‘Brand Name’ being akin to trademarks, qualifies for depreciation u/s 32(1)(ii) as ‘intangible asset’

Recently, the Delhi High Court allowed the taxpayer’s claim of depreciation on brand names construing them as intangible assets u/s 32(1)(ii) of the Income Tax Act, after noting that conjoint reading of Section 32(1)(ii) with Explanation 3(b) would show that trademarks are covered under the said provision which would clearly include brand names.

The Division Bench comprising of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “brand names are a specie of the trademark”, which is evident upon reading the definition of “trademark” and “mark” provided in the Trademarks Act, 1999, and therefore, a trademark means a mark which is capable of being represented graphically, and is capable of distinguishing the goods or services of one person from those of others, and may include the shape of goods, their packaging, and combination of colours.

The expression “mark” which is defined in Section 2(m) of the TM Act, includes, among others, a “brand”, and asset as per Explanation 3(b) includes commercial rights of similar nature, added the Bench.

Thus, the Bench ruled that brand names certainly invest owner commercial rights, and therefore, fall within the scope of intangible assets.

Advocate Rohit Jain appeared for the Assessee while the Revenue was represented by Advocate Sanjeev Menon.

Briefly, the Assessee claimed depreciation on chemical recovery plant and also on the brand names used for its paper manufacturing business, considering them as intangible assets under Section 32(1)(ii). The AO however disputed the date of commencement of chemical recovery plant. The AO also disallowed depreciation on brand names since brand name is not referred to u/s 32(1)(ii).

On appeal, the CIT(A) accepted Assessee’s submission regarding date of commencement of chemical plant as well as the depreciation on brand names treating them as intangible assets.

After considering the submission, the Bench noted that the AO had flagged depreciation issue at the fag-end of the assessment proceedings, thus, enough time was not provided for placing relevant material before the AO.

From perusal of the Trademarks Act, the Bench observed that brand names are a specie of trademarks and thus, concludes that the expression “trademark” under Section 32(1)(ii) and Explanation 3(b) would clearly include brand names, and thus, amenable to depreciation.

Cause Title: Pr. Commissioner of lncome Tax vs. Kuantum Papers Ltd [ITA 515/2019 / 2023-Enterslice-21-HC-Del-IT]

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