ACIT, Jaipur v. M/S JAI DRINKS P LTD,, Jaipur

ITA 405/JPR/2010 | 2001-2002
Pronouncement Date: 30-09-2011 | Result: Dismissed

Appeal Details

RSA Number 40523114 RSA 2010
Bench Jaipur
Appeal Number ITA 405/JPR/2010
Duration Of Justice 1 year(s) 5 month(s)
Appellant ACIT, Jaipur
Respondent M/S JAI DRINKS P LTD,, Jaipur
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 30-09-2011
Date Of Final Hearing 03-12-2010
Next Hearing Date 03-12-2010
Assessment Year 2001-2002
Appeal Filed On 29-04-2010
Judgment Text
1 ITA 405(6) IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 405 503 504 505 506 & 507/JP/2010 ASSTT. YEAR : 2001-02 07-08 02-03 03-04 04 -05 05-06. THE ACIT CIRCLE-5 VS. M/S. JAI DRINKS PVT. LT D. JAIPUR. JAWAHAR LAL NEHRU MARG JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUNIL MATHUR RESPONDENT BY : SHRI NM RANKA & SHRI N.K. JAIN DATE OF HEARING : 08.9.2011 DATE OF PRONOUNCEMENT : 30.9.2011 ORDER DATE OF ORDER : 30/09/2011. PER R.K. GUPTA J.M. THESE ARE SIX APPEALS BY THE DEPARTMENT AGAINST TH E ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2001-02 07-08 AND 02-03 TO 05-0 6. 2. THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE DEP ARTMENT FOR THE ASSESSMENT YEAR 2001-02 :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN :- (I) DIRECTING TO ALLOW DEPRECIATION OF RS. 7 CRORE ON DECLARED FRANCHISE AND LICENSE RIGHTS OF RS. 28 CRORE DESPITE THE FACT IN REALITY NO SUCH FRANCHISE AND LICENSE RIGHTS WERE DEVOLVED UPON THE ASSESSEE AND AS HELD BY THE AO THE SAID PAYMENT OF RS. 28 CRORE WAS FOR GOODWILL. 2 (II) FURTHER HOLDING THAT DEPRECIATION IS ALLOWABLE EVEN IF THE SAID PAYMENT OF RS. 28 CRORES IS FOR GOODWILL WITHOUT AP PRECIATING THE FACT THAT DEPRECIATION ON GOODWILL IS NOT ALLOWABLE IN TERMS OF PROVISIONS OF SECTION 32(1) OF THE INCOME-TAX ACT 1961. SIMILAR GROUNDS HAVE BEEN TAKEN IN OTHER APPEALS FO R OTHER YEARS. HOWEVER THERE IS A DIFFERENCE OF AMOUNT OF DEPRECIATION ONLY. 3. THE UNDISPUTED BRIEF FACTS DISCUSSED BY LD. CIT (A) IN HIS ORDER ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURI NG OF AERATED WATER. DURING THE YEAR THE ASSESSEE COMPANY HAS PURCHASED THE BUSINESS OF DELHI TERRITORY OF M/S DHILLON KOOL DRINKS AND BEVERAGES LTD. VIDE BUSINESS TRANSFER AGREEMENT DT.26.8.2000 ON THE BASIS OF SLUMP SALE F OR WHICH THE NET AMOUNT PAID WAS RS.12.5 CRORE. AS PER POINT NO.2.2 OF ARTICLE 2 OF THE SAID AGREEMENT DT. 26.8.2000 THE ASSETS AND LIABILITIES WERE TAKEN OVE R. SINCE THE LIABILITIES TAKEN OVER WERE AT RS. 25 24 99 123/- THEREFORE THE TOTAL COS T OF THE SAID DELHI BUSINESS PURCHASE WAS AT RS 37 74 99 123/-. THE ASSESSEE HAD BIFURCATED THIS COST AS ASSETS TAKEN OVER AT A VALUE OF RS. 9 74 99 123/- AND DIFF ERENTIAL AMOUNT WAS CONSIDERED AS PAYMENT OR LICENSE AND FRANCHISE RIGHTS AT RS. 2 8 CRORE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN RESPECT OF DEPRECIATION CLAIMED @ 25% FOR LICENSE AND FRANCHISE RIGHTS A SHOW CAUSE WAS GIVEN TO EXPLAIN THE DETERMINATION OF THE SAME AT RS. 28 CRORE ALONGWITH DOCUMENTARY EVIDENCE. THE AO HAS FOUND THAT NO DOCUMENTARY EVIDENCE WERE FURNISHED IN SUPPORT OF L ICENSE AND FRANCHISE RIGHTS DETERMINED BY ASSESSEE AT RS. 28 CRORE. THE AO HAD OBSERVED THAT AS PER SALE AGREEMENT FILED THE ASSESSEE HAS PROCURED THE LICEN SES AND FRANCHISE RIGHTS THROUGH 3 THE SELLER FROM THE PFL AND HAS NOT BEEN SOLD DIREC TLY BY THE SELLER I.E. M/S DHILLON KOOL DRINKS AND BEVERAGES LTD. TO THE ASSESSEE AND UNDER THESE CIRCUMSTANCES A SHOW CAUSE WAS GIVEN PROPOSING DISALLOWANCE OF SUCH DEPRECIATION CLAIM. THEREAFTER THE EXPLANATION FURNISHED HAS BEEN REPR ODUCED IN THE BODY OF ASSESSMENT ORDER BUT IT HAS NOT BEEN CONSIDERED SAT ISFACTORY ON THE GROUND THAT THOUGH THE COST OF DHILLON KOOL DRINKS TO THE ASSES SEE WAS AT RS. 37.75 CRORE BUT THE PAYMENT TO THE SELLER WAS ONLY AT RS. 12.50 CRO RE AND BALANCE AMOUNT OF RS. 25.25 CRORE WAS THE LIABILITY TAKEN OVER. IT PROVES THAT NO LICENSES AND FRANCHISE RIGHTS WERE DEVOLVED UPON THE ASSESSEE COMPANY THOU GH AFORESAID BUSINESS TRANSFER AGREEMENT DT. 26.8.2000 AND IN FACT LICENS E AND FRANCHISE RIGHTS DEVOLVED UPON THE ASSESSEE ONLY THROUGH LETTER OF INTENT EXE CUTED ON 26.8.2000. THE AO HAD FURTHER OBSERVED THAT THERE WAS NO AGREEMENT OF LIC ENSE OR DEVOLVING THE FRANCHISE RIGHTS UPON THE ASSESSEE FROM PFL BECAUSE AS PER LE TTER OF INTENT IT WAS FOR A SPECIFIED PERIOD OF INITIAL ONE YEAR WHICH MAY BE E XTENDED BY PFL FOR THE PERIOD OF 6 MONTHS AT A TIME PROVIDED THE ASSESSEE HAS SUC CESSFULLY AND TO THE ENTIRE SATISFACTION OF PFL MET WITH AND FULFILLED THE PRE CONDITIONS DURING THE INITIAL PERIOD AND THEREAFTER DURING EACH OF THE ADDITIONA L PERIOD. IT IS FURTHER PROVIDED THAT SAID LETTER OF INTENT WILL BE REPLACED WITH AN APPROPRIATE FRANCHISE AGREEMENT ON THE SUCCESSFUL SHIFTING THE PET LINE AND SETTING UP AND COMMISSIONING OF THE MANUFACTURING FACILITIES FOR THE MANUFACTURE OF THE PRODUCTS IN OR AROUND DELHI AND THIS LOI SHALL TERMINATE IMMEDIATELY ON THE EXECUTI ON OF FRANCHISE AGREEMENT. IT MAKES CLEAR THAT IN REALITY NO FRANCHISE OR LICENSE AGREEMENT WAS EXECUTED BETWEEN 4 PFL AND THE ASSESSEE. THE AO HAD ALSO REFERRED THE SUPREME COURT JUDGMENT IN THE CASE OF MCDOWELL REPORTED IN 154 ITR AND WITH T HIS DISCUSSION DISALLOWED SUCH DEPRECIATION CLAIM OF RS. 7 CRORE AS MADE BY A SSESSEE COMPANY. 