When a company acquires the plant of another, intellectual property such as brand name, copyright and know- how are of capital nature and it can claim deduction or depreciation in income tax, the Supreme Court has ruled. In this case, Mangalore Ganesh Beedi Works vs CIT, the partnership was dissolved and a new company consisting of association of persons was formed to continue the business. The new entity claimed depreciation under of the Income Tax Act towards acquisition of IPR. In the alternative, it claimed depreciation on capitalising the value of IPR by treating them as ‘plant’. The tax authorities rejected the claim. After appeals in forums below and the Karnataka high court, the question was raised by the firm in the Supreme Court: Would intellectual property come within the definition of ‘ plant’? The court answered yes, “ for the reason that there can be no doubt that for the purposes of a large business, control over IPR is absolutely necessary.” Further, the judgment explained that “the acquisition of such rights and know- how is acquisition of acapital nature. Therefore, it cannot be doubted that so far as the firm is concerned, the trademarks, copyrights and knowhow acquired by it would come within the definition of ‘ plant’ being commercially necessary and essential as understood by those dealing with direct taxes.” The definition of plant in the Act mentions “ vehicles, books, scientific apparatus and surgical equipment purchased for the purposes of the business, profession or vocation.” But the definition must be given an expanded meaning including IPR, the court said.
Business Standard, New Delhi, 26th Oct. 2015
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