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TMI Blog2010 (4) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... . CO 22/Del/10 in ITA No. 4245/Del/ 09 -do- 2002-03 8.9.2009 -do- 7. 4513/Del/09 -do- 2003-04 14.9.2009 31.12.08 143(3), 153A 8. 4514/Del/09 -do- 2003-04 -do- -do- The first common grievance raised by the Revenue in the assessment years 2001-02 and 2002-03, relates to deletion of disallowance of depreciation on the leased asset amounting to Rs. 6,66,488 and Rs. 5,79,590 respectively. These grounds of appeal are also interconnected with the solitary grievance of the assessee raised in its appeals for the assessment years 2003-04 and 2004-05 wherein the learned Commissioner of Income-tax (Appeals) has upheld the disallowance of depreciation amounting to Rs.5,06,309 and Rs. 4,43,912 in the assessment years 2003-04 and 2004-05 respectively. We take all these grounds of appeal together. The facts on all vital points are common in all the four assessment years. For facility of reference we are taking up the facts mainly from the assessment year 200102. The brief facts are that the assessee-company had filed its return of income on October 30, 2001 under section 139(1) of the Income-tax Act, declaring a loss of Rs. 10,81,630. It had claimed a deduction of Rs. 6,66,488 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ITC Ltd. which was accounted for in the books of account as under : (a) Repayment of security deposit to ITC Ltd. Rs. 7.75 crores (b) Cost of store acquired from ITC Ltd. Rs. 0.64 crores (c) Reimbursement towards transfer of various accounts Rs. 3.84 crores (d) Towards termination of operator agreement and the assessee obtaining rights to operate the hotel Rs. 30.86 crores Rs. 43.10 crores (iv) The appellant would not be entitled to any amounts relating to licence fee for any year till the date of settlement." According to the arbitrator's award the assessee was not to receive licence fee in the assessment years 2001-02 and 2002-03. The Assessing Officer has made addition on account of accrual of licence fee which was receivable by the assessee. The assessee carried the matter in appeal before the learned Commissioner of Income-tax (Appeals) against the original assessment order passed under section 143(3). Its appeal was also dismissed and in order to avoid litigation with the Department it did not carry the dispute further. Since the licence fee receivable by the assessee was assessed as a business income the Assessing Officer granted the depreciation to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een if the machinery in question is employed by the assessee for the purpose of the business and for no other business. If it is kept by him ready for actual use depreciation would be allowed. Similarly he relied upon the following decisions : (1) Multican Builders Ltd. v. CIT [2005] 270 ITR 142 (Cal) ; (2) CIT v. Southern Petrochemical Industries Corporation Ltd. [2008] 301 ITR 255 (Mad) ; (3) CIT v. ESPN Software India P. Ltd. [2008] 301 ITR 368 (Delhi) ; (4) CIT v. Hughes Escorts Communications Ltd. [2009] 311 ITR 253 (Delhi) ; (5) CIT v. India Tea and Timber Trading Co. [1996] 221 ITR 857 (Gauhati) ; and (6) CIT v. Vindhyachal Distilleries Pvt. Ltd. [2005] 272 ITR 583 (MP). On the other hand the learned Departmental representative relied upon the order of the learned Commissioner of Income-tax (Appeals), in the assessment years 2003-04 and 2004-05 whereas with regard to the assessment year 2001-02 he relied upon the order of the Assessing Officer. We have duly considered the rival contentions and gone through the record carefully. In order to avail of depreciation under section 32 of the Income-tax Act an assessee is required to prove the ownership of the asset and its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business and the same can be said to be in use when it is kept ready for use. 15.2 In the case of Whittle Anderson Ltd. v. CIT [1971] 79 ITR 613 (Bom), their Lordships of the Bombay High Court were concerned with the question whether ginning machines remaining idle under pooling agreement could be said to be used so as to be entitled to depreciation. Their Lordships made the following relevant observations (page 627) : 'Now the expression "use or used" has several times received interpretation at the hands not only of this court and of the other High Courts but by the Supreme Court itself. So far as this court is concerned, in CIT v. Viswanath Bhaskar Sathe [1937] 5 ITR 621 (Bom), in a case which was very similar to the present case, this court, with reference to the provisions of section 10(2)(vi) of the Indian Income-tax Act, said that the word "used" in that section should be understood in a wide sense so as to embrace passive as well as active user. They pointed out that when machinery is kept ready for use at any moment in a particular factory under an express agreement from which taxable profits are earned, the machinery can be said to be used for the purposes of the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT v. Dilip Singh Sardarsingh Bagga [1993] 201 ITR 995, the Bombay High Court on the question of allowing depreciation and after the relevant provisions of the Motor Vehicles Act, observed as under (page 1002) : 'In view of the foregoing discussion, we are of the clear opinion that the assessee, who had purchased the motor vehicle for valuable consideration and used the same for his business, cannot be denied the benefit of depreciation on the ground that the transfer was not recorded under