Income Tax Appellate Tribunal - Mumbai
Kotak Forex Brokerage Ltd, Mumbai vs Department Of Income Tax on 15 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES, 'A', MUMBAI
BEFORE SHRI DINESH KUMAR AGARWAL (JM) AND SHRI N.K.BILLAIYA (AM)
ITA No.4065/Mum/2011
(Assessment Year: 2006-07)
Income Tax Officer, M/s Kotak Forex Brokerage
3(2)(3), Ltd.,
Room No.673, 1st Floor,
6th Floor, V/s Bhaktawar,
Aayakar Bhavan, 229, Nariman Point,
M K Road, Mumbai-400021
Mumbai-400020. PAN:AAACK5920G
APPELLANT RESPONDENT
Date of Hearing : 15.3.2012
Date of Pronouncement : 29.3.2012
Appellant by : Mrs.Usha Nair
Respondent by : Shri Farrokh Irani
ORDER
PER DINESH KUMAR AGARWAL (JM) This appeal preferred by the Revenue is directed against the order dated 7.3.2011 passed by the ld. CIT(A) for the Assessment Year 2006-07.
2. Briefly stated facts of the case are that the assessee- company is engaged in the business of granting loans and making investments. The return was filed declaring total income of Rs.6,57,465/-. During the course of assessment proceedings the AO noted that the assessee has claimed 2 ITA No.4065/Mum/2011 (Assessment Year: 2006-07) depreciation on goodwill and on Forex Business Rights u/s 32(1)(ii) of the Income Tax Act, 1961 (The Act) being "intangible assets". The assessee was asked to explain as to why the depreciation on both the above "intangible assets"
should be allowed. In response, the assessee filed reply vide letter dated 11.2.2008 interalia stating that (page 5 of the AO):
• "Goodwill is a bundle of rights which includes interalia patents, trade marks, trade names, licences, franchises, etc. • Some of these rights have been specified as assets eligible for depreciation such as patent, trade mark, trade name, licences, franchises etc. • The assets so enumerated are some of the components of goodwill.
• Goodwill is deemed to have covered by the residuary expression, "any other business or commercial rights of a similar nature."
However, the AO did not accept the assessee's explanation on the ground that goodwill does not fall within the category of the class of assets or rights listed in the provisions of section 32(1)(ii) of the Act and hence disallowed the depreciation on the goodwill Rs.13,03,989/- and added the same to the total income of the assessee.
3. On appeal, the ld. CIT(A) following the Tribunal orders in assessee's own case in M/s Kotak Forex Brokerage Limited V/s 3 ITA No.4065/Mum/2011 (Assessment Year: 2006-07) ACIT in ITA No.2692/Mum/2007 (AY:2001-02) order dated 6.8.2009 and the order in ITA No.4273/Mum/2008, A.Y.2005- 06 order dated 28.10.2009, however, allowed the claim of the assessee and deleted the disallowance made by the AO.
4. Being aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us taking following grounds of appeal :
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of depreciation on goodwill made by the A.O. in respect of difference in payments of service tax of Rs.13,03,989/-, holding that the same falls within the category of the class of assets or rights listed in the provisions of sec.32(1) (ii) of the Income tax Act."
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."
5. At the time of hearing, the ld. DR supports the order of the AO.
6. On the other hand, the ld. Counsel for the assessee submits that this issue is squarely covered in favour of the assessee by the decision of the Tribunal in the assessee's own case for assessment years 2001-02 and 2005-06 (supra). He also placed on record the copy of the said orders of the 4 ITA No.4065/Mum/2011 (Assessment Year: 2006-07) Tribunal. He, therefore, submits that the order passed by the ld. CIT(A) be upheld.
7. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the assessee that the issue of depreciation on goodwill is squarely covered in favour of the assessee by the aforesaid orders of the Tribunal. The Tribunal in the order dated 28.10.2009 while following the decision of the earlier year i.e. for A.Y.2001-02 has observed and held vide paragraphs 4.3 to 6 as under :
"4.3 This ratio of the decision of the Tribunal is not applicable on the facts of the present case because in the case of the assessee itself, the Tribunal has categorically given a finding that goodwill earned by the assessee akin to the trademark as goodwill is formed on the basis of trade mark. The findings given by the Tribunal in para 8 of its order are as under:
"Business or commercial rights are rights obtained for effectively carrying on the business or commerce. Commerce is a wider term, which encompasses business in its fold. Therefore, any right which is obtained for carrying on the business effectively and profitably has to fall within the meaning of intangible asset. The definition further provides that the business or commercial rights should be of similar nature as know-how, patents, copy rights, trademarks, licenses, franchises etc. all these are the assets which are not manufactured or produced overnight but are brought into existence by experience and reputation. They assume importance in the commercial world as they represent a particular benefit or advantage or 5 ITA No.4065/Mum/2011 (Assessment Year: 2006-07) reputation built over a period of time and customers associate with such assts. Similarly, goodwill is nothing but positive reputation built by a person/company/business-house over a period of time. Thus, goodwill is a 'business or commercial right of similar nature.' As seen from the agreement of sale between Shri Uday S Kotak and the assessee company formerly known as Komaz Financial Services Ltd, we find that the name 'kotak' has tremendous importance as the assessee company was to be benefited by the using of the said name and it has gone as far as amending its name by including Kotak in its name. Therefore, it is of commercial value for which the assessee has paid the amount of Rs. 1.88 crores as goodwill.
4.4 While holding so, the Tribunal has taken into consideration the arguments of the assessee that the assessee company was also renamed as Kotak Forex Broking Ltd. Thus, when the right to use the name 'Kotak' is granted to the assessee company, the consideration paid for such usage is akin to the consideration paid for a trademark. Accordingly, the goodwill which was generated in past was considered by the Tribunal similar to the trade mark; therefore, the issue was decided in favour of the assessee.
5 Similarly, the ratio of the decision in the case of Birla Gobal Asset Finance Co Ltd also in favour of the assessee wherein the Tribunal held that the logo and the trademark which are intangible assets were purchased from the principle company and they were used for its business purposes and on that account huge earning were made by the assessee and the same was offered for taxation. The valuation report obtained by the assessee was in respect of intangible assets only; therefore, it cannot be said that there was no details of intangible assets or no proper valuation of intangible assets. The deprecation on intangible assets is allowable. Thereafter, the Tribunal has recorded its finding that depreciation was allowable on goodwill.6 ITA No.4065/Mum/2011
(Assessment Year: 2006-07) 6 In the case of Hindustan Coco Cola Beverages P Ltd. also the Tribunal after taking to consideration the decision of the Ahmedabad Bench of the Tribunal in 97 ITD 248 which was found distinguishable and thereafter following the decision in the case of Gee Vee Enterprises in 99 ITR 375 held that depreciation is allowable on goodwill also which is akin to the definition of assets as per sec 32(1)(ii) of the Act. Therefore, we have no hesitation in holding that the decision of the Tribunal in the case of assessee itself is liable to be followed. Accordingly, following the decision of the Tribunal in assessee's own case, we allow the deprecation on goodwill."
8. In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the consistent view of the Tribunal in assessee's own case (supra) hold that the assessee is entitled to depreciation on goodwill and accordingly the order passed by the ld. CIT(A) allowing the depreciation on goodwill does not call for any interference. The grounds taken by the Revenue are, therefore, rejected.
9. In the result, Revenue's appeal stands dismissed. Order pronounced in the open court on 29th Mar., 2012.
Sd sd
(N.K.BILLAIYA) (DINESH KUMAR AGARWAL)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, 29th March, 2012
SRL:
7 ITA No.4065/Mum/2011
(Assessment Year: 2006-07)
Copy to:
1. Appellant
2. Respondent
3. CIT Concerned
4. CIT(A) concerned
5. DR concerned Bench
6. Guard file.
BY ORDER
True copy
ASSTT. REGISTRAR,
ITAT, MUMBAI