R.K Gupta, J.M:— These are six appeals by the department against the order of ld. CIT(A) relating to, Assessment Year 2001-2002, 07-08 and 02-03 to 05-06.

2. The following grounds have been taken by the department for the, Assessment Year 2001-2002:—

“On the facts and in the circumstances of the case and in law the ld. CIT (Appeals) has erred in:—

(i) directing to allow depreciation of Rs. 7 crore on declared franchise and license rights of Rs. 28 crore despite the fact in reality no such franchise and license rights were devolved upon the assessee and as held by the AO the said payment of Rs. 28 crore was for goodwill.

(ii) Further holding that depreciation is allowable even if the said payment of Rs. 28 crores is for goodwill without appreciating the fact that depreciation on goodwill is not allowable in terms of provisions of section 32(1) of the Income-tax Act, 1961.”

Similar grounds have been taken in other appeals for other years. However, there is a difference of amount of depreciation only.

3. The undisputed brief facts discussed by ld. CIT(A) in his order are that the assessee company was engaged in the business of manufacturing of Aerated water. During the year the assessee company has purchased the business of Delhi Territory of Dhillon Kool Drinks and Beverages Ltd. vide business transfer agreement dt. 26.8.2000 on the basis of slump sale for which the net amount paid was Rs. 12.5 crore. As per Point No. 2.2 of article 2 of the said agreement dt. 26.8.2000 the assets and liabilities were taken over. Since, the liabilities taken over were at Rs. 25,24,99,123/- therefore, the total cost of the said Delhi business purchase was at Rs. 37,74,99,123/-. The assessee had bifurcated this cost as assets taken over at a value of Rs. 9,74,99,123/- and differential amount was considered as payment or license and franchise rights at Rs. 28 crore. During the course of assessment proceedings, in respect of depreciation claimed @ 25% for license and franchise rights a show cause was given to explain the determination of the same at Rs. 28 crore alongwith documentary evidence. The AO has found that no documentary evidence were furnished in support of license and franchise rights determined by assessee at Rs. 28 crore. The AO had observed that as per sale agreement filed the assessee has procured the licenses and franchise rights through the seller from the PFL and has not been sold directly by the seller i.e Dhillon Kool Drinks and Beverages Ltd. to the assessee and under these circumstances a show cause was given proposing disallowance of such depreciation claim. Thereafter, the explanation furnished has been reproduced in the body of assessment order but it has not been considered satisfactory on the ground that though the cost of Dhillon Kool Drinks to the assessee was at Rs. 37.75 crore but the payment to the seller was only at Rs. 12.50 crore and balance amount of Rs. 25.25 crore was the liability taken over. It proves that no licenses and franchise rights were devolved upon the assessee company though aforesaid business transfer agreement dt. 26.8.2000 and in fact license and franchise rights devolved upon the assessee only through letter of intent executed on 26.8.2000 The AO had further observed that there was no agreement of license or devolving the franchise rights upon the assessee from PFL because as per letter of intent it was for a specified period of initial one year which may be extended by PFL for the period of 6 months at a time provided the assessee has successfully and to the entire satisfaction of PFL met with and fulfilled the pre conditions during the initial period and thereafter, during each of the additional period. It is further provided that said letter of intent will be replaced with an appropriate franchise agreement on the successful shifting the pet line and setting up and commissioning of the manufacturing facilities for the manufacture of the products in or around Delhi and this LOI shall terminate immediately on the execution of franchise agreement. It makes clear that in reality no franchise or license agreement was executed between PFL and the assessee. The AO had also referred the Supreme Court judgment in the case of McDowell reported in 154 ITR and with this discussion disallowed such depreciation claim of Rs. 7 crore as made by assessee company.

4. The detailed written submissions were filed before ld. CIT(A) which has been tabulated in the order of ld. CIT(A) at pages 4 to 9. The submissions are in detail and they are self explanatory. Therefore, it will be useful to reproduce the submissions here also which are as under:—

“The assessee is a private limited company. It is engaged in the business of manufacturing of Areated water for the last several years. It has maintained regular and proper books of accounts consisting of cash book, ledger, journal and such accounts are supported by bills, vouchers, production registers, stock details and other supporting record. The product is exciseable and Excise RG 1 and other records have been maintained and examined and accepted by the Excise Authorities. The accounts have been audited by the Statutory Auditors as well as Tax Auditors. No defects have been noticed by the auditors. Trading results have been accepted by the Assessing officer.

1.1 Pepsico India Holdings Limited having its principal vplace of business at DLF Corporate Park, Phase III, Block S, Qutab Enclave, Gurgaon 122001, Haryana and office at 13th Floor, Mohan Dev Building, 13 Tolstoy Marg, New Delhi 110001 is a subsidiary company of Pepsico. Inc. New York and is engaged in the business of manufacture and distribution of soft drink beverages and syrup mix sold under the trade mark LEHAR owned by Pepsi Foods Limited, having its registered office at Village Channo, District Bhawanigarh, Punjab used in association with the several trade marks of Pepsico Inc. i.e PEPSI, 7 UP, MIRINDA, SLICE, TEEM, EVERVESS etc.

1.2 Pepsi Foods Limited and Pepsico, Inc. granted franchise rights for bottling and distribution of their various products to Dhillon Kool Drinks and Beverages Ltd. having its principal place of business at Dhillon Complex, Manimajra, Chandigarh (hereinafter referred to as “Seller”). The Seller had franchise agreements for the territories of Punjab, Himachal Pradesh and certain parts of Haryana, New Delhi/Delhi. The seller had two manufacturing plants for the manufacture of the products in Haryana and Punjab from where it used to supply the products to the territories covered by the francise agreements.

1.3 The Seller had to pay an amount of over Rs. 20 Crores to Pepsico India Holdings Limited and Pepsico India Holdings Limited had the option of acquiring from the Seller the rights, assets and liabilities associated with the distribution business of the products in the National Capital Territory of Delhi or nominating another person for this purpose. The Seller's business of Delhi was in bad shape and DKD has been interested in selling its Delhi business along with rights, interests, privileges, assets and liabilities associated with and incidental and ancillary to the business of the Seller in the National Capital Territory of Delhi. The Assessee company offered to purchase the said business as a going concern subject to the Seller arranging in favour of the Assessee - Company by PFL of the licence and franchise rights to use the trade marks of Pepsi brands of soft drinks, i.e PEPSI, 7 UP, MIRINDA, SLICE, TEEM, EVERVESS AND LEHAR in the specified territory comprised in the Delhi Business.

1.4 In accordance with the above stated arrangements, the Seller and the assessee company made necessary efforts. An agreement was entered in between Pepsico India Holdings Ltd. and the assessee on 10 day of August, 2000 (copy enclosed). Letter of Intent dated 26.08.2000 was issued by Pepsi Foods Limited. Copy of Letter of Intent dated 26.08.2000 as modified on 22.12.2000 is submitted herewith. Pepsico India Holdings Limited also agreed to nominate the assessee company to acquire the Delhi Business from the seller. The Seller having caused the procurement of the aforesaid licence/franchise rights by the Assessee Company, a business transfer agreement dated 26th day of August, 2000 was entered into by and between the Seller and the Assessee Company. The consideration for the transfer was arrived at a lump-sum amount of Rs. 37.75 crores. The assessee company took over the liability for payment of Rs. 25.25 crores to the parties detailed in Schedule II annexed with the agreement. Balance of Rs. 12.50 crores was to be paid to the Seller. Copy of business transfer agreement dated 26.08.2000 is submitted herewith.

1.5 In accordance with the above stated arrangement/agreement, the assessee - company discharged its liability and paid the amount of Rs. 25,15,28,123.80 as per details enclosed by way of Annexure-1. A paltry amount of about Rs. 9,18,000/- only is payable by way of security deposit to dealers.

1.6 The assessee - Company received a show cause notice dated 18.03.2004 Detailed explanation dated 24.03.2004 was submitted. However the learned Assessing officer after discussion in para 2 on pages 5 - 10 “held that in reality no franchise and licence rights were devolved upon the assessee from PFL as such and claim of depreciation of Rs. 7 crores by the assessee no these so called licence and franchise rights are not allowed as a deduction. Since Rs. 28 crores is not being treated as license/Franchise Right in view of the above discussion and as Rs. 28 Crore was part of sale consideration, as such it is implied that if it is not license & Franchise Right then it forms part of goodwill devolved upon the assessee no which no depreciation is allowable.” (Page 9 middle).

