangal (JCIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri G.G. Mundra (CA)
lquokbZ dh rkjh[k@ Date of Hearing : 05/01/2016.
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 12/02/2016.
vkns'k@ ORDER
PER T.R. MEENA, A.M.
This appeal has been filed by the revenue against the order of the learned C.I.T.(A)-II, Jaipur dated 17/09/2013 for A.Y. 2008-09. The sole ground of the appeal is against deleting the addition of Rs.
93,43,872/- made by the Assessing Officer on account of disallowance of depreciation claim on intangible assets.
2 ITA No. 981/JP/2013ACIT Vs M/s Jai Drinks Pvt. Ltd.
2. In this case the ld AR of the assessee has submitted that the issue under considering is covered by the order of the Hon'ble ITAT, Jaipur Bench, Jaipur passed in the assessee's own case in ITA Nos. 405, 503, 504, 505, 506 & 507/JP/2010, Asstt. Years 2001-02, 07-08, 02-03, 03- 04, 04-05, 05-06 order dated 30/09/2011 wherein the Hon'ble Bench has been pleased to delete similar addition. Therefore, he prayed to uphold the order of the ld CIT(A).
3. At the outset, the ld DR has vehemently supported the order of the Assessing Officer and prayed to reverse the order of the ld CIT(A).
4. We have heard the rival contentions of both the parties and perused the material available on the record. The identical issue involved in this appeal, has been decided by the Coordinate Bench in assessee's own case in ITA Nos. 405, 503, 504, 505, 506 & 507/JP/2010, Asstt. Years 2001-02, 07-08, 02-03, 03-04, 04-05, 05-06 order dated 30/09/2011. The operative portion of the Coordinate Bench's order is reproduced as under:-
8. We have heard rival submissions and considered them carefully. After considering the rival submissions and perusing the material on record, we find that the objection 3 ITA No. 981/JP/2013 ACIT Vs M/s Jai Drinks Pvt. Ltd.
raised by AO which has been reiterated here before the Tribunal by ld. CIT D/R has already been met with by ld. CIT (A) while disposing the appeal of the assessee. The objection raised by AO were explained by ld. Counsel of the assessee before ld. CIT (A) in writing and they were tabulated in the order of Tribunal which are also reproduced somewhere above in this order. The ld. CIT (A) has taken into consideration the agreement entered between assessee and Pepsi Food Ltd. Thereafter, the ld. CIT (A) has taken into consideration the question raised by the AO in respect to the issue of letter of intent if license and franchise rights devolved upon the assessee through the business transfer agreement and thereafter considering the issue in detail, the ld. CIT (A) found that the assessee has purchased license and franchise rights from Pepsi Food Ltd. which are intangible assets on which depreciation is allowable as per provisions of law. The ld. CIT (A) thereafter by taking into consideration the decision of Hindustan Coca Cola Beverages Pvt. Ltd. (supra) held that even if the contention of the AO is accepted that this is a goodwill, even in goodwill the depreciation is allowable and this decision has been affirmed by Hon'ble Delhi High Court. The findings of ld. CIT (A) at pages 10 to 14 of his order are as under:-
"I have considered facts of the case and arguments taken by Sh. Ranka and Sh. Mundra quite carefully. The 4 ITA No. 981/JP/2013 ACIT Vs M/s Jai Drinks Pvt. Ltd.
