Tribunal grants depreciation on customer list as intangible asset for AY 2011-12

The Tribunal allowed the appellant's appeal against the disallowance of depreciation on goodwill/customer list as an intangible asset for AY 2011-12. Relying on Sec.32 and precedent cases, the Tribunal recognized customer-related intangible assets as eligible for depreciation. Grounds 2 to 2.5 of the appeal were allowed, partially granting relief to the appellant. The decision was issued in open court on November 15, 2017, in Chennai.

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Issues:
Appeal against disallowance of depreciation on intangible asset representing goodwill/customer list for AY 2011-12.

Analysis:
The appellant raised 5 grounds in the appeal, focusing on the disallowance of depreciation on the goodwill/customer list by the AO. The appellant, a Pest Control Services provider, had acquired businesses of 7 companies under Business Transfer Agreements in AY 2009-10. The AO denied depreciation for AY 2011-12, citing non-compete clauses in the agreements. However, the appellant argued that the goodwill/customer list was treated as an intangible asset for depreciation, supported by the decision in M/s.Pentasoft Technologies Ltd. case. The appellant contended that Sec.32 allowed depreciation on intangible assets, including customer list and non-compete fee defined in Sec.92B(2)(ii)(f) and (g).

The Departmental Representative (DR) supported the AO's decision, arguing that Sec.32 did not cover customer list or non-compete fee. However, the Tribunal analyzed Sec.32(1) Explanation-3, recognizing intangible assets like knowhow, patents, copyrights, trademarks, and other business rights. Referring to the M/s.Pentasoft Technologies Ltd. case, the Tribunal noted that non-compete clauses strengthen commercial rights transferred, supporting depreciation claims. Additionally, the Tribunal cited a Co-ordinate Bench decision regarding customer list falling under "business or commercial rights of similar nature" in Sec.32(1)(ii), following the Delhi High Court's decision in M/s.Areva T & D India Ltd. case.

The Tribunal concluded that the appellant was entitled to depreciation on the goodwill/customer list as an intangible asset. The legislative intent under Sec.92B included customer-related intangible assets, supporting the appellant's claim. Therefore, the Tribunal allowed Ground Nos.2 to 2.5 of the appeal, dismissing the other grounds not pressed by the appellant. As a result, the appeal was partly allowed, with the decision pronounced in open court on November 15, 2017, in Chennai.

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