Techno Shares & Stocks vs. CIT (Supreme Court)

BSE Card is an “intangible asset” and eligible for depreciation u/s 32(1)(ii)

S. 32 (1), as amended w.e.f. 1.4.1998 allows depreciation on “intangible assets” being, inter alia, “licenses … or any other business or commercial rights of similar nature”. The Tribunal took the view that a BSE card was an “intangible asset” eligible for depreciation. On appeal by the Revenue, the High Court (323 ITR 69) reversed the Tribunal on the ground that it was not a “license” and the words “business or commercial rights” relate to intellectual properties and not all categories of business or commercial rights. On appeal by the assessee, HELD reversing the High Court:

(i) On the analysis of the Rules of BSE, it is clear that the right of membership allows the non-defaulting member to participate in the trading session on the floor of the Exchange. Thus, the said membership right is a “business or commercial right” conferred by the Rules of BSE on the non-defaulting continuing member;

(ii) The question as to whether the membership right can be said to be owned by the assessee and used for the business purpose in terms of s. 32(1)(ii) is answered in the affirmative for the reason that the Rules and Bye-laws permit the member to participate in the trading session on the floor of the Exchange; to deal with other members of the Exchange and to nominate. Moreover, under Explanation 3 to s. 32(1)(ii) commercial or business right which is similar to a “licence” or “franchise” is declared to be an intangible asset.

(iii) Under Rule 5 of the BSE Rules, membership is a personal permission from the Exchange which is nothing but a “licence” which enables the member to exercise rights and privileges attached thereto. It is this licence which enables the member to trade on the floor of the Exchange and to participate in the trading session on the floor of the Exchange. It is this licence which enables the member to access the market. Therefore, the right of membership, which includes right of nomination, is a “licence” or “akin to a licence” which is one of the items which falls in s. 32(1)(ii). The right to participate in the market has an economic and money value. It is an expense incurred by the assessee which satisfies the test of being a “licence” or “any other business or commercial right of similar nature” in terms of s. 32(1)(ii).

(iv) The judgment is strictly confined to the right of membership conferred upon the member under the BSE membership card and should not be understood to mean that every business or commercial right would constitute a “licence” or a “franchise” in terms of s. 32(1)(ii).