M/S. MANGALORE GANESH BEEDI WORKSversusCOMMISSIONER OF INCOME TAX, MYSORE &ANR.

                        [2015] 13 S.C.R. 1080


A          M/S. MANGALORE GANESH BEEDI WORKS
                                   v.
       COMMISSIONER OF INCOME TAX, MYSORE &ANR.
              (Civil Appeal NoS.10547-10548 of 2011)
B
                         OCTOBER 15, 2015
           [MADAN B. LOKUR AND S. A. BOBDE, JJ.)
          Income-Tax Act, 1961:
c       s. 37 - Business Expenditure - Deduction - Certain
  amount claimed as revenue expenditure by the Association
  of persons constituted by partners of the erstwhile firm -
  Deduction u/s. 37, as being laid out or expended wholly and
D exclusively for the purpose of b_usiness of the Association of
  Persons - Permissibility of - Held: Amount claimed as
  revenue expenditure by Association ofpersons can be allowed
  as permissible deduction by them u/s. 37 of the Act -
  Concern was ·a going concern and thus, the legal expenses
E incurred were for defending the business of the going concern
  and for protecting its interests- Expenses were not personal
  in nature, nor the expenses were unreasonable or not bona fide.

        s. 32 r/w s. 43(3)- Depreciation- Benefit of s. 32 rlw s.
F 43(3) - Entitlement to - Held: For the purposes of a large
  business, control over intellectual property rights-brand
  name, trademark is absolutely necessary - Acquisition of
  such rights and know-how is acquisition of a capital nature -
  Intellectual property .such as trademarks, copyrights and
G know-how come within the definition of 'plant' - Thus, the
  trademarks, copyrights and know-how acquired by assessee
  would come within the definition of 'plant' - s. 32 as it stood at
  the relevant time did not make any distinction between
  tangible and intangible assets for the purposes of
H depreciation - Assessee is entitled to the benefit of
                              1080
  M/S. MANGALORE GANESH BEEDI WORKS v. CIT,              1081
                  MYSORE

depreciation on plant-trademarks, copyrights and know-how, A
in terms of s. 32 - On facts, the tribunal was justified in
directing the Assessing Officer to capitalize the value of
trademarks, copyright and technical know-how by treating the
same as plant and machinery. and grant depreciation.
                                                          B
     Disposing of the appeals, the Court

      HELD: 1.1 The tribunal held that the concern was
in fact a going concern and therefore, the legal expenses
incurred were for defending the business of the going C
concern and for protecting its interests. It could not be
said that the expenses were personal in nature, nor
could it be said that the expenses were unreasonable or
not bona fide. There is a clear finding of fact by the
tribunal that the legal expenses incurred by the Assessee D
were for protecting its business and that the expenses
were incurred after 18th November, 1994, after the
business was taken over by AOP-3. There is no reason
to reverse this finding of fact particularly since nothing
has been shown to conclude that the finding of fact was E
perverse in any manner whatsoever. That apart, if the
finding of fact arrived at by the tribunal were to be set
aside, a specific question regarding a perverse finding
of fact ought to have been framed by the High Court.
The Revenue did not seek the framing of any such F
question. [Paras 16, 19] [1089-B-C; 1090-F·H]

     1.2 The High Court was not justified in upsetting a
finding of fact arrived at by the Tribunal, particularly in
the absence of a substantial question of law being G
framed in this regard. Thus, the view of the tribunal that
the amount claimed as revenue expenditure by the
Association of persons which was constituted by the
three partners of the erstwhile firm, MGBW, can be
allowed as permissible deduction in the hands of the H
1082        SUPREME COURT REPORTS             [2015] 13 S.C.R.


