2002 (10) TMI 240 - AT - Income Tax

Tribunal allows depreciation claim on godowns, remands building & machinery issue for fresh review

FOOD CORPORATION OF INDIA. Versus DEPUTY COMMISSIONER OF INCOME TAX.

FOOD CORPORATION OF INDIA. Versus DEPUTY COMMISSIONER OF INCOME TAX. - TTJ 079, 249, [2004] 1 SOT 813 (DELHI) List of Issues:1. Disallowance of Depreciation on Godowns2. Disallowance of Depreciation on Building and Plant & Machinery Not Put to UseDetailed Analysis:1. Disallowance of Depreciation on GodownsThe primary issue in both appeals pertains to the disallowance of depreciation claimed by the assessee on godowns. The assessee, a public sector company, claimed depreciation for godowns constructed by the Central Warehousing Corporation (CWC) using funds provided by the Food Corporation of India (FCI) under an agreement. The Assessing Officer (AO) disallowed the depreciation, reasoning that the godowns were effectively owned by CWC, not the assessee, and thus the assessee could not claim depreciation.The AO's decision was based on the interpretation that although the assessee was the de jure owner, the de facto ownership and control rested with CWC. This interpretation was supported by the fact that CWC reimbursed the loan installments and interest to the assessee, and the godowns were to be transferred to CWC after 15 years.The CIT(A) upheld the AO's decision, stating that the godowns were not owned by the assessee and that rent was being paid by FCI for storage of its grains to CWC, which disqualified the assessee from claiming depreciation.Upon appeal, the assessee argued that the depreciation had been allowed in other assessment years and that no depreciation was claimed by CWC. The assessee highlighted a tripartite agreement indicating that the godowns were constructed by CWC on behalf of FCI with finances provided by the Government of India. The agreement stipulated that the ownership of the godowns would pass to CWC after 15 years, but until then, the godowns were owned by the assessee.The Tribunal examined the tripartite agreement and other relevant documents, concluding that the ownership of the godowns vested with the assessee until the transfer after 15 years. The Tribunal noted that the operational management by CWC did not transfer ownership rights to CWC. The Tribunal also considered past assessments where depreciation was allowed and the fact that CWC did not claim depreciation on these assets.The Tribunal held that the assessee was entitled to claim depreciation on the godowns, as ownership had not yet transferred to CWC. The Tribunal allowed the assessee's claim for depreciation, reversing the disallowance made by the AO and upheld by the CIT(A).2. Disallowance of Depreciation on Building and Plant & Machinery Not Put to UseIn the 1991-92 assessment year, the assessee raised an additional ground regarding the disallowance of depreciation on building and plant & machinery not put to use during the year. The AO observed from the notes to the statement of fixed assets that certain assets were not put to use and disallowed depreciation accordingly.The CIT(A) upheld the AO's decision without considering the assessee's arguments and relevant notes. The assessee contended that the AO had inadvertently not considered the correct notes, which indicated that depreciation was not provided on assets not put to use during the year.The Tribunal reviewed the notes and found that the matter required further verification. The Tribunal remanded the issue back to the AO for fresh adjudication, directing the AO to verify the facts and decide the issue in accordance with the law after providing the assessee an opportunity to be heard.Conclusion:The Tribunal allowed the assessee's claim for depreciation on godowns, reversing the disallowance made by the AO and upheld by the CIT(A). For the issue of depreciation on building and plant & machinery not put to use, the Tribunal remanded the matter back to the AO for verification and fresh adjudication.