All licences can not be held to be intellectual property rights (IPR) for the purpose of depreciation u/s 32 - no depreciation on BSE Card

The Bombay high court has delivered a landmark judgment on the issue of depreciation on intellectual property rights in the matter of Commissioner of Income Tax Versus M/s. Techno Shares & Stocks Limited and others2009 -TMI - 34562 - BOMBAY HIGH COURT

The issue before the High Court:

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?

The ITAT has held that the Bombay Stock Exchange Membership Card (hereinafter referred to as the 'BSE card') acquired by an assessee on or after 1/4/1998, either by nomination or directly through the Stock Exchange is an intangible asset covered under Section 32 of the Income Tax Act, 1961 ('Act' for short) and therefore, depreciation is allowable on the BSE Card. These appeals are filed by the revenue to challenge the aforesaid orders passed by the ITAT.

The Decision of the High Court:

In the detailed and reasoned judgment, honorable high court of Mumbai held that:

(Relevant Extracts)

The expression 'licences' is a very wide term and it would embrace within its sweep not only the permission to use immovable property for lawful purposes but also permission to carry on any trade, business, profession, etc. including the right to acquire the intellectual property rights.

In this case, the principle of noscitur a sociis is clearly applicable. According to this principle, when two or more words which are susceptible to analogous meanings are coupled together, the words can take their colour from each other.

Construing the expression 'licences' in section 32(1)(ii) of the Act widely so as to apply to all types of licences relating to intangible assets would defeat the object of the Act, because, depreciation under section 32 of the Act is intended to a limited category of intangible assets and not to a wider category of intangible assets.

The alternative argument of the assessees that the BSE card is a business or commercial right and therefore entitled to depreciation is liable to be rejected, because, what section 32(1)(ii) of the Act contemplates is the business or commercial rights relating to intellectual properties and not all categories of business or commercial rights. Since the BSE card is not a business or commercial right relating to intellectual property rights depreciation cannot be allowed on the BSE card.

The argument advanced by the counsel for the assessees that since the BSE card is a capital asset and is liable for capital gains tax when sold at a profit, depreciation must be allowed on the BSE card acquired after 1/4/1998 is also without any merit, because, 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. As we have held that the BSE card does not fall in any of the categories specified in section 32(1)(ii) of the Act, depreciation cannot be allowed on the BSE card.

For full text of judgment Visit:

Commissioner of Income Tax Versus M/s. Techno Shares & Stocks Limited and others2009 -TMI - 34562 - BOMBAY HIGH COURT