2022 (7) TMI 278 - AT - Income Tax

Depreciation on the furniture and fixture against the rental income of movable assets - whether assessee is entitled to bifurcate the entire receipts on account of rent from premises (immovable property) and furniture and fixture for the purpose of claiming depreciation on the furniture and fixture against the rental income of movable assets? - HELD THAT - Bare perusal of the lease agreement entered into between the assessee and the lessee relevant clauses show that there is not even a whisper as to renting out the furniture and fixture by the assessee along with the premises/immovable properties. In case of contract, parties to the agreement make law for themselves to which nothing can be added or deleted. When there was no intention of the parties to the lease agreement (supra) that rent is being paid for immovable and movable assets separately no amount of rent can be attributed to the furniture and fixture as claimed by the assessee. In case of Sultan Brothers Pvt. Ltd. ( 1963 (12) TMI 4 - SUPREME COURT held that when a building plant, machinery or furniture are inseparably let the Income Tax Act contemplates the rent from the building as a residuary head of the income and not one to be computed under section 9 of the old Act meaning thereby when immovable property and furniture and fixtures have been inseparably let out by the assessee with no specific reference, furniture and fixtures cannot be separated for the basic charge of rent for the purpose of claiming depreciation by the assessee. When it is nowhere case of the assessee that it is to exploit movable property furniture and fixtures as a business as is also apparent from the lease agreement, the Ld. Lower Authorities have rightly disallowed the depreciation claimed by the assessee under section 57 of the Act. Moreover, lease agreement (supra) speaks for itself that it is for immovable property only. So the question framed is answered in negative. Finding no illegality or perversity in the impugned order passed by the Ld. CIT(A), present appeal filed by the assessee is hereby dismissed.

Issues:
1. Disallowance of depreciation on movable assets.
2. Apportioning rent between immovable and movable properties.
3. Taxation of compensation received.
4. Assessment of composite compensation.
5. Entitlement to claim depreciation on furniture and fixture.

Issue 1: Disallowance of Depreciation on Movable Assets:
The appellant contested the assessed income against the returned income, specifically challenging the disallowance of depreciation on movable assets. The Assessing Officer disallowed the depreciation claim of Rs.39,21,839 on the grounds of lack of bifurcation in the lease agreement between immovable and movable property. The appellant argued for the allowance of the depreciation claim under section 57 of the Income Tax Act. The CIT(A) upheld the disallowance, leading to the appeal before the Tribunal.

Issue 2: Apportioning Rent Between Immovable and Movable Properties:
The key question was whether the appellant could bifurcate the rent from the lessee into premises and furniture and fixture for claiming depreciation. The appellant argued for the deduction based on the investment ratio in immovable and movable assets. However, the Revenue contended that without a specific clause in the lease agreement for separate renting, the deductions were rightly disallowed. The Tribunal analyzed the lease agreement, emphasizing that rent attribution to furniture and fixture was not intended by the parties, leading to the dismissal of the appeal.

Issue 3: Taxation of Compensation Received:
The appellant also contested the taxation of compensation received, arguing for categorization as income from business or other sources. However, the Tribunal found no basis for such categorization, upholding the decision of the lower authorities to tax the compensation as income from house property.

Issue 4: Assessment of Composite Compensation:
The appellant urged for the assessment of composite compensation in respect of facilities provided at a specific location as income from business or other sources. The Tribunal, after reviewing the lease agreement and legal precedents, dismissed this argument, affirming the original tax treatment of the compensation.

Issue 5: Entitlement to Claim Depreciation on Furniture and Fixture:
The Tribunal referenced legal precedents, including decisions by the Supreme Court, to determine that the appellant could not separate furniture and fixtures for claiming depreciation when inseparably let with immovable property. The Tribunal concluded that the disallowance of depreciation was justified as the lease agreement primarily pertained to immovable property, and the appellant failed to establish a business purpose for the movable assets.

In conclusion, the Tribunal dismissed the appeal, finding no legal basis to allow the depreciation claim on movable assets and upholding the tax treatment of the compensation received. The judgment highlighted the importance of lease agreements in determining tax liabilities and the inability to separate assets for tax purposes without explicit contractual provisions.

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