Consideration paid for acquiring the clientele is an ‘intangible asset’ and is eligible for depreciation

Consideration paid for acquiring the clientele is an ‘intangible asset’ and is eligible for depreciation
The taxpayer, a share broker vide Deed of Assignment of Business, Sale of Goodwill and Master Services Agreement, purchased entire clientele business of Ashmavir Financial Consultants Pvt. Ltd. (AFC).The taxpayer has booked the aforesaid expenditure as purchase of goodwill and has claimed 25 percent of depreciation. The AO rejected the taxpayer’s claim. The CIT(A) upheld the order of the AO.
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The Tribunal held that the specific words of Section 32 of the Act reveal the similarity in the sense that all the intangible assets specified are tools of the trade which facilitates the taxpayer to carry on the business. Therefore, the expression ‘any other business or commercial rights of similar nature’ would include such rights which can be used as a tool to carry on the business. Further commercial rights gain significance in the commercial world as they represent a particular benefit or advantage or reputation built over a certain span of time and the customer associate with such assets. The purchase of the clientele business by the taxpayer from AFC is a right which can be used as a tool to carry on the business. Relying on the Supreme Court’s decision in the case of Smifs Securities Ltd and Mumbai Tribunal’s decision in the case of Jyoti India Metal Industries Pvt. Ltd it was held that the taxpayer is entitled for depreciation


India Capital Markets P Ltd v. DCIT (ITA.No.2948/Mum/2010)