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TMI BlogDepreciation on GoodwillX X X X Extracts X X X X X X X X Extracts X X X X ..... f the said section provides for deduction on account of depreciation on tangible assets (Building, machinery, plant and furniture) and intangible assets (know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature) acquired on or after the 1st day of April, 1998 which are owned, wholly or partly by the assessee which are used wholly and exclusively for the purpose of business and profession while computing the income under the head Profits and gains of business or profession . Further, Explanation 3 to sub-section (1) provides that for the purposes of this sub- section, the expression assets shall mean to be tangible assets, being buildings, machinery, plant or furniture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court in the case Smiff Securities Limited [(2012)348 ITR 302 (SC)]. Hon ble Supreme Court answered the question in affirmative. Thus, as held by Hon ble Supreme Court, Goodwill of a business or profession is a depreciable asset under section 32 of the Act. However, there are other sections of the Act which are relevant for calculation of depreciation under section 32 of Act. These are as under: Sixth proviso the section 32 of the Act mandates that in a case of succession/amalgamation/demerger during the previous year, depreciation is to be calculated as if the succession or amalgamation or demerger has not taken place during the previous year and apportioned between the predecessor and the successor, or the amalgama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company and the amalgamated company is an Indian company. It also clarifies that in this situation, the actual cost of the block of asset in the hand of the amalgamated company would be written down value of that block in the immediate preceding previous year in the case of amalgamating company as reduced by depreciation actually allowed in that preceding previous year. Thus, while Hon ble Supreme Court has held that the Goodwill of a business or profession is a depreciable asset, the actual calculation of depreciation on goodwill is required to be carried out in accordance with various other provisions of the Act, including the ones li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of capital gains under section 48 of the Act subject to the condition that in case depreciation was obtained by the assessee in relation to such goodwill prior to the assessment year 2021-22, then the depreciation so obtained by the assessee shall be reduced from the amount of the purchase price of the goodwill. Therefore, to give effect to the above decision, it has been proposed to, (a) amend clause (11) of section 2 of the Act to provide that block of asset shall not include goodwill of a business or profession; (b) amend clause (ii) of sub-section (1) of section 32 of the Act to provide that goodwill of a business or profession shall not be considered as an asset for the purpose of the said clause and therefore not eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l (e) provide that in case of goodwill of business or profession acquired by the assessee by way of purchase from a previous owner (either directly or through modes specified under sub-clause (i) to (iv) of sub-section (1) of section 49) and any deduction on account of depreciation under section 32 of the Act has been obtained by the assessee in any previous year preceding the previous year relevant to the assessment year commencing on or after the 1st April, 2021, then the cost of acquisition will be the purchase price as reduced by the depreciation so obtained by the assessee before the previous year relevant to assessment year commencing on 1st April, 2021. These amendments will take effect from 1st April, 2021 and will accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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