Depreciation allowable on payments to acquire skill and know-how of incoming employees as ‘business information’ classified as other intangiblle Asset

Court: Bangalore bench of the Income-tax Appellate Tribunal

Citation: Bosch Ltd. Vs. CIT [2009-TIOL-736-ITAT-BANG]

Brief :Bangalore bench of the Income Tax Appellate Tribunal (the Tribunal) in the case of Bosch Ltd. Vs. CIT [2009-TIOL-736-ITAT-BANG] held that the taxpayer company was entitled to claim depreciation on the skill and the know-how brought by the employees of the transferee company classified as ‘business information’ under the category of ‘other identifiable intangibles’ (goodwill) under section 32(ii) of the Income Tax Act, 1961 (the Act).

Facts of the case

• The taxpayer acquired business from Phillips (India). In addition to the specified tangible and intangible assets, ten employees of the transferee company were also absorbed and the skill and the know-how brought by these employees were classified as ‘business information’. In the valuer’s report, it was valued at INR 14 million being the ‘business information’ under the category of ‘other identifiable intangibles’ (goodwill).
• In its return of income the taxpayer claimed INR 3 million as depreciation on ‘payment for goodwill’. The Assessing Officer (AO) allowed the claim of the taxpayer. However, the Commissioner of Income-tax (CIT) from the information available on record observed that though the taxpayer claimed depreciation as ‘goodwill’, the said amount was in fact ‘business information’.
• The CIT held that the taxpayer had claimed incorrect and excess depreciation on ‘business information’ and therefore, the assessment order passed by the AO was erroneous and prejudicial to the interest of revenue.

Contentions of the taxpayer