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2016 (10) TMI 490 - AT - Income TaxEligibility for depreciation - part payment made for the acquisition of asset - Held that - Once the assessee receives the rights to construct extra floor/ storey, it enhances the value/cost of the building and assessee under the principle of accounting has debited the entire amount of FSI right to the block of asset of the building by making a corresponding entry as liability in the Balance-sheet. This can also be explained by way of an example; suppose, assessee would have taken a bank loan for paying the entire or balance premium (say ₹ 2,72,65,056) on FSI to the Government/ BMC, then assessee would have debited the entire amount to FSI account under the head fixed assets and credited to the bank and disclosed it as its liability in the Balance sheet. Now, if assessee has paid the premium on installment scheme, then assessee would debit the whole amount on the asset side and make a credit to the vendor account by showing it as liability payable to him for the amount which remains to be paid. It is immaterial whether for many years that liability or installment has been paid subsequently or not. Once the corresponding liability in the accounts has been shown, then depreciation on the asset should be given irrespective of the fact that this year only part payment was made for the acquisition of that asset. Thus, we hold that, assessee would be eligible for depreciation for the entire amount of ₹ 3,40,81,320/- debited to the account of asset. Rate of depreciation on intangible assets - whether it has to be allowed @ 10% or 25% - Held that - We do not find any merits in the contention of the assessee that the additional FSI is a business or commercial rights falling within the realm and scope of intangible asset within the scope of section 32(1)(ii). The FSI only relates to giving of the right to construct additional floor to the assessee which only goes to enhance the value or cost of the existing asset / building. It strictly pertains to the addition in the building only and, therefore, depreciation allowable would be at the rates applicable to the buildings only and for not some kind of intangible right u/s 32(1)(ii). Accordingly, we uphold the observation and order of the Ld. CIT(A) to the extent that the depreciation allowable would be on rates applicable to the building only that is, @10% and not @ 25% for some kind of intangible right. Thus in our conclusion, the assessee would be entitled to depreciation @ 10% on the whole of the consideration towards FSI of ₹ 3,40,81,320/-. In view of our finding ground no.1 is treated as dismissed and ground No.2 is treated as allowed.
Issues Involved:
1. Disallowance of depreciation on intangible assets (FSI) claimed by the assessee. 2. Whether FSI should be added to the block of buildings and the entire consideration towards FSI should be allowed for depreciation. 3. Cross Objection by the revenue on the issue of depreciation on FSI. 4. Additional claims under Section 43B for luxury tax payments and interest on term loans. 5. Depreciation on intangible assets in subsequent assessment years. Detailed Analysis: 1. Disallowance of Depreciation on Intangible Assets (FSI): The main contention revolves around whether the Floor Space Index (FSI) qualifies as an intangible asset eligible for depreciation under Section 32(1)(ii) of the Income Tax Act. The assessee claimed depreciation at 25% on the FSI, arguing it as a business/commercial right. The AO and CIT(A) disallowed this, stating FSI is not akin to know-how, patents, copyrights, trademarks, licenses, or franchises. Instead, they allowed depreciation at 10% applicable to buildings, but only on the amount actually spent during the year, not the entire consideration. 2. Addition of FSI to the Block of Buildings: The Tribunal agreed that FSI should be considered part of the building block of assets and allowed depreciation at the rate applicable to buildings (10%). The Tribunal emphasized that the entire amount of ?3,40,81,320 should be considered for depreciation, not just the amount paid during the year. The Tribunal reasoned that once the FSI is acquired, it enhances the value of the building, and the corresponding liability shown in the books justifies depreciation on the full amount. 3. Cross Objection by the Revenue: The revenue filed a cross objection arguing that FSI should be considered an addition to the land, not eligible for depreciation. However, the Tribunal dismissed the cross objection due to a significant delay in filing (approximately 5 years) and lack of a reasonable cause for the delay. The Tribunal cited the Supreme Court's stance on limitation and procedural delays, emphasizing that government departments are not exempt from the law of limitation. 4. Additional Claims under Section 43B: The AO disallowed additional claims for luxury tax payments and interest on term loans under Section 43B, citing the Supreme Court ruling in Goetze India Ltd. that such claims should be made via revised returns. The CIT(A) allowed the claims, stating they were otherwise allowable under Section 43B. The Tribunal upheld the CIT(A)'s decision, noting that appellate authorities have the power to entertain such claims even if not made through revised returns. 5. Depreciation on Intangible Assets in Subsequent Assessment Years: For subsequent assessment years (2006-07, 2007-08, and 2008-09), the Tribunal consistently applied its decision from the 2005-06 assessment year. It allowed depreciation on the entire consideration towards FSI at 10%, rejecting the assessee's claim for 25% depreciation as an intangible asset. The Tribunal also dismissed the revenue's appeals based on the same reasoning. Conclusion: - For AY 2005-06: The assessee's appeal was partly allowed, granting depreciation on the entire FSI amount at 10%, while the revenue's cross objection was dismissed. - For AY 2006-07 to 2008-09: The Tribunal consistently applied the same reasoning, allowing depreciation on the full FSI amount at 10% and dismissing the revenue's appeals and cross objections. The additional claims under Section 43B were allowed, subject to verification by the AO for the 2008-09 assessment year. Order Pronounced: The consolidated order was pronounced on 26th August 2016.
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