Transferable liquor licence as an intangible business right qualifies for depreciation on written down value

A transferable FL-3 abkari licence issued under the Foreign Liquor Rules can qualify as an intangible asset or business right under section 32(1)(ii) of the Income-tax Act when it is used for carrying on liquor trade and is capable of long-term business exploitation. Its transferability and annual renewal support treatment as a business or commercial right of similar nature, so depreciation cannot be denied merely because actual erosion in value is not separately shown. Depreciation on such an asset, however, must be computed on the written down value basis and not on the original purchase price or actual cost.

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Issues: Whether the FL-3 abkari licence was an intangible asset or business right entitled to depreciation under section 32(1)(ii) of the Income-tax Act, and if so, whether depreciation was allowable on the written down value rather than the actual cost.

Analysis: The licence was issued under the Foreign Liquor Rules and was transferable with the previous sanction of the Excise Commissioner. Its transferability, annual renewal, and use for carrying on liquor trade showed that it was a business asset capable of long-term exploitation. On that basis, it fell within the expression "licences, franchises or any other business or commercial rights of similar nature" under section 32(1)(ii). The claim could not be denied on the ground that actual erosion in value was not shown, since depreciation is an allowance under the statutory scheme. However, depreciation under the Act is to be computed on written down value and not on the original purchase price.

Conclusion: The assessee was entitled to depreciation on the FL-3 licence as an intangible asset, but only on the written down value and not on the actual cost.

Ratio Decidendi: A transferable licence acquired for business use can constitute an intangible asset or business right under section 32(1)(ii) of the Income-tax Act, and depreciation on such an asset must be allowed on the written down value basis.

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