1.7 The learned Assessing officer on page 9 has referred to the case of Mc dowell but we submit all the three parties are assessed to tax regularly, have filed their returns, the parties are not related in any manner; the transaction is genuine, real, acted upon, still in existence, at arm's length and the learned Assessing officer has failed to prove it as a colorable device. The learned Assessing officer before making such observations and drawing adverse inferences, did not enquire from the Seller and/or Pepsico and Pepsi Foods Ltd. The assessee Company till date is holding the licence and francise rights to use the trade marks of Pepsi brands of soft drinks, i.e PEPSI, 7 UP, MIRINDA, SLICE, TEEM, EVERVESS AND LEHAR in the specified territory comprised in the Delhi Business, acquired/purchased from the Seller with the consent of PFL and is selling its product in the National Capital Territory of Delhi, rights whereof were earlier exclusively with the Seller. The assessee company has stopped in the shoes of the seller.

1.8 Firstly there is no colourable device, no dubious method, no tax planning and no avoidance of payment of legitimate tax. The assessee Company has suffered heavy losses. Position of the Sales and returned income/loss for the Assessment Years 2000-2001 to, Assessment Year 2004-2005 are submitted as per Annexure-2.

1.9 We also refer to the latest judgment of the Supreme Court in Union of India v. Azadi Bachao Andolan (2003) 263-ITR-706. It approved Banyan and Berry v. CIT (1996) 222 - ITR 831 (Gujrat) on page 759. We reproduce “We may also refer to the judgment of the Gujarat High Court in Banyan and Berry v. Commissioner of Income - tax (1996) 222 - ITR 831 at 850 where referring to Mc. Dowell's case (1985) 154 - ITR 148 (SC), the court observed: “The court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act; and inference which unfortunately, in our opinion, the Tribunal apparently appears to have drawn from the enunciation made in Mc Dowell's case (1958) 154-ITR-148 (SC). The ratio of any decision has to be understood in the context it has been made. The facts and circumstances which lead to Mc. Dowell's decision leave us in no doubt that the principle enunciated in the above case has not affected the freedom of the citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the framework of law, unless the same fall in the category of colorable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity.” It has discussed Role in Mc Dowell on pages 753-763 of reporting. It ultimately observed: “We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents.” (Page 763).

1.10 We submit reliance on the Mc Dowell's case is misconceived and the finding is based on suspicion, without material and contrary to the material on record.

1.11 We further submit - the assessee has furnished Certificate from the Seller (A.O Page 5). “Further as per the sale agreement filed by the assessee it is clear that the Licence and Franchise Rights have been procured by the assessee through the Seller from the PFL and the same has not been sold directly by the seller i.e Dhillon Kool Drinks & Beverages Ltd. to the assessee” (A.O Page 6). The Assessing officer says that the licence and franchise rights granted to ‘DKD’ seller were not transferred by the Seller but he admits such rights have been procured by the assessee. We submit it is erroneous and of no consequence. The licence and franchise rights were with DKD and attached to Delhi business and when Delhi business stood transferred to the appellant by DKD; the appellant is uninterruptedly carrying on the business of bottling and selling in the said territory and necessary supplies are being made to the appellant by PFL and Pepsico to manufacture the named beverages and syrup mix and letters of intent have been issued to the appellant, we fail to understand the reasoning for disallowance. It is bad. The learned Assessing officer even failed to make verification from the concerned parties. It is an admitted facts that the appellant company is receiving the supplies, manufacturing the beverages and selling the products in the Delhi territory till to-day, without any objection from all concerned. In the absence of the sale agreement & Letter of Intent, the assessee had no such rights.

1.12 The cost to the assessee Company was Rs. 37.75 Crores. Out of it value of tangible assets was computed at Rs. 7,57,42,323/- by the Approved Valuer and Rs. 2,17,56,800/- were for current assets. The balance of Rs. 28 Crores was in respect of license, franchises and other business and commercial rights for the Delhi territory. The assessee - Company had undertaken the liability of Rs. 25.25 Crores, which included an amount of Rs. 21.15 Crores payable by the Seller to Pepsico India Holding Ltd. The assessee - Company has discharged that liability as detailed in para 1.5 hereinabove. As agreed to collect the outstanding amount of Rs. 21.15 Crores, Letter of Intent was executed no. 26.8.2000 apart from the Business Transfer agreement dated 26.8.2000 The letter of intent has been acted upon and subsists to till today. It is being honoured by all concerned. The learned Assessing officer has admitted in clear words on page 7 in the bottom “Licenses & Franchise rights devolved upon the assessee only through the Letter of Intent executed also on 26.8.00”. We submit whether the Licences & Franchiese rights devolved on the assessee by the Business Transfer Agreement or Letter of Intent, both of the same date, is of no consequence. The Licences & Franchise rights for Delhi Territory, earlier existing with the seller, devolved on the assessee Company and for a consideration of Rs. 28 Crores. Out of it admittedly a sum of Rs. 21.15 Crores were realized by Pepsico by way of discharge of liability against the Seller.

