Depreciation on Goodwill Allowed

M/s. PPG Asian Paints Pvt. Ltd. Vs. ACIT, I.T.A. No. 2919/M/2013, Date of Pronouncement: 15.04.2015, ITAT - Mumbai

Q Whether depreciation on ‘goodwill’ be allowed to the assessee under the provisions of Income Tax Act?

Held: Yes

Brief Facts:

The assessee had claimed depreciation on ‘goodwill’ amounting to Rs.3,23,15,044/- for the assessment year 2008-09. The AO as well as CIT(A) disallowed the claim on the ground that ‘goodwill’ does not fall within the definition of eligible intangible assets for the claim of depreciation there upon under section 32(1)(ii) of the Income Tax Act. Being aggrieved the assessee filed appeal before ITAT.   

Held:

Before the Hon’ble ITAT, the assessee stated that the issue relating to the depreciation of goodwill has now been settled by the Hon’ble Supreme Court in the case of “CIT, Kolkata vs. Smifs Securities Ltd.” (2012) 24 taxmann.com 222 (SC). The Supreme court held that as per explanation 3 of the section 32(1), the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial right of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). The ITAT accordingly hold that the assessee is entitled to the claim of depreciation on goodwill. This issue is accordingly decided in favour of the assessee.