 A said Association of Persons under Section 37 of the
   Income-Tax Act, 1961, as being laid out or expended
   wholly and exclusively for the purpose of business of
   the said Association of Persons, is restored and that of
   the High Court is set aside. [Paras 2, 20] (1085-B-C;
 B 1091-E·F]

         2.1 It is accepted and acknowledged that intellectual
   property rights have a value. As regards the issue
   whether the assessee was entitled to claim any
 C deduction on the alleged expenditure for acquisition of
   patent (trademarks] rights, copyrights and know-how,
   in terms of s. 35A and 35AB of the Act, the question of
   the applicability of s. 35A and s. 35AB of the Act is left
   open for an appropriate case because the counsel
 D submitted that if the assessee is given the benefit of
   Section 32 read with Section 43(3) of the Act
   {depreciation on plant) as has been done by the tribunal,
   the assessee would be quite satisfied. Unfortunately, the
   alternative aspect of the assessee's case was not looked
 E into by the High Court. [Paras 21, 28] (1091-G; 1095-C-
       D]
        2.2 As regards the question would intellectual
   property such as trademarks, copyrights and know-how
 F come within the definition of 'plant' in the 'sense which
   people conversant with the subject-matter with which
   the statute is dealing, would attribute to it must be
   answered in the affirmative for the reason that there can
   be no doubt that for the purposes of a large business,
 G control over intellectual property rights such as brand
   name, trademark etc. are absolutely necessary.
   Moreover, the acquisition of such rights and know-how
   is acquisition of a capital nature, more particularly in the
   case of the assessee. Therefore, it cannot be doubted
 H
   M/S. MANGALORE GANESH BEEDI WORKS v. CIT,               1083
                   MYSORE

that so far as the assessee is concerned, the trademarks, A
copyrights and know-how acquired by it would come
within the definition of 'plant' being commercially
necessary and essential as understood by those dealing
with directtaxes. [Para 31) [1096-E-H; 1097-A]
                                                             B
      2.3 Section 32 of the Act as it stood at the relevant
time did not make any distinction between tangible and
intangible assets for the purposes of depreciation. The
distinction came in by way of an amendment after the
assessment year. That being the position, the assessee C
is entitled to the benefit of depreciation on plant {that is
on trademarks, copyrights and know-how) in terms of
Section 32 of the Act as it was at the relevant time. Thus,
the view taken by the tribunal that the assessee would
be entitled to the benefit of Section 32 of the Act read D
with Section 43(3) thereof, is accepted. [Para 32) [1097·
B·C]
      2.4 By denying that the trademarks were auctioned
to the highest bidder, the Revenue is actually seeking to E
re-write clause 16 of the agreement between the erstwhile
partners of MGBW. This clause specifically states that
the going concern and all the trademarks used in the
course of the said business by the said firm and under
which the business of the partnership is carried on shall F
vest in and belong to the highest bidder. Under the
circumstances, it is difficult to appreciate how it could
be concluded by the Revenue that the trademarks were
not auctioned off and only t.he goodwill in the erstwhile
firm was auctioned off. Thus, the question whether the G
tribunal had erred in directing the Assessing Officer to
capitalize the value of trademarks, copyright and
technical know-how by treating the same as plant and
machinery and grant depreciation therein is answered
                                                          H
1084         SUPREME COURT REPORTS               [2015] 13 S.C.R.


 A     in the negative, in favour of the assessee and against
       the Revenue. [Paras 33, 34] [1097-D-F; 1098-B]
       Dalmia Jain and Company Limited v. Commissioner of
       Income Tax [1971] 81 ITR 754 (SC); Shree Meenakshi Mills
 B     v. CIT [1967] 63 ITR 207 (SC); K. Ravindranathan Nair v.
       Commissioner of Income Tax [2001] 247 ITR 178 (SC);
       Bharat Beedi Works (P) Ltd. v. CIT 1993 (3) SCR 606:
       (1993) 3 SCC 252; Commissioner of Income Tax v. Taj
       Mahal Hotel (1971) 3 SCC 550; D. S. Bist & Sons v. CIT
 c     [1984] 149 ITR 276 (Delhi)- referred to.
                         Case Law Reference
       [1971] 81 ITR 754 (SC)          referred to       Para 17
       [1967] 63 ITR 207 (SC)          referred to       Para 17
 D
       [2001] 247 ITR 178 (SC)         referred to       Para 19
       1993 (3) SCR 606                referred to       Para 21
       (1971) 3 sec 550                referred to       Para 29

