Goodwill on slump sale qualifies for depreciation, while fresh foreign tax claims were remanded for verification.

Goodwill arising from a genuine slump sale is treated as an intangible asset eligible for depreciation under section 32 of the Income-tax Act, 1961. The transaction was accepted as a slump sale for lump sum consideration, while the requirements of demerger were not met because there was no scheme of arrangement or issue of shares, and it was also not treated as succession of the whole business. Additional claims relating to foreign tax credit and deduction of taxes paid abroad, raised for the first time before the Tribunal, required factual verification and were remanded to the Assessing Officer for fresh consideration after hearing the assessee.

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Issues: (i) Whether the assessee was entitled to depreciation on goodwill arising from acquisition of the PES business, and whether the transaction was a slump sale rather than a demerger or succession; (ii) Whether the additional grounds relating to foreign tax credit and deduction of taxes paid abroad were to be adjudicated on merits or remanded to the Assessing Officer.

Issue (i): Whether the assessee was entitled to depreciation on goodwill arising from acquisition of the PES business, and whether the transaction was a slump sale rather than a demerger or succession.

Analysis: The transaction was accepted as a slump sale of an undertaking for lump sum consideration, with the transferor having offered the transaction to capital gains tax under the slump-sale provisions. The essential conditions of demerger were not satisfied, as there was no scheme of arrangement under the Companies Act and no issue of shares as consideration. The attempt to treat the transaction as succession was rejected because the transfer did not amount to succession of the whole business. Goodwill arising from excess consideration over net assets was treated as an intangible asset, and depreciation on goodwill was held allowable under the settled law recognising goodwill as a depreciable asset.

Conclusion: The assessee was entitled to depreciation on goodwill, and the disallowance was deleted.

Issue (ii): Whether the additional grounds relating to foreign tax credit and deduction of taxes paid abroad were to be adjudicated on merits or remanded to the Assessing Officer.

Analysis: The additional grounds were raised for the first time before the Tribunal. The matter required verification of factual details and the parties agreed that the Assessing Officer should examine the claims afresh. The Tribunal therefore declined to express any view on merits and sent the matter back for proper adjudication after giving the assessee an opportunity of being heard.

Conclusion: The additional grounds were remanded to the Assessing Officer for fresh consideration.

Final Conclusion: The appeal succeeded on the principal goodwill depreciation dispute, while the newly raised foreign tax related claims were sent back for verification and decision in accordance with law.

Ratio Decidendi: Goodwill arising on a genuine slump sale is an intangible asset eligible for depreciation under section 32 of the Income-tax Act, 1961, and a transaction not satisfying the statutory requirements of demerger or succession cannot be recharacterised to deny that claim.

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