Skyline Caterers (P.) Ltd. v. ITO
A.Y. : 2003-04. Dated : 28-12-2007
S. 32 of the Income-tax Act, 1961 — Expression ‘any other
business or commercial rights of similar nature’ appearing in clause (ii) of
S. 32(1) would include such rights which can be used as a tool to carry on
business — Assessee entitled to claim depreciation on amount paid for
acquisition of all rights under catering contract.
The assessee entered into an agreement with ‘R’ on
16-8-2000 for taking over the catering contract of ‘R’ with HLL against a
consideration of Rs.27 lakhs. Out of the said sum, the assessee paid a sum of
Rs.25 lakhs to ‘R’ as a consideration for acquiring all the rights under the
catering contract between ‘R’ and HLL and balance sum of Rs.2 lakhs was paid
to ‘R’ for not competing with the assessee. The assessee treated the said
amount of Rs.27 lakhs in its balance sheet as goodwill and claimed
depreciation thereon treating the same as commercial rights acquired by it.
The Assessing Officer held that depreciation is admissible only on know-how,
patents, copyrights, trade marks, etc. He further held that the expression
‘similar nature’ in S. 32(1)(ii) would not include goodwill. He, therefore,
disallowed the assessee’s claim for depreciation. On appeal, the Commissioner
(Appeal) upheld the action of the Assessing Officer.
On second appeal, the ITAT held that :
(1) The nomenclature given to the entries in the books of
account is not relevant for ascertaining the real nature of the transaction.
The nature of transaction should be ascertained on the basis of the
agreement between the parties. Therefore, merely because the assessee showed
the said payment on account of goodwill in the books of account, no adverse
inference could be drawn against the assessee.
(2) The payment of Rs.25 lakhs was specifically made for
acquiring all the rights under the catering contract between ‘R’ and HLL and
for acquiring articles and paraphernalia belonging to ‘R’, which were lying
in the canteen. Hence, it could not be said that the payment was either on
account of goodwill or on account of not to compete with the assessee.
(3) The specific intangible assets referred to in S.
32(1)(ii) are followed by the expression ‘any other business of commercial
rights of similar nature’. The specific words in the above section reveal
the similarity in the sense that all the intangible assets specified are
tools of the trade, which facilitate the assessee carrying on the business.
Therefore, the expression ‘any other business or commercial rights of
similar nature’ would include such rights which can be used as a tool to
carry on the business. Since catering business at HLL canteen could be
carried on only with the help of such rights under the contract, the
assessee would be entitled to depreciation.
