TMI Blog2007 (5) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... ired the membership card from the Bombay Stock Exchange for which the assessee paid the bid amount of Rs. 2,32,32,321 and claimed depreciation under section 32 of the Act of Rs. 58,08,080 in the assessment year 2001-02 and Rs. 43,56,060 in the assessment year 2002-03. The Assessing Officer was of the opinion that the membership is not a licence to do broking business. In the opinion of the Assessing Officer by acquiring the membership card of the stock exchange the assessee is free to enjoy the rights and privileges of membership and that is analogous to capital introduced by a partner in a firm or shareholder in a company or a member in an Association of Persons. Hence, it is not at all an official permit and it cannot be equated to licence. The Assessing Officer disallowed depreciation claimed by the assessee and made the addition to the income of the assessee in both the assessment years 2001-02 and 2002-03. 4. As far as the assessment year 2001-02 is concerned, relying on the judgment of the Hon ble Supreme Court in the case of Stock Exchange, Ahmedabad v. Asstt. CIT [2001] 248 ITR 209 1 , the CIT (Appeals) held that the membership card of the assessee is not a business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even if the membership card is treated as an intangible asset, it will not be an asset qualifying for depreciation as per the definition of section 32(1)( ii ) of the Act. Hence, the assessee challenged the orders of the CIT (Appeals) for both the assessment years before us. 6. The revenue has also filed an appeal for the assessment year 2002-03 by taking the following ground on this issue : "2. The learned Commissioner of Income-tax (Appeals) erred in allowing the assessee s claim for depreciation under section 32(1)( ii ) amounting to Rs. 43,56,060 on Membership Card of Bombay Stock Exchange." 7. We have heard the learned Chartered Accountant Shri A.S. Narayanamoorthy for the assessee and the learned Departmental Representative Smt. A.S. Bindhu for the revenue. The ld. CA reiterated his arguments which were advanced before the CIT (Appeals) in both the assessment years. 8. Per contra , the ld. DR, supported the orders of the CIT(A) and filed written submissions and relied on some precedents which have already been discussed by the CIT (Appeals). The ld. DR submitted that as far as assessment year 2002-03 is concerned, there is confusion and contradiction in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defaulter. 11. In the case of Vinay Bubna ( supra ), again an identical issue was for consideration of the Hon ble Supreme Court in the case of Vinay Bubna ( supra ) has been considered by the same court while deciding the case of Stock Exchange, Ahmedabad ( supra ). Both the cases on which the authorities below have placed reliance are on different context and not in the context of section 32 of the Act. 12. The ld. CA Shri Narayanamoorthy submitted that this issue is covered by the decision of the ITAT, D-Bench, Mumbai in the case of Techno-Shares Stocks Ltd. v. ITO [ITA Nos. 778, 779 and 1951/Mum./2004 vide order dated 4-1-2006]. The ld. CA also filed a copy of the said order which is placed on record. 13. In the case of Techno Shares Stocks Ltd. ( supra ), an identical issue had come for consideration whether depreciation is allowable on the membership card of the Bombay Stock Exchange and it is held as under: "3. We have carefully perused the orders of the authorities below in the light of the aforesaid judgments and we find that it has been repeatedly held in series of orders of the Tribunal that the Bombay Stock Exchange Card is a capital ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the revenue. 15. As far as the revenue s appeal being ITA No. 341 (Coch.)/2006 is concerned, the revenue has come in appeal because the findings as well as observations of the ld. CIT (Appeals) are contradictory to each other and confusing, more particularly in the assessment year 2002-03 which is as under : "32. Since I have held that membership card in SSE is not an asset, there is no question of granting depreciation. However, in the grounds of appeal, the appellant has challenged the stand of the Assessing Officer that ( a ) the membership card is not in the nature of licence ( b ) the value of the membership card does not depreciate. Though I have held that the membership card is not an asset and thus not eligible for depreciation, since the appellant has raised the above grounds, these are also discussed. 