Saturday, February 1, 2014

Amortization of goodwill for tax purpose

Amortization of goodwill for tax purpose:-
Case:- A company(X Ltd.) acquired a business unit of another company (Y Ltd.). consideration is more than net asset acquired. Thus, there is a goodwill for X Ltd. Whether, X Ltd. may claim amortization on this goodwill amo.  for tax purpose.

Solution :- Section 32(1) of income tax act, 1961 says that the aggregate of deduction allowable on Tangible Assets & Intangible Assets can’t exceed the deduction calculated at the rate as if the amalgamation /or demerger as the case may be had not taken place & the deduction is apportioned between the predecessor & successor in the ratio of the assets is held by them for the respective no. of days.
          In this above case, there being no such asset before the acquisition, the income tax department will not allow any deduction on account of depreciation on any intangible assets in case of acquisition.
But , under companies act you may claim applicable depreciation rate, but in IT Act, 1961, the depreciation is not allowed on above ground.

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