Intangible assets too liable to depreciation: HC

MUMBAI: The Delhi High Court has recently upheld a tax tribunal's view that depreciation can be charged even on an intangible asset like goodwill, as it is a form of a commercial right and is used to carry out businesses effectively.

The decision came January 14, in the case of Hindustan Coca-Cola Beverage, an Indian company producing non-alcoholic beverages. The assessing officer had agreed with the taxpayer's contention that as goodwill is a form of commercial right similar to patents, trademarks, licences and franchises, and therefore , all these rights are similar to the rights under goodwill.

The relevant section discussed in the court is section 32 of the Income-Tax Act that deals with depreciation on
tangible and intangible assets . Section 32 (ii) of the Act gives details of intangible assets for which depreciation can be claimed. The assets included are know-how , patents , copyrights, trademarks, licenses , franchises.

The assessing officer had also allowed the claim of the company, but the commissioner of income-tax revised the assessment saying that as "goodwill" is not an intangible asset as defined under section 32(1) of the Income-tax Act, it directed the assessing officer to withdraw the depreciation. The commissioner also held that the assessing officer's view was prejudicial to the interest of the revenue.

In its ruling, the high court held that loss of revenue cannot be construed as "prejudicial to the interests of revenue" . The Delhi High Court also pointed out that the assessing officer had taken one of the courses, which resulted in revenue loss.

The high court also pointed out that the assessee company had made full dislosure of facts and the assessing officer had examined all the relevant documents. Sanjay Sanghvi, partner at Khaitan & Co said: "This is a welcome order . It recongnises the importance of intangibles in the era of globalisation of business."