Income Tax Appellate Tribunal - Ahmedabad
Netvision Web Technologies Pvt.Ltd.,, ... vs Department Of Income Tax on 23 November, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL: 'A' BENCH: AHMEDABAD
(BEFORE SHRI D. K. TYAGI, JM AND SHRI A. MOHAN ALANKAMONY, AM)
ITA No.2241/Ahd/2010
A. Y.: 2007-08
The D. C. I. T., Circle-5, Vs M/s. Netvisioin Web
2nd Floor, C. U. Shah Chambers, Technologies Pvt. Ltd.,
Ashram Road, 401-402, S. K. House,
Ahmedabad 380 009 Opp. Drive In Cinema, Thaltej,
Ahmedabad
P. A. No. AABCN 6164 G
(Appellant) (Respondent)
Appellant by Shri Y. P. Verma, Sr. DR
Respondent by Shri S. N. Divatia, AR
Date of hearing: 23--11-2012
Date of pronouncement: 14-12-2012
ORDER
PER A. MOHAN ALANKAMONY: The revenue has filed this appeal being aggrieved by the order of the learned CIT (A)-XI, Ahmedabad in Appeal No. CIT (A)-XI/1130/342/09-10 dated 12-04-2010, for the assessment year 2007-08 passed u/s 250 read with section 143(3) of the IT Act in the case of M/s. Netvisioin Web Technologies Ltd. Ahmedabad.
2. The Revenue has raised three grounds in this appeal wherein ground No.2 and 3 are general in nature and do not survive for adjudication. The lone ground surviving for adjudication being ground No.1 is reproduced herein under for reference:
"1. The Ld. Commissioner of Income tax (A)-XI, Ahmedabad has erred in law and on facts in deleting the addition of Rs.90,21,444/- made by disallowing depreciation on goodwill."ITA No.2241/Ahd/2010 (AY: 2007-08)
DCIT, Cir-5, Ahmedabad Vs M/s.Netvision Web Technologies Pvt. Ltd.
3. The facts of the case in brief, are that the assessee is a Company engaged in the activities of computer education, software development, sales and import thereof furnished its return of income electronically on 31-10-2007 declaring a total income of Rs.43,53,990/- along with return of fringe benefits showing its taxable value at Rs.65,440/-. The case was selected for scrutiny and subsequently assessment order was passed by the learned AO on 21-12-2009 by assessing the total income of the assessee at Rs.51,98,460/- wherein the claim of the assessee for granting depreciation on goodwill was disallowed and added to the total income of the assessee. During the course of assessment proceedings, on perusal of the statement of income, the learned AO observed that the assessee had claimed depreciation for an amount of Rs.1,05,82,914/- which included depreciation of Rs.90,21,444/- on goodwill. The assessee was required to show-cause why its claim for depreciation on goodwill should not be disallowed and added to the total income. In response thereto, the assessee explained that goodwill reflected in the balance sheet of the company is in the nature of commercial rights acquired under the contract and was in the nature of trade-mark, copyright, franchise, licenses etc. and therefore, the assessee is eligible for depreciation on goodwill. After due consideration of the assessee's contentions, the learned AO had, extensively quoting the provisions of section 32(1), analyzing the interpretation of intangible assets, taking refuge on various case laws and also detailing the assessee's submissions, observed in Para 3.2 and 3.3 of his order as under:
"3.2 As discussed above, the assessee has failed to furnished the important details regarding its claim and failed to give proper justification and explanation as regards eligibility of depreciation on such good will. It is also pertinent to 2 ITA No.2241/Ahd/2010 (AY: 2007-08) DCIT, Cir-5, Ahmedabad Vs M/s.Netvision Web Technologies Pvt. Ltd.
mention here that the intangible assets specified in section 32 for the purpose of depreciation the word "goodwill" is not included specifically. Accordingly, goodwill cannot be treated as any other business of commercial rights of similar nature. Therefore the depreciation claimed on goodwill is required to be added in the total income of the assessee. Accordingly, an amount of Rs.90,21,444/- being depreciation on goodwill is hereby disallowed and added to the total income of assessee. 3.3 In this regard, reliance is placed on the decision of Hon'ble Jurisdictional ITAT in the case of Bharatbhai J. Vyas Vs ITO (2005) 97 ITD 248, wherein it was held that;
"It shall be pertinent here to mention that the legislature has inserted a fiction, by which, specified intangible assets, are held to depreciate and allowance is given therefore, Know-how, patents, copy rights, trade marks etc. are sometimes assigned different names, therefore, by using the work similar nature, the legislature has restricted the scope of intangible assets similar to the specific one. The assessee has nowhere established that it has acquired any know-how, patent, copy rights, trade marks etc. ........What is the material to decide the controversy is whether the payment for goodwill without acquiring any know-how patents, trade marks, copyrights etc. is eligible for depreciation in four concerns of specific amendment to section 32(1) (ii) ? In our considered opinion, in the facts and circumstances of the case, the amount paid by assessee's goodwill does not result into acquisition of any know-how, patents, copy rights, trade- marks etc. as prescribed in this behalf. Consequently the assessee is not entitled to claim depreciation."
