Depreciation on goodwill in case of foreign co

Tax queries 395 views 1 replies

Dear friends,

 

 

Following is the situation in the amalgamation.

 

Plant                50 Lacs

Building          150 lacs

Furniture          10 Lacs

 

Knowhow        15 Lacs

Patents             10 Lacs

 

Goodwill         50 Lacs

 

All assets transferred to a foreign company by an Indian company in a scheme of amalgamation. So Explanation 7 to Section 43(1) is not applicable. This means that the actual cost of the plant, building, furniture, etc. will be actual consideration paid or payable by the foreign company to Indian company. Can we get depreciation on Goodwill? If not can it be adjusted in the other assets proportionately increasing their actual cost? If not whether the goodwill can be claimed as expenditure u/s 37 (1) by way of writing it off over 5 years?

 

Please note that since the foreign company has a business connection in India, its income will be computed which is attributable to such business connection and thereby it is subject to Indian tax jurisdiction and therefore it needs to determine actual cost of assets received in amalgamation for purposes of claiming depreciation.

 

Thanks in advance,

 

Regards

Chintan

Replies (1)

Hello Chintan,

First of all Thanks for asking an interestin Querry.

In this case as amalgamated co. is a foreign co. so the provisions of section 47(vi) and explanation 7 to section 43(1) will not aply.

The cost of acquisition in the case of a goodwill is the price actually paid for the goodwill. If any price is not paid for the same then its cost of acquisition will be taken as nill.

In this case the amount paid by the foreign co. for purchase of goodwill will be the cost of acquisition

Goodwill is a non-depreciable asset.

Regards

Rajat.


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