Cyber India Online Limited v Assistant Commissioner of Income Tax, 11 December 2013

Depreciation — Slump sale — Whether value of Goodwill qualifies for depreciation — Assessee, Private Limited Company, was engaged in business of online and other electronic media — Assessee’s Return was processed u/s 143(1) and refund was issued to assessee — However, notice u/s 148 was sent to assessee — AO disallowed assessee’s claim for depreciation on cost of acquisition of goodwill of business which it purchased — CIT(A) upheld AO’s order — Held, assessee vide slump sale agreement, acquired going concern — Value of goodwill was for acquisition of bundle of business or
commercial rights which was defined in slump sale agreement, comprising patents, trade marks or copyrights, privileges & interest of Vendor Company in any inventions and Employees — All these intangible assets were invaluable and resulted in carrying on business by assessee without any interruption — In absence of them assessee would have had to commence business from scratch — In case of CIT, Kolkata v Smifs Securities Ltd, Supreme Court held that goodwill is asset under Explanation 3(b) to s 32(1) and qualifies for depreciation u/s 32 — Explanation 3 states that expression “asset” shall mean intangible asset, being know how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature — Reading of words other business or commercial rights of similar nature in cl (b) of Explanation 3 indicates goodwill — In light of Supreme Court’s order and facts of present case, since assessee purchased business lock stock & barrel and showed value of goodwill right from acquisition onwards and since there was no objection from Revenue in respect to value of goodwill until relevant AY, it was opined that goodwill denotes intangible asset eligible for depreciation — Order of CIT(A) was set aside and addition made was deleted.