INCOME TAX ACT, 1961

Section 32(1)(ii)

Depreciation - Intangible asset - Goodwill having arisen on merger - Disallowance on ground of entity acquired being loss making company

Assessee-company acquired Products Division of FSPL. The excess of liabilities over net assets on account of merger was treated as goodwill and depreciation on the same was claimed by assessee treating goodwill as an intangible asset. AO took the view there was no question of any goodwill prevailing in books of FSPL in view of the fact that, it had incurred losses. Held: Whether Products Division of FSPL was incurring losses or not, had got nothing to do with existence of goodwill prevailing in said unit. Goodwill would arise on account of various factors such as continuing clients, continuing business relationship, established set up for smooth conduct of business, continuing business, commercial and industrial rights and licenses to the successor company/merged entity. These commercial, business and industrial rights were duly acquired by assessee-company through a scheme of merger and due consideration passed on for the same by way of allotment of shares. Hence, same would factually tantamount to acquisition of goodwill and goodwill being an intangible asset, within meaning of section 32 in the form of industrial, business and commercial rights, assessee was eligible for depreciation under section 32.

Followed:CIT v. Smifs Securities Ltd., (2012) 348 ITR 302 (SC) : 2012 TaxPub(DT) 2430 (SC)

REFERRED :

FAVOUR : In assessee's.

A.Y. : 2010-11

INCOME TAX ACT, 1961

Section 143(3)

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