2016 (6) TMI 1244 - AT - Income Tax

Disallowing depreciation on goodwill - whether Type Test Certification Fees and Customer Approval Fees claimed by the assessee are eligible for depreciation u/s 32 - Held that - Ratio of the judgment cited as Areva T and D India Ltd. (2012 (4) TMI 79 - DELHI HIGH COURT) squarely applies to the facts and circumstances of the case and we are of the considered view that Type Test Certification Fees and Customer Approval Fees are certainly intangible assets being business claims, business information, contracts and know-how etc., which were intangible and without which the assessee would have no business to start with. Thus, rights of the similar nature specified in section 32(1)(ii) of the Act are eligible for depreciation. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of depreciation on goodwill as an intangible asset under Section 32 of the Income Tax Act, 1961.

Analysis:
The judgment by the Appellate Tribunal ITAT Delhi involved the appeal of M/s. Controls & Switchgear Contractors Limited against the order passed by the Commissioner of Income-tax (Appeals) regarding the disallowance of depreciation on goodwill for the assessment year 2007-08. The key issue revolved around whether the claimed depreciation on goodwill amounting to ?3,44,531 was eligible under Section 32(1)(ii) of the Act. The Assessing Officer disallowed the depreciation on goodwill based on accounting standards, leading to the appeal by the assessee. The Tribunal was tasked with deciding whether the 'Type Test Certification Fees' and 'Customer Approval Fees' could be considered as intangible assets for depreciation purposes.

During the proceedings, it was noted that the assessee company was engaged in manufacturing control gears and switchgear products used for regulating electrical current. The assessee claimed depreciation on goodwill, which the Assessing Officer disallowed, leading to an appeal before the Tribunal. The Tribunal examined the arguments presented by both the Authorized Representatives of the parties, considering the facts and orders of the revenue authorities.

The judgment referred to the case of Areva T and D India Ltd., where the High Court discussed the interpretation of 'business or commercial rights of similar nature' under Section 32(1)(ii) of the Act. The Court emphasized that the nature of business or commercial rights should not be restricted to specific categories like knowhow, patents, trademarks, etc. Instead, it should encompass assets facilitating the smooth conduct of business. The Tribunal applied this precedent to the present case, concluding that 'Type Test Certification Fees' and 'Customer Approval Fees' were indeed intangible assets eligible for depreciation under Section 32(1)(ii) of the Act.

In the final analysis, the Tribunal held that the Commissioner of Income Tax (Appeals) erred in upholding the disallowance of depreciation on goodwill. Consequently, the appeal was allowed in favor of the assessee on the grounds of the eligibility of 'Type Test Certification Fees' and 'Customer Approval Fees' as intangible assets for depreciation. The judgment was pronounced on June 22, 2016, by the Tribunal.

This detailed analysis of the judgment highlights the legal intricacies involved in determining the eligibility of specific assets for depreciation under the Income Tax Act, showcasing the application of precedents and legal principles in reaching a decision.