In short
Section 32(1)(ii) of the Income-tax Act, 1961, as amended by the Finance Act 2021 w.e.f. AY 2021-22, excludes goodwill of a business or profession from depreciable assets. In Hi-Tech Radiators (P.) Ltd v DCIT (ITA No. 1563/Mum/2026, AY 2018-19, 30 July 2026), ITAT Mumbai allowed depreciation on goodwill from a 2009 slump sale, first claimed in AY 2018-19 before the bar took effect, holding that the sixth proviso to section 32(1) and Explanation 7 to section 43(1), which restrict depreciation on succession or amalgamation, do not apply because the predecessor proprietary concern carried no goodwill in its own books. Depreciation on the accompanying non-compete fee was refused, following the Supreme Court in Sharp Business System v CIT-III (2025 INSC 1481) that such payments are revenue expenditure under section 37(1).
A business transfer agreement values the target as a going concern, and the difference between what is paid and the net worth taken over is booked as goodwill. Since the Finance Act 2021, that goodwill cannot be depreciated — but the bar only started on 1 April 2021, and disputes over slump sales completed years earlier, where depreciation was claimed late, are only now reaching the Tribunal. ITAT Mumbai’s order in Hi-Tech Radiators (P.) Ltd v DCIT, pronounced on 30 July 2026, is one of them, and it draws the line between a slump sale and an amalgamation more sharply than most.
Key points
- Goodwill acquired in a slump sale before AY 2021-22 remains depreciable under section 32(1)(ii) as it stood at the time; the Finance Act 2021 exclusion of “goodwill of a business or profession” applies only from AY 2021-22 onward.
- The sixth proviso to section 32(1), which caps the combined depreciation a predecessor and successor may claim on succession, amalgamation or demerger, does not apply where the predecessor never carried the goodwill as an asset in its own books.
- Explanation 7 to section 43(1) and Explanation 2(b) to section 43(6)(c) — the carryover rules for a predecessor’s written down value — are confined to a statutory scheme of amalgamation or demerger and do not reach an ordinary slump sale under a business transfer agreement.
- A non-compete fee paid alongside the acquisition is not a depreciable asset; following the Supreme Court in Sharp Business System v CIT-III (2025 INSC 1481), it is revenue expenditure deductible under section 37(1) in the year paid, not spread through depreciation.
What did Hi-Tech Radiators acquire, and when?
On 1 October 2009, Hi-Tech Radiators Private Limited took over the running business of M/s Techno Electricals, a sole proprietary concern, as a going concern for 5,00,000 equity shares of Rs. 100 each. The transaction generated goodwill of Rs. 4,46,07,462 and a separately recognised non-compete fee of Rs. 50,00,000, both booked as intangible assets in FY 2009-10. The company did not claim depreciation on either amount for eight years. It claimed depreciation for the first time only in FY 2017-18, relevant to AY 2018-19 — Rs. 1,11,51,866 on the goodwill and Rs. 12,50,000 on the non-compete fee.
The Assessing Officer disallowed the entire claim, reasoning that the “actual cost” of the goodwill under Explanation 7 to section 43(1) was nil because the proprietary concern had never recorded it, and that the sixth proviso to section 32(1) in any event capped the aggregate depreciation at what the predecessor could have claimed — which was nothing. The Commissioner (Appeals), National Faceless Appeal Centre, upheld the disallowance, treating the Finance Act 2021 bar as reinforcing the same conclusion. Before the Tribunal — Shri Vikram Singh Yadav, Accountant Member, and Shri Sandeep Singh Karhail, Judicial Member (hearing 6 May 2026, order 30 July 2026) — the assessee succeeded on the goodwill and lost on the non-compete fee.
Why did the sixth proviso and the amalgamation Explanations not apply?
Because both provisions answer a different question: how much of a predecessor’s existing depreciation may pass to a successor, not what a buyer may claim on an asset it recognises for the first time.
The sixth proviso to section 32(1) restricts the aggregate depreciation on buildings, machinery, plant or furniture where a business is succeeded to, or undergoes amalgamation or demerger, to what would have been allowable had the reorganisation not taken place. The Tribunal held that this “presupposes that there exists a depreciable asset in the block of the [predecessor] which is transferred,” and provides a mechanism for splitting depreciation on that asset between the two entities. Since Techno Electricals, the proprietary concern, had never recorded goodwill as an asset, there was nothing to split and nothing for the proviso to restrict. The Tribunal followed its own coordinate bench in Dow Chemical International (P.) Ltd v DCIT [2024] 169 taxmann.com 290 (Mumbai-Trib.), and the same reasoning that had earlier saved a much larger goodwill claim in Urmin Marketing (P.) Ltd v DCIT [2020] 122 taxmann.com 40 (Ahmedabad-Trib.), where no goodwill existed in either the amalgamating or amalgamated company’s books before that scheme either.
Explanation 7 to section 43(1) and Explanation 2(b) to section 43(6)(c) work the same way from the cost side: they carry forward a predecessor’s actual cost and written down value into the successor’s hands, but only “in a scheme of amalgamation” where the amalgamated company is Indian. A slump sale under a business transfer agreement between an unrelated proprietary concern and a private company is not a scheme of amalgamation as the Income-tax Act defines it, so neither Explanation was engaged. The Assessing Officer’s own reliance on Explanation 7 to value the goodwill at nil was accordingly misplaced — the provision simply had no application to the transaction. The Tribunal distinguished United Breweries Ltd v Addl. CIT [2016] 76 taxmann.com 103 (Bangalore-Trib.), the Revenue’s principal authority, on the footing that the goodwill’s value was undisputed on this record, unlike the valuation dispute that had defeated the claim there.
