Background:
The CBDT vide Section 20 of the Finance Act, 2021 dated March 28, 2021 inserted proviso to Section 50 of the Income-tax Act, 1961 (“the IT Act”) w.e.f. April 1, 2021 which reads as under:
“Provided that in a case where goodwill of a business or profession forms part of a block of asset for the assessment year beginning on the 1st day of April, 2020 and depreciation thereon has been obtained by the assessee under the Act, the written down value of that block of asset and short term capital gain, if any, shall be determined in such manner as may be prescribed.”
Following notification has been issued to prescribe manner for determining short-term capital gains and written down value as stated under above-mentioned proviso:
Notification:
The CBDT vide Notification No. 77/2021 dated July 7, 2021 has issued ‘the Income tax Amendment (19th Amendment), Rules, 2021’ to further amend the Income-tax Rules, 1962 (“the IT Rules”) in a following manner:
- Inserted new Rule 8AC in the IT Rules for computation of short-term capital gains and written down value under Section 50 of the IT Act where depreciation on goodwill has been obtained.
New Rule 8AC of the IT Rules reads as below:
“8AC. Computation of short term capital gains and written down value under section 50 where depreciation on goodwill has been obtained.
(1) For the purposes of proviso to section 50, the written down value of the block of the asset and short term capital gains, if any, for the previous year relevant to the assessment year commencing on the 1st day of April, 2021 shall be determined in accordance with this rule.
(2) Where the goodwill of the business or profession was the only asset or one of the assets in the block of asset “intangible” for which depreciation was obtained by the assessee in the assessment year beginning on the 1st day of April, 2020, the written down value of this block of asset for the previous year relevant to the assessment year commencing on the 1st day of April, 2021 shall be determined in accordance with the provisions of item (ii) of sub-clause (c) of clause (6) of section 43.
(3) Where the reduction under sub-item (B) of item (ii) of sub-clause (c) of clause (6) of section 43, for the previous year relevant to the assessment year commencing on the 1st day of April, 2021, exceeds the aggregate of the following amounts, namely:-
(i) the written down value of the block of assets at the beginning of the previous year relevant to the assessment year commencing on the 1st day of April, 2021 without giving effect to reduction under sub-item (B) of item (ii) of sub-clause (c) of clause (6) of section 43; and
(ii) the actual cost of any asset falling within the block of assets “intangible”, other than goodwill, acquired during the previous year relevant to the assessment year commencing on the 1st day of April, 2021,
such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets.
(4) Without prejudice to the provisions of sub-rule (3) and section 55, where the goodwill of the business or profession was the only asset in the block of asset “intangible” for which depreciation was obtained by the assessee in the assessment year beginning on the 1st day of April, 2020, and the block of asset ceases to exist on account of there being no further asset acquired during the previous year relevant to the assessment year commencing on the 1st day of April, 2021 in that block, there will not be any capital gains or loss on account of the block of asset having ceased to exist.
(5) The capital gains or loss on transfer of goodwill, during the previous years relevant to the assessment year 2021-22 or subsequent assessment years, shall be determined in accordance with the provisions of section 48, section 49 and clause (a) of sub-section (2) of section 55.”
The Notification can be accessed at: https://egazette.nic.in/WriteReadData/2021/228152.pdf