RAVEENDRAN PILLAI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The question raised in this Income Tax Appeal filed by the assessee is whether he is entitled to depreciation on goodwill under Section 32(1)(ii) of the Income Tax Act (hereinafter called "the Act"). Appellant purchased a Hospital in Quilon with it's land, building, equipments, staff, name, trademark and goodwill as a going concern under two separate sale deeds. While immovables are covered by one sale deed, movables covering trade mark, goodwill etc. are covered by another sale deed. Schedule B of the sale deed second above referred produced in this appeal describe the trade name transferred as "Upasana Hospital". In Schedule B besides the name and get up, the parties have given the emblem or trademark of the Hospital purchased by the appellant. Under the sale deed, the value of goodwill which includes the name of the Hospital and it's logo and trademark is declared as Rs. 2 crores. In the income tax returns filed subsequent to purchase of the Hospital, assessee claimed depreciation on goodwill on the value shown in the sale deed. In subsequent years depreciation on goodwill was claimed on the written down Value. It seems the returns filed for a few years got accepted and scrutiny assessment was made for the first time only for the assessment year 2004-2005. In the return filed for this assessment year, the assessee's claim for depreciation was on a written down value of Rs. 55,37,109/- and the depreciation claimed at 25% was Rs. 13,84,277/-. In the scrutiny assessment for the assessment year 2004-2005, the Assessing Officer held that "goodwill" is not covered by Section 32(1)(ii) of the Act and so much so, assessee is not entitled to depreciation, even though depreciation claimed on goodwill got allowed for earlier years. The appeals filed by the assessee before the C.I.T. (Appeals) and the Tribunal were also unsuccessful and hence the assessee has filed this appeal under Section 260A of the Act contending that assessee is entitled to depreciation on goodwill under Section 32(1)(ii) of the Act. We have heard Adv. Sri. P. Balakrishnan appearing for the appellant-assessee and Standing Counsel appearing for the respondent.

(2.) In the beginning itself Standing Counsel submitted that the claim of depreciation on goodwill happened to be allowed for earlier years because no scrutiny assessments were made for any of those years. According to him, the Assessing Officer will reopen assessments for disallowing depreciation already allowed, wherever limitation permits and so much so, his contention is that the claim allowed for earlier years should not be the basis for granting relief for this year. On this question we do not think there can be any dispute because if assessee is not entitled to depreciation on an item under the statute, then it cannot be granted merely because for earlier years depreciation on same item happened to be allowed in the course of acceptance of returns without scrutiny. Therefore, we proceed to consider the question of assessee's eligibility for depreciation on goodwill with reference to the statutory provision applicable to the case in hand.

(3.) Goodwill is not specifically mentioned in Section 32(1)(ii) of the Act. Therefore, the question to be considered is whether goodwill falls within the ambit of the residuary item referred to in Section 32(1). For easy reference we extract hereunder Section 32(1):