Brief About the case
The Assessee acquired the shares of M/s Siemens Telecom Ltd (‘STL’) on 29.09.2000. Beside the payment consideration for acquisition, the assessee also paid Rs.9 crore specifically for the “marketing, customer support, distribution and associate setups” of STL. Treating the said sum in the nature of “Goodwill”, the assessee claimed depreciation which was also allowed in the previous assessment years. While considering the return of A.Y. 2006-07, A.O. re-examined the agreement between STL and the assessee company and depreciation claim of Rs.53,59,256/- was rejected on the ground that what has been acquired is not the ownership right but an arrangement for use of such network and said payment was euphemistically termed as goodwill. The assessee’s appeal was allowed by the Commissioner (Appeals) on the basis of the previous years’ reasoning which had accepted the depreciation claim, which was also affirmed by the order of ITAT. The aggrieved revenue filed the appeal before HC.
Contention of Revenue
Ld. Counsel of the revenue contended that only intangible assets which are akin to those enumerated in Explanation 3 (b) under Section 32 (1), i.e., know-how, patents, copyrights, trademarks, licences, franchises, or any other business or commercial rights of similar nature can claim depreciation. He further submitted, therefore, that the nature of the marketing rights were such that there was no similarity or identity with the enumerated rights set out in Explanation 3 (b) and having regard to these facts, unless the assessee demonstrated and proved that such rights were akin to the intangible assets mentioned, it could not claim depreciation.
Contention of Assessee
Ld. Counsel of the assessee relied upon the ruling in Hindustan Coca Cola Beverages and also pointed out Supreme Court’s ruling in CIT v. M/s Smifs Securities Limited, (2012) 348 ITR 302 ( SC) in which it was held that the claim for depreciation of goodwill is admissible.
Held by Court
The court taken the view expressed in case of Hindustan Coca Cola Beverages cited by the assessee wherein it was held that Commercial rights are such rights which are obtained for effectively carrying on the business and commerce, and commerce, as is understood, is a wider term which encompasses in its fold many a facet. Any right which is obtained for carrying on the business with effectiveness is likely to fall or come within the sweep of meaning of intangible asset.
In the facts of the present case, a reading of the agreement between STL and the assessee clarifies that a specific amount, i.e., Rs. 9 Crores was paid by the assessee to the transferor who owned commercial rights towards the network and the facilities. The consideration was a specific value but for which the network would not have been otherwise transferred. In that sense, it constituted business or commercial rights which were similar to the enumerated intangible assets. In the present case, though termed as goodwill, what was actually parted with by STL was a commercial right, i.e., exclusivity to the network which would not have been otherwise available but for the terms of the arrangement. No substantial question of law arises; the appeal is consequently dismissed.