2023 (9) TMI 616 - HC - Income Tax

Claim of Depreciation on the brands used by assessee - intangible assets or not? - Whether the claim for depreciation on the brands used by assessee, concerning its paper manufacturing business, were intangible assets within the meaning of Section 32(1)(ii) and hence, amenable to the claim of depreciation? - HELD THAT - A careful perusal of Section 32(1)(ii) of the Act, read with clause (b) of Explanation 3 would show that trademarks are covered under the said provision. Brand names are a specie of the trademark. This is evident upon reading the definition of trademark and mark provided in the allied statute i.e., Trademarks Act, 1999 in short, TM Act . A perusal of the definition would show that the trademark means a mark which is capable of being represented graphically, and is capable of distinguishing the goods or services of one person from those of others, and may include the shape of goods, their packaging, and combination of colours. The expression mark which is defined in Section 2(m) of the TM Act, includes, among others, a brand - a conjoint reading of these Sections would clearly point in the direction that the expression trademark under Section 32(1)(ii) and in the appended Explanation i.e., Explanation 3(b) would clearly include brand names. A careful perusal of clause (b) of Explanation 3 extracted hereinabove shows that the definition of assets, as explained in the Explanation, includes commercial rights of similar nature. Brand names certainly invest in the owner commercial rights, and therefore, will fall within the scope of intangible assets, which are amenable to depreciation u/s 32(1)(ii) - No substantial question of law.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Claim of depreciation on the chemical recovery plant.
3. Claim of depreciation on brand names as intangible assets under Section 32(1)(ii) of the Income Tax Act, 1961.

Summary:

Condonation of Delay:

The appellant/revenue sought condonation of a 50-day delay in filing the appeal. The respondent/assessee did not oppose this request. Consequently, the delay was condoned, and the application was disposed of.

Depreciation on Chemical Recovery Plant:

The first issue was whether the respondent/assessee rightly claimed depreciation amounting to Rs. 7,44,36,019/- for the chemical recovery plant. The Assessing Officer (AO) initially disallowed this claim, stating the plant was not fully operational. The respondent/assessee provided additional documents during the appeal before the Commissioner of Income Tax-Appeals (CIT(A)), proving the plant commenced production on 21.03.2008. The CIT(A) called for a remand report from the AO, who verified the documents and found no adverse comments. The CIT(A) then allowed the depreciation claim, noting the plant generated steam and caustic soda and was fully operational from the specified date.

Depreciation on Brand Names:

The second issue was whether the respondent/assessee could claim depreciation on brand names as intangible assets under Section 32(1)(ii) of the Income Tax Act, 1961. The CIT(A) ruled in favor of the respondent/assessee, treating brand names as intangible assets. The Tribunal upheld this view, referencing the Supreme Court's judgment in Commissioner of Income-Tax vs. Smifs Securities Ltd., which recognized goodwill as an asset under Section 32(1). The court further clarified that trademarks, including brand names, fall under the definition of intangible assets and are eligible for depreciation.

Court's Conclusion:

The court found both the CIT(A) and the Tribunal's decisions correct. It dismissed the appellant/revenue's argument that the additional evidence should not have been admitted by the CIT(A), noting that a remand report was called and provided an opportunity for the AO to respond. Regarding the depreciation on brand names, the court affirmed that brand names are a type of trademark and thus qualify as intangible assets under Section 32(1)(ii). Consequently, no substantial question of law arose, and the appeal was closed.