Income Tax Appellate Tribunal - Bangalore
Hewlett Packard India Sales Pvt. Ltd., , ... vs Department Of Income Tax on 13 November, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER
AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER
ITA Nos.249 & 250/Bang/2010
Assessment years : 2000-01 & 2005-06
The Deputy Commissioner of
Income Tax, LTU,
Bangalore. : APPELLANT
Vs.
M/s. Hewlett Packard India Sales
Pvt. Ltd.,
(formerly Compaq Computers
India P. Ltd.),
No.24, Salapuria Arena,
Hosur Main Road,
Adugodi,
Bangalore - 560 030. : RESPONDENT
Appellant by : Smt. Swathi S. Patil, CIT-II(DR)
Respondent by : Shri K.P. Kumar, Advocate
ITA No.245 & 250/B/10
Page 2 of 10
ORDER
Per A. Mohan Alankamony, Accountant Member
These two appeals of the Revenue are directed against the orders of the CIT (A)-LTU, Bangalore, in ITA No: 14/DC (LTU)/CIT(A)-LTU/08-09 & in ITA No:
19/DC (LTU)/CIT(A)-LTU/08-09 dated: 13.11.2009 for the assessment years 2000-01 and 2005-06 respectively in the case of Hewlett Packard India Sales Private Limited, Bangalore.
2. The Revenue had raised twelve identical grounds for both the assessment years under challenge, in which, ground Nos: 1, 11 and 12 being general in nature and no specific issues involved, they have been treated as non- consequential. In the remaining grounds, the substance and crux of the issue was that -
"that the CIT (A)-LTU erred in allowing of depreciation on intangible assets" .
3. As the issues raised in these appeals being identical and common, both the appeals were heard, considered and disposed off, for the sake of convenience, in this common order.
A.Y. 2000-01:
4. Briefly stated, the assessee company [the assessee' in short] acquired Compaq Computers (India) Ltd., as a going concern [which had earlier acquired Digital Equipment (India) Limited] by paying a lump sum consideration of Rs.83 crores initially and Rs.83.99 crores subsequently, out of which, a sum of ITA No.245 & 250/B/10 Page 3 of 10 Rs.42.02 crores represented the value of fixed assets and the remaining Rs.41.96 crores represented the value of intangible assets. This issue had come up for consideration during the original assessment proceedings for the AY under dispute. The assessee had valued the goodwill out of intangible assets at Rs.5.68 crores and, thus, a sum of Rs.36.29 crores was fixed as the value of intangible assets. For having failed to clinch its claim of depreciation in its favour either with the assessing authority or with the first appellate authority, the assessee had changed its track and put up a valiant claim before the earlier Bench for allowing the same as revenue expenditure, perhaps, seeking shelter in the ruling of the Hon'ble Apex Court in the case of Empire Jute Co. Ltd. v. CIT (124 ITR 1(SC)].
4.1. While deciding the assessee's appeal with regard to the entitlement of depreciation on the part of the cost of acquisition of a business which represented the value of intangible assets of such acquired business, the earlier Bench [in ITA No: 576/B/2004 dt: 18.1.2005 & in MP Nos.59 & 63/Bang/05 dt: 27.7.2005] had remitted back the issue on the file of the AO with a direction to consider the assessee's claim in the light of the ruling of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT (124 ITR 1 (SC)].
4.2. For the appreciation of facts, we reproduce the operational portion of the direction of the Bench in its subsequent orders dt:27.7.2005:
"4.2. In respect of depreciation, we hold that the AO shall examine firstly the claim of the assessee towards payment of Rs.36.29 crores as revenue expenditure. If the same is held to be so, claim of depreciation fails. However, if it is held that the amount paid is capital in nature, the AO shall also examine whether any ITA No.245 & 250/B/10 Page 4 of 10 depreciation is allowable on such payment of Rs.36.29 crores. The order of the Tribunal as contained in para 5.3. is modified to the above extent."
4.3. While considering the assessee's claim as directed by the Bench, the AO had, after deliberating the issue in an exhaustive and illustrative manner coupled with various judicial pronouncements on the issue and also for the reasons recorded in his impugned order dated: 19.9.2008, held that "4.8.......... the assessee is not entitled to depreciation on the amount of Rs.36.29 crores being the value attributed to the intangible assets other than goodwill."
