2017 (12) TMI 1585 - AT - Income Tax

Depreciation on intangible assets of business intellectual property rights - assessee engaged in trading activity - Held that - The company is admittedly using this brand for the past year also and the depreciation for the earlier assessment year has already been allowed to the assessee on similar facts. These facts have not been disputed by the ld. Departmental Representative or by the Assessing Officer. Further, the Ld. CIT (A) has also mentioned that no remedial action has been taken by the Ld. Assessing Officer for assessment year 2009-10, in which the original depreciation was allowed by the Ld. Assessing Officer. The Ld. CIT(A) allowed the claim of the assessee holding that assessee is engaged in the trading activity of such products which have definitely taken place during the year under consideration, as well as in the immediately preceding previous year. The business intellectual property rights were in hand with the appellant for manufacturing the products and also the appellant has used it for the trading purposes under the seal of its own by using the brand name of Monsanto. No infirmity in the order of the Ld. CIT (A) and none has been pointed out by the Ld. departmental representative. It could not be controverted by the revenue that the assessee has used these brands for the purpose of its trading business. Furthermore, no provision could be shown before us that if the assets have been used for the purpose of the trading business depreciation on intellectual property cannot be allowed. In view of this we uphold the findings of the Ld. First appellate Authority in deleting the depreciation disallowance made by the Ld. Assessing Officer on business intellectual property rights amounting to ₹ 34437935/-. In the result, the solitary ground raised by the revenue is dismissed.

Summary

Issues:
Whether depreciation on intangible assets of business intellectual property rights is allowable to the assessee or not.

Analysis:
The appeal was filed by the Deputy Commissioner of Income Tax against the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of depreciation on business intellectual property rights. The main issue was whether the depreciation on intangible assets of business intellectual property rights is allowable to the assessee. The assessee, a company engaged in manufacturing and trading in agrochemicals, claimed depreciation on intellectual property rights acquired from another company. The Assessing Officer disallowed the claim stating that the assets were not used for commercial purposes. The CIT (A) allowed the claim, leading to the revenue's appeal.

During the proceedings, the Departmental Representative argued that if assets are not used for business purposes, depreciation is not allowable under Section 32(1) of the Income Tax Act. On the other hand, the authorized representative contended that the assets were used for the business, satisfying the conditions under Section 32(1). The intangible assets acquired included patents, copyrights, trademarks, etc., and depreciation was claimed at 30%. The company used these assets for trading agrochemicals acquired from another company, and the trademarks were utilized in the Indian market through dealers and retailers.

The Tribunal considered the arguments and found that the appellant had claimed depreciation on intellectual property rights acquired from another company. The company had been using these assets for trading purposes, and depreciation had been allowed in the previous assessment year. The CIT (A) held that as the assets were used for trading activities, depreciation was allowable under Section 32(1) of the Act. The Tribunal upheld the CIT (A)'s decision, stating that the assets were used for the trading business and that the appellant was entitled to depreciation. The revenue's appeal was dismissed, and the findings of the CIT (A) were upheld.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the depreciation claim on business intellectual property rights. The decision was based on the assets being used for trading activities, satisfying the conditions under Section 32(1) of the Income Tax Act. The revenue's appeal was dismissed, and the CIT (A)'s order was upheld.