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IN THE HIGH COURT OF DELHI
Dipak Misra, C.J. and Manmohan, J.
Commissioner of Income Tax – IV – Appellants
Vs.
Hindustan Coca Cola Beverages Pvt. Ltd. – Respondent
ITA Nos. 1391, 1394 and 1396/2010
Decided On: 14.01.2011
Income Tax Act - Depreciation - Section 32
Fact of the Case:
The case involved appeals under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT) pertaining to the assessment years 2001-2002, 2002-03, and 2003-04. The main issue was the admissibility of depreciation on goodwill claimed by the Assessee.
Finding of the Court:
The tribunal allowed the appeal and dislodged the order passed by the Commissioner of Income Tax, holding that the assessing officer had taken a plausible view in allowing the depreciation on goodwill. The court found that the claim of the Assessee for depreciation on goodwill was justified and admissible under Section 32(1)(ii) of the Act.
Issues: The main issues were whether the exercise of Revisionary Jurisdiction under Section 263 of the Income Tax Act, 1961 was valid and whether the claim of depreciation on goodwill was admissible under Section 32 of the Act.
Ratio Decidendi: The court held that if two views were possible and the assessing officer had accepted one view which is a plausible one, it was not appropriate for the Commissioner to exercise his power under Section 263 solely on the ground that in the books of accounts it was mentioned as 'goodwill' and nothing else.
Final Decision: The court dismissed the appeals, upholding the tribunal's decision that the claim of depreciation on goodwill was admissible under Section 32(1)(ii) of the Income Tax Act, 1961.
Dipak Misra, C.J.
1. Regard being had to the similarity of the questions involved in these three appeals, they were heard analogously and are being disposed of by a singular order.
2. In this batch of appeals preferred under Section 260A of the Income Tax Act, 1961 (for brevity "the Act"), the assail is to the composite order dated 25.8.2009 in ITA Nos. 1884/Del/2006, 2724/Del/07 and 2038/Del/08 pertaining to the assessment years 2001-2002, 2002-03 and 2003-04 respectively passed by the Income Tax Appellate Tribunal (for short 'the tribunal') by the Appellant - revenue raising the following substantial questions of law:
(1) Whether learned ITAT erred in holding that exercise of Revisionary Jurisdiction under Section 263 of the Income Tax Act, 1961 was invalid?
(2) Whether learned ITAT erred in setting aside the order of the CIT under Section 263 ignoring the fact that the goodwill generated in a business cannot be described as an "asset" so as to be entitled to depreciation under Section 32 and, therefore the depreciation on goodwill was not admissible?
3. To appreciate the questions posed in proper perspective, it is necessitous to state the relevant facts. For the sake of convenience, the facts from ITA No. 1391/2010 are exposited herein. The Respondent - Assessee is a limited company engaged in manufacturing and trading of non-alcoholic beverages. The Assessee filed its return of income on 2.12.2003 declaring loss for the relevant assessment year under Section 143(3) of the Act and the assessment was completed and loss was determined at Rs. 2,82,90,29,838/- and the assessing officer had allowed the depreciation on goodwill as claimed in the return.
4. After the order of assessment was framed, the Commissioner of Income Tax-IV, New Delhi (in short "Commissioner") invoked the jurisdiction under Section 263 of the Act as he noticed that the depreciation on goodwill which was accepted by the assessing officer was not an asset so as to entitle the Assessee the benefit of depreciation as claimed under Section 32 of the Act and, hence, the order was erroneous and prejudicial to the interest of the revenue which resulted in escapement of income and, accordingly, issued notice to the Assessee. The Assessee filed its reply to the notice contending, interalia, that the proceeding under Section 263 was not sustainable inasmuch as the Commissioner has the jurisdiction to set aside the order of assessment and send the matter for fresh assessment or interfere with it if he is satisfied that further enquiry is necessary on the foundation that the order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue which was not so in the case at hand; that no material was available on record to enable the Commissioner to exercise the power under Section 263 of the Act to reach a conclusion that the same warranted a further enquiry; that the claim put forth by the Assessee for depreciation on the goodwill was on the foundation that it has paid the said amount to its various bottlers for marketing and trading reputation, trading style and name, territory know-how and information of territory and that it included the cost of know-how relating to acquiring business, customer, database, distribution network, contract and other commercial rights and, therefore, it was within the purview of Section 32(1)(ii) of the Act; and that once a plausible view has been taken by the assessing officer, the same did not warrant any interference in exercise of suo motu jurisdiction under Section 263 of the Act.
5. The CIT repelled the submissions raised on behalf of the Assessee on the ground that on a scrutiny of the provision of Section 32 of the Act in entirety, it is clear that goodwill is not covered within the meaning of intangible assets which mean only know-how, patent, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. The Commissioner further noted that the Assessee
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