Relief to Thermo Fisher: ITAT allows Depreciation Claim on Supply & Maintenance Contracts Acquired via Slump Sale [Read Order]
The Tribunal reasoned that contracts for supply, manufacturing, and maintenance, along with customer relationships and operational continuity, are in the nature of commercial rights enabling effective business operations
The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that manufacturing, supply, and maintenance contracts acquired through slump sale arrangements qualify as intangible assets or, alternatively, as goodwill, and are therefore eligible for depreciation under Section 32 of the Income-tax Act, 1961.
The company, Thermo Fisher Scientific India Private Limited, engaged in the manufacture, installation, and sale of scientific and medical laboratory equipment, had acquired the Qualigens Fine Chemicals Division from GlaxoSmithKline Pharmaceuticals Ltd. (GSK) in 2007 and the Analytical Technologies and Environmental Instrumentation Division from Chemito Technologies Pvt. Ltd. (CTPL) in 2008.
These business transfer agreements transferred not only tangible assets but also valuable contracts, client bases, and commercial rights, which Thermo Fisher capitalised and claimed depreciation upon.
The Assessing Officer and the CIT(A)/NFAC had disallowed depreciation of ₹73.06 crore on such contracts, holding that they did not qualify as intangible assets under Section 32(1)(ii).
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The appellate authority relied on earlier years’ disallowances and ruled that such contracts lacked the characteristics of know-how, patents, trademarks, or licenses envisaged under the law.
Thermo Fisher challenged this, arguing that these contracts constituted valuable commercial rights and, even otherwise, any excess consideration over tangible assets formed goodwill, which is eligible for depreciation as recognised by the Supreme Court in Smifs Securities Ltd.
The ITAT bench comprising Amit Shukla (Judicial Member) and Arun Khodpia (Accountant Member) observed that the issue was squarely covered by its earlier orders in the assessee’s own cases for AYs 2010 - 11 and 2015-16, where depreciation on such business and commercial rights was allowed.
The Tribunal reasoned that contracts for supply, manufacturing, and maintenance, along with customer relationships and operational continuity, are in the nature of commercial rights enabling effective business operations. Even if not recognised separately under Accounting Standard -26, the excess consideration paid over and above the fair value of assets and liabilities in slump sale acquisitions necessarily represents goodwill, which also qualifies for depreciation under Section 32.
Accordingly, the Tribunal directed the Assessing Officer to allow depreciation of ₹3.07 crore claimed by the assessee on these contracts for AY 2020 - 21. With regards to the issue of penalty under Section 270A for alleged under-reporting, the ITAT held it to be premature, as it was consequential to the outcome of the depreciation claim.
Accordingly, the appeal was allowed in favour of Thermo Fisher.
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