CIT vs. Hindustan Coca Cola Beverages Pvt Ltd (Delhi High Court)

DATE: (Date of pronouncement)
DATE: January 17, 2011 (Date of publication)

Click here to download the judgement (hindustan_coca_depreciation_goodwill.pdf)

“Goodwill” is an “intangible asset” u/s 32(1)(ii) & eligible for depreciation

The assessee engaged in manufacture of non-alcoholic beverages claimed depreciation u/s 32 on “goodwill” being the amounts paid to bottlers for marketing and trading reputation, trading style and name, territory know-how etc. The AO, after due inquiry, allowed the assessee’s claim u/s 143(3). The CIT revised the assessment u/s 263 on the ground that goodwill was not an “intangible asset” as defined in s. 32(1)(ii) and directed the AO to withdraw depreciation. On appeal by the assessee, the Tribunal {132 TTJ 602 (Del)} upheld the assessee’s claim. On appeal by the department, HELD dismissing the appeal:

(i) S. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO if it is not “prejudicial to the interests of the revenue”. Every loss of revenue as a consequence of the AO’s order cannot be treated as prejudicial to the interests of the Revenue. E.g. when the AO adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the AO is unsustainable in law (Malabar Industrial Co 243 ITR 83 (SC) followed);

(ii) On facts, as the assessee had made full disclosure of the facts of the claim and the AO had examined the claim and taken a view, the assessment order cannot be termed “erroneous & prejudicial to the interests of the revenue”;

(iii) On merits, s. 32(1)(ii) allows depreciation in respect of know-how, patent, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. The term “commercial rights” are such rights which are obtained for effectively carrying on business and commerce. “Commerce” is a wide term which encompasses many a facet. Accordingly, any right obtained for carrying on business with effectiveness comes within the sweep of meaning of “intangible asset”. Goodwill, being the positive reputation built by a person over a period of time is of “similar nature” as the other items enumerated in the definition of “intangible assets.

See also B. Ravendran Pillai 47 DTR 81 (Ker) & Kotak Forex Brokerage 131 TTJ 404 (Mum) where a favourable view was taken & Borker Packaging 40 DTR 29 (Panaji) & Madular Infoyech 131 TTJ 243 (Pune) where a contrary view was taken. The issue is pending before the Special Bench in CLC & Sons (P) Ltd. vs. ACIT

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