GOLF COURSE – PLANT AND MACHINERY?

[Mr. M. GOVINDARAJAN]

The golf course is a playground with various equipments such as sprinklers, holes, ponds and other add-ons incorporated therein to facilitate the sports of golf. It is stated to be highly sophisticated and value added equipments have been installed.  Whether the golf course is to be considered as ‘plant and machinery’ for the purposes of depreciation under Income Tax Act, 1961?  The said issue is analyzed in this article with the aid of decided case laws.  Section 43(3) defines the term ‘plant’ as including ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession but does not include tea bushes or livestock or buildings or furniture and fittings.

In ‘Landbase India Limited v. Assistant Commissioner of Income Tax, Circle – 15(1), New Delhi’ – 2019 (9) TMI 148 – ITAT, Delhi, the appellant is a company engaged, inter alia, in the business of running of golf course, construction of hotel and sale of merchandise.  During the previous year relevant to the assessment year 2001-02, the appellant filed return of income on 30.10.2001 declaring loss of ₹ 20,72,84,983/-. The appellant derived substantial income from operating and running of the golf course.  The assessment was originally completed under section 143(3) of the Income Tax Act, 1961 vide order dated 29.03.2004 assessing the loss of the appellant at ₹ 20,71,55,977/- after making certain disallowances.  It was reopened on the basis of audit objection and order was passed on 24.12.2007 after making further disallowances.  The Assessing Officer came to a conclusion that the business of the assessee is to invite players for playing the golf and charging the fee for that and thus the field so prepared was a business operated used by the assessee for carrying on its business of playing golf. 

The appellant filed appeal before the Commissioner of Income Tax (Appeals).  The Commissioner of Income Tax (Appeals) allowed the appeal partly filed by the appellant.  The Commissioner of Income Tax (Appeals) held that a piece of land having some landscaping for playing golf such as various level undulation, holes, small ponds etc construed a super structure which can be categorized as a plant and machinery.    If this view is accepted then every landscaping having some special features for the purpose of its intended use would become plant and machinery and every construction of building for the purpose of sports would be converted into plant and machinery.  For the creation of golf course, landscaping is done for in various levels and some holes, ponds and walking path is created.  In the view of Commissioner of Income Tax (Appeals) this kind of piece of land converted into a golf course by creating some specialized facilities for playing golf cannot be put in the category of plant and machinery.

Against the order of Commissioner of Income Tax (Appeals), the Revenue filed appeal before the Appellate Tribunal.  The appellant also filed appeal before the Appellate Tribunal challenging the order of Commissioner of Income Tax (Appeals) confirming the re-assessment order.  The Appellate Tribunal, vide order dated 15.06.2016, inter-alia, restored the issue whether depreciation is admissible @25% as plant or @10% as building, to the file of the assessing officer for de-novo consideration and to examine the details of construction on the 300 acres of land converting it into a golf course, which were not filed before the assessing officer in the first round of proceedings.

The Assessing Officer in the restoration proceedings after considering the entire material available on record reiterated the findings given in original assessment and allowed depreciation on golf course @ 10% by treating the same as ‘building’ vide their order dated 29.12.2017.  The appellant filed appeal before the Commissioner of Income Tax (Appeals) against the order of Assessing Officer.  Vide order dated 31.12.2018 the Commissioner of Income Tax (Appeals) upheld the order of the Assessing Officer restricting depreciation on golf course @ 10%. The Commissioner of Income Tax (Appeals) held that no doubt the assessee is generating revenue from the players for playing golf and allowing its golf course, but it cannot be said that the assessee has manufactured or produced anything.

The appellant submitted the following before the Tribunal-

• The classification and acceptance of ‘golf course’ as ‘plant’ in the initial year(s) operates as res-judicata and binds both the assessee and the Revenue and consequently, the assessing officer had no jurisdiction, whatsoever, to change classification in subsequent year(s), including the year under consideration. 
• In terms of section 32(1) (ii) of the Income Tax Act, depreciation is allowed on the ‘written down value’ of any ‘block of assets’. The expression ‘block of assets’ is defined in section 2(11) of the Act to mean a group of assets falling within a class of assets in respect of which same percentage of depreciation is admissible. 
• Once an asset is classified as block of ‘plant’, then, in subsequent year, the same asset cannot be classified as ‘building’ or vice versa.
•  In previous year relevant to assessment year 1998-99, wherein total cost of ₹ 20,57,09,950/- (excluding cost of land) was capitalized and depreciation was claimed thereon @25% under section 32(1) of the Act. 
• The cost of golf course, it is submitted, comprised of various equipment and items of plant and machinery like irrigation system water tanks including water sprinklers, technical knowhow, bunkers, etc.
• The entire cost incurred on construction of golf course was capitalized as a separate block of plant and machinery and accordingly, depreciation at the applicable/prescribed rate of 25% was being claimed consistently since assessment year 1998-99 onwards.
• The claim of depreciation @25% has been allowed to the appellant in earlier as well subsequent assessment years.
• The assessing officer, after due application of mind and after duly considering the exhaustive details/ documents furnished by the appellant, agreed with the claims and therefore, accepted the claim of depreciation on golf course @ 25% in the original assessment order.
• Golf course – allowed as ‘plant’ in subsequent yea₹ 2006-07 to 2009- 10.
• It is not open to the assessing officer to depart from the aforesaid classification and was bound to allow depreciation on golf course as plant, as claimed by the appellant.

