In the case of conflict between the provisions of the Income-tax Act, 1961 („the Act‟) and this Income Computation and Disclosure Standard, the provisions of the Act shall prevail to that extent.

Scope
1. This Income Computation and Disclosure Standard deals with the treatment of intangible assets. This Income Computation and Disclosure Standard does not deal with:
(a) intangible assets that are covered by another Income Computation and Disclosure Standard;
(b) financial assets;
(c) mineral rights and expenditure on the exploration for, or development and extraction of, minerals, oil, natural gas and similar non-regenerative resources;
(d) intangible assets arising from contracts with policyholders;
(e) expenditure in respect of termination benefits;
(f) intangible assets held for sale in the ordinary course of business;
(g) deferred tax assets;
(h) leases; and
(i) Goodwill.

Definitions

2(1) The following terms are used in this Income Computation and Disclosure Standard with the meanings specified:
(a) An “intangible asset” is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.
(b) An “asset” is a resource:
    (i) controlled by a person as a result of past events; and
    (ii) from which future economic benefits are expected to flow to the person.
(c) “Monetary assets” are money held and assets to be received in fixed or determinable amounts of money.
(d) “Non-monetary assets” are assets other than monetary assets.
(e) “Research” is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
(f) “Development” is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services prior to the commencement of commercial production or use.
(g) “Depreciation” is the systematic allocation of the depreciable amount of an intangible asset.
(h) “Depreciable amount” is the actual cost of an asset.
(i) “Fair value” of an asset is the amount for which that asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.
(j) “Written down value” is the depreciable amount of an asset, net of any accumulated depreciation.
(k) A “financial asset” is any asset that is either cash; a contractual right to receive cash or another financial asset; a contractual right to exchange financial instruments under conditions that are potentially favourable; or an ownership interest.

2(2) Words and expressions used and not defined in this Income Computation and Disclosure Standard but defined in the Act shall have the meaning assigned to them in the Act.

Identification of Intangible Assets
3. The definition in paragraph 2 (1) (a) provides the criteria for determining whether an item is to be classified as an intangible asset. Where the expenditure on an intangible item does not meet the definition of an intangible asset, such expenditure shall be recognised as an expense when it is incurred.

4. Intangible assets contained in or on a physical substance shall be classified as intangible assets even though they are contained in or on a physical substance. Where an asset incorporates both intangible and tangible elements that are, in practice, inseparable; the asset shall be classified based on the predominant element.

5. The definition of an intangible asset requires that an intangible asset shall be identifiable. To be identifiable, it is necessary that the intangible asset is clearly distinguished from goodwill. An intangible asset can be clearly distinguished from goodwill if the asset is separable. An asset is separable if a person could rent, sell, exchange or distribute the specific future economic benefits attributable to the asset without disposing of future economic benefits that flow from other assets used in the same revenue earning activity. Separability is not a necessary condition for identifying an intangible asset where the asset can be otherwise identified. Where an intangible asset is represented by legal rights, such rights would enable identification of the intangible asset.

6. Control of an intangible asset shall stem from legal rights that are enforceable in a court of law.

7. The future economic benefits flowing from an intangible asset include revenue from the sale of products or services, cost savings, or other benefits resulting from the use of the asset.

Recognition and Initial Measurement of an Intangible Asset
8. An intangible asset shall be measured initially at actual cost.

9. The actual cost of an acquired intangible asset shall comprise its purchase price, import duties and other taxes (excluding those subsequently recoverable), and any directly attributable expenditure on making the asset ready for its intended use. Any trade discounts and rebates shall be deducted in arriving at the actual cost.

10. When an intangible asset is acquired in exchange for shares or other securities, the value of the intangible asset so acquired shall be its actual cost.

11. Where an intangible asset is acquired as a part of a group of assets for a consolidated price, the consideration shall be apportioned to the intangible asset based on its fair value.

12. Where an intangible asset is acquired by way of a government grant, it shall be recognised in accordance with the Income Computation and Disclosure Standard on government grants.

