Depreciation on goodwill from amalgamation remains allowable under pre-amendment law; later restrictions apply prospectively only.

Goodwill arising from amalgamation was treated as an intangible asset eligible for depreciation under section 32(1)(ii) of the Income-tax Act, following the principle that goodwill falls within "business or commercial rights of similar nature" recognised in Smifs Securities. The Finance Act, 2021 restrictions excluding goodwill from depreciation-related treatment were held to operate prospectively from assessment year 2021-22 and did not apply to the years under discussion. Objections based on separate payment, valuation, and other factual distinctions did not displace the finding that the goodwill was acquired under the amalgamation scheme and remained depreciable under the pre-amendment law.

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Issues: Whether depreciation on goodwill arising from amalgamation was allowable for the assessment years 2017-18 and 2018-19, and whether the Revenue could disallow the claim on the footing that the goodwill was not separately paid for or that the Finance Act, 2021 amendments applied to the years in question.

Analysis: The assessee acquired goodwill in the course of amalgamation under a court-approved composite scheme, with the excess of consideration over the net assets recognised as goodwill under the purchase method. The Tribunal noted that goodwill is an intangible asset falling within the expression "any other business or commercial rights of similar nature" for the purposes of section 32(1)(ii) of the Income-tax Act, 1961, as settled by the Supreme Court in Smifs Securities. It further held that the restrictions introduced by the Finance Act, 2021, including the exclusion of goodwill from depreciation-related treatment, operate prospectively from assessment year 2021-22 and could not govern the years under appeal. The Tribunal also found that the Revenue's objections regarding share consideration, valuation, and alleged factual distinctions did not displace the CIT(A)'s finding that the goodwill was acquired in the amalgamation and was eligible for depreciation under the pre-amendment law.

Conclusion: Depreciation on goodwill was allowable to the assessee for both years, and the Revenue's challenge failed.

Final Conclusion: The disallowance of depreciation on goodwill was upheld by neither law nor facts for the years under appeal, and the Revenue's appeals were dismissed.

Ratio Decidendi: Goodwill acquired in amalgamation is a depreciable intangible asset under the unamended Income-tax Act, 1961, and the Finance Act, 2021 restrictions apply only prospectively.

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