IMPORTANT POINT
Membership right is a “business or commercial right” conferred by the Rules on the non-defaulting continuing member.

JUDGMENT

S.H. Kapadia, CJI

1. Leave granted.

2. In this batch of cases the question which arises for determination is: whether BSE Membership Card can be considered an intangible asset for the purpose of depreciation under Section 32(1)(ii) of the Income Tax Act, 1961 (for short “the 1961 Act”)?

Facts in M/s Techno Shares & Stocks Ltd. [Lead matter]

3. 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.

4. Aggrieved by the said decision of CIT (A), the assessee carried the matter in appeal to the Tribunal which took the view that since the assessee had acquired a right to trade on the floor of BSE through the membership card, it was not entitled to depreciation u/s 32(1)(ii) of the 1961 Act. That, the said Card is a capital asset through which right to trade on the floor of BSE is acquired and since it is intangible asset the said assessee was entitled to depreciation u/s 32(1)(ii).

5. Against the said decision, the Department carried the matter in appeal to the High Court which came to the conclusion, following certain decisions of this Court, that the BSE membership card is only a personal privilege granted to a member to trade in shares on the floor of the Stock Exchange; that, such a privilege cannot be equated with the expression “licence” or “any other business or commercial rights of similar nature” u/s 32(1)(ii); that, there is a difference between acquiring a know-how, patent, copyright or trademark and acquiring a licence to use such know-how, patent, copyright, trademark or franchise; that the expression “business or commercial rights of similar nature” in Section 32(1)(ii) of the 1961 Act would take its colour from the preceding words, namely, know-how, patent, copyright, trademark and franchise which belong to a class of intellectual property rights and applying the rule of ejusdem generis, the High Court held that the expression “licence” as well as the expression “business and commercial rights of similar nature” in Section 32(1)(ii) of the 1961 Act are referable to IPRs such as know-how, patent, copyright, trademark and franchise and since the BSE membership card does not fall in any of the above catego