2018 (9) TMI 142 - AT - Income Tax

Tribunal Decisions on Deductions and Depreciation: Key Rulings on Section 80 IA and Asset Depreciation

ACIT, Circle 6 (2) And DCIT, Circle 3 (1), New Delhi Versus M/s Container Corporation of India Ltd.

The Tribunal allowed the assessee's claim for deduction under section 80 IA on ICDs/CFS as inland ports, based on the Supreme Court's decision. Deduction ... Disallowance u/s 80IA on ICDs/CFS, which are inland ports - Held that:- COMMISSIONER OF INCOME TAX, DELHI-1 VERSUS M/S CONTAINER CORPORATION OF INDIA LTD. [2018 (5) TMI 359 - SUPREME COURT OF INDIA] The term ‘Inland Port’ has been defined nowhere. But the Notification that has been issued by the Central Board of Excise & Customs (CBEC) dated 24.04.2007 in terms holds that considering the nature of work carried out at these ICDs they can be termed as Inland Ports- The communication dated 25.05.2009 issued on behalf of the Ministry of Commerce and Industry confirming that the ICDs are Inland Ports, fortifies the claim of the respondent herein. Though both the Notification and communication are not binding on CBDT to decide whether ICDs can be termed as Inland Ports within the meaning of Section 80-IA the appellant herein is unable to put forward any reasonable explanation as to why these notifications and communication should not be relied to hold ICDs as Inland Ports. Unless shown otherwise, it cannot be held that the term ‘Inland Ports’ is used differently under Section 80-IA of the IT Act. All these facts taken together clear the position beyond any doubt that the ICDs are Inland Ports and subject to the provisions of the Section and deduction can be claimed for the income earned out of these Depots. The actual computation is to be made in accordance with the different Notifications issued by the Customs department with regard to different ICDs located at different places. Disallowance of depreciation on intangible assets being license acquired from Indian Railway for running container trains on Indian Railways - Held that:- This Tribunal for A.Y. 2008-09 in assessee’s own case held that, commercial right acquired by assessee by way of this license for earning enduring benefit for a period of 20 years would amount to capital asset. It is also observed that this view of Tribunal derives support from decision of Hon’ble Delhi High Court in the case of Areva T&D India Ltd. vs. DCIT [2012 (4) TMI 79 - DELHI HIGH COURT]. We hold intangible asset acquired by assessee is eligible for depreciation @ 25% u/s 32(1)(ii) of the Act. Disallowance of deduction on account of lease rent paid in advance against the land taken on long - term lease for business purposes on pro rata basis - Held that:- As there is no change in the factual circumstances, respectfully following the aforestated view taken by this Tribunal in assessee’s own case for Assessment Year 2008-09 and 2009-10, we set aside this issue to the file of Ld. AO with the direction to assessee to furnish all requisite details in respect of the claim of depreciation. Ld. AO shall then verify the details to determine whether the claim of assessee is allowable or not as per law. Disallowance computed under section 14A read with Rule 8D - Held that:- We are inclined to set aside this issue to Ld. AO for recomputing the disallowance having regard to the ratio laid down by Hon’ble Supreme Court in case of Maxopp investments Ltd vs. CIT [2018 (3) TMI 805 - SUPREME COURT OF INDIA]. Accordingly this ground raised by assessee stands allowed for statistical purposes. Depreciation granted on assets retired from active use - Held that:- Recompute depreciation after reducing the scrap value of the assets which have been discarded and written off in the books of account for the year under consideration from the written down value of the block of assets. Actual user of the machinery is not required with respect to discarded machinery and the condition for eligibility for depreciation that the machinery being used for the purpose of the business would mean that the discarded machinery is used for the purpose of the business in the earlier years for which depreciation has been allowed. Issues Involved:1. Disallowance of deduction under section 80 IA on ICDs/CFS as inland ports.2. Disallowance of deduction under section 80 IA on rail system (rolling stock).3. Disallowance of depreciation on intangible assets (license from Indian Railways).4. Disallowance of deduction on lease rent paid in advance on long-term lease.5. Disallowance of expenditure under section 14A read with Rule 8D.6. Depreciation on assets retired from active use.7. Depreciation on assets not registered in the name of the assessee.Detailed Analysis:1. Disallowance of Deduction under Section 80 IA on ICDs/CFS as Inland Ports:The assessee's claim for deduction under section 80 IA on ICDs/CFS was initially disallowed by the CIT(A) based on earlier Tribunal decisions. However, the Tribunal noted that the Hon’ble Delhi High Court and subsequently the Hon’ble Supreme Court had reversed the Tribunal’s earlier decisions, affirming that ICDs qualify as inland ports. The Tribunal, respecting the Supreme Court’s decision, allowed the assessee's claim for the deduction.2. Disallowance of Deduction under Section 80 IA on Rail System (Rolling Stock):The Tribunal referred to the Delhi High Court’s decision in the assessee’s own case, which allowed the deduction under section 80 IA for the rail system. The High Court had upheld the notification of ICDs as infrastructure facilities and clarified that the amendment removing the power to notify did not invalidate previously issued notifications. Following this precedent, the Tribunal allowed the assessee's claim.3. Disallowance of Depreciation on Intangible Assets (License from Indian Railways):The Tribunal observed that the issue of depreciation on the license fee paid to Indian Railways had been previously decided in favor of the assessee for earlier assessment years. The Tribunal held that the license constituted a commercial right eligible for depreciation under section 32(1)(ii) of the Act, following the Delhi High Court’s decision in Areva T&D India Ltd. The Tribunal, thus, allowed the depreciation claim.4. Disallowance of Deduction on Lease Rent Paid in Advance on Long-Term Lease:The Tribunal noted that this issue had been addressed in the assessee’s favor in earlier years. The Tribunal set aside the issue to the Assessing Officer (AO) to verify whether the claim pertains to depreciation or allowable expenditure, directing the assessee to furnish necessary details. The Tribunal allowed the ground for statistical purposes.5. Disallowance of Expenditure under Section 14A Read with Rule 8D:The Tribunal acknowledged that the AO had disallowed an expenditure under section 14A based on Rule 8D. The assessee argued that no direct expenses were incurred for earning exempt income. The Tribunal set aside the issue to the AO for recomputation of disallowance in light of the Supreme Court’s decision in Maxopp Investments Ltd. The ground was allowed for statistical purposes.6. Depreciation on Assets Retired from Active Use:The Tribunal referred to its earlier decision and the Delhi High Court’s ruling in Yamaha Motor India Pvt. Ltd., which held that actual use of discarded machinery in the relevant financial year is not required for claiming depreciation. The Tribunal dismissed the revenue’s ground, following the High Court’s decision.7. Depreciation on Assets Not Registered in the Name of the Assessee:The Tribunal noted that the issue had been decided in favor of the assessee in earlier years and had not been challenged by the revenue before the High Court. The Tribunal dismissed the revenue’s ground, affirming that the view taken in earlier years had attained finality.Conclusion:The appeal filed by the assessee was largely allowed, with directions for recomputation in some cases, while the revenue’s appeal was dismissed, following precedents set by higher judicial authorities.