Technical proprietary information and pre-qualification rights obtained by assessee cannot be treated as goodwill and assessee is entitled to depreciation on these two items of intangible assets

IN THE ITAT CHENNAI BENCH ‘D’

Assistant Commissioner of Income-tax v. Best & Crompton Engg. Projects Ltd.

IT APPEAL NOS. 1675 TO 1678 (MAD.) OF 2008

[ASSESSMENT YEARS 2002-03 TO 2005-06]APRIL 20, 2011

K.E.B. Rengarajan for the Appellant. S. Subramaniam for the Respondent.

ORDER

1. The above four appeals filed by the Revenue, for assessment years 2002-03 to 2005-06, are directed against the common order dated 27-5-2008 passed by the ld. CIT(A)-VIII, Chennai. In all these appeals almost identical issues are involved, therefore, for the sake of convenience and brevity, we are deciding them by a common order.

2. For ready reference, we are narrating the facts of I.T.A. No. 1675/Mds/2008 pertaining to assessment year 2002-03. The assessee-company, namely M/s. Best & Crompton Engineering Projects Ltd., is a wholly owned subsidiary of M/s. Best & Crompton Engineering Ltd., which is doing the business of Electrical & Projects Contracting, like, erection of High Voltage Substations, Transmission Lines, Railway Electrification both in India and outside India; and  these activities have been carried on by Best & Crompton Engineering Ltd. from the year 1975. On 30-6-2001, relevant to assessment year 2002-03, Best & Crompton Engineering Ltd. transferred the Electrical & Projects Contracting Division along with its fixed assets, current assets and current liabilities to its wholly owned subsidiary company, Best & Crompton Engineering Projects Ltd. This transfer took place vide Agreement dated 13-11-2000 followed by other supplemental agreements executed on various other dates. This transfer took place on the basis of business-valuation-report obtained from M/s. Ernst & Young (P.) Ltd., a reputed Chartered Accountants company, according to which, the business of the Electrical & Projects Contracting Division of Best & Crompton Engineering Ltd. as on 30-6-200 1 was valued at Rs. 34.85 crores with reference to the supplemental agreement dated 3 1-10-2001. However, this value was originally fixed at Rs. 45.78 crores on the basis of original agreement. Thus, the business value of Rs. 34.85 crores was fixed as the purchase consideration for the transfer of the Electrical Projects and Contracting Division, the break-up of which is given as under :

The basis of calculation of the value of pre-qualification rights is as follows: