2023 (5) TMI 729 - AT - Income Tax

Reopening of assessment u/s 147 - reopening was originated within the specified time limit of 4 years - HELD THAT - In the present case since no specific query was raised by the AO in original assessment proceedings on the issues, which could have said to be turn out and became the basis on which the reopening assessment was initiated. Also, the reopening was originated within the specified time limit of 4 years, principle of law defined in the case law Kelvinator of India Ltd 2010 (1) TMI 11 - SUPREME COURT cannot rescue the contention of the assessee. Contention, that the reopening was based on change of opinion is also not acceptable, since no finding on the issues raised under reopening was formed by the AO in the original assessment proceedings. In view of such facts and principal of law laid down by the Hon ble Jurisdictional High Court as discussed herein above, we are of the considered opinion that CIT(A) has rightly upheld the reopening of the assessment, which needs no interference. Depreciation on electrical installations to 10% as against the claim of assessee of 15% - HELD THAT - As assessee s contention that the electrical installation should be considered as Plant is fortified by the judgment of Hon ble Jurisdictional High Court in the case of Geetha hotel Pvt Ltd 2001 (9) TMI 58 - MADRAS HIGH COURT and consequently ground are decided in favour of the assessee in terms of our observation herein above. Disallowance of depreciation on non-compete fee under intangible assets @ 25% - HELD THAT - The Hon ble Bombay High Court in the case of Piramal Glass Limited 2019 (6) TMI 891 - BOMBAY HIGH COURT while dealing with this issue of allowability of depreciation u/s 32 of the Income Tax Act on non-compete fee relied on the Gujarat High Courts Decision in the case of Ferromatic Milacron India (P.) Ltd. 2018 (10) TMI 1955 - GUJARAT HIGH COURT has held depreciation is allowed on non compete fee and accordingly no question of law arises. The Hon ble jurisdictional High Court of Madras in the case of Carborandum Universal Ltd 2012 (10) TMI 178 - MADRAS HIGH COURT has held that where assessee made payment as non-compete fee for purpose of business of assessee, expenditure was on revenue count. Depreciation on non-compete fee which was disallowed by the ld. AO and upheld by the ld. CIT(A) was an erroneous application of law and bad finding, therefore the same deserves to be reversed and we do so. Thus, the ground in the appeal of the assessee is allowed. Treating the expenditure incurred towards interior decoration, extension and renovation of buildings as capital expenditure - HELD THAT - Since the issue in assessee s own case was already decided 2013 (10) TMI 925 - ITAT CHENNAI and the matter was restored back to the file of AO with a direction to disallow the claim of the expenditure which was in the capital field and allow the expenditure which was in the revenue field. TDS u/s 195 - Disallowance u/s.40(a)(i) - payments made to non-residents without deduction of tax under the provisions of Act - HELD THAT - The payment made is towards the Annual management/subscription fees which is part of the membership agreement towards use of the Resorts in their respective countries outside India and hence not taxable in India. AO was wrong in not appreciating the fact that these payments constitute BUSINESS PROFITS of the non-residents and therefore, liability of tax in India does not arise in the assessee s case. It was also the contention of the ld. AR that the ld. AO was also wrong in not appreciating the fact that the payments, even if construed as FTS, were made in respect of services utilized in a business outside India and for purpose of making or earning income from any source outside India and therefore is not taxable under section 9(1)(vii)(b). After deliberations, during the course of hearing, learned counsel of both the sides have fairly admitted that certain details which were necessary to adjudicate this issue were neither called for by the department nor the assessee has furnished the same. We, therefore, are of the considered view that all these issues raised by the assessee regarding disallowance u/s.40(a)(ia) of the Act, in the interest of justice, needs to be restored back to the files of AO for thorough examination of facts, analysis of the same and to reajudicate the applicability of section 40(a)(i) in accordance with the provisions of Income Tax Act r.w. DTAA between India and respective countries and the foreign entities. These grounds are allowed for statistical purposes. Disallowance of the expenses u/s.14A by applying Rule 8 of the I.T.Rules,1963 towards earning of the dividend income - HELD THAT - In order to arrive at the quantum of disallowance or non-disallowance, it is required to examine the status of investment during the relevant financial year by the assessee also the utilization of the investment which has yielded exempted income during the year. As the observation of the ld. CIT(A) that necessary financial information