Ita/250/2011 Of The Commissioner Of Income-Tax v. M/S Hewlett Packard India Sales Pvt Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 30 DAY OF NOVEMBER 2070. PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD BETWEEN: LT.A. NO.250 OF JZO11 1.|THE COMMISSIONER OF INCOME-TA® JSS TOWERS| BSK III STAGE BANGALORE. 2 |THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE - 11(2) JSS TOWERS| BSK III STAGE BANGALORE. .., APPELLANTS. (BY SRI.K.V.ARAVIND, ADV.,) AND" M/S HEWLETT PACKARD INDIA SALES PVT. LTD.(FORMERLY COMPAQ COMPUTERS INDIA P. LTD.) NO.24, SALARPURIA ARENAHOSUR MAIN ROAD|ADUGODI BANGALORE - 560 030. (BY SRI.T.SURYANARAYANA, ADV.) .., RESPONDENT THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961 ARISING OUT OF ORDER DATED 25.02.2011 PASSED IN ITA. NO.249/BANG/2010 FOR THE ASSESSMENT YEAR 2000-01,PRAYING TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN.» (11) ALLOW THE APPEAL AND SET ASIDE THE ORDERS.PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BANGALOREIN ITA NO.249/BANG/2010 DATED 25.02.2011 CONFIRMING THEORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE.ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX,LTU, BANGALORE, IN THE NTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR HEARING, THIS DAY,ALOKARADAHE J.DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)has been preferred by the revenue. The subject matter|of the appeal pertains to the Assessment year 2000-01.The appeal was admitted by a bench of this Court videorder dated 30.01.2012 on the following substantial|question of law: (i) Whether the Tribunal was correct|in holding that assessee Is entitied to claimdepreciation under Section 32(1)(1i) of theAct in respect of intangible assets ofRs.9,07,25,000/- when the same Is notidentical, and is based on adhoc estimatebasis and not on actual cost as per Section 43(1) of the Act? 2.|Facts leading to filing of this appeal brieflystated are that the assessee is in the business of tradingin computer systems and components. The assesseefiled the return of Income for the Assessment Year JOOO-O1, in which a total income of Rs.6,12,69,280/- was.declared and refund of Rs.4,56,71,694/- was sougnNt.The return was processed under Section 143(1) of theAct and refund of Rs.5,01,05,332/- was issued. The.assessee filed its return along with audit report on|09.04.2001. Therefore, a show cause notice underSection 2/71(B) of the Act was issued on 15.05.2001.The Assessing Officer after considering the replysubmitted by the assessee levied a penalty underSection 2/71(B) of the Act by an order dated 29.11.2001and issued a notice demanding a sum of Rs.1,00,000/-.In the meanwhile, the case was selected for scrutiny andnotices under Section 143(2) and 142(1) were issued on.26.11.2001. The Assessing Officer by an order dated 31.03.7003|inter aliaheld that Digital EquipmentCorporation, United States of America was taken over by.the assessee for an amount of Rs.83.99 Crores and the|details of net assets taken over and the particulars ofliability, loans etc were furnished in the agreement.However, no particulars with regard to depreciation|claim on intangible assets of RS.9,07,25,000/- were|furnished. The Assessing Officer held that the assessee|was not entitled to depreciation on intangible assets.under Section 32(1)(ii) of the Act. 3The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals) who.Dy an order dated 13.11.2009 allowed the appealpreferred by the assessee by placing reliance on earlier.decision of the tribunal and held the assessee to be'entitled to depreciation. The revenue approached theIncome Tax Appellate Tribunal (hereinafter referred to.as the tribunal for snort). The tribunal by an orderdated 25.02.2011 dismissed the appeal preferred by the revenue. In the aforesaid factual background, the.revenue is in appeal before US. 3The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals) who.Dy an order dated 13.11.2009 allowed the appealpreferred by the assessee by placing reliance on earlier.decision of the tribunal and held the assessee to be'entitled to depreciation. The revenue approached theIncome Tax Appellate Tribunal (hereinafter referred to.as the tribunal for snort). The tribunal by an orderdated 25.02.2011 dismissed the appeal preferred by the revenue. In the aforesaid factual background, the.revenue is in appeal before US. 4Learned counsel for the revenue submittedthat the Commissioner of Income Tax (Appeals) as wellas the tribunal ought to have appreciated that the|assessee had not furnished the particulars of intangible|assets. It is also urged that the assessee initially|consideredUnallocableconsiderationasgoodwill.However, subsequently, under the guise of revaluation|part of the unallocable consideration claimed thegoodwill as intangible assets without specifying the|intangible assets, which were acquired. It is contendedtnat if the argument of the assessee is accepted