4. THE DETAILED WRITTEN SUBMISSIONS WERE FILED BEFO RE LD. CIT (A) WHICH HAS BEEN TABULATED IN THE ORDER OF LD. CIT (A) AT PAGES 4 TO 9. THE SUBMISSIONS ARE IN DETAIL AND THEY ARE SELF EXPLANATORY. THEREFORE IT WILL BE US EFUL TO REPRODUCE THE SUBMISSIONS HERE ALSO WHICH ARE AS UNDER :- THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT IS E NGAGED IN THE BUSINESS OF MANUFACTURING OF AREATED WATER FOR THE LAST SEVERAL YEARS. IT HAS MAINTAINED REGULAR AND PROPER BOOKS O F ACCOUNTS CONSISTING OF CASH BOOK LEDGER JOURNAL AND SUCH A CCOUNTS ARE SUPPORTED BY BILLS VOUCHERS PRODUCTION REGISTERS STOCK DETAILS AND OTHER SUPPORTING RECORD. THE PRODUCT IS EXCISEABLE AND EXCISE RG 1 AND OTHER RECORDS HAVE BEEN MAINTAINED AND EXAMINED AND ACCEPTED BY THE EXCISE AUTHORITIES. THE ACCOUNTS HAVE BEEN A UDITED BY THE STATUTORY AUDITORS AS WELL AS TAX AUDITORS. NO DEFE CTS HAVE BEEN NOTICED BY THE AUDITORS. TRADING RESULTS HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER. 1.1. PEPSICO INDIA HOLDINGS LIMITED HAVING ITS PRIN CIPAL `PLACE OF BUSINESS AT DLF CORPORATE PARK PHASE III BLOCK S QUTAB ENCLAVE GURGAON 122001 HARYANA AND OFFICE AT 13 TH FLOOR MOHAN DEV BUILDING 13 TOLSTOY MARG NEW DELHI 110001 IS A SU BSIDIARY COMPANY OF PEPSICO. INC. NEW YORK AND IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND DISTRIBUTION OF SOFT DRINK BEVERAGE S AND SYRUP MIX SOLD UNDER THE TRADE MARK LEHAR OWNED BY PEPSI FOOD S LIMITED HAVING ITS REGISTERED OFFICE AT VILLAGE CHANNO DIS TRICT BHAWANIGARH PUNJAB USED IN ASSOCIATION WITH THE SEVERAL TRADE M ARKS OF PEPSICO INC. I.E. PEPSI 7 UP MIRINDA SLICE TEEM EVERVE SS ETC. 1.2. PEPSI FOODS LIMITED AND PEPSICO INC. GRANTED FRANCHISE RIGHTS FOR BOTTLING AND DISTRIBUTION OF THEIR VARIO US PRODUCTS TO DHILLON KOOL DRINKS AND BEVERAGES LTD. HAVING ITS PRINCIPAL PLACE OF BUSINESS AT DHILLON COMPLEX MANIMAJRA CHANDIGARH (HEREINAFTER REFERRED TO AS SELLER). THE SELLER HAD FRANCHISE AGREEMENTS FOR THE TERRITORIES OF PUNJAB HIMACHAL PRADESH AND CERTAIN PARTS OF HARYANA NEW DELHI / DELHI. THE SELLER HAD TWO MANUFACTURING PLANTS FOR THE MANUFACTURE OF THE PRODUCTS IN HARYANA AND PUNJAB F ROM WHERE IT 5 USED TO SUPPLY THE PRODUCTS TO THE TERRITORIES COVE RED BY THE FRANCISE AGREEMENTS. 1.3. THE SELLER HAD TO PAY AN AMOUNT OF OVER RS. 20 CRORES TO PEPSICO INDIA HOLDINGS LIMITED AND PEPSICO INDIA HO LDINGS LIMITED HAD THE OPTION OF ACQUIRING FROM THE SELLER THE RIG HTS ASSETS AND LIABILITIES ASSOCIATED WITH THE DISTRIBUTION BUSINE SS OF THE PRODUCTS IN THE NATIONAL CAPITAL TERRITORY OF DELHI OR NOMINATI NG ANOTHER PERSON FOR THIS PURPOSE. THE SELLERS BUSINESS OF DELHI WA S IN BAD SHAPE AND DKD HAS BEEN INTERESTED IN SELLING ITS DELHI BUSINE SS ALONG WITH RIGHTS INTERESTS PRIVILEGES ASSETS AND LIABILITI ES ASSOCIATED WITH AND INCIDENTAL AND ANCILLARY TO THE BUSINESS OF THE SEL LER IN THE NATIONAL CAPITAL TERRITORY OF DELHI. THE ASSESSEE COMPANY OF FERED TO PURCHASE THE SAID BUSINESS AS A GOING CONCERN SUBJE CT TO THE SELLER ARRANGING IN FAVOUR OF THE ASSESSEE COMPANY BY PF L OF THE LICENCE AND FRANCHISE RIGHTS TO USE THE TRADE MARKS OF PEPS I BRANDS OF SOFT DRINKS I.E. PEPSI 7 UP MIRINDA SLICE TEEM EVE RVESS AND LEHAR IN THE SPECIFIED TERRITORY COMPRISED IN T HE DELHI BUSINESS. 1.4. IN ACCORDANCE WITH THE ABOVE STATED ARRANGEMEN TS THE SELLER AND THE ASSESSEE COMPANY MADE NECESSARY EFFORTS. AN AGREEMENT WAS ENTERED IN BETWEEN PEPSICO INDIA HOLDINGS LTD. AND THE ASSESSEE ON 10 TH DAY OF AUGUST 2000 (COPY ENCLOSED). LETTER OF INT ENT DATED 26.08.2000 WAS ISSUED BY PEPSI FOODS LIMITED. COPY OF LETTER OF INTENT DATED 26.08.2000 AS MODIFIED ON 22.12.2000 I S SUBMITTED HEREWITH. PEPSICO INDIA HOLDINGS LIMITED ALSO AGREE D TO NOMINATE THE ASSESSEE COMPANY TO ACQUIRE THE DELHI BUSINESS FROM THE SELLER. THE SELLER HAVING CAUSED THE PROCUREMENT OF THE AFO RESAID LICENCE / FRANCHISE RIGHTS BY THE ASSESSEE COMPANY A BUSINES S TRANSFER AGREEMENT DATED 26 TH DAY OF AUGUST 2000 WAS ENTERED INTO BY AND BETWEEN THE SELLER AND THE ASSESSEE COMPANY. THE CO NSIDERATION FOR THE TRANSFER WAS ARRIVED AT A LUMP-SUM AMOUNT OF RS . 37.75 CRORES. THE ASSESSEE COMPANY TOOK OVER THE LIABILITY FOR PA YMENT OF RS. 25.25 CRORES TO THE PARTIES DETAILED IN SCHEDULE II ANNEXED WITH THE AGREEMENT. BALANCE OF RS. 12.50 CRORES WAS TO BE PA ID TO THE SELLER. COPY OF BUSINESS TRANSFER AGREEMENT DATED 26.08.200 0 IS SUBMITTED HEREWITH. 1.5. IN ACCORDANCE WITH THE ABOVE STATED ARRANGEMEN T / AGREEMENT THE ASSESSEE COMPANY DISCHARGED ITS LIABILITY AND PAID THE AMOUNT OF RS. 25 15 28 123.80 AS PER DETAILS ENCLOSED BY W AY OF ANNEXURE 1. A PALTRY AMOUNT OF ABOUT RS. 9 18 000/- ONLY IS PAYABLE BY WAY OF SECURITY DEPOSIT TO DEALERS. 6 1.6. THE ASSESSEE COMPANY RECEIVED A SHOW CAUSE N OTICE DATED 18.03.2004. DETAILED EXPLANATION DATED 24.03.2004 W AS SUBMITTED. HOWEVER THE LEARNED ASSESSING OFFICER AFTER DISCUSS ION IN PARA 2 ON PAGES 5 10 HELD THAT IN REALITY NO FRANCHISE AND LICENCE RIGHTS WERE DEVOLVED UPON THE ASSESSEE FROM PFL AS SUCH AND CLA IM OF DEPRECIATION OF RS. 7 CRORES BY THE ASSESSEE NO THE SE SO CALLED LICENCE AND FRANCHISE RIGHTS ARE NOT ALLOWED AS A DEDUCTION . SINCE RS. 28 CRORES IS NOT BEING TREATED AS LICENSE / FRANCHISE RIGHT IN VIEW OF THE ABOVE DISCUSSION AND AS RS. 28 CRORE WAS PART OF SA LE CONSIDERATION AS SUCH IT IS IMPLIED THAT IF IT IS NOT LICENSE & F RANCHISE RIGHT THEN IT FORMS PART OF GOODWILL DEVOLVED UPON THE ASSESSEE NO WHICH NO DEPRECIATION IS ALLOWABLE. (PAGE 9 MIDDLE). 1.7. THE LEARNED ASSESSING OFFICER ON PAGE 9 HAS RE FERRED TO THE CASE OF MC DOWELL BUT WE SUBMIT ALL THE THREE PARTI ES ARE ASSESSED TO TAX REGULARLY HAVE FILED THEIR RETURNS THE PARTIE S ARE NOT RELATED IN ANY MANNER; THE TRANSACTION IS GENUINE REAL ACTED UPO N STILL IN EXISTENCE AT ARMS LENGTH AND THE LEARNED ASSESSING OFFICER H AS FAILED TO PROVE IT AS A COLORABLE DEVICE. THE LEARNED ASSESSING OFFICE R BEFORE MAKING SUCH OBSERVATIONS AND DRAWING ADVERSE INFERENCES D ID NOT ENQUIRE FROM THE SELLER AND / OR PEPSICO AND PEPSI FOODS LT D. THE ASSESSEE COMPANY TILL DATE IS HOLDING THE LICENCE AND FRANCI SE RIGHTS TO USE THE TRADE MARKS OF PEPSI BRANDS OF SOFT DRINKS I.E. PE PSI 7 UP MIRINDA SLICE TEEM EVERVESS AND LEHAR IN THE SPECIFIED TERRITORY COMPRISED IN THE DELHI BUSINESS ACQUIRED/PURCHASED FROM THE SELLER WITH THE CONSENT OF PFL AND IS SELLING ITS PRODUCT IN THE NATIONAL CAPITAL TERRITO RY OF DELHI RIGHTS WHEREOF WERE EARLIER EXCLUSIVELY WITH THE SELLER. T HE ASSESSEE COMPANY HAS STOPPED IN THE SHOES OF THE SELLER. 1.8. FIRSTLY THERE IS NO COLOURABLE DEVICE NO DUBI OUS METHOD NO TAX PLANNING AND NO AVOIDANCE OF PAYMENT OF LEGITIM ATE TAX. THE ASSESSEE COMPANY HAS SUFFERED HEAVY LOSSES. POSITIO N OF THE SALES AND RETURNED INCOME / LOSS FOR THE ASSESSMENT YEARS 2000-2001 TO ASSESSMENT YEAR 2004-05 ARE SUBMITTED AS PER ANNEXU RE -2. 1.9. WE ALSO REFER TO THE LATEST JUDGMENT OF THE SU PREME COURT IN UNION OF INDIA VS. AZADI BACHAO ANDOLAN AND ANOTHER (2003) 263- ITR -706. IT APPROVED BANYAN AND BERRY VS. CIT (199 6) 222 ITR 831 (GUJRAT) ON PAGE 759. WE REPRODUCE WE MAY ALSO REFER TO THE JUDGMENT OF THE GUJARAT HIGH COURT IN BANYAN AND BE RRY VS. COMMISSIONER OF INCOME TAX (1996) 222 ITR 831 A T 850 WHERE REFERRING TO MC. DOWELLS CASE (1985) 154 ITR 148 (SC) THE COURT OBSERVED : THE COURT NOWHERE SAID THAT EVERY ACTIO N OR INACTION ON THE PART OF THE TAXPAYER WHICH RESULTS IN REDUCTION OF TAX LIABILITY TO WHICH HE MAY BE SUBJECTED IN FUTURE IS TO BE VIEWE D WITH SUSPICION 7 AND BE TREATED AS A DEVICE FOR AVOIDANCE OF TAX IRR ESPECTIVE OF LEGITIMACY OR GENUINENESS OF THE ACT; AND INFERENCE WHICH UNFORTUNATELY IN OUR OPINION THE TRIBUNAL APPAREN TLY APPEARS TO HAVE DRAWN FROM THE ENUNCIATION MADE IN MC DOWELLS CASE (1958) 154- ITR-148 (SC). THE RATIO OF ANY DECISION HAS TO BE U NDERSTOOD IN THE CONTEXT IT HAS BEEN MADE. THE FACTS AND CIRCUMSTANC ES WHICH LEAD TO MC. DOWELLS DECISION LEAVE US IN NO DOUBT THAT THE PRINCIPLE ENUNCIATED IN THE ABOVE CASE HAS NOT AFFECTED THE F REEDOM OF THE CITIZEN TO ACT IN A MANNER ACCORDING TO HIS REQUIRE MENTS HIS WISHES IN THE MANNER OF DOING ANY TRADE ACTIVITY OR PLANNING HIS AFFAIRS WITH CIRCUMSPECTION WITHIN THE FRAMEWORK OF LAW UNLESS THE SAME FALL IN THE CATEGORY OF COLORABLE DEVICE WHICH MAY PROPERLY BE CALLED A DEVICE OR A DUBIOUS METHOD OR A SUBTERFUGE CLOTHED WITH APPARENT DIGNITY. IT HAS DISCUSSED ROLE IN MC DOWELL ON PAG ES 753763 OF REPORTING. IT ULTIMATELY OBSERVED: WE ARE UNABLE T O AGREE WITH THE SUBMISSION THAT AN ACT WHICH IS OTHERWISE VALID IN LAW CAN BE TREATED AS NON EST MERELY ON THE BASIS OF SOME UNDERLYING M OTIVE SUPPOSEDLY RESULTING IN SOME ECONOMIC DETRIMENT OR PREJUDICE T O THE NATIONAL INTERESTS AS PERCEIVED BY THE RESPONDENTS. (PAGE 763). 1.10. WE SUBMIT RELIANCE ON THE MC DOWELLS CASE IS MISCONCEIVED AND THE FINDING IS BASED ON SUSPICION WITHOUT MATE RIAL AND CONTRARY TO THE MATERIAL ON RECORD. 1.11 WE FURTHER SUBMIT - THE ASSESSEE HAS FURNISHED CERTIFICATE FROM THE SELLER (A.O. PAGE 5). FURTHER AS PER THE SALE AGREEMENT FILED BY THE ASSESSEE IT IS CLEAR THAT THE LICENCE AND FRANCHISE RIGHTS HAVE BEEN PROCURED BY THE ASSESSEE THROUGH THE SELL ER FROM THE PFL AND THE SAME HAS NOT BEEN SOLD DIRECTLY BY THE SELL ER I.E. M/S DHILLON KOOL DRINKS & BEVERAGES LTD. TO THE ASSESSEE (A.O. PAGE 6). THE ASSESSING OFFICER SAYS THAT THE LICENCE AND FRANCHI SE RIGHTS GRANTED TO DKD SELLER WERE NOT TRANSFERRED BY THE SELLER BUT HE ADMITS SUCH RIGHTS HAVE BEEN PROCURED BY THE ASSESSEE. WE SUBMI T IT IS ERRONEOUS AND OF NO CONSEQUENCE. THE LICENCE AND FRANCHISE RI GHTS WERE WITH DKD AND ATTACHED TO DELHI BUSINESS AND WHEN DELHI B USINESS STOOD TRANSFERRED TO THE APPELLANT BY DKD; THE APPELLANT IS UNINTERRUPTEDLY CARRYING ON THE BUSINESS OF BOTTLING AND SELLING IN THE SAID TERRITORY AND NECESSARY SUPPLIES ARE BEING MADE TO THE APPELL ANT BY PFL AND PEPSICO TO MANUFACTURE THE NAMED BEVERAGES AND SYRU P MIX AND LETTERS OF INTENT HAVE BEEN ISSUED TO THE APPELLANT WE FAIL TO UNDERSTAND THE REASONING FOR DISALLOWANCE. IT IS BA D. THE LEARNED ASSESSING OFFICER EVEN FAILED TO MAKE VERIFICATION FROM THE CONCERNED PARTIES. IT IS AN ADMITTED FACTS THAT THE APPELLANT COMPANY IS RECEIVING THE SUPPLIES MANUFACTURING THE BEVERAGES AND SELLI NG THE PRODUCTS IN THE DELHI TERRITORY TILL TO-DAY WITHOUT ANY OBJECT ION FROM ALL 8 CONCERNED. IN THE ABSENCE OF THE SALE AGREEMENT & L ETTER OF INTENT THE ASSESSEE HAD NO SUCH RIGHTS. 1.12. THE COST TO THE ASSESSEE COMPANY WAS RS. 37.7 5 CRORES. OUT OF IT VALUE OF TANGIBLE ASSETS WAS COMPUTED AT RS. 7 57 42 323/- BY THE APPROVED VALUER AND RS. 2 17 56 800/- WERE FOR CURRENT ASSETS. THE BALANCE OF RS. 28 CRORES WAS IN RESPECT OF LICE NSE FRANCHISES AND OTHER BUSINESS AND COMMERCIAL RIGHTS FOR THE DE LHI TERRITORY. THE ASSESSEE COMPANY HAD UNDERTAKEN THE LIABILITY OF RS. 25.25 CRORES WHICH INCLUDED AN AMOUNT OF RS. 21.15 CRORES PAYABL E BY THE SELLER TO PEPSICO INDIA HOLDING LTD. THE ASSESSEE COMPAN Y HAS DISCHARGED THAT LIABILITY AS DETAILED IN PARA 1.5 H EREINABOVE. AS AGREED TO COLLECT THE OUTSTANDING AMOUNT OF RS. 21. 