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TMI Blog2006 (3) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) has confirmed the Assessing Officer's finding. The ld. CIT(A) has referred to the Supreme Court decision in the case of Sitalpur Sugar Works Ltd. v. CIT [1963] 49 ITR 160, in support of his view that depreciation under section 32, as applicable up to the assessment year 1998-99, is admissible only on tangible assets. 3. The ld. counsel appearing for the assessee, Shri Niraj Sheth, contended that the BSE membership card is a capital asset and it constitutes an apparatus for the assessee for carrying on the business activity and that depreciation is clearly allowable on the cost of the BSE membership card. The ld. counsel pointed out that the issue is now covered by the ITAT, Mumbai Bench decision in the case of Techno Shares Stocks Ltd. vide order dated 4-1-2006 in IT Appeal Nos. 778, 779 and 1951(Mum.) of 2004. A copy of the order has been filed. The ld. counsel was fair enough to point out that this order has been passed taking into account the amended provisions of section 32, which took effect from the assessment year 1999-2000, whereas the assessment year under appeal is 1998-99 and therefore the old provisions will be applicable. It is contended that even with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee. In the case of Techno Shares Stocks Ltd. this question arose before the ITAT, Mumbai Bench in respect of the assessment years 1999-2000 to 2001-02. The issue was considered and decided by the Tribunal at Paras 2 to 4 of the order, which are reproduced below: "During the course of hearing, the ld. counsel for the assessee has invited our attention to the provisions of section 32 of the Income-tax Act with the submission that the depreciation is allowable on know-how, patent copyrights, trade marks license, franchise or any other business or commercial rights of similar nature, being intangible assets acquired on or after 1-4-1998. Since assessee has acquired right to trade on the floor of the stock exchange through Bombay Stock Exchange card, it is an intangible asset and the assessee is entitled for depreciation under section 32 of the Income-tax Act. The ld. counsel for the assessee, however, invited our attention to the following orders of the Tribunal and the judgment of different High Courts in which it has been held that the acquisition of card of BSE is a capital asset: (i) Upendra M. Dalal v. Dy. CIT - ITA No. 6202/Mum./99. (ii) Ravindrakuma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock Exchange. It also recorded a finding that it is an intangible asset within the meaning of the amended section 32. In our view, this order was rendered in the context of the amended provisions of section 32 and therefore cannot be applied to the assessment years prior to 1999-2000 as the provisions of section 32 have undergone material transformation. 6. In the case of Scientific Engg. House (P.) Ltd., the Supreme Court was concerned with the question as to whether documentation service comprised of drawings, designs, plans and processing data etc. can be treated as book and constitute 'plant' for the purposes of section 32. Relevant part of the ratio of this case may be reproduced below from the headnote: " Held , accepting the claim of the appellant, (1) that reading clauses 3 and 6(a) together, it was clear that rendition of documentation service was really the main service to be rendered by the foreign collaborator; (ii) that the various documents such as drawings, designs, charts, plans, processing data and other literature included in documentation service, the supply whereof was undertaken by the foreign collaborator, more or less formed the tools by using which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a depreciable asset." In the above case, the Hon'ble Supreme Court laid down certain guiding principles as to what constitutes 'plant'. It has been observed by the Supreme Court that a 'plant' was not necessarily confined to an apparatus which was used for mechanical operations, but in order to qualify as 'plant', the particular article had to have some degree of durability. From this observation of the Supreme Court, it may be seen that before any article can beheld to be covered in the category of 'plant', it must fulfil the test of tangibility. The Supreme Court held that drawings, designs, charts, plans etc. constitute a 'book' and fell within the definition of 'plant'. 7. This issue has also been considered by the Gujarat High Court in the case of Elecon Engg. Co. Ltd. In this case, the question related to drawings, patterns and know-how acquired by the assessee from a foreign company. It would be appropriate to reproduce below the ratio of this case from the headnote of the Report: "The word 'plant' in its ordinary meaning is a word of wide import and it must be broadly construed having regard to the fact that articles like books and surgical instruments are expressly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of teaching at long range. Having regard to the legislative intent to give a wide meaning to the word 'plant', material record of know-how (even assuming that know-how itself is intangible) is clearly included within the meaning of the word 'plant' in section 32. The depreciation allowance under section 32 is a statutory allowance not confined expressly to diminution in value of the asset by reason of wear and tear. The allowance can be claimed if the asset in question is shown to be capable of diminishing in value on account of any factor known to the prevailing accounting or commercial practice. The principal factors responsible for the retirement of a capital asset and, therefore, responsible for depreciation are: (i) ordinary wear and tear, (ii) unusual damage, (iii) inadequacy, and (iv) obsolescence. The factors listed above include not only those relating to physical deterioration but also those referring to the suitability of the asset as an economically productive unit after a period of time. Apart from accounting practice, section 32(1)(iii) itself speaks of allowance in the case of any plant which is 'discarded' in the previous year and the word 'discarded' has been und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. counsel for the assessee has also argued before us that the stock exchange membership card should be treated as tangible asset as it is subjected to diminution in value on account of the following factors: (i) Creation of more exchanges, particularly NSE - Creation of NSE with more advanced technology. The turnover on the NSE is more than the turnover on BSE. With the introduction of derivatives segment on NSE, value of BSE card has fallen significantly. (ii) Development of technology - Due to E-trading, the role of broker has been reduced substantially, which has resulted in reduction in the value of BSE card. (iii) Increased competition - With there being no constraint of space, BSE has allotted new memberships. Due to sheer pressure of supply and competition, the value of card has been eroded. (iv) Statutory changes - Abolition of Badla and carry forward has resulted in erosion of value of BSE card. Moreover, if transactions in shares are allowed under SCRA through commodity exchanges or investment bank, the importance of the stock exchange will stand further reduced. (v) Economic changes - Development of debt market, mutual fund market etc. have adversely impacted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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