ORDER
R.P. Tolani, JM.
This is assessee’s appeal against the order of the CIT (A), dated 26-2-2004.
2. Ground No. 2 challenging disallowance of miscellaneous expenditure is not pressed, hence dismissed. Ground No. 3 regarding interest is contended to be consequential in nature, which does not require our adjudication that leaves Ground No. 1, which is as under:
“I(a) The learned CIT (A)-VI has grievously erred in confirming depreciation claimed on goodwill for an amount of Rs. 1,89,375 on misinterpretation of provision of section 32 since the appellant has fulfilled all the requisites as mentioned in the statutes.”
3. Brief facts are – The assessing officer during the assessment proceedings noted that the assessee was a partner in M/s. Nodule Cast along with Shri J.B. Vyas, his father and one Shri O.A. Lokhandwala. The firm was dissolved and a sum of Rs. 15.15 lacs was paid as goodwill to Shri Lokhandwala. The assessee during the assessment proceedings stated that in view of the provisions of section 32 relevant from assessment year 1999-2000, depreciation can be claimed even on intangible assets being know-how, patents, copyrights, trademark, license and franchise and any other business of commercial right of similar nature. In view of this provisions of law, the assessee made a claim on account of depreciation of goodwill amounting to Rs. 1,89,375. Assessing officer rejected the assessee’s claim on the ground that in the intangible assets specified in section, the word ‘goodwill’ is not included specifically. According to the assessing officer, goodwill cannot be treated as any other business of commercial right of similar nature. Accordingly, the assessing officer did not agree with the contention of the assessee that depreciation can be claimed on the goodwill amount, therefore, the entire depreciation claim on goodwill amounting to Rs. 1,89,375 was disallowed. Aggrieved assessee preferred first appeal, where the order of the assessing officer was confirmed.
4. The learned counsel for the assessee contended that by amendment brought by Finance (No. 2) Act of 1998 with effect from 1-4-1999 provision for allowing depreciation on intangible assets has been provided as under:
Section 32(1) in respect of depreciation of
(i) Buildings, machinery, plant or furniture, being tangible assets.
(ii) Know-how, patents, copyrights, trademark, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on, or after the 1-4-1998.
Owned, wholly or partly by the assessee and used for the purpose of business or profession, the following deduction shall be allowed.
These provisions postulate the following requirements for allowability of claim:
* The intangible assets have not been defined in the Act, but a sort of descriptive items have been given such as know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature being intangible assets. This can be interpreted as the intangible assets known by any name but if it can qualify under the abovementioned descriptive words, depreciation can be allowed.
*Second important point in the above provisions is that the intangible assets must be acquired which mean that payment should have been made for acquiring or purchasing such intangible assets.
*Third point which is important is that such intangible assets should have been acquired on or after 1st day of April 1998.
*Fourth point is that such intangible assets should be owned by the assessee and used for the purpose of business or profession.
The assessee’s case conforms to these requirements
(a) as the term ‘goodwill’ falls within the scope of intangible assets as contemplated in section 32(1)(ii);
(b) assessee has acquired the above intangible asset as business and commercial right and know-how has developed and established by M/s. Nodule Cast over a period of more than 20 years and has paid a price for the same;
(c) intangible asset has been acquired after 1-4-1998;
(d) assessee is owner of intangible asset and is using the same for its own business.
5. It was contended that by a plain reading of these provisions, the assessee is entitled to depreciation. Reliance was placed on in case of Rustom Cavasjee Cooper v. Union of India AIR 1970 SC 564 wherein it has been held that goodwill of the business is an intangible asset and a banking establishment has a goodwill and the value thereof is not insignificant and cannot be ignored in valuing the undertaking as a going concern. Further, reliance was placed on Minoo F. Mehta v. CIT (1996) 217 ITR 578 (Bom.) for the proposition that payment made for acquisition of interest of other partner, to enable the assessee to become sole owner, was in the nature of capital expenditure, that is to acquire the interest in a profit-yielding asset. Further reliance was placed on CIT v. Purandas Ranchoddas & Sons (1988)169 ITR 480 (AP) for the proposition that amount paid by partners of new firm to original partners under deed of dissolution, as a consideration for relinquishing interest in goodwill of dissolved firm, was a capital expenditure. It was contended that the amount of Rs. 15.15 lakhs paid by the assessee for the goodwill to Shri Lokhandwala was intangible asset in terms of section 32(1)(ii) and was eligible for depreciation.
6. The learned departmental Representative relied on the order of lower authorities.
7. We have heard the rival submissions and perused the material available on record. Intangible asset, other than specified one shall be of similar nature i.e., the prescribed assets. It shall be pertinent here to mention that the legislature has inserted a fiction, by which, specified intangible assets, are held to depreciate and allowance is given there for. Know-how, patents, copyrights, trademarks etc. are sometimes assigned different names, therefore, by using the word’similar nature’, the legislature has restricted the scope of intangible assets similar to the specified one. The assessee has nowhere established that it has acquired any know-how, patents, copyrights, trademarks etc. What it has paid for, simplicitor is an amount as a consideration for retirement of one partner, Shri Oni Ahesan Husein Lokhandwala, as goodwill, which amounts to giving compensation to a retiring partner and the term has been used as good will. This does not signify acquisition of any know-how, patents, copyrights, trademarks etc. or any business or commercial right of similar nature. In these circumstances, the amount of so-called goodwill is consideration paid for retirement of a partner without any acquisition of any intangible assets as contemplated in section 32(1)(ii).
8. Coming to the case-laws cited by the learned counsel, as we have already observed that there may be innumerable number of intangible assets, which may be transacted in business realities. We have to deal with intangible assets as specified by the amended Act i.e., amendment to section 32(1)(ii). There cannot be a dispute about the terming such compensation as a ‘goodwill’, but while deciding the allowability of depreciation, one has to recourse to specific provisions. Rustom Cavasjee Coopers case (supra) is of no help to the assessee, as it held that a banking establishment has goodwill and same cannot be ignored in valuing an undertaking as a going concern, This case deals with the value of going concern and is not applicable to the assessee’s case. Similarly, in the case of Minoo F Mehta (supra) and Purandas Ranchoddas & Sons (supra). Courts have held that amount paid for acquisition of business is capital expenditure, we have no dispute on this aspect. What is the material to decide the controversy is whether the payment for goodwill simplicitor without acquiring any know-how, patents, trade-marks, copyrights etc. is eligible for depreciation in four corners of specific amendment to section 32(1)(ii) In our considered opinion, in the facts and circumstances case, the amount paid by the assessee’s goodwill does not result into acquisition of any know-how, patens, copy rights, trade-marks etc. as prescribed in this behalf. Consequently, the assessee is not entitled to claim of depreciation. This Ground No. I of, the assessee is dismissed.
9. In the result assessee’s appeal is dismissed.