2018 (5) TMI 1948 - AT - Income Tax

Disallowance of Depreciation on premises owned by it and used for the residence of the Director - Board s letter F. No. 9/26/IT/60 dated the 21st March 1960 - HELD THAT - The said flat was owned by the company. It was used by the directors for residence. The case has also been made out that the assessee company is engaged into share trading and the said premises was also used by directors for official works of the company. The issue is squarely covered in favour of the assessee by the decision of the full bench of Hon ble Delhi High Court in the case of CIT vs. Modi Industries Ltd. 1994 (4) TMI 61 - DELHI HIGH COURT and the CBDT Circular where it was held that the quarters built by the employers for the accommodation of their employees must be regarded as buildings used for the purpose of the business and depreciation allowed thereon where the occupation by the employee of the property owned by the employer is subservient to and necessary for the purpose of their duties. It is considered that what applies to buildings applies also to the fans air-conditioners and refrigerators fitted to those buildings as those are amenities which virtually part of such buildings. The issue is decided in favour of the assessee.

Summary

Issues:
1. Claim of depreciation on premises used for the residence of the Director.
2. Verification of benefit shown as perquisite in the return of the director.
3. Verification of any resolution passed by the Board of Directors authorizing the Director's occupancy.

Analysis:

1. The appeal involved the question of whether the assessee was entitled to claim depreciation on premises owned by it and used for the residence of the Director. The Assessing Officer disallowed the depreciation, resulting in an added amount to the total income of the assessee. The ld. Commissioner of Income Tax (Appeals) allowed the depreciation based on the argument that the flat was purchased by the appellant company and given to its director, who managed the business affairs of the company. The Commissioner relied on relevant case laws and held in favor of the assessee, allowing the depreciation.

2. The issue of verifying whether the benefit out of the accommodation had been shown as a perquisite in the return of the director was raised. The ld. Commissioner of Income Tax (Appeals) did not find this to be a case made by the assessing officer. The flat was owned by the company and used by the directors for residence, as well as for official works of the company. The decision was supported by a CBDT circular and a Delhi High Court judgment, leading to the dismissal of the Revenue's appeal.

3. Another issue raised was the verification of whether any resolution was passed by the Board of Directors authorizing the Director to occupy the flat for residential purposes. The argument put forth was that the flat was part of the company's assets, used by the directors for both residence and business purposes. The ITAT upheld the order of the ld. Commissioner of Income Tax (Appeals) based on the discussions and precedents from the Hon'ble High Court, deciding the issue in favor of the assessee and dismissing the Revenue's appeal.