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TMI Blog2017 (10) TMI 1380X X X X Extracts X X X X X X X X Extracts X X X X ..... ther on the facts circumstances of the case the Tribunal was justified in allowing the claim of depreciation @ 60% on EDP Equipments treating the same as the computer equipments though depreciation is permissible only @ 15% because EDP equipments are physical structures not computers. 3. Whether in the facts and in circumstance of the case the Tribunal was justified in law in deleting specific disallowances under section 43B(f) being provision for leave encashment? 4. Whether on facts and circumstance of the case Tribunal was justified in law in deleting the disallowance of Rs. 1,45,25,700/- u/s 14A read with Rule 8D through the assessee failed to prove that the investment in Mutual Fund was not having any nexus with the funds on which interest was paid by the assessee?" 2. Appeal No. 124/2010 Admitted on 10.08.2011 "(i) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in allowing the claim of respondents for capitalising the expenditure incurred for the period of prior to incorporation and existence of business? (ii) Whether in the facts and circumstances of the case Hon'ble ITAT was right in law in allowing the claim for capitalisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely? 2. Whether the order passed by learned Tribunal can be said to be sustainable as due to the fact of para-phrasing of the order passed by the CIT(A) and it does not show that the Tribunal has applied its mind?" 7. Appeal No. 17/2011 Admitted on 10.08.2011 "(i) Whether on the facts and circumstances of the case the Hon'ble ITAT was justified in allowing the claim of depreciation of public roads, treating the same as building? (ii) Whether Hon'ble ITAT was justified in allowing the claim of depreciation at the higher rate of 60% classifying the plant and machinery as EDP Equipment as computer equipment instead of plant and machinery entitle for 15% rate?" 4. The facts of the case are that case of the assessee was picked up for scrutiny assessment and the assessment under section 143(3) of the Income-tax Act, 1961 was framed vide order dated 29th March, 2013. While framing the assessment, the Assessing Officer made various disallowances and additions on account of depreciation of Rs. 29,71,10,536/- claimed on road and depreciation of Rs. 15,08,068/- claimed on EDP Equipments, disallowance of provision for leave encashment of Rs. 19,33,345/disallowance under section 14A of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,536/@10% on account of road, treating the same as building. During the course of the assessement proceeding, it was asked to the assessee as to why the depreciation claimed at road should not be disallowed by the following decision of the Apex Court in the case Indore Municipal Corporation (2001) (247ITR803). 5. Depreciation on tolling & HTMS Machines (EDP Equipments) :- The assessee has claimed depreciation of Rs. 15,08,068/- on the W.D.V of certain equipments shown as EDP euipments (Electronic data processing equipments). The rate of depreciation has been applied at 60%, by treating these equipments equivalent to Computer and Software. It is pertinent to mention here that in the original return file for the assessment year 2006-07 these machinery had been shown under normal Plant & Machinery block. However, in the revised return filed for A.Y. 2006-07, equipments amounting to Rs. 9,54,15,351/- out of the same was placed under the 60% depreciation block by showing these as EDP equipments. 5.1 He contended that the view taken by the AO is required to be upheld and both the authorities namely CIT(A) and Tribunal have committed serious error in holding against the department. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such national highway, interest on the capital invested, reasonable return, the volume of traffic and the period of such agreement. 5.3 He contended that the interpretation which has been put forth by the tribunal is contrary to the Act and the same is required to be quashed and set aside. 5.4 He has further taken rescue to Sec. 32 and explanation 1 of Section 32 of the IT Act as well as definition of Sec.2 Sub Section (2) which reads as under: 32. (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks,licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion "commercial vehicle" means" heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi-cab", "motor-cab", "tractor" and "road-roller"; (b) the expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor cab", "tractor" and "road roller" shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988): Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991: Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or knowhow, patents, copyr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is put to use for the purpose of business of providing infrastructure facilities under clause (i) of sub-section (4) of section 80-IA (4) Purely temporary erections such as wooden structures III. Machinery and Plant (6) Machinery and plant, used in weaving, processing and garment sector of textile industry, which is purchased under TUFS on or after the 1st day of April, 2001 but before the 1st day of April, 2004 and is put to use before the 1st day of April, 2004 [See Note 8 below this Table] 5.6 He has also taken us to the note which is appended thereto which reads as under:- 8. "TUFS" means Technology Upgradation Fund Scheme announced by the Government of India in the form of a Resolution of the Ministry of Textiles vide No. 28/1/99-CTI of 31-3-1999. 