No depreciation on bourse membership card value, rules HC

MUMBAI: In A judgement that could have a bearing on the tax outgo of many stock brokers, the Bombay High Court on Friday ruled that depreciation cannot be claimed on stock exchange membership cards, while calculating tax liabilities.

The I-T Department���s contention was that a membership card is not capable of diminishing in value due to its use, wear and tear and obsolescence.

Counsel Vimal Gupta, assisted by advocate Suresh Kumar, who argued for the department, submitted that the card was a personal privilege, and not a licence or a commercial right. The stock broking firms, they said, were not owners of the membership cards and thus could not categorise the same as capital assets.

Counsel for the brokers pointed out to the court that like a licence, which is depreciable, a membership card entitles brokers to trade on the exchange. The rights conferred by the ownership of the stock exchange card constituted business or commercial rights and would therefore be entitled to depreciation, they said. According to Section 32 of the Income-Tax Act, depreciation can be claimed either in respect of tangible assets or certain intangible assets such as patents, copyrights, trademarks, or similar intangible assets.

The division bench of Justice VC Daga and Justice JP Devadhar was hearing over a hundred applications filed by the I-T Department against brokers, including Techno Shares and Stocks, Credit Suisse, ICICI Brokerage Services, JM Morgan Stanley Fixed Income Services, Tata TD Warehousing Securities, Kotak Securities and Net Worth Stock Broking.

They observed in the judgement that the membership card cannot be construed as a licence or a commercial right. The court held that Section 32 allowed depreciation on the listed categories of assets only and were related to acquisition or user of intellectual property rights, while disallowing depreciation on the cards.