2007 (7) TMI 428 - AT - Income Tax

Summary

Issues:
1. Whether the expenditure incurred towards acquisition of membership of Bombay Stock Exchange is capital or revenue expenditure.
2. Whether the membership card acquired from the Stock Exchange is depreciable under section 32 of the Income-tax Act.

Issue 1:
The Appellate Tribunal, ITAT Mumbai, dealt with cross-appeals filed by the assessee and the Department against the CIT(A)'s order for the assessment year 1994-95. The primary issue was the nature of expenditure of Rs. 56 lakhs paid as entrance and admission fees to the Stock Exchange. The assessee contended that it should be treated as revenue expenditure, citing various legal precedents. However, the Tribunal agreed with the Assessing Officer and CIT(A) that the expenditure was capital in nature. The Tribunal held that the membership card acquired was a capital asset essential for conducting business, and thus, the expenditure was considered capital expenditure, dismissing the assessee's appeal.

Issue 2:
Regarding the Department's appeal on the depreciable nature of the membership card under section 32 of the Income-tax Act, the Tribunal analyzed the provisions of section 32, which allow depreciation for owned assets used for business purposes. The Tribunal emphasized that depreciation is meant to compensate for the diminishing value of assets over time due to wear, obsolescence, or other factors. It was established that the membership card did not qualify as a depreciable asset as it lacked a fixed life and did not exhibit characteristics of depreciation. The Tribunal disagreed with the contention that the membership card was an intangible asset eligible for depreciation under section 32(1)(ii), as this provision was not applicable for the relevant assessment year. Therefore, the Department's appeal was allowed, overturning the CIT(A)'s decision to allow depreciation on the membership card.

In conclusion, the Appellate Tribunal, ITAT Mumbai, addressed the nature of expenditure related to acquiring membership of the Stock Exchange and the depreciable status of the membership card. The Tribunal ruled that the expenditure was capital in nature and that the membership card did not qualify for depreciation under section 32 of the Income-tax Act for the assessment year in question.