CAN DEPRECIATION BE CLAIMED ON GOODWILL, BRANDS AND DISTRIBUTION NETWORKS RECOGNIZED FOR THE FIRST TIME DURING A DEMERGER?

 CAN DEPRECIATION BE CLAIMED ON GOODWILL, BRANDS AND DISTRIBUTION NETWORKS RECOGNIZED FOR THE FIRST TIME DURING A DEMERGER?

The Kolkata ITAT examined this important question in Tata Consumer Products Ltd. vs. ACIT

Yes, Depreciation was allowed on goodwill, brands and distribution networks recognized upon demerger, although these assets were not recorded in the demerged company’s books.

The Finance Act, 2021 amended the Income-tax Act to exclude goodwill from depreciable intangible assets with effect from AY 2021–22.

The Tribunal allowed depreciation for AY 2020–21 under the law applicable to that year.

The ruling distinguishes between assets already included in the demerged company's depreciable block and intangible assets identified and valued for the first time when the resulting company acquires the business for consideration.

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