QUS.If a Brand Right is acquired from a third party can it be capitalised as a Fixed asset ( as Intangible Asset ) Can we also claim depreciation under the Income Tax Act on cost of Brand Rights purchased / acquired from that third party ?

The brief answer is yes ,depreciation on few type of intangible assets are allowed u/s 32 of the income tax act .And it covered under Block 13 if the Depreciation schedule.and rate of such assets is 25 %(wdv).
The assets given under this head are
Intangible assets(acquired after march31,1998) -Know -How ,patents,copyrights,trade-marks, Licences, franchises and any other business or commercial rights of similar nature.

In my opinion Brand rights are also covered under above definition so you can claim depreciation on this intangible asset But you should also gone through following post and make your only after that.
A complete look on this type of assets is given Hereunder.(guest post)

Gone are the days, where the assets of a company would typically include tangible assets (or so to say traditional assets) such as plant, building, furniture, office appliances, etc.

In the present day business environment, intangibles form an essential part of the assets of a company.

Intangible assets are identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as a separate asset.

These intangibles can either be in the form of copyrights, patents, trademarks, goodwill, trade secrets, customer lists, marketing rights, franchises, etc. which either arises on acquisition or are internally generated.

Very often, in a typical mergers and acquisition deal, the prospective buyer, apart from considering other legal and commercial considerations, would also consider the tax cost in his deal, which plays a significant role in influencing/structuring a deal.

The prospective buyer would be keen not only to know as to what are the types of the assets that he would own post-merger, but will also like to factor-in the tax incidence in the form of tax depreciation that would be allowed to him on the assets acquired.

Scope of Section 32
Historically, Section 32 of the Income-Tax Act, 1961 enabled companies to claim depreciation only on the tangible assets such as building, machinery, plant or furniture.

However with the growing need for recognition of intangibles, and keeping pace with the business realities, the scope of Section 32 was widened by the Finance (No. 2) Act, 1998, whereby depreciation is now allowed also on intangible assets acquired on or after April 1, 1998.

However it is interesting to note that not all the intangibles qualify for depreciation. The legislature in its wisdom has identified few intangibles for depreciation.

As per Section 32(1)(ii), depreciation is allowed only in respect of knowhow, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after April 1, 1998.

Thus from the above it can be noted that the depreciation is not only allowed on knowhow, patents, copyrights, etc., but is also allowed on any other business or commercial rights which are of similar nature.

It is therefore important to understand as to which types of intangibles qualify for depreciation and which do not qualify. Recently, the Mumbai Tribunal in the R.G. Keswani vs ACIT (2009 308 ITR (AT) 271) case has held that goodwill acquired by an assessee does not come under the expression of any business or commercial rights of the nature similar to know-how, patents, copyrights, etc. and is therefore not eligible for depreciation.

The Ahmedabad Tribunal in the Bharatbhai J. Vyas (2005 97 ITD 248) case has also held that the amount paid for goodwill does not result into acquisition of any knowhow, patents, copyrights, trademarks, etc., as prescribed in this behalf and consequently, the assessee is not entitled to claim of depreciation on goodwill.

A similar view has been taken by the Delhi Tribunal in the Guruji Entertainment Network Ltd (2006 14 SOT 556) case.

Tenancy rights

The Mumbai Tribunal in the M. M. Nissim & Co. vs ACIT (2007 18 SOT 274) case has held that the tenancy rights acquired by the assessee cannot be equated with the licence provided under Section 32 so as to qualify it as an intangible asset eligible for depreciation.

Customer contracts

The Mumbai Tribunal in the Skyline Caterers (P) Ltd vs ITO (2008 20 SOT 266) case has held that the specific intangible assets are followed by the expression ‘any other business of commercial rights of similar nature’. In such situation, the rule of ejusdem generis would apply, by virtue of which 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.

Applying the above test, the Mumbai Tribunal allowed deprecation on payment made for acquiring rights under a contract.

Marketing rights

The Delhi Tribunal in the Sarabhai Zydus Animal Health Ltd (2007 TIOL-202-ITAT-DEL) case has held that marketing rights acquired by the appellant were intangible rights and hence eligible for depreciation.

Non-compete right

Recently, the Chennai Tribunal in the ITO vs Medicorp Technologies India Ltd (2009 TIOL-203-ITAT-MAD) case once again analysed the claim of depreciation in respect of intangible assets in the form of payment made for a non-compete right.

