Page 80 - DHC Budget Book 2021-22 Final

INDIA BUDGET 2021-22
7.1
Depreciation on Goodwill of Business and Profession not allowable u/s 32 [Sec. 2(11), 32(1) (ii), Explanation 3 to Sec. 32(1), Sec. 50(2) & Sec. 55(2)(a) [w.r.e.f. AY 2021-22]
— Sec. 32 of the Act provides that depreciation
is admissible at such percentage of WDV of any block of assets as may be prescribed. As per Explanation 3 to Sec. 32(1), apart from the tangible assets, the assessee is also admissible for depreciation on know-how, patents, copyrights, trademarks, licences, franchisees
or any other business or commercial rights of similar nature being intangible assets.
— Hon’ble Supreme Court in CIT –vs.- Smifs Securities Ltd. (2012) 348 ITR 302 (SC) held that Goodwill of Business or Profession falls within the expression ‘any other business or commercial rights’ and is a depreciable asset. Accordingly, depreciation on such goodwill u/s 32 is admissible.
— Finance Bill, 2021 is proposed to exclude Goodwill of Business or Profession from the meaning of intangible assets and deprecation thereon is thus not allowable w.r.e.f. AY 2021-22. Accordingly, it is proposed to amend Sec. 2(11) to exclude ‘Goodwill of Business or Profession’ from the definition of Block of Assets. Further, Sec. 32(1)(ii) proposed to be amended to provide that Goodwill of Business or Profession shall
not be considered as an ‘asset’ and hence not eligible for depreciation. Similar amendments have been proposed in Explanation 3 to Sec. 32(1) which defines the expression ‘asset’.
— It is proposed to insert a new proviso to Sec. 50(2) to provide that in case of Goodwill of Business or Profession which forms part
of block of assets as on 01-04-2020 and depreciation has been obtained thereon, the manner of computation of WDV of that block of asset and short term capital gain/loss, if any, shall be determined in the manner to be prescribed.
— Hitherto, Sec. 55(2)(a) provides that cost of acquisition, amongst other, in relation to capital asset being goodwill of business shall be (a)
the amount of purchase price if such asset is purchased from the previous owner and (b) Nil in any other case not being the case falling under modes specified in sub-clause (i) to (iv) of Sec. 49(1) i.e. gift, amalgamation, demerger etc. It is now proposed to substitute clause (a) to Sec. 55(2) to provide the following:
ƒ Cost of Acquisition, amongst others, in relation to capital asset being Goodwill
of Business or Profession shall be the (a) amount of purchase price if such assets have been purchased from the previous owner,
(b) amount of the purchase price of such previous owner if assets have been acquired under modes specified in sub clause (i) to (iv) of Sec. 49(1) i.e. gift, amalgamation, demerger etc. and (c) Nil in any other case.
ƒ Such purchase price of the Goodwill of Business or Profession shall be reduced by the total amount of depreciation availed u/s 32(1) till AY 2020-21.
Comment
— The proposed amendments seeks to nullify the landmark decision of Hon’ble Supreme Court in Smifs Securities (supra) wherein it has been held that Goodwill of Business or Profession falls within the expression ‘any other business or commercial rights’ and is a eligible for tax depreciation. Now, w.r.e.f. AY 2021-22, these assets does not qualify as a depreciable asset and hence not eligible for depreciation.
— Block of assets classified as ‘Intangible assets’ includes Goodwill of Business or Profession, Know-how, patents etc. Vide Finance Bill 2021, it is proposed that no depreciation shall be eligible for Goodwill of Business or Profession w.r.e.f. AY 2021-22. Hence, the manner in which the WDV for such block of asset for AY 2021- 22 and onwards shall be computed is yet to be prescribed.
— Assessee may be required to re-compute their Advance Tax computation for 4th Quarter of
AY 2021-22 and pay off the additional advance tax liability before 31-03-2021, to avoid any consequential interest liability u/s 234B. Further, interest liability u/s 234C may be levied on short payment of advance tax liability for the first 3 Quarters of AY 2021-22. However, stand can
be taken that interest u/s 234C is not payable for first 3 quarters on account of retrospective amendment relying on the decision of Hon’ble Calcutta High Court in Emami Ltd -vs.- CIT (2011) 337 ITR 470 (Cal)(HC), wherein it has been held that interest u/s 234B/C would not be required to be paid on account of retrospective amendment.
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