Assessing officer has given the reasoning to disallow the depreciation claim on license and franchise rights that no such rights were devolved upon the assessment company through business transfer agreement dated 26.8.2000 between appellant and M/s Dhillon Kool Drinks and Beverages Ltd. but these were through the letter of intent executed on the same date i.e. 26.8.2000 given by Pepsi Food Ltd. to the appellant company. The assessing officer has raised the question of desirability to issue letter of intent if license and franchise rights devolved upon the assessee through the business transfer agreement According to AO since no agreement of license or franchise rights have devolved upon the assessee from Pepsi Food Ltd. therefore, the depreciation claim on license and franchise rights was held as not admissible. The AO had also observed that as per letter of intent it was to be replaced with appropriate trade mark licensing agreement and the letter of intent shall terminate immediately on the execution of the franchise agreement. According to AO it is implied that the said amount of Rs.28 crore is not license and franchise rights but it forms part of goodwill devolved upon the assessee on which no depreciation is allowable. I have also gone through the copy of business transfer agreement dated 26.8.2000 between Dhillon Kool Drinks and Beverages Ltd. with the appellant, letter of intent issued by Pepsi Food Ltd. to the appellant on 26.8.2000 and agreement dated 10.8.2000 between Pepsico India Holding Ltd. with the appellant. Pepsico India Holding Ltd. is a subsidiary company of Pepsico Inc New York who is engaged in the business of manufacturing and distribution of Soft Drinks Beverages and Syrup Mix sold under the trade mark LEHAR owned by Pepsi Food Ltd. Pepsi Food Ltd. and Pepsico Inc granted franchise rights for bottling and distribution of their various products to Dhillon Kool Drinks and Beverages Ltd. for the territories of Punjab, Himachal 5 ITA No. 981/JP/2013 ACIT Vs M/s Jai Drinks Pvt. Ltd.
Pradesh, certain parts of Haryana, New Delhi I Delhi the business of Dhillon Kool Drinks was in bad shape and since they had to pay an amount over Rs.20 crores to Pepsico India Holding Ltd. and therefore, they were interested in selling their Delhi business alongwith rights, interest, privileges, assets and liabilities in the National Capital Territory of Delhi for which the appellant company offered to purchase the said business as a going concern subject to the seller arranging in favour of appellant company by Pepsi Food Ltd. of the license and franchise rights to use the trademarks of Pepsi brand of the Soft drinks. In view of these intentions an agreement was entered in between Pepsico India Holding Ltd. and the assessee on 10.8.2000 in which PIH had agreed to nominate the appellant to acquire Delhi business from DKD and it would require the authorizations from PFL & PSI to undertake and conduct Delhi business and the form and nature of such authorization will be as may be mutually agreed between the appellant at one hand and the PFL I PCI on the other hand. With this background as per letter of intent issued by Pepsi Food Ltd. to the appellant company dt. 26.5.2000 i.e. same date on which business transfer agreement has been executed between the appellant and M/s Dhillon Kool Drinks and Beverages Ltd. the appellant company has stepped into the shoes of the seller and commenced the business of manufacturing and distribution of soft drinks brands owned by Pepsi Food Ltd. Without proper rights of license / franchise it is impossible for the appellant to carry out such business activity. Further, Pepsi Foods Pvt. Ltd. vide their letter dated 29. 3.2004 addressed to the appellant company has referred their earlier letter of intent dated 26.8.2000 as amended from time to time and the validity of the said letter of intent was further extended upto 30.9.2004 under the same terms and conditions. The licenses and franchise rights earlier were with DKD and attached to 6 ITA No. 981/JP/2013 ACIT Vs M/s Jai Drinks Pvt. Ltd.
Delhi business and when Delhi business as a going concern stood transferred to the appellant by DKD and in turn the appellant is uninterruptedly carrying on the business of bottling and selling in the same territory and necessary supplies are being made to the appellant by PFL & Pepsico to manufacture the named beverages and syrup mix supported with letter of intent issued by Pepsi. Food Ltd. then obviously the licenses and franchise rights were also devolved upon the appellant. With such factual developments in my considered view the assessing officer was not justified in holding that no license and franchise rights were devolved upon the appellant company because for this purpose there is no agreement between the appellant and the seller namely DKD. In my considered view the assessing officer was also not justified in holding that said payment of Rs.28 crore was for goodwill because in the business transfer agreement between the appellant and DKD there is no such mention and in any case the goodwill can only be transferred when there are profits with the transferor undertaking and undisputedly the transferor undertaking. namely DKD was in bad financial shape which could not pay more than Rs.20 crore to Pepsico India Holding Ltd. and because of which they had to transfer their business to the appellant and therefore, this payment cannot be construed as payment for goodwill as held by assessing officer while giving a finding that no depreciation is allowable on such payment since, it is a goodwill. Further, on this issue there is direct judgment of ITAT Delhi Bench C in the case of Hindustan Coca Cola Beverages Pvt.Ltd. v/s DCIT Circle -- 12(1) New Delhi dt.25.8.2009 in which Hon'ble ITAT has held that true basis of depreciation allowance is character of an asset and not its description and even if an asset is described as goodwill but if it fits in the description of S.32(1)(ii) the depreciation is to be granted thereupon. In that case the appellant was domestic company engaged in 7 ITA No. 981/JP/2013 ACIT Vs M/s Jai Drinks Pvt. Ltd.