13. When an intangible asset is acquired in exchange for another asset, the value of the intangible asset so acquired shall be its actual cost.

14. The cost of an intangible asset may undergo changes subsequent to its acquisition on account of
(i) price adjustment, changes in duties or similar factors; or
(ii) exchange fluctuation as specified in Income Computation and Disclosure Standard on the effects of changes in
    foreign exchange rates.

Internally Generated Intangible Assets
15. To assess whether an internally generated intangible asset meets the criteria for recognition, the generation of the asset is classified into:
(a) research; and
(b) development.

16. Expenditure on research shall be recognised as an expense when it is incurred.

17. Examples of research activities are:
(a) activities aimed at obtaining new knowledge;
(b) the search for, evaluation and final selection of, applications of research findings or other knowledge;
(c) the search for alternatives for materials, devices, products, processes, systems or services; and
(d) the formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services.

18. An intangible asset arising from development shall be recognised as an intangible asset if all of the following conditions are satisfied:
(a) the technical feasibility of completing the intangible asset is achieved; and
(b) the person has the intention and ability to complete the development of the intangible asset and use or sell it.

19. Examples of development activities are:
(a) the design, construction and testing of pre-production or pre-use prototypes and models;
(b) the design of tools, jigs, moulds and dies involving new technology;
(c) the design, construction and operation of a pilot plant that is not of a scale economically feasible for commercial production; and
(d) the design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services.

20. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets.

Actual Cost of an Internally Generated Intangible Asset
21. The actual cost of an internally generated intangible asset is the sum of expenditure incurred from the time when the intangible asset first meets the recognition criteria.

22. The actual cost of an internally generated intangible asset shall comprise all expenditure that can be directly attributed, or allocated on a reasonable and consistent basis, to creating, producing and making the asset ready for its intended use. The cost shall include:
(a) expenditure on materials and services used or consumed in generating the intangible asset;
(b) the salaries, wages and other employment related costs of personnel directly engaged in generating the asset;
(c) any expenditure that is directly attributable to generating the asset; and
(d) overheads that are necessary to generate the asset and that can be allocated on a reasonable and consistent basis to the asset. Allocations of overheads should be made on bases similar to those used in allocating overheads to inventories as per the Income Computation and Disclosure Standard on inventories. The Income Computation and Disclosure Standard on borrowing costs establishes criteria for the recognition of interest as a component of the actual cost of a qualifying asset. These criteria shall also be applied for the recognition of interest as a component of the actual cost of an internally generated intangible asset.

Subsequent Expenditure

23. Subsequent expenditure on an intangible asset after it is ready for its intended use shall be recognised as an expense when it is incurred unless:
(a) the expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance; and
(b) the expenditure can be measured and attributed to the asset reliably.
Where these conditions are met, the subsequent expenditure shall be added to the actual cost of the intangible asset.

Depreciation
24. Depreciation on an intangible asset shall be determined in accordance with the Act.

Transfers
25. Income arising on transfer of an intangible asset shall be determined in accordance with the Act.

Transitional provisions
26. The identification, recognition and measurement of an intangible asset for previous year commencing on or after the 1st day of April, 2015 shall be made in accordance with the provisions of this standard after taking into account the amount recognised, if any, for the said asset for the previous year ending on or before 31st day of March, 2015.

Disclosures
27. Following disclosure shall be made in respect of intangible assets:
(a) Description of asset/block of assets
(b) Rate of depreciation
(c) Actual cost or written down value, as the case maybe
(d) Additions/deductions during the year with dates; incase of any addition of an asset, date put to use including adjustments
    on account of :
    (i) Central value added tax credit claimed and allowed under the central exercise rules, 1944, in respect of assets acquired
        on or after 1 March 1994
    (ii) Change in rate of exchange of currency, and
    (iii) Subsidy or grant or reimbursement by whatever name called
(e) Depreciation allowable
(f) Written down value at the end of year