the Motor Vehicles Act or that the vehicles stood in the name of the vendor in the records of the authorities under the Motor Vehicles Act.' 15.4 In the case of CIT v. Salkia Transport Associates [1983] 143 ITR 39 (Cal) five buses owned by the assessee were not registered under the Motor Vehicles Act. Their Lordships noted relevant provisions of the Motor Vehicles Act and on the question whether the assessee was entitled to depreciation under the above circumstances observed as under (page 46) : 'That the assessee has purchased five new buses is not disputed. The only argument is that the vehicles were not registered in the name of the assessee under the Motor Vehicles Act. But t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without payment of road tax, etc., may be violative of the provisions of the Motor Vehicles Act, 1988. But none the less if the vehicle was plied even without obtaining registration or payment of road tax, etc., it cannot be said, as a matter of fact, that the vehicle has not been used. The attention of the Tribunal was not drawn towards rule 47 of the Motor Vehicles Rules which gives seven days time to apply for registration of the vehicle with the registering authority under the Motor Vehicles Act. The finding recorded by the Tribunal that the oil tankers were not used on the last date of the previous year is not based on legal evidence, and has given rise to a substantial question of law involved in the appeal and, therefore, it is not correct to say that the appeal is concluded by finding of fact and is not maintainable. In view of the above exposition of law the case in hand is to be examined. The two oil tankers along with mounted bodies were purchased for the business purposes by the assessee who is a transporter during the accounting year. It is not the case of the Department that these oil tankers were not necessary for the business purposes of the assessee-appellant. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deterioration, or the loss or lessening in value, arising from age, use, and improvements, due to better methods. A decline in value of property caused by wear or obsolescence and is usually measured by a set formula which reflects these elements over a given period of useful life of property . . . Consistent, gradual process of estimating and allocating cost of capital investments over estimated useful life of asset in order to match cost against earnings . . .' An overall view of the above said authorities shows that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilising the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time. It is evident from the above noted decisions that depreciation is an allowance for diminution in value due to wear and tear of a capital asset and that claim on account of depreciation legitimately belongs to one who has invested in the capital asset. 15.8 Reference to section 32(1) as existing in all material time reveals that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bomb blast on so many issues. In the arbitration ultimately it is the assessee who has to pay a sum of Rs. 43.10 crores in total to the ITC. Keeping in view this payment required to be made by the assessee the arbitrator might have considered the factor of non-payment of licence fee to the assessee. In other words at the most passive user cannot be disbelieved. Therefore the claim of depreciation cannot be denied to the assessee merely on the ground that licence fee was not received by the assessee. Earning of income actually in a year is one of the corroborative factors, to demonstrate the user of assets only. It is not the sole criteria for grant of depreciation. In view of the above discussion we allow the ground of appeal raised by the assessee in the assessment years 2003-04 and 2004-05 and reject the ground of appeal raised by the Revenue in the assessment years 2001-02 and 2002-03. In the assessment years 2003-04 and 2004-05 the common ground of appeal raised by the Revenue is that the learned Commissioner of Incometax (Appeals) has erred in deleting the addition of Rs. 32,21,213 and Rs. 34,13,764 respectively. These additions have been made by the Assessing Officer on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax (Appeals) coupled with the order of the Income-tax Appellate Tribunal in 1997-98 we do not find any merit in these grounds of appeal. They are rejected. The grounds raised by the assessee in the cross-objection filed in the assessment years 2001-02 and 2002-03 are common with the additional ground of appeal raised in the assessment years 2003-04 and 2004-05. In all these grounds of appeal the assessee has pleaded that in the facts and circumstances of the case the learned Assessing Officer was not justified in issuing notices under section 153A as no assessment or reassessment was pending as on the date of initiation of search which could have abated in terms of the second proviso to section 153A(1) of the Income-tax Act. Thus the Revenue authorities had no right in law to review/reconsider, the issue of claim of depreciation of assets leased to the ITC, when no material in respect of these issues was found during the course of search. The assessee in other words has challenged the validity of assessment framed under section 153A. However learned counsel for the assessee did not press these grounds of appeal at the time of hearing. Hence they are rejected. In the result appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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