5.7 He has taken us to the Notification under the Old Act which was applicable for the A.Y. 2003-04 & 2005-06 and tried to distinguish the definition of building and contended that notes which are referred in Schedule reads as under :- OLD APPENDIX I [Applicable for assessment years 2003-04 to 2005-06] [See rule 5] TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE Block of assets Depreciation allowance as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tubewells.] 3.] Purely temporary erections such as wooden structures 4.] In respect of any structure or work in or in relation to a building referred to in subsection (1A) of section 32,- (a) where such structure is constructed or such work is done by way of renovation or improvement to any such building (b) where the structure is constructed or the work is done by way of extension to any such building The percentage specified against sub-item [1, 2 or 3] as may be appropriate to the class of building in or in relation to which the renovation or improvement is effected; The percentage specified against sub-item [1, 2 or 3] as would be appropriate if the structure or work constituted a separate building. 5.9 He pointed out the depreciation rate which are applicable in the different cases which is reproduced as under : APPENDIX IA TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE [See rule 5(1A)] Class of assets Depreciation allowance as percentage of actual cost (a) Plant and Machinery in generating stations including plant foundations :- (i) Hydro-electric (ii) Steam electric NHRS & Waste heat recovery Boilers/plants (iii) Diesel electric and Gas plant ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contended that regarding question no.1 for capitalizing the expenditure incurred for the period prior to incorporation of Rs. 5.15 Crores, a consortium consisting of (i) GVK International NV, a limited liability Company incorporated in Netherlands Antilles, having its registered office at Chughubiweg 17, Curacao, Netherlands, Antilles, and Indian Office at Kohinoor Road No.1, Bajara Hills, Hyderabad, India (hereinafter referred to as 'GVK') and (ii) M/s. Leighton of Australia, through their Indian subsidiary Leinghton Contractors (India) Pvt. Ltd., Mumbai was formed. The said persons expressed interest in bidding for the Global Tender floated by the National Highways Authority of India (NHAI), for the widening of the existing 2-lane to 6-lanes dividend carriageway facility including the rehabilitation of existing 2 lane from 273/500 to 363/885 on Jaipur - Kishangarh section of the 19 NH-8, in Rajasthan, India. Novapan Industries Limited, a Company within the meaning of the Indian Companies Act, 1956 having its registered office at 'Suryodaya', Begumpet, Hyderabad, India (hereinafter referred to as 'NOVAPAN', a market leader engaged in manufacturing and marketing of prelaminated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and maintenance through a concession on Build, Operate and Transfer ("BOT") basis and has by its Notification No. RW/NH-37011/34/97- do-I DATED July 7, 1998 issued pursuant to Section 11 of the National Highways Authority of India Act, 1988 vested the said stretch of NH-8 in NHAI as set forth in the said Notification dated July 7, 1998. NHAI had accordingly invited proposals for short listing of bidders for the aforesaid under its Notice inviting Proposals No. NHAI/12011/17/97-PI dated May 3, 2000 ("the Tender Notice"), inter alia, for the design, engineering, financing, procurement, construction, operation and maintenance of the above section of NH-8 on BOT basis subject to and on the terms and conditions contained in the Tender Notice and had pursuant thereto short listed certain bidders including, inter alia, the consortium comprising GVK International NV and Leighton Contractors (India) Private Limited with GVK International NV as its Leader. Further to a request received from the above consortium, as per 20 provisions of the Tender Notice, NHAI had agreed to permit replacement of Leighton Contractors (India) Private Limited by M/s. B. Seenaiah & Company (Projects) Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion Agreement. In the Memorandum and Articles of Association main object of this project has been specified and the Assessee Company has been constituted for the project. The consortium has promoted and incorporated