the business of manufacturing and distribution of aerated and non aerated. beverages and it made payment towards business acquired on slump price and a part of price so paid was allocated to intangible assets covered under the head goodwill and when depreciation has been claimed U/s 32 on said amount of goodwill then depreciation was correctly allowed because even if an amount is termed as goodwill but if it is a business or commercial right in the nature of know how, patent, copy right, trade mark, license, franchise then the claim of depreciation is indeed admissible thereupon and further the goodwill is not specifically excluded from the intangible assets eligible for depreciation and therefore, even if an asset is described as goodwill then also depreciation is to be granted on the same u/s 32(1)(ii) of l.T. Act. Hon'ble ITAT Mumbai Bench F in the case of Kotak Forex Brokerage Ltd. v/s ACIT Range -- 3(2) Mumbai 33 SOT 237 (2009) (Mum.) has also held that whether any right which is obtained by a company for carrying on business effectively and profitably falls within the meaning of intangible assets then depreciation is allowable on same, It has further held that goodwill is a bundle of rights which include inter-alia patents, trademarks, licenses, franchise etc. and in view of above position goodwill is also to be treated as an intangible assets of similar nature referred to in Clause II of S.32(1) and consequently, depreciation would be allowable on same. In the background of these 2 cases also if even the contention of assessing officer is accepted that said payment of Rs.28 crore was made for goodwill then also the appellant is entitled for depreciation @ 25% of the same within the meaning of S.32(1)(ii) of I.T Act. With this discussion the AO is directed to allow the aforesaid depreciation claim of Rs.7 crore."8 ITA No. 981/JP/2013
ACIT Vs M/s Jai Drinks Pvt. Ltd.
8.1. After going through the finding of ld. CIT (A) and the arguments of ld. D/R and also taking into consideration the arguments of ld. A/R, we find that the ld. CIT (A) examined the issue at great length and found that the Pepsico India Holding Ltd. was interested in selling their Delhi business along with rights, interest, privileges, assets and liabilities in the National Capital Territory of Delhi for lwhich the assessee company offered to purchase the said business as a going concern subject to the seller arranging in favour of the assessee company by Pepsi Food Ltd. of the license and franchise rights to use the trademarks of Pepsi brand of the soft drinks. In view of these intentions an agreement was entered in between Pepsico India Holding Ltd. (PIH) and the assessee on 10.8.2000 in which PIH had agreed to nominate the assessee to acquire Delhi business from Dhillon Kool Drinks & Beverages Ltd. (DKD) and the formal authorizations from PFL and PSI to undertake and conduct Delhi business was also to be obtained from the respective parties. In this background a letter of intent was issued by Pepsi Food Ltd. to the assessee company on 26.5.2000 i.e. the date on which business transfer agreement was executed between the assessee and M/s. DKD, and thereafter the assessee company has stepped into the shoes of seller and commenced the business of manufacturing and distribution of soft drinks brands 9 ITA No. 981/JP/2013 ACIT Vs M/s Jai Drinks Pvt. Ltd.
