IL & FS INVESTMENT MANAGERS LTD. Vs. ASSISTANT COMMISSIONER OF
INCOME TAX APPELLATE TRIBUNAL
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(1.) THERE are eight appeals, four appeals filed by the Assessee and four appeals filed by the Revenue, the details of which are aforementioned in the short cause title. Since common issues are involved in all these
appeals, the same are heard together and disposed of by this common order.
(2.) THE common issue involved in the assessee's appeal pertains to the allowability of depreciation on the value of goodwill amounting to Rs.82.30 lakhs. The relevant facts are that the assessee vide transfer
agreement dated 12th April, 2002 had purchased assets i.e., business from its associate concern. After the
purchase/transfer of the business asset, the assessee had claimed the depreciation @ 25% of 11.13
crores, being the value for asset management rights/intangible assets which included the claim of
depreciation on the value of 'goodwill' amounting to Rs.82.30 crores on the basis of the valuation report
from M/s. SSPA & Company obtained by the assessee. In the assessment framed, the AO while not
accepting the valuation report filed by the assessee, rejected the claim of depreciation. On appeal, Ld.CIT
(A) while accepting the valuation report, has denied the depreciation on 'goodwill' for the reason that
'goodwill' is not listed in the six items mentioned, namely know -how, patent, copyrights, trademarks,
licenses, franchises, in clause (ii) of section 32(1). According to the Ld.CIT(A), the asset 'goodwill' was not
a business or commercial rights similar in nature to six items mentioned in clause (ii) of section 32(1) of
the Act. Therefore, the consideration paid by the assessee at Rs.82.30 lakhs as valued by the valuer was
not eligible for depreciation.
(3.) HAVING heard both the sides and perused the material on record on the issue of allowability of depreciation on goodwill, it is pertinent to mention that the Hon'ble Supreme Court in the case of CIT Vs.
Smifs Securities Ltd.  24 taxmann.com 222 (SC) has held that explanation 3 to section
32 states that the expression asset shall mean intangible asset being know -how, copyrights, trade marks, licenses, franchises or any other business are commercial rights of similar nature. The words 'any other
business or commercial rights of similar nature' stated in explanation 3 includes that 'goodwill' would fall
under the expression 'any other business of commercial rights of a similar nature'. Further, the principle of
'ejusdem generis would strictly apply while interpreting the said expression which find place in
explanation 3(b). Consequently, 'goodwill' is an asset under the explanation 3(b) to section 32(1) and
eligible for the depreciation. In view of this settled legal position, we are of the considered view that the
Ld.CIT(A) is not justified in denying the benefit of depreciation claimed by the assessee on the 'goodwill'.
Accordingly, we direct the AO to allow claim of depreciation on the goodwill in all the four assessment years in which the said issue is involved.
Grounds no. 4 and 5 in the assessee's appeal for the assessment year 2004 -05 and 2005 -06 relate to the disallowance u/s 14A read with Rule 8D which are not pressed by the assessee and ground no. 6 in the
said appeals are consequential in nature. Thus grounds no. 4, 5 and 6 in the assessee's appeals for the
assessment year 2004 -05 and 2005 -06 are dismissed as the same do not require any adjudication.;
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