2018 (8) TMI 346 - HC - Income Tax

Court upholds depreciation on intellectual property used for business activities, dismissing Revenue's appeal.

The High Court dismissed the appeal by the Revenue challenging the disallowance of depreciation on intellectual property rights. The Court upheld the ... Depreciation on intellectual property rights acquired and purchased by the assessee from Monsanto India Limited - “put to use” - Held that:- The intellectual property rights purchased by the assessee included trademarks ‘Lasso’, ‘Machete’ and ‘Fast Mix’, rights to reference and use of registration data in support of product registration, benefits of business contracts, business information, business intellectual property right, trademarks and rights against third parties. It is an accepted and admitted position that the products sold by the respondent-assessee had borne the trademarks ‘Lasso’, ‘Machete’ and ‘Fast Mix’. Substantial advertisement and sales promotion expenditure was incurred. Use of intellectual property rights for sales and marketing was not questioned and commented upon in the assessment order. Depreciation was disallowed as the asset had not been put to use for manufacturing activities. This cannot be a ground and reason to hold that the assessee had not “put to use” the intellectual property rights assets in the year in question. Mere purchase of the products, from third party or the fact that assessee was not engaged in manufacturing activity, would not make any difference. Issues:1. Delay in filing the appeal2. Claim for depreciation on intellectual property rightsIssue 1: Delay in filing the appealThe High Court noted a delay of 36 days in filing the appeal. However, before considering the application seeking condonation of delay, the Court proceeded to examine the appeal on merits. The appeal by the Revenue pertained to the Assessment Year 2010-11 and challenged the order passed by the Income Tax Appellate Tribunal.Issue 2: Claim for depreciation on intellectual property rightsThe primary question of law raised in the case was related to the claim for depreciation on intellectual property rights acquired and purchased by the assessee from another entity. The assessee had added a specific amount on account of acquiring intellectual property rights and claimed depreciation on the same block of assets. The Assessing Officer disallowed the claim for depreciation, stating that the assets were not used for manufacturing activities.The Commissioner of Income Tax (Appeals) later deleted the disallowance and allowed depreciation, highlighting that the intellectual property rights were utilized in the assessee's business activities, including manufacturing job work and trading in agrochemical products. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) by emphasizing that the assets were used for trading purposes, and there was no requirement for actual manufacturing activities for claiming depreciation on intellectual property rights.The Court further analyzed the facts, emphasizing that the purchase and nature of the intellectual property rights were not disputed. The Court observed that the intellectual property rights were indeed used in the business activities of the assessee, leading to an increase in sales and promotional activities. The Court disagreed with the disallowance of depreciation solely based on the absence of manufacturing activities, highlighting that the use of assets for business purposes sufficed for claiming depreciation.Ultimately, the Court decided not to issue notice on the application for condonation of delay and dismissed the appeal, concluding that the intellectual property rights were utilized for business activities, warranting the allowance of depreciation.