the concessionaire as a limited liability Company to enter into the Concession Agreement pursuant to the LOA for undertaking, inter-alia, the design, engineering, financing, procurement, construction, operation and maintenance of the project highway, as defined hereinafter on BOT basis as referred to in Recital 'A' to the Concession Agreement and to fulfill other obligations of the concessionaire pursuant to the LOA. They requested NHAI to accept the concessionaire as the entity which shall undertake and fulfill and perform the obligations and exercise the rights of the consortium under the LOA, including the obligation to enter into the Concession Agreement for the design, engineering, financing, procurement, construction, operation and maintenance of the project highway on BOT basis. NHAI agreed to the said request of the consortium and has accordingly entered into the Concession Agreement with the concessionaire pursuant to the LOA for, inter alia, the design, engin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.10 He has contended that for the said services rendered by the said two companies over three years, no bid could have been successfully submitted by the consortium and Concession Agreement would not have been entered into between NHAI and the Assessee Company, resulting in the income under assessment. Hence, it was cost to be capitalized. The impugned expenditure is solely related to and was incurred for purposes of business. The liability was incurred and paid in terms of the said agreements. The expenditure by the said companies were incurred earlier but in terms of the agreements they were to be paid on successful acceptance of the bid by NHAI, execution of Concession Agreement and have been paid within the specified period, contained under the said agreements. He submited that the liability commenced immediately on entering into the two agreements and was to be discharged on successful bid and during the specified period. In terms of decision of the Hon'ble Supreme Court in Challapalli Sugars Ltd. V. CIT (1975) 98 ITR 167 wherein it has been held that all expenditure before commencement of the business have to be capitalized and accordingly the above stated amount has been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontained in Section 32(1)(ii) of the Act. 9. With regard to Question No.2 for Capitalizing expenditure on tree cutting etc. of Rs. 4.11 Crores, It is contended that in terms of the agreement with the NHAI, the Assessee Company had to do the followings:- (i) Cleaning of the ground, cutting of trees, removal of stumps etc. of about 12,000 trees with girth above 300 mm and its removal from the project site. (ii) To demolish existing structures on the land acquired by NHAI for construction of the road and removal of debris as also to reconstruct, rehabilitate and resettle various existing structures including religious structures such as Temples. 9.1 He contended that in accordance with the agreement the Assessee Company got executed the following works through six contractors:- (a) Cutting of Trees whose growth was 300 mm, removal of Slumps, and backfilling and compacting the earth; (b) Removal of Buildings (residential, shops, dhabas, Police Chowkis etc.) on the land acquired by NHAI and disposal of debris; (c) Removal of boundary walls on the land acquired by NHAI; (d) Removal of temples and religious structures on the land acquired by NHAI and rehabilitation thereof; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 KM Road, from asbestos to FRP sheets Rs. 8,83,840, again unconnected with the work detailed at 'a-f' above. 9.6 However, he contended that the Assessing Officer attributed the total amount of Rs. 8,22,87,103 paid to BSCPL towards Tree cutting, trumping and transportation and disallowed 50% i.e. Rs. 4,11,43,551/-. He misunderstood and erroneously disallowed adhoc amount without any reasons. 10 Of the Rs. 7,52,23,769/- paid towards the scope of work mentioned at 'a-f' of above, the break up is as under : (i) Towards - scope of work detailed at (a) above - removal of Trees, stumps and backfilling of 11,700 trees of different sizes Girth (circumference above 1 Mtr. From ground level) ranging between 300mm to 1800 mm, amounting to Rs. 3,33,27,500/-, averaging to Rs. 2,849 per tree. (ii) The remaining amount (Rs.7,52,23,769/- less Rs. 3,33,27,500) Rs. 4,18,96,269 was paid towards the scope of work detailed at 'b-f' viz., removal and relocation of religious structures, Electrical Cables, Storage Tanks, Pump Houses & Electrical Rooms, Hand Pumps, filling of open Wells, demolition of boundary walls, removal of utilities like telephone/electrical lines and poles etc. 10.1 He cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the project and work had to be executed. It was approved by NHAI also. Hence it is appreciation of evidence on material on record. It is a question of fact. Onus stands discharged. 10.6 He relied on the judgment in Addl. C.I.T. Vs. Noor Mohd. & Co. and Others (1974) 97-ITR- 705. 11. With regard to Question No.3 relating to Depreciation on Electronic Data Processing Equipments @ 60% against 15%, Counsel for the respondent contended that the Toll Collection is processed by ED Equipment as under:- (a) When a Vehicle makes payment of Toll fee at the Tool Booth, the vehicle is classified on a Computer (by the Toll Operator). The Software applies the rate and a Toll Fee receipt is generated. Simultaneously the data is processed through a Network and a server, whereby the Metal boom automatically opens on a Toll fee receipt being generated. Local Traffic/Cash less smartcard is also accepted and processed through Computer. (b) On the payment around the Metal boom, fiber optic sessions are embedded and sealed by seatant block lines and visible to the naked eye. (c) A Sensor in the form of and 6 feet height black poles installed adjacent to the Fiber Optic Sensors. (d) The Fib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay Boards are installed at 6 locations (12 Boards), which are remotely operated and controlled through computers, by processing and displaying pre-stored data/messages. (d) The communication network across 90 Kms. (VHF through and sets) - The voice communications are recorded and processed through computers. 11.3.It is contended that all the above are mandatory requirements under the Concession Agreement. The AO while considering the matter held as under:- "Having considered the facts and the circumstances of the case, we are of the view that items as claimed by the appellant as EDP equipment are peripherals to the computer system installed by the appellant to manage, control and regulate the traffic system on its tolls to generate revenue which has been accounted for as income in the hands of the appellant. The department has brought no material on record to show that the said items are not computer peripherals. We also find support from the decision relied upon by the assessee of Delhi Bench in case of Expeditors International Ltd. (supra). It was followed in Bses Yamuna Powers Ltd. and approved in C.I.T. v. Bses Yamuna Power Ltd. (2013) 358-ITR- 47 (Delhi)." 11.4 It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the project, any materials, construction plant, implements, stores etc. * Article 33 - Divestment of rights and interests. Article 33.1(b) -deliver forthwith actual or constructive possession of the project and to execute writings and documents as may be required by the NHAI, (d) - pay all transfer costs and stamp duty etc. * Article 38 - Rights and Title over the Site. * Article 38.1 - Exclusive rights to use. * Article 38.4 - For the purpose of claiming tax depreciation, the property representing the capital investment made by the Concessioner shall be deemed to be acquired and owned by the Concessioner. 12.2 He contended that in the light of such clauses in the concession agreement, it is apparent and patent on the face of the record, that exclusive possession of the site was transferred by NHAI, to the assessee; the assessee was authorized to build the project, operate the project, enjoy its usufruct and to transfer the possession with all its rights in favor of NHAI on termination of the agreement. The total cost of the project was borne and met by the assessee. The net capital cost to the assessee was Rs. 4,44,67,34,578/- on which depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ests in the assessee, not in NHAI and the assessee would be divested by proper documentation on termination. Till then he is the absolute, exclusive, individual, sole owner with all rights to possess, maintain, domain and earn income. He contended that Explanation (1) to section 32 of the Income-tax Act, which were inserted w.e.f. 1.4.1988 by Taxation Laws (Amendment and Miscellaneous Provision) Act, 1986 which reads as under :- Explanation 1.- 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 assessee for the purposes of the business or profession on the construction of any structure of any work in or in relation to and by way of renovation or extension of or improvement to the building, then the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee;. (Emphasis supplied). 12.6 He contended that as part of the scope of the project specified in the concession agreement, the assessee repaired / strengthened the existing two lanes of the road, constructed new la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latest appendices which is applicable for the A.Y. 2006-07. He contended that on the facts the project having been constructed/built on the land/road handed over to the Assessee; cost for building/strengthening of road, super-structures having been met by the Assessee; the project vested with the Assessee for 20 years; to be maintained, operated and toll fee collected as own; to be divested on expiry of 20 years and on early termination entitled to compensation the issue is fully covered by the stated finding precedents and Explanation-1. 13.1 He contended that the Tribunal while considering the issue of 43BF has relied on decision of the Supreme Court and has considered the same on the basis of 14A & 80. He has also relied upon the following decisions of the Supreme Court wherein it has been held as under:- 1. Sutlej Cotton Mills Limited vs. Commissioner of Income Tax, Calcutta (27.09.1978 - SC), (1979) 116-ITR-01 (SC) 10. The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered by the assessee on remittance of the two sums of Rs. 25 lakhs and Rs. 12,50,000/- was a trading loss or a capital loss. 2. Challapalli Sugar Ltd. vs. The Commissioner of Income Tax, A.P., Hyderabad (31.10.1974 - SC), (1975) 98-ITR-167 (SC) 28. There is, in our opinion, force in the submission of Mr. Palkhivala. As stated above, arguments were heard together on February 1, 1972 in civil appeals Nos. 1784, 1694, 1730 and 1831 on the question as to whether the wealth-tax paid by the assessee was a permissible deduction under Section 10(2)(xv) of the Indian Income-tax Act. On the conclusion of the arguments on that point, this Court found that an additional question arose in civil appeal No. 1784 on the point as to whether the interest payable on loan was part of the actual cost of the assets. The Constitution Bench after hearing arguments on this additional point for some time directed that civil appeal No. 1784 along with the connected civil appeal 1785 should be posted for hearing before a Division Bench after pronouncement of judgments in civil appeals Nos. 1694, 1730 and 1831. The effect of the above order which was made on February 1, 1972 was that the decision in civi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned in s. 10(2) and that there was no scope for any preliminary deduction under general principles. It was, however, held by this Court in Badridas Daga v. The Commissioner of Income-tax [1958]34ITR10(SC) "It is to be noted that while s. 10(1) imposes a charge on the profits or gains of a trade, it does not provide how those profits are to be computed. Section 10(2) enumerates various items which are admissible as deductions, but it is well settled that they are not exhaustive of all allowances which could be made in ascertaining profits taxable under s. 10(1)." 4. Metal Box Company of India Ltd. vs. Their Workmen (20.08.1968 - SC), (1969) 73-ITR-53 26. There remains now the question regarding computation of direct taxes. Section 6(c) of the Act provides : "subject to the provisions of section 7, any direct tax which the employer is liable to pay for the accounting year in respect of his income, profits and gains during that year..." 27. Section 7, inter alia, provides : "For the purpose of clause (c) of section 6, any direct tax payable by the employer for any accounting year shall, subject to the following provision, be calculated at the rates applicable to the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to pay" emphasised on behalf of the unions and some of the interveners lies in the opening words "subject to the provisions of section 7" in clause (c). These words are used, whether the tax liability is to be calculated on actual taxable income or on the notional amount worked out under sections 4 and 6 and Schedule II, because the direct taxes payable by the employer are to be calculated at the rates applicable during that year as provided by section 7. That both such amounts cannot be the same is clear because section 7 in express terms prohibits taking into account unabsorbed losses and arrears of depreciation allowable under section 32(2), the exemption allowed under section 84 and the deduction allowed under section 101(1) of the Income-tax Act. Similarly, where an assessee is a religious or charitable institution and its income either wholly or partly, as the case may be, is exempt under the Income-tax Act, such an employer to whom section 32 of the Act does not apply is treated as a company in which the public are substantially interested and its income is to be assessed accordingly by the Tribunal and compute its liability for direct taxes. Clause (c) of section 7 doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked out arrive at the available surplus. Section 6(c) being subject to section 7 the computation has to be done without taking into account the items specified in section 7(a) and in the manner prescribed by the remaining clauses of that section. This interpretation is commendable because: (1) it is consistent with the words " is liable to pay " in section 6(c)(2) it is in harmony with the provisions of sections 4 and 6 and Schedule II, and (3) it is consistent with the intention of Parliament apparent from the scheme of computation of available surplus in the Act. The Act recognises the principle laid down in the Full Bench Formula that both labour and capital are entitled to a share in the profits. That is why 40 per cent of the available surplus is left to the capital and interest is. allowed to the employer on paid up and working capitals