Thermo Fisher Scientific India Vs DCIT (ITAT Mumbai)
Summary: The Mumbai Bench “E” of the Income Tax Appellate Tribunal considered the assessee’s claim for depreciation on goodwill arising from acquisition of two business divisions through slump-sale transactions. Thermo Fisher Scientific India Pvt. Ltd. had acquired the Qualigens Fine Chemicals Division from Glaxo Smith Kline Pharmaceuticals Limited (GSK) for Rs. 234.20 crores under a Business Transfer Agreement dated 26 July 2007 and the Analytical Technologies and Environmental Instrumentation Division from Chemito Technologies Private Limited (CTPL) for Rs. 67.18 crores under a Business Transfer Agreement dated 27 May 2008.
The consideration in each transaction was allocated among tangible and intangible assets based on independent valuation reports, with the balance treated as goodwill. For AY 2009-10, the assessee claimed depreciation of Rs. 21,28,26,691 on goodwill. In the second round of proceedings, the Assessing Officer accepted that goodwill was a depreciable asset following the Supreme Court’s decision in CIT v. Smifs Securities Ltd., but denied depreciation on valuation and statutory grounds, relying principally on United Breweries Ltd. and provisions concerning amalgamation, demerger and succession.
The Tribunal examined the Business Transfer Agreements and held that both transactions were slump sales and not amalgamations. It found that Explanation 7 to section 43(1), Explanation 2 to section 43(6) and the fifth proviso, now sixth proviso, to section 32(1)(ii), relied upon by the Assessing Officer, were directed to amalgamation, demerger, holding/subsidiary transfers or succession and were not applicable to the slump-sale transactions before it. The Tribunal also distinguished United Breweries Ltd., where the relevant transaction involved amalgamation of wholly owned subsidiaries. Relying upon authorities including Triune Energy Services (P.) Ltd., Pitney Bowes India, Grindwell Norton Ltd. and I & B Seeds (P.) Ltd., the Tribunal held that goodwill arising from the acquisition of the GSK and CTPL units was eligible for depreciation under the provisions applicable for the relevant assessment year. The Tribunal, however, declined to allow the corresponding depreciation claim for AY 2008-09 in the present AY 2009-10 appeal and left the assessee to pursue the appropriate remedy.
The assessee’s claim for consequential depreciation of Rs. 1,04,938 on computer software was accepted in principle but restored to the Assessing Officer to verify whether the CIT(A)’s treatment of the expenditure as capital expenditure in AY 2007-08 had been reversed by any higher appellate authority. The claim concerning the erroneous demand of Rs. 80,79,043, arising from the difference between refund and interest under section 244A, was also restored to the Assessing Officer for verification while giving effect to the Tribunal’s order. The penalty ground under section 274 read with section 271(1)(c) was dismissed as infructuous because no penalty had yet been levied. The appeal was accordingly allowed for statistical purposes.
Cases Discussed
- CIT v. Smifs Securities Ltd. [2012] 348 ITR 302 (SC).
- Triune Energy Services (P.) Ltd. v. DCIT [2016] 65 taxmann.com 288 (Delhi).
- Pitney Bowes India v. DCIT (ITA Nos. 289 to 293/Del/2013).
- Grindwell Norton Ltd. v. ACIT (ITA Nos. 528/Mum/2012 and 5800/Mum/2013).
- I & B Seeds (P.) Ltd. v. DCIT [2022] 142 taxmann.com 274 (Bangalore-Trib.).
- United Breweries Ltd. v. ACIT [2016] 76 taxmann.com 103 (Bangalore-Trib.).
