Depreciation under Section 32(1)(ii) of the IT Act, 1961

Court :
SC

Brief :
In this case, we are concerned with the Assessment Years 1999-2000, 2000-2001, 2001-2002 and 2002-2003. The assessee company filed its Return of income for the Assessment Year 1999-2000 disclosing a loss of Rs. 10,77,276/-. The return was processed under Section 143(1) on November 8, 2000. The case stood reopened under Section 147 and Notice u/s 148 stood issued to the assessee on 16.7.2002. The assessee filed its return of income under protest. The assessee filed its return of income pursuant to the Notice u/s 148 once again declaring loss of Rs. 10,77,276/-, the same as was in the original return of income. The main reason for reopening of assessment under Section 147 was the claim of depreciation by the assessee on BSE membership card amounting to Rs. 23,65,000/-. The claim of depreciation of the assessee was based on Section 32(1)(ii) which stood inserted by Finance (No. 2) Act, 1998 w.e.f. 1.4.1999. However, the said Section deals with claim for depreciation of items acquired on or after 1.4.1998. The assessee claimed before the A.O. that the BSE membership card is a “licence” or “business or commercial right of similar nature” u/s 32(1)(ii) and is, therefore, an intangible asset eligible for depreciation u/s 32(1)(ii) which submission was not accepted by the A.O. It was held that membership is only a personal permission which is non-transferable and which does not devolve automatically on legal heirs and, therefore, it is not a privately owned asset. That, there is no ownership of an asset and that what ultimately can be sold is only a Right to Nomination. Further, according to the A.O., in the case of BSE membership, there is no obsolescence, wear and tear or diminution in value by its use, hence, the assessee was not entitled to claim depreciation u/s 32(1)(ii). This decision of the A.O. stood affirmed by C.I.T. (A) in the appeal filed by the assessee.

Citation :
M/s Techno Shares & Stocks Ltd. Versus The Commissioner of Income Tax IV