2011 (1) TMI 1181 - HC - Income Tax

Depreciation on the aircraft - disallowed by the Assessing Officer (AO) on the ground that the said aircraft was grounded in the relevant assessment year and was not put to use - AO noted that the assessee had given the said aircraft on lease and even the lease rental was not charged and the assessee had granted moratorium in respect thereof - matter is remitted back to the file of the Assessing Officer, who shall record a specific finding as to whether during the entire year the Aircraft was not put to use, appeal stands disposed of

Summary

Issues:
1. Disallowance of depreciation on grounded aircraft.
2. Dispute over leasing of aircraft and depreciation claim.
3. Tribunal's decision on the grounding of the aircraft and depreciation claim.
4. Contradictory findings by the Tribunal on aircraft usage.
5. Whether leasing an aircraft constitutes "put to use."
6. Argument regarding repair and maintenance expenses as indicators for depreciation.

Analysis:

1. The appellant/Revenue contested the disallowance of depreciation on a grounded aircraft by the Assessing Officer (AO), citing that the aircraft was not put to use during the relevant assessment year. The AO noted that the aircraft was given on lease without rental charges, leading to the disallowance of depreciation. The Income Tax Appellate Tribunal allowed the depreciation, emphasizing the lack of evidence that the aircraft was unused throughout the year.

2. The respondent/assessee argued in favor of the Tribunal's decision, stating that the aircraft was grounded for major repairs, justifying the moratorium on lease rent. The Tribunal upheld the depreciation claim, highlighting that the aircraft was leased to an airline and was used for business purposes, despite the grounding due to repairs.

3. The Tribunal's decision was based on the acknowledgment that the leased aircraft was grounded for repairs, rendering it incapable of use and not meeting the criteria for depreciation under Section 32 of the Income-Tax Act. However, the Tribunal's reasoning appeared contradictory, as it mentioned both the grounding of the aircraft and the absence of a finding on non-usage by the Assessing Officer.

4. The Tribunal's acceptance of the grounding of the aircraft due to repairs raised doubts about whether leasing alone constituted "put to use." The Tribunal's order lacked clarity on the aircraft's operational status throughout the year, prompting the need for a specific finding by the Assessing Officer.

5. The argument that leasing the aircraft equated to "put to use" was challenged, emphasizing the importance of ascertaining whether the lessee actually utilized the aircraft. The absence of lease rentals and the moratorium granted raised questions about the actual usage of the aircraft, impacting the eligibility for depreciation.

6. Additionally, the argument regarding repair and maintenance expenses as indicators for depreciation readiness was considered presumptuous. The court directed the matter to be remitted back to the Assessing Officer for a specific finding on the aircraft's non-usage throughout the year, allowing the assessee the opportunity to present relevant submissions justifying the depreciation claim.