2012 (10) TMI 1047 - HC - Income Tax

Depreciation rate on motor cars @20% or 50% - business of running them on hire - depreciation on intangible assets viz. Business Equity - Held that - First question is answered in favour of the assessee being assessee s own case Income-tax 2012 (8) TMI 773 - BOMBAY HIGH COURT - Regarding depreciation on Business equity, even the intangible assets constitute goodwill on which depreciation would be allowable - Decision in the case of CIT v. Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT followed - Against the revenue

Summary

Issues:
1. Depreciation on motor cars as commercial vehicles.
2. Depreciation on intangible assets like business and commercial brand equity.

Analysis:

Issue 1: Depreciation on motor cars as commercial vehicles
The first question raised by the Revenue in the appeal pertained to whether motor cars should be considered commercial vehicles for the purpose of claiming depreciation at a rate of 50%. The Tribunal had allowed the depreciation at 50% by disregarding the provisions of Old Appendix 1 part A item 111(2) of the Income-tax Rules, 1962, which specified a depreciation rate of 20% for motor cars not used for hire. The Court noted that in a previous decision in the assessee's own case, it was held that motor cars could be considered commercial vehicles for depreciation purposes. Therefore, the Court concluded that the first question had already been settled in favor of the assessee and could not be reconsidered.

Issue 2: Depreciation on intangible assets
The second question raised was regarding the allowance of depreciation on intangible assets such as business and commercial brand equity. The Revenue contended that goodwill, including intangible assets, was not eligible for depreciation. However, the Court referred to a Supreme Court decision in CIT v. Smifs Securities Ltd., which established that even intangible assets, including goodwill, could be considered depreciable assets. Based on this precedent, the Court determined that the second question raised by the Revenue could not be entertained. Consequently, the appeal was dismissed, affirming the Tribunal's decision to allow depreciation on intangible assets like business and commercial brand equity.

In conclusion, the judgment clarified the treatment of depreciation for motor cars as commercial vehicles and intangible assets, providing a legal basis for allowing depreciation on both categories in line with established precedents and relevant tax laws.