Assets - Definition / Legal Terminology - Income Tax

Explanation 3.-For the purposes of sub-section 1 of section 32 of the Income tax Act 1961, Assets shall mean- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, not being goodwill of a business or profession As per section 102(2) of the Income tax Act 1961. For the purpose of Chapter X-A(General anti-avoidance rule) , unless the context otherwise requires,- Asset includes - property, or right, of any kind; Pr. CIT Vs M/S. Kuantum Papers ltd.- [ 2023 (9) TMI 616 - DELHI HIGH COURT] .........A careful perusal of clause (b) of Explanation 3 of sub-section 1 of section 32 of the Income tax Act 1961, 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 deprecation under Section 32(1)(ii) of the Act. The Hon ble Madras High Court in L T Infrastructure Development Projects Limited- [ 2023 (2) TMI 32 - MADRAS HIGH COURT] , inter-alia, following the decision of the Hon ble Bombay High Court in North Karnataka Expressway Ltd (supra) held that the toll bridge and the toll roads are not tangible assets of the taxpayer in terms of Explanation-3(a) to section 32(1)(ii) of the Act . Further, the Hon ble Madras High Court also rejected the plea that the taxpayer acquired intangible assets under the Concessionaire Agreement within the meaning of Explanation -3(b) to section 32(1)(ii) of the Act. The relevant findings of the Hon ble Madras High Court are reproduced as follows: 120. We are of the view that the second part of the 1 substantial question of law as to whether the respective assessees have any Intangible Assets under the respective Concessionaire Agreements as per the definition in Explanation 3(b) to Section 32 of the Income Tax Act, 1961 also requires to be answered against the assessee. The definition of the above expression has already been extracted above. 121. The expression used in the last part of the definition of Intangible Asset is licenses, franchises or any other business or commercial rights of similar nature . 122. The meaning of the above expression licenses and the phrase any other business or commercial rights of similar nature has to be inferred from the meaning of the words along with which they have been used. Their meaning has to be inferred from the meaning of the expression know-how , patents , copy rights , trademark , franchises by applying the principle of nocitur a sociis. 123. In Maxwell's Interpretation of Statutes (12th Edition) at page 289, it has been stated as follows:- Where two or more words which are susceptible of analogous meaning are coupled together, nocitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general. 124. As per the above principle the words must take colour from words with which they are associated. 125. In Skinner Co. v. Shew and Co. (1893) 1 Ch 413 (D), it was observed: The rule of ejusdem generis i s intended to be applied where general words have been used following particular and specific words of the same nature on the established rule of construction that the Legislature presumed to use the general words in a restricted sense, that is to say, as belonging to the same genus as the particular and specific words. Such a restricted meaning has to be given to words of general import only where the context of the whole scheme of legislation requires it. But where the context and the object and mischief of the enactment do not require such restricted meaning to be attached to words of general import, it becomes the duty of the Courts to give these words their plain and ordinary meaning. In our opinion, in the context of the object and the-mischief of the enactment there is no room for the application of the rule of ejusdem generis. Hence it follows that the vacancy as declared by the order impugned in this case, even though it may not be covered by the specific words used, is certainly covered by the legal import of the words or otherwise . 126. Therefore, it cannot be construed that the respective assessees had acquired intangible assets within the meaning of the definition in Explanation 3(b) to section 32 of the Income Tax Act, 1961 under the respective concessionaire agreement for the purpose of claiming depreciation. 127. By no stretch of imagination can it be construed that the respective assessees have been conferred upon any intangible assets under the concessionaire agreements for the purpose of the aforesaid provision. In Areva T D India Ltd. - 2012 (4) TMI 79 - DELHI HIGH COURT ................... applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression business or commercial rights of similar nature specified in Section 32(1)(ii) of the Act, it is seen that such rights need not answer the description of knowhow, patents, trademarks, licenses or franchises but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(1)(ii) of the Act preceding the term business or commercial rights of similar nature , it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words business or commercial rights of similar nature have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of business or commercial rights cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of business or commercial rights can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in case of the assessee, intangible assets, viz., business claims; business information; business records; contracts; employees; and knowhow, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption.