The Delhi High Court, in a recent ruling has held in favour of the assessees, Daikin Shriram Aircon Pvt Ltd and Daikin Air Conditioning India Pvt Ltd that, the assessee is entitled to claim depreciation under Section 32(1)(ii) of the Income Tax Act, 1961 on the Intellectual Property Rights such as Patents and Trademarks purchased by the assessee.
Assessee, who had entered into a Business Purchase Agreement (the ‘agreement’) with M/s Usha International Ltd. (‘UIL’) for the purchase of marketing and business rights for a period of twenty years, including the establishment, as well as the set up for marketing the products of air conditioners and water coolers, along with the benefit of current orders for supply of the air conditioners and the employees of UIL.
In consideration for the transfer of the said marketing and business rights, goodwill and on the condition of non-competition, a consideration of Rs. 2,00,00,000 was paid by the Assessee to UIL. This amount was capitalised in the books of accounts of the Assessee under the head ‘goodwill’ in the schedule of its fixed assets.
The Assessee claimed depreciation of Rs. 50,00,000/- as per the Section 32 of the Income Act, at the rate of 25% as prescribed in the schedule of rates in respect of intangible assets, for the Assessment Year 2001-02 by the and claimed Depreciation of Rs. 3,75,00,000/-. The manufacturing business of M/s SIEL Aircon Ltd was also purchased by the assessee for which a depreciation of Rs. 2,73,25,000/- was claimed by the assessee at the rate of 25%.
The Assessing Officer (AO) rejected the aforesaid claims and disallowed the depreciation in respect of the purchase of goodwill and intellectual property rights.
The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) concurrently held in favour of the assessee and directed the AO to allow the said depreciation at 25%.
In the appeal by the revenue against the decision of ITAT, the contention that the Intellectual Property rights do not belong to the assessee was declined by the Delhi High Court Division Bench comprising Justice Manmohan and Justice Manmeet Pritam Singh Arora.
It was observed that, “ The ownership of the IP rights of the Assessee stands proved on record, its use by the Assessee is also not disputed” and it was held that the appellate authorities have rightly held that the Assessee is entitled to claim depreciation under Section 32(1)(ii) of the Income Tax Act on the said IP rights.
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