 E     [1984] 149 ITR 276 (Delhi)      referred to       Para 33
           CIVILAPPELLATE JURISDICTION: Civil Appeal Nos.
       10547-10548 of 2011
              From th.e Judgment and Order dated 23.12.2010 of the
 F     Division Bench of the High Court of Karnataka at Bangalore
       in l.T.ANo. 69 & 70of2001.
         S. Ganesh, Sr.Adv., YashankAdhyaru, Sr.Adv., Manu
   Nair, Ms. S. N. Purohit, lshan Gaur, M/s Suresh A. Shroff &
   Co., Rupesh Kumar, Arijit Prasad, Mrs. Sadhna Sandhu,
 G Mrs. Anil Katiyar, Advs., for the appearing parties.
            The Judgment of the Court was delivered by

            MADAN B. LOKUR, J. 1. These appeals are directed
       against a judgment and order dated 23'd December, 201 O
 H
   M/S. MANGALORE GANESH BEEDI WORKS v. CIT,                     1085
           MYSORE [MADAN B. LOKUR, J.]

passed by the Division Bench of the High Court of Karnataka      A
at Bangalore in ITA Nos. 69-70 of 2001.

     2. The three substantial questions of law considered by
the High Court were as follows:-

      i)    Whether Rs. 12,24,700/- claimed as revenue B
            expenditure by the Association of persons which
            was constituted by the three partners of the erstwhile
            firm, MGBW, can be allowed as permissible
            deduction in the hands of the said Association of C
            persons under Sectiort 37 of the Income-Tax Act,
            1961, as being laid out or expended wholly and
            exclusively for the purpose of business of the said
            Association of Persons?

      ii)   Whether the Assessee was entitled to claim any D
            deduction on the alleged expenditure for acquisition
            of patent [trademarks] rights, copyrights and know-
            how, in terms of Section 35A and 35AB of the Act?

      iii) Whether the Tribunal had erred in directing the       E
           Assessing Officer to capitalize the value of
           trademarks, copyright and technical know-how by
           treating the same as plant and machinery and grant
           depreciation therein?
                                                                  F
      3. In its conclusion, the High Court answered the first
two questions in the negative and the third question in the
affirmative in favour of the Revenue and against the Assessee.
While doing so, the High Court set aside the findings of the
Income-Tax Appellate Tribunal (for short 'the Tribunal") and     G
restored the order of the Assessing Officer. The relevant
assessment year is 1995-96.

     4. Broadly, the facts of the case indicate that in 1939
late Sri S. Raghuram Prabhu started the business of H
1086         SUPREME COURT REPORTS                   [2015] 13 S.C.R.


 A     manufacturing beedis. He was later joined in the business by
       Sri Madhav Shenoy as a partner and thus M/s. Mangalore
       Ganesh Beedi Works (for short 'MGBW') came into existence
       with effectfrom 28th February, 1940.

 B           5. The partnership firm was reconstituted from time to
       time and its last reconstitution and partnership deed contained
       Clause 16 relating to the manner in which the affairs of the
       partnership firm were to be wound up after its dissolution.
       Clause 16 of the partnership deed reads as follows:-
 c           "16. If the partnership is dissolved, the going concern
               carried on under the name of the Firm Mangalore
               Ganesh Beedi Works and all the trade marks used in
               course of the said business by the said firm and under
 D             which the business of the partnership is carried on shall
               vest in and belong to the partner who offers and pays or
             · two or more partners who jointly offer and pay the highest
               price therefor as a single group at a sale to be then
               held as among the partners shall be entitled to bid. The
 E             other partners shall execute and complete in favour of
               the purchasing partner or partners at his/her or their
               expense all such deed, instruments and applications
               and otherwise and him/her name or their names of all
               the said trade marks and do all such deed, acts and
 F            transactions as are incidental or necessary to the said
              transferee or assignee partner or partners."

          6. Due to differences between the partners of MGBW,
   the firm was dissolved on or about 6th December, 1987 when
 G two partners of the firm applied for its winding up by filing
   Company Petition No. 1 of 1988 in the High Court. While
   entertaining the Company Petition the High Court appointed
   an Official Liquidator and eventually, after hearing all the
   concerned parties, a winding up order was passed on 14th
 H June, 1991.
   M/S. MANGALORE GANESH BEEDI WORKS v. CIT,                      1087
           MYSORE [MADAN B. LOKUR, J.]

