Texanlab Laboratories P.Ltd, Mumbai vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JM AND SHRI D. KARUNAKARA RAO, AM

आयकर अपील सं./I.T.A. No.7172 /Mum/2013 ( नधा रण वष / Assessment Year : 2008-09 आयकर अपील सं./I.T.A. No.7173 /Mum/2013 ( नधा रण वष / Assessment Year : 2009-10 Dy. Commissioner of बनाम/ M/s Texanlab Income Tax -10(3), Laboratories Pvt. Ltd., Vs. Room No. 451, 4 t h floor, R-855, Ist floor, Aayakar Bhavan, TTC Industrial Area, Maharshi Karve Road, Rabale, P.O. Mumbai - 20. Ghansoli, Navi Mumbai - 400 701.

थायी ले खा सं . /PAN : AABCT4229Q (अपीलाथ /Appellant) .. ( यथ / Respondent)

Appellant by Shri Neil Philip (D.R.) Respondent by Shri Vijay Mehta

ु वाई क तार ख / Date of Hearing सन : 06-05-2015 घोषणा क तार ख /Date of Pronouncement : 10-06-2015 [

आदे श / O R D E R PER VIJAY PAL RAO, J.M. :

These two appeals by the Revenue are directed against the order dated 4-09-2013 of ld. CIT(A)- 22, Mumbai pertaining to assessment years 2008-09 & 2009-10.

2. The Revenue has raised common grounds in these appeals.

3. The grounds raised by the Revenue for A.Y. 2008-09 are as under:-

2 ITA 7172 & 7173/M/13

"1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation on assets in "Slump sale" and ignoring the fact that in slump sale one or more undertaking are transferred as a result of sale for a lump sum consideration without assigning any value to individual asset and liabilities involved in such sale."

2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation on the skilled employees, know-how, business information, business claims etc. which do not have commercial rights."

3. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds-of appeal at any time before or at the time of hearing of appeal.

4. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored."

4. The only issue arises for our consideration and adjudication is the valuation assigned by the A.O. to the goodwill and consequently disallowed the depreciation but the ld. CIT(A) has reversed the addition made by the A.O.

5. Brief facts relevant to the issue under consideration as emerged from the record are that the assessee company has purchased three proprietary concerns namely (i) Texanlab (Thane), (ii) Texanlab (North) & (iii) Texanlab (South) from the respective proprietors by separate slump sale agreements by taking over the entire assets and liabilities. The three transferors had declared long term capital gain arising from the transaction. The assessee obtained valuation report and accordingly assigned value of Rs. 3.75 crores towards lab equipments, Rs. 8.17 crores to trademark and Rs. 2.23 crores to the goodwill. The assessee claimed depreciation on lab equipment and trademark during the year. However, no depreciation was claimed on goodwill. The A.O. held that valuation of trademark is not fair and reasonable and did not accept the value at Rs. 8.17 crores assigned to the trademark and consequently the said amount has been assigned by the A.O. to the goodwill and accordingly the claim of depreciation was disallowed to that extent. On 3 ITA 7172 & 7173/M/13

appeal, the ld. CIT(A) has allowed the claim of the assessee and reversed the finding of the A.O.

6. We have heard the ld. Counsel for the assessee as well as ld. D.R. and considered the relevant material placed on record. The A.O. has disallowed the claim of depreciation on trademark by assigning the said value to the goodwill. It is pertinent to note that the issue of depreciation on goodwill is now settled by the judgment of Hon'ble Supreme Court in the case of CIT vs. Smifs Securities Ltd. [2012] 348 ITR 302 (SC) wherein the Hon'ble Supreme Court vide para 9 to 14 held as under:-

"9 We quote hereinbelow Explanation 3 to section 32(1) of the Act:

"Explanation 3.-For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean-

(a) tangible assets, being buildings, machinery, plant or furniture;'

(b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature."

Explanation 3 states that the expression "asset", shall mean an intangible asset, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. A reading the words " any other business or commercial rights of similar nature" in clause (b) of Explanation 3 indicates that goodwill would fall under the expression any other business or commercial right of a similar nature. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b).

In the circumstances, we are of the view that "goodwill" is an asset under Explanation 3(b) to section 32(1) of the Act.

One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income-tax (Appeals) (the CIT(A)", for short) has come to the conclusion that the authorised representatives had filed copies of the orders of the High Court ordering amalgamation of the above two companies; that the assets and liabilities of MIs. YSN Shares and Securities P. Ltd. were transferred to the assessee for a 4 ITA 7172 & 7173/M/13

consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-company stood increased. This finding has also been upheld by the Income-tax Appellate Tribunal (the ITAT", for short). We see no reason to interfere with the factual finding.

One more aspect which needs to be mentioned is that, against the decision of the Income-tax Appellate Tribunal, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove.

For the aforestated reasons, we answer question No. (b) also in favour of the assessee."

7. A similar view has been taken by the Hon'ble Delhi High Court in the case of Areva T and D India Ltd. vs. DCIT [2012] 345 ITR 421 (Delhi). Thus in view of the judgment of the Hon'ble Supreme Court as well as Hon'ble Delhi High Court (supra), the reassignment value to trademark by treating the same as goodwill by the A.O. will have no revenue effect because the goodwill is also eligible for depreciation u/s 32(1) of the Act and therefore we do not find any reason to interfere with the impugned order of the ld. CIT(A) qua the assessee.

8. In the result, appeals filed by the Revenue are dismissed.

Order pronounced in the open court on 10th June, 2015.

आदे श क घोषणा खल ु े #यायालय म% &दनांकः 10-06-2015 को क गई ।

Sd/- sd/- (D. KARUNAKARA RAO) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; &दनांक Dated 10-06-2015 [ व.;न.स./ R.K. R.K , Sr. PS 5 ITA 7172 & 7173/M/13

आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. आयकर आयु<त(अपील) / The CIT(A) -22, Mumbai

4. आयकर आयु<त / CIT- 10 Mumbai

5. ?वभागीय ;त;नAध, आयकर अपील य अAधकरण, मुंबई / DR, ITAT, Mumbai E Bench

6. गाडE फाईल / Guard file.

ु ार/ BY ORDER, आदे शानस

स या?पत ;त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai