Goodwill depreciation denied where the transfer agreement was unregistered and unsigned, leaving no enforceable value for tax claims.

Depreciation on goodwill claimed to have arisen from an unregistered and unsigned business transfer agreement was examined under section 32(1)(ii) and the computation rules for actual cost and written down value. The agreement was treated as lacking legal sanctity, so the alleged goodwill was regarded as having no enforceable value for depreciation purposes. On that basis, the depreciation claim was disallowed and the disallowance was upheld.

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Issues: Whether depreciation claimed on goodwill arising from an unregistered and unsigned business transfer agreement was allowable under the Income-tax Act, 1961.

Analysis: The assessee's claim rested on a business transfer agreement executed before conversion of the business into an LLP. The agreement was found to be unregistered and unsigned, and therefore lacking legal sanctity. On that basis, the consequent goodwill said to have arisen from the transfer was treated as having no enforceable value. The claim for depreciation on such goodwill was examined in the context of section 32(1)(ii) and the related computation provisions governing actual cost and written down value.

Conclusion: Depreciation on the claimed goodwill was not allowable and the disallowance was upheld against the assessee.

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