By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Chartered Accountants
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50 (2009) 33 SOT 237 (Mum.)
Kotak Forex Brokerage Ltd. vs.
Asst. CIT
ITA No.2692 (Mum.) of 2007
A.Y.2001-02. Dated August 2009.
Section 32 of the Income Tax
Act, 1961: Depreciation is allowable on goodwill u/s 32 (1)(ii).
Facts:
Pursuant to an agreement, the assessee acquired the foreign
exchange broking business of a company for which it paid a certain amount
towards broking rights and towards goodwill and claimed depreciation on the
same. The Assessing Officer allowed depreciation on the business rights (being
commercial rights), but disallowed deprecation on goodwill on the ground that
goodwill had not been included in the definition of intangible assets which
included know-how, patents, copyrights, trademarks, licenses, franchises or any
other business or commercial right. The CIT (A) confirmed the order of the
Assessing Officer.
Held:
The Tribunal, following the decision in the case of Skyline
Caterers (P.) Ltd. V. ITO [2008] 20 SOT 266 (Mum.) (SMC), allowed the assessee’s
claim. The Tribunal noted as under:
1. Goodwill paid by the assessee was towards the use of the
name ‘Kotak’ with the name of the assessee-company.
2. Goodwill was a bundle of rights which included, inter
alia, patents, trademarks, licenses, franchises, etc. Therefore, all these
rights are similar to the rights under goodwill. Applying the principles of
ejusdem generis, the meaning has to be extended to the phrase “other business
or commercial rights of similar nature”.
3. Business or commercial rights are rights obtained for
effectively carrying on business or commerce. Commerce is a wider term which
encompasses business in its fold. Therefore, any right which is obtained for
carrying on the business effectively and profitably has to fall within the
meaning of intangible asset.
4. Business or commercial rights should be of similar
nature as know-how, patents, copyrights, trademarks, licenses, franchises,
etc.— all these are assets which are not manufactured or produced overnight,
but are brought into existence by experience and reputation. They assume
importance in the commercial world as they represent a particular benefit or
advantage or reputation built over a period of time, and customers associate
themselves with such assets. Similarly, goodwill is nothing but positive
reputation built by a person / company / business-house over a period of time.
Thus, goodwill is a “business or commercial right of similar nature”.
5. Thus, goodwill is also an intangible asset of the
similar nature referred to in clause (ii) of Section 32(1) and, therefore,
deprecation is allowable on the same.
