BHARATBHAI J. VYAS vs. INCOME TAX OFFICER

Facts

The assessee, Bharatbhai J. Vyas, appealed a judgment of the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'C', for Assessment Year 2000-01. The Assessing Officer (AO) disallowed the assessee's claim for depreciation on goodwill amounting to Rs. 2,89,375/-. The AO reasoned that 'goodwill' was not specifically included in the list of intangible assets eligible for depreciation under Section 32 of the Income Tax Act, 1961, and could not be considered a 'business or commercial right of similar nature'. The assessee's claim arose from the dissolution of a firm, M/s. Nodule Cast, where Rs. 15.15 lacs was paid as goodwill to a partner. The Commissioner of Income Tax (Appeals) and the ITAT upheld the AO's disallowance. This appeal to the High Court followed.

Held

The High Court allowed the appeal, reversing the findings of the ITAT. The Court held that the issue was covered by the Supreme Court's decision in Commissioner of Income-tax, Kolkata v. Smifs Securities Ltd. ([2012] 348 ITR 302). The Supreme Court in that case had upheld the assessee's claim for depreciation on goodwill acquired during an amalgamation, finding that goodwill is an intangible asset eligible for depreciation. The High Court stated that for the reasons mentioned in the Supreme Court's decision, it did not deem it necessary to provide fresh elaborate reasons. Both questions of law were answered in favour of the assessee and against the revenue. The operative direction was to allow the appeal.

Key Issues

1. Whether, in the facts and circumstances, the ITAT was legally correct in not granting depreciation under Section 32 of the Income Tax Act, 1961, on goodwill acquired by the assessee? 2. Whether goodwill is an intangible asset within the meaning of Section 32(1)(ii) of the Income Tax Act, 1961, making it eligible for depreciation? Assessee's Contention: The assessee argued that following the amendment to Section 32 from AY 1999-2000, depreciation could be claimed on intangible assets including 'any other business or commercial right of similar nature'. The assessee relied on the Supreme Court's decision in Commissioner of Income-tax, Kolkata v. Smifs Securities Ltd. ([2012] 348 ITR 302). Revenue's Contention: The judgment does not record specific arguments made by the revenue before the High Court, other than impliedly supporting the ITAT's decision.