15 CRORES LETTER OF INTENT WAS EXECUTED NO 26.8.2000 APART FROM THE BUSINESS TRANSFER AGREEMENT DATED 26.8.2000. THE LETTER OF INTENT HAS BEEN ACTED UPON AND SUBSISTS TO TILL TODAY. IT IS BEING HONOURED BY ALL CONCERNED. THE LEARNED ASSESSING OFFICER HAS ADMITTED IN CLEAR WOR DS ON PAGE 7 IN THE BOTTOM LICENSES & FRANCHISE RIGHTS DEVOLVED UPON T HE ASSESSEE ONLY THROUGH THE LETTER OF INTENT EXECUTED ALSO ON 26.8. 00. WE SUBMIT WHETHER THE LICENCES & FRANCHIESE RIGHTS DEVOLVED O N THE ASSESSEE BY THE BUSINESS TRANSFER AGREEMENT OR LETTER OF INT ENT BOTH OF THE SAME DATE IS OF NO CONSEQUENCE. THE LICENCES & FRA NCHISE RIGHTS FOR DELHI TERRITORY EARLIER EXISTING WITH THE SELLER DEVOLVED ON THE ASSESSEE COMPANY AND FOR A CONSIDERATION OF RS. 28 CRORES. OUT OF IT ADMITTEDLY A SUM OF RS. 21.15 CRORES WERE REALIZED BY PEPSICO BY WAY OF DISCHARGE OF LIABILITY AGAINST THE SELLER. 1.13. THE LEARNED ASSESSING OFFICER ON PAGE 7 8 H AS OBSERVED: ALTERNATIVELY IF IT IS PRESUMED THAT IF LICENCE AN D FRANCHISE RIGHTS DEVOLVED UPON THE ASSESSEE THROUGH THE BUSINESS TRA NSFER AGREEMENT DATED 26.8.2000 THEN WHAT WAS THE NEED OF EXECUTING THE LETTER OF INTENT BY THE ASSESSEE COMPANY AND PEPSICO INDIA LT D. WHO WERE THE OWNERS OF LICENSES AND FRANCHISE RIGHTS. IN FACT NO SUCH FRANCHISE/LICENSE AGREEMENT WAS MADE BY THE ASSESSE E WITH PEPSICO INDIA. IT WAS FOUND THAT ONLY A LETTER OF INTENT DT . 26.08.2000 WAS EXECUTED IN FAVOUR OF THE ASSESSEE BY PEPSICO INDIA . THE LEARNED ASSESSING OFFICER HAS QUESTIONED THE NEED OF EXECUT ING THE LETTER OF INTENT. THE LETTER OF INTENT WAS NECESSARY BECAUSE LICENCE AND FRANCHISE RIGHTS ARE OF PEPSICO AND THEY ARE A NECE SSARY PARTY. BY WAY OF BUSINESS TRANSFER AGREEMENT AND LETTER OF INTENT THE ACQUISITION OF THE LICENCES FRANCHISE RIGHTS AND BUSINESS/COMM ERCIAL RIGHTS IN FAVOUR OF THE APPELLANT COMPANY WERE WELL SECURED A ND PEPSICO & PFL THEREAFTER COULD NOT QUESTION THE SELLER OR T HE ASSESSEE COMPANY. THE PROCEDURE ADOPTED IS NORMAL AND TO SAF EGUARD THE RIGHTS AND INTERESTS OF THE ASSESSEE COMPANY. WE SU BMIT THE 9 OBJECTION RAISED BY THE LEARNED ASSESSING OFFICER I S WITHOUT ANY SUBSTANCE. 1.14. THE LEARNED ASSESSING OFFICER ON PAGE 8 OF TH E ASSESSMENT ORDER HAS OBSERVED : THE CONTENTION OF THE ASSESSEE THAT THEY HAVE CORRECTLY CLAIMED THE DEPRECIATION ON LICENCE AND F RANCHISE RIGHT BEING INTANGIBLE ASSTS IS NOT ACCEPTABLE AS NO AGR EEMENT OF LICENCE OR FRANCHISE RIGHTS HAVE DEVOLVED UPON THE ASSESSEE FR OM PFL. IT WAS FOUND THAT THERE IS ONLY A LETTER OF INTENT (LOI) D T. 26.08.2000 WHICH HAS BEEN ISSUED BY PEPSI FOODS LTD. (PFL) TO THE AS SESSEE. WE SUBMIT THE LETTER OF INTENT COUPLED WITH THE BUSINE SS AGREEMENT TRANSFERRED THE LICENCES AND FRANCHISE RIGHTS AND C OMMERCIAL RIGHTS TO THE ASSESSEE COMPANY. THE LETTER OF INTENT HAS BEEN ACTED UPON HAS BEEN HONOURED AND IS IN EXISTENCE AND OPERATIVE IN LAW. IN COMMERCIAL WORLD THE LETTER OF INTENT HAS ITS SANCT ITY AND PEPSICO/PFL ARE MULTINATIONAL COMPANIES OF REPUTE. IF THE LEARNED ASSESSING OFFICER HAD ANY DOUBT OR SUSPICION HE CO ULD AND SHOULD HAVE MADE NECESSARY VERIFICATION AND SATISFACTION F ROM PEPSICO / PFL RATHER THAN REJECTING THE CORRECT AND VALID CL AIM OF THE ASSESSEE. 1.15 THE LETTER OF INTENT SO ISSUED IS VALID OPERA TIVE IN EXISTENCE SUBSISTS AND NOT TERMINATED AND NOT LIABLE TO BE TE RMINATED. THE INFERENCE DRAWN BY THE LEARNED ASSESSING OFFICER ON PAGE 8 IN THE LAST PARA IS WITHOUT ANY VALID BASIS AND NOT VALID REASO N TO DENY THE DEPRECIATION. VERIFICATION MAY BE MADE BY THE ASSES SING OFFICER OR BY YOUR HONOUR FROM THE CONCERNED PARTIES. WE HAVE ANNEXED DETAILS UPTO 31.03.2004. SAME IS POSITION OF SALES/SUPPLIES THEREAFTER. UNINTERRUPTEDLY SALES/SUPPLIES ARE BEING EFFECTED. 1.16. THE LETTER OF INTENT DATED 26.8.2000 STANDS E XTENDED UPTO 30.09.2004 AS PER LETTER DATED 29.03.2004 OF PEPSI FOODS PVT. LTD. (COPY ENCLOSED). IT COULD NOT BE SUBMITTED AS THE A SSESSMENT PROCEEDINGS WERE CLOSED ON 24.03.2004. REQUEST WAS MADE TO PROVIDE TIME BUT BEING TIME BARRING ASSESSMENT WAS NOT ALLOWED. AS SUBMITTED LETTER OF INTENT EXISTS TILL DATE AND HAS NOT BEEN TERMINATED. WE MAY ALSO MENTION THAT IN FURTHERANCE THE ASSESS EE COMPANY HAS ACQUIRED LAND MEASURING ABOUT 9 ACRES IN GREATER NO IDA FOR RS. 2.60 CRORES ON 27.02.2004 FROM GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY AND IS IN THE PROCESS OF PUTTING BOTTLING PLANT ON THE SAID LAND. 1.17. WE SUBMIT THE CLAIM STANDS PROVED AND THE ASS ESSEE IS ENTITLED TO DEPRECIATION AS CLAIMED. WE REPRODUCE THE RELEVA NT PORTION OF SECTION 32 (1) OF THE ACT : - 32. DEPRECIATION (1) IN RESPECT OF DEPRECIATION OF - 10 (I) KNOW-HOW PATENTS COPYRIGHTS TRADE MARKS LICENCE S FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF SIMILAR NATURE BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL 1998. OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED F OR THE PURPOSES OF THE BUSINESS OR PROFESSION THE FOLLOWING DEDUCTION S SHALL BE ALLOWED - (II) IN THE CASE OF ANY BLOCK OF ASSETS SUCH PERCE NTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED; EXPLANATION 3 FOR THE PURPOSES OF THIS SUB-SECTION THE EXPRESSIONS ASSETS AND BLOCK OF ASSETS SHALL M EAN - (B) INTANGIBLE ASSTS BEING KNOW-HOW PATENTS COPY RIGHTS TRADE MARKS LICENCES FRANCHISES OR ANY OTHER BUSINESS O R COMMERCIAL RIGHTS OF SIMILAR NATURE; 1.18. WE SUBMIT THE LICENCES FRANCHISE TRADE MARK S AND OTHER `BUSINESS AND COMMERCIAL RIGHTS ACQUIRED BY THE ASS ESSEE BEING INTANGIBLE ASSETS DEPRECIATION IS LEGALLY ALLOWABL E AND HAS BEEN WRONGLY DISALLOWED. THE LEARNED ASSESSING OFFICER H AS FAILED TO FIND ANY GOOD AND VALID REASON TO DISALLOW. 