ITO 3(2)(3), MUMBAI v. KOTAK FOREX BROKERAGE LTD, MUMBAI

ITA 4065/MUM/2011 | 2006-2007
Pronouncement Date: 29-03-2012 | Result: Dismissed

Appeal Details

RSA Number 406519914 RSA 2011
Assessee PAN AAACK5920G
Bench Mumbai
Appeal Number ITA 4065/MUM/2011
Duration Of Justice 10 month(s) 13 day(s)
Appellant ITO 3(2)(3), MUMBAI
Respondent KOTAK FOREX BROKERAGE LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-03-2012
Assessment Year 2006-2007
Appeal Filed On 16-05-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (JM) AND SHRI N.K .BILLAIYA (AM) ITA NO.4065/MUM/2011 (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER 3(2)(3) ROOM NO.673 6 TH FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI-400020. M/S KOTAK FOREX BROKERAGE LTD. 1 ST FLOOR BHAKTAWAR 229 NARIMAN POINT MUMBAI-400021 PAN:AAACK5920G APPELLANT V/S RESPONDENT DATE OF HEARING : 15.3.2012 DATE OF PRONOUNCEMENT : 29.3.2012 APPELLANT BY : MRS.USHA NAIR RESPONDENT BY : SHRI FARROKH IRANI O R D E R PER DINESH KUMAR AGARWAL (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 7.3.2011 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE- COMPANY IS ENGAGED IN THE BUSINESS OF GRANTING LOA NS AND MAKING INVESTMENTS. THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS.6 57 465/-. DURING THE COURSE OF ASSES SMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS C LAIMED ITA NO.4065/MUM/2011 (ASSESSMENT YEAR: 2006-07) 2 DEPRECIATION ON GOODWILL AND ON FOREX BUSINESS RI GHTS U/S 32(1)(II) OF THE INCOME TAX ACT 1961 (THE ACT) B EING INTANGIBLE ASSETS. THE ASSESSEE WAS ASKED TO EX PLAIN AS TO WHY THE DEPRECIATION ON BOTH THE ABOVE INTANGIBLE ASSETS SHOULD BE ALLOWED. IN RESPONSE THE ASSESSEE FILED REPLY VIDE LETTER DATED 11.2.2008 INTERALIA STATING THAT (PAGE 5 OF THE AO): GOODWILL IS A BUNDLE OF RIGHTS WHICH INCLUDES INTE RALIA PATENTS TRADE MARKS TRADE NAMES LICENCES FRANCHISES ETC. SOME OF THESE RIGHTS HAVE BEEN SPECIFIED AS ASSETS ELIGIBLE FOR DEPRECIATION SUCH AS PATENT TRADE MAR K TRADE NAME LICENCES FRANCHISES ETC. THE ASSETS SO ENUMERATED ARE SOME OF THE COMPONENTS OF GOODWILL. GOODWILL IS DEEMED TO HAVE COVERED BY THE RESIDUAR Y EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF A SIMILAR NATURE. HOWEVER THE AO DID NOT ACCEPT THE ASSESSEES EXP LANATION ON THE GROUND THAT GOODWILL DOES NOT FALL WITHIN T HE CATEGORY OF THE CLASS OF ASSETS OR RIGHTS LISTED IN THE PROVIS IONS OF SECTION 32(1)(II) OF THE ACT AND HENCE DISALLOWED THE DEPR ECIATION ON THE GOODWILL RS.13 03 989/- AND ADDED THE SAME TO T HE TOTAL INCOME OF THE ASSESSEE. 3. ON APPEAL THE LD. CIT(A) FOLLOWING THE TRIBUNA L ORDERS IN ASSESSEES OWN CASE IN M/S KOTAK FOREX BROKERAGE LI MITED V/S ITA NO.4065/MUM/2011 (ASSESSMENT YEAR: 2006-07) 3 ACIT IN ITA NO.2692/MUM/2007 (AY:2001-02) ORDER DAT ED 6.8.2009 AND THE ORDER IN ITA NO.4273/MUM/2008 A. Y.2005- 06 ORDER DATED 28.10.2009 HOWEVER ALLOWED THE CLA IM OF THE ASSESSEE AND DELETED THE DISALLOWANCE MADE BY THE AO. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING G ROUNDS OF APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION ON GOODWILL MADE BY TH E A.O. IN RESPECT OF DIFFERENCE IN PAYMENTS OF SERVIC E TAX OF RS.13 03 989/- HOLDING THAT THE SAME FALLS WITHIN THE CATEGORY OF THE CLASS OF ASSETS OR RIGHTS LISTED IN THE PROVISIONS OF SEC.32(1) (II) OF THE INCOME TAX ACT. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. AT THE TIME OF HEARING THE LD. DR SUPPORTS THE ORDER OF THE AO. 6. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSE SSEE SUBMITS THAT THIS ISSUE IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE AS SESSEES OWN CASE FOR ASSESSMENT YEARS 2001-02 AND 2005-06 (SUPR A). HE ALSO PLACED ON RECORD THE COPY OF THE SAID ORDER S OF THE ITA NO.4065/MUM/2011 (ASSESSMENT YEAR: 2006-07) 4 TRIBUNAL. HE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT THE ISSUE O F DEPRECIATION ON GOODWILL IS SQUARELY COVERED IN FAVOUR OF THE AS SESSEE BY THE AFORESAID ORDERS OF THE TRIBUNAL. THE TRIBUNA L IN THE ORDER DATED 28.10.2009 WHILE FOLLOWING THE DECISION OF THE EARLIER YEAR I.E. FOR A.Y.2001-02 HAS OBSERVED AND HELD VI DE PARAGRAPHS 4.3 TO 6 AS UNDER : 4.3 THIS RATIO OF THE DECISION OF THE TRIBUNAL IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE BECAUSE IN THE CASE OF THE ASSESSEE ITSELF THE TRIBUNAL HAS CATE GORICALLY GIVEN A FINDING THAT GOODWILL EARNED BY THE ASSESSE E AKIN TO THE TRADEMARK AS GOODWILL IS FORMED ON THE BASIS OF TRADE MARK. THE FINDINGS GIVEN BY THE TRIBUNAL IN P ARA 8 OF ITS ORDER ARE AS UNDER: BUSINESS OR COMMERCIAL RIGHTS ARE RIGHTS OBTAINED FOR EFFECTIVELY CARRYING ON THE BUSINESS OR COMMERCE. COMMERCE IS A WIDER TERM WHICH ENCOMPASSES BUSINESS IN ITS FOLD. THEREFORE ANY RIGHT WHICH IS OBTAINED FOR CARRYING ON THE BUSINESS EFFECTIVELY A ND PROFITABLY HAS TO FALL WITHIN THE MEANING OF INTANG IBLE ASSET. THE DEFINITION FURTHER PROVIDES THAT THE BUS INESS OR COMMERCIAL RIGHTS SHOULD BE OF SIMILAR NATURE AS KNOW-HOW PATENTS COPY RIGHTS TRADEMARKS LICENSE S FRANCHISES ETC. ALL THESE ARE THE ASSETS WHICH ARE NOT MANUFACTURED OR PRODUCED OVERNIGHT BUT ARE BROUGHT INTO EXISTENCE BY EXPERIENCE AND REPUTATION. THEY ASSUME IMPORTANCE IN THE COMMERCIAL WORLD AS THEY REPRESENT A PARTICULAR BENEFIT OR ADVANTAGE OR ITA NO.4065/MUM/2011 (ASSESSMENT YEAR: 2006-07) 5 REPUTATION BUILT OVER A PERIOD OF TIME AND CUSTOMER S ASSOCIATE WITH SUCH ASSTS. SIMILARLY GOODWILL IS NOTHING BUT POSITIVE REPUTATION BUILT BY A PERSON/COMPANY/BUSINESS-HOUSE OVER A PERIOD OF TIME. THUS GOODWILL IS A BUSINESS OR COMMERCIAL R IGHT OF SIMILAR NATURE. AS SEEN FROM THE AGREEMENT OF S ALE BETWEEN SHRI UDAY S KOTAK AND THE ASSESSEE COMPANY FORMERLY KNOWN AS KOMAZ FINANCIAL SERVICES LTD WE FIND THAT THE NAME KOTAK HAS TREMENDOUS IMPORTANC E AS THE ASSESSEE COMPANY WAS TO BE BENEFITED BY THE USING OF THE SAID NAME AND IT HAS GONE AS FAR AS AMENDING ITS NAME BY INCLUDING KOTAK IN ITS NAME. THEREFORE IT IS OF COMMERCIAL VALUE FOR WHICH THE ASSESSEE HAS PAID THE AMOUNT OF RS. 1.88 CRORES AS GOODWILL. 