Allowability of depreciation on the Bombay Stock Exchange Membership Card

Recently, the Bombay High Court in the case of CIT v. Techno Shares & Shares Limited and Various other Stock Brooking Houses (ITA No. 971 of 2006 and 218 of 2007) held that the depreciation cannot be granted on Bombay Stock Exchange Membership Card (BSE card) acquired on or after 1 April 1998 either by nomination or directly through the stock exchange.

Facts of the case

• The taxpayers owning a BSE card acquired on or after 1 April 1998 either by nomination or directly through the stock exchange, claimed depreciation on the BSE card after considering it as an intangible asset under the provision of section 32 of the Income-tax Act, 1961 (the Act).
• The Income-tax Appellate Tribunal held that the BSE card acquired on or after 1 April 1998 was an intangible asset and depreciation was allowable on the BSE card.

Issue before the High Court :- Whether the depreciation under section 32 of the Act was allowable on the BSE card acquired on or after 1 April 1998?

Contentions of the tax department :-

• The tax department after relying on the decision of the Supreme Court in the case of CIT v. Alps Theatre [1967] 65 ITR 377 (SC) contended that the BSE card was neither an asset nor a capital asset which was subject to  wear and tear and therefore depreciation was not allowable on the BSE Card.
• The BSE card was only a personal privilege granted to a member to trade in shares on the floor of the Stock Exchange and such a privilege cannot be equated with the expression ‘licenses’ or the expression ‘any other business or commercial right of similar nature’ enumerated in Section 32 of the Act. The tax department placed reliance on the decisions of the Supreme Court in the case of  Stock Exchange, Ahmedabad v. ACIT [2001] (248 ITR 209) (SC) and Vinay Bubna v. Stock Exchange [1999] (6 SCC 215) (SC).
• The expression ‘licenses’ 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 know-how, patents, copyrights, trade marks and franchises. Since the BSE card does not fall in any of the above categories the depreciation cannot be allowed on the BSE card acquired by the taxpayers.

Contentions of the taxpayers