1.19. THE LEARNED ASSESSING OFFICER ON PAGE 9 HAS H ELD THAT THE AMOUNT OF RS. 28 CRORES WAS BY WAY OF GOODWILL. W E SUBMIT THERE IS NO VALID BASIS TO HOLD SO. THE LEARNED ASSESSING OFFICER HAS NOT ENQUIRED FROM THE SELLER AS WELL AS PEPSICO/PFL AND THE ASSESSEE BEFORE DRAWING SUCH INFERENCE. IT IS IN VIOLATION O F PRINCIPLES OF NATURAL JUSTICE. NO SHOW CAUSE NOTICE WAS ISSUED AN D NO EXPLANATION WAS CALLED FOR. WE OBJECT TO SUCH TREATMENT. 1.20. WE MAY ALSO MENTION THAT THERE WAS NO GOODWIL L OF DKD DKD WAS IN BAD SHAPE WAS IN SHAMBLES AND FAILED TO PAY ON TIME TO PEPSICO/PFL. HUGE AMOUNT REMAINED DUE FOR LONG. WE MAY ALSO MENTION THAT THEIR BUSINESS OF PUNJAB HARYANA & HI MACHAL PRADESH HAD TO BE SOLD BY THEM IN THE YEARS 2003/2004. NOW DKD HAS ONLY A CONTRACT PACKING ARRANGEMENT WITH PEPSI FROM ITS PU NJAB PLANT. FURTHER NAME OF DKD WAS NOT TRANSFERRED TO THE ASSE SSEE COMPANY BUT ONLY THEIR DELHI BUSINESS AS A GOING CONCERN WA S TRANSFERRED TO THE ASSESSEE COMPANY. THE LEARNED ASSESSING OFFICER HAS NOT PROPERLY UNDERSTOOD THE MEANING OF GOODWILL. IN T HE PRESENT CASE THERE WAS NO GOODWILL RATHER THERE WAS NEGATIVE GO ODWILL. GOODWILL IS NORMALLY WORKED OUT BASED ON ANNUAL INCOME OF T HE BUSINESS. 11 THERE WAS NO POSITIVE INCOME AND THE BUSINESS WAS I N A BAD SHAPE. ON ESTABLISHED COMMERCIAL PRINCIPLES THERE WAS NO G OODWILL AND VALUE WAS NIL. NEGATIVE GOODWILL WILL ARISE WHEN BY ADOPTING SUPER-PROFIT METHOD THE FIGURE ARRIVED AT IS A SUPER-LOSS OR WHEN BY ADOPTING CAPITALISED PROFIT VALUE METHOD THE FIGURE ARRIVED AT IS LESS THAN THE NET VALUE OF THE TANGIBLE ASSETS. 1.21. THE USUAL METHOD OF CALCULATION OF THE VALUAT ION OF GOODWILL IS SET OUT AT PAGES 807 AND 808 OF ADVANCED ACCOUNT ING BY BATLIBOI 16 TH EDITION. AFTER ANALYZING THE METHOD OF PATNA HIGH COURT IN DAS & COMPANY VS. CIT (1962) 45-ITR 369 AT 378 HELD IN THE MATTER OF VALUATION OF THE GOODWILL OF THE BUSINESS THE PROPE R APPROACH IS TO ASCERTAIN THE NET ANNUAL EARNINGS OF THE BUSINESS A FTER A CAREFUL INVESTIGATION OF THE BOOKS OF ACCOUNTS AND CALCULAT ING THE AVERAGE NET ANNUAL EARNING ON THE BASIS OF THE PAST THREE TO FI VE YEARS. FROM THE AVERAGE NET PROFITS THUS ARRIVED AT IT IS USUAL TO DEDUCT AS A MATTER OF ACCOUNTANCY PRACTICE AT LEAST 6 PER CENT ON THE C APITAL OUTLAY INVOLVED AND A SUM AS WOULD COVER THE PROPRIETORS SERVICES TO THE BUSINESS. THE GOODWILL IS THEN CALCULATED AT FIVE T O TEN YEARS PURCHASE OF THE NET ANNUAL PROFITS. THE CALCUTTA HIGH COURT IN CONTROLLER OF ESTATE DUT Y VS. BISWANATH RUNGTA (1968) 67-ITR-748 AT 753 REFERRED TO BATLIBOIS BOOK 22 ND EDITION AT PAGES 887- 88 AND OTHER STANDARD BOOKS AND DECIDED CASES AND AT PAGE 756 OBSERVED THUS FOR VALUATION OF GOODWILL CAPITALIZATION OF SUPER PROFIT METHOD A PPEARS TO BE AN ACCEPTED METHOD OF VALUATION. IT ALSO OBSERVED GO ODWILL AS IS WELL KNOW IS THE VALUE ATTACHING TO A SUCCESSFUL BUSINE SS BEYOND THE INTRINSIC WORTH OF THE NET ASSETS THEREIN EMPLOYED BECAUSE OF ITS GOOD REPUTATION ESTABLISHED CONNECTIONS COMMON CELEBRI TY CONTINUED PROSPERITY AND THE HOPE THAT THE BUSINESS WILL MAIN TAIN THE SAME PROFIT EARNING CAPACITY IN FUTURE. (HEADNOTE PAGE 749). WE SUBMIT THERE WAS NO GOODWILL RATHER GOODWILL WAS NEGATIVE . THE FINDING IS WITHOUT MATERIAL WITHOUT NOTICE WITHOUT ENQUIRY A ND CONTRARY TO THE MATERIAL ON RECORD. A COPY EACH OF THE ORDER OF MUMBAI BENCH OF THE TRI BUNAL IN CASE OF KOTAK FOREX BROKERAGE LTD. 33 SOT 237 (MUM.) AND DELHI BENCH O F THE TRIBUNAL IN CASE OF HINDUSTAN COCA COLA BEVERAGES PVT. LTD 34 SOT 171 WAS ALSO FILED. 4.1. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD THE LD. CIT (A) HELD THAT THE ASSESSEE IS ENTITLED FOR DEPRECIA TION AS CLAIMED. THE LD. CIT (A) FURTHER 12 HELD THAT IN VIEW OF THE DECISION IN CASE OF KOTAK FOREX BROKERAGE LTD. (SUPRA) EVEN THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON GOODWILL A LSO. 5. NOW THE DEPARTMENT IS IN APPEAL HERE BEFORE THE TRIBUNAL. 6. THE LD. CIT D/R FIRST STRONGLY SUPPORTED THE ORD ER OF THE AO. PORTION OF THE ORDER OF AO WAS READ ALSO. ATTENTION OF THE BENCH WAS DR AWN ON THE ORDER OF AO AT PAGES 6 TO 8 AND PARA 9. THEREAFTER AT PAGES 9 TO 23 AND IT W AS SUBMITTED THAT LD. AO HAS CONSIDERED THE ISSUE IN GREAT DETAIL AND HAS HELD THAT THE CON SIDERATION RECEIVED BY ASSESSEE WAS ON ACCOUNT OF GOODWILL ONLY AND ON GOODWILL DEPRECIATI ON IS NOT ALLOWABLE. 7. