GLOBAL INFORMATION SERVICES LTD ( ERSTWHILE TATA AIG RISK MANAGMENT SERVICES LTD), MUMBAI v. DCIT RG 8(1), MUMBAI

ITA 3290/MUM/2010 | 2005-2006
Pronouncement Date: 29-07-2011 | Result: Allowed

Appeal Details

RSA Number 329019914 RSA 2010
Assessee PAN AAACT5800A
Bench Mumbai
Appeal Number ITA 3290/MUM/2010
Duration Of Justice 1 year(s) 3 month(s) 1 day(s)
Appellant GLOBAL INFORMATION SERVICES LTD ( ERSTWHILE TATA AIG RISK MANAGMENT SERVICES LTD), MUMBAI
Respondent DCIT RG 8(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 29-07-2011
Date Of Final Hearing 12-07-2011
Next Hearing Date 12-07-2011
Assessment Year 2005-2006
Appeal Filed On 27-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI (AM) J. SUDHAKAR REDDY AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 3290/MUM/2010 ASSESSMENT YEAR-2005-06 M/S. GLOBAL INFORMATION SERVICES LTD. (ERSTWHILE TATA AIG RISK MANAGEMENT SERVICES LTD. ) A0501 5 TH FLOOR BLDG. NO. 4 INFINITY PARK GEN. A.K. VAIDYA MARG DINDOSHI MALAD (E) MUMBAI-400 097 PAN- AAACT5800A VS. THE DY. CIT RANGE 8(1) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI BRIJ MOHAN AGARWAL RESPONDENT BY: SHRI A.K. NAYAK O R D E R DATE OF HEARING : 12.7.2011 DATE OF PRONOUNCEMENT : 29 TH JULY 2011 PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 17.2.2010 PASSED BY THE LD. CIT(A)-16 FOR THE ASSESSMENT YEAR 2005-06. 2. THERE A DELAY OF 5 DAYS IN FILING THE APPEAL. T HE ASSESSEES REQUEST FOR CONDONATION OF DELAY IS ACCEPTED AND THE DELAY IS CONDONED. 3. THE ASSESSEE COMPANY IS ENGAGED IN PROVIDING CON SULTANCY IN THE FIELD OF RISK MANAGEMENT SAFETY INSURANCE SURVEY S AND ENVIRONMENT RELATED MATTERS AS IN THE EARLIER YEARS. DUE TO BU SINESS COMPULSIONS THE ITA NO. 4745/M/2011 2 APPELLANT HAD TO DIVERT ITS BUSINESS FROM RISK RELA TED AREAS TO INFORMATION SYSTEMS RELATED AREAS AND HENCE ACCORDINGLY THE CAP ITAL WAS INCREASED AND EVEN THE OBJECTS WERE AMENDED ACCORDINGLY. HOW EVER DURING THE YEAR THE BUSINESS ACTIVITIES WERE CONTINUED TO MEET THE EXISTING ONGOING CONTRACTUAL OBLIGATIONS. THE BUSINESS INFRASTRUCTU RE AND OTHER RELATED ACTIVITIES WERE CONTINUED TO KEEP IN READINESS THE BUSINESS INFRASTRUCTURE TO ENABLE THE COMPANY TO CARRY ON ITS BUSINESS THOU GH DURING THE YEAR DUE TO A SUDDEN SLACK IN THE BUSINESS THE BUSINESS ACTIVITIES WERE CARRIED OUT AT A VERY LOW KEY. THE ASSESSING OFFICE R HAS HELD THAT THE BUSINESS ACTIVITIES WERE CLOSED DOWN AND HAS ACCORD INGLY DISALLOWED EXPENSES EARNED IN CONTINUING THE BUSINESS ACTIVITI ES