2016 (12) TMI 119 - HC - Income Tax

Validity of reopening of assessment - income from collection of parking fee from the trucks attribution - Held that - The reason to believe to conclude that tax has escaped assessment is not at all reflected, in the order passed by the assessing officer. The Assessing Officer has not said that income from collection of parking fee from the trucks is attributable to building and not to the parking facility provided for the trucks. Even if the order recorded by the assessing officer on 10.04.2007 is liberally construed, we do not find the requisite material or the nexus on the basis of which, the reasonable belief is reached, for ordering the reassessment proceeding. Therefore in our understanding, the action initiated against the assessee under Section 147/148 appears to be without any jurisdiction and it is declared so accordingly. Thus the substantial questions of law are answered in favour of the assessee and we further declare that the Gotanagar Truck Terminus is a plant and not building, for the purpose of claiming depreciation under Section 32 read with Section 43 of the IT Act. Consequently the assessee is held entitled to depreciation at the rate of 25% as prescribed for plant and not at 10%, as applicable for building.

Issues Involved:
1. Justification for reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Classification of the Gotanagar Truck Terminus as "plant" or "building" for depreciation purposes under Section 32 read with Section 43 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Justification for Reopening the Assessment under Section 148 of the Income Tax Act, 1961

The appeals were filed under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT) which upheld the reopening of assessments for the years 2004-2005. The Assessing Officer (AO) issued a notice under Section 148, believing that income had escaped assessment due to an excessive claim of depreciation on the Gotanagar Truck Terminus, treating it as a "plant" rather than a "building."

The AO's belief was based on the understanding that the truck terminus, comprising structures like parking yards, ramps, dormitories, and lavatories, should be classified as a "building" for depreciation purposes. The reassessment was initiated within four years from the end of the relevant assessment year, and the AO was satisfied that there was a reason to believe that income had escaped assessment.

The assessee contended that the reassessment proceedings were without jurisdiction as the AO did not disclose the reasons for his belief that income had escaped assessment. The court referred to various judicial pronouncements, emphasizing that the "reason to believe" must be based on tangible and intelligible materials, and there must be a rational nexus between the materials and the belief.

The court found that the AO's order did not reflect the requisite material or nexus for the belief that income had escaped assessment. Therefore, the reassessment proceedings were declared to be without jurisdiction.

Issue 2: Classification of the Gotanagar Truck Terminus as "Plant" or "Building" for Depreciation Purposes

The primary contention was whether the Gotanagar Truck Terminus should be classified as a "plant" or a "building" for the purpose of claiming depreciation. The assessee claimed depreciation at 25%, treating the terminus as a "plant," while the AO and subsequent authorities classified it as a "building," allowing only 10% depreciation.

The court examined the definition of "plant" under Section 43(3) of the Income Tax Act, which includes ships, vehicles, books, scientific apparatus, and surgical equipment used for business or profession but excludes buildings. The court also referred to judicial precedents, including the Supreme Court's decision in CIT Vs. Karnataka Power Corporation, which emphasized the functional test for determining whether an asset qualifies as a "plant."

The court noted that the truck terminus, spread across 27 bighas of land, generated income from parking fees and not from renting out buildings. The facilities provided, such as resting quarters and toilets, were ancillary to the primary function of parking trucks. Applying the functional test, the court concluded that the truck terminus should be considered a "plant" as it was used for the business of parking trucks and not merely as a building.

Conclusion

The court answered the substantial questions of law in favor of the assessee, declaring that:
1. The reassessment proceedings under Section 147/148 of the Income Tax Act were without jurisdiction.
2. The Gotanagar Truck Terminus should be classified as a "plant" for the purpose of claiming depreciation under Section 32 read with Section 43 of the Income Tax Act, entitling the assessee to a depreciation rate of 25%.

Consequently, the reassessment proceedings and the orders passed by the AO, the CIT(Appeals), and the ITAT were quashed. The appeals were allowed, and parties were directed to bear their own costs.

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