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESS EE FIRST PLACED RELIANCE ON THE ORDER OF LD. CIT (A). IT WAS FURTHER SUBMITTED THA T A COPY OF AGREEMENT IS PLACED AT PAGE 14 ONWARDS ENTERED WITH PEPSICO. AS PER AGREEMENT THE ASSESSEE HAS PURCHASED RIGHT OF LICENSE AND FRANCHISE ETC. AND THESE ARE INTANGIBLE ASSETS AND DEPRECIATION IS ALLOWABLE. ATTENTION OF THE BENCH WAS DRAWN ON PAGE 25 TO 28 A ND 46 ALSO. IT WAS FURTHER SUBMITTED THAT THE DECISION IN CASE OF HINDUSTAN COCA COLA HA S BEEN AFFIRMED BY HONBLE DELHI HIGH COURT VIDE ITS ORDER DATED 14.1.2011 COPY OF THE SAME WAS ALSO FILED. IT WAS FURTHER SUBMITTED THAT EVEN IN RESPECT OF GOODWILL THE DEP RECIATION IS ALLOWABLE AS HELD BY VARIOUS BENCH OF THE TRIBUNAL. FURTHER RELIANCE WA S PLACED IN CASE OF ON THE CASES REPORTED IN 327 ITR 323 238 CTR 1 (DEL.) AND 237 CTR 80 (KER.). FURTHER ATTENTION OF THE BENCH WAS DRAWN ON COPY OF WRITTEN SUBMISSIONS PLACED ON RECORD. IN REJOINDER THE LD. CIT D/R STATED THAT DECISION OF THE TRIBUNAL IN CASE OF HINDUSTAN COCA COLA IS NOT APPLICABLE AS FACTS ARE DISTINGUISHABLE. ON A QUE RY FROM THE BENCH THAT THE RIGHTS WERE ALSO SOLD BY THE ASSESSEE AND HOW THEY HAVE BEEN SH OWN IN THE PROFIT & LOSS ACCOUNT IT WAS REPLIED BY LETTER DATED 9.9.2011 BY LD. COUNSEL OF THE ASSESSEE THAT THIS INFORMATION IS 13 NOT NECESSARY AS THEY DO NOT RELATE OR PERTAIN TO T HE ASSESSMENT YEAR PENDING HERE BEFORE THE TRIBUNAL. HOWEVER THE BUSINESS OF THE ASSESSE E HAS BEEN SOLD ON 31.12.2009 WHICH WOULD FALL IN THE ASSESSMENT YEAR 2010-11 AND WHATE VER THE RECEIPTS HAVE BEEN RECEIVED BY THE ASSESSEE THEY HAVE BEEN SHOWN IN THE PROFIT & LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS OF LAW. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED T HEM CAREFULLY. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD WE FIND THAT THE OBJECTION RAISED BY AO WHICH HAS BEEN REITERATED HE RE BEFORE THE TRIBUNAL BY LD. CIT D/R HAS ALREADY BEEN MET WITH BY LD. CIT (A) WHILE DISP OSING THE APPEAL OF THE ASSESSEE. THE OBJECTION RAISED BY AO WERE EXPLAINED BY LD. COUNSE L OF THE ASSESSEE BEFORE LD. CIT (A) IN WRITING AND THEY WERE TABULATED IN THE ORDER OF TRIBUNAL WHICH ARE ALSO REPRODUCED SOMEWHERE ABOVE IN THIS ORDER. THE LD. CIT (A) HAS TAKEN INTO CONSIDERATION THE AGREEMENT ENTERED BETWEEN ASSESSEE AND PEPSI FOOD L TD. THEREAFTER THE LD. CIT (A) HAS TAKEN INTO CONSIDERATION THE QUESTION RAISED BY THE AO IN RESPECT TO THE ISSUE OF LETTER OF INTENT IF LICENSE AND FRANCHISE RIGHTS DEVOLVED UPO N THE ASSESSEE THROUGH THE BUSINESS TRANSFER AGREEMENT AND THEREAFTER CONSIDERING THE I SSUE IN DETAIL THE LD. CIT (A) FOUND THAT THE ASSESSEE HAS PURCHASED LICENSE AND FRANCHI SE RIGHTS FROM PEPSI FOOD LTD. WHICH ARE INTANGIBLE ASSETS ON WHICH DEPRECIATION IS ALLO WABLE AS PER PROVISIONS OF LAW. THE LD. CIT (A) THEREAFTER BY TAKING INTO CONSIDERATION THE DECISION OF HINDUSTAN COCA COLA BEVERAGES PVT. LTD. (SUPRA) HELD THAT EVEN IF THE C ONTENTION OF THE AO IS ACCEPTED THAT THIS IS A GOODWILL EVEN IN GOODWILL THE DEPRECIATION IS ALLOWABLE AND THIS DECISION HAS BEEN AFFIRMED BY HONBLE DELHI HIGH COURT. THE FINDINGS OF LD. CIT (A) AT PAGES 10 TO 14 OF HIS ORDER ARE AS UNDER :- 14 I HAVE CONSIDERED FACTS OF THE CASE AND ARGUMENTS T AKEN BY SH. RANKA AND SH. MUNDRA QUITE CAREFULLY. THE ASSES SING OFFICER HAS GIVEN THE REASONING TO DISALLOW THE DEP RECIATION CLAIM ON LICENSE AND FRANCHISE RIGHTS THAT NO SUCH RIGHTS WERE DEVOLVED UPON THE ASSESSMENT COMPANY THROUGH BUSINE SS TRANSFER AGREEMENT DATED 26.8.2000 BETWEEN APPELLAN T AND M/S DHILLON KOOL DRINKS AND BEVERAGES LTD. BUT THESE WE RE THROUGH THE LETTER OF INTENT EXECUTED ON THE SAME DATE I.E. 26.8.2000 GIVEN BY PEPSI FOOD LTD. TO THE APPELLANT COMPANY. THE ASSESSING OFFICER HAS RAISED THE QUESTION OF DESIRA BILITY TO ISSUE LETTER OF INTENT IF LICENSE AND FRANCHISE RIGHTS DE VOLVED UPON THE ASSESSEE THROUGH THE BUSINESS TRANSFER AGREEMENT AC CORDING TO AO SINCE NO AGREEMENT OF LICENSE OR FRANCHISE RIGHT S HAVE DEVOLVED UPON THE ASSESSEE FROM PEPSI FOOD LTD. THE REFORE THE DEPRECIATION CLAIM ON LICENSE AND FRANCHISE RIGHTS WAS HELD AS NOT ADMISSIBLE. THE AO HAD ALSO OBSERVED THAT AS PE R LETTER OF INTENT IT WAS TO BE REPLACED WITH APPROPRIATE TRADE MARK LICENSING AGREEMENT AND THE LETTER OF INTENT SHALL TERMINATE IMMEDIATELY ON THE EXECUTION OF THE FRANCHISE AGREE MENT. ACCORDING TO AO IT IS IMPLIED THAT THE SAID AMOUNT OF RS.28 CRORE IS NOT LICENSE AND FRANCHISE RIGHTS BUT IT FO RMS PART OF GOODWILL DEVOLVED UPON THE ASSESSEE ON WHICH NO DEP RECIATION IS ALLOWABLE. I HAVE ALSO GONE THROUGH THE COPY OF BUSINESS TRANSFER AGREEMENT DATED 26.8.2000 BETWEEN DHILLON KOOL DRINKS AND BEVERAGES LTD. WITH THE APPELLANT LETTE R OF INTENT ISSUED BY PEPSI FOOD LTD. TO THE APPELLANT ON 26.8. 2000 AND AGREEMENT DATED 10.8.2000 BETWEEN PEPSICO INDIA HOL DING LTD. WITH THE APPELLANT. PEPSICO INDIA HOLDING LTD. IS A SUBSIDIARY 15 COMPANY OF PEPSICO INC NEW YORK WHO IS ENGAGED IN T HE BUSINESS OF MANUFACTURING AND DISTRIBUTION OF SOFT DRINKS BEVERAGES AND SYRUP MIX SOLD UNDER THE TRADE MARK L EHAR OWNED BY PEPSI FOOD LTD. PEPSI FOOD LTD. AND PEPSIC O INC GRANTED FRANCHISE RIGHTS FOR BOTTLING AND DISTRIBUT ION OF THEIR VARIOUS PRODUCTS TO DHILLON KOOL DRINKS AND BEVERAG ES LTD. FOR THE TERRITORIES OF PUNJAB HIMACHAL PRADESH CERTAI N PARTS OF HARYANA NEW DELHI I DELHI THE BUSINESS OF DHILLON KOOL DRINKS WAS IN BAD SHAPE AND SINCE THEY HAD TO PAY A N AMOUNT OVER RS.20 CRORES TO PEPSICO INDIA HOLDING LTD. AND THEREFORE THEY WERE INTERESTED IN SELLING THEIR DELHI BUSINES S ALONGWITH RIGHTS INTEREST PRIVILEGES ASSETS AND LIABILITIE S IN THE NATIONAL CAPITAL TERRITORY OF DELHI FOR WHICH THE APPELLANT COMPANY OFFERED TO PURCHASE THE SAID BUSINESS AS A GOING CO NCERN SUBJECT TO THE SELLER ARRANGING IN FAVOUR OF APPELLANT COMP ANY BY PEPSI FOOD LTD. OF THE LICENSE AND FRANCHISE RIGHTS TO US E THE TRADE MARKS OF PEPSI BRAND OF THE SOFT DRINKS. IN VIEW OF THESE INTENTIONS AN AGREEMENT WAS ENTERED IN BETWEEN PEPS ICO INDIA HOLDING LTD. AND THE ASSESSEE ON 10.8.2000 IN WHICH PIH HAD AGREED TO NOMINATE THE APPELLANT TO ACQUIRE DELHI B USINESS FROM DKD AND IT WOULD REQUIRE THE AUTHORIZATIONS FROM PF L & PSI TO UNDERTAKE AND CONDUCT DELHI BUSINESS AND THE FORM A ND NATURE OF SUCH AUTHORIZATION WILL BE AS MAY BE MUTUALLY AG REED BETWEEN THE APPELLANT AT ONE HAND AND THE PFL I PCI ON THE OTHER HAND. WITH THIS BACKGROUND AS PER LETTER OF I NTENT ISSUED BY PEPSI FOOD LTD. TO THE APPELLANT COMPANY DT. 26. 