1.13 The learned Assessing officer on Page 7 - 8 has observed: “Alternatively if it is presumed that if Licence and Franchise rights devolved upon the assessee through the Business Transfer Agreement dated 26.8.2000 then what was the need of executing the Letter of Intent by the assessee company and Pepsico India Ltd. who were the owners of Licenses and Franchise Rights. In fact no such franchise/license agreement was made by the assessee with Pepsico India. It was found that only a Letter of Intent dt. 26.08.2000 was executed in favour of the assessee by Pepsico India.” The learned Assessing officer has questioned the need of executing the Letter of intent. The Letter of intent was necessary because licence and franchise rights are of Pepsico and they are a necessary party. By way of Business Transfer Agreement and Letter of Intent, the acquisition of the licences, franchise rights and business/commercial rights in favour of the appellant company were well secured and Pepsico & PFL, thereafter, could not question the Seller or the assessee Company. The procedure adopted is normal and to safeguard the rights and interests of the assessee Company. We submit the objection raised by the learned Assessing officer is without any substance.

1.14 The learned Assessing officer on page 8 of the Assessment order has observed: The contention of the assessee that they have correctly claimed the depreciation on licence and franchise right, being intangible assts, is not acceptable as no agreement of licence or franchise rights have devolved upon the assessee from PFL. It was found that there is only a letter of Intent (LOI) dt. 26.08.2000 which has been issued by Pepsi Foods Ltd. (PFL) to the assessee.” We submit the Letter of Intent coupled with the Business Agreement transferred the licences and franchise rights and commercial rights to the assessee Company. The letter of Intent has been acted upon, has been honoured and is in existence and operative in law. In commercial world the Letter of Intent has its sanctity and Pepsico/PFL are multinational Companies of repute. If the learned Assessing officer had any doubt or suspicion, he could and should have made necessary verification and satisfaction from Pepsico/PFL, rather than rejecting the correct and valid claim of the assessee.

1.15 The Letter of Intent so issued is valid, operative, in existence, subsists and not terminated and not liable to be terminated. The inference drawn by the learned Assessing officer on page 8 in the last para is without any valid basis and not valid reason to deny the depreciation. Verification may be made by the Assessing officer or by your honour from the concerned parties. We have annexed details upto 31.03.2004 Same is position of sales/supplies thereafter. Uninterruptedly sales/supplies are being effected.

1.16 The Letter of Intent dated 26.8.2000 stands extended upto 30.09.2004 as per letter dated 29.03.2004 of Pepsi Foods Pvt. Ltd. (copy enclosed). It could not be submitted as the assessment proceedings were closed on 24.03.2004 Request was made to provide time but being time barring assessment, was not allowed. As submitted Letter of Intent exists till date and has not been terminated. We may also mention that in furtherance, the assessee - company has acquired Land measuring about 9 Acres in Greater Noida for Rs. 2.60 Crores on 27.02.2004 from Greater Noida Industrial Development Authority and is in the process of putting Bottling Plant on the said land.

1.17 We submit the claim stands proved and the assessee is entitled to depreciation as claimed. We reproduce the relevant portion of Section 32(1) of the Act:—

“32. Depreciation - (1) In respect of depreciation of—

(i) Know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1 day of April, 1998.

Owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed—

(ii) In the case of any block of assets, such percentage on the written down value thereof as may be prescribed;

Explanation 3 - For the purposes of this sub-section, the expressions “assets” and “block of assets” shall mean—

(b) intangible assts, being know-how, patents, copy rights, trade marks, licences, franchises or any other business or commercial rights of similar nature;

1.18 We submit the licences, franchise, trade marks and other business and commercial rights acquired by the assessee being intangible assets, depreciation is legally allowable and has been wrongly disallowed. The learned Assessing officer has failed to find any good and valid reason to disallow.

