Trent Limited Vs DCIT (ITAT Mumbai)
Depreciation on Slump-Sale Goodwill Allowed – Goodwill held as Bundle of Commercial Rights; FA 2021 Amendment not Applicable to AY 2018-19
The ITAT Mumbai allowed the assessee’s appeal and held that depreciation u/s 32 is allowable on goodwill arising from acquisition of a business undertaking through slump sale. The assessee had acquired the “value fashion” business from a group entity for ₹87.82 crore and claimed depreciation on goodwill of about ₹44.05 crore allocated through purchase price allocation. The AO and CIT(A) disallowed depreciation alleging that goodwill was merely a residual figure and not a distinct asset, also relying on the Finance Act 2021 amendment.
The Tribunal observed that in a slump sale, consideration is paid for the undertaking as a going concern comprising tangible assets, contracts, brands, employees, systems and other commercial rights. The excess consideration represents a bundle of business and commercial rights forming goodwill and need not be separately earmarked in the agreement. Following the Supreme Court decision in Smifs Securities Ltd., ITAT held that purchased goodwill qualifies as an intangible asset eligible for depreciation.
ITAT further held that the amendment introduced by the Finance Act, 2021 excluding goodwill from depreciable assets applies prospectively from AY 2021-22 and cannot be invoked for AY 2018-19. Accordingly, the disallowance of depreciation was deleted and the appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
