Goodwill acquired with a business remains depreciable as an intangible asset for earlier tax years; later exclusion is prospective only.

Goodwill acquired along with a business was treated as part of the purchase cost, and its valuation was not restricted to nil where earlier orders had accepted the goodwill valuation. Depreciation on such goodwill was held allowable as an intangible asset under section 32(1)(ii) of the Income-tax Act, 1961 for the relevant years, following the settled position in the assessee's own prior years. The later amendment excluding goodwill from depreciation was treated as prospective only and did not apply retrospectively to the years under consideration.

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Issues: (i) whether the assessee acquired goodwill along with the business and the valuation of such goodwill could be restricted to nil; (ii) whether depreciation on goodwill is allowable as an intangible asset under the Income-tax Act, 1961 for the years under consideration.

Issue (i): whether the assessee acquired goodwill along with the business and the valuation of such goodwill could be restricted to nil.

Analysis: The dispute on goodwill valuation was examined in the context of the assessee's own earlier orders and the co-ordinate bench view that the business was acquired along with goodwill, with the valuation accepted as correct. The Tribunal followed the earlier consistent approach and found no basis to disregard the cost of goodwill.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): whether depreciation on goodwill is allowable as an intangible asset under the Income-tax Act, 1961 for the years under consideration.

Analysis: The Tribunal applied the settled position that goodwill qualifies as an intangible asset for depreciation purposes under section 32(1)(ii) for the relevant assessment years. It relied on the assessee's own earlier years and on the principle that the later amendment excluding goodwill from depreciation is prospective and does not govern the years in question.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The grounds relating to goodwill and depreciation thereon succeeded, and the assessee obtained complete relief on the recalled issues.

Ratio Decidendi: For assessment years prior to the prospective amendment, goodwill acquired in the course of business is eligible for depreciation as an intangible asset under section 32(1)(ii) of the Income-tax Act, 1961, and the amendment excluding goodwill does not apply retrospectively.

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