1.19 The learned Assessing officer on page 9 has held that the amount of Rs. 28 Crores was by way of “goodwill”. We submit there is no valid basis to hold so. The learned Assessing officer has not enquired from the Seller as well as Pepsico/PFL and the assessee, before drawing such inference. It is in violation of principles of natural justice. No show cause notice was issued and no explanation was called for. We object to such treatment.

1.20 We may also mention that there was no goodwill of DKD, DKD was in bad shape, was in shambles and failed to pay on time to Pepsico/PFL. Huge amount remained due for long. We may also mention that their business of Punjab, Haryana & Himachal Pradesh had to be sold by them in the years 2003/2004. Now DKD has only a Contract Packing arrangement with Pepsi from its Punjab Plant. Further name of DKD was not transferred to the assessee Company but only their Delhi business as a going concern was transferred to the assessee Company. The learned Assessing officer has not properly understood the meaning of “Goodwill”. In the present case there was no goodwill, rather there was negative goodwill. Goodwill is normally worked out, based on annual income of the business. There was no positive income and the business was in a bad shape. On established commercial principles there was no goodwill and value was NIL. Negative goodwill will arise when by adopting “super-profit” method, the figure arrived at is a “super-loss” or when by adopting “Capitalised profit” value method, the figure arrived at is less than the net value of the tangible assets.

1.21 The usual method of calculation of the valuation of goodwill is set out at pages 807 and 808 of advanced accounting by Batliboi, 16 Edition. After analyzing the method of Patna High Court in Das & Company v. CIT (1962) 45-ITR 369 at 378 held “In the matter of valuation of the goodwill of the business the proper approach is to ascertain the net annual earnings of the business after a careful investigation of the books of accounts and calculating the average net annual earning on the basis of the past three to five years. From the average net profits thus arrived at, it is usual to deduct as a matter of accountancy practice, at least 6 per cent, on the capital outlay involved and a sum as would cover the proprietor's services to the business. The goodwill is then calculated at five to ten years' purchase of the net annual profits.”

The Calcutta High Court in Controller Of Estate Duty, West Bengal v. Biswanath Rungta (1968) 67-ITR-748 at 753 referred to Batlibois book 22nd edition at pages 887-88 and other standard books and decided cases and at page 756 observed - “Thus, for valuation of goodwill, capitalization of super - profit method appears to be an accepted method of valuation.” It also observed “Goodwill, as is well know, is the value attaching to a successful business beyond the intrinsic worth of the net assets therein employed, because of its good reputation, established connections, common celebrity, continued prosperity and the hope that the business will maintain the same profit earning capacity in future.” (Headnote page 749). We submit there was no goodwill, rather goodwill was negative. The finding is without material, without notice, without enquiry and contrary to the material on record.”

A copy each of the order of Mumbai Bench of the Tribunal in case of Kotak Forex Brokerage Ltd., 33 SOT 237 (Mum.) and Delhi Bench of the Tribunal in case of Hindustan Coca Cola Beverages Pvt. Ltd. 34 SOT 171 was also filed.

4.1 After considering the submissions and perusing the material on record, the ld. CIT(A) held that the assessee is entitled for depreciation as claimed. The ld. CIT(A) further held that in view of the decision in case of Kotak Forex Brokerage Ltd. (supra), even the assessee is entitled for depreciation on goodwill also.

5. Now the department is in appeal here before the Tribunal.

6. The ld. CITD/R first strongly supported the order of the AO. Portion of the order of AO was read also. Attention of the Bench was drawn on the order of AO at pages 6 to 8 and para 9. Thereafter at pages 9 to 23 and it was submitted that ld. AO has considered the issue in great detail and has held that the consideration received by assessee was on account of goodwill only and on goodwill depreciation is not allowable.

7. On the other hand, the ld. Counsel of the assessee first placed reliance on the order of ld. CIT(A). It was further submitted that a copy of agreement is placed at page 14 onwards entered with Pepsico. As per agreement, the assessee has purchased right of license and franchise etc. and these are intangible assets and depreciation is allowable. Attention of the Bench was drawn on page 25 to 28 and 46 also. It was further submitted that the decision in case of Hindustan Coca Cola has been affirmed by Hon'ble Delhi High Court vide its order dated 14.1.2011, copy of the same was also filed. It was further submitted that even in respect of goodwill, the depreciation is allowable as held by various bench of the Tribunal. Further reliance was placed in case of on the cases reported in 327 ITR 323, 238 CTR 1 (Del.) and 237 CTR 80 (Ker.). Further, attention of the Bench was drawn on copy of written submissions placed on record. In rejoinder, the ld. CITD/R stated that decision of the Tribunal in case of Hindustan Coca Cola is not applicable as facts are distinguishable. On a query from the Bench that the rights were also sold by the assessee and how they have been shown in the Profit & Loss account, it was replied by letter dated 9.9.2011 by ld. Counsel of the assessee that this information is not necessary as they do not relate or pertain to the, Assessment Year pending here before the Tribunal. However, the business of the assessee has been sold on 31.12.2009 which would fall in the, Assessment Year 2010-2011 and whatever the receipts have been received by the assessee, they have been shown in the Profit & Loss account in accordance with the provisions of law.