The Revenue submitted the following before the Appellate Tribunal-

• The Assessing Officer has correctly allowed the depreciation considering the golf course as a building and not  a plant.
• Golf course is nothing but a piece of land having some landscaping with level undulation, grass on the land etc , Small ponds etc.
• Depreciation is not allowed on land.
• However since certain activities have been carried out on the piece of land to make it usable for playing the golf the learned assessing officer has allowed the depreciation considering the golf course as building. 
•  In fact were golf course may be considered akin to a road. The road was not covered under depreciation as it was essentially on land.
• However, after insertion of appendix – 1 under rule 5 of the income tax rules 1962 the building includes roads bridges and converts well, tube wells. 
• In the present case the players play golf on the golf course but the golf course as such does not play any part in carrying on the playing activity of the assessee.

The Tribunal heard the submissions put forth both the parties.  The Tribunal observed that it is an admitted fact that assessee is a company engaged in the business of inviting membership and then allowing those members to play golf on the golf course constructed by it. It is also apparent that the assessee is engaged in the business of running of the golf course and also earning revenue from apartments. The golf course constructed comprised of various equipments and items of plant and machinery like irrigation system, water tanks including water sprinklers, technical know-how, bunkers etc.    The golf course owned and used by the assessee for the purpose of the business is as a tool of the business of the assessee. It is functioning like a plant in case of the assessee. Further, it is not the case of the revenue that assessee has claimed any depreciation on the land. It is similar to the depreciation on pond allowed in the case of an aquaculture company.  In fact the claim of depreciation on golf course as a plant stands accepted in assessment year 98 – 99 to assessment year 2000 – 01, 2002 – 03 and 2006 – 07 to 2009 – 10.

The Tribunal therefore held that   golf course is a plant looking to the nature of business of the assessee.  The appeal of the assessee is allowed reversing the views of the lower authorities, holding that golf course is a plant on which assessee is entitled to the depreciation at the rate of 25% under the income tax act, vide their order dated 26.08.2019.

In ‘Landbase India Limited v. Assistant Commissioner of Income Tax, Circle – 15(1), New Delhi’ – 2020 (5) TMI 361 – ITAT, New Delhi, the assessee  is a company engaged in the business of operation of golf course, construction of hotels, housing complex and merchandising. The assessee filed its return of income at a loss of ₹ 20187486/-. The Assessing Officer, while making the assessment of the appellant, disallowed the deprecation of ₹ 1228317/- claimed by the appellant on golf course.  The assessee has claimed depreciation on golf course @15% considering it as ‘plant and machinery’.  The Assessing Officer disallowed the depreciation on the ground that golf course is developed on the land and whatever improvement is made on that land, it remain as a land.    Only the value of land is enhanced by constructing golf course thereon.   It is only land, which is not depreciable. Hence, it amounts to allowing depreciation on land, land being not a depreciable assets, he disallowed it.

The assessee challenged the same before the Commissioner of Income Tax (Appeals).  The Commissioner of Income Tax (Appeal) held that the golf course is a ‘building’ and depreciation should be allowed considering the same as a ‘building’. The assessee aggrieved with that order has preferred appeal before the Income Tax Appellate Tribunal.

The appellant challenged the order of Assessing Officer and the order of the Commissioner of Income Tax (Appeals) on the ground that the depreciation on the golf course should be allowed as ‘plant and machinery’.

The Tribunal observed that the issue in question has considered by the coordinate bench  (supra)  in assessee’s own case for Assessment Year 2005-06 to 2011-12 as per order dated 26.08.2019 wherein, the coordinate bench has held that the golf course is a plant and machinery and assessee is eligible for depreciation thereon @15%.  The Tribunal allowed the appeal of the appellant holding that the appellant is eligible to claim depreciation on gold course and plant and machinery.

Discussions to this article

[Ganeshan Kalyani]

Interesting case law.