2018 (7) TMI 2071 - AT - Income Tax

Depreciation on intangible assets @ 25% - HELD THAT - As decided in own case for assessment year 2011-12 2017 (11) TMI 1862 - ITAT CHENNAI Business Transfer Agreement is a composite agreement and the non-compete clause therein was supporting clause to strengthen the commercial rights which had been transferred to the assessee herein. A perusal of the decision of M/s.Cosmos Co-op Bank Ltd. 2014 (1) TMI 1696 - ITAT PUNE shows that even the customer list has been treated as falling within the expression business or commercial rights of similar nature contained in Sec.32(1)(ii) as relied upon the decision of M/s.Areva T D India Ltd. 2012 (4) TMI 79 - DELHI HIGH COURT Assessee is entitled to the depreciation on the intangible asset viz., goodwill/customer list as claimed by him - Our view is also on account of the fact that Sec.92B in respect of international transactions under the Explanation thereto has provided that the expression intangible property would include under clause-(f) customer related intangible assets such as customer list, customer contacts , thus, the legislature in its wisdom in respect of the international transactions provided for the expression intangible property to include intangible assets such as customer list in Sec.92B then an interpretation difference from the same cannot be taken that under the same applicable act and that too to the detriment of local business and citizens. - Decided in favour of assessee

Summary

Issues:
Claim of depreciation on intangible assets - Goodwill/Customer list

Analysis:
The case involved an appeal against the orders of the Commissioner of Income Tax related to the claim of depreciation on intangible assets, specifically goodwill and customer lists, by the assessee, a company providing pest control services. The Assessing Officer disallowed the depreciation claimed by the assessee, contending that the purchase price paid was a non-compete fee and not goodwill or customer right. The assessee relied on Accounting Standard 26 and the decision in CIT Vs Smifs Securities Ltd to support its claim. The lower authorities upheld the disallowance, leading to the appeal.

The Tribunal considered the arguments presented by both parties and referred to a similar case where depreciation on intangible assets was allowed. The Tribunal analyzed the provisions of Section 32(1) Explanation-3, recognizing intangible assets like goodwill and customer lists as falling under the definition. It cited a judgment of the Madras High Court and a decision by the Pune 'A' Bench of the Tribunal to support the inclusion of customer lists as business or commercial rights of a similar nature. The Tribunal concluded that the assessee was entitled to claim depreciation on goodwill/customer list as per the provisions of the Act, emphasizing that the legislative intent supported such claims. Consequently, the Tribunal allowed the appeal related to depreciation on goodwill for the assessment years in question.

In summary, the Tribunal's decision favored the assessee's claim for depreciation on intangible assets, specifically goodwill and customer lists, based on the interpretation of relevant legal provisions and precedents. The Tribunal emphasized the broad definition of intangible assets under the Act and upheld the assessee's entitlement to claim depreciation on the said assets, overturning the disallowance made by the lower authorities.