8. We have heard rival submissions and considered them carefully. After considering the rival submissions and perusing the material on record, we find that the objection raised by AO which has been reiterated here before the Tribunal by ld. CITD/R has already been met with by ld. CIT(A) while disposing the appeal of the assessee. The objection raised by AO were explained by ld. Counsel of the assessee before ld. CIT(A) in writing and they were tabulated in the order of Tribunal which are also reproduced somewhere above in this order. The ld. CIT(A) has taken into consideration the agreement entered between assessee and Pepsi Food Ltd. Thereafter, the ld. CIT(A) has taken into consideration the question raised by the AO in respect to the issue of letter of intent if license and franchise rights devolved upon the assessee through the business transfer agreement and thereafter considering the issue in detail, the ld. CIT(A) found that the assessee has purchased license and franchise rights from Pepsi Food Ltd. which are intangible assets on which depreciation is allowable as per provisions of law. The ld. CIT(A) thereafter by taking into consideration the decision of Hindustan Coca Cola Beverages Pvt. Ltd. (supra) held that even if the contention of the AO is accepted that this is a goodwill, even in goodwill the depreciation is allowable and this decision has been affirmed by Hon'ble Delhi High Court. The findings of ld. CIT(A) at pages 10 to 14 of his order are as under:—

“I have considered facts of the case and arguments taken by Sh. Ranka and Sh. Mundra quite carefully. The Assessing officer has given the reasoning to disallow the depreciation claim on license and franchise rights that no such rights were devolved upon the assessment company through business transfer agreement dated 26.8.2000 between appellant and Dhillon Kool Drinks and Beverages Ltd. but these were through the letter of intent executed on the same date i.e 26.8.2000 given by Pepsi Food Ltd. to the appellant company. The assessing officer has raised the question of desirability to issue letter of intent if license and franchise rights devolved upon the assessee through the business transfer agreement According to AO since no agreement of license or franchise rights have devolved upon the assessee from Pepsi Food Ltd. therefore, the depreciation claim on license and franchise rights was held as not admissible. The AO had also observed that as per letter of intent it was to be replaced with appropriate trade mark licensing agreement and the letter of intent shall terminate immediately on the execution of the franchise agreement. According to AO it is implied that the said amount of Rs. 28 crore is not license and franchise rights but it forms part of goodwill devolved upon the assessee on which no depreciation is allowable. I have also gone through the copy of business transfer agreement dated 26.8.2000 between Dhillon Kool Drinks and Beverages Ltd. with the appellant, letter of intent issued by Pepsi Food Ltd. to the appellant on 26.8.2000 and agreement dated 10.8.2000 between Pepsico India Holding Ltd. with the appellant. Pepsico India Holding Ltd. is a subsidiary company of Pepsico Inc New York who is engaged in the business of manufacturing and distribution of Soft Drinks Beverages and Syrup Mix sold under the trade mark LEHAR owned by Pepsi Food Ltd. Pepsi Food Ltd. and Pepsico Inc granted franchise rights for bottling and distribution of their various products to Dhillon Kool Drinks and Beverages Ltd. for the territories of Punjab, Himachal Pradesh, certain parts of Haryana, New Delhi I Delhi the business of Dhillon Kool Drinks was in bad shape and since they had to pay an amount over Rs. 20 crores to Pepsico India Holding Ltd. and therefore, they were interested in selling their Delhi business alongwith rights, interest, privileges, assets and liabilities in the National Capital Territory of Delhi for which the appellant company offered to purchase the said business as a going concern subject to the seller arranging in favour of appellant company by Pepsi Food Ltd. of the license and franchise rights to use the trade marks of Pepsi brand of the Soft drinks. In view of these intentions an agreement was entered in between Pepsico India Holding Ltd. and the assessee on 10.8.2000 in which PIH had agreed to nominate the appellant to acquire Delhi business from DKD and it would require the authorizations from PFL & PSI to undertake and conduct Delhi business and the form and nature of such authorization will be as may be mutually agreed between the appellant at one hand and the PFLIPCI on the other hand. With this background as per letter of intent issued by Pepsi