TMI Blog2018 (7) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... - 19-7-2018 - SHRI G.D. AGRAWAL, PRESIDENT, SHRI R.S. SYAL, VICE PRESIDENT For The Assessee : Shri Rohit Jain, Advocate, Shri Deepesh Jain, CA And Mrs. Meenal Goyal, CA For The Department : Shri Vijay Varma, CIT, DR ORDER PER R.S. SYAL, VP: The Division Bench which heard the instant appeal, made a reference to the Hon ble President for constitution of a Special Bench on 31.08.2009 on the question of entitlement of depreciation on goodwill by mentioning contrary sets of decisions viz., one set allowing depreciation on goodwill and the other not allowing it. The Special Bench espoused the matter. It was put forth on behalf of the assessee that the Tribunal allowed depreciation on goodwill in the case of a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Agreement, all the assets in the books of the partnership firm were taken over by the assessee company at book value of ₹ 1,20,54,320/-. In addition, goodwill of the partnership firm was valued at ₹ 10 crore, which was also transferred to the assessee company. In all, the assessee agreed to issue shares to the partners of the firm worth ₹ 11,20,54,320/- (Rs.10 crore towards goodwill and ₹ 1.20 crore towards capital of the partners as on 31.03.2000). During the course of assessment proceedings, the AO noticed that CLC Sons had five partners on 31.03.2000, namely, Shri Ajay Kumar Chaudhary, Shri Mukund Chaudhary, Shri Kapil Chaudhary, Smt. Romila Chaudhary and Smt. Ritu Chaudhary. On taking over the partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equal amount to the erstwhile partners of the firm was a win-win situation, aimed at benefitting such partners on one hand with increase in their capitals by ₹ 10 crore and on the other hand by claiming depreciation on such goodwill in the hands of the successor company. After observing in para 7 of the assessment order that though there was no goodwill of the partnership firm capable of transfer to the assessee company, the AO still proceeded to discuss the legal issue of depreciation on goodwill as claimed by the assessee. On going through the mandate of section 32(1), he concluded that the expression other business or commercial rights of similar nature employed in section 32(1) did not encompass goodwill of a business as the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in the instant case is fallacious. 6. Insofar as the legal question of depreciation on genuine goodwill, being the first broader aspect, is concerned, the controversy can be better appreciated on the touchstone of the prescription of section 32, whose relevant part is extracted as under : - (1) In respect of depreciation of- ( i) buildings, machinery, plant or furniture, being tangible assets; ( ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the expression used in the provision to explain the unspecified intangible assets. In our considered opinion, this issue is no more res integra in view of the judgment of the Hon'ble Summit court in CIT vs. Smifs Securities Ltd. (2012) 348 ITR 302 (SC) in which it has been held: that goodwill will fall under the expression or any other business or commercial rights of similar nature and, hence, qualifies for depreciation u/s 32(1) of the Act. We, therefore, answer the legal issue raised in the question before the Special bench in affirmative by holding, in principle, that depreciation is available on genuine goodwill. 8. It has been noted above that the A.O. has classified discussion on the issue of depreciation on goo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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