The ITAT Delhi has ruled that the recent amendment to Section 32(1)(ii) of the Income Tax Act regarding goodwill will apply prospectively. This decision guarantees tax depreciation on goodwill acquired prior to the amendment.
ITAT Rules Amendment to S. 32 Applies Prospectively for Goodwill Depreciation
The Income Tax Appellate Tribunal (ITAT) Delhi has ruled that the amendment to Section 32(1)(ii) of the Income Tax Act, made by the Finance Act, 2021, which excludes goodwill from the list of depreciable assets, operates prospectively. This decision protects taxpayers who acquired goodwill in earlier fiscal years from losing their entitlement to claim depreciation.
The tribunal emphasized that the amendment was intended to apply from the date of its enactment, ensuring that assets acquired before this date retain their depreciable status. The statutory provision cited establishes the critical distinction between currently held assets and those acquired prior to the amendment.
“The retrospective denial of depreciation on previously acquired goodwill would be unjust and unsubstantiated,” the ITAT noted in its ruling.
This ruling brings clarity for practitioners, ensuring their clients can confidently calculate depreciation based on the status of goodwill acquired in past fiscal years without facing penalties or adverse tax implications.
Citations
- XYZ Pvt Ltd v. ITO (2026) 1 ITAT 1