owned by PFL. It is further noted that M/s. DKD was in bad shape and they had to pay an amount of Rs. 20 crores to M/s. Pepsico India Holding Ltd. and, therefore, they were interested in selling their Delhi business along with rights, interest, privileges, assets and liabilities in the National Capital Territory of Delhi for which the assessee company offered to purchase the said business. Since there was a liability of more than Rs. 20 crores, in our considered view, there cannot be any good will and, therefore, AO's presumption that they had purchased good will and not the rights, interest, privileges, assets and liabilities etc. from M/s. DKD. The ld. CIT (A) has examined this aspect thoroughly and then only held that the assessee had acquired license, rights, interest, privileges etc. which are intangible assets in view of provisions of section 32(1)(ii) of the Act and held that assessee is entitled for depreciation. This finding of ld. CIT (A) remained uncontroverted. However, the ld. CIT D/R has argued that it was a good will and the AO was right in denying the depreciation being purchase of good will by the assessee. The ld. CIT D/R has stated that the decision in case of Hindustan Coca Cola (supra) is not applicable as facts of the present case as in this case the proceedings under section 263 were initiated. We have gone through this order of the Tribunal in case of Hindustan Coca Cola which has been approved by Hon'ble 10 ITA No. 981/JP/2013 ACIT Vs M/s Jai Drinks Pvt. Ltd.
Delhi High Court also and found that though the appeal before Tribunal was against order under section 263, but Tribunal has decided the issue on merits also by which it was held that on good will, the depreciation is allowable and the AO was correct in allowing the depreciation. The ld. D/R has also placed reliance in case of Borkar Packaging (P) Ltd, 131 TTJ 99 (Panaji), in case of Bharatbhai J. Vyas, 279 ITR 41 (AT Portion) and in case of R.G. Keswani, 308 ITR 271 (AT ). No doubt, in these cases various benches of the Tribunal has held that the word "good will" is not provided in the provisions of section 32(1)(ii) by the Legislatures while mentioning various intangible other assets. Therefore, depreciation is not allowable.
8.2. However, we find that in case of B. Raveendran Pillai, 237 CTR 80 (Ker.), the Hon'ble Kerala High Court has held that even on good will the depreciation is allowable. There are different views of the Benches of the Tribunal but there is no decision of any High Court that depreciation on good will cannot be allowed whereas there is a decision of Hon'ble Kerala High Court in favour of the assessee i.e. in case of B. Raveendran Pillai (supra) wherein it is held that depreciation is allowable on good will. The ld. A/R has also informed that the decision of the Tribunal in case of Hindustan Coca Cola has been affirmed by the Hon'ble 11 ITA No. 981/JP/2013 ACIT Vs M/s Jai Drinks Pvt. Ltd.
Delhi High Court. Therefore, in view of the decision of Hon'ble High Court, the depreciation has to be allowed on good will also. However, we are not inclined to go into detail whether depreciation on good will is allowable or not but the fact remains that the assessee has not purchased any good will but has purchased license, interest, privilege, franchise etc. from M/s. DKD which are undisputedly covered by section 32(1)(ii) and, therefore, the depreciation is allowable and the ld. CIT (A) has allowed the depreciation on these intangible assets, and we have no hesitation in confirming the order of ld. CIT (A) on this aspect. Accordingly we confirm the order of ld. CIT (A).
By respectfully following the order of the Coordinate Bench in assessee's own case for the above respective assessment years, we uphold the order of the ld CIT(A) and dismiss the revenue's appeal.
5. In the result, the revenue's appeal is dismissed.
Order pronounced in the open court on 12/02/2016.
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¼yfyr dqekj½ ¼Vh-vkj-ehuk½
(Laliet Kumar) (T.R. Meena)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 12th February, 2016
12
ITA No. 981/JP/2013
ACIT Vs M/s Jai Drinks Pvt. Ltd.
Ranjan*
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- A.C.I.T., Circle-5, Jaipur.
2. izR;FkhZ@ The Respondent- M/s Jai Drinks Pvt. Ltd., Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.981/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar