Commissioner Of Income Tax, Jaipur v. M/S Jai Drinks Pvt. Ltd., Jaipur

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. (1) D.B. Income Tax Appeal No. 156/2016(2) D.B. Income Tax Appeal No. 73/2012(3) D.B. Income Tax Appeal No. 74/2012(4) D.B. Income Tax Appeal No. 76/2012(5) D.B. Income Tax Appeal No. 77/2012(6)D.B. Income Tax Appeal No. 78/2012(7)D.B. Income Tax Appeal No. 82/2012(8)D.B. Income Tax Appeal No. 157/2016 Commissioner of Income Tax, Jaipur ....Appellant Vs M/s Jai Drinks Pvt. Ltd., Jaipur ....Respondent DATE OF JUDGMENT ::: 07.09.2016 HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE BANWARI LAL SHARMA Mr. R.B. Mathur withMr. Kushal Dutt Mathur, for the appellant. Mr. N.M. Ranka Sr. counsel withMr. N.K. Jain, for the respondent. ***** 1.These appeals are arising out of the commonjudgment/order of Income Tax Appellate Tribunal Jaipur Bench,Jaipur wherein appeal preferred by the department wasdismissed and judgment/order of CIT appeal was upheld. 2.The brief facts of the case are that the assessee companywas engaged in the business of manufacturing of aeratedwater. During the year under consideration, assessee company has declared gross profit of Rs. 106119869/- on total turnoverof Rs. 58,48,40,008/- thereby giving a GP rate of 18.15% asagainst sales of Rs. 58,41,57,217/- and gross profit of Rs.10,61,19,869/- i.e. 18.17 in the A.Y. 2007-08. The assesseehas also shown income from “other sources” being profit onsale of fixed assets. During the completion of assessment, theAssessing Officer made dis-allowance of Rs. 9343872/- claimedby the assessee on account of depreciation on license andfranchisee right (intangible assets). The assessee preferredappeal before the CIT(A). The CIT(A) allowed the appeal filedby the assessee and deleted the addition made by theAssessing Officer. The revenue preferred appeal before ITAT.The ITAT has upheld the decision of the CIT(A) and dismissedthe appeal of the department relying on its own decision inassessee's case in A.Y. 2001-02 to 2007-08. (3) Deprecation for the relevant assessment years make acharge for these appeals between the same party for therelevant years 2001-02, 2003-04, 2005-06, 2007-08, 2008-09and 2009-10. (3.1) Learned Counsel for the appellant has framed followingquestions :- “1. Whether on the facts and incircumstances of the case, the ITAT wasjustified in law in deleting the disallowanceof Rs. 9343872/- made by the AssessingOfficer on account of depreciation claim onintangible assets. 2. Whether on the facts and incircumstances of the case, the ITAT was justified in law in holding that assesse haspurchased license, interest privilege,franchise etc. from seller M/s. Dhillon KoolDrinks and Beverages Ltd. For Rs. 28 croreswithout appreciating the fact that licenseand franchise rights were given to theassesse by PFL ( Pepsi Food Ltd.) and not bythe seller M/s. Dhillon Kool Drinks andBeverages Ltd. and thus making the order tobe perverse. 3. Whether on the facts and incircumstances of the case, the respondentassesse is entitled for any depreciation.”circumstances of the case, the respondentassesse is entitled for any depreciation.” 4.Mr. Mathur has taken us to the order passed by theAssessing Officer at page no. 15 where the total income of theassessee has been computed which has not been paid to PepsiFood Ltd. and the depreciation which has been claimed has notbeen accepted. He has also taken us to the relevant paragraphof the material which has been considered at page 36 on wardsby the Tribunal while accepting the paragraph. Therefore, weobserve that the assessee is not entitled for depreciation. 5.Counsel for the respondent Mr. N.M. Ranka has contendedthat in view of the agreement arrived at between the parties, itwas taken as a liability and considering the agreement and thecorrespondence between the assessee and the Pepsico, theTribunal took the following view: 4.Mr. Mathur has taken us to the order passed by theAssessing Officer at page no. 15 where the total income of theassessee has been computed which has not been paid to PepsiFood Ltd. and the depreciation which has been claimed has notbeen accepted. He has also taken us to the relevant paragraphof the material which has been considered at page 36 on wardsby the Tribunal while accepting the paragraph. Therefore, weobserve that the assessee is not entitled for depreciation. 5.Counsel for the respondent Mr. N.M. Ranka has contendedthat in view of the agreement arrived at between the parties, itwas taken as a liability and considering the agreement and thecorrespondence between the assessee and the Pepsico, theTribunal took the following view: “After going through the finding of Id. CIT (A) andthe arguments of ID. D/r and also taking intoconsideration the arguments of ID. A/R, we findthat the Id. CIT (A) examined the issue at greatlength and found that the Pepsico India HoldingLtd. Was interested in selling their Delhi businessalong with rights, interest, privileges, assets andliabilities in the National Capital Territory of Delhifor which the assessee company offered topurchase the said business as a going concern subject to the seller arranging in favour of theassessee company by Pepsi Food Ltd. of thelicense and franchise rights to use the trademarksof Pepsi brand of the soft drinks. In view of theseintentions an agreement was entered in betweenPepsico India Holding Ltd. (PIH) and the assesseeon 10.8.2000 in which PIH had agreed tonominate the assessee to acquire Delhi