Goodwill qualifies as intangible asset for depreciation under Income-tax Act

The Tribunal held that goodwill qualifies as an intangible asset under section 32(1)(ii) of the Income-tax Act and is eligible for depreciation. The decision of the CIT(A) to disallow depreciation on goodwill was overturned, allowing the appeal of the assessee and granting depreciation on goodwill.

---

---

Issues:
Depreciation on goodwill under section 32(1)(ii) of the Income-tax Act.

Analysis:
The appeal concerns the denial of depreciation on goodwill amounting to Rs. 23,55,000 by the CIT(A) on the grounds that goodwill does not fall within the category of assets listed in section 32(1)(ii). The Assessing Officer allowed depreciation on forex business rights but disallowed it on goodwill, stating that goodwill was not specifically included in the definition of intangible assets. The assessee argued that goodwill falls under the term "business or commercial rights" and cited judicial precedents to support the claim. The CIT(A) upheld the Assessing Officer's decision, leading to the current appeal.

The assessee contended that the payment made for the use of the name "Kotak" was akin to the consideration for a trademark and should be eligible for depreciation under section 32. The assessee highlighted the commercial value of using the name "Kotak" and argued that goodwill should be considered an intangible asset under section 32(1)(ii). The principle of "ejusdem generis" was invoked to argue that goodwill falls within the purview of intangible assets.

The Tribunal found that the goodwill paid by the assessee was for the use of the name "Kotak" and was unrelated to Shri Uday S. Kotak at the time of acquisition. Section 32 allows depreciation on both tangible and intangible assets, and goodwill was considered a business or commercial right of similar nature to assets like patents and trademarks. The Tribunal interpreted business or commercial rights as those obtained for effective business operations and profitability, encompassing assets built on reputation and experience. Goodwill, being a positive reputation developed over time, was deemed a business or commercial right of similar nature.

The Tribunal concluded that goodwill qualifies as an intangible asset under section 32(1)(ii) and is eligible for depreciation. The decision of the CIT(A) to disallow depreciation on goodwill was overturned, citing relevant judicial precedents. Therefore, the appeal of the assessee was allowed, granting depreciation on goodwill.

---