Skip to main content

Depreciation On Goodwill Created Through Scheme Of Amalgamation Allowed

Cause Title : Commissioner Of Income Tax vs M/s Eltek Sgs Pvt. Ltd., Delhi High Court, ITA 475/2022

Date of Judgment/Order : 01.08.2023

Corum : Hon'ble Mr. Justice Yashwant Varma & Hon'ble Mr. Justice Dharmesh Sharma

Citied: Commissioner of Income Tax, Kolkata vs. Smifs Securities Limited, (2012) 13 SCC 488

Background

The respondent had amalgamated with M/s Valere Power India Limited in terms of a Scheme of Amalgamation which came to be sanctioned by Delhi High Court on 05 February 2014. As per the scheme of amalgamation, where value of liabilities and amount of equity capital allotted /payment to the equity shareholders exceeds the value of assets of the transferor company taken over, such excess shall debited to the goodwill account. Accordingly, the assessee claimed on depreciation on goodwill which claim was denied by the AO. On appeals, the CIT (Appeals) as well as the Appellate Tribunal allowed the depreciation. Hence this appeal.

Judgment

The High Court referring to the judgment of the Hon'ble Supreme Court in Smifs (supra) observed that the IT Dept. contended that it would be the provisions of Section 49 of the Income Tax Act which would apply and that both the CIT (Appeals) as well as the ITAT have clearly erred in holding otherwise. Learned counsel referred to the definition of “cost of acquisition” as spelt out in Section 55(2) of the Act and which had defined that expression to also include goodwill of a business or profession or a trademark or brand name associated with the business or profession or any other intangible asset.

Section 49 deals with cost with reference to certain modes of acquisition while Section 55 refers to the meaning of "cost of acquisition".

The HC observed that the provisions of the Act referred to by learned counsel for the appellant are placed in a Chapter dealing with the “Capital Gains”. That Chapter itself pertains to profits or gains arising from the transfer of a capital asset and Section 47 of the Act in express terms excludes the transfer of a capital asset in terms of a scheme of amalgamation.

The HC then rejecting the view of the Dept. held that it is well settled that a transfer in terms of a scheme of amalgamation which is sanctioned is accomplished by operation of law as opposed to an act of parties. The assessee's the goodwill has enumerated from the decision of the Hon'ble High Court and not out of accounting principles. It is in that backdrop that the decision in Smifs assumes significance. The judgment rendered by the Supreme Court in Smifs clearly recognises goodwill to be an intangible asset and on which depreciation can clearly be claimed in terms of Section 32(1) of the Act.


Comments

Most viewed this month

Partition proceedings are vitiated even if single co-sharer is not made party or is not served in accordance with law

Cause Title :  Bhagwant Singh vs  Financial Commissioner (Appeals) Punjab, Chandigarh,  CWP-2132-2018 (O&M), High Court Of Punjab & Haryana At Chandigarh Date of Judgment/Order : 31.08.2022 Corum : Hon’ble Mr. Justice Sudhir Mittal Background A large parcel of land was owned by the Nagar Panchayat. Thereafter, some of the co-sharers sold their shares to third parties including the petitioners herein. On 22.11.1995, respondents No.3 to 5 filed an application for partition of the land. The petitioners were not impleaded as parties.  On completion of proceedings, sanad was issued on 28.08.1996. Vide two separate sale deeds dated 28.05.2008 respondents No.3 and 5 sold some portion in favour of respondent No.6 and 7. These respondents sought implementation of the sanad resulting in issuance of warrants of possession dated 05.06.2008. Allegedly, it was then that the petitioners realized that joint land had been partitioned and that proceedings h...

Power of Attorney holder can also file cheque bounce cases: Supreme Court

The Supreme Court has held that a criminal complaint in a cheque bounce case can be filed and pursued by a person who holds a power of attorney (PoA) on behalf of the complainant. A three-judge bench headed by Chief Justice P Sathasivam gave the "authoritative" pronouncement on the issue, referred to it by a division bench in view of conflicting judgements of some high courts and the apex court. "We are of the view that the power of attorney holder may be allowed to file, appear and depose for the purpose of issue of process for the offence punishable under Section 138 of the Negotiable Instruments Act (which deals with cheque bounce cases)," the bench, also comprising justices Ranjana Prakash Desai and Ranjan Gogoi, said. The bench, in its judgement, said, "...we clarify the position and answer the questions in the following manner: "Filing of complaint petition under Section 138 of Negotiable Instruments Act through PoA holder is perfectly legal...

Christian who reconverts as Hindu SC will get quota benefits

Amid the controversy over “ghar wapsi”, the Supreme Court on Thursday ruled that a person who “reconverts” from Christianity to Hinduism shall be entitled to reservation benefits if his forefathers belonged to a Scheduled Caste and the community accepts him after “reconversion”. Citing articles by B R Ambedkar and James Massey, and reports by Mandal Commission and Chinappa Commission, the court said: “There has been detailed study to indicate the Scheduled Caste persons belonging to Hindu religion, who had embraced Christianity with some kind of hope or aspiration, have remained socially, educationally and economically backward.” The bench of Justices Dipak Misra and V Gopala Gowda held that a person shall not be deprived of reservation benefits if he decides to “reconvert” to Hinduism and adopts the caste that his forefathers originally belonged to just because he was born to Christian parents or has a Christian spouse. Expanding the scope of a previous Constitution benc...