2015 (5) TMI 544 - AT - Income Tax

Tenancy Rights Not Intangible Assets: Depreciation Allowed on Buildings Rate

The Tribunal dismissed the Revenue's appeal and affirmed the deletion of the penalty imposed under Section 271(1)(c). It held that tenancy rights do not ... Penalty u/s 271(1)(c) - tenancy rights were not acquired on 02/05/2005 and further tenancy rights are not covered u/s 32 of the Act for claim of depreciation - Held that:- If the assessee does not make a claim then no deduction may be granted. Non-allowance per se does not mean that there is concealment or furnishing inaccurate particulars. It is only after necessary permissions were obtained from the Municipal Corporation, the assessee entered into a formal lease agreement. The totality of facts clearly indicates that there was nothing wrong in making a claim by making full disclosure of facts. The fact that the Assessing Officer was not agreeing with the claim itself does not lead to the conclusion that the assessee filed inaccurate particulars or concealed its income. The decision in the case of Reliance Petro Products Ltd. [2010 (3) TMI 80 - SUPREME COURT] favors the case of assessee. - Decided in favour of assessee. Issues Involved:1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.2. Claim of depreciation on tenancy rights as intangible assets.3. Alternative claim of depreciation on tenancy rights as tangible assets.Detailed Analysis:1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act:The Revenue was aggrieved by the order of the First Appellate Authority, Mumbai, which deleted the penalty of Rs. 10,72,500/- imposed under Section 271(1)(c) of the Income Tax Act. The Revenue argued that the assessee furnished inaccurate particulars of income by claiming deductions based on incorrect facts, justifying the penalty imposed by the Assessing Officer. The assessee, however, contended that there was neither concealment of income nor furnishing of inaccurate particulars. The Tribunal found that the penalty was imposed on the basis that the tenancy rights were not acquired on 02/05/2005 and that tenancy rights are not covered under Section 32 of the Act for claiming depreciation. The Tribunal held that non-allowance of a claim does not automatically mean there is concealment or furnishing of inaccurate particulars. The Tribunal affirmed the decision of the Commissioner of Income Tax (Appeals) by referencing the case of Reliance Petro Products Ltd. (322 ITR 158 SC), which supports the assessee's position.2. Claim of Depreciation on Tenancy Rights as Intangible Assets:The Tribunal considered the issue of whether tenancy rights could be treated as intangible assets eligible for depreciation under Section 32(1)(ii) of the Act. The Tribunal referred to its earlier order dated 26/02/2015, which dealt with the same issue for AY 2006-07 and 2007-08. The Tribunal noted that the definition of intangible assets includes know-how, patents, copyrights, trademarks, licenses, franchises, or any other business or commercial rights of similar nature. Applying the rule of noscitur a sociis, the Tribunal concluded that tenancy rights do not qualify as intangible assets because they do not directly facilitate the profit-earning activity but merely provide a place for business operations. The Tribunal upheld the view that tenancy rights cannot be construed as intangible assets eligible for depreciation.3. Alternative Claim of Depreciation on Tenancy Rights as Tangible Assets:The Tribunal also considered the alternative claim of the assessee that if tenancy rights are not considered intangible assets, they should be treated as tangible assets eligible for depreciation at the rate applicable to buildings. The Tribunal noted that the CIT(A) had allowed depreciation at 10% for the building, considering the tenancy rights as ownership of business premises acquired in perpetuity. The Tribunal cited the agreement terms that gave the assessee full control over the property, thus making the assessee the virtual owner and actual user of the premises. The Tribunal upheld the findings of the CIT(A) but modified the date of possession and usage to 10/10/2005 for the purpose of depreciation, aligning with the formal lease agreement date.Conclusion:The Tribunal dismissed the Revenue's appeal and affirmed the deletion of the penalty imposed under Section 271(1)(c). It upheld the findings that tenancy rights do not qualify as intangible assets for depreciation but allowed depreciation at the rate applicable to buildings, considering the tenancy rights as tangible assets. The Tribunal's decision was pronounced in the open court on 24/04/2015.