2014 (2) TMI 31 - HC - Income Tax

Tax Court Upholds 100% Depreciation for Amul Parlours' Temporary Structures

The court upheld the Income Tax Appellate Tribunal's decision to allow 100% depreciation on temporary structures of Amul Parlours for the assessment year ... Depreciation on temporary structures of Amul Parlours - Held that:- As per the agreement between the assessee and AUDA - The assessee was given limited rights for the limited period to use the land for putting up its parlours for a period of five years - Relying upon the decision in Commissioner of Incometax v. Madras Auto Service (P) ltd. [1998 (8) TMI 1 - SUPREME Court] - The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount - The expenditure should be looked upon as revenue expenditure - Decided against Revenue. Issues:1. Depreciation allowance on temporary structures of Amul Parlours.2. Justification of 100% depreciation.3. Interpretation of the nature of structures.4. Comparison with relevant legal precedents.5. Impact of the agreement between the assessee and AUDA on the nature of expenditure.6. Consideration of enduring benefit and revenue expenditure.7. Analysis of the business advantage gained by the assessee.8. Evaluation of the nature of capital assets acquired.9. Significance of the subsequent demolition of the structure.Detailed Analysis:1. The main issue in this case revolves around the allowance of depreciation on temporary structures of Amul Parlours. The Income Tax Appellate Tribunal had allowed 100% depreciation for the assessment year 2006-07, which was challenged by the Revenue.2. The central question was whether the structures of Amul Parlours, despite being sturdy with concrete and tiles, could be considered as having a useful life of only one year, justifying 100% depreciation. The Tribunal's decision to grant such depreciation was under scrutiny.3. The interpretation of the nature of structures was crucial in determining the depreciation allowance. The court analyzed whether the structures were purely temporary erections, akin to wooden structures, based on the terms of the agreement between the assessee and AUDA.4. The court also delved into the comparison with legal precedents, specifically referencing the decision of the Madras High Court in the case of CIT v. TVS Lean Logistics Ltd. to distinguish between capital and revenue expenditure, emphasizing the issue of permanent versus temporary structures.5. The agreement between the assessee and AUDA played a significant role in assessing the nature of the expenditure. The terms of the agreement highlighted the limited rights of the assessee to use the land for a specified period, indicating a temporary arrangement.6. The court considered the concept of enduring benefit and revenue expenditure, drawing parallels with the Supreme Court's decision in Commissioner of Incometax v. Madras Auto Service (P) ltd., where expenditure leading to enduring business advantage was treated as revenue expenditure.7. Emphasis was placed on the business advantage gained by the assessee through the arrangement with AUDA, highlighting the temporary nature of the structures and the absence of ownership or proprietary rights over the land.8. The evaluation of whether the assessee acquired any capital asset or solely a business advantage was crucial in determining the tax treatment of the expenditure incurred on the structures.9. The subsequent demolition of the structure in the following year further reinforced the temporary nature of the arrangement, leading the court to conclude that scrutinizing the structure's temporary status for depreciation purposes would be revenue neutral, ultimately resulting in the dismissal of the tax appeal.