2020 (9) TMI 928 - HC - Income Tax

Depreciation on Floor Space Index (FSI) - @ 10% or 25% - depreciation on intangible assets - as per AO grant of FSI was not in the nature of any asset and only a payment made to the government for increasing the size of the building - Whether grant of additional FSI is not in the nature of any kind of assets until and unless the additional flooring/building is constructed, therefore, not eligible for depreciation in this case? - Tribunal held that the assessee would be eligible for depreciation for the entire amount of premium debited to the account of the asset - Tribunal held that the assessee would be entitled to depreciation @ 10% on the whole of the consideration towards FSI and not @ 25% HELD THAT - View taken by the Tribunal is a reasonable one, having regard to the provisions contained in sections 32 (1)(ii) and 43(6)(c) - revenue had not questioned the finding of CIT(A) that the amount spent by the assessee would add to the value of the existing building as additional FSI would be available to the assessee; the amount spent was for the purpose of business and was of enduring nature; since it related to the building block of the asset, the overall cost of the building block would increase by this amount; therefore CIT(A) directed the Assessing Officer to add the amount spent during the year to the building block of asset and allow depreciation as per law i.e. on the rate applicable to the building which is 10% and not 25%. Documents placed on record that the order of the CIT(A) was accepted by the revenue and a conscious decision was taken not to file further appeal. When the revenue sought to file cross-objection belatedly the same was dismissed on the ground of limitation. That apart, having not filed appeal against such decision of CIT (A), revenue cannot now raise a dispute as to percentage of depreciation. No good ground to disturb the finding of the Tribunal on this point. Therefore, we are of the view that no substantial question of law arises from the order of the Tribunal on this issue. - Decided against revenue.

Summary

Issues Involved:
1. Depreciation on Floor Space Index (FSI)
2. Depreciation on Intangible Assets

Detailed Analysis:

1. Depreciation on Floor Space Index (FSI):

The primary issue was whether the Tribunal was justified in allowing depreciation of ?30,67,319.00 on FSI at 10% of the total consideration. The assessee, engaged in the hoteliering business, claimed depreciation on FSI, which was initially disallowed by the Assessing Officer (AO). The AO argued that FSI is not an asset but a payment for increasing building size, only becoming an asset when additional floors are constructed. Thus, depreciation was not allowed on the FSI.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision but allowed the amount spent on FSI to be added to the building block of assets, enabling depreciation as per law. The Tribunal, upon appeal, noted that the assessee had acquired additional FSI rights, capitalized the premium amount in its books, and made corresponding liability entries. The Tribunal held that depreciation should be considered on the full amount debited to the fixed assets, irrespective of the installment payment status, as it enhances the building's value.

The Tribunal did not accept the assessee's contention that additional FSI is a business or commercial right falling under "intangible assets" as per section 32(1)(ii) of the Act. It ruled that FSI pertains to the building and thus, depreciation at 10% (applicable to buildings) was appropriate, not 25% for intangible rights.

2. Depreciation on Intangible Assets:

The second issue was whether the Tribunal was justified in allowing depreciation amounting to ?4,88,08,717.00 on intangible assets. This question had already been addressed by the Court in the assessee's own case in Income Tax Appeal Nos. 835 and 836 of 2016, where it was held that it did not constitute a substantial question of law. Consequently, the Court did not delve further into this issue during the current proceedings.

Conclusion:

The Court found the Tribunal's view reasonable and consistent with sections 32(1)(ii) and 43(6)(c) of the Income Tax Act. The revenue had previously accepted the CIT(A)'s decision without further appeal, thus could not dispute the depreciation percentage now. The appeal was dismissed, affirming the Tribunal's decision that the assessee is entitled to depreciation at 10% on the FSI amount, not 25%. The order was digitally signed and distributed accordingly.