The definition of intangible assets is fairly broad and,while items such as patents, licences, franchises, knowhow, etc are specifically included, any other asset which is "business or commercial right of similar nature" would also be eligible. Since certain assets such as knowhow and patents were eligible for amortisation, assets acquired earlier to 1-4-1998 would be eligible for amortisation and assets acquired thereafter will be eligible for the new scheme of depreciation.

Business restructuring transactions such as joint ventures, acquisitions, mergers and take-overs lead to acquisition of brands, knowhow, etc. Other commercial rights such as non-compete agreements may also arise and, depending upon the facts of each case, most of these assets will now be eligible for depreciation.

What about assets which are self acquired or acquired at a low price but are now very valuable? As per the scheme of the law, unless one has paid something, it cannot be included in the cost and, hence, depreciation on the current higher market value cannot be claimed. Mererevaluation of the existing assets at its higher market value will not help. Another hurdle is that since such assets may have been "acquired" prior to April 1, 1998, these may not be eligible for depreciation. Can such assets be transferred to, say, a group concern. This would overcome both the hurdles. The transfer can be at a higher value and thus depreciation can be claimed on such amount. Further, since the acquirer would have acquired it now, the other hurdle would also be overcome. However, at least two issues would have to be considered. One is capital gains in the hands of the seller. However, there may be a way out. It is well settled law that self generated assets for which the cost of acquisition cannot be determined cannot be subject to capital gains per the ruling of the Supreme Court in Srinivasa Setty's case (128 ITR 294). While an amendment has barred goodwill from being eligible for this benefit, most other intangible assets are left out and hence exemption from capital gains is possible.The other problem is that a specific provision in Section 43 states that if an asset is transferred with the intention to claim higher depreciation, the assessing officer can make suitable adjustments and hence disallow such claim. However, it has been repeatedly held that these provisions apply only to those cases where the value has been artificially been inflated far beyond its true market value with a collusive intent (Jogta Coal Co Ltd vs CIT (1965) 55 ITR 89 (Cal.); Guzdar Kajora Coal Mines Ltd (1972) 85 ITR 599 (SC); CIT vs Dalmia Dadri Cement Ltd (1980) 125 ITR 510 (Del). It is submitted that if the transfer is at the fair market value, this provision cannot be applied unless the sole objective of the transfer was to claim higher depreciation. The acquirer may be well advised to carry out a professional valuation of the asset in such cases or generally, to avoid litigation. To summarise, transfer of the asset may help the acquirer in claiming higher depreciation but this should be done with care.Another aspect to take care of in transfer of such assets is stamp duty. This may vary from state to state and in individual circumstances or, by proper planning, it could be avoided.

What are the intangible assets eligible for depreciation? Assets specifically mentioned are knowhow, patents, copyrights, trademarks, licences, and franchises. However, any other "business or commercial right of similar nature" would also be eligible. Doubts have been expressed as to whether goodwill could be included. It seems wherever it can be established that it represents predominantly a right, depreciation should be allowable. Note that in an amalgamation, the transferee company gets depreciation on the written down value of the assets of the transferor company and not the actual amount paid. This is not so in acquisition of a running business. One should also be well aware of the disincentives of claiming depreciation if the asset might be sold in the future. Section 50 specifically treats such assets as short-termassets by which the benefit of lower taxes through indexation, lower rates, etc, are lost. However, wherever possible, the assessee could still argue that, in view of Srinivasa Setty's case cited earlier, there could be no capital gains.

To conclude, a whole new dimension has been introduced in the provisions for depreciation and in an era where brands, knowhow, patents are set to reign supreme, tax law is coming slowly in tune with times.

(The author is a Mumbai-based chartered accountant)