2015 (7) TMI 875 - HC - Income Tax

Entitlement to depreciation in respect of the hotel building, WTT and WTC under Section 32 - Held that - The Court is satisfied that the during the AYs in question Assessee was indeed in full control of the three buildings, viz., the hotel building, the WTT and WTC and that in any event, notwithstanding the clarificatory amendment inserted as Explanation No. 1 in Section 32 with effect from 1st April 1988, the Assessee would be entitled to claim depreciation in respect thereof, including depreciation on the plumbing and sanitary ware installed therein. - Decided in favour of assessee. Amounts received from sub-licensees - Held that - After reference to the clauses of the sub-licence agreement it was concluded that the benefit derived by the Assessee on received finances by way of interest pre-deposit stands merged with the income declared by the Assessee during business . Accordingly, it was held that no separate addition on account of benefit derived by the Assessee out of the deposits is separate payment of taxes. In view of the discussion hereinbefore of the clauses of the sub-licence agreements, the Court concurs with the view expressed by the ITAT.- Decided in favour of assessee. Foreign exchange rate fluctuation - The direction of the CIT (A) to the AO to allow depreciation on the increase in liability on account of exchange rate fluctuation on notional basis was also upheld by ITAT - Held that - Questions stand covered in favour of the Assessee and against the Revenue by the decision of the Division Bench of this Court in Commissioner of Income Tax v. Woodward Governor India P. Ltd. (2007 (4) TMI 118 - HIGH COURT , DELHI ) which has been affirmed by the Supreme Court in Commissioner of Income Tax v. Woodward Governor India P. Ltd. (2009 (4) TMI 4 - SUPREME COURT) - Decided in favour of assessee.

Issues Involved:
1. Entitlement to depreciation for hotel building, WTT, and WTC under Section 32 of the Income Tax Act.
2. Nature of receipts from sub-licensees and their taxability.
3. Entitlement to deduction on account of deferred license fee.
4. Calculation of depreciation based on foreign exchange rate fluctuations.

Issue-wise Detailed Analysis:

1. Entitlement to Depreciation:
The court addressed whether the assessee was entitled to claim depreciation for the hotel building, WTT, and WTC under Section 32 of the Income Tax Act. The court concurred with the ITAT and CIT (A) that the assessee had control over the buildings and bore the entire cost of construction. The agreements indicated that the buildings vested in the NDMC for the purpose of invoking the Public Premises (Eviction of Unauthorized Occupants) Act, 1971, but the assessee had dominion over the properties. The court referenced the Supreme Court's decisions in P.K. Badiani v. CIT and Mysore Minerals Ltd. v. CIT, which supported the notion that depreciation benefits belong to one who has invested in and utilizes the capital asset. Consequently, the court affirmed that the assessee was entitled to depreciation for the buildings, including sanitary and plumbing installations, for the respective periods they were utilized.

2. Nature of Receipts from Sub-licensees:
The court examined whether the amounts received from sub-licensees were taxable. The ITAT had previously ruled that interest-free refundable deposits from allottees were not taxable as trading receipts. The court noted that the sub-license agreements explicitly stated the deposits were interest-free and refundable. The Revenue's argument that these deposits should be treated as trading receipts was rejected. The court referenced the Bombay High Court's decision in Shree Nirmal Commercial Limited v. Commissioner of Income Tax but distinguished the facts, noting that in the present case, only a right of occupancy was transferred, not ownership. The court upheld the ITAT's view that the benefit derived from the deposits was already reflected in the assessee's business income and was not separately taxable.

3. Entitlement to Deduction on Account of Deferred License Fee:
The court found that the question regarding the deduction for deferred license fee had been decided in favor of the Revenue, and the assessee was not in appeal. Therefore, the court affirmed the ITAT's determination on this issue.

4. Calculation of Depreciation Based on Foreign Exchange Rate Fluctuations:
The court addressed whether depreciation should be calculated based on the foreign exchange rate prevailing on the last date of the financial year. Both sides agreed that this issue was covered by the decision in Commissioner of Income Tax v. Woodward Governor India P. Ltd., which was affirmed by the Supreme Court. Consequently, the court ruled in favor of the assessee, affirming the ITAT's order.

Conclusion:
The court disposed of the appeals, ruling in favor of the assessee on the issues of depreciation entitlement and the nature of receipts from sub-licensees, while affirming the ITAT's decision on the deferred license fee deduction and depreciation based on foreign exchange rate fluctuations. The court did not decide on the investment allowance issue, as it awaited the outcome of the Special Bench decision of the ITAT.

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