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TMI Blog2015 (9) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the functional test, it is possible to contend in all the cases that the land is a tool of trade and has to be regarded as plant or building. We therefore decline to accept the proposition canvassed on behalf of the assessee. Hon’ble High Court of Karnataka in the case of HMT Ltd. (1992 (11) TMI 37 - KARNATAKA High Court), has considered the premium for acquiring leasehold rights as nothing but rent paid in advance. The rent paid in advance was for acquiring leasehold rights over the land. Such payment had been considered by the Hon’ble Court as revenue expenditure. In view of the aforesaid decision of the Hon’ble High Court which is in pari materia with the facts of the present case, we are of the view that the lump sum rent paid for the entire period of 30 years has to be considered as revenue expenditure. The CIT(A) wrongly distinguished this decision as a case of lease of factory building. We therefore accept the alternative prayer of the assessee. - Decided partly in favour of assessee. Disallowance u/s.14 of the Act read with Rule 8D - Held that:- It is crystal clear that assessee had a number of transactions in mutual fund units and equity shares during the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been allowed as a write-off. When the issue came up, Ld. Counsel for the Assessee submitted that this Tribunal had in the assessee s own case for A. Y. 2007-08 and 2008-09 in ITA Nos.586 481/Bang/2012 CO Nos.5 6/Bang/2015, dt.23.01.2015, had considered the issue of claim of depreciation on wind mill including the land on which the wind mill was located. According to him, it was held by this Tribunal 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO that was not the intention of law. The leasehold right on land is not a depreciable asset. Hence, the AO disallowed depreciation claim of ₹ 7,20,000/- being 40% of cost of leasehold right on land. 16. On appeal by the assessee, the CIT(A) allowed the claim of assessee, observing as follows:- 4.3.1 Having considered the issue, I find that the contention is between considering the land to be integral to the windmill 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 sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have considered the grounds on which the condonation of delay in filing the CO is sought and are of the view that the delay was occasioned by reasonable and sufficient cause. We are also of the view that the grounds sought to be raised in the CO are legal grounds which can be decided on facts already available on record and therefore the grounds raised in the CO should be admitted for adjudication. We are of the view that proceedings before the Tribunal are proceedings 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 ₹ 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 ₹ 7,20,000 as a revenue expenditure deserves to be accepted on the basis of decision rendered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be equated with the consideration paid for acquiring a plant. According to the revenue, acquiring leasehold rights over a land over a period of 30 years results in an enduring benefit to the assessee and therefore expenditure cannot be allowed as deduction u/s. 37(1) of the Act also. The quantum of lump sum consideration paid for acquiring leasehold rights are different in each of the assessment years. We need not make a reference to those payments as the issue to be decided by us is 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 buildin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an apparatus or a tool of the taxpayer by means of which business activities were carried on, it amounted to a plant ; but where the structure played no part in the carrying on of those activities but merely constituted a place wherein they were carried on, the building could not regarded as a plant. The Tribunal and the High Court in the instant case proceeded upon assumptions of what a nursing home should contain. This may not be altogether appropriate. What is to be determined is whether the particular nursing 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 accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the CIT(Appeals). 36. We have given a very careful consideration to the rival submissions. On the issue whether the payment for acquiring leasehold rights on the land on which windmills are erected could be treated as cost of plant on which depreciation can be allowed, we are of the view that the fact that the windmills need to be erected on a high terrain for effective generation of power cannot be the basis to conclude that rents paid for acquiring leasehold rights over the land as part of the cost of plant for the purpose 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit of lease to another party with the previous consent of municipality. The assessee claimed premium paid by amortising it over the period of lease as revenue expenditure. The Hon ble Delhi High Court concurred with the view of Tribunal that the said expenditure was capital expenditure. It was also submitted by the ld. DR that the Hon ble Delhi High Court in the aforesaid decision has also taken note of the decision of the Hon ble Karnataka High Court rendered in HMT Ltd. (supra). 22. We have considered the submissions of the ld. DR and are of 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o expenditure was incurred for earning the exempt income. However the CIT (A) was not impressed. According to him, disallowance under Rule 8D was mandatory. He confirmed the disallowance. 08. Now before us Ld. AR strongly assailing the orders of the authorities below submitted that assessee had specifically mentioned before the AO that it had not incurred any expenditure for earning the dividend income. Relying on a note submitted to the AO, placed at paper book page 33, Ld. AR submitted that no expenditure for earning exempt income was charged to the P L account since the investments were made and disposed off through brokers. According to the Ld. AR what was paid as brokerage was capitalised and no deduction was claimed. Ld. AR submitted that there was no separate treasury department or investment specialists. Thus according to him, they had not incurred any expenditure for earning exempt income. Reliance was placed on judgment of Hon ble Karnataka 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking decisions regarding the investment portfolio that were to be maintained during the year, cannot be believed. AO can always take cue from the compelling circumstances and come to a conclusion that the claim of an assessee regarding nil or little expenditure is wrong. The rule of preponderance of probability can be applied in such circumstances, and the onus to show that no expenditure was indeed incurred falls back on the assessee. The circumstances here are such that the note given by the assessee before the AO which has been reproduced by us at para 10 above was prima-facie incorrect and unbelievable. At the same time it is true that the AO had not called upon the assessee to prove its claim that no expenditure was indeed incurred by it for earning the exempt income. As for the reliance placed by assessee on the decision of coordinate bench in Subramanya Constructions Development Co. Ltd (supra), investment of the assessee in the said case which gave rise to dividend income of ₹ 33,600/- was shares worth ₹ 2,33,400 with Indian Overseas Bank, and this holding was the same all through the year. It was because of this the Tribunal held that AO had not displaced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income ; (ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India ; (iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section ; (iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India ; and (v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA. Explanation - 2. Where in relation to an assessment year, an assessment is made for the first time 3under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section. Explanation - 3. In Explanation 1 and in sub-section (3), tax on the total income determined under sub-section (1) of section 143 shall not include the additional income-tax, if any, payable under section 143. (2) Where, before the date of determination of total income under sub-section (1) of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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