I bought a Bombay Stock Exchange membership card — can I claim depreciation on it as an intangible asset under section 32(1)(ii)?
Yes, on these facts. The Supreme Court held on 9 September 2010 that the right of membership of the Bombay Stock Exchange, which includes the right of nomination, is a business or commercial right that gives a non-defaulting continuing member access to the Exchange and the ability to trade on its floor. Under Rule 5 membership is a personal permission from the Exchange, which is a licence, and Explanation 3 to section 32(1)(ii) declares a commercial right similar to a licence or franchise to be an intangible asset. The right vests in the Exchange only on default or demise. The Bombay High Court's contrary judgment was set aside.
Decided by the Supreme Court (Supreme Court of India; S.H. Kapadia CJI and K.S. Radhakrishnan J, judgment delivered by S.H. Kapadia CJI) on 2010-09-09, reported as 2010 AIR SCW 6066; 2010 (9) SCC 410; (2010) 327 ITR 323; (2010) 9 SCALE 251. It bears on section 32(1)(ii), section 32 of the Income Tax Act 1961, in Deductions & Disallowances and Assessment & Scrutiny matters.
Practitioners reach for this decision on the reach of the words licence and any other business or commercial right of similar nature in section 32(1)(ii). It rejects the Bombay High Court's ejusdem generis reading, which had confined those words to intellectual property of the kind listed before them, and it holds that a right to participate in a market, having economic and money value, can qualify. It also reconciles Vinay Bubna and Stock Exchange, Ahmedabad, both relied on by the department: those cases decided what happens once a member defaults or dies and the card vests in the Exchange, and they confirm rather than deny that the card is an asset of a non-defaulting continuing member. But the Court fenced its own judgment in expressly, confining it to the BSE membership card under the Rules and Bye-laws as they then stood, and warning that not every business or commercial right is a licence or franchise.
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In the lead matter the assessment years are 1999-2000 to 2002-03. For 1999-2000 the assessee company returned a loss of Rs.10,77,276, processed under section 143(1). The assessment was reopened under section 147 and a notice under section 148 issued on 16 July 2002, the reason being a claim of depreciation of Rs.23,65,000 on a Bombay Stock Exchange membership card. The assessee argued that the card was a licence, or a business or commercial right of similar nature, and so an intangible asset within section 32(1)(ii), which the Finance (No. 2) Act 1998 had inserted for assets acquired on or after 1 April 1998. The Assessing Officer refused: membership was a personal, non-transferable permission not devolving automatically on legal heirs, there was no ownership of an asset, what could be sold was only a right of nomination, and the card suffered no obsolescence or wear and tear. The Commissioner (Appeals) agreed. The Tribunal allowed the claim. The Bombay High Court reversed, applying ejusdem generis to hold that licence and business or commercial rights of similar nature take their colour from know-how, patents, copyrights, trademarks and franchises, all intellectual property rights. A large batch of appeals followed.
The question was answered in the affirmative: the Tribunal was right that depreciation is allowable on the cost of the membership card under section 32(1)(ii). The Bombay High Court's judgments were set aside and the appeals of the nominated non-defaulting continuing members allowed, with no order as to costs. The right of membership is a business or commercial right conferred by the Rules of the Exchange on a non-defaulting continuing member; it is owned by him and used for the purposes of his business, since the right, including the right of nomination, vests in the Exchange only on default or demise. Membership under Rule 5 is a personal permission from the Exchange, which is a licence enabling the member to trade on the floor and to access the market, and that right has economic and money value. The Court expressly confined the judgment to the BSE card under the Rules as they then stood, and said it must not be read as making every business or commercial right a licence or franchise.
The Court read the Exchange's Rules as the source of the right. Rule 5 makes membership a personal permission from the Exchange to exercise the rights and privileges attached to it. Rule 6 forbids assignment, mortgage or charge. Rule 7 gives a personal and non-transferable right of nomination, and Rules 9 and 10 provide that on death or default the right of nomination ceases and the membership vests in the Exchange absolutely, free of all claims, to be dealt with as it thinks fit, the proceeds being applied under Rule 16 to the defaulter's dues. From that structure the Court drew the decisive proposition: a non-defaulting continuing member owns the right of nomination until his membership is forfeited. It is that right which lets him participate in trading on the floor, so it is a business or commercial right, and it is owned and used for business purposes within section 32(1)(ii). Explanation 3 to the sub-section declares a commercial or business right similar to a licence or franchise to be an intangible asset, and a personal permission under Rule 5 is nothing but a licence. The two decisions the department pressed were then shown to support the same conclusion. Vinay Bubna concerned a member already declared a defaulter, whose interest had passed to the Exchange, and it proceeds on the footing that the card is an asset of a non-defaulting member. Stock Exchange, Ahmedabad concerned a deceased member declared a deemed defaulter, and held only that the sale proceeds belonged absolutely to the Exchange after vesting and could not be attached by the department.
