Case Law Details
PCIT Vs Swastik Industries (Gujarat High Court)
The issue under consideration is whether the ITAT was right in treating the payments made to retiring partners in the nature of compensation can be termed as goodwill and subsequently eligible for depreciation?
High Court states that, the question as to whether ‘goodwill’ is an asset within the meaning of section 32 of the Income-tax Act, 1961, and whether depreciation on ‘goodwill’ is allowable under the said section. The Assessing Officer had held that ‘goodwill’ is not an asset falling under Explanation 3 to section 32(1) of the Act. The Supreme Court held that Explanation 3 states that the expression “asset” shall mean intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading of the words “any other business or commercial rights of similar nature” in clause (b) of Explanation 3 indicates that goodwill would fall under the expression “any other business or commercial rights of similar nature”. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). The court was, accordingly, of the view that “goodwill” is an asset under Explanation 3(b) to section 32(1) of the Act. In the present case, from the findings recorded by the Assessing Officer, the Commissioner (Appeals) as well as the Tribunal, it is an undisputed fact that the payment made to the retiring partners has been considered to be goodwill. The Supreme Court has also held that goodwill is an asset under Explanation 3(b) to section 32(1) of the Act. Thus, the Tribunal has merely applied the decision of the Supreme Court to the facts of the present case. Under the circumstances, it is not possible to state that there is any infirmity in the impugned order passed by the Tribunal so as to give rise to a question of law, much less, a substantial question of law, warranting interference.
Hence the appeal filed by the revenue dismissed.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
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