1.   M/s Trimatic Engineering Co. P. Ltd. Vs. ACIT, I.T.A. No. 126/2001, Date of Decision: 07.04.2015, Delhi High Court

Issue:

Whether workers working under contractor and not under the assessee company be treated as employees u/s 80I(2)(iv) for the purpose of claiming deduction u/s 80I of the IT Act, 1961?

Held: Yes

Brief Facts:

The assessee was an industrial undertaking which employed and utilised the services of workers through the contractor. During the AY 1986-87, the assessee employed 18 workers including workers supplied by labour contractor.  It claimed deduction under Section 80I of the Act to the extent of Rs.92,251/- being 25% of the profit i.e. Rs.3,69,005.00.  The AO declined the deduction by stating that the employees engaged by the assessee were through a contractor and not its own employees and does not qualify for deduction u/s Section 80I(2)(iv). The CIT(A), decided in the favour of assessee. However, the ITAT held that those persons were working under contractor and not under the assessee company, cannot be treated as employees of the assessee company. Hence, assessee is not entitled to deduction u/s 80I of the Act.

Held:

As per Section 80I(2)(iv), an industrial undertaking in order to qualify for the deduction should be involved in inter alia, production of articles or things and should employ 10 or more workers in manufacturing process carried on with the aid of power or in a manufacturing process carried on without the aid of power, employ 20 or more workers. Since the provision is a beneficial one, the restrictive interpretation placed by the ITAT is not justified. There is nothing in Section 80I(2)(iv) to say that the relationship in order to qualify for the term “employment” must be one of master and servant and cannot extend to contractual employment. This Court also observed in the case of Krishak Bharti Cooperative Limited V. Deputy Commissioner of Income Tax 358 ITR 168 that there are situations where it has been held that service charges received from the owner of the unit, could in fact be considered as profit derived from an industrial undertaking and thus be entitled for deduction under Section 80I. For the above reasons the Court is of the opinion that this appeal is entitled to succeed.  In view of the above, the appeal is answered in favour of the assessee. 

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2.  M/s. PPG Asian Paints Pvt. Ltd. Vs. ACIT, I.T.A. No. 2919/M/2013, Date of Pronouncement: 15.04.2015, ITAT - Mumbai

Issue:

Whether depreciation on ‘goodwill’ be allowed to the assessee under the provisions of Income Tax Act?

Held: Yes

Brief Facts:

The assessee had claimed depreciation on ‘goodwill’ amounting to Rs.3,23,15,044/- for the assessment year 2008-09. The AO as well as CIT(A) disallowed the claim on the ground that ‘goodwill’ does not fall within the definition of eligible intangible assets for the claim of depreciation there upon under section 32(1)(ii) of the Income Tax Act. Being aggrieved the assessee filed appeal before ITAT.  

Held:

Before the Hon’ble ITAT, the assessee stated that the issue relating to the depreciation of goodwill has now been settled by the Hon’ble Supreme Court in the case of “CIT, Kolkata vs. Smifs Securities Ltd.” (2012) 24 taxmann.com 222 (SC). The Supreme court held that as per explanation 3 of the section 32(1), the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). The ITAT accordingly hold that the assessee is entitled to the claim of depreciation on goodwill. This issue is accordingly decided in favour of the assessee.

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