2019 (5) TMI 1982 - AT - Income Tax

Depreciation on non-compete fee - whether it falls in the category of an 'intangible asset ? - CIT(A) has allowed depreciation - HELD THAT - CIT(A) has followed the binding decision rendered in the case of Ingersoll Rand International Ltd. 2014 (6) TMI 934 - KARNATAKA HIGH COURT Even though the Hon ble Delhi High Court has taken a different view, yet the decision rendered by the jurisdictional High Court in binding on all the persons falling within its jurisdiction. In view of the same, we do not find any reason to interfere with the orders passed by the ld CIT(A) on this issue in all the years under consideration. Depreciation on the goodwill - CIT(A) noticed that the assessee itself has submitted that no amount could be attributed towards Goodwill, thus in principle, held the disallowance of depreciation on goodwill is justified - HELD THAT - The issue relating to eligibility to claim depreciation on Goodwill has since been settled in the case of CIT Vs. Smifs Securities Ltd.. 2012 (8) TMI 713 - SUPREME COURT Hence the assessee is eligible to claim depreciation on the amount paid for Goodwill. SC held that the difference between the cost of an asset and the amount paid for acquiring the same constituted goodwill. In commercial parlance also, the amount paid over and above the value of tangible and intangible rights is considered as goodwill. There is also no dispute with regard to the fact that the assessee has treated the difference amount as goodwill only in its books of account. Hence, in our view, merely because the assessee has taken a different stand before the AO to the effect that the difference/excess amount paid by it represented payment made for trademark/trade name would not change the character of payment made by the assessee. In the case, the alternative contention raised before the AO would not, in our view, disentitle the assessee to claim depreciation on the amount, which is otherwise could be considered as goodwill in its hand. The tax authorities are not justified in denying the depreciation claimed by the assessee on the amount of goodwill. Assessee appeal allowed.

Summary

Issues:
- Challenge to disallowance of depreciation claimed on goodwill
- Challenge to granting depreciation on non-compete fee

Analysis:
1. Depreciation on Goodwill:
- The appellant contested the decision of the CIT(A) confirming the disallowance of depreciation claimed on goodwill.
- The appellant, a company, purchased a retail business as a going concern for Rs. 18.50 crores, treating the difference as goodwill.
- The AO disallowed depreciation on goodwill, stating it was not allowable. The appellant argued part of the amount was for the trade name.
- The CIT(A) confirmed the disallowance, noting the appellant's own submission that no amount could be attributed to goodwill.
- The Supreme Court has clarified that the difference between the cost of an asset and the amount paid constitutes goodwill, making it depreciable.
- The Tribunal held that the tax authorities were unjustified in denying depreciation on the goodwill amount and directed the AO to allow depreciation on the opening WDV value of goodwill.

2. Depreciation on Non-Compete Fee:
- The Revenue challenged the CIT(A)'s decision to allow depreciation on the non-compete fee.
- The High Court of Delhi held that non-compete fee does not qualify for depreciation under Section 32 of the Income-tax Act.
- However, the CIT(A) followed a binding decision by the jurisdictional High Court, allowing depreciation on the non-compete fee.
- The Tribunal upheld the CIT(A)'s decision, stating that the jurisdictional High Court's decision is binding and does not warrant interference.

3. Conclusion:
- The Tribunal allowed the appeals of the assessee, permitting depreciation on goodwill, and dismissed the appeals of the Revenue.
- The orders were pronounced on 15th May 2019, settling the disputes regarding the depreciation claims on goodwill and non-compete fee for the relevant assessment years.