Depreciation – case of Radisson Hospitality about depreciation claimed based on 50% ownership – case not properly explained- may be all relevant and usual documents were not provided .

[DEV KUMAR KOTHARI]

Case under study:

M/S. RADISSON HOSPITALITY MARKETING (INDIA) PVT. LTD. VERSUS ASSTT. CIT, CIRCLE 5 (2) , NEW DELHI - 2022 (12) TMI 945 - ITAT DELHI

About the assessee:

A cursory look at website https://www.radissonhotelgroup.com/  we can find an idea about size, nature and scope of business and activities of assessee and its sister concerns within the group. The group is described as indicated in the website name that is Radisson hotel group. It seems to be an international hotel group of large size and operations in many parts of the world. Therefore, it can be expected that accounts department, legal department , tax department  and people engaged  tax representations  must have handled in coordinated,  efficient and professional manner.

However, there seems lack of coordination of these concerned departments and concerned people of assessee as can be observed on reading of  recent judgment from which we find details from assessment to Tribunal stage indicates lacking of efficiency and sincerity in these matters due to casual approach adopted by concerned persons. This is personal impression, of the author based on and so far appears from the reading of judgment under study. Author hopes that concerned people will be more careful in future.

 Preliminary observations on reading of judgment:

On close reading of the judgment of the honorable Tribunal, it appears that due to half prepared case  the assessee had missed to substantiate aspect of  ownership and claim of depreciation on cost of part of property owned and used by assessee.

We do not find in the judgment, relevant part of S. 32 and highlights about “wholly or partly”. Rather we find use of words indicating ‘joint ownership’ or jointly owned.

It seems that law applicable to the relevant period has not been pointed out and has not been considered by any authority and Tribunal. That is why concept of “ owned wholly or partly” is not reflected anywhere.

 Judgments relied on by assessee were rendered in context of provision before amendment to section 32 relating to insertion of words  “wholly or partly”  about ownership. The amendment was in fact to overcome difficulties in view of judgments of the Supreme Court  according to which depreciation could not be claimed in case any depreciable asset was which was not fully  owned by assessee. Interpretation given was that “owned,”   means full ownership. This is reason that honorable Tribunal has noted that those judgments rather goes against assessee. In this regard paragraphs 8 , 9 and 13 of judgment are  reproduced below with highlights added:

8. Further, it can be observed that assessee does not dispute the fact that only one asset is the subject matter of dispute and the same was purchased by sister concern. The invoice is in the favour of the sister concern thus, the defacto and de-jure owner happens to be the sister concern. Merely because it has allowed to be share it to the sister concern, the assessee/ appellant, that does not give any right, title or interest in the nature of ownership to the assessee so as to be entitled for claim of depreciation u/s 32 of the Act. Said section provides that to claim depreciation assessee should be the owner of the asset and the asset must be used for the purposes of business or profession. Here in the case in hand both the requirements are not fulfilled as assessee is not the owner of the asset and the asset is not used for the purpose of business or profession of the owner, which is the sister concern  but was used for the purpose of business of the appellant which was not the owner.

9. The judgment which Ld. AR has relied are distinguishable and rather are against the assessee. In Seth Banarasi Das Gupta case Hon’ble Supreme Court while considering the question whether benefit of Section 10(2)(vi) of the Indian Income Tax Act, 1922 corresponding to Section 32(1) of the Act of 1961, would be admissible to assessee, where assessee is fractional owner of asset had held that no such claim can be made.”

12. The aforesaid judgments cited and as discussed above only fortified the observations and opinion of this Bench, that by merely entering into an agreement or understanding of user of a asset, a License may be created in favour of user, however, that does not vest the user with the interest of any nature akin to owner for the purpose of Section 32(1) of the Act. So also no claim of depreciation beyond the law is allowable on mutual understanding between the owner and the user. The grounds raised have no substance. The appeal of assessee is dismissed.

Un quote:

It seems that assessee has wrongly relied on judgments instead of pointing out amendment in section 32 and documents to establish ownership – partly by assessee and partly by sister concern. And both having agreed to that situation and implemented accounts and tax matters accordingly without any dispute shows ownership based on costs incurred and agreed and accounted for.

Ownership:

The assessee has claimed that property is shown as partly owned and 50% of cost of property is accounted for in books of assessee and 50% in books of a sister concern. Accordingly, claim for depreciation was made in two companies.

We find reference of ownership with document like INVOICE  in name of sister concern and not assessee. There is no reference of any conveyance deed , purchase agreement or memorandum of understanding for part ownership.

There is no reference of any transfer of property or part of it in the name of assessee from sister concern.

Rather we find impression only about arrangement  for use in nature of license to use allowed by  sister concern.

What seems missing:

As per usual practice, in such cases:

 a.  notes must be given in Schedule of Assets for partial or joint ownership or property held in name of some other person  on behalf  of assessee company.

b. When there are entries for investment made for the impugned property in fixed assets schedule or details of fixed assets on which depreciation has been claimed there must be some more documents like:

Resolution of Board about making investment in fixed assets- fully as well as partly. In case of the case in hand in fact there must be documents allotting and earmarking  various parts of building to two parties because two companies are carrying business in the building. There must be some exclusive uses and some can be jointly or commonly used.

Any document indicating that costs of building are shared equally by two companies and capitalized in books of account of two companies. In fact if at the time of purchase itself payments were made by two companies, then documents must indicate the same and properly two documents could be executed for purchase.

It may be a case  of allotment after initial purchase. In that  case  after purchase of property by one company there  must be  another agreement to share costs and area but that was not produced.

Entries in books of account is important and can be considered as evidence. Failure to disclosure will not make a difference particularly when two companies have shown respective share in cost in there balance sheet and two companies have claimed depreciation only on respective share.

A disclosure and documentation  about property not registered in name of assessee company and registered in name of sister concern who act as agent but real  or beneficial ownership is with assessee company for half of property and with sister concern for half of the same.

If such disclosures and related documents are not found then in can only be said that the accounts department as well auditors of companies were not careful even in course of balance sheet based audit. Audit require enquiry about assets held, owned by company.

Relevant part of S.32 reads as follows (with relevant  history):

Depreciation.

32. (1) In respect of depreciation of-

(i) buildings, machinery, plant or furniture, being tangible assets;

(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, not being goodwill of a business or profession.

owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed-]

History of related amendment:

The words “wholly or partly” were inserted by the Finance (No.2)  Act, 1996 (33 of 1996) vide S.11(a) thereof w.e.f. 01.04.1997.

Relevant part of The said FA is as follows:

 Amendment of section 32.

11.  In section 32 of the Income- tax Act, with effect from the 1st day of April, 1997 ,-

(a) in sub- section (1), after the words" plant or furniture owned", the words' wholly or partly," shall be inserted;

 xxx

Unquote:

The above aspect of amendment is  not found in various contentions raised by assessee and also by  lower authorities in their orders and judgment of the  Tribunal also.  In fact, in entire judgment we do not find mention of wholly or partly owned. This shows that applicable provision was not contended and considered at any stage.

Furthermore, as per practices of large companies and group of companies, it cannot be that there were no proper documentation about  purchase of property intended to be owned and used by two companies.

Rather observations of honorable tribunal can go against both companies as any one may not be entitled to depreciation on impugned property because assessee is not considered owner and sister concern  who is considered owner has not used the property for business purpose of that concern,  as per paragraph 8 of the order of Tribunal.