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.
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Handle my notice → Ask a CA on WhatsAppYes, on these facts. The Supreme Court held on 9 September 2010 that the right of membership of the Bombay Stock Exchange, which includes the right of nomination, is a business or commercial right that gives a non-defaulting continuing member access to the Exchange and the ability to trade on its floor. Under Rule 5 membership is a personal permission from the Exchange, which is a licence, and Explanation 3 to section 32(1)(ii) declares a commercial right similar to a licence or franchise to be an intangible asset. The right vests in the Exchange only on default or demise. The Bombay High Court's contrary judgment was set aside. This was decided by the Supreme Court (Supreme Court of India; S.H. Kapadia CJI and K.S. Radhakrishnan J, judgment delivered by S.H. Kapadia CJI) and bears on section 32(1)(ii), section 32 of the Income Tax Act 1961. It is reported as 2010 AIR SCW 6066; 2010 (9) SCC 410; (2010) 327 ITR 323; (2010) 9 SCALE 251. Practitioners reach for this decision on the reach of the words licence and any other business or commercial right of similar nature in section 32(1)(ii). It rejects the Bombay High Court's ejusdem generis reading, which had confined those words to intellectual property of the kind listed before them, and it holds that a right to participate in a market, having economic and money value, can qualify. It also reconciles Vinay Bubna and Stock Exchange, Ahmedabad, both relied on by the department: those cases decided what happens once a member defaults or dies and the card vests in the Exchange, and they confirm rather than deny that the card is an asset of a non-defaulting continuing member. But the Court fenced its own judgment in expressly, confining it to the BSE membership card under the Rules and Bye-laws as they then stood, and warning that not every business or commercial right is a licence or franchise. If it applies to you, the first step is this: When claiming depreciation on an intangible, work from the governing document — here it was Rules 5 to 11 and 16 of the Exchange — and show what the right permits the holder to do and when it can be taken away.
In the lead matter the assessment years are 1999-2000 to 2002-03. For 1999-2000 the assessee company returned a loss of Rs.10,77,276, processed under section 143(1). The assessment was reopened under section 147 and a notice under section 148 issued on 16 July 2002, the reason being a claim of depreciation of Rs.23,65,000 on a Bombay Stock Exchange membership card. The assessee argued that the card was a licence, or a business or commercial right of similar nature, and so an intangible asset within section 32(1)(ii), which the Finance (No. 2) Act 1998 had inserted for assets acquired on or after 1 April 1998. The Assessing Officer refused: membership was a personal, non-transferable permission not devolving automatically on legal heirs, there was no ownership of an asset, what could be sold was only a right of nomination, and the card suffered no obsolescence or wear and tear. The Commissioner (Appeals) agreed. The Tribunal allowed the claim. The Bombay High Court reversed, applying ejusdem generis to hold that licence and business or commercial rights of similar nature take their colour from know-how, patents, copyrights, trademarks and franchises, all intellectual property rights. A large batch of appeals followed. The matter was decided on 2010-09-09 by the Supreme Court (Supreme Court of India; S.H. Kapadia CJI and K.S. Radhakrishnan J, judgment delivered by S.H. Kapadia CJI). On those facts the Supreme Court held as follows. The question was answered in the affirmative: the Tribunal was right that depreciation is allowable on the cost of the membership card under section 32(1)(ii). The Bombay High Court's judgments were set aside and the appeals of the nominated non-defaulting continuing members allowed, with no order as to costs. The right of membership is a business or commercial right conferred by the Rules of the Exchange on a non-defaulting continuing member; it is owned by him and used for the purposes of his business, since the right, including the right of nomination, vests in the Exchange only on default or demise. Membership under Rule 5 is a personal permission from the Exchange, which is a licence enabling the member to trade on the floor and to access the market, and that right has economic and money value. The Court expressly confined the judgment to the BSE card under the Rules as they then stood, and said it must not be read as making every business or commercial right a licence or franchise.
The Court read the Exchange's Rules as the source of the right. Rule 5 makes membership a personal permission from the Exchange to exercise the rights and privileges attached to it. Rule 6 forbids assignment, mortgage or charge. Rule 7 gives a personal and non-transferable right of nomination, and Rules 9 and 10 provide that on death or default the right of nomination ceases and the membership vests in the Exchange absolutely, free of all claims, to be dealt with as it thinks fit, the proceeds being applied under Rule 16 to the defaulter's dues. From that structure the Court drew the decisive proposition: a non-defaulting continuing member owns the right of nomination until his membership is forfeited. It is that right which lets him participate in trading on the floor, so it is a business or commercial right, and it is owned and used for business purposes within section 32(1)(ii). Explanation 3 to the sub-section declares a commercial or business right similar to a licence or franchise to be an intangible asset, and a personal permission under Rule 5 is nothing but a licence. The two decisions the department pressed were then shown to support the same conclusion. Vinay Bubna concerned a member already declared a defaulter, whose interest had passed to the Exchange, and it proceeds on the footing that the card is an asset of a non-defaulting member. Stock Exchange, Ahmedabad concerned a deceased member declared a deemed defaulter, and held only that the sale proceeds belonged absolutely to the Exchange after vesting and could not be attached by the department. In the words reproduced by the source cited on this page: "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."
