2015 (1) TMI 402 - HC - Income Tax

Disallowance of depreciation on goodwill - whether the respondent-assessee was entitled to depreciation on intangible assets - Held that - specified intangible assets acquired under slump sale agreement were in the nature of business or commercial rights of similar nature specified in Section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that Section - Following decision of reva T and D India Ltd. vs. Deputy Commissioner of Income Tax 2012 (4) TMI 79 - DELHI HIGH COURT - Decided against Revenue.

Summary

Issues Involved:
1. Depreciation on Goodwill
2. Depreciation on Intangible Assets

Issue-wise Detailed Analysis:

1. Depreciation on Goodwill:

The appeals were filed by the Revenue against the orders of the Income Tax Appellate Tribunal (ITAT) which directed the Assessing Officer to allow the claim of the assessee regarding depreciation on goodwill. The ITAT had relied on the Supreme Court's judgment in Commissioner of Income Tax vs. SMIFS Securities Ltd., where it was held that goodwill is an intangible asset under Explanation 3(b) to Section 32(1) of the Income Tax Act, 1961, and is eligible for depreciation. The Revenue contended that the ITAT misapplied this precedent, arguing that in the present case, the amount paid over the value of assets was a premium and not goodwill.

However, the court noted that the ITAT had correctly applied the Supreme Court's ratio, which states that goodwill falls under the expression "any other business or commercial rights of similar nature" in Explanation 3(b) to Section 32(1). The court upheld the ITAT's decision, affirming that the assessee was entitled to depreciation on goodwill.

2. Depreciation on Intangible Assets:

The court also addressed whether the assessee was entitled to depreciation on intangible assets. The ITAT had determined that the assessee was entitled to such depreciation, discussing the relevant judgments, including the Supreme Court's decision in Techno Shares and Stock Ltd. vs. Commissioner of Income Tax and the Delhi High Court's ruling in Areva T and D India Ltd. vs. Deputy Commissioner of Income Tax. These judgments elucidated the scope of "intangible assets" under Section 32(1)(ii) of the Income Tax Act, which includes business or commercial rights of similar nature.

The court noted the ITAT's detailed analysis, which included the acquisition of various intangible assets such as stockist agreements, distribution agreements, lease agreements, and business know-how. These assets were deemed invaluable for carrying on the business, akin to a license, and thus eligible for depreciation. The court upheld the ITAT's decision, affirming the assessee's entitlement to depreciation on the acquired intangible assets.

Conclusion:

The court dismissed the appeals filed by the Revenue, upholding the ITAT's orders which allowed the assessee's claims for depreciation on both goodwill and intangible assets. The court emphasized that the ITAT had correctly applied the relevant legal principles and precedents in reaching its conclusions.