DCIT Vs Yola Stays Limited (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has dismissed an appeal by the Deputy Commissioner of Income Tax (DCIT) against Yola Stays Limited, confirming that Goodwill arising from an amalgamation process is a depreciable intangible asset under Section 32(1)(ii) of the Income Tax Act, 1961. The Tribunal explicitly rejected the Revenue’s argument that the Goodwill amount should be disallowed because it was merely a representation of the non-depreciable appreciation in land value.
The Disputed Depreciation Claim
The assessee, Yola Stays Limited, a real estate company, claimed depreciation of Rs. 3,20,99,500on an intangible asset classified as Goodwill for the Assessment Year 2016-17. This Goodwill was generated during the amalgamation of its 100/% subsidiary, M/s Rishiraj Enterprises Ltd. (REL), into Yola Stays.
As detailed in the amalgamation scheme approved by the Bombay High Court on 31.07.2015, the difference between the investment value and the net assets of REL was accounted for as a deficit and debited to the Goodwill Account on the books of Yola Stays Limited.
The Assessing Officer (AO), however, disallowed the depreciation based on the contention that the underlying asset of the subsidiary, REL, was land, and the excess value accounted for as Goodwill Rs. 12,83,98,000/- was simply a reflection of the appreciation in that land’s value—an asset on which depreciation is explicitly not allowed under the Act. The AO also questioned the 100/% subsidiary transaction, suggesting a lack of commercial rationality.
