The lower authorities have rejected the claim of depreciation on goodwill observing that the ‘goodwill’ does not fall within the definition of eligible intangible assets for the claim of depreciation there upon under section 32(1)(ii) of the Income Tax Act.
The Ld. A.R. of the assessee at the outset has stated that the issue relating to the depreciation of goodwill has now been settled by the Hon’ble Supreme Court in the case of “CIT Kolkata vs. Smifs Securities Ltd.”(2012) 24 taxmann.com 222 (SC) The Hon’ble Supreme Court while adjudicating the
issue relating to the claim of depreciation on goodwill has categorically held as under:
“4. Explanation 3 states that the expression ‘asset’ shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading 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 right of a similar nature’. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b).
5. In the circumstances, we are of the view that ‘Goodwill’ is an asset under Explanation 3(b) to Section 32(1) of the Act.”
In view of the categorical finding of the Hon’ble Suprreme Court that the goodwill also falls under the expression ‘any other business or commercial right of a similar nature’and thus would be an asset under Explanation 3(b) to section 32(1) of the Act, we accordingly hold that the assessee is entitled to the claim of depreciation on goodwill. This issue is accordingly decided in favour of the assessee.
