Goodwill excluded from definition of intangible assets; Dhruva Advisors’ Ajay Rotti explains impact on cos

“Now what did create a little confusion is what is written in the memorandum to the Finance Bill which is explaining why this change is being brought about. In that there is a discussion about a Supreme Court decision which had allowed goodwill and thereafter there is a discussion about how there is a probably a valid reason for a claim on a purchase goodwill but may not be so much on goodwill created at the time of corporate restructuring. However, they want to say that goodwill as an asset class only appreciates and it never depreciates because if a business does well, goodwill appreciates. Therefore they go on to say that we propose to bring in amendments to deny depreciation on goodwill. But the law as it has been amended, just simply ticks out goodwill from the list of assets eligible for depreciation,” he said in an interview to CNBC-TV18.

He said that a company can claim depreciation if intangibles are given individual identity.

“Income Tax Act recognizes the concept of block of assets. So there is no individual asset once it goes into a block. There are two kinds of assets which Section 32 which is the depreciation section recognizes, one is tangible assets and the other is intangible assets. Now, goodwill has been excluded from this second category of intangibles. Therefore if not the entire block is goodwill, but there are individual categories which talk of franchise rights and such other rights, that I would think remains unaffected. What is affected is only purely goodwill,” he said.