“Section 43(1)(a)(ii)”
The decision most relied on for Section 43(1)(a)(ii) is CIT v. Smifs Securities Ltd. (348 ITR 302), cited in 540 judgments on BharatTax.
Leading authorities on Section 43(1)(a)(ii)
Goodwill, whether arising from an amalgamation or a slump sale, is an intangible asset eligible for depreciation under Section 32(1) of the Income-tax Act. While the assessee must prove the existence and valuation of such goodwill, it is recognized as a depreciable asset.
A non-compete fee, being a capital expenditure, is not allowable as a deduction from income and does not qualify for depreciation under Section 32(1)(ii) of the Income-tax Act, 1961.
Depreciation is allowable on a non-compete fee as it constitutes an intangible asset, even if the right acquired cannot be transferred, provided it is treated as part of a block of assets.
Depreciation on goodwill arising from amalgamation is not admissible to the amalgamated company if no goodwill was admitted in the hands of the amalgamating company, applying Explanation 7 to Section 43(1) and the Sixth Proviso to Section 32(1)(ii).
Depreciation is allowable on goodwill as an intangible asset under Section 32(1)(ii) when it arises from a scheme of amalgamation or similar corporate restructuring.
Where an expense is incurred for the purpose of acquiring a capital asset, and that asset is subsequently sold, the expenditure must be considered as part of the cost of acquisition of that asset for the purpose of calculating capital gains. This is because the expense forms an integral part of the cost of acquiring the asset, not an expenditure of revenue nature.
Depreciation is not allowed on goodwill if it arises from book entries and has no identifiable cost of acquisition. This applies even when goodwill is acquired as part of a scheme of arrangement or amalgamation.
Depreciation is allowable on non-compete fees when a businessman pays another to restrain them from competing, as this constitutes an intangible asset.
