2016 (3) TMI 1385 - AT - Income Tax

Additional depreciation claim @ 50% - HELD THAT - It is not in dispute that the assessee has installed the machinery during the earlier assessment year and the machinery installed is entitled for additional depreciation. However, the Assessing Officer restricted additional depreciation @ 10% since the machinery was used by the assessee for less than 180 days. The question arises for consideration is whether the balance 10% of the additional depreciation can be allowed during the year under consideration or not. This issue was examined by the Cochin Bench of this Tribunal in Apollo Tyres Ltd. 2014 (1) TMI 33 - ITAT COCHIN . The Cochin Bench found that the additional depreciation can be allowed in the next year in case the same cannot be allowed in the earlier year. Assessee is eligible for additional depreciation which was not allowed in the earlier year. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the balance additional depreciation. Computation of capital gains - transfer u/s 2(47) - year of assessment - HELD THAT - The physical possession of the property was handed over for carrying out the development activities. The assessee has also granted exclusive right to the developer to sell the property to various prospective purchasers. A bare reading of this agreement clearly shows that the assessee can get back 30% of the constructed area in lieu of 70% of the undivided share in the land given to the developer. Therefore, by way of an arrangement, the property was handed over to the developer for development. This kind of arrangement may not be transfer under common law. However, Income-tax Act, 1961, specifically defines an arrangement between the parties as transfer u/s 2(47) of the Act. This arrangement enables the developer to enjoy the property as its own or to sell the property as its own. Therefore, in view of this specific definition in sec. 2(47)(vi) of the Act, this Tribunal is of the considered opinion that there was a transfer of property during the year under consideration within the meaning of sec. 2(47) of the Act. Therefore, the capital gain has to be assessed only during the year under consideration. This Tribunal do not find any reason to interfere with the order of the CIT(A). Accordingly, the same is confirmed.

Issues Involved:
1. Disallowance of 50% of additional depreciation claim.
2. Computation of capital gains.

Issue-wise Detailed Analysis:

1. Disallowance of 50% of Additional Depreciation Claim:

The first issue pertains to the disallowance of 50% of the additional depreciation claimed by the assessee for the assessment year 2010-11. The assessee had claimed 50% of the additional depreciation in the previous year (2009-10) because the machinery was used for less than six months, and the remaining 10% was claimed in the current year. The Assessing Officer disallowed this claim, stating that there is no provision in the Income-tax Act, 1961, for allowing the balance 10% of the additional depreciation in the subsequent year. The CIT(A) upheld this disallowance.

The assessee's counsel argued that the Cochin Bench in the case of Apollo Tyres Ltd vs. ACIT (2014) 64 SOT 203 had allowed the balance additional depreciation in the subsequent year. The Departmental Representative contended that Section 32(1)(iia) of the Act does not provide for the carry forward of additional depreciation.

Upon reviewing the submissions and the material on record, the Tribunal noted that the Cochin Bench had previously held that additional depreciation could be allowed in the next year if it could not be fully allowed in the earlier year. The Tribunal cited similar decisions from the Delhi Bench in Cosmo Films Ltd and SIL Investment Ltd, and the Mumbai Bench in MITC Rolling Mills (P.) Ltd., which supported the allowance of the balance 50% additional depreciation in the subsequent year. Consequently, the Tribunal directed the Assessing Officer to allow the balance 10% additional depreciation for the year under consideration, setting aside the orders of the lower authorities.

2. Computation of Capital Gains:

The second issue concerns the computation of long-term capital gains based on a joint venture agreement dated 7.9.2009. The Assessing Officer computed the gains at Rs. 86,45,99,912/-. The assessee argued that the joint venture agreement and the power of attorney would be effective only after receiving the necessary construction approvals from the concerned authorities, which had not been received during the year under consideration. Therefore, there was no transfer of interest in the immovable property.

The Departmental Representative countered that the agreement between the assessee and the developer (M/s Godrej Properties Ltd) involved the development of land, with the assessee entitled to 30% of the constructed area and the developer receiving 70% of the undivided share in the property. The physical possession of the property was handed over to the developer, constituting a transfer under Section 2(47) of the Act, which includes any arrangement enabling the enjoyment of the property.

The Tribunal reviewed the agreement and found that the assessee had granted irrevocable rights to the developer for the development and sale of the property, effectively transferring 70% of the undivided share in the land in exchange for 30% of the constructed area. This arrangement, although not a transfer under common law, constituted a transfer under Section 2(47)(vi) of the Act, enabling the developer to enjoy or sell the property. Therefore, the Tribunal concluded that the capital gains had to be assessed during the year under consideration and upheld the CIT(A)'s order.

Conclusion:

The appeal of the assessee was partly allowed. The Tribunal directed the Assessing Officer to allow the balance 10% additional depreciation for the year under consideration, while upholding the computation of capital gains for the same year. The order was pronounced in the open court on 4th March 2016, at Chennai.

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