      7. In its order passed on 141h June, 1991 the High Court A
held that the firm is dissolved with effect from 61h December,
1987 and directed the sale of its assets as a going concern to
the highest bidder amongst the partners. The relevant extract
of the order passed by the High Court reads as follows:-
                                                                  B
      "(i) The dissolved partnership firm - Mangalore Ganesh
      Beedi Works as a going concern shall be sold to such
      of its partner/s, who makes an offer of a highest price,
      the same not being less than the minimum (re~erved)
      price of Rs. 30 crores (Rupees Thirty Crores) within 11- C
      7-1991 accepting further liability to pay interest at 15%
      per annum towards the amount of the price payable to
      partner/s from 6-12-1987 till the date of deposit."

     8. The High Court also prescribed certain other activities   D
such as conducting the auction by the Official Liquidator etc.

      9. Pursuant to the order passed by the High Court on
14th June, 1991 an auction was conducted in which three of
the erstwhile partners forming an association of persons          E
(hereinafter referred to as 'AOP-3') emerged as the highest
bidders and their bid of Rs.92 crores for the assets of MGBW
was accepted by the Official Liquidator on or about 17th
November, 1994. With effect from 18th November, 1994 the
business of the firm passed on into the hands of AOP-3 but        F
the tangible assets were actually handed over by the Official
Liquidator to AOP-3 on or about 7th January, 1995.

        10. MGBW (hereinafter referred to as the 'Assessee')
filed its return forthe period 18th November, 1994 to 31 51 March, G
1995 and subsequently filed a revised return. Broadly, the
Assessee claimed a deduction of Rs. 12,24, 700/- as a revenue
expenditure permissible under Section 37 of the Income-Tax
Act, 1961 (hereinafter referred to as 'the 'Act') towards legal
expenses incurred. TheAssessee also claimed depreciation H
1088         SUPREME COURT REPORTS                 [2015) 13 S.C.R.


 A     under Section 35A and 35AB of the Act towards acquisition of
       Intellectual Property Rights such as rights over the trademark,
       copyright and technical know-how. In the alternative, the
       Assessee claimed depreciation on capitalizing the value of
       the Intellectual Property Rights by treating them as plant.
 B
         11. The Assessing Officer passed an order on 30th
   March, 1998 rejecting the claim of the Assessee under all the
   three Sections mentioned above. Feeling aggrieved, the
   Assessee preferred an appeal before the Commissioner of
 C Income-Tax (Appeals) who passed an order on 151hOctober,
   1998. The appeal was allowed in part inasmuch as it was held
   that the Assessee was entitled to a deduction towards legal
   expenses. However, the claim of the Assessee regarding
   deduction or depreciation on the Intellectual Property Rights
 D was rejected by the Commissioner of Income-Tax (Appeals).

              12. As a result of the appellate order, the Revenue was
       aggrieved by the deduction granted to the Assessee in respect
       of legal expenses and so it preferred an appeal before the
 E     Tribunal. The Assessee was aggrieved by the rejection of its
       claim in respect of the Intellectual Property Rights and also
       filed an appeal before the Tribunal.

             13. By an order dated 19'h October, 2000 the Tribunal
 F     allowed the appeal of the Assessee while rejecting the appeal
       of the Revenue.

         14. The impugned order was then passed by the High
   Court as mentioned above. It is under these circumstances
 G that the assessee is now before us in appeal.

       question No. 1

        15. In respect of the first question the issue really is
   whether the expenses incurred by the Assessee were for
 H protecting the business of the firm or were expenses incurred
       M/S. MANGALORE GANESH BEEDI WORKS v. CIT,                       1089
               MYSORE [MADAN B. LOKUR, J.]

 for personal reasons namely consequent to disputes or                 A
 differences relating to the ownership of the going concern with
 the erstwhile partners of the Assessee.

          16. The Tribunal examined the issue in substantial detail.
 It was held by the Tribunal that the concern was in fact a going B
 concern and therefore, the legal exP.enses incurred were for
 defending the business of the going concern and for protecting
 its interests. It could not be said that the expenses were
 personal in nature, nor could it be said that the expenses were
 unreasonable or not bona fide. It was found that the expenses C
 incurred did not pertain to the period prior to the AOP-3 taking
 over the going concern but they were expenses incur~ed after
 the business was taken over by AOP-3 and that they related to
 legal proceedings that were pending in the High Court. The
 Tribunal noted that even the Assessing Officer did not treat the D
 expenditure as being of a capital nature.