5. Aggrieved, the assessee took up the issue with the CIT (A)-LTU for relief. After duly analyzing (i) the lengthy contentions put forth by the assessee claiming that it was a revenue expenditure, depreciation on intangible assets etc., (ii) perusing the reasoning of the AO in turning down the assessee's request and (iii) extensively quoting the finding of the Hon'ble Tribunal on an identical issue in the case of Bosch Ltd. v. CIT (LTU) in ITA No:329/Bang/2009 dated: 31.8.2009, the Ld. CIT (A)-LTU had observed thus -
"3.7.(i) A perusal of the agreement dated 27.4.1999 entered into between the appellant company and M/s.Digital Equipment (India) Ltd. shows that the appellant had paid Rs.83 crores which was subsequently revised to Rs.83.99 crores for acquiring the business as a going concern on lock, stock and barrel basis together with goodwill. Further, the sabve consideration was in respect of both tangible and intangible assets of Rs.42,02,25,072/- and Rs.41,97,00,000/- respectively. The appellant also furnished copy of valuation certificate by a certified valuer to that effect. The intangible assets acquired by HPISPL considering the nature of patents, know-how, distribution rights etc., the value was arrived at by the valuer at Rs.41.97 crores. Accordingly, the appellant contended that such intangible assets were eligible for depreciation u/s 32(1)(iii) of the Act. The facts of the case relied upon cited supra are applicable to the facts of the instant case.
ITA No.245 & 250/B/10 Page 5 of 10 3.8.........................it is held that the appellant is entitled to depreciation on the payment of Rs.36.29 crores........."
6. Agitated, the Revenue in its present appeal before us argued that -
- the Ld. CIT (A) had failed to examine the facts of the case which were brought out in the ordering giving effect to the direction of the Tribunal;
- depreciation can be allowed only such intangible asset that was specified in s.32 and not on any other asset;
- the assessee had not acquired any asset like trademark, patent etc., specified in s.32(1)(ii) of the Act;
- the assessee had failed to identify the depreciable asset except loosely calling them as intangible assets and to sow the actual cost of such assets; that the value attributed to the intangible assets was only on an ad-hoc or estimate basis;
- that as per s.43(1), depreciation has to be allowed on the actual cost and not on the estimated value of the asset;
- that the intangible asset on which now depreciation has to be allowed include non-depreciable assets like the leasehold rights to occupy office space;
- relies on the decision of Hon'ble jurisdictional High Court in the case of CIT v. Mangalore Ganesh Beedi Works 266 ITR 142 (Kar) 6.1. On the other hand, the Ld. A R had reiterated more or less what was portrayed before the first appellate authority. To buttress his argument and also to drive home his point, the Ld. A R had placed strong reliance on the finding of the jurisdictional Tribunal in the case of Bosch Limited v. CIT (LTU) and pronouncements of various judiciaries on a similar issue.
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.
ITA No.245 & 250/B/10 Page 6 of 10 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, house- keeping 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 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).
ITA No.245 & 250/B/10 Page 7 of 10 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, know- how, 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 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 ITA No.245 & 250/B/10 Page 8 of 10 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 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.
A.Y.2005-06:
9. For this assessment year also, the AO took a view that since the assessee was unable to make individual identification of such assets, he disallowed the assessee's claim for depreciation of Rs.2.15 crores on the intangible assets, ITA No.245 & 250/B/10 Page 9 of 10 keeping in view his stand for the AY 2000-01 wherein he had disallowed the assessee's claim for depreciation on intangible assets while giving effect to the Tribunal's order cited supra.
10. When the assessee took up this issue with the Ld. CIT (A) for relief, the CIT (A)'s brief observation was that -
"3.6. I have carefully considered the appellant's submissions. In the appellate order passed by me in ITA No.14/DC(LTU)/CIT(A)LTU/08-09 dated: 13.11.2009 in the case of the same appellant for the assessment year 32000-01, I have held that the appellant is entitled to depreciation on intangible assets for detailed reasons given therein. For the same reasons, I hold that the appellant is entitled to depreciation of Rs.2,15,29,468/- u/s 32(1)(iii) of the Act on the intangible assets for the assessment year 2005-06 also."
11. Before us, it was claimed by the Revenue that the Ld. CIT (A) erred in allowing depreciation on intangible assets for this AY as well. It was, further, submitted that the submissions made for the AY 2000-01 hold good for this AY too.
12. At the outset, we would like to point out that as the issue raised for this AY is identical to that of the issue raised for the AY 2000-01 wherein, for the detailed reasons recorded supra, we have upheld the stand of the Ld. CIT (A). As such, our findings handed down for the AY 2000-01 hold good for this assessment year too as the issue is similar. It is ordered accordingly.
13. In the result, the Revenue's appeals for the assessment years 2000-01 and 2005-06 are dismissed.
ITA No.245 & 250/B/10 Page 10 of 10 Pronounced in the open court on this 25th day of February, 2011.
Sd/- Sd/-
( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY )
Judicial Member Accountant Member
Bangalore,
Dated, the 25th February, 2011.
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.