Monday, 2 January 2012

Depreciation allowable on Goodwill or not?

Yes, depreciation is allowable on goodwill:
No, depreciation is not allowable on goodwill:
- In the case of B. Raveendran Pillai, the Kerala High Court has held that even on good will the depreciation is allowable
Franchise rights are considered as goodwill:
- Yes, in Hindustan Coca Cola Beverages Pvt. Ltd, the view of the AO is considered and the franchise rights was considered as goodwill and decided that depreciation is allowable even on goodwill. Such view was affirmed by the Delhi High Court

-   JAIPUR, DEC 21, 2011: When an assessee purchases a running business in a slump sale with huge liabilities, the goodwill acquired in such a deal is of no value, and hence no depreciation is allowable on the same.

-   Facts of the case: Assessee Company, engaged in the manufacturing of Aerated water, filed its return of income claiming depreciation on the franchise rights. The AO was of the view that the franchise rights were not entitled for depreciation. The AO further alleged that the assessee had not filed any documentary evidence in relation to the claim of depreciation. Before CIT(A) it was explained that the assessee had taken over the business as a slump sale, and the brand owner had given his assent to the assessee in writing for continuing the business of manufacturing Aerated water. CIT(A) allowed the appeal of the assessee. Before the ITAT the DR argued that the franchise rights were akin to goodwill and hence the depreciation was not allowable.
- For the purpose of charging depreciation, the word goodwill is not mentioned along with the other intangible assets under Section 32 (1)(ii) of the Income Tax Act 1961.


Point to be noticed, to decide if depreciation is allowable on goodwill or not: - the base point still remains if the Goodwill is purchased or not. When purchased, depreciation is allowable.

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