S.32 Business information, contracts, records are “intangible assets” & eligible for depreciation

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HIGH COURT OF DELHI

Date of decision : 30th March, 2012

ITA No.315/2010

Areva T & D India Ltd. V/s. DCIT

ITA No.1151/2010

CIT Vs. Jai Parabolic Spring Ltd.

AND

ITA No.1152/2010

CIT Vs. Jai Parabolic Spring Ltd

The assessee has not claimed depreciation on goodwill it acquired commercial rights to sell products under the trade name and paid consideration in dispute for acquiring marketing and territorial rights to sell through dealers and distributors i.e. the network created by the seller for sale in India. Under the agreement. It become entitled to use of infrastructure developed by the seller. Rights were acquired since 1.4.1998 and these rights have all along been treated as an asset entitled to depreciation and depreciation was actually allowed in the past. The learned Assessing Officer, in our view was not correct in making a departure from the past and in holding that payment was made for acquisition of “goodwill”. Payment had been made for acquisition of commercial rights on which depreciation is permissible. The Assessing Officer was further not justified in treating entries in the books of account as conclusive and in taking payment in dispute as consideration for acquisition of goodwill. It is now more of less settled that entries in books cannot be treated as conclusive and true nature of transaction has to be determined with reference to law. The learned CIT(A) in the impugned order examined the issue with reference to agreement and found that payment was made for acquisition of commercial rights. On facts and circumstances of the case, we do not find any error in the approach of the learned CIT(A). His action is hereby confirmed.”

In view of the foregoing discussion, it is seen that the assessee in the present appeals had not claimed depreciation on „goodwill‟ but on the commercial rights acquired to sell products under the trade name and through the network created by the seller for sale in India. It is further observed that the AO was not correct in holding that payment was made for acquisition of „goodwill‟. Payment had, in fact, been made for acquisition of commercial rights on which depreciation is permissible. In the circumstances, these appeals are dismissed in favour of the assessee and against the Revenue.