4.4 WHILE HOLDING SO THE TRIBUNAL HAS TAKEN INTO CONSIDERATION THE ARGUMENTS OF THE ASSESSEE THAT TH E ASSESSEE COMPANY WAS ALSO RENAMED AS KOTAK FOREX BROKING LTD. THUS WHEN THE RIGHT TO USE THE NAME KOTAK IS GRANTED TO THE ASSESSEE COMPANY THE CONSIDERATION PAID FOR SUCH USAGE IS AKIN TO THE CONSIDERATION PAID FOR A TRADEMARK. ACCORDINGLY TH E GOODWILL WHICH WAS GENERATED IN PAST WAS CONSIDERED BY THE TRIBUNAL SIMILAR TO THE TRADE MARK; THEREFORE THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. 5 SIMILARLY THE RATIO OF THE DECISION IN THE CASE OF BIRLA GOBAL ASSET FINANCE CO LTD ALSO IN FAVOUR OF THE ASSESSEE WHEREIN THE TRIBUNAL HELD THAT THE LOGO AN D THE TRADEMARK WHICH ARE INTANGIBLE ASSETS WERE PURCHASE D FROM THE PRINCIPLE COMPANY AND THEY WERE USED FOR I TS BUSINESS PURPOSES AND ON THAT ACCOUNT HUGE EARNING WERE MADE BY THE ASSESSEE AND THE SAME WAS OFFERED FOR TAXATION. THE VALUATION REPORT OBTAINED BY THE ASSE SSEE WAS IN RESPECT OF INTANGIBLE ASSETS ONLY; THEREFORE IT CANNOT BE SAID THAT THERE WAS NO DETAILS OF INTANGI BLE ASSETS OR NO PROPER VALUATION OF INTANGIBLE ASSETS. THE DEPRECATION ON INTANGIBLE ASSETS IS ALLOWABLE. THER EAFTER THE TRIBUNAL HAS RECORDED ITS FINDING THAT DEPRECIA TION WAS ALLOWABLE ON GOODWILL. ITA NO.4065/MUM/2011 (ASSESSMENT YEAR: 2006-07) 6 6 IN THE CASE OF HINDUSTAN COCO COLA BEVERAGES P LTD. ALSO THE TRIBUNAL AFTER TAKING TO CONSIDERATIO N THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN 97 ITD 248 WHICH WAS FOUND DISTINGUISHABLE AND THEREAF TER FOLLOWING THE DECISION IN THE CASE OF GEE VEE ENTER PRISES IN 99 ITR 375 HELD THAT DEPRECIATION IS ALLOWABLE O N GOODWILL ALSO WHICH IS AKIN TO THE DEFINITION OF AS SETS AS PER SEC 32(1)(II) OF THE ACT. THEREFORE WE HAVE NO HESITATION IN HOLDING THAT THE DECISION OF THE TRIB UNAL IN THE CASE OF ASSESSEE ITSELF IS LIABLE TO BE FOLLOWE D. ACCORDINGLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE WE ALLOW THE DEPRECATION ON GOODWILL. 8. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BRO UGHT ON RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING TH E CONSISTENT VIEW OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) HOLD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION ON GOODWIL L AND ACCORDINGLY THE ORDER PASSED BY THE LD. CIT(A) ALLO WING THE DEPRECIATION ON GOODWILL DOES NOT CALL FOR ANY INT ERFERENCE. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE R EJECTED. 9. IN THE RESULT REVENUES APPEAL STANDS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH MAR. 2012. SD SD (N.K.BILLAIYA) (DINESH KUMAR AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI 29TH MARCH 2012 SRL: ITA NO.4065/MUM/2011 (ASSESSMENT YEAR: 2006-07) 7 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI