THE issue before the Bench is - Whether when the assessee acquires a running business of AMC which is the key income earning apparatus for the assessee, the AMCs are nothing but commercial rights to be categorised as 'business or commercial rights' for the purpose of Sec 32(1)(ii). And the answer is YES.
Facts of the case
The Assessee Company acquired the running business of M/s. ECE Industries Limited. The Assessee had acquired the “Elevator Division” business of ECE Industries Limited which comprised of marketing, selling, erection, installation, commissioning, service, repair, maintenance and
modernization including major repairs of products on slump basis. The Assessee had valued the business at Rs. 20,32,10,000, out of which the valuation for maintenance division of ECE Ltd. alone was worked out to the tune of Rs. 18,34,74,000 which was reflected under the transfer and undertaking agreement. The balance consideration i.e. out of the total consideration of Rs. 20,32,10,000 which was Rs.1,85,44,612/- was separately shown in the balance sheet and was treated to be "goodwill" pertaining to the business. It was this value of "goodwill" which was claimed by the assessee as eligible for depreciation for the first time directly before the Tribunal.
Having heard the parties, the Tribunal held that,
++ we find that, it was only in pursuance to the ruling by the Apex court in the case of Smifs Securities the assessee became aware of its rights to claim depreciation in terms of Sec. 32 on "goodwill of business" (which was separately indicated in the audited balance sheets of the Assessee for the year ending 31.03.2003 as put forth by the assessee) and moved an application for admission of additional grounds before us for the first time. Further, we agree with the submission of the counsel in this context inasmuch as that, this ground could not have been raised by the assessee at any of the earlier stages of filing of return of income/ assessment and much less during adjudication proceedings before AO or CIT(A) since, the law on the point under consideration was not crystallized and was open to different interpretations;
++ further, we observe that the value ascribed to "goodwill" was always part of the accounts of the Assessee in terms of audited balance sheets of the Assessee for the year ending 31.03.2003 and the same were part of the purchase consideration as could be seen from Article 3.1 of the said Agreement. Therefore, we are inclined to allow the application for additional ground as non- allowance could result in denial of justice;
++ on a perusal of the meaning of the categories of specific intangible assets referred to under Section 32(1)(ii) of the Act preceding the term "business or commercial rights of similar nature", it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. 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 exhaustively enumerate. In the circumstances, the nature of "business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of "business or commercial rights" can be of the same genus in which all of the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of business. In the circumstances, it is observed that in case of the assessee, certain annual maintenance contracts ("AMC"), which constituted the whole and sole of the "maintenance division" business of the transferor and which was hitherto being carried out by the transferor, without any interruption were transferred under the said undertaking and sale agreement. The aforesaid intangible assets are, therefore, comparable to a license to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by create new/ fresh business rights; the assessee got an up and running business. Since in the present case "AMC's constitutes the very basic income earning apparatus for the assessee, the same should fall within the purview of Section 32(1)(ii) of the Act;
++ further, as regards "maintenance portfolio" purchased by the assessee by way of "slump-sale" arrangement, it is pertinent to note that the same constitutes the basic income earning apparatus of the Assessee and cannot be vitiated or watered down by certain residual conditionalities inasmuch as continuance of certain govt. contracts with the ECE Division etc. in the slump-sale arrangement since, the same would lapse once the contract term under respective maintenance contracts are concluded. Secondly, it would be prudent to state that these "AMCs" in terms of value only comes next to the value of fixed assets;
++ we find force in the argument of the counsel that since said "AMCs" are commercial rights and the same should rightly be categorized as "business or commercial rights" for the purposes of Section 32(1)(ii) of the Act. Thus, by applying the principle of ejusdem generis we hold that in the facts and circumstances of this case, such "AMCs" should get covered within the expression "business or commercial rights of similar nature" specified under Section 32(1)(ii) of the Act and accordingly eligible for depreciation.
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