TMI Blog2010 (9) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... ected to revise the assessment by granting depreciation on the written down value of goodwill to the appellant-assessee. - 1741 of 2009 - - - Dated:- 23-9-2010 - RAMACHANDRAN NAIR C. N., SURENDRA MOHAN K. JJ JUDGMENT C. N. Ramachandran Nair J.- The question raised in this income-tax appeal filed by the assessee is whether he is entitled to depreciation on goodwill under section 32(1)(ii) of the Income-tax Act, 1961 (hereinafter called "the Act"). The appellant purchased a hospital in Quilon with its land, building, equipment, staff, name, trade mark and goodwill as a going concern under two separate sale deeds. While immovables are covered by one sale deed, movables covering trade mark, goodwill etc. are covered by another s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee is entitled to depreciation on goodwill under section 32(1)(ii) of the Act. We have heard advocate Sri P. Balakrishnan appearing for the appellant-assessee and standing counsel appearing for the respondent. 2. In the beginning itself the standing counsel submitted that the claim of depreciation on goodwill happened to be allowed for earlier years because no scrutiny assessments were made for any of those years. According to him, the Assessing Officer will reopen assessments for disallowing depreciation already allowed, wherever limitation permits and so much so, his contention is that the claim allowed for earlier years should not be the basis for granting relief for this year. On this question we do not think there can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein. The contention of counsel for the appellant-assessee is that goodwill takes in several aspects such as business name, logo, location and several other factors and the cumulative value of all these could be called goodwill in business. On the facts it is seen that what is purchased by the assessee is a hospital which has been running in Quilon town for a long period under the name "Upasana Hospital". Under the sale deed, the assessee purchased the hospital with its name, logo, trade mark, staff and equipment as a going concern without any break in the running of the hospital. In other words, from the date of taking over of the hospital, the patients under care of the hospital continued to be patients of the hospital taken over by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an intangible asset in the form of a business or commercial right of the nature similar to know-how, patent, copyright, trade mark, licence or franchise, to fall within section 32(1)(ii) of the Act. Standing counsel submitted that depreciation is provided for to take care of wear and tear and there can be no erosion in goodwill and so much so, the claim of depreciation on goodwill is fundamentally against the scheme of depreciation. Counsel for the assessee on the other hand contended that benefit by way of depreciation under section 32(1)(ii) is admissible to the assessee, no matter whether there is real erosion in value or not on the tangible or intangible assets referred to therein. Depreciation though is an allowance to take care of los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name, trade mark and logo under the specific head provided under section 32(1)(ii) which covers trade mark and franchise. It is common knowledge that trade mark and franchise covers name, logo etc., the value of which are included in the value of goodwill claimed for the purpose of depreciation by the assessee. Though it may be difficult to define goodwill, its meaning and scope are explained in several court judgments. In the case of Khushal Khemgar Shah v. Mrs. Khorshed Banu Dadiba Boatwalla reported in AIR 1970 SC 1147, the Supreme Court has explained goodwill as follows : "It is the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force which brings in customers. It is the magnet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lities available in the hospital. Even after purchase of the hospital by the assessee, all the facilities and name continued to be the same and therefore, patients may not know even the change of management of the hospital when they go for treatment in the hospital after its purchase by the assessee. The purpose of purchasing a business concern, whether it be hospital or hotel, is to ensure continuity of business with the same reputation. What is most important in the purchase of a hospital, in our view, is the name of the hospital and what is more important in this case is that the hospital after purchase by the assessee continued to be run in the very same building, in the very same premises, in the very same town and with the same name. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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