The Supreme Court today reversed a ruling of the Bombay High Court, which had held that a stock exchange card is not an ‘intangible asset’ eligible for depreciation under Section 32 of the Income-Tax Act. In the appeal against the high court judgement, the Supreme Court bench, headed by Chief Justice S H Kapadia, ruled that a stock exchange card is a “licence” and eligible for depreciation under Section 32(1)(ii).
An amendment made in 1998 to the law allowed depreciation on “intangible assets”, which was explained as licences or any other business or commercial rights of similar nature. The tax tribunal took the view that a Bombay Stock Exchange (BSE) card was an “intangible asset” eligible for depreciation. On appeal by the revenue department, the high court set aside the tribunal’s view.
The high court had held that though the term ‘licences’ is a very wide term and includes permission to carry on a trade, business, profession, etc, it is used in Section 32(1)(ii) in a restricted sense. The provision restricts depreciation to a class of tangible and intangible assets specifically enumerated in the statute.
The high court had ruled that a BSE card is not a “business or commercial right” because what Section 32(1)(ii) contemplates is “business or commercial rights” relating to intellectual properties and not all categories of business or commercial rights. Since a BSE card is not a business or commercial right relating to intellectual property rights, depreciation cannot be allowed.
The high court judgement was challenged in appeal before the Supreme Court by Techno Shares & Stocks Ltd and more than 50 broker firms. The court allowed their appeal and set aside the high court judgement.
This report brings back to mind two puzzling questions posed by a wag: (1) why no tax on appreciation in the value of assets (due to inflation)? After some thought, he was replied: if appreciation is actually realized on disposal of the asset, then if the amount of disposal proceeds (as reduced by the written down value of the entire block of that asset and the cost of the new asset, if any, acquired) is a positive figure, the same would be taxed as short-term capital gain (under section 50 of the I. T. Act, 1961). Needless to say, he was totally confused, but did not hesitate to raise the second question, which was more exacerbating: if the figure is negative, then whether deduction of the same would be allowed? Any comment on, or answer, to this?
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