Amendment to S. 32 of Income Tax Act, 1961 Applies Prospectively, Cannot Deny Depreciation on Previously Acquired Goodwill: ITAT [Read Order]
ITAT Delhi held that the amendment made to Section 32(1)(ii) by the Finance Act, 2021 excluding goodwill from depreciable assets operates prospectively and cannot deny depreciation on goodwill acquired in earlier years.
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, held that the Finance Act, 2021 amendment excluding goodwill from depreciable assets under Section 32(1)(ii) operates prospectively and cannot be invoked to deny depreciation on goodwill acquired prior to the amendment.
The assessee, American Express Services India Ltd., had challenged the action of the CIT(A) in restricting the value of goodwill to nil and denying depreciation claimed on goodwill under Section 32of the Income Tax Act. Though the Tribunal had earlier disposed of the appeal, the assessee later filed a rectification application contending that the grounds relating to goodwill had remained unaddressed, following which the matter was recalled for fresh consideration of those issues .
Before the Tribunal, the assessee contended that the issue stood covered in its favour by earlier decisions rendered in its own case for AYs 2002-03 and 2010-11, wherein depreciation had already been allowed. Reliance was also placed on the Supreme Court decision in CIT v. Smifs Securities Ltd., recognising goodwill as an intangible asset eligible for depreciation under Section 32.
However,the Revenue argued that Section 32(1)(ii) had been amended with effect from 01.04.2021 excluding goodwill from depreciable assets and therefore depreciation on goodwill was no longer allowable.
The Tribunal comprising Sudhir Kumar (Judicial Member) and Ramit Kochar (Accountant Member) observed that depreciation on goodwill had already been allowed in the assessee’s own case for earlier assessment years.It also observed that coordinate benches had consistently held that the amendment excluding goodwill from depreciation under the Finance Act, 2021 operates prospectively.
Relying upon the decisions in Viacom 18 Media (P.) Ltd. v. PCIT and DCIT v. Gujarat Narmada Valley Fertilizers & Chemicals Ltd., the Tribunal held that the amendment to Section 32(1)(ii) could not be applied retrospectively to deny depreciation on goodwill acquired prior to 01.04.2021.
Accordingly, the Tribunal allowed the assessee’s claim for depreciation on goodwill.
The assessee’s appeal was allowed.
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