like fund flow statements were not produced by the assessee before the AO as well as before the ld. CIT(A). Therefore, the disallowance made by the ld. AO was upheld by the ld. CIT(A). All the information required to arrive at the figure of disallowance u/s.14A or to examine the applicability of provisions of section 14A of the Act by the AO, so as to verify and to reach at a conclusion that if the financial information of the assessee are suggesting any disallowance in terms of provisions of Section 14A or not. We, therefore, restore this matter back to the file of AO to readjudicate the issue afresh. Assessee is directed to submit all the necessary information required for readjudication. AO is also directed to consider the judicial principles laid down by the Hon ble courts referred to hereinabove. Thus, ground Nos. 6 to 6.8 are partly allowed for statistical purposes. Long term capital loss - assessee has surrendered the leasehold rights - lease premium was amortized over the period of lease but was not shown as an asset in the income tax depreciation schedule - AO / CIT(A) considered the same as the long term capital loss has escaped assessment - HELD THAT - A lease deed for 99 years is a long-term lease that controls the transfer of land and its uses. A surrender deed is a legal document that transfers ownership of property from one party to another - The capital gains tax is to be calculated as prescribed under the provisions of Income Tax Act 1961, as the difference between the sale price and the cost of acquisition. The cost of acquisition is the price at which the property was acquired by the lessee. In present case the sale price is the price at which the property was surrendered by the lessee. Since the lease deed for purchase of the land was for 99 years and according to the case law relied on by the ld. AR of the assessee in the case of Hitashi Estates Ltd. 2008 (11) TMI 175 - DELHI HIGH COURT wherein it was held that the tenancy right is a capital asset and cannot acquire a different character because of wrong treatment accorded to it in books of account of the assessee. It was also held that the Tribunal was justified in directing the AO to assess the profit and loss under the capital gains as claimed by the assessee. The assessee s reliance on the CBDT Circular(supra) also support the contention of the assessee which was issued by the department in consonance of the judgment in the case of Foxconn India Developer Limited 2016 (4) TMI 314 - MADRAS HIGH COURT wherein it has been held that one-time non-refundable upfront charges paid by the assessee for the acquisition of leasehold rights over an immovable property for 99 years could not be taken to constitute rental income in the hands of the lessor, obliging the lessee to deduct tax at source u/s.194-I of the Act and that in such a situation the lease assumes the character of deemed sale and, therefore, in our considered view the transaction of impugned surrender deed executed by the assessee, in consideration in the present appeal will fall under the category of transfer eligible for provisions of Long Term Capital Gains. However, copy of lease deed and surrender deed were not placed before us for perusal of the terms and conditions of the same, also on perusal of the order of the ld. CIT(A) it is transpired that the required information / evidences were not adequately submitted by the assessee. Therefore, in the interest of natural justice, we restore this matter also back to the files of AO to examine the relevant documents and to allow the assessee benefit of the provisions of capital gain applying the provisions available under the Income Tax Act prevailing at the time of relevant assessment year, keeping in consideration the principal of law laid down in the cases referred to supra and as instructed by CBDT vide its circular referred to herein above. Addition made on deferred income of advance received from members - HELD THAT - Since, the departmental representative has not furnished any information to substantiate their contention raised in grounds of the present appeal that the department has not accepted the relied upon order of ITAT in the assessee's own case 2010 (5) TMI 524 - ITAT, CHENNAI by way of filing of an appeal before the Hon ble Jurisdictional High Court of Madras having granted an estoppel or stay on the decision of ITAT or have granted a deviating decision against the decision of Special Bench of ITAT Chennai benches 2010 (5) TMI 524 - ITAT, CHENNAI or any other judgment of Hon ble Jurisdictional High Court or Apex Court having a contrary stand against the verdict of Special Bench of ITAT, thus, we are abided by to follow the decision of Special Bench (supra) and therefore, r espectfully following the aforesaid observations of the Special Bench of the Tribunal in assessee s own case for A.Ys.1998-1999 to 2002-2003, we do not see any reason to interfere with the findings offered by the ld. CIT(A). Thus, this ground of revenue is dismissed. Depreciation @60% on UPS in favour of the assessee.