OF THE ASSESSEE. THE SURPLUS FUNDS IN THE BUSINESS WERE ACCORDING TO THE ASSESSEE GAINFULLY EMPLOYED TO MAXIMIZE THE RETURNS FOR THE TIME BEING AND SUCH INTEREST EARNED ON THE SURPLUS FUNDS IN THE COURSE OF BUSINESS WAS ACCORDINGLY SHOWN AS BUSINESS INCOME. THE AO HAS ASSESSED THE INCOME AS INCOME FROM OTHER SOURCES. FURTHER INCOM E RECEIVED FROM PROFESSIONAL FEES RECEIVED BY THE APPELLANT DURING THE ASSESSMENT YEAR HAS ALSO BEEN TAXED AS INCOME FROM OTHER SOURCES. THE AO HAS ALSO DISALLOWED THE DEPRECIATION CLAIMED BY THE APPELLAN T COMPANY ON THE GOODWILL. 4. BEFORE THE LD. CIT(A) THE AR OF THE ASSESSEE SU BMITTED AS FOLLOWS: THE AO DISALLOWED THE FOLLOWING EXPENSES INCURRED BY THE COMPANY ON THE GROUND THAT NO BUSINESS WAS ACTUALLY CARRIED OUT BY THE APPELLANT IN THE YEAR UNDER APPEAL. TRAVELLING EXPENSES RS. 24 453 PROFESSIONAL FEES RS.13 79 312 MAINTENANCE RS. 23 595 MISC EXPENSES RS. 40 868 COMPENSATION UNDER VRS RS. 5 64 413 THE APPELLANT COMPANY IS IN THE BUSINESS OF RISK MA NAGEMENT SAFETY INSURANCE SURVEY AND ENVIRONMENTAL RELATED MATTERS AS IN THE EARLIER YEARS. DUE TO BUSINESS COMPULSIONS THE APPELLANT ITA NO. 4745/M/2011 3 COMPANY HAD TO DIVERT ITS BUSINESS FROM RISK RELATE D AREAS TO INFORMATION SYSTEMS RELATED AREAS AND HENCE ACCORDI NGLY THE CAPITAL WAS INCREASED AND EVEN OBJECTS WERE AMENDED ACCORD INGLY. HOWEVER DURING THE YEAR THE BUSINESS ACTIVITIES WE RE CONTINUED TO MEET THE EXISTING ON GOING CONTRACTUAL OBLIGATIONS. THE BUSINESS INFRASTRUCTURE AND OTHER RELATED ACTIVITIES WERE CO NTINUED TO KEEP IN READINESS THE BUSINESS INFRASTRUCTURE TO ENABLE THE COMPANY TO CARRY ON ITS BUSINESS THOUGH DURING THE YEAR DUE TO A SUDDEN SLACK IN THE BUSINESS THE BUSINESS ACTIVITIES WERE CARRI ED OUT AT A VERY LOW KEY. HOWEVER IN CASE OF ITO VS MOKUL FINANCE PVT. LTD. (2007) 110 TTJ 445 (DEL) 9BCAJ) DURING THE RELEVANT ASSESS MENT YEAR THE COMPANY HAD INCOME ONLY FROM INTEREST AND DIVIDEND AND NO BUSINESS ACTIVITY WAS CARRIED ON. THE AO DISALLOWE D THE LOSS CLAIMED BY THE ASSESSEE HOLDING THAT SINCE THERE W AS NO BUSINESS ACTIVITY DURING THE YEAR NO EXPENSES COULD BE ALLO WED. THE CIT(A) HOWEVER ALLOWED THE ASSESSEES CLAIM OF LOSS. THE TRIBUNAL RELYING ON THE DECISIONS IN THE FOLLOWING CASES ALLOWED THE ASSESSEES CLAIM: A) CIT VS GANGE PROPERTIES LTD. (1993) 199 ITR 94 (CAL ) B) NAKODAR BUS SERVICES PVT. LTD. VS CIT (1990) 85 CTR (P&H) C) CIT VS RAMPUR TIMBERY & TUREY CO. LTD. (1981) 21 CT R D) L.LVE. VAIRAVAN CHETTIAR VS CIT (1969) 72 ITR 114 ( MAD) 5. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT THE ORDER OF THE AO AND BRIEF FACTS OF THE CASE THAT THE APPE LLANT WAS ENGAGED IN THE BUSINESS OF INSURANCE OF RISK MANAGE MENT SAFETY SURVEYS AND ENVIRONMENT. IT WAS ADMITTED BY THE APPELLANT COMPANY THAT THIS BUSINESS WAS CLOSED DUR ING OCTOBER 2002 BECAUSE ALL EMPLOYEES LEFT THE ORGANI ZATION. AFTER THAT THE APPELLANT HAS STARTED THE NEW BUSINE SS OF CALL CENTRE AND BUSINESS PROCESS OUTSOURCING. THE AO HA S HELD THAT IN THE YEAR UNDER CONSIDERATION NOT EVEN A SIN GLE EMPLOYEE WAS WORKING IN THE COMPANY TO LOOK AFTER T HE OLD BUSINESS. THE NEW BUSINESS OF CALL CENTRE WAS STAR TED AND IN THE YEAR UNDER CONSIDERATION THE APPELLANT HAS CLA IMED BUSINESS EXPENDITURE RELATING TO THE OLD BUSINESS W HICH WAS DISALLOWED BY THE AO BY HOLDING THAT THE BUSINESS O F THE COMPANY WAS CLOSED IN OCTOBER 2002. THE INCOME OF THE NEW BUSINESS RELATING TO INTEREST RECEIVED WAS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES THEREFORE THE EXPE NDITURE DEBITED TO P&L A/C WAS DISALLOWED. BEFORE ME THE APPELLANT HAS ARGUED THAT THE BUSINESS ACTIVITIES WERE CONTIN UED TO ITA NO. 4745/M/2011 4 MEET THE EXISTING ONGOING CONTRACTUAL OBLIGATIONS. BUT NO EVIDENCE WAS SUBMITTED BEFORE ME TO SUBSTANTIATE IT S CLAIM. THE APPELLANT ALSO RELIED ON THE DECISION OF THE HO NBLE COURT TO STRENGTHEN HIS VIEW. SINCE THE FACTS OF THIS CA SE IS DIFFERENT BECAUSE THE BUSINESS WAS CLOSED IN OCTOBER 2002 WH ICH IS AN ADMITTED FACT AND THE APPELLANT HAS FAILED TO FI LE ANY EVIDENCE TO PROVE THAT BUSINESS ACTIVITIES WERE CON TINUED TO MEET THE EXISTING ONGOING CONTRACTUAL OBLIGATIONS. THEREFORE THE DECISIONS RELYING UPON BY THE APPELLANT ARE NOT HELPFUL TO HIM. IN THE PRESENT CASE THE APPELLANT HIMSELF AD MITTED THAT NEW BUSINESS OF CALL CENTRE WAS STARTED AND THE INC OME EARNED FROM INTEREST WAS ASSESSED UNDER THE HEAD IN COME FROM OTHER SOURCES. THEREFORE THE EXPENSES INCURR ED AND DEBITED TO THE P&L A/C ARE NOT ALLOWABLE AGAINST TH E NEW BUSINESS EVEN THE NAME OF THE COMPANY WAS CHANGED AS GLOBAL INFORMATION SERVICES LTD. KEEPING IN VIEW ALL THESE FACTS AND CIRCUMSTANCES THE DISALLOWANCE MADE BY THE AO IS UPHELD AND GROUND OF APPEAL IS DISMISSED. 6. AGGRIEVED ASSESSEE IS IN APPEAL BEFORE US AND H AS RAISED THE FIRST TWO GROUNDS AS FOLLOWS: 1. THE LD. AO (DY. CIT 8(1) HAS ERRED IN ARBITRAR ILY DISALLOWING SOME EXPENSES INCURRED IN THE COURSE OF BUSINESS SO AS TO MAINTAIN THE BUSINESS APPARATUS O F THE APPELLANT COMPANY AND FURTHER THE CIT(A)-16 HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO . 2. THE AO HAS ERRED IN TAXING THE INCOME ON INVESTM ENTS MADE OUT OF TEMPORARY SURPLUS BUSINESS FUNDS OF THE APPELLANT COMPANY AS INCOME FROM OTHER SOURCES INSTEAD OF AS BUSINESS INCOME AND FURTHER THE LD. CIT(A)-16 HAS ERRED IN CONFIRMING THE WRONGFUL ACTI ON OF THE AO. 7. WE HEARD BOTH THE PARTIES. WITH RESPECT TO TRAV ELLING EXPENSES PROFESSIONAL FEES MAINTENANCE AND MISCELLANEOUS EX PENSES THE LD. CIT(A) HAS CONFIRMED THE ORDER OF THE AO ON THE GRO UND THAT THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR AND NO EXPENSE CAN BE ALLOWED. ITA NO. 4745/M/2011 5 8. WE FIND THAT DUE TO BUSINESS COMPULSION THE ASS ESSEE COMPANY HAD TO DIVERT ITS BUSINESS FROM RISK RELATED AREAS TO INFORMATION SYSTEMS RELATED AREA AND HENCE THE CAPITAL WAS INCREASED AN D EVEN THE OBJECTS WERE AMENDED ACCORDINGLY. HOWEVER DURING THE YEAR THE BUSINESS ACTIVITIES WERE CONTINUED TO MEET THE EXISTING ONGO ING CONTRACTUAL OBLIGATIONS. THE INFRASTRUCTURE AND OTHER RELATED ACTIVITIES WERE CONTINUED TO CARRY ON THE BUSINESS THOUGH THE BUSIN ESS ACTIVITIES WERE CARRIED OUT AT VERY LOW KEY. 9. THE LD. DEPARTMENTAL REPRESENTATIVE POINTED OUT AT PAGE 55 OF THE PAPER BOOK WHICH CONTAINS THE TERMS OF PAYMENT AND POINTED OUT ONLY CLAUSE (E) WHICH IS 20% ON OBTAINING ENVIRONMENTAL CLEARANCE FROM MOEF HAD NOT BEEN COMPLETED. HENCE THE DR OBJECTED TO THE STATEMENT OF THE ASSESSEE THAT THE BILLS WERE NOT RAISED BECA USE THEY HAD NOT REACHED THE BILLABLE STAGE WHEN ONLY A SMALL PERCEN TAGE OF WORK WAS TO BE COMPLETED. HE FURTHER POINTED OUT THAT PARTIES TO WHOM FEE INCOME STATED TO HAVE BEEN RECEIVED ARE TATA GROUP COMPANI ES WHICH ARE CLOSELY CONNECTED TO THE ASSESSEE. 10. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND STATED THAT THE BUSINESS ACTIVITIES WERE CONTINUED TO MEET THE EXIS TING ONGOING CONTRACTUAL OBLIGATIONS AND IT IS NOT RELEVANT THAT THE PARTIES ARE CLOSELY CONNECTED OR NOT. THE SHORT POINT FOR CONSIDERATIO N IS WHETHER THE BUSINESS HAS TO BE TAKEN AS CLOSED DOWN OR TO BE CO NTINUING IN A SLACK MANNER AT A LOW KEY FOR FULFILLING THE EXISTING CON TRACTUAL OBLIGATIONS. AS HELD BY THE MADRAS HIGH COURT IN THE CASE OF VAIRA VAN CHETTIAR VS CIT 72 ITR 114 WHEREIN IT HAS BEEN HELD AS FOLLOWS: THE QUESTION WHETHER A BUSINESS WAS BEING CARRIED ON OR DISCONTINUED MUST DEPEND IN EACH CASE ON ITS OWN FA CTS. IT IS NOT NECESSARY THAT BUSINESS TO BE IN EXISTENCE SHOULD H AVE WORK ALL THE ITA NO. 4745/M/2011 