tnatunallocableexpenditureIstowardsacquisitionofintangible assets, the very purpose of specifying|acquired assets as intangible assets would be defeated.It is argued that depreciation is permissible in respect of.intangible assets owned and used in the Dusiness unless|the assessee furnishes the particulars of intangible assets acquired and used in the business and theassessee is not entitled to depreciation in the absence ofparticulars of intangible assets. It is also urged that|reliance placed by the assessee on the decision of theSupreme Court In-"COMMISSIONER OF INCOME-TAX, KOLKATA VS. SMIFS SECURITIES LTD.', (2012) 24.TAXMANN.COM 222 (SC)pertains to unallocableexpenditure towards goodwill, which is of no assistance|to tne assessee in tne fact situation of the case. 5.|On the other hand, learned Senior counsel forthe assessee submitted that the Assessing Officer itself|nas found that goodwill has been calculated and has.been allotted to tangibles and the issue wnether goodwillis an asset under Explanation 3(D) to Section 32(1) ofthe Act is no longer res integra and the same Nhasalready been answered by Supreme Court inSMIFSSECURTIES LID. Supra. It is also urged that the.tribunal Nas upneld the decision of the Commissioner ofIncome Tax (Appeals) by following the previous decision of the Delhi Bench of the Tribunal, which has been.upheld by the High Court of Delhi in.COMMISSIONER|OF INCOME-TAX-IV VS. HINDUSTAN COCA COLA|BEVERAGES (P.) LTD., (2011) 198 TAXMAN 104(DELHI). 6.|We have considered the submissions made.by learned counsel for the parties and have perused therecord. Section 32 deals with depreciation. The relevant.extract of Section 32(1) of the Act, reads as under: 32(1) In respect of depreciation of - (i) buildings, machinery, plant or furniture,being intangible assets; (il) Know-how, patents, copyrights, trademarks, licences, franchises or any otner.business or commercial right of similar nature,being intangible assets acquired on or after the1st day of April, 1998, owned, wholly or partly,by the assessee and used for the purposes of.the business or_ profession, the followingdeductions shall be allowed -. 7The Supreme Court in SMIFS SECURTIES LTD. Supra held that good will is an asset under Section|32(1) of the Act and is thus eligible for depreciation.Therefore, the aforesaid issue is no longer res integra.|The only contention which has been raised by learnedcounsel for the revenue ts that the assessee has not!disclosed the particulars of intangible assets, which Nave|been acquired by it and therefore, it is not entitled forthe benefit of depreciation under Section 32(1) of theAct. We may refer to the relevant extract of the orderpassed by the Assessing Officer, which reads as under: 7The Supreme Court in SMIFS SECURTIES LTD. Supra held that good will is an asset under Section|32(1) of the Act and is thus eligible for depreciation.Therefore, the aforesaid issue is no longer res integra.|The only contention which has been raised by learnedcounsel for the revenue ts that the assessee has not!disclosed the particulars of intangible assets, which Nave|been acquired by it and therefore, it is not entitled forthe benefit of depreciation under Section 32(1) of theAct. We may refer to the relevant extract of the orderpassed by the Assessing Officer, which reads as under: What transpires from the above is that|Digital Equipment Corporation USA has beentaken over by Compag Computer Corporation. Digital as an entity does not exist after the.said takeover except in India wnere only the.hardware unit was taken over by Compad.|Whateverbusiness|agreementexistedbetween Digital Equipment Corporation and|Digital Standtransferred|toCompaqComputer Corporation as a resuit of the.Global takeover. Whatever logos, patents,| licences where granted to Digitial and which|were entitled for the use of Compag already|stand transferred to Compaq Computers USA|as a result of the takeover. CCIPL being a|100%|SubsidiaryOF|Compaq|ComputerCorporation USA just inherits these patents,|licences, logos and technical know how by virtue of the business transfer agreement.XXX XXX Goodwi| |has.been.calculated|andremaining amount of consideration has been|allotted to intangibles.| 8 _Thus, from perusal of the order passed by theAssessing Officer itself it is axiomatic that he has foundthat the goodwill has been calculated and has been.allotted to intangibles. For yet another reason, the order.passed by the tribunal has to be upheld. It is pertinent.to note that the order passed by the tribunal is based on.the decision of the Delhi Bench of Tribunal which has/been upheld by High Court of Delhi in Hindustan Coca.Cola Beverages (p) Ltd. In view of preceding analysis, the substantialquestion of law framed by a bench of this court is.answered against the revenue and in favour of the.assessee. In the result, we do not find any merit in thisappeal, the same fails and is hereby dismissed. | Sd/-—JUDGE. SS| Sd/-—JUDGE.