5.2000 I.E. SAME DATE ON WHICH BUSINESS TRANSFER AGREEMENT HAS BEEN EXECUTED BETWEEN THE APPELLANT AND M/S DHILLON KOOL DRINKS AND BEVERAGES LTD. THE APPELLANT COMPANY HAS STEPPE D INTO THE 16 SHOES OF THE SELLER AND COMMENCED THE BUSINESS OF MANUFACTURING AND DISTRIBUTION OF SOFT DRINKS BRAND S OWNED BY PEPSI FOOD LTD. WITHOUT PROPER RIGHTS OF LICENSE / FRANCHISE IT IS IMPOSSIBLE FOR THE APPELLANT TO CARRY OUT SUCH BUSI NESS ACTIVITY. FURTHER PEPSI FOODS PVT. LTD. VIDE THEIR LETTER DA TED 29. 3.2004 ADDRESSED TO THE APPELLANT COMPANY HAS REFERRED THE IR EARLIER LETTER OF INTENT DATED 26.8.2000 AS AMENDED FROM TI ME TO TIME AND THE VALIDITY OF THE SAID LETTER OF INTENT WAS F URTHER EXTENDED UPTO 30.9.2004 UNDER THE SAME TERMS AND CONDITIONS. THE LICENSES AND FRANCHISE RIGHTS EARLIER WERE WITH DKD AND ATTACHED TO DELHI BUSINESS AND WHEN DELHI BUSINESS AS A GOING CONCERN STOOD TRANSFERRED TO THE APPELLANT BY DKD A ND IN TURN THE APPELLANT IS UNINTERRUPTEDLY CARRYING ON THE BU SINESS OF BOTTLING AND SELLING IN THE SAME TERRITORY AND NECE SSARY SUPPLIES ARE BEING MADE TO THE APPELLANT BY PFL & PEPSICO TO MANUFACTURE THE NAMED BEVERAGES AND SYRUP MIX SUPPO RTED WITH LETTER OF INTENT ISSUED BY PEPSI. FOOD LTD. THEN OB VIOUSLY THE LICENSES AND FRANCHISE RIGHTS WERE ALSO DEVOLVED UP ON THE APPELLANT. WITH SUCH FACTUAL DEVELOPMENTS IN MY CON SIDERED VIEW THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOL DING THAT NO LICENSE AND FRANCHISE RIGHTS WERE DEVOLVED UPON THE APPELLANT COMPANY BECAUSE FOR THIS PURPOSE THERE IS NO AGREEM ENT BETWEEN THE APPELLANT AND THE SELLER NAMELY DKD. IN MY CONSIDERED VIEW THE ASSESSING OFFICER WAS ALSO NOT JUSTIFIED IN HOLDING THAT SAID PAYMENT OF RS.28 CRORE WAS FOR GO ODWILL BECAUSE IN THE BUSINESS TRANSFER AGREEMENT BETWEEN THE APPELLANT AND DKD THERE IS NO SUCH MENTION AND IN A NY CASE THE GOODWILL CAN ONLY BE TRANSFERRED WHEN THERE ARE PRO FITS WITH THE TRANSFEROR UNDERTAKING AND UNDISPUTEDLY THE TRANSFE ROR 17 UNDERTAKING. NAMELY DKD WAS IN BAD FINANCIAL SHAPE WHICH COULD NOT PAY MORE THAN RS.20 CRORE TO PEPSICO INDI A HOLDING LTD. AND BECAUSE OF WHICH THEY HAD TO TRANSFER THEI R BUSINESS TO THE APPELLANT AND THEREFORE THIS PAYMENT CANNOT BE CONSTRUED AS PAYMENT FOR GOODWILL AS HELD BY ASSESSING OFFICER W HILE GIVING A FINDING THAT NO DEPRECIATION IS ALLOWABLE ON SUCH P AYMENT SINCE IT IS A GOODWILL. FURTHER ON THIS ISSUE THERE IS D IRECT JUDGMENT OF ITAT DELHI BENCH C IN THE CASE OF HINDUSTAN COCA CO LA BEVERAGES PVT.LTD. V/S DCIT CIRCLE 12(1) NEW DELH I DT.25.8.2009 IN WHICH HONBLE ITAT HAS HELD THAT TR UE BASIS OF DEPRECIATION ALLOWANCE IS CHARACTER OF AN ASSET AND NOT ITS DESCRIPTION AND EVEN IF AN ASSET IS DESCRIBED AS GO ODWILL BUT IF IT FITS IN THE DESCRIPTION OF S.32(1)(II) THE DEPRECIA TION IS TO BE GRANTED THEREUPON. IN THAT CASE THE APPELLANT WAS D OMESTIC COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AN D DISTRIBUTION OF AERATED AND NON AERATED. BEVERAGES AND IT MADE PAYMENT TOWARDS BUSINESS ACQUIRED ON SLUMP PRICE AN D A PART OF PRICE SO PAID WAS ALLOCATED TO INTANGIBLE ASSETS CO VERED UNDER THE HEAD GOODWILL AND WHEN DEPRECIATION HAS BEEN CL AIMED U/S 32 ON SAID AMOUNT OF GOODWILL THEN DEPRECIATION WAS CORRECTLY ALLOWED BECAUSE EVEN IF AN AMOUNT IS TERMED AS GOOD WILL BUT IF IT IS A BUSINESS OR COMMERCIAL RIGHT IN THE NATURE OF KNOW HOW PATENT COPY RIGHT TRADE MARK LICENSE FRANCHISE THEN THE CLAIM OF DEPRECIATION IS INDEED ADMISSIBLE THEREUPON AND FURTHER THE GOODWILL IS NOT SPECIFICALLY EXCLUDED FROM THE INTA NGIBLE ASSETS ELIGIBLE FOR DEPRECIATION AND THEREFORE EVEN IF AN ASSET IS DESCRIBED AS GOODWILL THEN ALSO DEPRECIATION IS TO BE GRANTED ON THE SAME U/S 32(1)(II) OF L.T.ACT. HONBLE ITAT MUM BAI BENCH F IN THE CASE OF KOTAK FOREX BROKERAGE LTD. V/S ACI T RANGE 18 3(2) MUMBAI 33 SOT 237 (2009) (MUM.) HAS ALSO HELD THAT WHETHER ANY RIGHT WHICH IS OBTAINED BY A COMPANY FO R CARRYING ON BUSINESS EFFECTIVELY AND PROFITABLY FALLS WITHIN THE MEANING OF INTANGIBLE ASSETS THEN DEPRECIATION IS ALLOWABLE ON SAME IT HAS FURTHER HELD THAT GOODWILL IS A BUNDLE OF RIGHT S WHICH INCLUDE INTER-ALIA PATENTS TRADE MARKS LICENSES FRANCHISE ETC. AND IN VIEW OF ABOVE POSITION GOODWILL IS ALSO TO B E TREATED AS AN INTANGIBLE ASSETS OF SIMILAR NATURE REFERRED TO IN CLAUSE II OF S.32(1) AND CONSEQUENTLY DEPRECIATION WOULD BE ALL OWABLE ON SAME. IN THE BACKGROUND OF THESE 2 CASES ALSO IF EV EN THE CONTENTION OF ASSESSING OFFICER IS ACCEPTED THAT SA ID PAYMENT OF RS.28 CRORE WAS MADE FOR GOODWILL THEN ALSO THE APP ELLANT IS ENTITLED FOR DEPRECIATION @ 25% OF THE SAME WITHIN THE MEANING OF S.32(1)(II) OF I.T ACT. WITH THIS DISCUSSION THE AO IS DIRECTED TO ALLOW THE AFORESAID DEPRECIATION CLAIM OF RS.7 C RORE. 8.1. AFTER GOING THROUGH THE FINDING OF LD. CIT (A) AND THE ARGUMENTS OF LD. D/R AND ALSO TAKING INTO