2011 (3) TMI 1447 - HC - Income Tax

High Court affirms Tribunal on excess interest tax & depreciation disallowance, stresses evidence requirements

The High Court of Kerala upheld the decisions of the Tribunal in a case involving the disallowance of excess interest tax and depreciation on leased ... Disallowance of excess interest tax collected by the assessee - assessee collected excess interest tax which was not remitted to the Government as the same was excess collection – Held that:- assessee has not produced any material evidence towards payments of any amount to the corpus fund created by the Government in terms of the decision of the Supreme Court or evidence for payment to the Government of India, which of course is possible only through forfeiture of excess collection of tax under the Interest Tax Act, amount is retained by the assessee over which nobody has a claim, it has to be treated as income, appeal on this ground is accordingly dismissed. Disallowance of depreciation on the value of machinery leased out - depreciation claimed is on the entire value of machinery that is, Rs. 1,00,57,225/- on the ground that the item leased out is air pollution control equipment which is entitled for 100% depreciation – Held that:- when the lessor claims depreciation in respect of an item of machinery with reference to its use which is only made by the lessee, necessarily the lessee has to put to use the machinery for the purposes stated in the depreciation schedule to entitle it for the rate of depreciation provided therein. It is not a case of assessee claiming depreciation on an item of machinery but the depreciation claimed is in respect of pollution control equipment which identify at least the equipments has to assume at the end of the previous year. Therefore, in our view, at least assembling and commissioning of the system to get the identity with reference to the use of the machinery by the lessee is a mandatory requirement for eligibility for depreciation claimed by the lessor, appeal is dismissed Issues:1. Disallowance of excess interest tax collected by the assessee.2. Disallowance of depreciation on machinery leased out by the appellant to other parties.Issue 1: Disallowance of Excess Interest Tax:The appellant bank raised questions regarding the disallowance of excess interest tax collected by the assessee. The Assessing Officer found that the excess collection of interest tax constitutes income of the assessee and should be assessed as such. The appellant argued that the excess collection should be remitted to the fund as directed by the Supreme Court, thus not constituting income. However, as the assessee failed to provide evidence of remittance to the fund or the Government, the court upheld that the amount, being retained by the assessee, should be treated as income. The court dismissed the appeal on this ground.Issue 2: Disallowance of Depreciation on Leased Machinery:Regarding the disallowance of depreciation claimed on machinery leased out, the appellant initially claimed a substantial amount towards depreciation. However, the Tribunal found discrepancies in the claims. For instance, the lessee of one set of machinery was found to be non-operational, and the supplier had closed down. The Tribunal deemed the claim as bogus. Another claim for depreciation on air pollution control equipment leased to a company was also disputed. The court found that the equipment was not put to use by the lessee, and crucial components were missing for it to qualify as pollution control equipment. The court emphasized that the lessee must use the machinery for the purposes stated in the depreciation schedule to claim depreciation. As the machinery did not meet the criteria for pollution control equipment, the court dismissed the appeal on this issue as well.In conclusion, the High Court of Kerala addressed the issues of disallowance of excess interest tax and depreciation on leased machinery in detail, emphasizing the necessity of providing evidence and meeting specific criteria for claiming deductions. The judgment upheld the decisions of the Tribunal, dismissing the appeals on both grounds.