TMI Blog2009 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... 06 and others - - - Dated:- 11-9-2009 - V. C. DAGA and J. P. DEVADHAR, JJ. INCOME TAX APPEAL (L) NO.971 OF 2006 AND INCOME TAX APPEAL NO.218 OF 2007, 157 OF 2008, 958 OF 2009, 1328 OF 2009, 375 OF 2008, 258 OF 2009, 946 OF 2007, 959 OF 2009, 259 OF 2009,158 OF 2008, 756 OF 2009, 496 OF 2007, 718 OF 2007, 100 OF 2008, 934 OF 2009, 935 OF 2009, 89 OF 2009, 3010 OF 2008, 882 OF 2008, 883 OF 2008, 769 OF 2009, 776 OF 2009, 777 OF 2009, 2596 OF 2008, 373 OF 2009, 1330 OF 2009, 271 OF 2009, 272 OF 2009, 1327 OF 2009 1332 OF 2009, 3886 OF 2008, 136 OF 2008 4144 OF 2008, 1028 OF 2008, 326 OF 2009, 1127 OF 2007, 3638 OF 2008 AND 3642 OF 2008 AND 3643 OF 2008 AND 3695 OF 2008, 3684 OF 2008, 3194 OF 2008, 3195 OF 2008 AND1942 OF 2006 AND 3451 OF 2008 AND 360 OF 2009, 3452 OF 2008 AND 1108 OF 2009, 544 OF 2008, 920 OF 2008, 32 OF 2008, 729 OF 2009. JUDGMENT J.P. DEVADHAR, J. - The only question raised in all these appeals is, 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? 2. The ITAT has held that the Bombay Stock Exchange Membership Card (hereinafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar nature' in Section 32(I)(ii) of the Act is referable to the business or commercial rights relating to intellectual property rights such as know-how, patents, copy rights, trade marks and franchises and licences in respect thereof. Accordingly, it is contended that the expression 'licences' as well as the expression 'business or commercial rights of similar nature' in Section 32(1)(ii) of the Act are referable to the intellectual property rights such as knowhow, patents, copyrights, trade marks and franchises. As the BSE card does not fall in any of the above categories it is submitted that depreciation cannot be allowed on the BSE card acquired by the assessees. In this context reliance is placed on the decision of the Apex Court in the case of CIT V/s. Hoogly Mills Co. Ltd. reported in 287 ITR 333 (S.C.). 6. Mr.Irani, Mr.Mistri, Dr.Shivram, Mr.Tralshawala, Mr.Jhaveri, Mr.Toprani and Mr. D'mello appearing on behalf of their respective clients, on the other hand supported the order of the Tribunal. They contend that by amending section 32 of the Act with effect from 1/4/1998 the legislature has considerably enlarged the scope of the depreciation allowance. They conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither by nomination or through auction at a cost would squarely fall under the expression 'licences' enumerated in section 32 of the Act and therefore the Tribunal was justified in holding that the assessees are entitled to depreciation on the BSE card. 9. Alternatively, it is contended by the counsel for the assessees that the BSE card is a 'business or commercial right' on which depreciation is allowable under section 32 of the Act provided such right is acquired on or after 1/4/1998. In all these cases, the BSE card is acquired by the assessees on or after 1/4/1998 and that card gives business or commercial rights to the assessees to carry on the business of share broking and therefore, depreciation is allowable on the BSE card. It is contended that the fact that the legislature has used the expression 'business or commercial rights of similar nature' it does not mean that the legislature has intended to grant depreciation to a restricted class of licences or a restricted class of business or commercial rights. It is contended that since the expression 'licences' in section 32 of the Act is applicable to all types of licences (except personal licences) it is clear that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. Section 32 of the Act after its amendment with effect from 1/4/1998 (to the extent relevant) reads thus:- "32. (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions, shall be allowed. (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed; 14. On perusal of section 32 of the Act as amended with effect from 1/4/1998, it is seen that the legislature has extended depreciation to the intangible assets which was until then restricted to buildings, machinery, plant or furniture. It is pertinent to note that even after the amendment, the depreciation unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure or any adventure or concern in the nature of trade, commerce or manufacture. The expression 'profession' is defined under section 2(36) of the Act to include vocation. Thus, the activity or transaction of buying and selling at profit is ordinarily a case of 'trade'. If such transactions are on a large scale, it is called commerce and continuous repetition of such transaction would constitute business. The expression 'profession' involves the idea of an occupation requiring purely intellectual skill or manual skill controlled by the intellectual skill of the operator as distinguished from an occupation or business which is substantially the production or sale or arrangements for the production or sale of commodities. 20. To ensure orderly growth of trade, business, profession, etc. various legislations have been enacted with provisions relating to licensing. For example, under section 11 of the Industries (Development Regulation) Act, 1951, licence is mandatory for establishing any of the industries enumerated under the First Schedule to the said Act. If the goods manufactured by the industries enumerated in the First Schedule to the Industries (Development Regulation) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto). Right to use know-how can be acquired either absolutely or conditionally under a licence. 