In that case, Medicorp Technologies India Ltd (‘taxpayer’) who was engaged in manufacture and distribution of bulk drugs/intermediaries, including exporting of these products to the US, Canada, Europe and Australia, acquired an export division of Medispan Ltd. The total consideration paid for this acquisition was Rs 5.33 crore, of which, Rs 3.33 crore was paid towards intangibles that inter alia included use of brand names as well as transfer and assignment of product registration, business agreements, dossiers and licenses including dossiers pending approval, etc.

Further, Rs 2 crore was paid towards compensation for acceptance of non-compete obligation in respective exports of bulk drugs, pharmaceuticals products and formulations. The taxpayer, in its income-tax return, claimed the payment of Rs 2 crore towards the non-compete obligation as deductible revenue expenditure. The tax payer also made an alternate claim before the tax authorities that depreciation be granted on the non-compete right.

On the above facts, the Chennai Tribunal held that non-compete right acquired by the tax payer is towards compensation in the export business and hence it is a business / commercial right and hence eligible for depreciation.

The Tribunal observed that the capability of an asset to have a market value, assignability, transferability or diminution in value are no more the ‘touch stones’ to test the admissibility for depreciation under Section 32. The holder of patents, copyrights or trademarks can sue the one who infringes them. Similarly, payer of non-compete fees can sue the person who violates the non-compete terms and conditions.

The Tribunal concluded by observing that if patents, copyrights and trademarks fulfils the conditions of ‘being an intangible asset’ then surely the non-compete right acquired by the taxpayer also fulfils that condition by way of a logical corollary.

The above are landmark decisions and the views expressed by the judicial authorities need to be kept in mind while structuring a business deal.

(The author is Director, Deloitte Haskins & Sells, Mumbai.)
Get Latest Updates In your Inbox



. SECURITIES (MNP) (TDS)2007-08 ` 01.07.12 01.09.2008 01.10.2012 06.07.2009 07.08.2012 1 PERCENT EXCISE ITEMS LIST 1 sep 1% excise 10 year nsc 10(10C) 1000 court cases judgements supplied to ITO 1000 rupee note 11-2008 11-2010 130 items 14.08.2008 15 august 150 Rs coin 15g 15h 18-12-2009 192(1A) 192A 194 I 194A 194c from 01.10.2009 194H 194j 194LC 1981-2007 2% cst 2% excise 2004 2008 2008-09 FY 2010 206AA 234A 234B 234C 234c interest calculator 234E 23AC 23ACA 23B 24C 24q annexure II 25 paisa coin 271(1)(c) 271B 271H 272B 27A 280 280 challan 281 282 283 29 AUGUST 29.04.2010. 29/08/2008 29/2008 service tax 2g meaning use 3 idiots 30 MARCH 31st March 32-2010 33 of 2009 35(2AA) 35(2AB) 3CD 3g meaning use 40(b) 43B 44 AB EXEMPTED INCOME 44AA 44AB AGRICULTURE 44AB new limit 44AB NON RESIDENT 44ad 46/2012 45/2012 49C 5 day week 5 years post office deposit 5/2011 50 paisa coin 54b 54EC 54ee 54f 54gb 5th paycommission punjab 6 % excise 6 crore advance limit 6/2005 69/2010 6th cpc 6TH PAY COMMISSION 70% of pan etds 7th Central Pay Commission 8 tips to save tax 80C 80ccc 80CCD 80cce 80CCF 80CCG 80d 80DDB 80EE 80G 80GG 80GGA 80GGB 80ggc 80tta 80U 85% of pan etds 86/2008 DATED 13-08-2008 87A rebate 89(1) 89(1) relief calculator 9.5 % rate for private epf 92E 95% of pan etds 98 dated 04/01/08 aadhaar aakash tablet aam admi aar Aayakar Sampark Kendra abatement abolished ACCOUNT PAYEE DRAFT Accounting ACCOUNTING CODE accounting code for services ACCOUNTING FOR GOVT GRANTS accounting standards ACES ADD IN Add-Ins additional relief in budget 2010 adjustment of advance FBT with advance Tax advance rullings advance salary ADVANCE TAX CALCULATOR advance tax challan ADVANCE TAX CUT OFF AMOUNT ADVANCE TAX DATES AFFIDAVIT AG Projects Technologies Ltd RT age 80 addition pension aibea wage revision aibea wage revision latest news aiboa aiboc aiboc wage revision AIG AIR airline ticket booking tds airlines all is well allowances allownces alphabet of inspiration alteration on check allowed alternate minimum tax AMENDED 3CD amendment in companies bill 2011 amendment in gratuity act 2010 amendment in registration service tax AMENDMENT IN SERVICE TAX ON RENT amendment to finance Bill 2010 AMNESTY SCHEME 2007 amt Anna Hazare anna hazzare bill vs govt lokpal bill appeal apply for new pan card against old pan card aqb arbitration arrears of salary arrears of sixth pay ARRERS TAX AS-12 ASBA assessee in default ASSESSMENT REOPENING ASSESSMENT YEAR 2008-09 REFUND atm atm 100 per day atm cash without card atm tips atm wrong debit audit cases itr filing audit limit enhanced Audit Questionaire AUDIT REPORT AUS VS IND.INDIA VS SL Automated teller machine AUTOMATION OF CENTRAL EXCISE AND SERVICE TAX ay 2010-11 bad debts Bank Bank account bank audit bank audit 2012 bank charges BANK SALARY bank strike 06/07/09 and 07/07/09 banking law amendment banknotes banks npa provisioning BARE ACT bare rules BASE RATE BY BANKS bcct BIMAL JAIN biometric pan card black and white form not acceptable black money BLOCK PERIOD blogging bobay refund BONUS bonus share book discount BOOK ON EFILING BOOK REVIEW books of accounts BOOMING INDIAN ECONOMY both House rent allowance both hra and house loan Brass Scrap BRIBE CASE BROKER BSE bsnl broadband bsnl broadband usage bsnl land line sms alert BSR CODES BUDGET 2009 budget 2010 budget 2010-11 budget 2011 BUDGET 2012 budget 2013 BUDGET 2014 BUDGET 2014 CONTEST budget expectations BUDGET HIGHLIGHTS budget live on computer budget live telecast budget notification budget on tv budget speech BUDGET SPEECH DOWNLOAD Budget-2014 Budget-2015 BUDGET-2016 BUDGET08 Business BUSINESS AND PROFESSION MEANING BUSINESS COVERED UNDER 44ab BUY HOUSE C FORM CA CAN ONLY AUDIT MVAT CA CLUB INDIA CA GIRISH AHUJA CA NITIN GUPTA CA PARDEEP JAIN CA ROHIT GUPTA ca services CA sudhir Halakhandi CA Swapnil Munot CA Vikas Khandelwal calculate arrear CALCULATE NEW PAY calculate your emi calculation of tax on salary arrears CALCULATOR CALCULATOR REVISED capital asset capital formation huf Capital gain capital gain account scheme 1988 CAPITAL GAIN INDEX capital gain on repayment of loan capital gain on tenancy rights capital goods capital revenue CAPITAL SUBSIDY CAR LOAN RATE INCREASE carry forward of losses in late return cas cash flow statement CASH PAYMENT DIS ALLOWANCE CASH PAYMENTS EXCEEDING 20000 CASH SUBSIDY cbdt cbec CBI ARRESTED centeral sales tax rate CENTRAL PAY COMMISSION CENTRAL PROCESSING CENTER CENTRALISED PROCESSING OF RETURNS Cenvat CENVAT Credit Rules cgas 1988 challan challan 281 CHALLAN 289 challan correction challan Form 17 CHALLAN STATUS INQUIRY change change in cst rate change in excise duty rates CHANGE IN PAN ADDRESS CHANGE IN PAN DATA change in tds rates in budget changes CHANGES IN SERVICE TAX ACT changes in new itr forms CHANGES IN TDS CHARGES ON CASH PAYMENT OF CREDIT CARD BILL charitable organisation check name from PAN check tds deducted online Cheque cheque bounce cheque payment before due date cheque tender date /realisation date Cheque Truncation CHEQUE VALIDITY child care leave CHILD DEPENDENT PREMIUM CHILD MARRIED PREMIUM child plan childeren name children education allownces chip based atm card cibil cibil for companies CII 2007-08 CII 2008-09 