The case revolved around Thermo Fisher’s acquisition of certain business undertakings through slump sale, which resulted in recognition of goodwill and business/commercial rights, including manufacturing, supply, and maintenance contracts. For AY 2015–16, the company claimed depreciation on these intangibles under Section 32(1)(ii) of the Income Tax Act, 1961. The Assessing Officer (AO), however, disallowed the depreciation claim, holding that goodwill and contracts did not qualify as “intangible assets” under the provision. This view was subsequently upheld by the Dispute Resolution Panel (DRP), prompting Thermo Fisher to file an appeal before the ITAT.
Before the Tribunal, the assessee argued that the excess consideration paid over and above the fair value of assets and liabilities in the slump sale constituted goodwill, which is a depreciable asset under Section 32(1)(ii). It further contended that business and commercial rights such as ongoing contracts also fell within the scope of intangible assets eligible for depreciation. Importantly, Thermo Fisher pointed out that the ITAT in its own case for AY 2010–11 had already upheld such claims, and that the principle of consistency warranted the same treatment in later years as well.
The Revenue, on the other hand, maintained that goodwill is not expressly included in the list of depreciable intangibles under Section 32(1)(ii). It argued that contracts and other rights acquired from slump sale do not amount to independent intangible assets capable of depreciation. Allowing depreciation, according to the tax authorities, would grant a tax shield on elements not specifically recognized under the law.
After detailed consideration, the ITAT sided with the assessee and reaffirmed its earlier view. The Bench directed that the excess of consideration paid over the net value of assets and liabilities must be treated as goodwill and depreciation allowed. In noted:
“We direct the AO to treat the excess of consideration paid over and above the fair value of the assets and liabilities as goodwill and allow the depreciation on same to the assessee under the provisions of the Act.”
The Tribunal further observed that the principle of consistency required it to follow its earlier orders in the assessee’s own case, since there was no material change in facts or law. It also reiterated that business and commercial rights arising from slump sale, including manufacturing and supply contracts, qualify as intangible assets under Section 32(1)(ii).
In addition to the depreciation issue, the ITAT also dealt with other grounds. It directed the Assessing Officer to recompute and allow carry forward of unabsorbed depreciation from AY 2008–09 to AY 2014–15 in accordance with earlier rulings. On the issue of tax deduction at source (TDS), it noted a shortfall of Rs 10,75,900 and instructed that credit be granted after verification. At the same time, a general ground challenging the assessment order and a ground relating to penalty initiation were dismissed as premature.
Concluding its order, the ITAT made it clear that Thermo Fisher’s key contentions had merit. It specifically allowed Ground No. 2 (depreciation on goodwill) and Ground No. 3 (depreciation on business/commercial rights such as contracts), granting significant relief to the company.
In its final remarks, the Tribunal emphasized consistency and fairness, observing:
“Accordingly, respectfully following the same, Ground No. 2 & 3 raised by the Assessee are allowed.”
To view the original judgement, click on the link below:
https://indiankanoon.org/doc/136450528/
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