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Home » , » Sum paid to acquire clients of another company is an intangible asset; eligible for depreciati​on

Sum paid to acquire clients of another company is an intangible asset; eligible for depreciati​on

Where assessee-company had acquired entire business of an another company, which included acquisition of its existing clients, sum paid by assessee for acquisition of such clients was an intangible asset and, thus, eligible for depreciation
Facts:
a) The assessee-company was engaged in the business of micro-financial lending services. It had acquired entire business of ‘S’, which was also engaged in similar business;
b) This acquisition included the acquisition of rights of existing clients of 'S'. Besides other payments, the assessee paid certain sum to 'S' for acquisition of its clients;
c) The assessee claimed depreciation on the aforesaid sums by contending that it was towards transfer of clients, which was an intangible asset and eligible for depreciation;
d) Such depreciation claim of assessee was disallowed by revenue. Aggrieved assessee filed the instant appeal.
The Tribunal held as under:
1) It was not disputed that the assessee had acquired the entire business and commercial assets of 'S' on payment of lump sum consideration, which included the cost of acquisition of the existing customer base of 'S';
2) It was also a fact that the customer base acquired by the assessee had provided an impetus to the business of the assessee, as the customers acquired were with proven track record since they had already been trained, motivated, credit checked and risk filtered;
3) They were source of assured economic benefit to the assessee and certainly were tools of the trade, which facilitated the assessee to carry out the business smoothly and effectively;
4) Therefore, by acquiring the customer base the assessee had acquired business and commercial rights of similar nature as provided for in section 32(1)(ii). The client acquisition cost paid by the assessee was towards acquiring an intangible asset and, thus, was eligible for depreciation under section 32(1)(ii) - SKS MICRO FINANCE LTD. V. DY. CIT (2013) 37 taxmann.com 192 (Hyderabad - Trib.)
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