2016 (8) TMI 1561 - AT - Income Tax

Amortization/depreciation on Goodwill - Goodwill consequent to a scheme of amalgamation - As per revenue goodwill is depreciable u/s 32 only if any consideration is paid for its acquisition and the assessee has not earmarked any specific amount towards such goodwill at the time of amalgamation - CIT-A Allowed claim - plea of the Revenue is that in the present case assessee has not paid any consideration for acquisition of goodwill at the time of amalgamation and, therefore, the claim of depreciation has been wrongly allowed - HELD THAT - Quite clearly, in terms of scheme of amalgamation, the assets and liabilities of GIL stood transferred to the assessee. Further, the deficit in the value of assets over the value of liabilities of GIL taken over after adjusting the aggregate value of the equity shares issued to the members of GIL, was treated as goodwill in the books of the assessee-company. In view of the authoritative pronouncement of the Hon'ble Supreme Court in the case of Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT , it cannot be denied that goodwill is an asset qualifying for depreciation u/s 32(1)(ii) . The plea of the Revenue that no amount has been paid for its acquisition does not defeat the claim of depreciation allowed by CIT(A). Notably, goodwill has arisen in the present case consequent to a scheme of amalgamation approved by the Hon'ble High Court and so was the situation in the case of Smifs Securities Ltd. (supra) also. Thus we affirm the ultimate direction of the CIT(A) to allow depreciation on goodwill as per the Income Tax Rules, 1962 by working out the figure of WDV of goodwill for the year under consideration. - Decided against revenue.

Summary

Issues involved:
1. Allowance of amortization/depreciation on goodwill under section 32 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Allowance of amortization/depreciation on goodwill under section 32 of the Income Tax Act, 1961

The appeal before the Appellate Tribunal ITAT Mumbai revolved around the controversy of allowing depreciation under section 32 of the Act on goodwill. The respondent-assessee, a company engaged in the business of manufacturing and trading, had claimed deduction of amortization of goodwill in the revised return filed. The Assessing Officer rejected the claim, citing previous rejections in earlier assessment years. Before the CIT(A), the assessee made dual claims - deduction of 1/5th cost of goodwill as per a merger scheme and alternatively, claimed depreciation on goodwill. The CIT(A) disallowed the claim of amortization but allowed depreciation based on judgments of the Hon'ble Supreme Court and the Hon'ble Bombay High Court. The Revenue contended that since no consideration was paid for goodwill at the time of amalgamation, depreciation was wrongly allowed.

The Tribunal carefully considered the facts, noting that the scheme of amalgamation approved by the High Courts resulted in the transfer of assets and liabilities to the assessee, with the deficit treated as goodwill. Relying on the judgment of the Hon'ble Supreme Court in Smifs Securities Ltd., the Tribunal affirmed that goodwill qualifies as an asset for depreciation under section 32(1)(ii) of the Act. The absence of consideration for acquisition did not negate the eligibility for depreciation, given the nature of the goodwill arising from the amalgamation scheme. The CIT(A) decision was supported by precedents from various High Courts, further reinforcing goodwill as an intangible asset eligible for depreciation under section 32. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the allowance of depreciation on goodwill as per the Income Tax Rules, 1962.

In conclusion, the Tribunal upheld the CIT(A)'s decision to allow depreciation on goodwill, emphasizing the legal validity of the claim based on the nature of goodwill arising from the approved scheme of amalgamation and supported by relevant judicial precedents.