Membership card deemed intangible licence under s.32(1)(ii), allowing depreciation of its cost as business expense

SC held that a stock-exchange membership card is an intangible licence-like commercial right falling under s.32(1)(ii) of the 1961 Act, so depreciation on its cost is allowable. The Court found the membership right (including nomination) vests in the Exchange only upon member's default or demise, otherwise the member retains trading and nomination rights. By virtue of the statutory explanation, the membership right has economic value and qualifies as a licence or similar business right, and the Tribunal was correct in permitting depreciation.

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Issues Involved:
1. Eligibility of BSE Membership Card as an intangible asset for depreciation under Section 32(1)(ii) of the Income Tax Act, 1961.
2. Nature and ownership of the BSE Membership Card.
3. Interpretation of relevant rules and bye-laws of the Bombay Stock Exchange (BSE).

Issue-wise Detailed Analysis:

1. Eligibility of BSE Membership Card for Depreciation under Section 32(1)(ii):
The primary question was whether the BSE Membership Card qualifies as an intangible asset eligible for depreciation under Section 32(1)(ii) of the Income Tax Act, 1961. The assessee argued that the card is a "licence" or "business or commercial right of similar nature" and thus depreciable. The Assessing Officer (A.O.) and the Commissioner of Income Tax (Appeals) [CIT(A)] rejected this claim, stating that the membership card is a personal permission, non-transferable, and does not exhibit wear and tear or obsolescence. The Tribunal, however, held that the membership card is a capital asset that grants the right to trade on the BSE floor, thus qualifying as an intangible asset under Section 32(1)(ii). The High Court reversed this decision, concluding that the card is a personal privilege, not a "licence" or "business or commercial right" as defined in the Act.

2. Nature and Ownership of the BSE Membership Card:
The Supreme Court examined whether the BSE Membership Card constitutes a "business or commercial right of similar nature" under Section 32(1)(ii). The Court analyzed BSE rules, particularly Rules 5 to 10, which describe the membership as a personal privilege, non-alienable, and subject to forfeiture upon default or demise. Despite these restrictions, the Court found that the membership card grants significant commercial rights, including the right to trade on the BSE floor, which has economic and monetary value. This right is akin to a "licence" enabling the holder to access and participate in the market, thus qualifying as an intangible asset under Section 32(1)(ii).

3. Interpretation of Relevant Rules and Bye-laws of BSE:
The Court scrutinized various BSE rules and bye-laws to determine the nature of the membership card. Rule 5 describes the membership as a personal permission, Rule 6 prohibits its alienation, and Rule 7 grants a non-transferable right of nomination. Rules 9 and 10 state that upon default or demise, the membership vests in the Exchange. Rule 16 outlines the allocation of proceeds from the sale of a forfeited membership. The Court concluded that these rules indicate that the membership card, while subject to forfeiture, provides significant commercial rights to the non-defaulting member, thus constituting a "business or commercial right" under Section 32(1)(ii).

Conclusion:
The Supreme Court held that the BSE Membership Card is a "business or commercial right" eligible for depreciation under Section 32(1)(ii) of the Income Tax Act, 1961. The Court emphasized that this judgment is confined to the specific rules and bye-laws of BSE as they stood during the relevant assessment years. The judgment clarifies that not every business or commercial right would constitute a "licence" or "franchise" under Section 32(1)(ii). The impugned judgment of the Bombay High Court was set aside, and the appeal by the assessee was allowed with no order as to costs.

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