Areva T & D India Ltd., the tax payer, vide slump sale agreement acquired, as a going concern, the transmission and distribution business of ALSTOM Projects India Ltd., the transferor company, for a lump sum consideration.
Out of the total sale consideration an amount was attributed as being payment made for acquisition of various business and commercial rights categorized under the separate head, namely, "goodwill" in the books of account of the tax payer.
These business and commercial rights comprised of business claims, business information, business records, contracts, skilled employees and know-how.
The tax payer claimed depreciation on these intangible assets under section 32(1)(ii) of the Income Tax Act (“the Act”).
The Assessing Officer (“AO”), held that depreciation in terms of Section 32(1)(ii) of the Act was not, in law, available on goodwill. The CIT(A) and the ITAT approved the reasoning of the AO thereby holding disallowance of depreciation on the amount described as goodwill.
Issue before the Delhi High Court
Whether depreciation would be allowable on cost of acquisition of know-how, business contracts, business information, etc. acquired as a part of the slump sale and described as „goodwill‟?
Observations and Ruling of the Delhi High Court
On the principle of ejusdem generis, the business or commercial rights need not answer the description of “know-how, patents, trademarks, copyrights, licenses or franchises” but, must be of similar nature as the specified assets.
The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been additionally used, clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to be exhaustively enumerated.
All the six categories of assets, viz., know-how, patents, trademarks, copyrights, licenses or franchises, fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business.
Intangible assets, viz., business claims; business information; business records; contracts; employees; and know-how are all assets and akin to a license. These are invaluable and result in carrying on the transmission and distribution business by the tax payer, which was hitherto being carried out by the transferor, without any interruption.
Conclusion
The High Court held that depreciation was allowable on the intangible assets, viz., business claims, business information, skilled employees, etc., acquired under slump sale agreement though classified as “goodwill” in the books of account of the tax payer.
Source: Areva T & D India Ltd. and Jai Parabolic Spring Ltd. (TS-189-HC-2012)(DEL)
Out of the total sale consideration an amount was attributed as being payment made for acquisition of various business and commercial rights categorized under the separate head, namely, "goodwill" in the books of account of the tax payer.
These business and commercial rights comprised of business claims, business information, business records, contracts, skilled employees and know-how.
The tax payer claimed depreciation on these intangible assets under section 32(1)(ii) of the Income Tax Act (“the Act”).
The Assessing Officer (“AO”), held that depreciation in terms of Section 32(1)(ii) of the Act was not, in law, available on goodwill. The CIT(A) and the ITAT approved the reasoning of the AO thereby holding disallowance of depreciation on the amount described as goodwill.
Issue before the Delhi High Court
Whether depreciation would be allowable on cost of acquisition of know-how, business contracts, business information, etc. acquired as a part of the slump sale and described as „goodwill‟?
Observations and Ruling of the Delhi High Court
On the principle of ejusdem generis, the business or commercial rights need not answer the description of “know-how, patents, trademarks, copyrights, licenses or franchises” but, must be of similar nature as the specified assets.
The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been additionally used, clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to be exhaustively enumerated.
All the six categories of assets, viz., know-how, patents, trademarks, copyrights, licenses or franchises, fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business.
Intangible assets, viz., business claims; business information; business records; contracts; employees; and know-how are all assets and akin to a license. These are invaluable and result in carrying on the transmission and distribution business by the tax payer, which was hitherto being carried out by the transferor, without any interruption.
Conclusion
The High Court held that depreciation was allowable on the intangible assets, viz., business claims, business information, skilled employees, etc., acquired under slump sale agreement though classified as “goodwill” in the books of account of the tax payer.
Source: Areva T & D India Ltd. and Jai Parabolic Spring Ltd. (TS-189-HC-2012)(DEL)
1 comment:
I like looking at the data. Very informative actually.
llc
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