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TMI Blog2017 (9) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken as a lead case. 3. The facts of the case is that the assessee company is engaged in the business of manufacturing of granite monuments, mining of granite blocks and processing of dimensional granite blocks. The Company also does export of goods and claims deductions under section 80HHC. The company have fixed assets, by name, Quarry Land & Development and claims depreciation thereon. The Assessing disallowed the depreciation on Quarry Land & Development based on the comment given by the Tax Auditor in Tax audit Report. The Tax Auditor stated that creation of block of assets is not in conformity with the provisions of section 2(11) on the Income Tax Act, 1961 therefore, the depreciation allowable to the company is not in accordance with Section 32 of the Act and based on these comments the Assessing Officer held that assessee company is not entitled to claim the depreciation on Quarry and Land Development. The Assessing Officer also disallowed the claim of the assessee under section 80HHC stating that different High Courts have given different views on the same issue and the law is not settled on the issue. 4. Not being satisfied with the order of the Assessing Officer, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appropriate block of asset for all the five Quarries (at Sendur, Titlagarh, Jagalpet, Charanadaspuram & Gourala). The ld. CIT(Appeals) satisfied with the arrangement of the different intangible assets under the appropriate Block of Assets and the applicable rate of depreciation as per the Income Tax Rules done by the assessee. However, the ld. CIT(Appeals) observed that there is a slight variation as regards 'Lease Premium of Quarries', which is a intangible asset being in the nature of license for commercial right, and for which the prescribed rate of depreciation as per the Income Tax Rules is at 25%. However, the assessee has claimed at much lesser allowance by adopting the lease years duration periods as basis. The ld. CIT(Appeals) considered the said method adopted by the assesese as an appropriate method considering the nature of the long lease periods. The ld. CIT(Appeals) also observed that the Assessing Officer has disallowed depreciation claimed on the Quarry Land & Development, mainly based on the tax audit report, which is totally wrong. The Tax auditor did not put any remark in the Tax Audit Report that the assessee is not eligible to claim depreciation. Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee makes the payment to the Government and the Government allows the assessee to exploit the natural resource of Granite for some period. It may be noted that under the Constitution, all natural wealth belongs to the Republic and no individual or company can hold any right to own them, but the company can acquire right to use these natural wealth and pays license fee to the government and after the expiry of the period of mining granted to the asessee, the land reverts back to the Government/owner. So the premium which purchases a commercial right extinguishes after lapse of a period. Therefore, the right to explore depreciates and depreciation is allowable only on the same right in terms of section 2(11)(b) of the Income Tax Act, 1961 read with section 32(1)(ii) and Rule 5(1) of the Income Tax Rules. On such assets, the Income Tax Rules provides the depreciation rate of 25%. The ld. A.R. also submitted that the Quarry Land & Development are intangible assets being the nature of license for commercial right and for which the prescribed rate of depreciation as per the Income Tax Rules is at 25%. However, the assessee has claimed at much lesser allowance by adopting the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has further submitted that the issue regarding Explanation (baa) to section 80HHC gives controversy about net profit or gross profit. The plain meaning of the words "profits and gains of business or profession" implies that it has to be 'Net profit'. The computation of the profits and gains of business is always 'net' as it is the Net Profit of the Profit & Loss Account. The majority of the judicial pronouncements which advocating that it should be 'Net Profit'. The assessee, while making submissions before ld CIT(A), relied on the following judgments: (i) S. Damanjit Singh -vs.- ACIT (2002) 121 Taxman 303 (Delhi((Mag.); (ii) Pink Star -vs.- DCIT (2002) 72 ITD 137 (Mum.); (iii) Honda Steel Power Products Limited -vs.- DCIT (2000) 69 TTJ (Del.) 97 (iv) Hindustan Gum & Chemicals Ltd. -vs.- ITO (2008) 23 SOT 143 (Kol.); (v) ACIT -vs.- Arun Puri (2008) 23 SOT 380 (Delhi) ; (vi) Priyanka Gems -vs.- ACIT (2005) 3 SOT 817 (Ahm.). All these judgments hold that the word "interest" in clause (baa) of the Explanation connotes "net interest" and not "gross interest". Therefore, the Assessing officer will have to take into account the net interest, i.e. gross interest as reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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