while working out the gross profits. Parliament besides was or at any rate is presumed to have been aware that depreciation allowed under the Income-tax Act would not be sufficient for rehabilitation purposes.. It did away with rehabilitation as a prior charge partly because there were complaints that it was being ill-used, but partly also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder two gratuity schemes framed by the company and the amount of liability was deducted from the gross receipts in the P&L account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employee's service either due to retirement, death or termination of service - the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this Court, the relevant of which for our purpose are extracted and reproduced as under : (i) For an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the dates of the deeds of sale though that liability was to be discharged at a future date. It was thus an accrued liability and the estimated expenditure which would be incurred in discharging the same could be deducted from the profits and gains of business. The difficulty in the estimation of liability did not convert the accrued liability into a conditional one. This Court said that the expression 'profits or gains' in Section 10(1) of the Income-tax Act, 1922 had to be understood in its commercial sense; and there could be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipt is deducted therefrom, whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to be discharged at some future date. 7. Thus "expenditure" is not necessarily confined to the money which has been actually paid out. It covers a liability which has accrued or which has been incurred although it may have to be discharged at a future date. However, a contingent liability which may have to be discharged in future cannot be considered as expenditure. 7. Udaipur Mineral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method. Further, in the present cases, we find from the various statements produced before us, that the entire exercise, arising out of change of method from completed contract method to deferred revenue expenditure, is revenue neutral. Therefore, we do not wish to interfere with the impugned judgment of the High Court. 18. Before concluding, we may point out that under Section 211(2) of the Companies Act, Accounting Standards ("AS") enacted by the Institute of Chartered Accountants have now been adopted [see: judgment of this Court in J.K. Industries case (supra)]. Shri Tripathi, learned Counsel for the Department, has placed reliance on AS 22 as the basis of his argument that the completed contract method should be substituted by deferred revenue expenditure (spreading the said expenditure on proportionate basis over a period of time). He also relied upon the concept of timi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees shall be allowed only in computing the income of that previous year in which such sum is actually paid by him. On perusal of the said object it would appear that the legislature expressed concern about the unreasonable deduction claim on the basis of mercantile accounting method without discharging statutory liabilities. It was observed by the legislature that there had been a trend to evade statutory liabilities on the one hand and claim appropriate benefit under the said Act of 1961 on the other hand. Hence, such enactment was necessary. 10. The said section had undergone several changes from time to time and on each and every occasion the legislature came out with the objects and reasons disclosed therefor. In 1990 deduction on account of unpaid loan to any public financial institution or a State financial institution was roped in. By a further amendment in 1996 unpaid loan of scheduled bank was also incorporated. On each such occasion objects and reasons were disclosed. While inserting Clause (f) no special reasons were disclosed. His Lordship held that such disclosure was not mandatory. We do not have any reason for disagreement on such issue provided the subject ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise nullify the Judge made law. The apex Court decisions are Judge-made law and are applicable to all under the Constitution. We, not for a single moment, observe that legislature was not entitled to bring such amendment. They were within their power to bring such amendment. However, they must disclose reason which would be consistent with the provisions of the Constitution and the laws of the land and not for the sole object of nullifying the apex Court decision. 