“commercial rights”
The decision most relied on for commercial rights is Empire Jute Co. Ltd. v. CIT (124 ITR 1), cited in 622 judgments on BharatTax.
Leading authorities on commercial rights
Expenditure is classified as revenue or capital based on its practical business effect, necessity, or expediency, rather than solely on the juristic classification of rights; an enduring benefit does not automatically make an expenditure capital if it facilitates trading operations or business efficiency.
Goodwill, whether arising from an amalgamation or a slump sale, is an intangible asset eligible for depreciation under Section 32(1) of the Income-tax Act. While the assessee must prove the existence and valuation of such goodwill, it is recognized as a depreciable asset.
If the Assessing Officer relies on adverse evidence or witness testimony, including statements recorded under Section 132(4), the assessee must be provided an opportunity to cross-examine the witness or source of the evidence, upholding principles of natural justice. An assessment made without such an opportunity may be considered invalid.
Membership rights and business contracts, as 'business or commercial rights of similar nature' to a license or franchise, qualify as intangible assets eligible for depreciation under Section 32(1)(ii) of the Income-tax Act.
Business contracts and commercial rights of similar nature qualify as intangible assets under Section 32(1)(ii) and are eligible for depreciation. The decision also affirms that goodwill is an intangible asset eligible for depreciation.
A non-compete fee paid as part of a business acquisition or transaction constitutes an intangible asset, eligible for depreciation under Section 32(1)(ii) of the Income-tax Act.
A deduction for interest expense on borrowed funds used for interest-free advances to group companies is permissible only if the assessee establishes these advances were from surplus funds. The decision further clarifies eligibility for depreciation on intangible assets like non-compete fees, software, goodwill, and commercial rights under section 32(1)(ii), often arising from a slump sale.
The Supreme Court in Techno Shares & Stocks Ltd. v. CIT-IV held that depreciation is not available on a BSE membership card under section 32(1)(ii) of the Income Tax Act as it is not a depreciable asset for the purpose of business or commercial rights of a similar nature.
