2015 (9) TMI 554 - AT - Income Tax

Disallowance of depreciation on land on which assessee had leasehold rights - alternate claim of assessee that the payment had to be allowed as revenueHeld that - As decided in assessee s own case for AY 2006-07 to 2008-09 the lease rent paid for acquiring leasehold rights over the land can never be treated as cost of the plant (windmill). The functional test cannot be extended to a case of lease rent for acquiring leasehold rights over the land, whatever be the technical requirement of erecting a plant. The law is well settled that no depreciation is to be allowed on land. By placing reliance on the functional test, it is not possible to allow depreciation on land indirectly. If such a claim were to be allowed, then it could be extended to a case of a land over which a shopping mall is constructed. A shopping mall requires a good area/location, main road for good business. Can it be said that the rent paid for the land over which the shopping mall is constructed is part of the building on which depreciation is to be allowed? In our view, by applying the functional test, it is possible to contend in all the cases that the land is a tool of trade and has to be regarded as plant or building. We therefore decline to accept the proposition canvassed on behalf of the assessee. Hon ble High Court of Karnataka in the case of HMT Ltd. (1992 (11) TMI 37 - KARNATAKA High Court), has considered the premium for acquiring leasehold rights as nothing but rent paid in advance. The rent paid in advance was for acquiring leasehold rights over the land. Such payment had been considered by the Hon ble Court as revenue expenditure. In view of the aforesaid decision of the Hon ble High Court which is in pari materia with the facts of the present case, we are of the view that the lump sum rent paid for the entire period of 30 years has to be considered as revenue expenditure. The CIT(A) wrongly distinguished this decision as a case of lease of factory building. We therefore accept the alternative prayer of the assessee. - Decided partly in favour of assessee. Disallowance u/s.14 of the Act read with Rule 8D - Held that - It is crystal clear that assessee had a number of transactions in mutual fund units and equity shares during the relevant previous year. It would be naive to presume that assessee would not have incurred any expenditure, but for the brokerage. Claim of the assessee that no indirect expenditure was incurred and there was no necessity of any management inputs in taking decisions regarding the investment portfolio that were to be maintained during the year, cannot be believed.The rule of preponderance of probability can be applied in such circumstances, and the onus to show that no expenditure was indeed incurred falls back on the assessee. The circumstances here are such that the note given by the assessee before the AO was prima-facie incorrect and unbelievable. At the same time it is true that the AO had not called upon the assessee to prove its claim that no expenditure was indeed incurred by it for earning the exempt income. We set aside the orders of authorities below and remit the issue regarding disallowance under Section 14A back to the file of AO for denovo consideration after obtaining the explanation of the assessee. - Decided in favour of assessee for statistical purposes. Interest u/s.234B - assessee contested as paid advance-tax of more than 90% of the assessed tax - Held that - It is clear that if the assessee had paid more than 90% of the assessed tax, then levy of interest u/s.234B cannot be done. Assessed tax has also been defined in the said section - In our opinion none of the lower authorities had applied their mind to the relevant section before charging interest u/s.234B of the Act. CIT (A) had considered it simply as a consequential ground. We set aside the issue of levy of interest u/s.234B of the Act, back to the file of the AO for consideration afresh in accordance with law. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Claim of depreciation on leasehold land.
2. Disallowance under Section 14A read with Rule 8D.
3. Levy of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Claim of Depreciation on Leasehold Land:
The assessee's grievance was that the claim of depreciation on land with leasehold rights was disallowed. Alternatively, the assessee sought to write off the lease cost. The Tribunal had previously dealt with a similar issue in the assessee's own case for earlier assessment years, where it was held that the upfront lease charges were allowable as revenue expenditure, but the claim for depreciation was not accepted.

The Tribunal reiterated that the leasehold right on land is not a depreciable asset. However, the Tribunal accepted the alternative plea to allow the sum as a revenue expenditure based on the decision in the case of V.S. Lad & Sons, where it was held that lease charges for land on which windmills were erected should be treated as revenue expenditure under Section 37(1) of the Act. Consequently, the Tribunal allowed the claim for revenue expenditure while dismissing the claim for depreciation.

2. Disallowance under Section 14A read with Rule 8D:
The assessee contested the disallowance of expenditure under Section 14A read with Rule 8D, arguing that no expenditure was incurred for earning exempt income. The AO, however, computed the disallowance based on the average value of investments.

The Tribunal noted that the assessee had substantial investments and transactions during the relevant year, making it implausible that no expenditure was incurred. The Tribunal emphasized that the AO can conclude that the claim of nil expenditure is incorrect based on the circumstances. The Tribunal found that the AO did not call upon the assessee to prove its claim and thus set aside the orders of the authorities below, remitting the issue back to the AO for fresh consideration after obtaining the assessee's explanation.

3. Levy of Interest under Section 234B:
The assessee argued that interest under Section 234B was charged despite paying more than 90% of the assessed tax. The Tribunal highlighted that Section 234B stipulates that interest cannot be levied if more than 90% of the assessed tax is paid. The Tribunal observed that the lower authorities did not apply their minds to the relevant section before charging interest. Consequently, the Tribunal set aside the issue of levy of interest under Section 234B, remitting it back to the AO for fresh consideration in accordance with the law.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal directing the AO to reconsider the issues of disallowance under Section 14A and levy of interest under Section 234B. The claim for depreciation on leasehold land was dismissed, but the alternative claim for revenue expenditure was allowed.

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