2020 (9) TMI 928 - HC - Income Tax

Tax Court Upholds Depreciation Decision on Floor Space Index, Rejects Intangible Asset Claim

Pr. Commissioner of Income Tax-3 Versus M/s. V. Hotels Limited

Pr. Commissioner of Income Tax-3 Versus M/s. V. Hotels Limited - [2020] 429 ITR 54 (Bom) Issues Involved:1. Depreciation on Floor Space Index (FSI)2. Depreciation on Intangible AssetsDetailed Analysis:1. Depreciation on Floor Space Index (FSI):The primary issue was whether the Tribunal was justified in allowing depreciation of Rs. 30,67,319.00 on FSI at 10% of the total consideration. The assessee, engaged in the hoteliering business, claimed depreciation on FSI, which was initially disallowed by the Assessing Officer (AO). The AO argued that FSI is not an asset but a payment for increasing building size, only becoming an asset when additional floors are constructed. Thus, depreciation was not allowed on the FSI.The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision but allowed the amount spent on FSI to be added to the building block of assets, enabling depreciation as per law. The Tribunal, upon appeal, noted that the assessee had acquired additional FSI rights, capitalized the premium amount in its books, and made corresponding liability entries. The Tribunal held that depreciation should be considered on the full amount debited to the fixed assets, irrespective of the installment payment status, as it enhances the building's value.The Tribunal did not accept the assessee's contention that additional FSI is a business or commercial right falling under 'intangible assets' as per section 32(1)(ii) of the Act. It ruled that FSI pertains to the building and thus, depreciation at 10% (applicable to buildings) was appropriate, not 25% for intangible rights.2. Depreciation on Intangible Assets:The second issue was whether the Tribunal was justified in allowing depreciation amounting to Rs. 4,88,08,717.00 on intangible assets. This question had already been addressed by the Court in the assessee's own case in Income Tax Appeal Nos. 835 and 836 of 2016, where it was held that it did not constitute a substantial question of law. Consequently, the Court did not delve further into this issue during the current proceedings.Conclusion:The Court found the Tribunal's view reasonable and consistent with sections 32(1)(ii) and 43(6)(c) of the Income Tax Act. The revenue had previously accepted the CIT(A)'s decision without further appeal, thus could not dispute the depreciation percentage now. The appeal was dismissed, affirming the Tribunal's decision that the assessee is entitled to depreciation at 10% on the FSI amount, not 25%. The order was digitally signed and distributed accordingly.