      17. On a consideration of the issues placed before the
 Tribunal, including the decision of this Court in Dalmia Jain
 and Company Limited v. Commissioner of Income Tax1_it E
  was held that the expenses incurred by the Assessee were
  honest and reasonable and were incurred for the purposes of
  protecting the business of the firm as a going concern. In
  Dalmia Jain, this Court relied upon Shree Meenakshi Mills
· v. CIT2 and held:                                                    F

           "[D]eductibility of expenditure incurred in prosecuting a
           civil proceeding depends upon the nature and purpose
           of the legal proceeding in relation to the assessee's
           business and the same cannot be affected by the final       G
           outcome of that proceeding. However wrong-headed,
           ill advised, unduly optimistic or overconfident in his
           conviction the assessee might appear in the light of the
 1
     [1971] 81 ITR 754 (SC)
 2
     [1967]. 63 ITR 207 (SC)                                           H
1090        .SUPREMECOURTREPORTS                     [2015] 13 S.C.R.


 A            ultimate decision; expenditure in starting and
              prosecuting a civil proceeding cannot be denied as a
              permissible deduction in computing the taxable income
              merely because the proceeding had failed, if otherwise
              the expenditure was laid out for the purpose of the
 B            business wholly and exclusively, that is, reasonably and
              honestly incurred to promote the interest of the business.
              Persistence of the assessee in launching the
              proceeding and carrying it from Court to Court and
              incurring expenditure is not a ground for disallowing the
 c            claim."

             18. The High Court did not accept the view of the Tribunal
       and in support of that it was contended before us by learned
       counsel for the Revenue that the highest bid of AOP-3 was
 D     accepted by the High Courton or about 21st September, 1994
       and therefore there was no question of the expenses being
       incurred for protecting the business of the going concern
       subsequent to that date. In other words all the legal expenses
       incurred were prior to 21st September, 1994 and were therefore
 E     personal in nature.

         19. We are not at all impressed with the submission of
   learned counsel for the Revenue. There is a clear finding of
   fact by the Tribunal that the legal expenses incurred by the
 F Assessee were for protecting its business and that the ·
   expenses were incurred after 18th November, 1994. There is
   no reason to reverse this finding of fact particularly since
   nothing has been shown to us to conclude that the finding of
   fact was perverse in any manner whatsoever. That apart, if the
 G finding of fact arrived at by the Tribunal were to be set aside, a
   specific question regarding a perverse finding of fact ought to
   have been framed by the High Court. The Revenue did not
   seek the framing of any such question. In this regard, reference

 H
      M/S. MANGALORE GANESH BEEDI WORKS v. CIT,                        1091
              MYSORE [MADAN B. LOKUR, J.]

may be made to K. Ravindranathan Nair v. Commissioner A
of Income Tax3_wherein it was observed:

          'The High Court overlooked the cardinal principle that it
          is the Tribunal which is the final fact-finding authority. A
          decision on fact of the Tribunal can be gone into by the B
          High Court only if a question has been referred to it which
          says that the finding of the Tribunal on facts is perverse,
          in the sense that it is such as could not reasonably have
          been arrived at on the material placed before the
          Tribunal. In this case, there was no such question before C
          the High Court. Unless and until a finding of act reached
          by the Tribunal is canvassed before the High Court in
          the manner set out above, the High Court is obliged to
          proceed upon the findings of fact reached by the Tribunal
          and to give an answer in law to the question of law that D
          is before it."

