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2010 (4) TMI 923 - AT - Income Tax

Issues Involved:
1. Deletion of disallowance of depreciation on leased assets.
2. Addition of license fee receivable from ITC Ltd.
3. Validity of assessment under section 153A of the Income-tax Act.

Detailed Analysis:

1. Deletion of Disallowance of Depreciation on Leased Assets:
The primary issue raised by the Revenue in the assessment years 2001-02 and 2002-03 was the deletion of disallowance of depreciation on leased assets amounting to Rs. 6,66,488 and Rs. 5,79,590 respectively. This issue was also connected with the assessee's grievance for the assessment years 2003-04 and 2004-05, where the Commissioner of Income-tax (Appeals) upheld the disallowance of depreciation amounting to Rs. 5,06,309 and Rs. 4,43,912.

The facts of the case reveal that the assessee-company, owning the "Hotel Sea Rock" in Mumbai, had entered into a hotel operator agreement with ITC Ltd. effective from July 1, 1986. The hotel was damaged in a bomb blast in 1993, leading to disputes and subsequent arbitration. The arbitrator's award, dated May 24, 2005, stipulated that ITC Ltd. would hand over possession of the hotel and the assessee would pay Rs. 42.10 crores to ITC Ltd., among other terms.

The Assessing Officer disallowed the depreciation in the assessment years 2003-04 and 2004-05 on the grounds that no business income was generated due to the arbitration award, which stated that no license fee was receivable. However, the Commissioner of Income-tax (Appeals) deleted the disallowance for the assessment years 2001-02 and 2002-03, noting that the license fee was assessed as business income in the original assessment.

The Tribunal, considering various judicial precedents, held that the depreciation could not be denied merely because the license fee was not received. The business assets were used for the hotel business, and the non-receipt of the license fee did not negate the use of the assets. Therefore, the Tribunal allowed the assessee's appeal for the assessment years 2003-04 and 2004-05 and rejected the Revenue's appeal for the assessment years 2001-02 and 2002-03.

2. Addition of License Fee Receivable from ITC Ltd.:
In the assessment years 2003-04 and 2004-05, the Assessing Officer added Rs. 32,21,213 and Rs. 34,13,764 respectively as license fee receivable from ITC Ltd. The Commissioner of Income-tax (Appeals) deleted these additions, referencing the arbitrator's award, which stated that no license fee was due to the assessee.

The Tribunal upheld this deletion, noting that similar additions in the assessment years 1995-96 and 1997-98 were also deleted by the Tribunal. The arbitrator's award made it clear that the assessee was not entitled to any license fee, and hence, no addition could be made on this account.

3. Validity of Assessment Under Section 153A:
The assessee challenged the validity of the assessment under section 153A, arguing that no assessment or reassessment was pending as of the date of the search initiation, which could have abated. Therefore, the Revenue authorities had no right to review or reconsider the issue of depreciation when no new material was found during the search.

However, the assessee's counsel did not press these grounds during the hearing, and thus, these grounds were rejected by the Tribunal.

Conclusion:
The Tribunal dismissed the Revenue's appeals and the assessee's cross-objections. It partly allowed the assessee's appeals for the assessment years 2003-04 and 2004-05, granting the depreciation claim. The Tribunal upheld the deletion of the addition of license fees receivable from ITC Ltd. based on the arbitrator's award and prior Tribunal decisions.

 

 

 

 

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