2022 (11) TMI 733 - AT - Income Tax

Tribunal Grants Depreciation on Leasehold Land & Interest on Delayed TDS Payment

M/s. Karnataka EMTA Coal Mines Ltd. Versus ACIT Circle-4 (1) (1) Bengaluru

M/s. Karnataka EMTA Coal Mines Ltd. Versus ACIT Circle-4 (1) (1) Bengaluru - TMI Issues Involved:1. Disallowance of depreciation on leasehold land claimed under Section 32(1)(ii) of the Income-tax Act, 1961.2. Non-adjudication of the ground regarding the allowability of carry forward loss.3. Sustaining disallowance claimed under Section 35E of the Act.4. Non-granting of depreciation on intangible assets claimed under Section 32(1)(ii) of the Act.5. Disallowance of interest on TDS under Section 37 of the Act.6. Additional ground regarding deduction under Section 37 of the Act for investment in land purchased/allotted for mining of coal.Detailed Analysis:1. Disallowance of Depreciation on Leasehold Land:The primary issue was the disallowance of depreciation claimed by the assessee on leasehold land under Section 32(1)(ii). The assessee argued that the land was acquired for mining purposes, and the surface rights were to be transferred to the government post the mining lease period. The Tribunal found that the surface rights, though purchased, were ultimately to be transferred to the government, making the purchase part of the cost of obtaining a mining license. The Tribunal held that the right to mine and the surface right fall within the definition of intangible assets under Section 32(1)(ii) and Explanation 3 to Section 32(1)(ii). The Tribunal allowed the depreciation claim, distinguishing it from royalty payments and emphasizing the peculiarities of the mining industry.2. Non-adjudication of Carry Forward Loss:The assessee raised a ground regarding the non-adjudication of the allowability of carry forward loss for AY 2010-11. The Tribunal directed the AO to reconsider the issue and grant the loss claimed by the assessee in accordance with the law, ensuring an opportunity for the assessee to be heard.3. Sustaining Disallowance Claimed Under Section 35E:The AO disallowed certain expenses claimed under Section 35E, arguing they were capital in nature and eligible for depreciation under Section 32. The Tribunal remitted the issue back to the AO to verify if the assessee claimed any depreciation on these expenses. If no depreciation was claimed, the deduction under Section 35E should be allowed.4. Non-granting of Depreciation on Intangible Assets:The AO disallowed depreciation on assets acquired during the year, treating them as land and not intangible assets. The Tribunal allowed the depreciation claim, consistent with its findings on leasehold land, and emphasized that there should be no double claim of depreciation.5. Disallowance of Interest on TDS:The AO disallowed interest on delayed payment of TDS, treating it as a penalty. The Tribunal, citing various judgments, held that the interest on delayed TDS payment is compensatory and not penal, making it deductible under Section 37 of the Act.6. Additional Ground for Deduction Under Section 37:The additional ground raised by the assessee was for the deduction under Section 37 for investment in land for mining purposes. The Tribunal found this ground infructuous given its decision to allow depreciation on leasehold land, making the additional ground unnecessary.Conclusion:The Tribunal allowed the appeals partly for statistical purposes, directing the AO to reconsider specific issues and granting depreciation on leasehold land and interest on delayed TDS payment. The additional ground was dismissed as infructuous.