6 TIME. THERE MAY BE LONG INTERVALS OF INACTIVITY AND A CONCERN MAY STILL BE A GOING CONCERN THOUGH IT MAY FOR SOME TIM E BE QUIET AND DORMANT. THEREFORE LULL IN BUSINESS WOULD NOT AMOUNT TO CLOS URE. THE INCOME EARNED FROM INTEREST FROM ITS SURPLUS FUNDS IS TO BE TREATED AS BUSINESS INCOME AND THE EXPENSES INCURRED SHOULD BE ALLOWED AGAINST THE TAXABLE INCOME EARNED BY THE ASSESSEE. 11. THE CORRECTED 3 RD GROUND RAISED BY THE REVENUE READS AS FOLLOWS: THE LD. AO HAS ERRED IN TAXING THE INTEREST RECEIVED IN THE COURSE OF BUSINESS OF THE APPELLANT COMPANY AS INCO ME FROM OTHER SOURCES OF THE APPELLANT COMPANY TREATING AS OTHER INCOME. 12. THE AO HAS ASSESSEE THIS INCOME FROM OTHER SOU RCES AS THERE WERE NO BUSINESS ACTIVITIES AND BUSINESS OF THE COMPANY WAS OF CALL CENTRE. THE AO RELIED ON VARIOUS DECISIONS AS FOLLOWS: 1) CIT VS PANDIAN CHEMICAL LTD. 233 ITR 497 (SC) 2) CIT VS STERLING FOODS 237 ITR 579 (SC) 13. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED AS UNDER: BEFORE ME THE APPELLANT HAS SUBMITTED AS UNDER :- THE APPELLANT COMPANY HAD SHOWN INTEREST INCOME OF RS.13 75 549/- (RS.12 32 839/- BEING INTEREST ON IN TER CORPORATE DEPOSITS AND RS.1 42 710/- BEING INTEREST OTHERS) . IT WAS EXPLAINED TO THE ASSESSING OFFICER THAT DUE TO THE BUSINESS C IRCUMSTANCES THE BUSINESS OF THE APPELLANT COMPANY SUFFERED A SET BA CK AND THE BUSINESS ACTIVITIES WERE DONE AT A VERY LOW KEY. HE NCE THE SURPLUS FUNDS IN THE BUSINESS WERE GAINFULLY EMPLOYED TO MA XIMIZE THE ITA NO. 4745/M/2011 7 RETURNS FOR THE TIME BEING AND WHERE ON THE INTERES T WAS EARNED AND SUCH INTEREST HAVE BEEN EARNED IN THE COURSE OF BUS INESS WAS ACCORDINGLY SHOWN AS BUSINESS INCOME. IT WAS HELD I N THE FOLLOWING CASE LAWS: A) JIDAL VIJAYAGAT STEEL LTD. VS. ACIT A.Y> 1995-96 8 7 ITD 630 [BCAJ]-INTEREST INCOME IS TREATED AS BUSINESS INCOM E DURING PRE- COMMENCEMENT OF STEEL PROJECT. B) SUJAY TRADING (P) LTD. VS. JT. COMMISSIONER OF INCO ME TAX ST-30 MUMBAI ITAT BENCH G- THIRD MEMBER INTEREST INCOME AS ITS BUSINESS INCOME. THE ASSESSING OFFICER IGNORING THESE FACTS HOWEVER HAS TREATED THIS INCOME AS INCOME FROM OTHER SOURCES WHICH IS WRONG AND NEEDS TO BE CORRECTLY TREATED AS INCOME FROM BUSINESS. 14. THE LD. CIT(A) HELD THAT SINCE THE BUSINESS OF THE ASSESSEE IS OF CALL CENTRE AND BPO THEREFORE THE INTEREST EARNED ON SURPLUS AMOUNT CANNOT BE ASSESSED UNDER THE HEAD INCOME FROM BUSIN ESS INCOME AS IT IS HELD IN THE CASE OF CIT VS PANDIAN CHEMICAL LTD. & CIT VS STERLING FOODS BY THE HONBLE SUPREME COURT . KEEPING IN V IEW ALL THESE FACTS AND CIRCUMSTANCES THE LD. CIT(A) INCLINED TO AGREE WITH THE DECISION OF THE AO AND THE ACTION IS UPHELD. 