Legal Analysis of Depreciation on Goodwill under Section 32(1) of the Income Tax Act, 1961

Abstract

Section 32(1)(ii) of Income Tax Act, 1961 depreciation  on specified intangible assets being know how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of a similar nature is allowable expense while determining the profit of the business for income tax purposes. The term goodwill have not been mentioned under section 32(1)(ii). Whether goodwill are in the nature of business and commercial rights of a similar nature under section 32(1)(ii) have been matter of considerable debate. The judgement of the Supreme Court in the case of Smifs Securities Ltd.   put rests on the conflicting decisions of the High Court and the benches of the Tribunal over the matter. But Supreme Court in the case Smifs Securities Ltd. failed to give answer to questions regarding the valuation of the goodwill and inclusion of self generated goodwill under section 32(1)(ii).