2019 (2) TMI 1332 - HC - Income Tax

Interpreting Depreciation Rules & Disallowance of Expenditure under Income Tax Act

The High Court considered the eligibility of depreciation for certain assets under Section 32(1)(ii) of the Income Tax Act, focusing on the application of ... Depreciation on distribution network, material supply contract and brand use - specification of reason as to how it falls within the clause “any other business or commercial rights of a similar nature” of Section 32(1)(ii) and as to how the doctrine of “ejusdem generis” is applicable in the instant case - HELD THAT:- Registry is directed to communicate a copy of this order to the Tribunal. This would enable the Tribunal to keep the papers and proceedings relating to the present appeal available, to be produced when sought for by the Court. Learned Counsel appearing for the respondent waives service. Addition u/s 14A r.w.r. 8D - HELD THAT:- Question as impugned in this appeal held that the assessee had not earned any exempt income during the year under consideration. The Tribunal, therefore, followed the decision of Delhi High Court in case of CIT Vs. Holcim India (Pvt.) Ltd. [2014 (9) TMI 434 - DELHI HIGH COURT]. In such decision, the Delhi High Court ruled that when there is no exempt income earned by the assessee, no disallowance under Section 14A of the Act can be made. Issues involved:1. Eligibility of depreciation for distribution network, material supply contract, and brand use under Section 32(1)(ii) of the Income Tax Act.2. Disallowance under Section 14A of the Income Tax Act for expenditure incurred by the assessee for earning exempt income.Analysis:1. The first issue pertains to the eligibility of depreciation for certain assets under Section 32(1)(ii) of the Income Tax Act. The Tribunal had allowed depreciation for the distribution network, material supply contract, and brand use, which was challenged by the appellant. The main contention was that the Tribunal failed to provide reasons for considering these assets eligible for depreciation under the clause 'any other business or commercial rights of a similar nature' and did not explain the application of the doctrine of 'ejusdem generis.' The High Court admitted the appeal for consideration based on this question of law.2. Moving on to the second issue, it revolves around the disallowance made by the Assessing Officer under Section 14A of the Income Tax Act regarding the expenditure incurred by the assessee for earning exempt income. The Tribunal, in the impugned judgment, held that since the assessee had not earned any exempt income during the relevant year, no disallowance under Section 14A could be made. This decision was based on the precedent set by the Delhi High Court in the case of CIT Vs. Holcim India (Pvt.) Ltd. The High Court, in a previous judgment, had also followed the same principle, emphasizing that if there is no tax-free income earned by the assessee, the corresponding expenditure incurred cannot be considered for disallowance under Section 14A. The Court dismissed the appeal, stating that no substantial question of law arose in this context.In conclusion, the High Court addressed the issues surrounding the eligibility of depreciation for specific assets and the disallowance under Section 14A of the Income Tax Act. The judgment provided detailed analysis and referenced relevant legal precedents to support the decisions made in each issue.