businessfrom Dhillon Kool Drinks & Beverages Ltd. (DKD)and the formal authorizations from PFL and PSI toundertake and conduct Delhi business was also tobe obtained from the respective parties. In thisbackground a letter of intent was issued by PepsiFood Ltd. to the assessee company on 26.5.2000i.e. the date on which business transferagreement was executed between the assesseeand M/s. DKD, and thereafter the assesseecompany has stepped into the shoes of seller andcommenced the business of manufacturing anddistributionof soft drinks brands owned by PFL. Itis further noted that M/s. DKD was in bad shapeand they had to pay an amount of Rs. 20 croresto M/s. Pepsico India Holding Ltd. And, therefore,they were interested in selling their Delhi businessalong with rights, interest, privileges, assets andliabilities in the National Capital Territory of Delhifor which the assessee company offered topurchase the said business. Since there was aliability of more than Rs. 20 crores, in ourconsidered view, there cannot be any good willand, therefore, AO's presumption that they hadpurchased good will and not the rights, interest,privileges, assets and liabilities etc. from M/s.DKD. The Id. CIT (A) has examined this aspectthoroughly and then only held that the assesseehad acquired license, rights, interest, privilegesetc. which are intangible assets in view ofprovisions of section 32(1)(ii) of the Act and heldthat assessee is entitled for depreciation. Thisfinding of Id. CIT (A) remained uncontroverted.However, the Id. CIT D/R has argued that it was agood will and the AO was right in denying thedepreciation being purchase of good will by theassessee. The Id. CIT D/R has stated that thedecision in case of Hindustan Coca Cola (supra) isnot applicable as facts of the present case as inthis case the proceedings under Section 263 wereinitiated. We have gone through this order of theTribunal in case of Hindustan Coca Cola which hasbeen approved by Hon'ble Delhi High Court also and found that though the appeal before Tribunalwas against order under section 263, but Tribunalhas decided the issue on merits also by which itwas held that on good will, the depreciation isallowable and the AO was correct in allowing thedepreciation. The Id. D/R has also placed reliancein case of Borkar Packaging (P) Ltd, 131 IIJ 99(Panaji), in case of Bharatbhai J. Vyas, 279 ITR41 (AT Portion) and in case of R.G. Keswani, 308ITR 271 (AT). No doubt, in these cases variousbenches of the Tribunal has held that the word“good will” is not provided in the provisions ofSection 32(1)(ii) by the Legislatures whilementioning various intangible other assets.Therefore, depreciation is not allowable.” (6)However, we find that in case of B. Raveendran Pillai, 237 CTR 80 (Ker.), the Hon'ble Kerela High Court has held thateven on good will the depreciation is allowable. There aredifferent views of the Benches of the Tribunal but there is nodecision of any High Court that depreciation on good willcannot be allowed whereas there is a decision of Hon'bleKerela High Court in favour of the assessee i.e. in case of B.Raveendran Pillai (supra) wherein it is held that depreciationis allowable on good will. The Id. A/R has also informed thatthe decision of the Tribunal in case of Hindustan Coca Colahas been affirmed by the Hon'ble Delhi High Court.Therefore, in view of the decision of Hon'ble High Court, thedepreciation has to be allowed on good will also. However,we are not inclined to go into detail whether depreciation ongood will is allowable or not but the fact remains that theassessee has not purchased any good will but haspurchased license, interest, privilege, franchise etc. from M/s. DKD which are undisputedly covered by Section 32(1)(ii) and, therefore, the depreciation is allowable and the Id.CIT (A) has allowed the depreciation is allowable and theId. CIT (A) has allowed the depreciation on these intangibleassets, and we have no hesitation in confirming the order ofId. CIT (A) on this aspect. Accordingly we confirm the orderof Id. CIT (A). (7) InCommissioner of Income-Tax Vs. SimfsSecurities Ltd. [2012] 348 ITR 302 (SC), it has beenheld as under:- “that it was settled that the manner inwhich the assessee maintains itsaccounts is not conclusive for decidingthe nature of expenditure. The con-current findings of fact recorded by theauthorities indicated that the assesseewas entitled to claim deduction in thecourse of business under section 36(1)(vii) of the Act.” (8) InTechno Shares and Stocks Ltd. VsCommissioner of Income Tax [2010] 327 ITR 323(SC), it has been held as under-(SC), it has been held as under- “reversing the decision of the HighCourt, on a consideration of the BSErules, that the right of membership was a “business or commercial right” and couldbe said to be owned by the assessee andused for business purposes in terms ofsection 32(1)(ii). The right ofmembership, which included the right ofnomination, was “licence” or “akin to alicence” which was one of the itemswhich fell in section 32(1)(ii). The rightto participate in the market had aneconomic and money value. It was anexpense incurred by the assessee whichsatisfied the test of being a “licence” or“any other business or commercial rightof similar nature” in terms of section 32(1)(ii).” (9) In Commissioner of Income-Tax Vs. Hindustan CocoCola Beverages P. Ltd. [2011] 331 ITR 192 (Delhi), it hasbeen held as under- “that it was clear from the order passedby the Tribunal, that the depreciationwas