Income Tax Appellate Tribunal - Bangalore
M/S Hewlett Packard India Sales P. ... vs Department Of Income Tax on 21 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER
AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER
ITA No.617/Bang/2010
Assessment year : 2004-05
The Deputy Commissioner of Vs. M/s. Hewlett Packard India Sales
Income Tax, LTU, Pvt. Ltd., (formerly Compaq
Bangalore. Computers P. Ltd.,),
No.24, Salarpuria Arena,
Hosur Main Road, Adugodi,
Bangalore - 560 030.
PAN : AAACC 9862F
APPELLANT RESPONDENT
Appellant by : Shri S.K. Ambastha, CIT-I(DR)
Respondent by : Shri Pradhan Dass, C.A.
Date of hearing : 21.03.2012
Date of Pronouncement : 21.03.2012
ORDER
Per N.K. Saini, Accountant Member
This is an appeal by the department against the order dated 13.01.2010 of the CIT(Appeals), LTU, Bangalore.
2. Following effective grounds have been raised in this appeal:
"2. The learned CIT(A), LTU has not examined following facts of the case brought out in the order giving effect to the orders of ITAT for the assessment year 2000-01.ITA No.617/Bang/2010 Page 2 of 7
a. Depreciation can be allowed only on such intangible assets that are specified in section 32.
b. As noted in the order giving effect to the orders of ITAT, the assessee has not acquired any asset like patent, trademark etc, specified in section 32(1)(ii).
c. The assessee has failed to identify the depreciable assets except loosely calling them as intangible assets.
d. The value attributed to the intangible assets is only on an adhoc basis.
e. According to section 43(1), depreciation has to be allowed on the actual cost and not on the estimated cost of the asset.
f. The decision of the Hon'ble High Court of Karnataka in CIT Vs Mangalore Ganesh Beedi Works 266 TTR 142 is squarely applicable to this case.
g. The intangible assets on which depreciation has to be allowed on the basis of the orders of CIT(A) include assets like the leasehold rights to occupy office space.
3 Tax effect on the issue is Rs 12,26,40,984/-."
3. From the above grounds, it is noticed that the only grievance of the department relates to the depreciation on intangible assets.
4. The facts of the case in brief are that the assessee filed its return of income on 31.10.2004 declaring a total income of Rs.185,19,01,840. Subsequently a revised return was filed on 22.12.2005 declaring total income at Rs.1,90,26,55,700. The return was processed u/s. 143(1) of the Income-tax Act, 1961 [hereinafter referred to as "the Act" in short"]. Later on, the case was selected for scrutiny.
5. During the course of assessment proceedings, the AO disallowed a sum of Rs.2,87,05,957 claimed by the assessee as depreciation on intangible assets by observing in para 4 of the assessment order dated 29.12.06 as under:
ITA No.617/Bang/2010Page 3 of 7
"4. Depreciation on intangibles The depreciation on intangible assets amounting to Rs.2,87,05,957 was considered for disallowance. The assessee's claim on this issue for the asst. year 2000-01, decided in favour of the assessee by the ITAT is not accepted and the subject is in further appeal. As for now, the depreciation claim is disallowed. If it is decided by the Hon'ble Court, that the depreciation is to be allowed, this assessment will be modified accordingly."
6. The assessee carried the matter to the ld. CIT(A), who allowed the claim of the assessee by observing in para 4.3 of the impugned order as under:
"4.3 I have carefully considered the appellant's contentions. An identical issue was decided in favour of the appellant in my appellate order ITA No.14/DC(LTU)/CIT(A)LTU/08-09 dated 13/11/2009 and ITA No.19/DC(LTU)/CIT(A)LTU/08-09 dated 13/11/2009 for the assessment years 2000-01 and 2005-06 respectively. For the same reasons as mentioned in the said appellate orders, the appellant's claim for depreciation of Rs.2,87,05,947 on intangibles is allowed."
Now the department is in appeal.
7. During the course of hearing, the ld. counsel for the assessee at the very outset stated that this issue is squarely covered in favour of the assessee by the earlier order of the Tribunal dated 25.02.2011 in assessee's own case in ITA No.249 & 250/Bang/2010 for the A.Ys. 2000- 01 & 2005-06, copy of the said order was furnished.
8. In his rival submissions, the ld. CIT(DR) although supported the order of the AO, but could not controvert the aforesaid contention of the ld. counsel for the assessee.
9. After considering the submissions of both the parties and material on record, it is noticed that a similar issue having identical facts has been ITA No.617/Bang/2010 Page 4 of 7 decided in favour of the assessee in assessee's own case vide order dated 25.02.2011 by this Bench of the Tribunal in ITA No.249 & 250/Bang/2010 for the A.Ys 2000-01 & 2005-06 respectively. The relevant findings are given in paras 7 & 8 of the said order which read as under:
"7. We have duly considered the rival submissions, meticulously perused the relevant records and also the case laws on which the Ld. A R had placed his strong faith.
7.1. At the out set, we would like to point out that in an identical issue - confronting us now for adjudication - had cropped up before the earlier Bench in the case of Bosch Limited cited supra wherein the Hon'ble Bench, after exhaustively deliberating the issue and also taking cue from the finding of the Hon'ble Mumbai Bench (ITAT) in the case of Skyline Caterers Pvt. Ltd. v. ITO (2008) 20 SOT 266 (Mum.) (SMC), had observed thus -
"6.6. The finding of the Hon'ble ITAT, Mumbai Bench 'SMC' referred supra is directly applicable to the facts of the case on hand. Respectfully following the said decision, we are of the considered view that the assessee company is entitled to claim depreciation on 'business information' amounting to Rs.1.38 crores under the category of 'other identifiable intangibles (goodwill) which has been rightly claimed by the assessee......".
7.2. For appreciation of facts and for clarity, we are obliged to extract the finding of the Hon'ble Mumbai Bench in the case of Skyline Caterers (P) Ltd. v. ITO as under:
The assessee-company was engaged in the business of providing catering, housekeeping and allied services to a company HLL. Such catering business was earlier carried on by one 'R' under a catering contract with HLL for the last 30 years. The assessee entered into an agreement with 'R' for taking over the catering contract of 'R' with HLL against a consideration of Rs.27 lakhs. Out of the said sum, the assessee paid a sum of Rs.25 lakhs to 'R' as a consideration for acquiring all the rights under the catering contract between 'R' and HLL and balance sum of Rs.2 lakhs was paid to 'R' for not competing with the assessee. The assessee reflected the said amount in its balance sheet as goodwill and claimed depreciation thereon ITA No.617/Bang/2010 Page 5 of 7 treating the same as intangible assets as well commercial rights acquired by it. The AO held that the goodwill did not find place in s.32 as part of intangible assets which included only know-how, patents, copyrights, trade marks etc. He further held that the expression 'similar nature' in s.32(1)(ii) would not include the goodwill. Thus, depreciation was disallowed.
On appeal, the CIT(A) upheld the action of the AO on the ground that the entire payment of Rs.27 lakhs was paid to 'R' for not competing with the assessee which amounted to capital expenditure not covered by s.32(1)(ii).
On second appeal, it was held that - a combined reading of the agreement dt.16/8/00 entered into between the assessee and 'R' revealed that the assessee had paid the sum of Rs.25 lakhs for acquiring all the rights under the catering contract between 'R' and HLL as well as certain assets belonging to 'R'. On the other hand, Rs.2 lakhs had been paid on the ground that 'R' would not compete with the assessee in any business of catering at HLL Canteen. Therefore, CIT (A) was not justified in holding that the entire Rs.27 lakhs was paid to 'R' for not competing with the assessee. Rs.25 lakhs was made for acquiring all the rights under the catering contract between 'R' and HLL and for acquiring articles and paraphernalia belonging to 'R' which were lying in the canteen. Since the payment related to the acquisition of rights under the contract, it could not be said that payment was either on account of goodwill or on account of not to compete with the assessee. Further, merely because the assessee showed the said payment on account of goodwill in the books of account, no adverse inference could be drawn against the assessee.
A perusal of the provisions of s.32(1)(ii) shows that the Legislature has specified certain intangible assets on which depreciation can be claimed, namely, knowhow, patents, copyrights, trademarks, licences, franchises. These specific intangible assets are followed by the expression 'any other business of commercial rights of similar nature.' In such a situation, the rule of Ejusdem Generis would apply. The scope of the rule is that words of a general nature following specific and ITA No.617/Bang/2010 Page 6 of 7 particular words should be construed as limited to things which are of the same nature as those specified. The general words take the colour from the specific words. The specific words in the above section reveal the similarity in the sense that all the intangible assets specified are tools of the trade, which facilitate the assessee carrying on the business. Therefore, the expression 'any other business or commercial rights of similar nature' would include such rights which can be used as a tool to carry on the business. If this test was to be applied, then the rights acquired by the assessee under the catering contract between 'R' and HLL would fall within the expression mentioned above. Further, since catering business at HLL canteen could be carried on only with the help of such rights under the contract, the assessee would be entitled to depreciation."
7.3. Further, in the case of Hindustan Cocoa Cola Beverages Pvt.
Ltd. v. DCIT reported in 2009-TIOL-650-ITAT-DEL, the Hon'ble ITAT, Delhi C Bench has held that goodwill is not specifically excluded from the intangible assets eligible for depreciation. Even if an asset is described as goodwill but it fits in the description of section 32(1)(ii), depreciation is to be granted on the same. The true basis of depreciation allowance is the character of the asset and not its description." 7.4. We have also perused with respects the ruling of the Hon'ble jurisdictional High Court in the case of CIT v. Mangalore Ganesh Beedi Works reported in 264 ITR 142 on which the Revenue has placed its faith. With due respects, we would like to point out that the case law relied on by the Revenue is clearly distinguishable in the sense that -
The Hon'ble Court made a finding that the buyer did not have any of intangible assets of the nature as finding a place in s.35AB of the Act; that the only intangible asset of the seller was goodwill; that (as rightly observed by the Hon'ble Court) the purchaser was trying to bifurcate such goodwill into intangibles of the nature as mentioned in s.34AB of the Act; and that the valuer had not given cogent reasons for arriving at the value of the intangibles.
8. In an overall consideration of the facts and circumstances of the matter as deliberated upon in the preceding paragraphs and also in conformity with the finding of the earlier Bench in the case of Bosch Ltd. cited supra and more so the finding of ITA No.617/Bang/2010 Page 7 of 7 Mumbai Bench of Hon'ble ITAT in the case of Skyline Caterers (P ) Ltd v. ITO referred above, we are of the considered view that the Ld. CIT (A)-LTU was fully justified in holding a stand that the assessee was eligible for depreciation u/s 32(1)(ii) of the Act on the intangible assets. It is ordered accordingly."
10. So, respectfully following the aforesaid referred to order dated 25.02.2011 of this Bench of the Tribunal in assessee's own case, we do not see any merit in this appeal of the department.
11. In the result, the appeal is dismissed.
Pronounced in the open court on this 21st day of March, 2012.
Sd/- Sd/-
( GEORGE GEORGE K. ) ( N.K. SAINI )
Judicial Member Accountant Member
Bangalore,
Dated, the 21st March, 2012.
Ds/-
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Assistant Registrar
ITAT, Bangalore.