33. The section 32(1)( ii ) provides for allowance of depreciation on assets as under : 32. Depreciation . (1) In respect of depreciation of ( ii )know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after 1-4-1998, owned, wholly or partly, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer is that a membership card does not depreciate. I do not find merit in this argument. The value of membership cards is known to fluctuate. The value of trademark would fluctuate depending upon the acceptance of the brand value of the trademark. For example, there is a decline in the value of the trademark Bata since Bata shoe company is not doing well. However, the trademark of Infosys owned by Infosys Technologies has seen enormous appreciation. Similarly, the value of patents can also fluctuate. For example, the market value of an item patented by Micro Soft may have nominal value now. But in a future date, if found applicable for a wide use, the value of the patent can shoot up. In short, the value of all the intangible assets mentioned in section 32 would solely depend upon the market condition. Unlike fixed assets, there is no wear and tear for intangible assets. Therefore, it is not correct to say that the value of the intangible assets should depreciate to get allowance of depreciation. Before introduction of depreciation for intangible assets, the Act had permitted the assessees to claim expenditure on acquisition of patent right, copy right, know-h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the said compensation to Select Securities Ltd. on the basis of the board resolution and on the basis of the computation which was already filed with the Assessing Officer. The said payment was made to another company and the said company does not hold substantial interest in the assessee-company. The ld. CA also gave the comparative figures of the holdings of the director. He further argued that in the assessment year 2002-03, the CIT (Appeals) allowed the claim of the assessee and the revenue is in appeal on the same set of facts. He, therefore, submitted that section 40A(2) is not attracted. 17. Per contra , the ld. DR supported the order of the CIT(A) for the assessment year 2001-02 and assailed the order of the CIT (Appeals) for the assessment year 2002-03. 18. We have heard the rival submissions of the parties. We have also carefully considered the reasons given by the CIT (Appeals) as well as the Assessing Officer. In the assessment year 2002-03, the CIT (Appeals) has relied on the Board s Circular No. 6P, dated 6-7- 1968 in which the objects for introduction of section 40A are explained. In this case, the controversy is in respect of the compensation paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment is made. The expression "substantial interest" as per Explanation appended to section 40A(2)( b ) means the director of the assessee-company should have 20 per cent holding or equity with voting power in another company. On the facts of this case, the Assessing Officer has merely stated that one Shri Prince George is a common director in the assessee-company and Select Securities Ltd. On the perusal of the reasons given by the CIT (Appeals), we find that the CIT (Appeals) has held that the director of the assessee-company Shri Prince George has substantial interest in the payee company. Beyond that nothing has been discussed. The alternative finding of the CIT (Appeals) is that presuming that it is not covered under section 40A(2)( b )( vi ) of the Act, then it is to be disallowed even under section 37 as the said payment can be considered as a gratuitous payment. The CIT (Appeals) has noted that the said payment has been made by the assessee-company in terms of the Board resolution passed on 25-1-2001 and the said act is unilateral act on the part of the assessee without there being any contractual liability to do so. The assessee has also not placed before us any ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2( b ). If for an argument sake Hon ble Tribunal is of the opinion that the bid amount is not an intangible asset, amount paid ought to have been allowed as revenue expenditure since it was incurred for the purpose of business." 22. In the case of another assessee, i.e., Geojit Securities Ltd., Cochin, this appeal relates to assessment year 2000-01 and facts are identical with that of the earlier assessee. In this case also, the assessee is a public limited company engaged in the business of share broking. During the previous year relevant to the assessment year 2000-01, the assessee-company took corporate membership of the Stock Exchange, Mumbai and for obtaining the corporate membership, it made the following payments : ( i ) Admission fee Rs. 2,50,000 ( ii ) Brokers Contingency Fund Rs. 2,50,000 ( iii ) Annual subscription Rs. 7,000 ( iv ) Membership security deposit Rs. 5,00,000 ( v ) Bid amount Rs. 2,01,11,801 The assessee included the bid amount paid to the Mumbai Stock Exchange in the cost of membership card a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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