Goodwill Arising Out of Amalgamation – Depreciable ??

Abstract

Strategic acquisition of a target by an acquirer by paying more than its book net worth is very common in mergers and acquisitions deals as the acquisition price is generally based on the fair market value of business. The excess price is generally paid on account of various factors such as brand, clientele, combined synergies etc., which may not be recorded in the books of accounts by the target and such excess price i.e. purchase price that exceeds the value of net assets, is recorded as goodwill in the books of accounts of the acquirer. Many issues are faced by the industry before taking the decision of mergers and acquisitions and one of the major issue that the industry faces today is whether goodwill arising out of amalgamation is eligible for depreciation under section 32 (1) (ii) of the Income Tax Act, 1961 (‘IT Act’) or not?