2015 (1) TMI 1396 - AT - Income Tax

Tribunal Upholds Depreciation Claims and Business Income Ruling

The Tribunal condoned the delay in filing the Revenue's appeal, allowing it to be heard on merits. It upheld the depreciation claim on the Sivaganga ... Disallowance of depreciation on Sivaganga Beverage Division - Depreciation has been disallowed in the assessment years under consideration on the ground that the facts in the assessment years 2005-06 and 2006-07 were quite different from the assessment year under appeal - Held that:- A perusal of the records show that the facts in the present case are in no way different from the facts in the earlier assessment years. After trial run, plant is ready for commercial production. The assessee is waiting consent from the Pollution Control Board, to operate the beverage plant commercially. As decided in assessee's own case in order to get depreciation u/s.32, it is not necessary that the machinery in question should have been actually used in the relevant previous year for the purpose of business and it is sufficient if the same is kept ready for use during the relevant previous year, though not actually used due to circumstances beyond the assessee’s control. Allowing of depreciation on Modakurichi Sugar Project, Modakaurichi Cogen Project and Sivaganga Cogen Project on the ground that the assets were used for trial run - Held that:- The assessee cannot be denied the benefit of depreciation on the ground that the machinery was used for the very short duration for the trial run. It has not been disputed by the Revenue that trial run production was immediately followed by the commercial production. The Hon’ble Punjab & Haryana High Court in the case of CIT v. Piccadily Agro Industries Ltd. [2007 (8) TMI 327 - PUNJAB AND HARYANA HIGH COURT] has held that machinery used in trial run production would be entitled to depreciation. Rental receipts being treated as ‘business income’ - Held that:- A perusal of the records show that the assessee has been receiving rental income from letting out of commercial/business assets. Substantial part of rental income ₹ 33,11,438/- is received from letting out of staff quarters and the remaining rental income is from commercial buildings like industrial shed, corporate office etc. It is a trite law, that any income from exploiting commercial/business asset is a business income. This view is fortified by the judgments rendered in the case of CIT vs. VST Motors P. Ltd. [1996 (7) TMI 96 - MADRAS HIGH COURT]. Board Circular No.10/14/66-IT(AI) dated 12/12/1966 makes copiously clear that the staff quarters are business assets. This takes use to irrefutable conclusion that income arising from letting out of staff quarters is a ‘business income’. - decided against revenue Issues Involved:1. Condonation of delay in filing the Revenue's appeal.2. Disallowance of depreciation on Sivaganga Beverage Division.3. Allowance of depreciation on Modakurichi Sugar Project, Modakaurichi Cogen Project, and Sivaganga Cogen Project.4. Treatment of rental income as business income.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Revenue's Appeal:The Revenue's appeal was delayed by 11 days. The Tribunal reviewed the affidavit submitted by the Revenue explaining the reasons for the delay. After perusal, the Tribunal found the delay to be unintentional and bona fide, and thus, condoned the delay, admitting the appeal to be heard on merits.2. Disallowance of Depreciation on Sivaganga Beverage Division:The assessee challenged the disallowance of depreciation amounting to Rs. 1,34,84,636/- on the Sivaganga Beverage Division. The Tribunal noted that the trial run production of the beverage unit had been completed, and in previous assessment years, the depreciation claim was allowed. The Tribunal referenced its own earlier decision in the assessee's case for assessment years 2005-06 and 2006-07, where it was held that the asset, once included in the block of assets, entitles the assessee to claim depreciation. The Tribunal found no difference in the facts for the current assessment year and concluded that the depreciation claim should be allowed as the plant was ready for commercial production, pending only the consent from the Pollution Control Board.3. Allowance of Depreciation on Modakurichi Sugar Project, Modakaurichi Cogen Project, and Sivaganga Cogen Project:The Revenue contested the allowance of depreciation on these projects, arguing that the assets were not used for commercial production. The Tribunal reiterated the legal principle that trial runs fall within the ambit of 'use for the purpose of business'. The Tribunal cited the Hon'ble Punjab & Haryana High Court's decision in CIT v. Piccadily Agro Industries Ltd., which held that machinery used in trial runs is entitled to depreciation. The Tribunal found no error in the Commissioner of Income-tax (Appeals)'s decision to allow depreciation on these projects, as the trial run was immediately followed by commercial production.4. Treatment of Rental Income as Business Income:The Revenue challenged the treatment of rental income as business income, arguing it should be classified as income from house property. The Tribunal observed that the assessee had consistently shown rental income under the head 'income from business' in previous years, and the Assessing Officer had accepted this treatment until the impugned assessment year. The Tribunal concluded that rental income from letting out commercial/business assets, including staff quarters, corporate office buildings, and industrial sheds, constitutes business income. The Tribunal referenced several judicial precedents and a Board Circular which supported the view that income from exploiting business assets should be treated as business income. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, finding no change in the facts and circumstances that would warrant a different treatment.Conclusion:The Tribunal allowed the assessee's appeal regarding the depreciation on Sivaganga Beverage Division and dismissed the Revenue's appeal on the other issues. The decision confirmed the consistent treatment of rental income as business income and upheld the allowance of depreciation on assets used in trial runs. The order was pronounced on January 30, 2015, in Chennai.