Case Law Details
PCIT Vs Eltek SGS Pvt Ltd (Delhi High Court)
Introduction: This analysis delves into the case of “PCIT vs Eltek SGS Pvt Ltd” heard in the Delhi High Court. The case revolves around the allowance of depreciation on goodwill arising from an amalgamation, even in the absence of actual cash payment. The central question is whether goodwill can be subject to depreciation despite no tangible cash outlay.
Analysis: The dispute in this case stems from the Income Tax Department’s challenge to the Income Tax Appellate Tribunal’s order dismissing an appeal regarding the deletion of disallowance of depreciation on goodwill. The case involves Eltek SGS Pvt Ltd, which had amalgamated with Valere Power India Ltd based on a sanctioned Scheme of Amalgamation. The contentious point revolves around the claim for depreciation on goodwill resulting from the amalgamation.
The Commissioner of Income-Tax (Appeals) upheld the claim for depreciation on goodwill, asserting that it was correctly claimed since goodwill was formed due to the merger. The Income Tax Appellate Tribunal, while dealing with the challenge, referred to the Supreme Court’s decision in Commissioner of Income Tax, Kolkata vs. Smifs Securities Limited. This decision clarified that goodwill is an intangible asset falling within the ambit of Explanation 3 to Section 32(1) of the Income Tax Act, 1961, and is eligible for depreciation.
The Appellant argued that the provisions of Section 49 of the Act apply, pointing out the definition of “cost of acquisition” in Section 55(2), and relied on Section 49(1)(e). However, the Court emphasized that Section 47 excludes the transfer of a capital asset in an approved scheme of amalgamation. The Court also highlighted that the provisions referred to by the Appellant are in a Chapter related to “Capital Gains,” whereas an approved scheme of amalgamation operates by law, as recognized in the Smifs case.
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