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2016 (3) TMI 169 - AT - Income TaxDisallowance of claim of depreciation on goodwill under section 32(1)(ii) - Held that - We direct the Assessing Officer to allow the assessee s claim of depreciation on good-will in all the years under consideration as goodwill also falls under the expression any other business or commercial right of a similar nature and thus would be an asset under Explanation 3(b) to section 32(1) of the Act - Decided in favour of assessee.
Issues:
Disallowance of claim of depreciation on "goodwill" under section 32(1)(ii) of the Income-tax Act. Analysis: The appeals were filed by the assessee against the order of the Commissioner of Income-tax (Appeals) for the assessment years 2002-03 to 2008-09 regarding the disallowance of claim of depreciation on "goodwill" under section 32(1)(ii) of the Income-tax Act. The assessee acquired a business as a going concern for a lump sum consideration and attributed a portion towards goodwill and business knowhow. The Assessing Officer denied the claim of depreciation on goodwill, stating it is not an intangible asset for depreciation under section 32(1)(ii). The Commissioner of Income-tax (Appeals) upheld this decision, leading to the current appeal. The senior counsel for the appellant cited the Supreme Court's decision in CIT v. Smifs Securities Ltd., emphasizing that goodwill is an asset under Explanation 3(b) to section 32(1) of the Act and thus eligible for depreciation. Several other decisions were also presented where goodwill was accepted as an asset eligible for depreciation. The Departmental representative, on the other hand, relied on the lower authorities' orders. After reviewing the relevant legal precedents, including the Supreme Court's decision in CIT v. Smifs Securities Ltd. and a Tribunal decision in PPG Asian Paints P. Ltd. v. Asst. CIT, it was established that goodwill falls under the expression "any other business or commercial right of a similar nature" in Explanation 3(b) to section 32(1) of the Act, making it an eligible asset for depreciation. Consequently, the Tribunal directed the Assessing Officer to allow the assessee's claim of depreciation on goodwill for all the years under consideration, as the facts and circumstances remained the same. In conclusion, all the appeals of the assessee were allowed, and the order was pronounced on July 22, 2015.
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