7. Section 32 of the Income Tax Act allows depreciation on both tangible and intangible assets and clause [ii] thereof enumerates the intangible assets on which depreciation is allowable. The assets which are included in the definition of `intangible assets’ given in clause [ii] are know-how, patents, copy rights, trademarks, licenses, franchises etc., and any other business or commercial rights of similar nature are also included. The AO has agreed that goodwill is a bundle of rights which include, inter alia, patents, trademarks, licenses, franchises etc. Therefore, all these rights are similar to the rights under goodwill. Applying the principles of ejusdem genesis, the meaning has to be extended to the phase `other business or commercial rights of similar nature’. What is the meaning of business or commercial rights of similar nature?
8. Business or commercial rights are rights obtained for effectively carrying on the business or commerce. Commerce is a wider term, which encompasses business in its fold. Therefore, any right which is obtained for carrying on the business effectively and profitably, has to fall within the meaning of intangible asset. The definition further provides that the business or commercial rights should be of similar nature as know-how, patents, copy rights, trademarks, licenses, franchises etc. all these are the assets which are not manufactured or produced overnight but are brought into existence by experience and reputation. They assume importance in the commercial world as they represent a particular benefit or advantage or reputation built over a period of time and customers associate with such assets. Similarly, goodwill is nothing but positive reputation built by a person/company/ business- house over a period of time. Thus, goodwill is a `business or commercial right of similar nature’. As seen from the agreement of sale between Shri Uday S. Kotak and the assessee company formerly known as Komaz Financial Services Ltd., we find that the name `Kotak’ has tremendous importance as the assessee company was to be benefited by the usage of the said name and it has gone as far as amending its name by including Kotak in its name. Therefore, it is of commercial value for which the assessee has paid the amount of Rs. 1.88 crores as goodwill.
9. Once it is held that goodwill is also an intangible asset of the similar nature referred to in clause [ii] of section 32(1) of the Act, the depreciation is consequently allowable on the same. The same is fortified by the decisions relied upon by the Id. Counsel for the assessee are also to this effect. The decision of the Ahmedabad Bench in the case of Bharatbhai J. Vyas vs. ITO reported in 97 ITD 2248 [Ahd] relied upon by the Id. CIT [A] is misplaced. Accordingly, we allow the appeal of the assessee.