23. The expression 'Franchises' is neither defined in the Act nor there is any specific legislation in India relating to franchises. As per Black's Law Dictionary, 8th Edition, the expression franchise denotes:- "1. ...... When referring to government grants (other than patents, trademarks, and copyrights), the term 'franchise' is often used to connote more substantial rights, whereas the term 'license' connotes lesser rights. Thus, the rights necessary for public utility companies to carry on their operations are generally designated as franchise rights. On the other hand, the rights to construct or to repair, the rights to practice certain professions and the rights to use or to operate automobiles are generally referred to as licenses...." 3. The sole right granted by the owner of a trademark or tradename to engage in business or to sell a good or service in a certain a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the scope of the word 'commercial establishment' defined in Section 2(4) of the Bombay Shops Establishments Act 1948 which read thus : " 'Commercial establishment' means an establishment which carries on, any business, trade or profession or any work in connection with, or incidental or ancillary to, any business, trade or profession and includes a society registered under the Societies Registration Act, 1860, and a charitable or other trust, whether registered or not, which carries on whether for purposes of gain or not, any business, trade or profession or work in connection with or incidental or ancillary thereto but does not include a factory, shop, residential hotel, restaurant, eating house, theatre or other place of public amusement or entertainment." (emphasis supplied) The question before the Apex Court was, whether a private dispensary of a doctor is covered under the above definition. After considering the case on merits, the Apex Court held thus : "--------It is true that Section 2(4) of the Act has used words of very wide import and grammatically it may include even a Consulting room where a doctor examines his patients with the help of a solitary nurse or at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to see any common thread running through them, again, it may be permissible to give the exceptions their widest latitude. But when four of them - undoubtedly, at least three of them - can be brought under an intelligible classification and it is also conceivable that the government might well have thought that these small scale factories should not be eligible for the concession contemplated by the notification where they manufacture paper catering to industrial purposes, there is a purpose in the limitation prescribed and there is no reason why the rationally logical restriction should not be placed on the proviso based on this classification. In our view, the only reasonable way of interpreting the proviso is by understanding the words 'coated paper' in a narrower sense consistent with the other expressions used therein. " 29. In the case of Godfrey Phillips India Limited V/s. State of U.P. reported in (2005) 2 SCC 515, the Apex Court held thus : "75. Where two or more words susceptible of analogous meaning are clubbed together, they are understood to be used in their cognate sense. They take, as it were, their colour from and are qualified by each other, the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 'licences') are all relatable to intellectual properties. Since the common thread in almost all the expressions used in section 32(1)(ii) of the Act relate to the class of intellectual property rights, it is reasonable to construe that the expression 'licences' in section 32(1)(ii) of the Act relates to the class of intellectual property rights. Thirdly, the rule of Noscitur a Sociis would apply to the facts of the present case, because, the expression 'licences' in section 32(1))(ii) of the Act is preceded and succeeded by the expressions which are all relatable to intellectual properties and therefore, the expression 'licences' in section 32(1)(ii) of the Act would take colour from those expressions and accordingly apply only to licences relating to intellectual properties. 32. 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. Therefore, it is reasonable to construe that the expression 'lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions which are all referable to intellectual property rights. Thus, the decision of the Apex Court in the case of Scientific Engineering House (P) Ltd. (supra) does not support the case of the assessees. 35. The argument of the assessees that the expression 'licences' in section 32(1)(ii) of the Act must be construed widely and at the same time conceding that the expression 'licences' in section 32(1)(ii) of the Act would not cover personal licences is mutually contradictory. Either the expression 'licences' has to be construed widely as it is understood in common parlance or construed restrictively in the light of associate words used in the section. There is no other way of interpreting the said expression. As noted earlier, the expression 'licences' in section 32(1)(ii) of the Act cannot be construed widely, because, the expression 'any other business or commercial rights of similar nature' in Section 32(1)(ii) of the Act makes it abundantly clear that the legislature intended to give narrower or restricted meaning to the expressions used in the Section. Therefore, while rejecting the contention of the assessees, we have no hesitation in holding that the expression 'licenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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