PUBLICIS COMMUNICATIONS PRIVATE LIMITED,MUMBAI vs. THE ASSISTANT COMMISSIONER OF INCOME-TAX - CIRCLE 7(3)(2), MUMBAI

Briefly stated the facts of the case are that while scrutinizing the return of income, the AO noticed that the assessee has claimed depreciation @25% on ‘Goodwill’ at Rs.1,17,452/- and on ‘Goodwill – 2

We find that the Co-ordinate Bench in ITA No. 588/Mum/2017 vide order dt. 15/03/2024, has considered the claim of depreciation on merger and allowed the same. The relevant finding reads as follows:- “9. We heard the parties and perused the material on record. During the year under consideration, the assessee is amalgamated with CAPL with effect from 01/04/2021 in accordance with the scheme of amalgamation approved by the Hon’ble Bombay High Court. As per the scheme of amalgamation, the assessee has acquired all licenses, registrations, copyrights, patents, trade names, trademarks, intellectual properties, labels, label design, quality certification, leases, tenancy rights, business contracts, customer pricing information, etc. along with fixed assets, current assets, current liabilities and provisions, etc. The assessee has acquired the assets and liabilities at book value and the consideration paid in excess of the net value of assets and liabilities as in the books of CAPL are accounted as goodwill (refer table in para 3 above). The contention of the Revenue is that the excess amount paid is not towards acquisition of goodwill since the assessee is not using the brand name of CAPL and also that the consideration is in the form of shares allotted to the parent company and to the Indian shareholders of CAPL and, therefore, is not paid towards acquisition of goodwill. The Revenue, therefore, attributed Nil as the cost of acquisition of goodwill and disallowed the depreciation claimed by the assessee on the goodwill accounted in the books of account. From the perusal of the scheme of amalgamation we notice that the assessee has inter-alia acquired all licenses, registrations, copyrights, patents, trade names, trademarks, applications for copyrights, patents, trade names, trademarks, intellectual properties, labels, label designs, quality certifications, leases, licenses, tenancy rights business contracts, customer pricing information, etc. along with fixed assets, current assets, current assets, deferred tax assets, current liabilities and provisions, etc. We further notice that the assessee has obtained the valuation of business of CAPL as certified by the Chartered Accountant on the basis of discounted free cash flows method of valuation by which business were valued at Rs.18,56,01,278/- which is more than the cost paid by the assessee. It is also relevant to note that as per the Accounting Standard-10, wherever a business is acquired for a price which is in excess of value of net assets of the business taken over, the goodwill is recorded in the books of account as the difference between the value paid towards acquisition of the business and the net value of assets and liabilities of the transferor company. Therefore, the value of goodwill cannot be treated as Nil for the reason that assessee has not paid any amount specifically towards acquisition of goodwill. The second reason for 3