2018 (7) TMI 1259 - HC - Income Tax

Depreciation on building held on long term lease for 99 years - Held that - We find on an examination of the subject order of the tribunal that in legal principle the tribunal has not been able to deny the claim that a lessee of over 12 years of a place of business is deemed to be the owner under the Income Tax Act 1961 and can claim depreciation. But as far as the case of the assessee is concerned we find that the Tribunal has not been able to come to any clearcut finding as to whether the subject lease was for 12 years duration or not. Revenue relied on Peerless General Finance & Investment Co. Ltd. vs. Commissioner of Income-tax W.B.-I Kolkata (2012 (10) TMI 896 - CALCUTTA HIGH COURT) a Division Bench judgment of our Court. This pertained to the assessment year 1993-94 of the assessee. Relying on paragraph 10 of the judgment he submitted that the assessee had not been able to substantiate that the lease was for more than 12 years. That is not the case. Mr. Chatterjee pointed out that the paragraph in question was a continuation of the submission on behalf of the assessee recorded by the Court and should not be taken to be its finding. Mr. Chatterjee is absolutely right though we confess that at least one sentence in the paragraph has been worded in such a way so as to create a doubt that it is the submission of a party or a finding by the Court. Deduction and expenditure disallowed on the ground that such expenses were on account of income which was exempt from taxation and hence could not be claimed as an allowable expense - Held that - The view expressed by a Division Bench of this Court in Commissioner of Income Tax vs. Crish Park Vincom Ltd. 2015 (5) TMI 264 - CALCUTTA HIGH COURT that in appeal this Court should not interfere with the findings of fact is correct on legal principles. But unfortunately there is no finding or determination of deductible expenses in this case. As far as both these issues are concerned the questions are remitted back to the Tribunal to redetermine them in accordance with law withing a period of six weeks from the date of communication of this order. Those parts of the subject order of the Tribunal dealing with the aforesaid issues are necessarily set aside. Denial of natural justice - Held that - Under section 260A this Court can only interfere if a substantial question of law is involved. If we entertain these appeals flood gates of appeals could be thrown open which was not the intention of the legislature. We do not think that this finding of the tribunal should be interfered with. If we do then in all cases this ground may be taken and a finding arrived at by the Tribunal which will be carried in appeal under section 260A we take the subject matter covered by the question as a question of fact only and do not entertain the same.

Summary

Issues:
1. Eligibility for depreciation allowance on a building held on long-term lease.
2. Disallowance of business expenditure under Section 14A based on ad-hoc estimate.
3. Violation of natural justice in making additions to assessment order without notice.

Eligibility for Depreciation Allowance:
The court considered whether a building held on a long-term lease for 99 years, used for business purposes, is eligible for depreciation allowance under Section 32 of the Income Tax Act, 1961. The court analyzed the definition of transfer under Section 269UA(f) and Section 27(iiib) to determine if a lessee with a 12-year lease can be deemed the owner of the building. It was noted that the tribunal did not clearly establish the duration of the lease in question, leading to a lack of clarity. The court remitted this issue back to the tribunal for redetermination.

Disallowance of Business Expenditure under Section 14A:
The court examined whether business expenditure could be disallowed under Section 14A based on an ad-hoc estimate of 1% of dividend income. The tribunal had applied a 10% rule for such deductions, which was challenged by the revenue as being arbitrary. The court agreed that deductions should be based on actual expenses determined by the department and not on a random basis. As there was no clear determination of deductible expenses, the court remitted this issue back to the tribunal for proper assessment.

Violation of Natural Justice in Assessment Order:
The court addressed the issue of whether additions made to the assessment order without notice to the assessee violated principles of natural justice. The tribunal had rejected the contention that the assessee was not given a proper opportunity to present their case. The court, under Section 260A, could only interfere if a substantial question of law was involved. It was decided not to entertain the appeal on this ground to prevent a flood of similar appeals. The court upheld the tribunal's finding on this matter as a question of fact and not a substantial legal issue.

In conclusion, the court disposed of both appeals and directed the tribunal to reexamine the issues of depreciation allowance and disallowance of business expenditure within six weeks. The court declined to interfere with the finding regarding the violation of natural justice, emphasizing the need for substantial legal questions to be raised for intervention under Section 260A.