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

Commissioner of Income Tax Versus M/s. Techno Shares & Stocks Limited and others

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 ... Depreciation on Bombay Stock Exchange Membership Card ('BSE card') - acquired either by nomination or directly - intangible asset - section 32 - whether the BSE card acquired by the assessees on or after 1/4/1998 is covered under the expression 'licences' enumerated under section 32(1)(ii) of the Act - Held that - Applying the ratio laid down by the Apex Court in Leelabai V/s. Oriental Insurance Co. Limited [2008 (8) TMI 887 - SUPREME COURT] cases to the facts of the present case, in our opinion, the expression 'licences' in Section 32(1)(ii) of the Act has to be construed restrictively so as to apply to licences relating to acquisition / user of intellectual property rights, because, firstly, plain reading of Section 32 of the Act makes it clear that the depreciation is restricted to the categories of intangible assets specifically enumerated therein and not to all intangible assets. In such a case, construing the expression 'licences' widely so as to cover all types of intangible assets acquired under a licence would amount to enlarging the scope of depreciation. Secondly, the categories of intangible assets specifically enumerated in Section 32(1)(ii) of the Act (barring the expression 'licences') are all relatable to intellectual properties. Since the common thread in almost all the expressions used in section 32(1)(ii) of the Act relate to the class of intellectual property rights, it is reasonable to construe that the expression 'licences' in section 32(1)(ii) of the Act relates to the class of intellectual property rights. Thirdly, the rule of Noscitur a Sociis would apply to the facts of the present case, because, the expression 'licences' in section 32(1))(ii) of the Act is preceded and succeeded by the expressions which are all relatable to intellectual properties and therefore, the expression 'licences' in section 32(1)(ii) of the Act would take colour from those expressions and accordingly apply only to licences relating to intellectual properties. The expression 'licences' in section 32(1)(ii) of the Act widely so as to apply to all types of licences relating to intangible assets would defeat the object of the Act, because, depreciation under section 32 of the Act is intended to a limited category of intangible assets and not to a wider category of intangible assets. Therefore, it is reasonable to construe that the expression 'licences' is used in section 32(1)(ii) of the Act to apply to licences relatable to intellectual properties only and not to all licences. Accordingly, the alternative argument of the assessees that the BSE card is a business or commercial right and therefore entitled to depreciation is liable to be rejected, because, what section 32(1)(ii) of the Act contemplates is the business or commercial rights relating to intellectual properties and not all categories of business or commercial rights. Since the BSE card is not a business or commercial right relating to intellectual property rights depreciation cannot be allowed on the BSE card. The argument advanced by the counsel for the assessees that since the BSE card is a capital asset and is liable for capital gains tax when sold at a profit, depreciation must be allowed on the BSE card acquired after 1/4/1998 is also without any merit, because, under section 32 of the Act depreciation is not allowed on all capital assets but is allowable on capital assets which fall in any of the categories enumerated in the Section. As we have held that the BSE card does not fall in any of the categories specified in section 32(1)(ii) of the Act, depreciation cannot be allowed on the BSE card. Thus, we hold that the Tribunal was not justified in allowing depreciation on the BSE card acquired by the assessees - Accordingly, the substantial question of law framed is answered in the negative i.e. in favour of the revenue and against the assessees. 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.