Food Ltd. to the appellant company dt. 26.5.2000 i.e same date on which business transfer agreement has been executed between the appellant and Dhillon Kool Drinks and Beverages Ltd. the appellant company has stepped into the shoes of the seller and commenced the business of manufacturing and distribution of soft drinks brands owned by Pepsi Food Ltd. Without proper rights of license/franchise it is impossible for the appellant to carry out such business activity. Further, Pepsi Foods Pvt. Ltd. vide their letter dated 29.3.2004 addressed to the appellant company has referred their earlier letter of intent dated 26.8.2000 as amended from time to time and the validity of the said letter of intent was further extended upto 30.9.2004 under the same terms and conditions. The licenses and franchise rights earlier were with DKD and attached to Delhi business and when Delhi business as a going concern stood transferred to the appellant by DKD and in turn the appellant is uninterruptedly carrying on the business of bottling and selling in the same territory and necessary supplies are being made to the appellant by PFL & Pepsico to manufacture the named beverages and syrup mix supported with letter of intent issued by Pepsi. Food Ltd. then obviously the licenses and franchise rights were also devolved upon the appellant. With such factual developments in my considered view the assessing officer was not justified in holding that no license and franchise rights were devolved upon the appellant company because for this purpose there is no agreement between the appellant and the seller namely DKD. In my considered view the assessing officer was also not justified in holding that said payment of Rs. 28 crore was for goodwill because in the business transfer agreement between the appellant and DKD there is no such mention and in any case the goodwill can only be transferred when there are profits with the transferor undertaking and undisputedly the transferor undertaking namely DKD was in bad financial shape which could not pay more than Rs. 20 crore to Pepsico India Holding Ltd. and because of which they had to transfer their business to the appellant and therefore, this payment cannot be construed as payment for goodwill as held by assessing officer while giving a finding that no depreciation is allowable on such payment since, it is a goodwill. Further, on this issue there is direct judgment of ITAT Delhi Bench C in the case of Hindustan Coca Cola Beverages Pvt. Ltd. v. DCIT Circle — 12(1) New Delhi dt. 25.8.2009 in which Hon'ble ITAT has held that true basis of depreciation allowance is character of an asset and not its description and even if an asset is described as goodwill but if it fits in the description of S. 32(1)(ii) the depreciation is to be granted thereupon. In that case the appellant was domestic company engaged in the business of manufacturing and distribution of aerated and non aerated. beverages and it made payment towards business acquired on slump price and a part of price so paid was allocated to intangible assets covered under the head goodwill and when depreciation has been claimed u/s. 32 on said amount of goodwill then depreciation was correctly allowed because even if an amount is termed as goodwill but if it is a business or commercial right in the nature of know how, patent, copy right, trade mark, license, franchise then the claim of depreciation is indeed admissible thereupon and further the goodwill is not specifically excluded from the intangible assets eligible for depreciation and therefore, even if an asset is described as goodwill then also depreciation is to be granted on the same u/S. 32(1)(ii) of I.T Act. Hon'ble ITAT Mumbai Bench F in the case of Kotak Forex Brokerage Ltd. v. ACIT Range — 3(2) Mumbai 33 SOT 237 (2009) (Mum.) has also held that whether any right which is obtained by a company for carrying on business effectively and profitably falls within the meaning of intangible assets then depreciation is allowable on same. It has further held that goodwill is a bundle of rights which include inter-alia patents, trade marks, licenses, franchise etc. and in view of above position goodwill is also to be treated as an intangible assets of similar nature referred to in Clause II of S. 32(1) and consequently, depreciation would be allowable on same. In the background of these 2 cases also if even the contention of assessing officer is accepted that said payment of Rs. 28 crore was made for goodwill then also the appellant is entitled for depreciation @ 25% of the same within the meaning of S. 32(1)(ii) of I.T Act. With this discussion the AO is directed to allow the aforesaid depreciation claim of Rs. 7 crore.”

