The Supreme Court has held that a firm can claim deduction or depreciation in income tax on expenses incurred for acquisition of intellectual property, such as patent and trademarks rights, copyrights and know-how, as they are capital in nature.
The SC, in the case of Mangalore Ganesh Beedi Works vs CIT, said when a firm acquires the plant of another, the intellectual property would fall within the definition of ‘plant’ as “there can be no doubt that for the purposes of a large business, control over intellectual property rights (IPR) such as brand name, trademark etc. are absolutely necessary.” It said “the acquisition of such rights and know-how is acquisition of a capital nature. Therefore, it cannot be doubted that so far as the firm is concerned, the trademarks, copyrights and know-how acquired by it would come within the definition of ‘plant’ being commercially necessary and essential as understood by those dealing with direct taxes”.