Notes on clauses 7 and 18 under statement of objects make out a case for treating goodwill as non depreciable asset w.e.f. A Y 2021-22. In the consequence amendments are proposed to decline depreciation even on any part of the opening block of assets carrying goodwill nomenclature.
Depreciation under the Act is admissible on actual cost meaning the original cost . Vide [1972] 85 ITR 599 (SC) it is held that the original cost to the assessee of a particular asset is a question of fact which has to be determined on the evidence or material placed before or available to the income-tax authorities. Any document or formal deed mentioning the consideration or the cost paid for the purchase of an asset by the assessee would be a piece of evidence and prima facie the statements or figures given therein would show how much the cost of the asset to the assessee is. But, if circumstances exist showing that a fictitious price has been put on the asset or there is fraud or collusion between the vendor and the assessee and there has been inflation or deflation of value for ulterior purposes it is open to the income-tax authorities to refuse to accept the price mentioned or allocation given in the deed or alleged by the assessee and to ascertain what the actual cost was or to determine the allocation between depreciable and non-depreciable assets.
Without necessitating any such factual exercise the budget 2021 propose to do away with the depreciation allowance on the opening written down values of goodwill whereas it is not lawfully possible to substitute the opening written down values without first making amendments in the original/actual cost of the goodwill in the year of acquisition and further to also establish an instance of invalid case of inflation of values.
For their failing to carry out any such exercise in the past there could be a possible view that no depreciation could be disallowed on the opening written down value as on April 1 2020.
In other words the disallowance shall come into force only as regard a transaction of purchase of goodwill on or after April 1 , 2020.
The amendment proposed in section 50 to determine the part of the block referable to goodwill solo is therefore like expecting from the AO to perform a near impossibility and any such attempt in this regard would not in essence meet the tests laid down by the Hon’ble Supreme Court and may fail in the ultimate.