CII 2010 cii 2012-13 CII2011-12 cin CIRCULAR 3/2010 DT 2.03.2010 CIRCULAR 8-2010 CIT v. Emilio Ruiz Berdejo (2010) 320 ITR 190 (Bom.) cloning of atm card clubbing of income COLLECTION CHARGES COLOR SCHEME COMMISSION ON SMALL SAVINGS common error in 2009-10 common error in itr 4-5-6 compa companies bill 2012 COMPANIES RATE COMPANY BILL 2011 company deposit Company Law Settlement Scheme COMPANY REGISTRATION complusory payment of taxes Composition scheme service tax COMPUTER AS FAX MACHINE computer sytem at ito office CONCEPT PAPER configure yahoo mail in outlook express consolidate account statement construction purchase of house Consultancy Service Consumer Price Index continues services CONTRIBUTION TO NEW PENSION SCHEME CONTRIBUTORY PENSION FUND CONVERT FIGURES INTO WORD EXCEL COPARCENER CorpMcash corporation bank correction etds CORRECTION IN PAN DATA correction in section CORRECTION RETURN CORRECTION RETURN.ETDS cost accounting cost audit cost inflation index cost inflation index 2012-13 COST INFLATION INDEX FY 2010-11 COST INFLATION INDEX FY 2011-12 COST OF INDEXATION CALCULATOR court case in entry tax punjab cpc phone number cpf Credit card CREDIT CARD BILL PAYMENT ICICI BANK credit scores cricket team critical illness CROSSED DEMAND DRAFT CRR crr reducred CS DIVESH GOYAL CST CST 3% OR 2 % cst act 1956 cst form CST FORM STATUS cst rate changed CST REDUCE RATE ctt currency CURRENCY TRADING ILLEGAL custom custom changes in budget cusual leave DA MERGE da rate da rate 01.07.2012 da rate january 2013 da rate july 2012 da rate wef 01.01.2012 date extension DDO ASK RENT RECIPT ddt dearness allowance Debit card DEBT EQUITY RATIO debt funds debt trap declared goods DEDUCTION 80C deduction for higher studies deduction on saving bank interst deduction u/s 80DD Deemed income of employee deemed services defective return defence officers defence pay defence pay scales DELAY IN FILING delete ledger in tally DELHI HIGH COURT demat deposit tax of two quarter in single challan depreciation depreciation on car depreciation on commercial vehicle. DEPRECIATION ON INTANGIBLE ASSETS depreciation rate depreciation rate 2009-10 DETAIL AFTER E FILLING DETAIL OF TIN Determination of value DIFFRENT TYPE OF TAXES digital signature din direct payment in bank account DIRECT SUBSIDY direct tax bill direct tax changes in budget direct tax code direct tax code 2009 Disability insurance discussion Paper distribution of salary dividend distribution tax dividend striping dnd do not call. document identification number document ientification number documents required for service tax registration domestic transfer pricing donation dot double taxation dow jones download download 89(1) relief calculator download direct tax code 2012 download form 16A download fvu download idfc INFRA BONDS FORM draft reply drawback rates dtaa dtc DUE DATE AY 2010-11 due date ay 2011-12 due date extended due date extended to 31.08.2012. due date for service tax return due date form 16 due date form 16a due date June due date march tax due date of return 2008-09 due date pf esi due date to deposit tds DUE DATES DUE DATES CALENDAR DUE DATES CALENDER DUE DATES INCOME TAX DUE DATES SERVICE TAX DUE FAMILY PENSION DULICATE PAN DUPLICATE TAN dvat e book Income Tax rules e book on service tax E ERA OF TAXES e filing do and don'ts e filing of audit report e filing processing status e filing software excel free e filing through evc e filing utilities e mode for notice to shareholder e notice to share holder e payment of epf E PAYMENT OF EXCISE DUTY e payment of income tax E PAYMENT OF SERVICE TAX e payment of tds E STAMP DUTY e tutorial for TAN registration E-1 FORM E-1 SALE e-commerce E-FILE SERVICE TAX RETURN e-Intermediary e-payment from friends account E-PAYMENT OF SERVICE TAX e-payment of taxes E-SEVA BY ICAI e-TDS/TCS statements earn from home earned leave Easy Exit Scheme ebay EBOOK EBOOK ON SERVICE TAX economic survey economic survey 2010 economic survey 2011 economic survey 2012 Edible Oils EDITABLE INCOME TAX FORM education cess EDUCATION LOAN eet EFFECTIVE DATE CST RATE REDUCTION effective date of allowncs efiling errors efiling free efiling income tax return efiling of excise return efiling registration problem Electricity act ELECTRONIC FOREX TRADING Electronic Verification Code (EVC) elegent card on holi ELSS EMANAGEMENT OF TAXES EMI CALCULATOR empanelment as branch auditor EMPLOYEE PROVIDENT FUND employee state insurance employee state insurance act 1948 employee state insurance act Limit employer e sewa eMudhra Consumer Services entries r off in 50 paisa entries rounded off in rs ENTRY TAX entry tax punjab epf epf challan epf claim epf e passbook EPF FAQ epf int rate 11-12 epf interest exemption epf interest rate epf interest rate for fy 2010-11 epf limit epf online EPF ONLINE CHALLAN GENERATION epf statement EPF TRUST epf withdrawals epfo equal monthly installments equity funds ER-1 ER-2 er4 form online error in etds return error in st-3 esi esi contribution esi limit 10000 esi limit 15000 esi limit from 01.05.2010 esi return ESOP ETABF ETAX etcs etds etds correction etds defualts etds due date ETDS FVU 3.1 ETDS PAYMENT ETDS Q4 ANN II etds retur with insufficient pan etds return