Summary

Issues Involved:
1. Reopening of Assessment under Section 147.
2. Depreciation on Electrical Installations.
3. Depreciation on Non-Compete Fee.
4. Expenditure on Interior Decoration, Extension, and Renovation of Buildings.
5. Disallowance under Section 40(a)(i) for Payments to Non-Residents.
6. Disallowance under Section 14A read with Rule 8D.
7. Depreciation on UPS.
8. Long Term Capital Loss.
9. Deferred Income of Advance Received from Members.

Summary:

1. Reopening of Assessment under Section 147:
The assessee challenged the reopening of assessment under Section 147, arguing that the reopening was based on a change of opinion and lacked fresh material. The Tribunal upheld the reopening, referencing the Madras High Court's decision in Mobis India Ltd. and the Supreme Court's ruling in Kelvinator of India Ltd., concluding that the reopening was justified as it was within four years and not based on a mere change of opinion.

2. Depreciation on Electrical Installations:
The assessee claimed depreciation at 15% on electrical installations, which was restricted to 10% by the AO. The Tribunal allowed the assessee's claim, following the Madras High Court's decision in Geetha Hotels Pvt. Ltd., which held that electrical installations in a hotel building should be treated as "plant" and not as "building."

3. Depreciation on Non-Compete Fee:
The assessee claimed depreciation on non-compete fees, which was disallowed by the AO. The Tribunal allowed the claim, relying on the Madras High Court's decision in Pentasoft Technologies Ltd. and the Supreme Court's ruling in Techno Shares and Stocks Ltd., holding that non-compete fees are intangible assets eligible for depreciation under Section 32(1)(ii).

4. Expenditure on Interior Decoration, Extension, and Renovation of Buildings:
The Tribunal restored the issue to the AO to determine whether the expenditure was capital or revenue in nature, following the ITAT's earlier decision in the assessee's own case, which directed the AO to allow expenses of a revenue nature and disallow those of a capital nature.

5. Disallowance under Section 40(a)(i) for Payments to Non-Residents:
The Tribunal restored the issue to the AO for a thorough examination of facts and analysis of the applicability of Section 40(a)(i) in accordance with the provisions of the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA) between India and the respective countries.

6. Disallowance under Section 14A read with Rule 8D:
The Tribunal restored the issue to the AO to re-adjudicate afresh, considering the judicial principles laid down by the Delhi High Court in ACB India Ltd. and the Special Bench of the ITAT in Vireet Investment (P) Ltd., which held that only those investments yielding exempt income during the year should be considered for computing the average value of investments.

7. Depreciation on UPS:
The Tribunal restored the issue to the AO for adjudication, directing the AO to consider the judicial precedents that classify UPS as part of the computer system eligible for higher depreciation rates.

8. Long Term Capital Loss:
The Tribunal restored the issue to the AO to examine relevant documents and allow the benefit of provisions of capital gain, treating the transaction as a transfer eligible for provisions of long-term capital gains, following the principles laid down in Hitashi Estates Ltd. and the CBDT Circular F.No.275.

9. Deferred Income of Advance Received from Members:
The Tribunal upheld the CIT(A)'s decision, following the Special Bench of the ITAT in the assessee's own case, which held that the entire amount of time-share membership fee receivable upfront at the time of enrollment is not chargeable to tax in the initial year due to the contractual obligation to provide services in future over the term of the contract.

Conclusion:
The appeals of the assessee were partly allowed for statistical purposes, and the appeals of the revenue were dismissed. The Tribunal directed the AO to re-examine several issues, considering relevant judicial precedents and providing the assessee with an opportunity to present necessary information and evidence.