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June 29 To July 5, 2019 u Taxmann’s Corporate Professionals Today u Vol. 45 u 14doesn’t provide for any rate of depreciation
on the Intangible assets on straight line basis.
Thus, power generating units can opt for
such depreciation method only in respect of
tangible assets. It is recommended that the
rate of depreciation for intangible assets in
case of power generating units should also
be introduced in Appendix IA.- Depreciation on Goodwill
The Supreme Court in the case of CIT v.
Smifs Securities Ltd. [2012] 24 taxmann.com
222 (SC) held that the goodwill arising on
amalgamation of companies would be eligible
for depreciation as it is covered under
Explanation 3(b) to Section 32(1) under the
expression ‘any other business or commercial
rights of a similar nature’. After the judgment
of the Apex Court, various High Courts have
taken the similar stand.
It is recommended that the definition of
intangible asset [as provided in the Explanation
3(b) to Section 32(1)] should include purchased
goodwill, i.e., goodwill arising on amalgamation
of companies, for the purpose of depreciation
on intangible assets. - Payment for warding off competition
to be capitalized
Under the present Income tax system, there is
no provision for treatment of payment made
for warding off competition. Many litigations
have arisen where assessee’s claim that such
payment shall be capitalized in the books
as intangible asset as it would provide not
only an enduring benefit, but would protect
the assessee’s business against competition.
Hence, the assessee can claim depreciation
on the amount so capitalized.
Clarification should be brought out under the
Act, to specifically provide that payment for
warding off competition can be capitalized,
and hence, will become an intangible asset
for the assessee upon which he can claim
depreciation.- Taxability of waiver of loan taken for
an asset
The definition of ‘income’ as provided under
section 2(24) of the Income-tax Act was
amended by the Finance Act, 2015 to include
assistance in the form of a subsidy or grant
or cash incentive or duty drawback or
waiver or concession or reimbursement (by
whatever name called) received from the
Central Government or a State Government
or any authority or body or agency in cash
or kind to the assessee.
However, if such assistance is received for
purchase of an asset and same is reduced from
the actual cost thereof then the amount so
received as assistance shall not be considered
as income of assessee. As per amended section
2(24), the subsidy or assistance should be
received from Government or any authority or
body or agency. So, the intension is to cover
the amount received only from Government
or any other financial institution or agency.
It doesn’t cover the amount received from
every person.
The Supreme Court in the case of CIT v.
Mahindra and Mahindra Ltd. [2018] 93 taxmann.
com 32 (SC) held that waiver of loan for
acquiring capital assets cannot be taxed under
section 28(iv) as receipt in hands of debtor/
assessee and it also cannot be taxed as a
remission of liability under section 41(1) as
waiver of loan does not amount to cessation
of trading liability.
So, it must be clarified in the upcoming Finance
Bill that waiver of loan taken for acquisition
of a capital asset would be considered as
income as per section 2(24).
EXPECTATIONS FROM AND RECOMMENDATIONS FOR UNION BUDGET 2019