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PR. Commissioner of Income -Tax-2 Versus M/s Swastik Industries

2016 (4) TMI 169 - GUJARAT HIGH COURT

Payments made to retiring partners - whether in the nature of compensation can be termed as goodwill and subsequently eligible for depreciation? - Held that:- The Supreme Court in the case of Commissioner of Income Tax v. SMIFS Securities Ltd. (2012 (8) TMI 713 - SUPREME COURT ) was dealing with the question as to whether 'goodwill' is an asset within the meaning of section 32 of the Income-tax Act, 1961, and whether depreciation on 'goodwill' is allowable under the said section. The Assessing O .....

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e expression "any other business or commercial rights of similar nature". The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). The court was, accordingly, of the view that "goodwill" is an asset under Explanation 3(b) to section 32(1) of the Act, and accordingly, answered the question in favour of the assessee.

In the present case, from the findings recorded by the Assessing Officer, the Commissioner (Appea .....

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l so as to give rise to a question of law, much less, a substantial question of law, warranting interference. - Decided against revenue - Tax Appeal No. 153, 157 of 2016 - Dated:- 21-3-2016 - Harsha Devani And G. R. Udhwani, JJ. For the Appellant : Mr Sudhir M Mehta, Adv ORDER ( Per : Honourable Ms. Justice Harsha Devani ) 1. In all these appeals under section 260A of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the appellant - revenue has called in question the com .....

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depreciation?" 2. The assessment years are 2003-04 to 2006-07 and 2008- 09. The facts and circumstances of all the five cases are similar except for the assessment years and the amounts. Since the controversy involved in all these appeals is common, the same were heard together and are disposed of by this common order. 3. For the sake of convenience, reference is made to the facts as appearing in ITA No.203/Ahd/2012 for assessment year 2003-04. The assessee is a partnership firm engaged in .....

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77; 4,86,443/- on goodwill. The Assessing Officer was of the view that the assessee was not eligible to claim depreciation of goodwill and accordingly, by an order dated 22.10.2010 under section 147 read with section 143(3) of the Act disallowed the claim of depreciation on goodwill and made an addition of ₹ 4,86,443/-. The assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals), who held that the assessee was not eligible for depreciation on goodwill and uphe .....

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purview of the expression goodwill. It was submitted that the payment of compensation for surrendering rights in the firm was a capital expenditure on which no depreciation was allowable, and hence, the depreciation claimed on goodwill cannot be allowed. It was, accordingly, urged that the appeals do give rise to a question of law, as proposed or as may be formulated by the court. 5. This court has considered the submissions advanced by the learned counsel for the appellant and has also perused .....

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and in the books of account, the payment was technically shown as goodwill. In fact, the same was paid for acquiring commercial rights and was, therefore, eligible for depreciation under the head "intangible assets". The Assessing Officer was of the view that under section 32 of the Act, depreciation on goodwill is not an allowable expense, as goodwill is neither a tangible asset nor an intangible asset. He, accordingly, disallowed the claim of depreciation of ₹ 4,86,443/- on goo .....

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de for acquiring any commercial right. The Commissioner (Appeals), accordingly, held that since no commercial rights have been acquired by the firm, no depreciation was admissible on goodwill and accordingly, disallowed the depreciation. Thus, both the Commissioner (Appeals) as well as the Assessing Officer have proceeded on the footing that the amount paid to the retiring partners constituted 'goodwill' on which depreciation was not allowable. The contention raised in the memorandum of .....

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Tax v. SMIFS Securities Ltd., (2012) 348 ITR 302, has allowed the claim for depreciation. 7. The Supreme Court in the case of Commissioner of Income Tax v. SMIFS Securities Ltd. (supra) was dealing with the question as to whether 'goodwill' is an asset within the meaning of section 32 of the Income-tax Act, 1961, and whether depreciation on 'goodwill' is allowable under the said section. The Assessing Officer had held that 'goodwill' is not an asset falling under Explanat .....

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