The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) has held that the depreciation allowable on goodwill acquired under a slump sale agreement under section 32 of the Income Tax Act, 1961.
The assessee, AVIS Hospitals India Ltd, has contended that when a purchaser acquires a business on a going concern basis by paying more than the fair market value of the net tangible asset, the difference in the purchase consideration and the net value of the assets and liabilities is attributable to the commercial benefit which is nothing but goodwill on which depreciation has to be allowed. It is also argued that the intangible assets, i.e business claims, business information, business records, contracts, employees and know-how, are all assets in absence of which the transferee would have had to commence business from scratch and go through the gestation period.
The Tribunal bench comprising Shri Rama Kanta Panda, Accountant Member and Shri K. Narasimha Chary, Judicial Member agreed with the assessee’s contention that by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business and the specified intangible assets acquired under slump sale agreement are in the nature of “any other business or commercial rights of a similar nature” on which depreciation is allowable.
Allowing the claim of depreciation, the Tribunal held that “the transfer is not between same group concerns or related concerns. Therefore, the decision relied by the ld.CIT-DR is not applicable to the facts of the present case. In view of the above discussion and respectfully following the decisions cited(supra), we hold that the ld.CIT(A) is not justified in denying the claim of depreciation on goodwill claimed by the assessee.”
Shri M.V.Prasad appeared for the assessee.
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