       20. Accordingly, we hold that the High Court was not
justified in upsetting a finding of fact arrived at by the Tribunal,
particularly in the absence of a substantial question of law           E
being framed in this regard. Therefore, we set aside the
conclusion arrived at by the High Court on this question and
restore the view of the Tribunal and answer the question in
favour of the Assessee and against the Revenue.
                                                                       F
Question Nos. 2 & 3

      21. As a preface to answering these questions, we must
accept and acknowledge that intellectual property rights have
a value. There is a tacit acceptance of this in Bharat Beedi G
Works (P) Ltd. v. C/J'l!_wherein it has been observed that there
is a value attached to a brand name.
3
    [2001] 247 ITR 178 (SC)
4
    (1993) 3 sec 252. paragraph 13

                                                                       H
1092       SUPREME COURT REPORTS                  [2015) 13 S.C.R.


 A        22. Proceeding from this starting point, it must be noted
   that the fundamental basis on which these questions were
   decided against the Assessee and in favour of the Revenue is
   the finding of the High Court that what was sold by way of auction
   to the highest bidder was the goodwill of the partnership firm
 B and not the trademarks, copyrights and technical know-how.
   Reliance was placed on the Report dated 24th January, 1989
   of the Chartered Accountants Rao and Swamy, commissioned
   during the pendency of Company Petition in the High Court. In
   this Report, the total assets of MGBW were valued at Rs.
 C 28,58,01,410.02. The total liabilities were valued at
   Rs.26,55,77,389.02 thereby making the net assets worth
   Rs.2,02,24,021.30. The Chartered Accountants specifically
   stated in the Report that the net assets excluded goodwill. The
   Report calculated goodwill on the super profit method by taking
 D three times the profit for 5 years (30.06.1983 to 30.06.1987).
   This was then calculated at Rs. 26.10 crores. It is on this basis
   that the reserve price for the auction was fixed at Rs.30 crores,
   as mentioned in the order of 14th June, 1991 passed by the
 E High Court. According to learned counsel for the Revenue,
   MGBW was already the owner of the trademarks, copyrights
   and technical know-how and essentially the rights in the
   intellectual property might be included in goodwill, but these
   were not auctioned off but were relinquished in favour of AOP-
 F 3 and, therefore, theAssessee.

         23. AOP-3 on the other hand had obtained a separate
   valuation from the Chartered Accountant M.R. Ramachandra
   Variar. In his Report dated 12th September, 1994 the technical
 G know-how was valued at Rs. 36 crores, copyright was valued
   at Rs 21.6 crores and trademarks were valued at Rs. 14.4
   crores making a total of Rs. 72 crores. These figures were
   arrived at by taking 5 times the average profits for the last 5
   years (ended 31st March, 1994). It is not necessary to go into
 H calculating the bifurcated value of the three intangible assets
    M/S. MANGA_LORE GANESH BEEDI WORKS v. CIT,                                ·. 1093
            MYSORE [MADAN B. LOKUR, J.]

except to say that the trademarks were given a value since in A
the beedi industry the trademark and brand name have a value
and the Assessee's product under trademark '501' had a
national and international market. As far as the copyright
valuation is concerned, beedis are known not only by the
trademark but also by the depiction on the labels and wrappers B
and colour combination on the package. The Assessee had a
copyright on the content of the labels, wrappers and the colour
combination on them. Similarly, the know-how had a value since
the aroma of beedis differs from one manufacturer to another,
depending on the secret formula for mixirig and blending C
tobacco. The claim for depreciation/amortization by the
Assessee is limited to this amount of Rs. 72 crores.

       24. While passing orders on the bid given by the
Assessee, the High Court tacitly accepted, in its order of 22"d                   D
December, 1994 that the trademarks and copyrights were the
intangible assets of MGBW. 5 It is on this basis (and the extant
accounting practice) that the Assessee made necessar)t entries
in its books including in the balance sheet.
                                                                                  E
    25. However, what is equally important is that the Variar
Report mentioned that it did not consider any value for goodwill

5
  The High Court held, Company Application No.436/1994 is allowed and the
sale of Mangalore Ganesh Beedi Works as a going concern with all its assets,      F
tangible and intangible whatsoever and wherever they are with trade name
and all other trade marks copy rights and privileges owned and enjoyed by
the said firm together with all liabilities of the out-going partners excluding
their tax liabilities is hereby confirmed in favour of the purchasing group
namely applicants in Company Application No.436/1994; subject to the final
orders that may be passed in Company Application No.433/1994. The out-
going group of partners presently in Management of the affairs of Mis             G
Mangalore Ganesh Beedi Works, are hereby directed to deliver forthwith the
possession of the entire business of the said dissolved partnership firm
together with all trade marks, trade names, copy rights, Book of Accounts,
documents relating to assets and liabilities, Bank Accounts etc., under the
supervision of the Official Liquidator, who shall submit a report as to the
completion of the process of delivery of possession as aforesaid to this
Court, within four weeks from today.                                              H
1094         SUPREME COURT REPORTS                   [2015] 13S.C.R.


