2013 (7) TMI 471 - AT - Income Tax

Disallowance of depreciation - CIT(A) deleted the disallowance of depreciation on financial leased assets - Held that - While claiming the depreciation allowance, the assessee has offered the principal portion of the lease rental also for taxation - Otherwise, it was sufficient for the assessee to offer the interest portion alone, as income for taxation - It is seen that whether the method already followed by the assessee is accepted or method proposed by the Revenue is accepted, the ultimate effect is Revenue-neutral - Decided against revenue. Nature of Guarantee commission paid by assessee company to holding company - Debt claim - Held that - payment towards guarantee fee cannot be regarded as income from debt claim - guarantee commission in the light of the Double Taxation Avoidance Agreement cannot be treated as being in the nature of interest or debt claim - Following decision of Vijay Ship Breaking Corporation v. Deputy CIT 2002 (4) TMI 252 - ITAT RAJKOT - Decided against Revenue.

Summary

Issues:
1. Disallowance of depreciation on financial leased assets for the assessment year 2004-05.
2. Nature of guarantee commission paid by the assessee-company to its holding company for the assessment years 2005-06, 2006-07, and 2007-08.

Analysis:
1. For the assessment year 2004-05, the main issue was the disallowance of depreciation on financial leased assets. The Revenue contended that the asset was used by the lessee and registered in their name, thus the ownership vested with the lessee. However, the assessee claimed depreciation based on Circular No. 2 of 2001, offering the principal portion of the lease rental for taxation. The Tribunal found that the Revenue's argument lacked merit as the method followed by the assessee was revenue-neutral. Therefore, the Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to delete the disallowance and dismissed the appeal for the assessment year 2004-05.

2. Regarding the assessment years 2005-06, 2006-07, and 2007-08, the issue was the nature of the guarantee commission paid by the assessee-company to its holding company. The Commissioner of Income-tax (Appeals) ruled that the payment towards guarantee fee did not constitute income from debt claim under the Double Taxation Avoidance Agreement between India and the U.S.A. The Tribunal agreed with this finding, citing the decision in the case of Vijay Ship Breaking Corporation v. Deputy CIT. The Tribunal emphasized that the term 'debt-claims' in the agreement referred to loans, whether secured or unsecured, and not all types of debts. Therefore, the guarantee commission could not be treated as interest or debt claim. Consequently, the appeals filed by the Revenue for the assessment years 2005-06, 2006-07, and 2007-08 were dismissed based on the Double Taxation Avoidance Agreement's provisions.

In conclusion, the Tribunal upheld the Commissioner of Income-tax (Appeals)'s decisions in both issues, dismissing the Revenue's appeals for all assessment years involved in the case.