By TIOL News Service

NEW DELHI, MAY 31, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether 'brands' are covered under the definition of "intangible assets" and are eligible for depreciation accordingly. YES is the answer.

Facts of the case:

The assessee has been a public listed company, engaged in four distinct businesses, viz. manufacturing and trading of Banaspati and edible oils; manufacturing of all classes of writing and printing paper; manufacturing, processing and trading of dairy milk and milk products. The assessee company acquired six established paper brands from M/s Amrit Banaspati Company Ltd. (ABCL). This was done in terms of a Scheme of Arrangement approved by the High Court whereby the paper undertaking of ABCL was demerged and vested in the assessee company w.e.f. 1st April 2006. The assessee had shown the above brands as capital asset and had claimed depreciation @ 25% applicable to intangible assets. The above treatment of the brands by the assessee and depreciation claimed @ 25% on the same was allowed by the AO in the earlier two assessment years. However, during the year under consideration, the AO has accepted the assessee’s claim that the above brands were capital assets, but the claim of depreciation was disallowed by holding that "brands" were not covered under the "intangible assets" as per Section 32(1) (ii) of the Act. Further, the AO also disallowed the claim of depreciation on chemical recovery plant on the ground that the said plant was not put to use during the year under consideration as certain assets were still under construction/testing stage.

On appeal, the Tribunal held that,

++ CIT(A) noted that the definition of "intangible assets" under Section 32(1 )(ii) is an inclusive definition which not only includes know-how, patents, copyrights, trademarks, licences, franchises but also any other business or commercial rights of similar nature. Therefore, the interpretation of the AO - that since "brand" is not specifically mentioned in Section 32(1), it cannot be equated with "trade mark" and hence, depreciation on the same is not admissible - appears to be based on lack of proper appreciation of the provisions of the above Section which specifically includes not only "trade mark’’ but also "any other business or commercial rights of similar nature". Further, since "trade mark" has not been specifically defined under the I T. Act, so we have to rely on the definition of "trade mark" under the Trade Marks Act, 1999. As per Section 2(zb) of the Trade Marks Act, 1999 "trade mark" includes "mark" and the definition of "mark" as per Section 2(m) of the above Act specifically includes "brand". Hence as rule of consistency as the assessee’s claim for depreciation on the said brands has been allowed by the AO in the earlier two assessment years, the addition made for relevant year could not be sustained.

(See 2017-TIOL-755-ITAT-DEL)