11. In this regard the observation of the apex Court in the case of Bharat Earth Movers (supra) is quoted below: The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry was undoubtedly capital expenditure, for it brought in an asset of enduring advantage. But the guarantee commission stands on a different footing. By itself, it does not bring into existence any asset of an enduring nature ; nor did it bring in any other advantage of an enduring benefit. The acquisition of the machinery on instalment terms was only a business exigency. If interest paid on a credit purchase of machinery could be held to be revenue expenditure, we fail to see how guarantee commission paid to a bank for obtaining easy terms for acquisition of the machinery could be regarded as capital payments". It was held that both the payments are of revenue nature. 12. Commissioner of Income Tax vs. Rajasthan Spg. and Wvg. Mills Ltd. (RAJHC),2004, 281-ITR-408 4. The AO has not applied the test of expenses incurred wholly and exclusively correctly for the purpose of assessee's business by referring to the expenses incurred by the assessee and the benefit derived by the spender in exclusivity. The motivation which led the assessee to spend the amount on bus and handing over it to the school by CIT(A) in assessee's own language reads as under : "As per facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been correctly made by the " Tribunal. 6. In our opinion, no substantial question of law arises in examining the issue again about the test of applicability of allowable expenses claimed by the assessee and the benefits derived from it so far as the present case is concerned. 13. Commissioner of Income Tax - IV vs. Hindustan Coca Cola Beverages Pvt. Ltd. (2011 - DELHC), 331-ITR-192 24. It is worth noting that the meaning of business or commercial rights of similar nature has to be understood in the backdrop of Section 32(1)(ii) of the Act. Commercial rights are such rights which are obtained for effectively carrying on the business and commerce, and commerce, as is understood, is a wider term which encompasses in its fold many a facet. Studied in this background, any right which is obtained for carrying on the business with effectiveness is likely to fall or come within the sweep of meaning of intangible asset. The dictionary clause clearly stipulates that business or commercial rights should be of similar nature as know-how, patents, copyrights, trademarks, licences, franchises, etc. and all these assets which are not manufactured or produced overnight but are brought i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property to the exclusion of all others. 15. Generally speaking depreciation is an allowance for the diminution in the value due to wear and tear of capital asset employed by an assessee in his business. Black's Law Dictionary (Fifth Edn.) defines depreciation to mean, inter alia: A fall in value; reduction of worth. The 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.... 19. It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting Section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time-being vests the dominion over the building and who is entitled to use it in his own right and is using the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, 'to tax the income', we are of the view, owner' is a person who is entitled to receive income from the property in his own right. 17. Moradabad Toll Road Co. Ltd. vs. Assistant Commissioner of Income Tax (05.11.2014 - DELHC), 369-ITR-403 26. The word 'build' signifies construction of a road, whereby the tax payer brings into existence a structure/surface and nothing more. The word 'operate' signifies the understanding between the assessee and the public authority to collect charges for the usage of the road. The road is a surface on which the vehicles ply. No special features have been pointed out which serves as tool or apparatus while operating the road. No doubt in some roads toll plazas are erected for collecting the usage charges. These are small booths which are manned at some places and unmanned at some, where the user deposits the money in a machine which opens the gate. To cut costs and minimize the time delay, the usage charges are collected by some form of automatic or electronic toll collection equipment. In any case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bridge and also has the power to restrict the use of the bridge to motorised vehicles, bicycle and pedestrians, and to debar animal driven vehicles, cycle rickshaw and cattle. 22. In Mysore Minerals Ltd. (supra), after considering all the previous cases decided by it, the Supreme Court considered the term "owned" as occurring in Section 32(1) of the Act and held that it must be assigned a wider meaning. The Supreme Court held that any one in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/ or to enjoy its usufruct in his own right would be the owner of the buildings, though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. The person, who having acquired possession over the building in his own right, uses the same for the purposes of the business or profession though a legal title has not been conveyed to him, but nevertheless is entitled to hold the property to the exclusion of all others. 