2009 (7) TMI 1099 - AT - Income Tax

Summary

Issues Involved:
1. Whether the payment of Rs. 50 lakhs by the assessee to M/s. M. M. Rubber Co. Ltd. constitutes an intangible asset eligible for depreciation u/s 32 of the Income-tax Act, 1961.

Summary:

Issue 1: Nature of Payment and Eligibility for Depreciation u/s 32

The assessee, engaged in publishing, renewed its leave and licence agreement with M/s. M. M. Rubber Co. Ltd. for its Chennai branch office, paying a lump sum of Rs. 50 lakhs and a monthly rent of Rs. 47,500. The assessee claimed this lump sum as an "intangible asset" and sought depreciation of Rs. 6,25,000. The Assessing Officer (AO) rejected this claim, stating that the payment was merely a rent advance/lease deposit and did not constitute an intangible asset as defined u/s 32.

The Commissioner of Income-tax (Appeals) (CIT(A)) accepted the assessee's contention, interpreting the payment as an intangible asset eligible for depreciation, citing the Finance (No. 2) Act, 1998, which broadened the scope of depreciation to include intangible assets. The CIT(A) viewed the agreement as a licence, thus falling within the definition of intangible assets u/s 32.

The Revenue appealed, arguing that the licence under a lease and licence agreement does not transfer ownership and thus does not qualify for depreciation u/s 32. They contended that the payment was a refundable rent advance, not an acquisition of an intangible asset.

The Tribunal examined the provisions of section 32(1)(ii) and Explanation 3, noting that intangible assets eligible for depreciation include know-how, patents, copyrights, trade marks, licences, franchises, or similar business/commercial rights. Applying the principle of ejusdem generis, the Tribunal concluded that the term "licences" in this context refers to rights similar to know-how, patents, etc., and not to tenancy rights. The Tribunal found that the payment of Rs. 50 lakhs was a refundable deposit for acquiring a leasehold property, not an intangible asset.

The Tribunal held that the assessee did not acquire any asset, tangible or intangible, and thus, the payment did not qualify for depreciation u/s 32(1)(ii). The Tribunal restored the AO's order, disallowing the depreciation claim and setting aside the CIT(A)'s order.

In conclusion, the Tribunal decided the appeal in favor of the Revenue, affirming that the payment of Rs. 50 lakhs was a lease deposit and not an intangible asset eligible for depreciation.