The decision of the Hon’ble Apex Court in the case of Techno Shares has given birth to a whole new chapter in the confounding world of taxes or rather aggravated the already existing such world. The decision allows depreciation on BSE membership card at the rate of 25%, holding the same to be an intangible asset under section 32. This decision has led the Revenue to a very strange domain, example whereof is as follows:-
Suppose the assessee has purchased the BSE card for Rs. 10,000/- in the year 1996. By virtue of this decision, he will start claiming the depreciation from that year on. And thus, within a period of time, would recover the cost qua depreciation. In the PY 2005-2006, the BSE was corporatized and the then members got two things in lieu of that:-
1. Equity shares in BSE Ltd.
2. Trading and clearing rights.
The cost of acquisition of both of these capital assets are DEFINED under section 55(2)of the Act wherein the CoA of the former is same as that of the card and CoA of the latter is nil. Conspicuously, the Act is absolutely quiet about the ‘actual cost’ of trading and clearing rights which suggests the inference that the same is no depreciable asset.
Now, suppose the assessee sells the equity shares of BSE Ltd. Then, by the deeming fiction created in section 55 of the Act, the assessee will claim not only the cost of acquisition of the BSE card (on which depreciation has already been claimed, that is the cost is already recovered) but rather the indexed cost of acquisition. This has led the taxation into blatant realm of double deduction which is held by the Hon’ble Courts of law as not permissible come what may. The assessee has already got the deduction of his cost by way of depreciation and now again getting the same by having indexed cost of acquisition. Hon’ble Supreme Court, while passing the order, missed the point and has thereby contradicted its own decisions delivered earlier.
To add salt on the wound, the assessee also continues to claim the depreciation on trading and clearing rights, stating audaciously that it’s the CoA which is nil and not the ‘actual cost’.
So, welcome to the strange new world of double deductions!!!