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Further Guidance on Goodwill in Amalgamation Cases


Depreciation on goodwill has been an often debated topic in Court rooms with a flurry of judgments at various levels. The Courts have been divided in their opinion and the matter is yet to attain finality. Taxand India follows the developments on this important issue and have summarises the latest decision of the Mumbai Income-tax Appellate Tribunal 'ITAT' in the case of Toyo Engineering India Limited 'TEIL'.

Facts of the case

  • The taxpayer, TEIL is engaged in the business of providing technical consultancy services and undertaking engineering, construction and erection contracts including supply of materials for such contracts
  • During the financial year 2002-03, Casablancas Gannon Engineering Limited 'CGEL', a wholly owned subsidiary of the taxpayer was amalgamated with the taxpayer through a Court approved process
  • As per the tax audit report, CGEL was engaged in the business of providing technical consultancy services and letting out property on hire. As on the date of amalgamation, the primary asset owned by CGEL was land on which Toyo House was built and the same was let out to the taxpayer. The only income earned by CGEL was rental income from the taxpayer
  • Pursuant to the approval of the scheme of amalgamation by the High Court 'HC', all the assets and liabilities were transferred at book values and the investments held in the shares of CGEL were cancelled in the taxpayer's books. The excess of investment value over the book value of assets and liabilities was disclosed as 'goodwill'

Taxand India examines whether indeed the goodwill arising on amalgamation is a mere book entry and does not represent any intangible rights to be eligible for depreciation.

Taxand's Take

In the past, the Courts have had the occasion to examine the claim of depreciation on goodwill arising out of purchase of businesses. While there have been several decisions, in some cases, the Courts have held the matter in favour of the taxpayers, holding that the amount classified as goodwill represents intangible assets. However, there have been limited proceedings involving claim of depreciation on goodwill arising on account of amalgamation. While in this decision, the ITAT has ruled against the taxpayer, the ITAT has not fully ruled out the possibility of claim of depreciation on goodwill arising from amalgamation.

Your Taxand contacts for further queries are:
Mukesh Butani
T. +91 124 339 5010

Kalpesh Maroo


Taxand's Take Author