2019 (12) TMI 774 - HC - Income Tax

Depreciation on wind mills which was not actually put to use - HELD THAT - ITAT held that prior to introduction of new concept of block of assets with effect from 01.04.1988 the depreciation used to be claimed separately on each asset. The legislature found that this was a cumbersome procedure leading to various difficulties and therefore the concept of block of assets was introduced. It is further been held that the concept of block of assets as reflected in the Central Board of Direct Taxes dated 23.09.1986 that once the various assets are clubbed together they become block assets within the meaning of Section 2(11) of the Act and it becomes one asset and every time new asset is acquired it is thrown into common hotchpotch i.e. block of asset on meeting the requirement of depreciation being allowable at the same rate. It is further been held that the individual asset meet their identity and become a new separate part of block of asset insofar as calculation of depreciation is concerned. Income Tax Appellate Tribunal has held that the assessee is entitled to claim depreciation on the value of wind mills. We are in agreement with the view taken by the Income Tax Appellate Tribunal for the reasons which we have mentioned supra. Accordingly the first substantial question of law is answered in the affirmative and in favour of the assessee and against the revenue.

Summary

Issues:
1. Depreciation on wind mills not put to use.
2. Depreciation claimed against leasehold rights over land.

Analysis:
1. The first issue pertains to whether the Tribunal erred in allowing depreciation on wind mills that were not actually put to use. The Assessing Officer and Commissioner of Income Tax (Appeals) held that the claim for depreciation on the wind mills was inadmissible as per Section 32 of the Income Tax Act, which requires actual use for depreciation. However, the Income Tax Appellate Tribunal considered the concept of 'block of assets' introduced from 01.04.1988, making the question of actual use irrelevant. The Tribunal relied on the decision in CIT vs. Bharat Aluminium Co. Ltd. and defined 'block of assets' under Section 2(11) of the Act. It concluded that the assessee is entitled to claim depreciation on the wind mills, as they are part of a block of assets. The High Court agreed with the Tribunal's reasoning and ruled in favor of the assessee on this issue.

2. The second issue involves the depreciation claimed against the amount paid for leasehold rights over land. The Tribunal held that this claim falls under Section 37(1) of the Act, not Section 30, as it pertains to rent paid on the building. Citing a previous ruling in CIT vs. HMT Ltd., the High Court considered the lump sum rent paid for a 30-year leasehold right over land as revenue expenditure. The Court upheld the Tribunal's decision, stating that such expenditure is akin to rent paid in advance and qualifies as revenue expenditure under Section 37(1). Consequently, the Court ruled in favor of the assessee on this issue as well.

In conclusion, the High Court dismissed the appeal, upholding the decisions of the Income Tax Appellate Tribunal in favor of the assessee on both substantial questions of law related to depreciation on wind mills and leasehold rights over land.