High Court affirms Tribunal decisions on depreciation for wind mills & leasehold rights as revenue expenditure

The High Court upheld the decisions of the Income Tax Appellate Tribunal in favor of the assessee on both issues. It ruled that depreciation on wind mills not put to use was allowable as part of a block of assets, following the concept introduced in 1988. Additionally, the Court considered the amount paid for leasehold rights over land as revenue expenditure under Section 37(1) of the Income Tax Act, similar to rent paid in advance. The appeal was dismissed, affirming the Tribunal's decisions in favor of the assessee.

---

---

Issues:
1. Depreciation on wind mills not put to use.
2. Depreciation claimed against leasehold rights over land.

Analysis:
1. The first issue pertains to whether the Tribunal erred in allowing depreciation on wind mills that were not actually put to use. The Assessing Officer and Commissioner of Income Tax (Appeals) held that the claim for depreciation on the wind mills was inadmissible as per Section 32 of the Income Tax Act, which requires actual use for depreciation. However, the Income Tax Appellate Tribunal considered the concept of 'block of assets' introduced from 01.04.1988, making the question of actual use irrelevant. The Tribunal relied on the decision in CIT vs. Bharat Aluminium Co. Ltd. and defined 'block of assets' under Section 2(11) of the Act. It concluded that the assessee is entitled to claim depreciation on the wind mills, as they are part of a block of assets. The High Court agreed with the Tribunal's reasoning and ruled in favor of the assessee on this issue.

2. The second issue involves the depreciation claimed against the amount paid for leasehold rights over land. The Tribunal held that this claim falls under Section 37(1) of the Act, not Section 30, as it pertains to rent paid on the building. Citing a previous ruling in CIT vs. HMT Ltd., the High Court considered the lump sum rent paid for a 30-year leasehold right over land as revenue expenditure. The Court upheld the Tribunal's decision, stating that such expenditure is akin to rent paid in advance and qualifies as revenue expenditure under Section 37(1). Consequently, the Court ruled in favor of the assessee on this issue as well.

In conclusion, the High Court dismissed the appeal, upholding the decisions of the Income Tax Appellate Tribunal in favor of the assessee on both substantial questions of law related to depreciation on wind mills and leasehold rights over land.

---