9911796707
TMI Blog2015 (9) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said decision that upfront payment of lease charges was allowable as a revenue expenditure, though claim of depreciation could not be accepted. 03. Per contra, Ld. DR supported the orders of authorities below. 04. We have perused the orders and heard the rival contentions. Treatment of upfront charges paid for acquiring lease of land on which wind mill was located, and whether depreciation was allowable on such payment was an issue dealt with in the assessee's own case mentioned supra. Tribunal had held as under at paras 14 to 23 of its order : 14. Ground No.3 raised by the Revenue reads as follows:- "3. The CIT(A) erred in granting depreciation on expenditure incurred for acquiring the leased land on which wind mill was installed by treating the land as integral part of wind mill while various Courts including Hon'ble Supreme Court held that land & building should be treated separately for the purpose of allowing depreciation and that the depreciation is allowable only on building cost." 15. The assessee claimed depreciation on Wind mills acquired during the previous year. Cost of wind mills as shown in the depreciation working was Rs. 9,05,15,305/-. While verifying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... system or not, and also the additional point raised by the AO regarding the lease-rights not being depreciable. At the outset, I must say that a windmill is a huge and permanent asset installation, and it is not portable. Therefore, there must be sufficient ground to hold that the land upon which it is perched is not an integral part of the structure itself. In the case of a building, the undivided share of the land upon which it stands is valued and added to the cost of the structure. In the same way, the land is no longer free once the windmill is installed, and for the lease period of 30 years, it is integrated with the structure of the mill. Hence I find myself unable to agree with the AO that the land is separate from the structure and should be denied depreciation. With regard to depreciation on leased lands, the Supreme Court in the case of Mysore Minerals Ltd. Vs CIT (1999) 239 ITR 775 (SC) held that the beneficial owner is entitled to depreciation. In this case, the lease agreement for the land is for 30 years, and a permanent installation is put up thereon. Hence, there is no doubt that the appellant is the beneficial owner of the land for the period of the lease. I do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings for proper determination of tax liability of an assessee in accordance with law and therefore there should not be any impediment in deciding the questions on determination of tax liability. The delay is condoned. 20. As far as the claim of assessee for allowing depreciation of a sum of Rs. 7,20,000 being the upfront lease charges for the land on which windmills are erected is concerned, we are of the view that the same is not allowable as held by this Tribunal in the case of V.S. Lad & Sons (supra). We are, however, of the view that the assessee's claim in the cross objections to allow the said sum of Rs. 7,20,000 as a revenue expenditure deserves to be accepted on the basis of decision rendered in the case of V.S. Lad & Sons (supra), wherein the issue has been dealt with by this Tribunal as follows:- "ITA Nos.18 to 20/Bang/2013 (Assessee's appeals) (AY 2006-07 to 2008-09) 27. A common issue arises for consideration in all these appeals by the assessee As we have already seen, the assessee had installed windmills and generated power in all the three assessment years and claimed deduction u/s. 80IA(4)(iv)(a) of the Act. We have also seen that the assessee has been cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether payment made for acquiring leasehold rights can be considered as cost of windmill (plant) for allowing depreciation; or whether alternative claim of the assessee to allow the said expenditure as revenue expenditure can be sustained. 29. Both the AO and the CIT(Appeals) decided the issue against the assessee giving rise to these appeals by the assessee for the three assessment years under consideration. 30. The reasons given by the CIT(Appeals) for rejecting the claim of the assessee for depreciation on the value of lease rent paid by including it as part of the plant (windmill) are as follows:- " I have considered the rival contention carefully. It is not a building or structure at which the business activity is carried out that has been taken on lease by the appellant. Hence, the facts of the case law cited by the appellant in 243 ITR 81 is distinguishable. It is the land that was taken on lease and land by itself cannot be treated as plant and machinery and does not have depreciation rate in depreciation schedule also. 4.3 The alternative argument of the appellant is that the lease amount is revenue expenditure. In the case of HMT Ltd. 203 ITR 820, it was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... home building was equipped so as to enable the assessee to carry on the business of a nursing home therein or whether it is just any premises utilised for that object. We find from the order of the Tribunal as also the assessment order that the assessee's nursing home is equipped to enable the sterilization of surgical instruments and bandages to be carried on. It is reasonable to assume in the circumstances, particularly having regard to the Tribunal's order which states that the sterilization room covers about 250 sq.ft. that the nursing home is also