Does the Finance Act 2021 amendment reach this claim at all?
No, and this was the more straightforward half of the order. Section 32(1)(ii), as amended by section 8 of the Finance Act 2021, inserts “not being goodwill of a business or profession” after the words “after the 1st day of April, 1998,” and the same words are added to Explanation 3(b). Both changes take effect from AY 2021-22. The claim before the Tribunal was for AY 2018-19 — the first year Hi-Tech Radiators claimed depreciation on the goodwill at all, three assessment years before the amendment applies. The Commissioner (Appeals) had invoked the amendment as prospective in the taxpayer’s favour in principle, while still sustaining the disallowance on the sixth-proviso ground; the Tribunal’s finding that the proviso does not apply removed that ground as well, leaving the claim to stand on section 32(1) and Explanation 3(b) as they read for AY 2018-19, on the strength of CIT v Smifs Securities Ltd [2012] 348 ITR 302 (SC).
| Depreciation first claimed for | Goodwill from a slump sale | Governing authority |
|---|---|---|
| Up to AY 2020-21 | Depreciable, if the buyer’s own asset | Section 32(1)(ii) pre-amendment; Smifs Securities |
| AY 2018-19 (Hi-Tech Radiators) | Allowed — claim predates the bar | Section 32(1)(ii) as it stood for AY 2018-19 |
| AY 2021-22 onward | Excluded outright | Section 32(1)(ii) and Explanation 3(b), as amended |
A related but separate rule now governs the seller’s side of a slump sale. Section 50B(2), through Explanation 2(aa) inserted by the same Finance Act 2021, treats self-generated goodwill — goodwill not itself acquired by purchase from a previous owner — as having nil cost of acquisition when computing the net worth of the undertaking transferred. That did not arise in Hi-Tech Radiators, which concerned the buyer’s depreciation, but anyone structuring a slump sale today has to read the buyer’s position under section 32 and the seller’s position under section 50B together: the same goodwill that yields the seller no cost benefit under section 50B still earns the buyer no fresh depreciation once AY 2021-22 has passed.
Why did the non-compete fee fail where the goodwill succeeded?
Because it was never a capital asset to begin with, on either side of the 2021 amendment. The assessee’s own counsel conceded before the Tribunal that the question of whether a non-compete fee is revenue or capital expenditure had been “settled by the Hon’ble Supreme Court” in Sharp Business System v CIT-III (2025 INSC 1481; reported at (2025) 181 taxmann.com 657 (SC), the citation the Tribunal itself used, decided 19 December 2025), where the Court held that a payment for a non-compete covenant does not bring into existence a capital asset merely because it confers an enduring commercial advantage, and is deductible as revenue expenditure under section 37(1) in the year it is incurred. On that authority, the Tribunal rejected the depreciation claim on the Rs. 50 lakh non-compete fee outright — not because the Finance Act 2021 touches non-compete fees at all, but because depreciation was never the right head of claim for that payment in the first place.
What this means for a business transfer agreement today
For a slump sale completed before 1 April 2021 where depreciation on goodwill was claimed late, or is still under dispute, Hi-Tech Radiators is directly useful: the amendment does not apply to those years regardless of when the dispute is finally decided, and the sixth proviso and the amalgamation Explanations in section 43 bite only where the predecessor actually carried the goodwill as a recorded asset. For a slump sale from AY 2021-22 onward, none of that helps — section 32(1)(ii) now excludes the goodwill outright, and the live planning question shifts to section 50B on the seller’s side and to whether a component of the price can be justified as a separately identifiable depreciable intangible, such as a customer contract, technical know-how or a brand, distinct from goodwill itself. And whatever the year, a non-compete fee is claimed under section 37(1) as revenue expenditure, not folded into the depreciable block with the goodwill.
This is one more instance of a matter litigated entirely under the Income-tax Act, 1961 being decided by a Tribunal in 2026 — the transitional pattern discussed in which Act governs your appeal. Order: Hi-Tech Radiators (P.) Ltd v DCIT, ITA No. 1563/Mum/2026 (ITAT Mumbai, Bench “E”), AY 2018-19, order dated 30 July 2026 — Indian Kanoon. An official PDF from itat.gov.in could not be retrieved for this note; the Tribunal’s own site returned a server error at the time of writing, and the text above is verified against the Indian Kanoon transcript and against the Finance Act, 2021 as published in the Gazette of India Extraordinary (sections 8, 10, 21 and 23, amending sections 32, 43, 50B and 55 of the Income-tax Act, 1961). Provisions discussed: section 32(1)(ii) and the sixth proviso to section 32(1); section 37(1); section 43(1), Explanation 7; section 43(6)(c), Explanation 2(b); section 50B(2), Explanation 2(aa) — Income-tax Act, 1961, as amended by the Finance Act 2021 and read in September 2026; incometaxindia.gov.in was not reachable from this session to supply verified direct links to the bare sections, and should be checked directly before citing them in submissions. Judgments: CIT v Smifs Securities Ltd [2012] 348 ITR 302 (SC), 22 August 2012; Sharp Business System v CIT-III, 2025 INSC 1481, also reported at (2025) 181 taxmann.com 657 (SC), 19 December 2025; Dow Chemical International (P.) Ltd v DCIT [2024] 169 taxmann.com 290 (Mumbai-Trib.); Urmin Marketing (P.) Ltd v DCIT [2020] 122 taxmann.com 40 (Ahmedabad-Trib.), 21 October 2020; United Breweries Ltd v Addl. CIT [2016] 76 taxmann.com 103 (Bangalore-Trib.).
This note is general commentary on the law as at 21 September 2026 and is not advice on any matter. The position in a particular case depends on its own facts.