2017 (6) TMI 1250 - AT - Income Tax

Tribunal Grants Relief on Depreciation Disallowance and Interest Levy

M/s Tata Motors Ltd. (Successor to Tata Finance Ltd.), Bombay Versus ACIT Circle 2 (1), Mumbai.

The Tribunal allowed all seven appeals filed by the assessee, granting relief on the grounds of disallowance of depreciation on leased assets, and the ... Depreciation on leased assets - Held that:- The definitions of “ownership” essentially make ownership a function of legal right or title against the rest of the world. However, it is “nomen generalissimum”, and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied. As long as the assessee has a right to retain the legal title against the rest of the world, it would be the owner of the asset in the eyes of law.” - Claim of depreciation allowed. Issues Involved:1. Disallowance of depreciation on leased assets.2. Levy of interest under section 234B of the Income-tax Act.3. Levy of interest under section 220(2) of the Income-tax Act.Detailed Analysis:1. Disallowance of Depreciation on Leased Assets:The primary issue in these appeals was the disallowance of depreciation on leased assets. The assessee contended that the transactions were genuine leases and not mere financing arrangements, hence they were entitled to depreciation under section 32 of the Income-tax Act. The Tribunal previously remanded the matter to the Assessing Officer (AO) to re-examine the issue. The AO, however, reaffirmed the disallowance, which was subsequently upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that similar disallowances were allowed by the Tribunal in earlier years (AY 1997-98 and 1998-99) and cited several judicial precedents, including the Supreme Court's decision in ICDS Ltd. v/s CIT. The Tribunal, after considering the rival submissions and the material on record, found that the assessee met the twin requirements of ownership and usage for business purposes as stipulated under section 32. The Tribunal noted that the assets were in existence, the purchase consideration was paid through banking channels, and the lease transactions were legally valid. Consequently, the Tribunal allowed the depreciation claim, following the principle of consistency and the Supreme Court's ruling.2. Levy of Interest under Section 234B:The second issue involved the levy of interest under section 234B of the Act. The assessee argued that interest under this section should be charged only up to the date of the original assessment order and not up to the date of the order passed pursuant to the Tribunal's directions. The Tribunal agreed with the assessee, referencing the Delhi Tribunal's decision in Freightship Consultants (P) Ltd. and the Supreme Court's decision in Modi Industries Ltd. v/s CIT. The Tribunal directed the AO to re-compute the interest in accordance with subsection 4 of section 234B, limiting it to the period up to the original assessment order date.3. Levy of Interest under Section 220(2):The third issue was the levy of interest under section 220(2) of the Act. The assessee contended that interest should only be charged up to the date of the original assessment order. The Tribunal noted that this issue was consequential to the disallowance of depreciation on leased assets. Since the depreciation disallowance was allowed in favor of the assessee, the Tribunal found that the application under section 154 deserved to be allowed. Consequently, the assessee was not liable to pay further interest after the original assessment order date. The Tribunal allowed the appeal on this ground as well.Consistency in Decisions:For the subsequent assessment years (AY 1995-96, 1996-97, and 1997-98), the Tribunal followed the principle of consistency and allowed the appeals in favor of the assessee, as the facts and grounds of appeal were identical to those of AY 1994-95.Conclusion:The Tribunal allowed all seven appeals filed by the assessee, granting relief on the grounds of disallowance of depreciation, and the levy of interest under sections 234B and 220(2) of the Income-tax Act. The Tribunal's decisions were consistent with earlier rulings and judicial precedents, ensuring fairness and adherence to legal principles.