8.14. Accordingly, the claim of the assessee for depreciation on goodwill of Rs.1,46,50,834/- is disallowed....." In view of the above discussions, the depreciation on goodwill claimed at Rs.90,21,444/- is disallowed and added to the total income of the assessee company."
3 ITA No.2241/Ahd/2010 (AY: 2007-08)DCIT, Cir-5, Ahmedabad Vs M/s.Netvision Web Technologies Pvt. Ltd.
4. Agitated, the assessee took up the issue, with the learned CIT (A) for relief. After duly analyzing the assessee's contentions coupled with various judicial pronouncements on a similar issue, the learned CIT (A) had recorded the reasons in an elaborate and illustrative manner in his findings which are, for appreciation of facts, extracted as under:
"3.2 I have considered the submissions made by the A. R. of the appellant and the observation of the assessing officer in the assessment order. Briefly state the relevant facts are as follows. In accordance with the scheme of amalgamation approved by the order dated 22-06-2001 of High Court of Gujarat, Net vision Web Technologies Private Ltd. (NVWTPL) got amalgamated with Indotech Capital Market Limited (ICML) w. e. f. 01-04-2000. NVWTPL was a profit making company, owning bundle of rights in the form of Trade-mark, copy-right, franchise, license etc. ICML, a loss-making company acquired these rights consequent on amalgamation and changed its name to Net vision Web Technologies Ltd. (NVWTL), the appellant. The depreciation claimed is on the amount of goodwill paid to acquire the above- mentioned rights. As seen from the chart furnished by the A. R. (reproduced at page -5 of the order), the fortunes of the resultant company took a huge positive swing, in the sense that the losses turned into substantial profits.
3.2.1 In the light of the above factual position, A.O's observation that it is not proved that the appellant got benefited by acquiring the bundle of rights turns out to be factually incorrect. In the decision relied on by the A. O., (97 ITD 248), Ahmedabad Tribunal held that since the goodwill paid did not result in acquisition of any know-how, patent, copy rights, trade- marks etc., depreciation was not allowable. In contrast, in the instant case the rights acquired were precisely the intangible assets mentioned in Sec. 32(1) (ii) viz Trade-mark, patent, copy rights etc. Thus, the facts are entirely different in the instant case. In fact, given the facts of the case, the said decision strengthens the appellant's claim.
3.2.2. Further, the learned A.R's contention that the nomenclature - 'good will' - is not important and what is to be seen is the nature of rights acquired stands to reason. In the case of Skyline Caterers (P) Ltd. Vs ITO (116 ITD 348), SMC< Mumbai 4 ITA No.2241/Ahd/2010 (AY: 2007-08) DCIT, Cir-5, Ahmedabad Vs M/s.Netvision Web Technologies Pvt. Ltd.
held that the rights of catering at canteen, a tool to carry on business, is intangible asset, entitled to depreciation. It is also seen that the appellant was allowed depreciation in the earlier years on these intangible assets.
3.2.3. Therefore, having given my careful consideration to the facts of the case and the case-laws relied on by the A. O. and A. R., I have no hesitation to hold that the appellant is entitled to the depreciation claimed. Disallowance of depreciation of Rs.90,21,444/- is allowed. This ground of appeal is allowed."
5. Aggrieved, the revenue has come up with the present appeal. During the course of hearing, the learned DR fairly placed strong reliance on the reasoning of the learned AO in rejecting the assessee's claim and found fault with the findings of the learned CIT (A). The learned DR also put strong stress on the wordings of the provisions of section 32(1) and argued that the assessee had nowhere established that it had acquired any know-how, patents, copyright, trademark etc., to match with the provisions of section 32(1) of the Act to entitle it to claim depreciation on alleged goodwill. It was, therefore, pleaded that the stand of the ld.AO which has the backing of sound judicial views requires to be sustained.
6. On the other hand, the learned AR reiterated more or less what was portrayed before the first appellate authority. In support of his claim, he had furnished copy of all relevant details in the form of paper book containing pages 001 to 376. He has also relied on the decision of the Hon'ble Supreme Court on similar issue in the case of CIT Vs SMIFS Securities Ltd., [2012] 252 CTR (SC) 233 and also relied on the order of ITAT Ahmedabad "B" Bench in the case of DCIT, Cir-5 Vs Net 4 Nuts Ltd. in ITA No.1186/Ahd/2011 etc. for AY 2003-04 to 2008-09 dated 21-09- 2012 along with the order of the ITAT Ahmedabad "C" Bench in ITA No.1312/Ahd/2011 dated 28-02-2012 in the case of DCIT Cir-1, Vs M/s.
