INCOME TAX ACT, 1961

Section 32

Depreciation - Allowability - Assessee, a private limited company, succeeded to business of erstwhile partnership firm, which had trademarks registered in its name -

Assessee was a private limited company engaged in business of manufacturing, dealing and exporting of incense sticks and allied products. Assessee was succeeded to, in business of partnership firm and all assets of erstwhile partnership firm, including intangible assets were transferred to assessee. In consideration, assessee allotted shares to partners of erstwhile partnership firm and no other consideration in any other form was paid by assessee. AO alleged that assessee did not actually acquire or purchase assets for actual consideration, therefore, value of the assets partakes nature of notional value and not the real value and depreciation under section 32(1)(ii) could not be allowed on intangible assets. Held: Intangible assets of assessee had a real money value. Aforesaid trademark viz., intangible assets were transferred to the assessee for a valuable consideration. Section 32(1) provides for depreciation in respect of trademarks owned wholly or partly by the assessee. In instant case, assessee succeeded to the business of the partnership firm, which had trademarks registered in its name. Assessee under section 32(1) was entitled for depreciation. Admittedly, assessee and the erstwhile partnership firm were different entities and there was transfer of intangible assets by the partnership firm to assessee for a valuable consideration that is by way of allotment of shares. Thus, the aforesaid transaction was squarely covered under section 47(xiii) and therefore, assessee under section 32(1) was entitled for depreciation with reference to actual cost incurred by it with reference to intangible assets. Further, 5th proviso to section 32(1) can be applied only in year of succession and not in subsequent years and also in respect of overall quantum of depreciation in the year of succession.

REFERRED : CIT, Central-III v. HCL Technologies Ltd. (2018) 404 ITR 719 (SC) : 2018 TaxPub(DT) 2138 (SC), GVK Inds. Ltd. & Anr. v. The ITO & Anr. (2011) 332 Itr 130 (SC) : 2011 TaxPub(DT) 1374 (SC) and Bhor Industries Limited & Ors. v. CIT (1961) 42 ITR 57 (SC) : 1961 TaxPub(DT) 193 (SC).

FAVOUR : In assessee's favour.

A.Y. : 2005-06 to 2008-09

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