Validity of deduction towards depreciation on intangible assets 

Short Overview of the case:

Assessee company was engaged in business of manufacturing and marketing of readymade garments.

Assessee had claimed depreciation on intangible assets that was rejected by AO.

 Assessee filed present appeal contending that AO/DRP had erred in upholding disallowance made in respect of depreciation on intangibles on surmises and conjectures and hence, order issued was bad in law.

On Appeal, the issue before ITAT & it’s observations were as under :

Whether depreciation on intangible assets must be disallowed?

ITAT held it as No.

identical issues were considered by coordinate bench of the Tribunal in assessee’s own case for AY 2012-13.

 It was stated that as per Explanation 3 to sec. 32(1), expression ‘asset’ shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.

A reading of the words ‘any other business or commercial rights of similar nature’ in clause (b) of Explanation 3 indicated that goodwill would fall under the expression ‘any other business or commercial right of a similar nature’.

 Principle of ejusdem generis would strictly apply while interpreting the expression, which found place in Explanation 3(b). Goodwill was an asset under Explanation 3(b) to sec. 32(1).

Likewise, intangible assets were covered by the same provision. Accordingly, it was held that assessee was eligible for depreciation in respect of intangible assets.