8.1 After going through the finding of ld. CIT(A) and the arguments of ld. D/R and also taking into consideration the arguments of ld. A/R, we find that the ld. CIT(A) examined the issue at great length and found that the Pepsico India Holding Ltd. was interested in selling their Delhi business along with rights, interest, privileges, assets and liabilities in the National Capital Territory of Delhi for lwhich the assessee company offered to purchase the said business as a going concern subject to the seller arranging in favour of the assessee company by Pepsi Food Ltd. of the license and franchise rights to use the trade marks of Pepsi brand of the soft drinks. In view of these intentions an agreement was entered in between Pepsico India Holding Ltd. (PIH) and the assessee on 10.8.2000 in which PIH had agreed to nominate the assessee to acquire Delhi business from Dhillon Kool Drinks & Beverages Ltd. (DKD) and the formal authorizations from PFL and PSI to undertake and conduct Delhi business was also to be obtained from the respective parties. In this background a letter of intent was issued by Pepsi Food Ltd. to the assessee company on 26.5.2000 i.e the date on which business transfer agreement was executed between the assessee and DKD and thereafter the assessee company has stepped into the shoes of seller and commenced the business of manufacturing and distribution of soft drinks brands owned by PFL. It is further noted that DKD was in bad shape and they had to pay an amount of Rs. 20 crores to Pepsico India Holding Ltd. and, therefore, they were interested in selling their Delhi business along with rights, interest, privileges, assets and liabilities in the National Capital Territory of Delhi for which the assessee company offered to purchase the said business. Since there was a liability of more than Rs. 20 crores, in our considered view, there cannot be any good will and, therefore, AO's presumption that they had purchased good will and not the rights, interest, privileges, assets and liabilities etc. from DKD. The ld. CIT(A) has examined this aspect thoroughly and then only held that the assessee had acquired license, rights, interest, privileges etc. which are intangible assets in view of provisions of section 32(1)(ii) of the Act and held that assessee is entitled for depreciation. This finding of ld. CIT(A) remained uncontroverted. However, the ld. CITD/R has argued that it was a good will and the AO was right in denying the depreciation being purchase of good will by the assessee. The ld. CITD/R has stated that the decision in case of Hindustan Coca Cola (supra) is not applicable as facts of the present case as in this case the proceedings under section 263 were initiated. We have gone through this order of the Tribunal in case of Hindustan Coca Cola which has been approved by Hon'ble Delhi High Court also and found that though the appeal before Tribunal was against order under section 263, but Tribunal has decided the issue on merits also by which it was held that on good will, the depreciation is allowable and the AO was correct in allowing the depreciation. The ld. D/R has also placed reliance in case of Borkar Packaging (P.) Ltd. 131 TTJ 99 (Panaji), in case of Bharatbhai J. Vyas, 279 ITR 41 (AT Portion) and in case of R.G Keswani, 308 ITR 271 (AT). No doubt, in these cases various benches of the Tribunal has held that the word “good will” is not provided in the provisions of section 32(1)(ii) by the Legislatures while mentioning various intangible other assets. Therefore, depreciation is not allowable.

8.2 However, we find that in case of B. Raveendran Pillai, 237 CTR 80 (Ker.), the Hon'ble Kerala High Court has held that even on good will the depreciation is allowable. There are different views of the Benches of the Tribunal but there is no decision of any High Court that depreciation on good will cannot be allowed whereas there is a decision of Hon'ble Kerala High Court in favour of the assessee i.e in case of B. Raveendran Pillai (supra) wherein it is held that depreciation is allowable on good will. The ld. A/R has also informed that the decision of the Tribunal in case of Hindustan Coca Cola has been affirmed by the Hon'ble Delhi High Court. Therefore, in view of the decision of Hon'ble High Court, the depreciation has to be allowed on good will also. However, we are not inclined to go into detail whether depreciation on good will is allowable or not but the fact remains that the assessee has not purchased any good will but has purchased license, interest, privilege, franchise etc. from DKD which are undisputedly covered by section 32(1)(ii) and, therefore, the depreciation is allowable and the ld. CIT(A) has allowed the depreciation on these intangible assets and we have no hesitation in confirming the order of ld. CIT(A) on this aspect. Accordingly we confirm the order of ld. CIT(A).

9. We have discussed the facts of the case for, Assessment Year 2001-2002 and have confirmed the finding of ld. CIT(A). In other appeals also the identical issue is involved. Therefore, for the same reasoning we confirm the order of ld. CIT(A) for other years also.

10. In the result, all the appeals of the department are dismissed.