equipped with an operation theatre. In the circumstance, we think that the finding of the High Court should be accepted. We would, however, add that in a case such as this, the Tribunal should proceed upon material placed by the assessee which establishes that the building is specially equipped as a plant for the assessee's business. The appeal is dismissed. No order as to costs. (emphasis supplied)" 33. With regard to the alternative contention that the expenditure should be treated as a revenue expenditure, the ld. counsel for the assessee relied upon the decision of the Hon'ble Supreme Court in the case of CIT v. Empire Jute Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of allowing depreciation. The argument of the ld. counsel for the assessee has been that requirement of erecting the windmill at mountain terrains at a high altitude is a technical requirement for generation of power. Though this contention has not bee disputed by the revenue, there is no evidence on record to show that there is a technical requirement of erecting the windmills at high altitudes. We will, however, proceed on the assumption that such a technical requirement exists. Even then, in our view, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that the facts of the assessee's case are identical with the case decided by the Hon'ble High Court of Karnataka in HMT Ltd. (supra). The said decision being that of jurisdictional High court, we are bound to follow the same. The Hon'ble Delhi High Court in GAIL India Ltd. (supra) in para 7 dealt with the decision of Hon'ble High Court of Karnataka in the case of HMT Ltd. (supra) and came to the conclusion that what was paid in the said case was advance rent and therefore it could be amortised. They distinguished the case where premium is paid for acquiring leasehold rights. In the present case, as we have already seen, the payment is in the nature of advance rent and therefore the decision of Hon'ble High Court of Karnataka in the case of HMT Ltd. (supra) will squarely apply to the assessee's case. 23. Following the judgment of Hon'ble High Court of Karnataka in HMT Ltd. (supra) and the decision of this Tribunal in V.S. Lad & Sons (supra), we hold that the sum of Rs. 7,20,000 be allowed as a revenue expenditure. Ground No. 3 raised by the revenue is dismissed, while cross objections raised by the assessee is allowed. For the impugned assessment year, fact-situation be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nataka High Court in Canara Bank v. ACIT [(2014) 52 taxmann.com 162] and the decision of a coordinate bench in the case of DCIT v. M/s. Subramanya Constructions & Development Co. Ltd [ITA No.404 & CO.89/Bang/2013, dt.20.02.2015]. Unless and until the AO could show that claim of the assessee was wrong as per the Ld. AR, disallowance u/s.14A of the act could not be made. 09. Per contra Ld. DR supported the orders of authorities below. 10. We have perused the orders and heard the rival contentions. No doubt assessee has placed a note before the AO during the course of assessment proceedings wherein it had stated as under : We hereby confirm that there are no expenses incurred by the company in the Asst. Year 2010-11, pertaining to exempt income. All our expenses are related to our hotel business. No extraneous expenses have been charged to the Profit & Loss Account. Investments are made/disposed of through brokers and based on their advice. What we pay as brokerage is capitalized/treated as capital expenditure and no revenue deduction is claimed with respect to brokerage against our income. We do not have a treasury department of investment specialists working for us and whose cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nil expenditure. On the other hand, here assessee's investments had varied substantially during the relevant previous year and it had held huge investment portfolio giving rise to substantial tax-free income. Therefore the case of Subramanya Constructions & Development Co. Ltd (supra) is not comparable with that of the assessee. 12. Vis-a-vis, judgment of Hon'ble Karnataka High Court in the case of Canara Bank (supra), a bank which has to maintain an investment portfolio by the very nature of its activities, in accordance with its statutory duties, cannot be compared with an assessee which was running a hotel. 13. In the circumstances mentioned above, we are of the opinion that, the issue requires a fresh look by the AO. 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. 14. Vide its ground 4, grievance of the assessee is that interest u/s.234B of the Act was charged even though it had paid advance-tax of more than 90% of the assessed tax. 15. Section 234B of the Act, is reproduced hereunder : (1) Subject to the other provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A or otherwise,-- (i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section; (ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax. (3) Where, as a result of an order of reassessment or recomputation 2under section 147 or section 153A, the amount on which interest was payable under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of 1one per cent. for every month or part of a month comprised in the period commencing on the day following the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made as is referred to in sub-section (1) following the date of such regular assessment and ending on the date of the reassessment or recomputation 3under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or re ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
