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Goodwill may not be figuring expressly in the inclusive list of intangible assets mentioned in section 32 of the Income-tax Act qualifying for depreciation but being an asset belonging to the same genre, it is indeed a depreciable asset if it has been paid for.
The Supreme Court gave this seminal ruling in Commissioner of Income-tax Kolkata vs. Smifs Securities Ltd by invoking the principle of ejusdem generis which means terms falling within the sweep of the general definition must be included in it though not expressly named.
The income-tax law grants depreciation to know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.
The Supreme Court had no hesitation in granting depreciation to goodwill as well because it fell within the sweep of the elastic phrase “any other business or commercial rights of similar nature”.
It brushed aside the contention of the Revenue that goodwill was not paid for so as to be eligible for depreciation. It pointed out that when the acquirer (the amalgamated company) debits goodwill for the difference between the net assets acquired and the purchase consideration, he is virtually paying for goodwill.
The court in the same case also reiterated its position that membership card of a stock exchange too belonged to the genre of intangible assets and hence was eligible for depreciation.
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