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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)

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)