S. AMBIKA Vs. DEPUTY COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE sole question raised in the appeal filed by the assessee is whether assessee is entitled to depreciation on the purchase value of abkari licence under S. 32(1)(ii) of the IT Act. The assessee purchased a bar attached hotel in November, 2000 with land, building and FL-3 licence for carrying on retail sale of liquor in the bar hotel for a total consideration of a little over Rs. 80 lakhs. The assessee's case is that out of the total consideration paid, Rs. 60 lakhs and odd represents sale price paid for the purchase of FL-3 licence issued for retail sale of liquor in bar hotel under r. 13 of the Foreign Liquor Rules prescribed under the Kerala Abkari Act. The assessment involved in this case is for the year 2004-05 and in the returns filed assessee claimed depreciation at 25 per cent of the cost of purchase of abkari licence. It is seen from the orders that this is the first scrutiny assessment after the purchase of the hotel with the abkari licence by the assessee. Therefore, it is not known whether in the three preceding assessment years the assessee made the claim of depreciation and the same got allowed without Department scrutinising the eligibility for the same. In any case since depreciation claimed is disallowed by all the authorities including the Tribunal, the assessee has filed this appeal challenging the order of the Tribunal. We have heard Sri Anil K. Narendran, counsel appearing for the appellant-assessee and standing counsel appearing for the Department.

(2.) THE Tribunal though observed that purchase of licence is a capital expenditure, held that assessee is not entitled to depreciation as the Abkari licence does not depreciate. However, in order to demolish this finding of the Tribunal, counsel for the assessee relied on Division Bench judgment of this Court in Raveendran Pillai vs. CIT (2010) 47 DTR (Ker) 81 : (2011) 237 CTR (Ker) 80 : (2011) 332 ITR 531 (Ker) wherein this Court held that evidence of actual depreciation in the form of erosion in value is not required to be proved to entitle the assessee for eligibility for depreciation which is an allowance under the statutory provision. This Court while holding so took into account the scheme of the Act provided under s. 41(2) and S. 50 providing for assessment of profit arising on sale of depreciable assets. In view of the above decision, we cannot uphold the basis on which Tribunal sutained the disallowance. So far as the claim on merits is concerned, counsel for the assessee has relied on recent decision of the Honourable Supreme Court in Techno Shares & Stocks Ltd. vs. CIT (2010) 234 CTR (SC) 105 : (2010) 44 DTR (SC) 65 : (2010) 327 ITR 323 (SC) wherein the Supreme Court held that stock brokers purchasing Bombay Stock Exchange membership card are entitled to depreciation on the cost of acquisition as an intangible asset falling under S. 32(1)(ii) of the Act. Standing counsel for the Department specifically referred to para 29 of the above judgment wherein the Honourable Supreme Court has clarified that the judgment is rendered based on the conditions on which BSE membership card is exploited by the stock brokers. Standing counsel contended that the scope of the term "intangible assets" covered by S. 32 of the IT Act as explained by the Bombay High Court in their judgment in CIT vs. Techno Shares & Stocks Ltd. (2009) 225 CTR (Bom) 337 : (2009) 28 DTR (Bom) 201 : (2010) 323 ITR 69 (Bom) is not upset by the Honourable Supreme Court, no matter their finding is reversed.

(3.) THE question whether an FL-3 licence is covered by S. 32(1)(ii) has to be considered with reference to the provisions in the Abkari laws. Admittedly, r. 19(i) and (ii) of the Foreign Liquor Rules which provides for transfer of licence is as follows :