Network Rights is Goodwill: ITAT allows Depreciation [Read Order]

The Income Tax Appellate Tribunal (ITAT), Hyderabad bench has held that the network rights can be treated as goodwill for which, depreciation is allowable under Section 32 of the Income Tax Act, 1961.

The assessee, a Company engaged in the Cable TV business, entered into an agreement for the purchase of Cable TV business of M/s. Apna Cable Network for a total consideration of Rs.2,30,00,000/-. The Assessing Officer observed that as per schedule C, fixed assets, the company has claimed depreciation on network rights of Rs.1,62,66,250/- i.e. the balance amount. The Assessing Officer was of the opinion that the network rights are not intangible assets and therefore, depreciation is not allowable. He, therefore, he treated the network rights as “goodwill” and observing that no depreciation is allowable on goodwill u/s 32(1)(ii) of the Act, he disallowed the claim of depreciation and brought it to tax.

The contended that the findings of the AO that the Network Rights is not an intangible asset but is a “goodwill” has not been disturbed by the CIT (A). Therefore, he submitted that the assessee accepts the said network rights to be “goodwill” and as per the judgment of the Hon’ble Supreme Court in the case of CIT Kolkata vs. Smifs Securities Ltd, “goodwill” is an intangible asset and depreciation is allowable thereon. Thus, he prayed for allowance of depreciation.

Allowing the contentions of the assessee, the Tribunal held that that “the findings of the AO that “Network Rights” is “goodwill” has not been disturbed by the CIT (A) and as held by the Hon’ble Supreme Court in the case of CIT vs. Smifs Securities Ltd (Supra), depreciation is allowable on “goodwill”. Respectfully following the judgment of the Hon’ble Apex Court, we direct the AO to allow depreciation on “network Rights”.