2016 (2) TMI 407 - HC - Income Tax

Depreciation on intangible asset by way of Goodwill - amalgamation of a company duly approved - Held that - Depreciation on Goodwill paid upon amalgamation is a permissible deduction in terms of Section 32. See Commissioner of Income Tax, Kolkata Versus Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT

Summary

Issues:
1. Whether depreciation can be allowed on Goodwill in cases of amalgamation of Companies?
2. Whether the Tribunal's decision on disallowing the claim for depreciation on Goodwill is correct?

Analysis:
1. The first substantial question of law revolved around the allowance of depreciation on Goodwill in cases of amalgamation of companies. The Appellant argued that the Tribunal's decision disallowing the claim for depreciation on Goodwill was erroneous. The Appellant relied on a judgment of the Apex Court which concluded that Goodwill falls under the category of 'any other business or commercial rights of similar nature' as per Explanation 3 of Section 32(1) of the Income-tax Act, 1961. The Court agreed with the Appellant's argument and held that depreciation on Goodwill paid upon amalgamation is a permissible deduction under the Income-tax Act, 1961.

2. The second substantial question of law dealt with the correctness of the Tribunal's decision in dismissing the appeal based on an alleged incorrect appreciation of facts and law. The Court considered the arguments presented by both parties and decided to quash and set aside the impugned order passed by the Tribunal. The matter was remanded back to the Tribunal to decide the appeal afresh in light of the observations made by the Court and the judgments relied upon by the Appellant's counsel. The Court's decision to remand the matter indicated that the Tribunal's decision was not deemed appropriate, and a fresh consideration was necessary.

In conclusion, the High Court partially allowed the appeal, quashed the Tribunal's order, and directed the Tribunal to reconsider the appeal in accordance with the law and the Court's observations. The judgment clarified the applicability of depreciation on Goodwill in cases of amalgamation and emphasized the importance of correct appreciation of facts and law in making legal decisions.