DEPRECIATION ON INTENGIBLE ASSETS |
Business income ID - (JBC-018) |
Tools-of-trade test
This test has been propounded in Skyline Caterers (P) Ltd. v. ITO [2008] 306 ITR (AT) 369 (Mum) ; [2008] 20 SOT 269 (Mum). According to the Tribunal, "A perusal of the provisions of section 32(1)(ii) shows that the Legislature has specified certain intangible assets on which depreciation can be claimed, namely, know-how, patents, copyrights, trademarks, licences, franchises. These specific intangible assets are followed by the expression `any other business of (sic - should be "or") commercial rights of similar nature'. The expression mentioned above by itself would include all kinds of commercial rights, but for the words `similar nature'. In such a situation, the rule of ejusdem generis would apply. The scope of the rule is that words of a general nature following specific and particular words should be construed as limited to things which are of the same nature as those specified. The general words take colour from the specific words. The specific words in the above section reveal the similarity, in the sense that all the intangible assets specified are tools of the trade, which facilitate the assessee carrying on the business. Therefore, the expression `any other business or commercial rights of similar nature' would include such rights which can be used as a tool to carry on the business."
Intangible assets listed down by section 32(1)(ii).
Know-how : Black's Law Dictionary (Ninth Edition) page 950 defines know-how as, "the information, practical knowledge, techniques and skill required to achieve some practical end, esp. in industry or technology. Know-how is considered intangible property in which rights may be bought or sold." "`Know-how' is the fund of technical knowledge and experience acquired by a highly specialised production organisation; although it may be, and usually is, noted down in documents, drawings, etc. it is itself an intangible entity whose category may vary according to, and may even be determined by, its use. Like office or factory buildings; patents and trademarks, and goodwill, it may be described as a `capital asset' while it is retained by a manufacturer for his own purposes, but, unlike these, its supply to another is not a transfer of a fixed capital asset because it is not lost to the supplying manufacturer [ Rolls-Royce v. Jeffrey ; Rolls-Royce v. I.R.C. [1962] 1 W.L.R. 425 ; [1962] 1 All E.R. 801] [ Stroud's Judicial Dictionary of Words and Phrases ]
Patents : Black's Law Dictionary (Ninth Edition) page 1235 defines patents as, "the governmental grant of a right, privilege, or authority. The official document so granting is also called patent" "A right exclusively granted to the first inventor of an invention." [ Stroud's Judicial Dictionary of Words and Phrases ] "The word `patent' means the exclusive privilege granted by the sovereign authority to an inventor with respect to his invention. A grant from the government to a person or persons conferring for a certain time the exclusive privilege of making, using or selling some new invention." [ Concise Law Dictionary, P. Ramanatha Iyer ]
Copyright : "The exclusive right given by law for a certain term to an author, composer etc. (or to his assignee or heirs) to print, publish or sell copies of his original work or translation thereof." [ Concise Law Dictionary, P. Ramanatha Iyer ]
Trademark : "A trademark is the name, symbol, figure, letter, form or device adopted and used by the manufacturer or merchant in order to designate the goods that he manufactures or sells, and to distinguish them from those manufactured or sold by another, to the end that they may be known in the market as his, and thus enable him to secure such profits as result from a reputation for superior skill, industry or enterprise. A mark (now one secured by legal registration) used by a manufacturer or trader to distinguish his goods from the goods of other concerns."
Licence : An authority to do something which would otherwise be inoperative, wrongful or illegal; a formal permission from a constituted authority to do something. [section 52 Indian Easements Act, 1882] "Where one person grants to another, or to a definite number of other persons a right to do, or continue to do, in or upon immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a licence". [section 52, Indian Easements Act, 1882]
Franchise : Black's Law Dictionary (Ninth Edition) page 729 defines franchise as, "The government-conferred right to engage in a specific business . . . the sole right granted by an owner of a trademark or tradename to engage in business or to sell a good or a service in a certain area. The business or territory controlled by the person or entity that has been granted such a right.
Commercial franchise : A franchise using local capital and management by contracting with third parties to operate a facility identified as offering a particular brand of goods or services.
Sports franchise : A franchise granted by a professional sports league to field a team in that league. The team itself."
Trade name : A trade name may be, and often is, a trade mark, but it has a wider application than that. In its wider sense, it means the name under which a person (or company) carries on, and has habitually carried on, his business, and by which he is known in the trade or business to which his business belongs, and which accordingly distinguishes the nature, quality, and fame of his goods and dealings. [ Stroud's Judicial Dictionary of Words and Phrases]
Intellectual Property : Black's Law Dictionary (Ninth Edition) page 881 defines intellectual property as, "a category of intangible rights protecting commercially valuable products of the human intellect. The category comprises primarily trade mark, copyrights and patent rights, but also includes trade-secret rights, publicity rights, moral rights and rights against unfair competition. A commercially valuable product of the human intellect, in a concrete or abstract form, such as a copyrightable work, a protectable trademark, a patentable invention or a trade secret." Intellectual property rights emerge from human intellect. In other words, the source/fountainhead of these rights is the human intellect.