5 ITA No.2241/Ahd/2010 (AY: 2007-08)DCIT, Cir-5, Ahmedabad Vs M/s.Netvision Web Technologies Pvt. Ltd.
Bhagwati Banquets and Hotels Ltd. He further, submitted that the issue in the present appeal is covered by the aforesaid decisions of ITAT, Ahmedabad Benches and finally pleaded that the findings of the learned CIT(A) deserve to be sustained.
7 We have carefully considered the rival submissions, duly perused the relevant case records, books of accounts of the assessee and also the case laws relied by the learned AR.
8. On perusal of the records, we find that ITAT Ahmedabad "B" Bench has recently decided similar issue in favour of the assessee and against the revenue while adjudicating revenue's appeal in ITA No.1186/Ahd/2011 etc. in the case of Net 4 Nut Ltd. dated 21-09-2012 . The relevant portion of the above order of the Tribunal is extracted herein under for reference:
"5. We have heard both the parties, perused the orders of the authorities below and considered the material on record. The learned CIT(A) has given categorical findings that the assessee had incurred expenditure of Rs.1,87,81,830/- on development of "AVTAAR" and the said software was registered as trade mark under the Trade-mark Act,1999 in the name of the assessee and the same was utilized by the assessee for the purpose of his business and in view of this fact, depreciation on this software should be allowed. Further, Section 32 of the Act clearly specifies that depreciation shall be allowable on any intangible assets. The learned AR has also placed reliance in the decision of ITAT Ahmedabad "A" Bench in the case of DICT Vs M/s. Bhagawati Banguets and Hotels Ltd. in ITA No.1312/Ahd/2002 for AY 2007-08 order dated 28-02-2012. In this case the Tribunal had decided the issue of claim of depreciation on intangible asset in favour of the assessee and against the revenue. The relevant portion of the aforesaid order of the Tribunal is reproduced herein below:
"5.7. In a nut-shell, the assessee, without intangible assets in the shape of rights and entitlement of commercial rights of the erstwhile entities, would not have prospered or in a position to 6 ITA No.2241/Ahd/2010 (AY: 2007-08) DCIT, Cir-5, Ahmedabad Vs M/s.Netvision Web Technologies Pvt. Ltd.
carry on the catering business only by acquiring tangible assets. By acquiring tangible and intangible assets of the erstwhile concerns cited supra, the assessee had prospered in its business by posting substantial turnover and profits which implicitly exhibits that the assessee had, in fact, acquired intangible assets [business and commercial rights] in the form of 'goodwill'. In essence, the intangible assets were in the nature of valuable commercial and business rights which were to be used in expanding the assessee's business, resulting in, huge turnover and profits as pointed out supra.
5.9. In view of the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs and also in conformity with the ruling of various judiciaries, chiefly, the ruling of the Hon'ble High Court of Kerala referred supra, we are of the considered view that the CIT (A) was justified in holding that the assessee was eligible for depreciation on intangible assets acquired by it. It is ordered accordingly. We make it very clear that we have arrived at this above conclusion from the facts of this case as the valuation report submitted by the appellant has not been successfully challenged by the Revenue to establish the transaction to be sham. Therefore, we consider the payment made on account of goodwill is genuine and reasonable since it is arrived based on a reasonable valuation and computation."
5.2 In view of the above discussions, we do not find any justification to interfere with the order of the learned CIT(A). Therefore, this ground raised by the revenue is dismissed."
9. Considering the above discussions and in view of the fact that the learned DR could not controvert the submission of the learned AR by any cogent material evidence, we are of the opinion that the learned CIT(A) was right in allowing assessee's claim of depreciation on good will amounting to Rs.90,21,444/- and his order requires no interference by us. Accordingly, we hereby dismiss the ground of appeal raised by the revenue in this appeal.
10. In the result, the Revenue's appeal is dismissed.
7 ITA No.2241/Ahd/2010 (AY: 2007-08)DCIT, Cir-5, Ahmedabad Vs M/s.Netvision Web Technologies Pvt. Ltd.
Order pronounced in the open Court on 14-12-2012 Sd/- Sd/-
(D. K. TYAGI) (A. MOHAN ALANKAMONY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Lakshmikanta
Lakshmikanta Deka/
Deka/--
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
1. Date of dictation: covered matter - no dictation 06-11-12
2. Date on which the typed draft is placed before the Dictating Member: 07-11-12 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement:
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk:
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order:
8