Supreme Court rules on allowability of depreciation on trademarks, copyright and technical know-how considering the same as “plant”

 

This tax alert summarizes a recent ruling of the Supreme Court (SC) in the case of Mangalore Ganesh Beedi Works  on the issue of allowability of depreciation on trademarks, copyright and technical know-how (IPRs). One of the issues was whether the association of persons (AOP or Taxpayer), consisting of three partners of erstwhile Mangalore Ganesh Beedi Works (MGBW), had acquired the IPRs of MGBW pursuant to its dissolution or if it was an acquisition of goodwill and whether the Taxpayer is entitled to claim depreciation  on the IPRs as “plant”.

 

The SC noted that the clause of the partnership deed provided scope for vesting of the firm name and trademarks, along with the business on a going concern basis, to the highest bidding partner/s on dissolution of the firm. Basis that, the SC considered the Tax Authority’s action of rejecting the claim of the Taxpayer for depreciation on acquisition of IPRs on dissolution (and treating it as an acquisition of goodwill) as rewriting of the bonafide agreement which is not permitted in law.

 

On the issue of depreciation, the SC noted that the provisions of the Income Tax Laws (ITL) for the relevant year did not make any distinction between tangible and intangible assets, like the amended definition in the later year, and held that the IPRs come within the definition of “plant”, being commercially necessary and essential.