23. The Supreme Court further held that depreciation gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the partnership firms (VGP and Co., VGP Investments) and, subsequently, booked as drawings in the partner's capital/current account. However, no actual transfer of funds to the partnership firms and drawings from the firms takes place. Personal expenses are met out of the bank accounts of VGP Housing Pvt. Ltd. only. Apart from this, the personal expenses such as credit card expenses, foreign travel expenses of directors, household expenses, etc., are debited under the head 'Sales promotion and travelling expenses' in the VGP Housing (P.) Ltd./VGP and Co. Pvt. Ltd. books of account. I admit that the extent of such personal expenses (consolidated for all group concerns) debited under these heads of account would be around Rs. 1 crore for the period 2003-04 to 2008-09." 7.4. A reading of the above said statement makes it clear that there is a clear admission by the director that the personal expenses are met out of the bank accounts of the assessee only. It is also stated that credit card expenses, foreign travel expenses of directors, household expenses, etc., are debited under the head "Sales promotion and travelling expenses" in the VGP Housing (P.) Ltd./VGP and Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (13.02.2001 - RAJHC), 256-ITR-357 5. It has been brought to our notice by the learned counsel for the respondent that the principle has been settled by the Supreme Court while considering the question of ownership of an asset subject to claim of depreciation allowance under section 32 of the Act in Mysore Minerals Ltd. v. CIT: [1999]239ITR775(SC) , wherein the court was considering the case of building which was in possession of the assessee-company, the possession having been acquired on payment of price but actually deed of conveyance was not executed by the Housing Board in favour of the company, thus there was no vesture of legal title of the company in terms of the Transfer of Property Act required for transfer of ownership. Yet considering the meaning of word "owned" as used in section 32, the court answered the question. The court posed a question for itself : It is the word owned as occurring in sub-section (1) of section 32 which is the core of controversy. Is it only an absolute owner or an owner of the asset as understood in its legal sense who can claim depreciation? Or, a vesting of title short of full-fledged or legal ownership can also entitle an assessee to cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premises and development of a road was the main agreement MOU referred by us. 14.4 In view of written submissions submitted by Mr. Ranka, it is not only road, they have to construct toll booth and provide facilities for the staff for the purpose of their accommodation. 14.5 In that view of the matter, the Supreme Court judgment which is sought to be relied upon by the department will not apply and the tribunal has rightly interpreted the change in law and more particularly under the law which has been inducted after year 1983. 14.6 Thus, on the first issue, we are in complete agreement with the view taken by the tribunal. 15. Regarding issue no.2, the contention which has been raised that equipment which are attached with the power equipment are not entitled under item no.5 of Schedule-I, in view of the fact that note 7 will not cover complete equipment which are attached with the system but in our considered opinion the optical fibers which are used exclusively for the computer configuration and it is mandatory for the operation. It is part of computer system. 15.1 In that view of the matter, the view taken by the tribunal is just and proper. 16. Regarding issue no.3 for dia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered in the case of CIT vs. Hero Cycles, 323 ITR 518 (P&H), judgment of the Hon'ble Bombay High Court rendered in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT, 328 ITR 81 (Bom.), decision of the Coordinate Bench rendered in the case of Yathish Trading Co. P. Ltd. vs. ACIT, 129 ITD 237 and the judgment of Hon'ble Bombay High Court rendered in the case of CIT vs. K. Raheja Corporation P. Ltd. ITA No. 1260 of 2009 (Bom HC) in support of the contention that in the absence of any material or basis to hold that the interest expenditure directly or indirectly was attributable for earning the dividend income. The AO ought not to have invoked the provisions of section 14A for making the disallowance. The ld. Counsel submitted that the AO has made disallowance on the basis of conjectures and surmises." 17.1 We are in complete agreement with the view taken by the tribunal. 18. Regarding issue of Sec. 271 in one of the matter since the other issues in the connected appeals has been decided in favour of the assessee, the issue of Sec.271 is also decided in favour of the assessee and against the department. 19. In view of the above, all the issues in all these appeals ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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