Depreciation allowable on Goodwill from Acquisition of Business Unit

Depreciation allowable on Goodwill from Acquisition of Business Unit

We have to consider whether goodwill is an intangible asset under section 32, hence, eligible for claim of depreciation. 

The Income Tax Appellate Tribunal (ITAT) allowed depreciation on goodwill resulting from the acquisition of the Business Unit of Lee & Muirhead Pvt. Ltd.

The difference between the purchase consideration and the value apportioned to fixed assets and the net current assets has been recognized as goodwill in the nature of the intangible asset and the assessee had claimed depreciation both on tangible and intangible assets.

The Tribunal observed that due to inadvertent mistake, the assessee could not claim depreciation on goodwill. Therefore, in the course of assessment proceedings, the assessee filed a revised computation claiming depreciation on goodwill from the Acquisition of Business Unit.

At the outset, the learned Counsel for the assessee stated that this issue is fully covered by several Tribunal decisions in assessee’s own case, wherein Tribunal following the decision of Hon’ble Supreme Court in the case of CIT vs. Smifs Securities Ltd. 348 ITR 302 (SC) deleted the disallowance of depreciation. We may refer to ITAT order for AY 2012-13 in ITA No.1775/Mum/2017 for following observations in Para 4 to 6 as under: –

 We find from the record that the assessee has rightly claimed depreciation on goodwill being intangible assets. We also find from the record that a similar issue was raised by the assessee in the assessment year 2008-09, which was decided in favor of the assessee vide order dated 23.8.2013 in Appeal No. 

and thus, the issue is squarely covered in favor of the assessee by its own case in the earlier years. After considering the relevant records, orders of authorities below, we find that the similar issue has been decided by the FAA for the assessment year 2008-09 in favor of the assessee holding that the assessee was entitled to depreciation on goodwill by following the decision of Apex Court in the case of Smifs Securities Ltd (supra).

 We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. Undisputed facts are, the assessee during the relevant previous year, had purchased the business.

The difference between the purchase consideration and the value apportioned to fixed assets and net current assets has been recognized as goodwill in the nature of the intangible asset and the assessee had claimed depreciation both on tangible and intangible assets. As it appears, in the original return of income the assessee claimed depreciation on all other fixed assets except the intangible asset viz. goodwill.

As the issue is squarely covered in favor of the assessee and against the Revenue by Tribunal’s decision cited respectfully following the same and taking a consistent view, we allow the claim of the assessee and delete the disallowance of depreciation. The appeal of the assessee is allowed.