SC allows depreciation on stock membership cards

In a major ruling, the Supreme Court has held that the stock exchange membership cards are "intangible assets" and a broker can claim deductions while filing income tax.

A Bench comprising Chief Justice S H Kapadia and Justices K S Radhakrishnan and Swatater Kumar has held that membership of stock exchange was "business and commercial rights" for trade, hence it is eligible for depreciation under Section 32 of the Income-Tax Act 1961.

Section 32 provides for deduction of allowance being made in respect of depreciation on intangible assets such as know-how, patents, copyrights, trade marks, licences, franchises etc.

"We hold that the said right of membership is a business or commercial right which gives a non-defaulting continuing member a right to access the Exchange and to participate therein and in that sense it is a licence or akin to licence in terms of Section 32(1)(ii) of the 1961 Act," the court said.

The apex court also set aside the orders of the Bombay High Court which had held that stock exchange cards are not an "intangible asset". The apex court further said that the Income Tax Appellate Tribunal had rightly said that stock exchange cards are "intangible asset" under the definition of the Income Tax Act.

"Tribunal (ITAT) was right in holding that depreciation was allowable on the cost of the membership card under Section 32(1)(ii) of the 1961 Act. Accordingly the impugned judgment of the Bombay High Court is set aside and the appeal filed by the nominated non-defaulting continuing member stands allowed with no order as to costs," the Bench said further.

The apex court's direction came over a bunch of petitions filed by the stock brokers challenging the orders of the High Court.

The dispute started after one Techno Shares and Stock filed its income tax returns for year 1999-2000 disclosing a loss of Rs 10.7 lakhs. It had claimed Rs 23.65 lakhs depreciation on its BSE membership card.

The broking firm claimed that its BSE membership card was a licence having business and commercial right and thus it was an intangible asset eligible for depreciation.

However, it was not accepted by the Income Tax department which held that BSE membership was only a personal permission which was non-transferable. It was neither a privately owned asset nor could it be transferred to legal heirs.

This was challenged by the brokers before the ITAT, which favoured them and this was later taken by the I-T department before the High Court.