Brand names and marketing-distribution networks qualify as depreciable intangible commercial rights under Section 32(1)(ii).

For Assessment Year 2001–02, the assessee claimed depreciation on intangible assets forming part of its opening written-down value, including the brand name “Arvind” and the marketing and distribution network, valued at ₹12,03,12,500. These assets had been acquired in Assessment Year 2000–01 along with the business of an industrial undertaking from Arvind Mills Ltd.

The Assessing Officer disallowed depreciation on the ground that Section 32(1)(ii) did not expressly cover a marketing and distribution network or brand name.

The Commissioner of Income-tax (Appeals) allowed the claim, holding that the assets constituted trademarks, franchises, licences, or other business or commercial rights of similar nature under Section 32(1)(ii).

The Income Tax Appellate Tribunal affirmed the CIT(A)’s order, finding that the assets had been acquired in Assessment Year 2000–01 and formed part of the relevant depreciation block.

The Revenue challenged that decision before the Gujarat High Court.

Whether depreciation under Section 32(1)(ii) of the Income-tax Act, 1961, was allowable on the intangible assets comprising the brand name “Arvind” and the marketing and distribution network, amounting to ₹12,03,12,500?

Whether such assets constituted trademarks, franchises, licences, or other business or commercial rights of similar nature within the meaning of Section 32(1)(ii)?

The Court applied Section 32(1)(ii) of the Income-tax Act, 1961, which permits depreciation on specified intangible assets—including know-how, patents, copyrights, trademarks, licences, franchises, and other business or commercial rights of similar nature—acquired on or after 1 April 1998, owned by the assessee, and used for business or professional purposes.

Explanation 3(b) to Section 32(1) similarly identifies trademarks, licences, franchises, and other business or commercial rights of similar nature as intangible assets.

The Court also relied on CIT v. Smifs Securities Ltd., [2012] 348 ITR 302 (SC), where the Supreme Court held that the expression “any other business or commercial rights of similar nature” must be interpreted by applying the principle of ejusdem generis and may include commercially valuable intangible rights.

The Court accepted the concurrent factual findings of the CIT(A) and the Tribunal that the assessee had acquired the brand name “Arvind” and the marketing and distribution network in Assessment Year 2000–01 and that these assets were used in its business.

Applying Section 32(1)(ii), the Court held that the statutory enumeration of trademarks, licences, franchises, and other similar business or commercial rights was sufficiently broad to cover the assets in question.

The Court further considered the reasoning in Smifs Securities, which recognised that commercially valuable intangible rights falling within the expression “other business or commercial rights of similar nature” are eligible for depreciation.

Since the Revenue did not demonstrate any error in the concurrent findings or establish that the assets fell outside the statutory category of depreciable intangible assets, the Tribunal’s decision required no interference.

The Revenue’s appeal was accordingly dismissed.