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Tax Publishers
Claim of depreciation on brand post demerger in
the hands of the resultant company
Facts :
Arising out of a court approved scheme of demerger assessee
came in possession of the edible oil business of one Amrit Corporation Ltd.
(ACL) As part of the demerger scheme the assets and liabilities of the
edible oil business was to be transferred at a separate consideration and
the self-generated edible oil brand was supposedly transferred separately for a
separate consideration of Rs. 7.24 crores. This 7.24 crores brand value was
settled by issuing equity shares by the assessee at Rs. 44.20 each including
premium of Rs. 34.20 and par value of Rs. 10 with a total of 1,640,037 shares
being issued. Assessee claimed depreciation on the edible oil brand of Rs. 7.24
crores as the resulting company having paid this much for the brands
acquired as part of the demerger. This was disallowed by the AO citing that
there was no brand value existing in the books of the demerging company ACL and
vide Section 2(19AA) definition of demerger the value of the WDV of the
assets in the books of the demerging company will become the cost in the books
of the resulting company (assessee) and since there was no brand value shown in
the books of the ACL Ltd. depreciation was disallowed. Assessee contested that
the transfer of the edible oil undertaking was different to the transfer of the
brand value and the two were two separate transactions and cannot be linked.
CIT(A) accepted the stand of the assessee reversing the AO's order. Revenue's plea
was also that the demerging company ACL had reported the entire Rs. 7.24 crores
as consideration of capital gains with NIL cost of acquisition thus no cost of
acquisition existed in the hands of the assessee as well. On appeal by the
revenue -
Held in favour of the revenue that the scheme of demerger
was court approved and as per the provisions of Section 2(19AA) the brand value
was a separate undertaking itself certainly and thus if the same was standing
at NIL WDV value in the books of the demerging company no depreciation on the
same can be claimed in the hands of the resulting company as the demerger
section deems the WDV in the hands of the demerging company to be the WDV in
the books of the resulting company.
Ed. Note : The issue
of claiming depreciation on intangibles arising out of an independent valuation
post facto a merger/demerger is litigious. Given that no intangible
asset/goodwill is eligible for depreciation henceforth (decision pertains to AY
2007-08), this decision more or less dovetails the similar stand also for the
fact that ingenious tax planning by valuing self-generated brand is a
contentious issue.
Case : Dy. CIT v.
Amrit Banaspati Co. Ltd. 2023 TaxPub(DT) 5570 (Del-Trib)
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