2009 (9) TMI 18 - HC - Income Tax

Depreciation on Bombay Stock Exchange Membership Card ( BSE card ) - acquired either by nomination or directly - intangible asset - section 32 - Held that - the expression licences in Section 32(1)(ii) of the Act has to be construed restrictively so as to apply to licences relating to acquisition / user of intellectual property rights, because, firstly, plain reading of Section 32 of the Act makes it clear that the depreciation is restricted to the categories of intangible assets specifically enumerated therein and not to all intangible assets - expression licences in section 32(1)(ii) of the Act relates to the class of intellectual property rights - expression licences is used in section 32(1)(ii) of the Act to apply to licences relatable to intellectual properties only and not to all licences - under section 32 of the Act depreciation is not allowed on all capital assets but is allowable on capital assets which fall in any of the categories enumerated in the Section.- Depreciation cannot be allowed on the BSE card.

Summary

Issues Involved:
1. Whether depreciation under Section 32 of the Income Tax Act, 1961 is allowable on the stock exchange membership card acquired by an assessee on or after 1/4/1998?

Issue-wise Detailed Analysis:

1. The Allowability of Depreciation on BSE Card:
The primary question raised in all the appeals is whether depreciation under Section 32 of the Income Tax Act, 1961 is allowable on the stock exchange membership card (BSE card) acquired by an assessee on or after 1/4/1998.

Arguments by Revenue:
The revenue contended that the BSE card is neither an asset nor a capital asset subject to wear and tear, and hence, depreciation is not allowable. They relied on the decision of the Apex Court in C.I.T. v. Alps Theatre, arguing that the BSE card is a personal privilege and not a business or commercial right of similar nature as defined in Section 32 of the Act. They emphasized that the expression 'business or commercial rights of similar nature' should be construed by applying the principles of ejusdem generis, meaning it should relate to intellectual property rights like know-how, patents, copyrights, trademarks, and franchises.

Arguments by Assessees:
The assessees argued that the amendment to Section 32 with effect from 1/4/1998 expanded the scope of depreciation to include intangible assets such as know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature. They contended that the BSE card is a license that permits trading in shares, thus falling within the scope of Section 32(1)(ii). They also argued that the BSE card is a business or commercial right, and since it is acquired at a cost, it should qualify for depreciation.

Court's Analysis:
The court examined the relevant provisions of Section 32 before and after the amendment. It noted that depreciation is restricted to specific categories of tangible and intangible assets enumerated in the section. The court emphasized that the expression 'licenses' in Section 32(1)(ii) should be construed restrictively to apply to licenses relating to intellectual property rights. The court applied the principle of noscitur a sociis, which means that words take their meaning from associated words, to conclude that the expression 'licenses' relates to intellectual property rights.

Conclusion:
The court held that the BSE card does not fall within the categories specified in Section 32(1)(ii) of the Act. It is neither a license related to intellectual property rights nor a business or commercial right of similar nature. Therefore, depreciation cannot be allowed on the BSE card. The substantial question of law was answered in favor of the revenue and against the assessees, and all the appeals were disposed of accordingly with no order as to costs.