Income Tax, Issue Update

Depreciation on goodwill

Case: RENTOKIL INDIA PVT LTD vs DCIT, CHENNAI ITAT

Outcome: Assessee

Facts

  • The Assessee was engaged in the business of providing pest control services. It claimed depreciation on customer list and goodwill at the rate of 25% treating them as an intangible asset. While making the assessment for the assessment year 2013-14, the Assessing Officer disallowed the claim of the Assessee pertaining to the depreciation claimed on goodwill.

Key Points

  • A perusal of the provisions of explanation 3 to section 32(1) of the Act showed that the expression asset meant to include intangible assets being know how, patents, copyrights, trademarks….. any other business or commercial rights of similar nature. Reliance was placed on the decision of the Hon’ble Madras High Court in the case of M/s. Pentasoft Technologies Ltd., wherein it was concluded that, the agreement therein was a composite agreement and under the agreement, the transferor had transferred all its rights, copy rights to the transferee and in order to strengthen those rights transferred, the non-compete clause was supporting the clause to strengthen the commercial right which was transferred in favour of the transferee.
  • In the present case also, the Business Transfer Agreement was a composite agreement and the non-compete clause therein was supporting clause to strengthen the commercial rights which had been transferred to the Assessee herein. Reliance was also placed on the decision of the Co-ordinate Bench of this Tribunal, Pune ‘A’ Bench, in the case of M/s. Cosmos Co-op Bank Ltd., wherein it was concluded that, even the customer lists were treated as the expression “business or commercial rights of similar nature” contained in section 32(1)(ii) of the Act. Hence, it was inferred that the Assessee was entitled to the depreciation on the intangible asset viz., goodwill/ customer list as claimed by him.
  • Also on account of the fact that section 92B in respect of international transactions under the Explanation thereto provides that the expression intangible property would include under clause-(f) “customer related intangible assets such as customer list, customer contacts, …..”. Thus, the legislature in its wisdom in respect of the international transactions provided for the expression intangible property to include intangible assets such as customer list in section 92B then an interpretation difference from the same cannot be taken that under the same applicable act and that too to the detriment of local business and citizens. Hence, it was concluded that the Assessee was entitled to the claim of depreciation on the intangible assets, being the goodwill/ customer list, as claimed by the Assessee.

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