15. THE LD. CIT(A) CONFIRMED THE ORDER OF THE AO. 16. WE HEARD BOTH THE PARTIES. WE FIND THAT THE AS SESSEE HAS EARNED INTEREST OF 12 32 839/- ON INTER CORPORATE DEPOSITS AND RS. 1 42 710/- AS INTEREST FROM OTHER INVESTMENTS. THE SURPLUS FUNDS FROM THE BUSINESS HAD TO BE EMPLOYED IN THE COURSE OF BUSINESS FOR MA XIMIZING THE INCOME AS THE ASSESSEE HAS ALREADY IN TRANSITION FROM ONE BUSINESS TO ANOTHER. THEREFORE WE ARE OF THE VIEW THAT THE INTEREST INC OME IS TO BE TREATED AS ITA NO. 4745/M/2011 8 BUSINESS INCOME RELYING ON THE DECISION IN THE CASE OF SUJAY TRADING (P) LTD. VS JCIT MUMBAI ITAT BENCH G-THIRD MEMBER. 17. THE 4 TH GROUND RELATES TO COMPENSATION UNDER VRS FOR THE ASSESSMENT YEAR 2002-03 AND 2003-04 ETC. 1/5 TH EXPENDITURE HAS BEEN ALLOWED U/S. 35DDA AND HENCE THE SAME IS TO BE ALLO WED FOR THIS YEAR ALSO. THEREFORE GROUND NO. 4 RAISED BY THE ASSESSEE IS ALLOWED. 18. GROUND NO. 5 RAISED BY THE ASSESSEE READS AS FO LLOWS: THE LD. AO HAS ERRED NOT CONSIDERING AND GIVING EF FECT TO THE CARRIED FORWARD LOSSES AND DEPRECIATION OF THE APPE LLANT PERTAINING TO THE EARLIER ASSESSMENT YEARS. 19. THERE IS NO FINDING BEFORE THE AO AND LD. CIT(A ). HOWEVER THE ISSUE IS CONSEQUENTIAL AND TO BE ALLOWED FOLLOWING THE DECISION IN GROUND NOS. 1 TO 3. 20. GROUND NO. 6 RAISED BY THE ASSESSEE READS AS FO LLOWS: THE LD. AO HAS WRONGFULLY DISALLOWED DEPRECIATION CLAIMED BY THE APPELLANT COMPANY ON GOODWILL AND FURTHER TH E LD. CIT(A) HAS ERRED IN CONFIRMING THE WRONGFUL DISALLO WANCE MADE BY THE AO. 21. THE FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE HAD PURCHASED INSURANCE BUSINESS FROM A TATA SONS LTD. A TATA GROUP COMPANY AND PAID GOODWILL T O THEM. THE GOODWILL AMOUNT HAS BEEN WRITTEN OFF DURING A.Y . 2005- 06 AND AS ON 31.3.2005 THERE IS NO GOODWILL SEEN I N THE BALANCE-SHEET. SR. NOS. 7&8 TO THE NOTES TO THE A CCOUNTS READS AS UNDER: 7. DURING THE YEAR THE COMPANY HAS REVISED ITS ESTIMATES OF THE USEFUL LIFE FOR GOODWILLL AND CHA RGED OFF THE ENTIRE CARRYING VALUE TO THE PROFIT AND LOS S ITA NO. 4745/M/2011 9 ACCOUNT. CONSEQUENTLY LOOSE FOR THE YEAR IS HIGHE R BY RS. 31 08 806/-. 