2009 (9) TMI 18 - HC - Income Tax

BSE membership card not an intangible asset for depreciation under section 32(1)(ii); licences limited to IP-related rights

HC held that a BSE membership card is not an intangible asset eligible for depreciation under section 32(1)(ii) because the term 'licences' must be read ... Allowability of depreciation under section 32 on intangible assets - construction of 'licences' and 'any other business or commercial rights of similar nature' in section 32(1)(ii) - noscitur a sociis and ejusdem generis as rules of statutory interpretation - distinction between licences relating to intellectual property and other licences - capital asset classification of stock-exchange membership under section 47(xi) and its relevance to depreciationAllowability of depreciation under section 32 on intangible assets - construction of 'licences' and 'any other business or commercial rights of similar nature' in section 32(1)(ii) - noscitur a sociis and ejusdem generis as rules of statutory interpretation - Depreciation is not allowable under section 32 on Bombay Stock Exchange membership cards (BSE cards) acquired on or after 1/4/1998. - HELD THAT: - Section 32 as amended with effect from 1/4/1998 permits depreciation only on specific categories of tangible and intangible assets enumerated therein. The intangible items listed in section 32(1)(ii) (know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature) form a class largely relatable to intellectual property rights. Applying the principles of noscitur a sociis and ejusdem generis, the expression 'licences' must be construed restrictively to licences relating to acquisition/use of intellectual property rights, and the phrase 'business or commercial rights of similar nature' likewise denotes rights akin to those intellectual property assets. Construing 'licences' to include all types of licences (including regulatory or personal licences) would improperly enlarge the limited categories eligible for depreciation. The fact that membership of a recognised stock exchange is treated as a capital asset under section 47(xi) for capital gains does not by itself make it an asset eligible for depreciation under section 32, which is confined to the enumerated categories. Since a BSE card is not a licence or business right relating to intellectual property, it falls outside section 32(1)(ii) and depreciation is not allowable on it. [Paras 31, 32, 33, 36, 37]The Tribunal's allowance of depreciation on BSE cards acquired on or after 1/4/1998 was not justified; the appeals are allowed in favour of the revenue.Final Conclusion: The substantial question of law is answered in the negative: depreciation under section 32 is not allowable on stock-exchange membership cards (BSE cards) acquired on or after 1/4/1998; the appeals by the Revenue succeed and are disposed of in its favour, with no order as to costs. Issues Involved:1. Whether depreciation under Section 32 of the Income Tax Act, 1961 is allowable on the stock exchange membership card acquired by an assessee on or after 1/4/1998Rs.Issue-wise Detailed Analysis:1. The Allowability of Depreciation on BSE Card:The primary question raised in all the appeals is whether depreciation under Section 32 of the Income Tax Act, 1961 is allowable on the stock exchange membership card (BSE card) acquired by an assessee on or after 1/4/1998.Arguments by Revenue:The revenue contended that the BSE card is neither an asset nor a capital asset subject to wear and tear, and hence, depreciation is not allowable. They relied on the decision of the Apex Court in C.I.T. v. Alps Theatre, arguing that the BSE card is a personal privilege and not a business or commercial right of similar nature as defined in Section 32 of the Act. They emphasized that the expression 'business or commercial rights of similar nature' should be construed by applying the principles of ejusdem generis, meaning it should relate to intellectual property rights like know-how, patents, copyrights, trademarks, and franchises.Arguments by Assessees:The assessees argued that the amendment to Section 32 with effect from 1/4/1998 expanded the scope of depreciation to include intangible assets such as know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature. They contended that the BSE card is a license that permits trading in shares, thus falling within the scope of Section 32(1)(ii). They also argued that the BSE card is a business or commercial right, and since it is acquired at a cost, it should qualify for depreciation.Court's Analysis:The court examined the relevant provisions of Section 32 before and after the amendment. It noted that depreciation is restricted to specific categories of tangible and intangible assets enumerated in the section. The court emphasized that the expression 'licenses' in Section 32(1)(ii) should be construed restrictively to apply to licenses relating to intellectual property rights. The court applied the principle of noscitur a sociis, which means that words take their meaning from associated words, to conclude that the expression 'licenses' relates to intellectual property rights.Conclusion:The court held that the BSE card does not fall within the categories specified in Section 32(1)(ii) of the Act. It is neither a license related to intellectual property rights nor a business or commercial right of similar nature. Therefore, depreciation cannot be allowed on the BSE card. The substantial question of law was answered in favor of the revenue and against the assessees, and all the appeals were disposed of accordingly with no order as to costs.