It was decided by the Supreme Court on 2010-09-09 and is reported as 2010 AIR SCW 6066; 2010 (9) SCC 410; (2010) 327 ITR 323; (2010) 9 SCALE 251. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 32(1)(ii), section 32, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The question was answered in the affirmative: the Tribunal was right that depreciation is allowable on the cost of the membership card under section 32(1)(ii). The Bombay High Court's judgments were set aside and the appeals of the nominated non-defaulting continuing members allowed, with no order as to costs. The right of membership is a business or commercial right conferred by the Rules of the Exchange on a non-defaulting continuing member; it is owned by him and used for the purposes of his business, since the right, including the right of nomination, vests in the Exchange only on default or demise. Membership under Rule 5 is a personal permission from the Exchange, which is a licence enabling the member to trade on the floor and to access the market, and that right has economic and money value. The Court expressly confined the judgment to the BSE card under the Rules as they then stood, and said it must not be read as making every business or commercial right a licence or franchise. It arises in Deductions & Disallowances and Assessment & Scrutiny matters, on section 32(1)(ii), section 32 of the Income Tax Act 1961, and was decided by Supreme Court of India; S.H. Kapadia CJI and K.S. Radhakrishnan J, judgment delivered by S.H. Kapadia CJI. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show ownership and use for the business: the Court's answer turned on the right vesting in the Exchange only on default or demise, the member otherwise continuing to trade and to nominate. Do not treat this as authority that any commercial right is depreciable; the Court said in terms that its judgment is not to be read that way, so build the case on the specific right in your own facts. Where the department relies on Vinay Bubna or Stock Exchange, Ahmedabad, point out that both concerned a defaulting or deceased member after vesting, and so say nothing against a continuing member's claim.
Still good law. A citator search on the judgment returns 167 later decisions citing it. The Chennai Bench applied it in its own reasoning in Unifi Capital Private Limited v Income-tax Officer (21 April 2021), taking from it that a 'membership card would constitute an intangible asset and the assessee could be entitled to depreciation on the cost of membership card u/s.32(1)(ii)', and holding on that basis that MCX membership fees were capital expenditure eligible for depreciation rather than revenue expenditure. It is also applied by the Ahmedabad Bench in Mundra International Container Terminal v Principal Commissioner of Income Tax-2 (23 January 2017) and by the Mumbai Bench in India Infoline Ltd (23 August 2011), and used by analogy for other intangibles, as in Mahindra Holidays and Resorts India Ltd v DCIT (10 May 2023). Knight Riders Sports P Ltd v ACIT (Mumbai Bench, 29 December 2017) is not authority for anything about the BSE membership card: it concerns IPL franchise payments, and the judgment is invoked there by the Assessing Officer and the CIT(A), whose treatment of the franchise right as an intangible asset under section 32(1)(ii) the Tribunal upheld. Nothing overruling or doubting the judgment was found. Its own terms remain the limit: it is confined to the BSE membership card under the Rules and Bye-laws as they stood in the relevant assessment years, and the Exchange has since been corporatised and demutualised. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The full judgment text was harvested and read. The most important limit is the Court's own: it says in terms that the judgment is strictly confined to the right of membership under the BSE card during the relevant assessment years, and is not to be understood as meaning that every business or commercial right constitutes a licence or franchise under section 32(1)(ii). It does not decide whether the Bombay High Court's ejusdem generis approach is wrong as a general matter of construction — it simply does not adopt it — and it says nothing about the rate of depreciation or about the treatment of the card on a later transfer. The judgment also gives figures only for the lead matter and does not identify the years or amounts in the large batch of connected appeals. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The question was answered in the affirmative: the Tribunal was right that depreciation is allowable on the cost of the membership card under section 32(1)(ii). The Bombay High Court's judgments were set aside and the appeals of the nominated non-defaulting continuing members allowed, with no order as to costs. The right of membership is a business or commercial right conferred by the Rules of the Exchange on a non-defaulting continuing member; it is owned by him and used for the purposes of his business, since the right, including the right of nomination, vests in the Exchange only on default or demise. Membership under Rule 5 is a personal permission from the Exchange, which is a licence enabling the member to trade on the floor and to access the market, and that right has economic and money value. The Court expressly confined the judgment to the BSE card under the Rules as they then stood, and said it must not be read as making every business or commercial right a licence or franchise.
TaxSphere, “Techno Shares & Stocks Ltd v CIT”, https://taxnotice.vittsphere.com/caselaw/case/techno-shares-stocks-ltd-v-cit/ (validity last checked 2026-08-29)
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