8. THE COMPANY HAS PASSED A SPECIAL RESOLUTION IN THE EXTRA ORDINARY GENERAL MEETING HELD ON 14 JANUA RY 2005 WHEREBY THE NAME OF THE COMPANY HAS BEEN CHANGED FROM TATA AIG RISK MANAGEMENT SERVICES LTD. TO GLOBAL INFORMATION SERVICES LTD. FOR WHICH THE NECESSARY APPROVAL FROM REGISTRAR OF COMPANIES MUMBAI HAS BEEN OBTAINED AS EARLIER STATED THE INSURANCE BUSINESS OF THE AS SESSEE WAS CLOSED DOWN ON OR ABOUT 20 TH OCTOBER 2002. THEREAFTER THE ASSESSEE HAS BEEN DOING CALL CENTRE AND MANAGEMENT BUSINESS AND IT WAS FOR THIS REASON THAT THE GOODWI LL PURCHASED FROM TATA SONS LOST ITS VALUE TO ZERO. IT IS THE REAL REASON OF WRITING OFF THE GOODWILL FROM THE BO OKS. DEPRECIATION IS ALLOWED ONLY ON THE ASSETS EXISTING ON THE LAST DAY OF THE PREVIOUS YEAR. IN THIS CASE THE G OODWILL IS NOT EXISTING ON THE LAST DAY OF THE PREVIOUS YEAR HENC E IT IS NOT ELIGIBLE FOR DEPRECIATION AND THE SAME IS REJECTED. IT MAY FURTHER BE SAID THAT THERE IS NO ASSET IN THE BOOKS AS ON 31.3.2005. 22. BEFORE THE LD. CIT(A) THE LD. AR SUBMITTED AS FOLLOWS: THE AO HAS WRONGFULLY DISALLOWED THE DEPRECIATION CLAIMED BY THE APPELLANT COMPANY ON THE GOODWILL. THE APPE LLANT COMPANY REVISED ITS ESTIMATES OF THE USEFUL LIFE FOR GOODWI LL AND CHARGED OFF THE ENTIRE CARRYING VALUE TO THE PROFIT AND LOSS AC COUNT IN THIS PREVIOUS YEAR. EARLIER GOODWILL WAS AMORTISED EQU ALLY OVER A PERIOD OF 10 YEARS AS PER ITS ACCOUNTING POLICY. H OWEVER THIS GOODWILL WAS NEITHER SOLD NOR DISCARDED AND HENCE F OR INCOME TAX PURPOSES SINCE THE INTANGIBLE ASSET WAS AVAILABLE I N BLOCK OF ASSETS THE DEPRECIATION ON GOODWILL WAS RIGHTLY CLAIMED. THE AO ONLY FOR THE REASON IT WAS WRITTEN OFF IN THE BOOKS DUE TO A CCOUNTING EXIGENCIES HAS DISALLOWED THE CLAIM OF DEPRECIATION ON GOODWILL. IN THIS REGARD WE WOULD LIKE TO DRAW YOUR HONOURS ATTENTION THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS YAMAHA MOTOR INDIA PVT. LTD. WHEREIN IT WAS HELD THAT: THE EXPRESSION USED FOR THE PURPOSE OF THE BUSINE SS AS FOUND IN SEC. 32 OF I.T. ACT 1961 WHEN USED WIT H ITA NO. 4745/M/2011 10 RESPECT TO DISCARDED MACHINERY WOULD MEAN THAT THE USER IN THE BUSINESS IS NOT IN THE RELEVANT FINANCI AL YEAR/PREVIOUS YEAR BUT IN THE EARLIER FINANCIAL YEA RS THUS THE DISCARDED MACHINERY MAY NOT BE ACTUALLY USED IN THE RELEVANT PREVIOUS YEAR AS LONG AS IT IS USED FOR THE PURPOSES OF BUSINESS IN THE EARLIER YEARS THE ASSESSEE CAN CLAIM THE BENEFIT OF DEPRECIATION THER EON. ATTENTION IS ALSO DRAWN TO THE DECISION IN THE CASE OF NATCO EXPORTS VS CIT A.Y. 1997-98 AND 1998-99 (86 ITD 44 5)(BCAJ) 23. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT THE ORDER OF THE AO AND FACTS OF THE CASE THAT THE APPELLANT HAS MADE PAYMENT TO TATA COMPANY FOR RECEIVING GOODWILL FROM WHOM THE COMPANY HAS PURCHASED ITS BUSINESS OF INSURANCE. L ATER ON IN OCTOBER 2002 THE BUSINESS OF INSURANCE WAS CLOSED AND THE COMPANY HAS STARTED A NEW BUSINESS OF CALL CENTRE A ND BPO. DURING THE YEAR UNDER CONSIDERATION NO BUSINESS AC TIVITIES WERE CARRIED OUT RELATING TO OLD BUSINESS OF INSURANCE B UT THE APPELLANT HAS WRITTEN OFF THE GOODWILL IN THE YEAR UNDER CONS IDERATION AND ALSO CLAIM DEPRECIATION ON THE GOODWILL. AS PER THE FAC TS OF THE CASE THE GOODWILL WAS PURCHASED FOR THE INSURANCE BUSINESS O F THE COMPANY WHICH WAS CLOSED IN THE OCTOBER 2002. IN THE YEAR UNDER CONSIDERATION NO BUSINESS ACTIVITIES RELATING TO I NSURANCE CARRIED OUT AND ALL THE EXPENSE RELATING TO OLD BUSINESS DISALL OWED BY THE AO BECAUSE THE APPELLANT HAS FAILED TO PRODUCE ANY EVI DENCE TO PROVE THAT THE BUSINESS OF INSURANCE WAS CONTINUED IN YEA R UNDER CONSIDERATION. SINCE THE OLD BUSINESS WAS SOLD TO THREE YEARS BEFORE THE COMPANY HAS STARTED NEW BUSINESS OF CALL CENTRE THEREFORE THE EXPENSES INCURRED FOR THE OLD BUSINESS ARE NOT ALLO WABLE IN THE YEAR UNDER CONSIDERATION. SECONDLY THE GOODWILL NOT A DEPRECIABLE ASSETS BEING INTANGIBLE IN NATURE THEREFORE DEPREC IATION IS NOT ALLOWABLE ON IT. KEEPING IN VIEW ALL THESE FACTS A ND CIRCUMSTANCES THE DISALLOWANCE MADE BY THE AO IS CONFIRMED AND GR OUND OF APPEAL IS DISMISSED. 24. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE ARGUMENTS PUT FORTH BEFORE THE LOWER AUTHORITIES AND RELIED ON TH E DECISION IN THE CASE OF RAVINDRAN PILLAI VS CIT ( 194 TAXMAN 477) WHEREIN I T HAS BEEN HELD AS FOLLOWS: ITA NO. 4745/M/2011 11 WHEN THE GOODWILL PAID IS FOR ENSURING RETENTION A ND CONTINUED BUSINESS IN THE HOSPITAL IT IS CERTAINLY FOR ACQUI RING A BUSINESS AND COMMERCIAL RIGHTS AND IT IS CERTAINLY COMPARABLE WI TH TRADE MARKS FRANCHISE COPY WRITE ETC. REFERRED TO IN FIRST PAR T OF SUB-CLAUSE (II) OF SEC. 32(1) AND SO MUCH SO GOODWILL IS COVERED BY THE AB OVE PROVISIONS OF ACT ENTITLING THE ASSESSEE FOR DEPRECIATION. RESPECTFULLY FOLLOWING THE ABOVE DECISION WE ALLO W THIS GROUND RAISED BY THE ASSESSEE. 25. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 29 TH DAY OF JULY 2011 SD/- SD/- (J. SUDHAKAR REDDY) (ASH A VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 29 TH JULY 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 4745/M/2011 12 DATE INITIALS 1. DRAFT DICTATED ON: 25.7.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 27.07.11 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: