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Stock broking firms on Monday argued before the Bombay High Court that they are entitled to claim depreciation costs on the value of their Bombay Stock Exchange (BSE) membership cards while calculating their tax liabilities. The Income Tax department has moved the court against more than 100 brokers saying that depreciation cannot be charged on the membership card, as it is not capable of diminishing in value due to its use, wear and tear and obsolescence.

Brokers, who have been served with notices from the I-T department, include ICICI Brokerage Services, JM Morgan Stanley Fixed Income Services, Tata TD Warehousing Securities, Kotak Securities, Jhunjhunwala Stock Brokers, and Networth Stock Broking, among others. Counsel for Techno Shares & Stocks and Credit Suisse First Boston India Securities, Farooque Irani, argued that membership cards are a licence for these firms to carry on their business. According to the Income-tax Act provisions, depreciation can be claimed for intangible assets such as licences.

The rights conferred by the ownership of the stock exchange card constituted business or commercial rights and would, therefore, be entitled to depreciation in any event, he further stated.

According to Section 32 of the Income-tax Act, depreciation can be claimed either in respect of “buildings, machinery, plant or furniture, being tangible assets” or “know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets”.

But I-T department’s contention is that stock broking firms are not owners of membership cards. Counsels Vimal Gupta and Suresh Kumar have argued that the card is not a licence, but a privilege, given by the stock exchange to its members.

The appeal came up for hearing before the division bench of Justice VC Daga and Justice JP Devadhar and will continue on Tuesday. Earlier the broking firms had been given respite by the Income-tax Appellate Tribunal, allowing them depreciation, considering their submission that the membership card was a capital asset through which right to trade on the stock exchange is acquired by the broker.

Also, it is an intangible asset within the definition of the Section 32 of the I-T Act. The Income Tax department, then appealed to the high court, challenging the tribunal’s decision in favour of brokers.

Interestingly, an order of the Supreme Court in the case of Stock Exchange, Ahmedabad versus Assistant Commissioner of Income Tax, it was held that a membership card is a privilege and not the property of the assessee (broker).

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May 2024