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| The Tax Publishers2020 TaxPub(DT) 1616 (Mum-Trib) : (2020) 079 ITR (Trib) 0533 INCOME TAX ACT, 1961
Section 32(1) Section 47(xiii), 5th proviso
If the succession had not taken place, there would not have been any depreciation allowance on the revaluation figure in other words, the revalued figure of Rs. 5.52 crores (less Rs. 100) cannot be taken into account for granting depreciation to the successor i.e. the assessee-company since the predecessor could not have claimed depreciation on the revaluation figure, proviso to section 32(1), specifically debars successor also to that effect.
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Depreciation - Allowability - Revaluation of trade mark - Predecessor firm successed by company
Originally assessee was a firm in the name of Veeky Industries. On 1-4-1992 a trade mark “PIK” which was originally registered by M/s Balaji Paints Pvt. Ltd. was purchased by the firm i.e. M/s Veeky Industries for a sum of Rs. 100 The said trade mark was valued by an approved valuer who quantified the value of a trade mark at Rs. 5.52 crores vide its valuation report dated 17-11-1998 relevant for assessment year 1999-2000. The said amount was credited to the investment reserve account in the books of account of the said firm on 31-1-1999. The firm was then succeeded by this assessee-company on 1-2-1999. The assessee-company claimed depreciation under section 32 on the said revalued trade mark worth Rs. 5.52 crores. The AO had denied the claim of depreciation on this figure. The matter had proceeded twice to the ITAT. In the latest remand by the ITAT, the matter was remanded.Held: As per the provisions of Law 5th proviso to section 31(1) the firm cannot claim depreciation on any revaluation figure. The depreciation had to be claimed on the cost incurred by it. By no stretch of imagination Rs. 5.52 crores less Rs. 100 was the cost incurred by the assessee firm. Hence, the assessee firm was not entitled to depreciation on the revaluation figure of Rs. 5.52 crores.The firm, i.e., the predecessor had been succeeded by assessee-company on 1-2- 1999 and the company had claimed depreciation on the value of trade mark in its books at Rs. 5.52 crores. The total amount of depreciation cannot exceed the depreciation which the assessee firm would be entitled as if the succession had not taken place. If the succession had not taken place, there would not have been any depreciation allowance on the revaluation figure. In other words, the revaluation of Rs. 5.52 crores (less Rs. 100) cannot be taken into account for granting depreciation to the successor, i.e., the assessee-company. Since the predecessor could not have claimed depreciation on the revaluation figure, proviso specifically debars successor also to that effect. In the present case as the facts indicated that the said trade mark was acquired at a cost of Rs. 100, no further addition on account of revaluation for the purpose of depreciation was allowable in the hands of the assessee.
Applied:United Breveries v. Asstt. CIT 77 Taxmann.com. 103 (Bang-Trib). Distinguished:Ashwin Vanaspati Industries v. CIT (2002) 255 ITR 26 (Guj).
REFERRED :
FAVOUR : Agaionst the assessee.
A.Y. : 2010-11
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