Tribunal grants 10% additional depreciation & upholds capital gains based on joint venture agreement

The Tribunal partly allowed the appeal, directing the Assessing Officer to allow the balance 10% additional depreciation for the year under consideration. The computation of capital gains based on a joint venture agreement was upheld for the same year.

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Issues Involved:
1. Disallowance of 50% of additional depreciation claim.
2. Computation of capital gains.

Issue-wise Detailed Analysis:

1. Disallowance of 50% of Additional Depreciation Claim:

The first issue pertains to the disallowance of 50% of the additional depreciation claimed by the assessee for the assessment year 2010-11. The assessee had claimed 50% of the additional depreciation in the previous year (2009-10) because the machinery was used for less than six months, and the remaining 10% was claimed in the current year. The Assessing Officer disallowed this claim, stating that there is no provision in the Income-tax Act, 1961, for allowing the balance 10% of the additional depreciation in the subsequent year. The CIT(A) upheld this disallowance.

The assessee's counsel argued that the Cochin Bench in the case of Apollo Tyres Ltd vs. ACIT (2014) 64 SOT 203 had allowed the balance additional depreciation in the subsequent year. The Departmental Representative contended that Section 32(1)(iia) of the Act does not provide for the carry forward of additional depreciation.

Upon reviewing the submissions and the material on record, the Tribunal noted that the Cochin Bench had previously held that additional depreciation could be allowed in the next year if it could not be fully allowed in the earlier year. The Tribunal cited similar decisions from the Delhi Bench in Cosmo Films Ltd and SIL Investment Ltd, and the Mumbai Bench in MITC Rolling Mills (P.) Ltd., which supported the allowance of the balance 50% additional depreciation in the subsequent year. Consequently, the Tribunal directed the Assessing Officer to allow the balance 10% additional depreciation for the year under consideration, setting aside the orders of the lower authorities.

2. Computation of Capital Gains:

The second issue concerns the computation of long-term capital gains based on a joint venture agreement dated 7.9.2009. The Assessing Officer computed the gains at Rs. 86,45,99,912/-. The assessee argued that the joint venture agreement and the power of attorney would be effective only after receiving the necessary construction approvals from the concerned authorities, which had not been received during the year under consideration. Therefore, there was no transfer of interest in the immovable property.

The Departmental Representative countered that the agreement between the assessee and the developer (M/s Godrej Properties Ltd) involved the development of land, with the assessee entitled to 30% of the constructed area and the developer receiving 70% of the undivided share in the property. The physical possession of the property was handed over to the developer, constituting a transfer under Section 2(47) of the Act, which includes any arrangement enabling the enjoyment of the property.

The Tribunal reviewed the agreement and found that the assessee had granted irrevocable rights to the developer for the development and sale of the property, effectively transferring 70% of the undivided share in the land in exchange for 30% of the constructed area. This arrangement, although not a transfer under common law, constituted a transfer under Section 2(47)(vi) of the Act, enabling the developer to enjoy or sell the property. Therefore, the Tribunal concluded that the capital gains had to be assessed during the year under consideration and upheld the CIT(A)'s order.

Conclusion:

The appeal of the assessee was partly allowed. The Tribunal directed the Assessing Officer to allow the balance 10% additional depreciation for the year under consideration, while upholding the computation of capital gains for the same year. The order was pronounced in the open court on 4th March 2016, at Chennai.

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