Depreciation on Goodwill

Kerala High Court in the case of B. Raveendran Pillai (supra) and the Delhi High Court in the case of. Hindustan Coco Cola Beverages (P.) Ltd. (supra) have held that assessee is entitled to depreciation on the value of goodwill. The Kerala High Court has held that ‘goodwill is not specifically mentioned in section 32(1)(ii). Depreciation is allowable not only on tangible assets covered by clause (i) of section 32(1) but on the intangible assets specifically enumerated in clause (ii) and such of the other business or commercial rights
similar to the items specifically covered therein. Similarly the Delhi High Court has upheld that ‘payment on account of goodwill is similar to assets like patents, copyrights, trademarks, licences referred to in the definition of the block of assets in the senses that the function of all these assets is to restrict their misuse and to earn maximum profits in the business. The function of goodwill acquired by the assessee also is the same in view of the fact that it maximizes the profits of the company. Since the function of intangibles defined in the Act and the intangible acquired by the assessee is the same, the assets are similar. Therefore, the assessee’s goodwill being a valuable commercial asset similar to other intangibles specified in the definition of block of assets is eligble to depreciation’. The instant case is squarely covered by the aforementioned judgments of the Delhi High Court and Kerala High Court. Therefore, the assessee was entitled for the depreciation on goodwill.

Subscribe to Studycafe by Email