 A     since the trademarks, copyrights and know-how had
       tremendous business value as the firm had been enjoying the
       status of being India's largest beedi manufacturer over the last
       five decades. After taking into consideration the net assets
       and liabilities of MGBW, the Ch9rtered Accountant arrived at
 B     the net value of the going concern at Rs. 90 crores. On this
       basis, AOP-3 gave its bid of Rs. 92 crores which was
       eventually accepted.

          26. In the case of M. Ramnath Shenoy6 (an erstwhile
 C partner of MGBW) the Tribunal accepted (after a detailed
   discussion) the contention oftheAssessee that trademarks,
   copyrights and technical know-how alone were comprised in
   the assets of the business and not goodwill. It was also held
   that when the Revenue alleges that it is goodwill and not
 D trademarks etc. that is transferred, the onus will be on the
   Revenue to prove it, which it was unable to do. The Tribunal
   then examined the question whether the sale of these intangible
   assets would attract capital gains. The question was answered
   in the negative and it was held that the assets are self-
 E generated and would not attract capital gains. The decision of
   the Tribunal has been accepted by the Revenue and we really
   see no reason why a different conclusion should be arrived at
   in so far as the Assessee is concerned.

 F       27. The High Court denied any benefit to the Assessee
   under Section 35A and Section 35AB of the Act since it was
   held that what was auctioned off was only goodwill and no
   amount was spent by AOP-3 towards acquisition of
   trademarks, copyrights and know-how. In coming to this
 G conclusion, reliance was placed on the Report of the Chartered
   Accountants Rao and Swamy who stated that the assets of
   MGBW were those of a going concern and were valued on the

     • ITA No.258 (Bangalore/1997) decided on 10th July, 1997 relevant to
 H   Assessment Year 1995-96
    M/S. MANGALORE GANESH BEEDI WORKS v. CIT,                                     1095
            MYSORE [MADAN B. LOKUR, J.]

goodwill of the firm and no trademarks, copyrights and know-                      A
how were acquired. It was further held, in our opinion rather
speculatively by the High Court, that the valuation made by the
Chartered Accountant of AOP-3 that is M.R. Ramachandra
Variar that the goodwill was split into know-how, copyrights
and trademarks only for the purposes of claiming a deduction                      B·
under Section 35A and Section 35AB of the Act and the value
of the goodwill was shown as nil and the deduction claimed did
not represent the value of _the know-how, copyrights and
trademarks.
                                                                                  c
     28. We leave open the question of the applicability of
Section 35A and Section 35AB of the Act for an appropriate
case. This is because learned counsel submitted that if the
Assessee is given the benefit of Section 32 read with Section
43(3) of the Act (depreciation on plant) as has been done by D
the Tribunal, the Assessee would be quite satisfied.
Unfortunately, the alternative aspect of the Assessee's case
was not looked into by the High Court.

      29. -Therefore, now the question to be answered is                          E
whether the Assessee is entitled to any benefit under Section
32 of the Act read with Section 43(3) thereof for the expenditure
incurred on the acquisition of trademarks, copyrights and know-how.

      30. The definition of 'plant' in Section 43(3) of the Act is F
inclusive. 7 Asimilar definition occurring in Section 10(5) of the
Income TaxAct, 19228 was considered in Commissioner of
Income Tax v. Taj Mahal Hote/9 wherein it was held that the
word 'plant' must be given a wide meaning. It was held:
7 "plant" includes
                                                                                  G
                    ships. vehicles, books, scientific apparatus and surgical
equipment used for the purposes of the business or profession but does not
include tea bushes or livestock;
8 "plant" includes vehicles, books, scientific apparatus and surgical equipment

purchased for the purposes of the business, profession or vocation;
• (1971) 3 sec 550
                                                                                  H
      1096       SUPREME COURT REPORTS                  [2015] 13S.C.R.


