S.AMBIKA vs. THE DEPUTY COMMISSIONER OF INCOME TAX

J U D G M E N T Ramachandran Nair, J. The sole question raised in the appeal filed by the assessee is whether assessee is entitled to depreciation on the purchase value of abkari licence under Section 32(1)(ii) of the Income Tax Act. The assessee purchased a Bar attached hotel in November 2000 with land, building and FL-3 licence for carrying on retail sale of liquor in the Bar hotel for a total consideration of a little over Rs.80 lakhs. The assessee's case is that out of the total consideration paid, Rs.60 lakhs and odd represents sale price paid for the purchase of FL-3 licence issued for retail sale of liquor in Bar hotel under Rule 13 of the Foreign Liquor Rules prescribed under the Kerala Abkari Act. The assessment involved in this case is for the year 2004- 2005 and in the returns filed assessee claimed depreciation at 25% of the cost of purchase of abkari licence. It is seen from the orders that this is the first scrutiny assessment after the purchase of the hotel with the abkari licence by the assessee. Therefore, it is not known whether in the three preceding assessment years the assessee made the claim of depreciation and the same got allowed without department scrutinising the eligibility for the same. In any case since depreciation claimed is disallowed by all the authorities including the Tribunal, the assessee has filed this appeal challenging the order of the Tribunal. We have heard Sri.Anil.K. Narendran, counsel appearing for the appellant-assessee and Standing decision of the Honourable Supreme Court in Techno Shares & "intangible assets" covered by Section 32 of the Income Tax Act as explained by the Bombay High Court in their judgment in Commissioner of Income Tax vs. Techno Shares & Stocks Ltd. (323 ITR 69) is not upset by the Honourable Supreme Court, no matter their finding is reversed.

It is clear from the above that the licence is treated as a transfearable asset and the Excise Commissioner is authorised to approve transfers. Obviously, when licence is transferable according to the Rules under which it is issued, it is for consideration and there is no dispute that the appellant has paid massive amount for transfer of the licence, which will be renewed on an year to year basis. Once FL-3 licence is obtained that will be renewed every year unless general policy decision is taken by the Government against it, and so much so, it is a business asset for long term exploitation. Therefore, abkari licence is a business right given to the party to carry on liquor trade. In our view, the abkari licence squarely falls under Section 32(1)(ii) on which the assessee is entitled to depreciation at 25% of the written down value as provided under Section 32(1) read with Part B of Old Appendix I under Rule 5 of the Income Tax Rules. However, we notice that the assessee's claim for depreciation at 25% of the actual cost is not allowable because depreciation has to be allowed only on written down value. The previous year relevant for the assessment year being the 3rd year of business, the assessee is entitled to depreciation at 25% of the written down value after reckoning depreciation for the preceding years. The appeal is accordingly allowed vacating the orders of the Tribunal and that of the lower authorities with a direction to the Assessing Officer to allow depreciation on the written down value of the purchase cost of abkari licence as stated above. C.N.RAMACHANDRAN NAIR Judge BHABANI PRASAD RAY Judge jg