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TMI Blog2011 (10) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the loss claimed was accepted. Subsequently, it came to the notice of the AO that income chargeable to tax had escaped assessment on account of wrong claim of depreciation. As such, a notice u/s 148 of the Act was issued. In response, the assessee filed a return declaring the same loss, as declared in the original return. The AO asked the assessee as to why it should be allowed 100% depreciation on the leasehold improvements, when such depreciation was available @ 10% in terms of section 32 of the Act. 3. The assessee submitted that it did not own any office building; that leasehold improvement in the form of temporary erection had been done in the office premises taken on lease by the assessee company and that the assessee was entitled to 100% depreciation thereon u/s 32 of the Act. 4. In the assessment order, the AO held that Explanation (1) to section 32(1) had wrongly been sought to be invoked by the assessee; that the said Explanation states that where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order, to the effect that as per the law, the assessee was entitled to depreciation @ only 10%. Reliance has been placed on "Uttar Bharat Exchange Ltd. v. CIT", 55 ITR 550(Del), where the assessee had taken on lease, for a period of 2 years, the first and second floors of a hotel building, with an option for removal at the end of the period and was directed to erect shades, partitions and other temporary structures for carrying on his exchange business, but was not allowed to remove these structures at the end of the lease and the assessee spent a sum of Rs. 17,917/- in all during the years 1954-55, 1955-56 and 1956-57 for erecting such structures and claimed the amount as business expenditure in the respective years, but his claim was disallowed, holding that the expenditure was essentially one of a capital nature and its nature was not changed by the fact that the lease was in the first instance only for a period of two years; and that it could also not be treated as an addition to the rent merely because the lessee had no right to remove them. 9. The learned counsel for the assessee, on the other hand, has strongly supported the impugned order. It has been contended that whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. In "M/s. Hi Line Pens Pvt. Ltd."(supra), the expenditure incurred by the assessee was towards false ceiling, fixing tiles, replacing glasses, wooden partitions, replacement of electric wiring, earthing, replacement of GI pipes etc., in respect of a rented premises taken by the assessee on lease for its business purposes, to make the premises, in use for a long time, useable. It was held by the Hon'ble High Court that the Tribunal had rightly found the assessee to have carried out repairs and had not brought about any new asset, nor was it the intention of the assessee to bring about any new capital asset; that the expenses were towards repairing the premises taken on lease so as to make it more conducive to its business activity. 14. In "Chaya Lakshmi Creations (P) Ltd." (supra), holding the expenditure to be a revenue expenditure, it was held, inter alia, as follows:- "After incurring the expenditure the assessee has not obtained any new enduring benefit. No capital asset came into existence. The assessee continued to exhibit feature films in the very same premises probably with a little more profit. Admittedly the seating capacity was not increased after the expenditure. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be entitled to take away such fittings and fixtures................... " 17. Moreover, "M/s. Hi Line Pens Pvt. Ltd."(supra), has also been rendered by a Division Bench of the Hon'ble High Court, as is the case with "Uttar Bharat Exchange Ltd."(supra), but "M/s. Hi Line Pens Pvt. Ltd."(supra), is the later of the two decisions. 18. In view of the above, finding no merit in the grievance sought to be raised by the Department in this regard, the ground taken is hereby rejected. ITA No. 2224 (Del) 2010: 19. This appeal filed by the Department for the assessment year 2002-03 raises an issue identical to the one taken by the Department for assessment year 2001-02 in ITA No. 2223(Del)2010 (supra). The following ground has been taken:- "The learned Commissioner of Income Tax (Appeals) erred in law and on the facts and circumstances of the case, in deleting the addition of '9,43,993/- made on account of depreciation on leasehold building treating the same as capital expenditure by the AO and allowing depreciation @ 10% ". 20. The facts herein are, mutatis mutandis, exactly similar to those present in ITA No. 2223(Del) 2010 (supra). Therefore, our findings in ITA No. 2223(Del) 2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it the matter to the file of the AO for decision afresh on taking into consideration this bill tendered by the assessee. 25. Ground Nos. 1&2 are, therefore, for statistical purposes, treated as accepted. 26. So far as regards ground Nos. 3&4, the AO disallowed the assessee's claim of set off of loss of assessment year 2001-02 against the income of assessment year 2002-03, by invoking the provisions of section 79 of the I.T. Act. The ld. CIT (A) upheld the AO's order. 27. The learned counsel for the assessee has filed a synopsis in this regard and has contended that M/s. S-Net Freight (India) P. Ltd. is a company incorporated in Singapore, operating in the field of freight and logistics all over the country, through subsidiaries and associates; that GA GOSS(S) Pvt. Ltd. is one of the companies incorporated in providing such services; that both these companies agreed to set up a private limited company in India, to be a subsidiary of S-Net Freight Pvt. Ltd.; that they entered into a joint venture agreement in this regard; that the foreign companies cannot invest till an approval is obtained from the FIPB; that for such an approval, a company is required ; that it is therefore that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard, it is seen that section 79 of the Act provides as follows:- "Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless - (a) on the last day of the previous year the shares of the company carrying not less than fifty one per cent of the voting power were beneficially held by persons who beneficially the shares of the company carrying not less than fifty one per cent of the voting power on the last day of the year or years in which the loss was incurred. Provided that nothing contained in this section shall apply to a case where a change in the said voting power takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift. Provided further that nothing contained in this section shall apply to any change in the shareholding of an Indian company which is a subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year or years in which the loss was incurred; and that the assessee had not fulfilled those prescribed condition. 32. The case of the assessee is that the investment by foreign companies is not permissible in the absence of approval from FIPB. It was for such a purpose that a JV agreement was entered into between M/s. S-Net Freight (India) P. Ltd., and G.A. GOSS (S) Pvt. Ltd., both Singapore incorporated companies carrying on business in the field of freight and logistics, to set up a private limited company in India, as a subsidiary of M/s. S-Net Freight (India) P. Ltd. The company was incorporated through Indian nominees of the two companies, through whom the shares were held beneficially during assessment year 2001-02. In the subsequent year, the two companies themselves became shareholders, on getting the requisite approvals from FIPB. The shareholding pattern for assessment years 200 1-02 and 2002-03 is given at page 17 of the Assessee's Paper Book ('APB' for short), as submitted before both the Taxing Authorities, as follows:- SHAREHOLDERS FUND SHAREHOLDERS NAME A.Y. 2001-02 AS ON 31.3.01 PERCENT A.Y. 2002-03 AS ON 31.3.02 PERCENT Dr. Prem Chand 1000 50% &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the said Act. Moreover, the two shareholders indeed acted only as the nominees to enable the smooth passage of the other shareholder in the subsequent year. Therefore, we do not find ourselves at one with the observations made by the ld. CIT(A) in this regard. The contention of the assessee is, therefore, accepted, particularly keeping in view the observations in "Swadeshi Match Co." (supra), wherein it was held that "holding" within the meaning of Explanation II of para D of Part II of the First Schedule I of the Finance (No.2) Act, 1962 had not been defined and, therefore, it was possible to construe that the beneficial shareholding was included in it and vis-à-vis, that however, when a provision under consideration is a provision for giving enhanced benefit by way of additional rebate to the assessee and both constructions are possible, then it is discernable to adopt the construction which will benefit the assessee; and that therefore, for the purpose of Explanation II, both legal ownership and beneficial ownership should be taken into account. 35. In view of the above, ground Nos. 3&4 are accepted. ITA No. 2443(Del) 2010: 36 . This is Department's appeal for ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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