Depreciation on goodwill from amalgamation allowed where goodwill qualified as a depreciable commercial right.

Goodwill arising from a court-sanctioned amalgamation was treated as a depreciable business asset where the purchase consideration exceeded the net assets taken over under the approved scheme. The sanction by the High Court, after notice to regulatory authorities and without Revenue objection at that stage, supported the bona fides of the arrangement. The Supreme Court view that goodwill forms part of "business or commercial rights of similar nature" under the depreciation provisions was applied, and the allegation of a colourable device was rejected. The later amendment excluding goodwill from depreciable assets was held inapplicable to the assessment year in question, so depreciation on the goodwill was allowed.

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Issues: Whether depreciation is allowable on goodwill arising from a court-sanctioned amalgamation and, consequentially, whether the assessee was entitled to the claimed depreciation for the relevant period.

Analysis: Goodwill arose in the books of the amalgamated entity on account of the purchase consideration paid in excess of the net assets taken over under the approved scheme of amalgamation. The scheme had been sanctioned by the High Court after notice to the regulatory authorities, and the Revenue had not objected at that stage. The governing provisions on depreciation and amalgamation support tax neutrality, and the Supreme Court has held that goodwill falls within the expression "any other business or commercial rights of similar nature" for the purposes of depreciation. The finding that the arrangement was a colourable device was rejected, and the later amendment excluding goodwill from depreciable assets was held to be inapplicable to the assessment year in question.

Conclusion: Depreciation on the goodwill was held allowable, and the assessee's claim was accepted.

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