claimed on goodwill by the assesseeon account of payment made for themarketing and trading reputation, tradestyle and name, marketing anddistribution, territorial know-how ,including information or consumptionpatterns and habits of consumers in theterritory and the difference between the (9) In Commissioner of Income-Tax Vs. Hindustan CocoCola Beverages P. Ltd. [2011] 331 ITR 192 (Delhi), it hasbeen held as under- “that it was clear from the order passedby the Tribunal, that the depreciationwas claimed on goodwill by the assesseeon account of payment made for themarketing and trading reputation, tradestyle and name, marketing anddistribution, territorial know-how ,including information or consumptionpatterns and habits of consumers in theterritory and the difference between the consideration paid for business and valueof tangible assets. The Tribunal hadtreated it to be valuable commercialasset similar to other intangiblesmentioned in the definition of the blockof assets and, hence, eligible todepreciation. It had also been noted bythe Tribunal that these facts were statedby the assessee in the audit report andthe Assessing Officer had examined theaudit report and also made queries andaccepted the explanation preferred bythe assessee. The acceptance of theclaim ofthe assessee by the AssessingOfficer would come in the compartmentof taking a plausible view inasmuch asbasicallyintangibleassetswereidentifiable non-monetary assets thatcould not be seen or touched or physicalmeasures which were created throughtime and/or effort and that wereidentifiable as a separate asset. Theycould be in the form of copyrights,patents, trademarks, goodwill, tradesecrets, customer lists, marketing rights,franchises, etc. Which either arise onacquisition or were internally generated.Goodwill conveys a positive reputationbuilt by a person/company/businessconcern over a period of time. TheTribunal was Justified in holding that iftwo were possible and when theAssessing Officer had accepted one view which was a plausible one, it was notappropriate on the part of theCommissioner to exercise his powerunder section 263 solely on the groundthat in the books of account it wasmentioned as goodwill and nothing else.” (10) In Commissioner of Income Tax Vs. RFCL Ltd.[2015] 277 CTR Reports, it has been held as under- “Goodwill as also list of stockistagreements, distribution agreements,lease agreements and also distributionand marketing agreements, along withlist of licenses and permissions and list ofvarious products, the name license andalso the manufacturing know-how etc.,along with list of employees areintangibleassets,entitledtodepreciation. Commissioner Or Income-Tax Vs. JaiParabolice Spring Ltd. [2012] 345 ITR421 (Delhi) it has been held as under- that in the case of the assessee,intangible assets, viz., business claims,business information, business records,contracts, skilled employees and know-how were all assets, which wereinvaluable and resulted in carrying on thetransmission and distribution business bythe assessee, which was hitherto beingcarried out by the transferor, without anyinterruption. The intangible assets were, therefore, comparable to a licence tocarry out the existing transmission anddistribution business of the transferor. Inthe absence of the intangible assets, theassessee would have had to commencebusiness from scratch and go through thegestation period whereas by acquiringthe business rights along with thetangible assets, the assessee got an upand running business. The specifiedintangible assets acquired under theslump sale agreement were in the natureof “business or commercial rights ofsimilar nature” specified in section 32(1)(ii) ofthe Act were accordingly eligible fordepreciation under that section”. therefore, comparable to a licence tocarry out the existing transmission anddistribution business of the transferor. Inthe absence of the intangible assets, theassessee would have had to commencebusiness from scratch and go through thegestation period whereas by acquiringthe business rights along with thetangible assets, the assessee got an upand running business. The specifiedintangible assets acquired under theslump sale agreement were in the natureof “business or commercial rights ofsimilar nature” specified in section 32(1)(ii) ofthe Act were accordingly eligible fordepreciation under that section”. (11) In view of the concurrent finding arrived at by theTribunal and the CIT (Appeals) while considering the matterbetween the parties, we have considered the agreement dated26.08.2000 and correspondence which has been enteredbetween the parties and we have also considered the letter ofPepsico Food Private Ltd. dated 29.03.3004 which was validupto 30.09.2004 taking into account the decision in case ofDelhi High Court Bench in Commissioner ofIncome-Tax VsHindustan Coco Cola Beverages P. Ltd. wherein it has beenconsidered that assessee is entitled for deprication. We havealso considered the other facts. The same view was taken intoaccount and again reconsidered in paragraph 8 and 8.1. (12)In our considered view, the view took by the Tribunal isrequired to be accepted and no substantial question of lawdoes arise and these appeals deserve to be dismissed. required to be accepted and no substantial question of lawdoes arise and these appeals deserve to be dismissed. The same are dismissed. (13) A copy of same be placed in all the connected files. (Banwari Lal Sharma), J. (K.S. Jhaveri), J. Charu/-Item No. 8-14.