M/S. TECHNO SHARES & STOCKS LTD. versus THE COMMISSIONER OF INCOME TAX IV

Citation: [2010] 11 S.C.R. 437 · Decided: 09-09-2010 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed
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Judgment (excerpt)

[2010] 11 S.C.R. 437 
M/S. TECH NO SHARES & STOCKS LTD. 
v. 
THE COMMISSIONER OF INCOME TAX IV 
(Civil Appeal Nos. 7780-7781 of 2010) 
SEPTEMBER 9, 2010 
[S.H. KAPADIA, CJI AND K.S. PANICKER 
RADHAKRISHNAN, J.] 
A 
8 
Income Tax Act, 1961 - 32(1)(ii) - Depreciation under -
Whether permissible on the cost of a Stock Exchange 
C 
Membership Card - Held: As per Bombay Stock Exchange 
Rules, membership right is a 'Business or Commerciar Right' 
- Therefore, depreciation is allowable on the cost of a Stock 
Exchange Membership Card - Bombay Stock Exchange 
Rules - Rules 5 to 10 and 16 - Bombay stock exchange Bye-
D 
Laws-Bye-law 400. 
The question which arose for consideration in the 
instant appeals was whether depreciation u/s. 32(1)(ii) of 
Income Tax Act, 1961 is allowable on the cost of a Stock E 
Exchange Membership Card. 
Allowing the appeals, the Court 
HELD: 1.1 On the facts and circumstances of the 
instant cases, the Tribunal was right in holding that 
F 
depreciation was allowable on the cost of the Stock 
Exchange Membership Card u/s. 32(1 )(ii) of the Income 
Tax Act, 1961. On the analysis of the Rules of BSE, it is 
clear that the right of membership (including right of 
nomination) gets vested in the Exchange on the demise/ G 
default committed by the member; that, on such forfeiture 
and vesting in the Exchange, the same gets disposed of 
by inviting offers and the consideration received thereof 
is used to liquidate the dues owed by the former/ 
437 
H 
438 
SUPREME COURT REPORTS 
[2010) 11 S.C.R. 
A defaulting member to the Exchange, Clearing House, etc. 
It is this right of membership which allows the non-
defaulting member to participate in the trading session 
on the floor of the Exchange. Thus, the said membership 
right is a "business or commercial right" conferred by the· 
B Rules of BSE on the non-defaulting continuing member. 
[Paras 18 and 25) [458-C; 453-G-H; 454-A] 
1.2 Rules 5 to 10 and 16 of BSE Rules and the Bye-
law 400 of BSE indicate that the right of membership 
C (including the right of nomination) vests in the Exchange 
only when a member commits default. Otherwise, he 
continues to participate in the trading session on the 
floor of the Exchange; that he continues to deal with 
other members of the Exchange and even has the right 
to nominate subject to compliance of the Rules. By virtue 
D of Explanation 3 to Section 32(1 )(ii), the commercial or 
business right which is similar to a "licence" or 
"franchise" is declared to be an intangible asset. 
Moreover, u/r. 5 membership is a personal permission 
from the Exchange which is nothing but a "licence" 
E which enables the member to exercise rights and 
privileges attached thereto. It is this licence which 
enables the member to trade on the floor of the Exchange 
and to participate in the trading session on the floor of 
the Exchange. It is this licence which enables the member 
F to access the market. Therefore, the right of membership, 
which includes right of nomination, is a "licence" or "akin 
to a licence" which is one of the items which falls in 
Section 32(1 )(ii) of the 1961 Act. The right to participate 
in the market has an economic and money value. It is an 
G expense incurred by the assessee which satisfies the test 
of being a "licence" or "any other business or commercial 
right of similar nature" in terms of Section 32(1 )(ii). [Para 
19) [453-C-G] 
H 
• -~inay Bubna v. Stock Exchange, Mumbai (1999) 6 SCC 
TECHNO SHARES & STOCKS LTD. v. COMMISSIONER 439 
OF INCOME TAX IV 
215; 
Stock Exchange, 
Ahmedabad 
v. 
Assistant A 
Commissioner of Income-Tax (2001) 248 ITR 209 - relied 
on. 
2. The instant judgment is strictly confined to the 
right of membership conferred upon the member under 8 
the BSE membership card during the relevant 
assessment years. The judgment should not be 
understood to mean that every business or commercial 
right would constitute a "licence" or a "franchise" in 
terms of Section 32(1)(ii) of the 1961 Act. [Para 24] [457-
C 
F-G; 458-A] 
Case Law Reference: 
(1999) s sec 215 
(2001) 248 ITR 209 
Relied on. 
Relied on. 
Para 20 
Para 20 
D 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 
7780-7781 of 2010. 
From the Judgment & Order dated 11.09.2009 of the 
High Court of Judicature at Bombay in Income Tax Appeal No. 
E 
1333 of 2009. 
WITH 
C.A. Nos. 7782, 7783-7785, 7786-7788, 7789, 7790-
7791, 7792, 7793-7794, 7795-7798, 7799-7802, 7803-7804, 
F 
7805, 7806-7809, 7810-7812, 7813-7814, 7815-78
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