CONSIDERATION THE ARGUMENTS OF LD. A/R WE FIND THAT THE LD. CIT (A) EXAMINED THE ISSUE AT GREAT LENGTH AND FOUND THAT T HE PEPSICO INDIA HOLDING LTD. WAS INTERESTED IN SELLING THEIR DELHI BUSINESS ALONG WI TH RIGHTS INTEREST PRIVILEGES ASSETS AND LIABILITIES IN THE NATIONAL CAPITAL TERRITORY OF DE LHI FOR LWHICH THE ASSESSEE COMPANY OFFERED TO PURCHASE THE SAID BUSINESS AS A GOING CO NCERN SUBJECT TO THE SELLER ARRANGING IN FAVOUR OF THE ASSESSEE COMPANY BY PEPSI FOOD LTD. O F THE LICENSE AND FRANCHISE RIGHTS TO USE THE TRADE MARKS OF PEPSI BRAND OF THE SOFT DRIN KS. IN VIEW OF THESE INTENTIONS AN AGREEMENT WAS ENTERED IN BETWEEN PEPSICO INDIA HOLD ING LTD. (PIH) AND THE ASSESSEE ON 10.8.2000 IN WHICH PIH HAD AGREED TO NOMINATE THE A SSESSEE TO ACQUIRE DELHI BUSINESS 19 FROM DHILLON KOOL DRINKS & BEVERAGES LTD. (DKD) AN D THE FORMAL AUTHORIZATIONS FROM PFL AND PSI TO UNDERTAKE AND CONDUCT DELHI BUSINESS WAS ALSO TO BE OBTAINED FROM THE RESPECTIVE PARTIES. IN THIS BACKGROUND A LETTER OF INTENT WAS ISSUED BY PEPSI FOOD LTD. TO THE ASSESSEE COMPANY ON 26.5.2000 I.E. THE DATE ON WHICH BUSINESS TRANSFER AGREEMENT WAS EXECUTED BETWEEN THE ASSESSEE AND M/S. DKD AND THEREAFTER THE ASSESSEE COMPANY HAS STEPPED INTO THE SHOES OF SELLER AND COMMENCED THE BUSINESS OF MANUFACTURING AND DISTRIBUTION OF SOFT DRINKS BRANDS OWNED BY PFL. I T IS FURTHER NOTED THAT M/S. DKD WAS IN BAD SHAPE AND THEY HAD TO PAY AN AMOUNT OF RS. 2 0 CRORES TO M/S. PEPSICO INDIA HOLDING LTD. AND THEREFORE THEY WERE INTERESTED I N SELLING THEIR DELHI BUSINESS ALONG WITH RIGHTS INTEREST PRIVILEGES ASSETS AND LIABI LITIES IN THE NATIONAL CAPITAL TERRITORY OF DELHI FOR WHICH THE ASSESSEE COMPANY OFFERED TO PUR CHASE THE SAID BUSINESS. SINCE THERE WAS A LIABILITY OF MORE THAN RS. 20 CRORES IN OUR CONSIDERED VIEW THERE CANNOT BE ANY GOOD WILL AND THEREFORE AOS PRESUMPTION THAT THE Y HAD PURCHASED GOOD WILL AND NOT THE RIGHTS INTEREST PRIVILEGES ASSETS AND LIABILITIE S ETC. FROM M/S. DKD. THE LD. CIT (A) HAS EXAMINED THIS ASPECT THOROUGHLY AND THEN ONLY HELD THAT THE ASSESSEE HAD ACQUIRED LICENSE RIGHTS INTEREST PRIVILEGES ETC. WHICH AR E INTANGIBLE ASSETS IN VIEW OF PROVISIONS OF SECTION 32(1)(II) OF THE ACT AND HELD THAT ASSESSEE IS ENTITLED FOR DEPRECIATION. THIS FINDING OF LD. CIT (A) REMAINED UNCONTROVERTED. HOW EVER THE LD. CIT D/R HAS ARGUED THAT IT WAS A GOOD WILL AND THE AO WAS RIGHT IN DEN YING THE DEPRECIATION BEING PURCHASE OF GOOD WILL BY THE ASSESSEE. THE LD. CIT D/R HAS STATED THAT THE DECISION IN CASE OF HINDUSTAN COCA COLA (SUPRA) IS NOT APPLICABLE AS FA CTS OF THE PRESENT CASE AS IN THIS CASE THE PROCEEDINGS UNDER SECTION 263 WERE INITIATED. WE HAVE GONE THROUGH THIS ORDER OF THE TRIBUNAL IN CASE OF HINDUSTAN COCA COLA WHICH HAS B EEN APPROVED BY HONBLE DELHI 20 HIGH COURT ALSO AND FOUND THAT THOUGH THE APPEAL BE FORE TRIBUNAL WAS AGAINST ORDER UNDER SECTION 263 BUT TRIBUNAL HAS DECIDED THE ISS UE ON MERITS ALSO BY WHICH IT WAS HELD THAT ON GOOD WILL THE DEPRECIATION IS ALLOWABLE AN D THE AO WAS CORRECT IN ALLOWING THE DEPRECIATION. THE LD. D/R HAS ALSO PLACED RELIANC E IN CASE OF BORKAR PACKAGING (P) LTD 131 TTJ 99 (PANAJI) IN CASE OF BHARATBHAI J. VYAS 279 ITR 41 (AT PORTION) AND IN CASE OF R.G. KESWANI 308 ITR 271 (AT ). NO DOUBT IN T HESE CASES VARIOUS BENCHES OF THE TRIBUNAL HAS HELD THAT THE WORD GOOD WILL IS NOT PROVIDED IN THE PROVISIONS OF SECTION 32(1)(II) BY THE LEGISLATURES WHILE MENTIONING VARI OUS INTANGIBLE OTHER ASSETS. THEREFORE DEPRECIATION IS NOT ALLOWABLE. 8.2. HOWEVER WE FIND THAT IN CASE OF B. RAVEENDRAN PILLAI 237 CTR 80 (KER.) THE HONBLE KERALA HIGH COURT HAS HELD THAT EVEN ON GOO D WILL THE DEPRECIATION IS ALLOWABLE. THERE ARE DIFFERENT VIEWS OF THE BENCHES OF THE TRI BUNAL BUT THERE IS NO DECISION OF ANY HIGH COURT THAT DEPRECIATION ON GOOD WILL CANNOT BE ALLOWED WHEREAS THERE IS A DECISION OF HONBLE KERALA HIGH COURT IN FAVOUR OF THE ASSES SEE I.E. IN CASE OF B. RAVEENDRAN PILLAI (SUPRA) WHEREIN IT IS HELD THAT DEPRECIATION IS ALLOWABLE ON GOOD WILL. THE LD. A/R HAS ALSO INFORMED THAT THE DECISION OF THE TRIBUNAL IN CASE OF HINDUSTAN COCA COLA HAS BEEN AFFIRMED BY THE HONBLE DELHI HIGH COURT. THE REFORE IN VIEW OF THE DECISION OF HONBLE HIGH COURT THE DEPRECIATION HAS TO BE ALLO WED ON GOOD WILL ALSO. HOWEVER WE ARE NOT INCLINED TO GO INTO DETAIL WHETHER DEPRECIA TION ON GOOD WILL IS ALLOWABLE OR NOT BUT THE FACT REMAINS THAT THE ASSESSEE HAS NOT PURCHASE D ANY GOOD WILL BUT HAS PURCHASED LICENSE INTEREST PRIVILEGE FRANCHISE ETC. FROM M /S. DKD WHICH ARE UNDISPUTEDLY COVERED BY SECTION 32(1)(II) AND THEREFORE THE DEPRECIATI ON IS ALLOWABLE AND THE LD. CIT (A) HAS ALLOWED THE DEPRECIATION ON THESE INTANGIBLE ASSETS AND WE HAVE NO HESITATION IN 21 CONFIRMING THE ORDER OF LD. CIT (A) ON THIS ASPECT. ACCORDINGLY WE CONFIRM THE ORDER OF LD. CIT (A). 9. WE HAVE DISCUSSED THE FACTS OF THE CASE FOR ASSE SSMENT YEAR 2001-02 AND HAVE CONFIRMED THE FINDING OF LD. CIT (A). IN OTHER APP EALS ALSO THE IDENTICAL ISSUE IS INVOLVED. THEREFORE FOR THE SAME REASONING WE CONFIRM THE OR DER OF LD. CIT (A) FOR OTHER YEARS ALSO. 10. IN THE RESULT ALL THE APPEALS OF THE DEPARTMEN T ARE DISMISSED. 11. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR D/- COPY FORWARDED TO :- THE ACIT CIRCLE-5 JAIPUR. M/S. JAI DRINKS P. LTD. JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 405(6)/JP/2010) BY ORDER AR ITAT JAIPUR.