2020 (5) TMI 590 - AT - Income Tax

License/registration fee paid - whether is a commercial right and in the nature of an asset within the meaning of section 32(1)(ii) and the assessee is entitled to claim depreciation thereon ? - capitalization of expenditure for special Dunnage whereas debiting the expenditure for ordinary Dunnage to the profit and loss account and claimed the same to be revenue expenditure - HELD THAT - Assessee has been using two types of Dunnage, though for the same purpose, but with two different life times, namely, the special Dunnage having life time of more than five years, whereas the ordinary Dunnage has to be used only for one year and un-usable thereafter - the assessee has capitalized the expenditure on the special Dunnage in their accounts and has been claiming depreciation @ 16% per annum over the useful period and on the same analogy in respect of ordinary Dunnage, they are treating the expenditure for one year and debiting the same to the profit and loss account to claim it as revenue expenditure. It is also not in dispute that the Revenue has been accepting the capitalization of special Dunnage and allowing depreciation @ 16% per annum over the period of life expectancy of such Dunnage. As life expectancy is taken as the determining factor for the separate treatment to the Dunnage, we do not find any illegality or irregularity in the view taken by the ld. CIT(A) that because of the single use within a year in respect of ordinary Dunnage, the expenditure thereon has to be taken as revenue expenditure and no addition on that score could be made. This finding of the ld. CIT(A) cannot be said to be illegal or irregular or perverse. We, therefore, find the ground No. 1 of appeal of the Revenue as devoid of merits. Depreciation in respect of license/registration fee paid to Indian Railways - CIT(A) based his finding on the observations of the Tribunal in the case of ONGC Videsh Ltd 2009 (10) TMI 76 - ITAT DELHI-F wherein it was held that the right granted to the assessee by way of license whereunder the assessee had become owner of such right, such license enables the assessee to have an access to carry on their business and therefore, it falls within the category of an asset u/s. 32(1)(ii) - No decision is brought to our notice to the contrary to take a different view. We, therefore, while agreeing with the ld. CIT(A), find that the claim of depreciation in respect of license/registration fee paid by the assessee to the Indian Railways is an asset whereon depreciation u/s. 32(1) is allowable. We, therefore, dismiss ground No. 2.

Summary

Issues involved:
1. Challenge to the order passed by the Commissioner of Income Tax (Appeals) for assessment year 2012-13.
2. Applicability of section 115JB to the assessee's case.
3. Disallowance of expenditure on Dunnage.
4. Disallowance of depreciation on license/registration fee paid to Indian Railways.

Analysis:

Issue 1: Challenge to the CIT(A) order
The Revenue challenged the CIT(A) order dated 21/03/2017 for assessment year 2012-13, in the case of M/s. Central Warehousing Corporation. The appeal was based on various additions made by the Assessing Officer, which were subsequently challenged by the assessee before the CIT(A).

Issue 2: Applicability of section 115JB
The assessee contended that provisions of section 115JB were not attracted to their case as they were not covered by the Companies Act. The balance sheet of the assessee was drawn according to the rules framed under the Warehousing Corporation Act, 1962. This led to the filing of cross-objections by the assessee.

Issue 3: Disallowance of expenditure on Dunnage
The dispute arose regarding the treatment of expenditure on Dunnage by the assessee. The CIT(A) accepted the contention of the assessee that expenditure on ordinary Dunnage should be treated as revenue expenditure under section 37(1) of the Income-tax Act, considering factors like life expectancy and material use. The addition made by the Assessing Officer was deleted by the CIT(A).

Issue 4: Disallowance of depreciation on license/registration fee
The Assessing Officer disallowed depreciation claimed on the license/registration fee paid to Indian Railways, stating it should be amortized over 20 years. However, the CIT(A) allowed the claim based on a Tribunal decision related to a similar issue involving ONGC Videsh Limited. The Tribunal found that the fee paid was a commercial right and an asset under section 32(1)(ii) of the Act, eligible for depreciation.

The Tribunal upheld the CIT(A) findings on both issues, concluding that the treatment of Dunnage expenditure and the depreciation on the license/registration fee were appropriate. The grounds of cross-objections by the assessee were dismissed as the appeal and cross-objections were both deemed to lack merit.

This comprehensive analysis covers the key issues and the Tribunal's decision on each aspect of the legal judgment.