       A         "Now it is well settled that where the definition of a word
                 has not been given, it must be construed in its popular
'•.              sense if it is a word of every day use. Popular sense
                 means "that sense which people conversant with the
                 subject-matter with which the statute is dealing, would
       B         attribute to it". In the present case, Section 10(5)
                 enlarges the definition of the word "plant" by including
                 in it the words which have already been mentioned
                 before. The very fact that even books have been
                 included shows that the meaning intended to be given
       c         to "plant" is wide. The word "includes" is often used in
                 interpretation clauses in order to enlarge the meaning
                 of the words or phrases occurring in the body of the
                 statute. When it is so used, those words and phrases
                 must be construed as comprehending not only such
       D
                 things as they signify according to their nature and
                 import but also those things which the interpretation
                 clause declares that they shall include. The word
                 "include" is also suspectible of other constructions which
                 it is unnecessary to go into."
       E
               31. The question is, would intellectual property such as
         trademarks, copyrights and know-how come within the
         definition of 'plant' in the 'sense which people conversant with
         the subject-matter with which the statute is dealing, would
       F attribute to it'? In our opinion, this must be answered in the
         affirmative for the reason that there can be no doubt that for
         the purposes of a large business, control over intellectual
         property rights such as brand name, trademark etc. are
       G absolutely necessary. Moreover, the acquisition of such rights
         and know-how is acquisition of a capital nature, more
         particularly in the case oftheAssessee. Therefore,.it cannot
         be doubted that so far as the Assessee is concerned, the
         trademarks, copyrights and know-how acquired by it would
       H come within the definition of 'plant' being commercially
    M/S. MANGALORE GANESH BEEDI WORK.S v. CIT,                                      1097
            MYSORE [MADAN B. LOKUR, J.]

necessary and essential as understood by those dealing with                         A
direct taxes.

      32. Section 32 of the Act as it stood at the relevant time10
did not make any distinction between tangible and intangible
assets for the purposes of depreciation. The distinction came B
in by way of an amendment after the assessment year that we
are concerned with. That being the position, the Assessee is
entitled to the benefit of depreciation on plant (that is on
trademarks, copyrights and know-how) in terms of Section 32
of the Act as it was at the relevant time. We are, therefore, in C
agreement with the view taken by the Tribunal in this regard
that the Assessee would be entitled to the benefit of Section
32 of the Act read with Section 43(3) thereof.

      33. In this context, it may also be mentioned that by o
denying that the trademarks were auctioned to the highest
bidder, the Revenue is actually seeking to re-write clause 16
of the agreement between the erstwhile partners of MGBW.
This clause specifically states that the going concern and all
the trademarks used in the. course of the said business by the E
said firm and under which the business of the partnership is
carried on shall vest in and belong to the highest bidder. Under
the circumstances, it is difficult to apprecia~e how it could be
concluded by the Revenue that the trademarks were not
auctioned off and only the goodwill in the erstwhile firm was F
auctioned off. In D. S. Bist & Sons v. C/T1 1_it was held that the
Act does not clothe the taxing authorities with any power or
jurisdiction to re-write the terms of the agreement arrived at
between the parties with each other at arm's length and with
no allegation of any collusion between them. 'The commercial G
10
   'In respect of depreciation of buildings, machinery, plant or furniture owned,
wholly or partly, by the assessee and used for the purposes of the business
or profession, the following· deductions shall, l>Ubject to the provisions of
section 34, be allowed -'
11
     [1984) 149 ITR 276 (Delhi)                                                     H
1098           SUPREME COURT REPORTS               [2015] 13 S.C.R.


 A     expediency of the contract is to be adjudged by the contracting
       parties as to its terms.'

             34. The issue, looked at from any angle, would lead to
       the conclusion that Question No. 3 is required to be answered
 B     in the negative, in favour of the Assessee and against the
       Revenue. We do so accordingly. Question No. 2 is left open
       for consideration in an appropriate case.

           35. The appeals are disposed of in the above _terms.
 C     Nocosts.

       Nidhi Jain                                   Appeals disposed of.