TaxTMI 
TaxTMI 
2010 (4) TMI 726
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....s of Rs.4,07,10,983/- under the head "business" and Rs.35,03,489/- under the head "capital gains". There was also a long term capital loss brought forward from the assessment year 2002-03 which was also allowed to be carried forward to the subsequent years. 3. On 31.07.2008 the CIT issued notice under section 263 of the Act proposing to revise the assessment on the ground that the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue. In particular, he stated in the notice that the allowance of Rs.16,46,917/- on account of "cost of improvement of leasehold assets written off" and Rs.40,20,388/- debited on account of "advances against rental properties written off" was erroneous since these expenses were not revenue in nature. He relied on Schedule 'N', para-6 of the notice forming part of the assessee's accounts in which it was stated that the company had surrendered the leasehold properties and therefore the cost of improvement of the leasehold assets have been written off and debited to the profit and loss account. According to the CIT, omission to disallow the aforesaid two amounts aggregating to Rs.56,67,305/- had resulte....
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....Assessing Officer was directed to pass a fresh assessment order in the light of the directions contained in the order of the CIT. The assessee was to be given proper opportunity. 7. The assessee is in appeal against the aforesaid order of the CIT contending that the assessment order was neither prejudicial to the interest of the revenue nor erroneous. It was claimed that even on merits the assessee was entitled to deduct the aforesaid amounts for computing its income. 8. In support of the submission that the assessment order was not erroneous, our attention was drawn to the judgement of the Supreme Court in CIT Vs. Max India Ltd., (2007) 295 ITR 282. On the basis of this judgement, it was contended before us that at least two views were possible on the question of taxability of the two amounts claimed by the assessee and if that is so, there can be no resort to action under section 263. The Supreme Court in the case cited above has held that when the Assessing Officer adopts one of the two courses permissible in the law which has resulted in loss of revenue or has adopted one of the two possible views with which the Commissioner does not agree, the assessment order cannot be trea....
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....posits made by the assessee was to be returned on the determination of the leave and licence agreement but those deposits which were not returned to the assessee were written off as "advances against rental properties written off". 9. It appears to us on the aforesaid facts that by making the interest free deposits for the purpose of obtaining the permissive use or licence to use the premises, the assessee did not obtain any enduring advantage or capital asset. There are two judgements which lend support to the assessee's claim. The first judgement is that of the Bombay High Court in the case of IBM World Trade Corporation Vs. CIT, (1990) 186 ITR 412. In that case, the assessee was engaged in the manufacture of accounting and computing machines. It entered into one agreement with another company under which that company undertook to construct a factory and give the same on lease to the assessee. That company however required funds to build the factory and in order to facilitate the speedy construction of the factory, the assessee advanced nearly Rs.1 lakh to the company. Eventually, the landlord company became insolvent and the amount advanced, including interest, which came to Rs....
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....as to occupy the premises under leave and licence of the landlords. In such circumstances, there is a prima-facie case that the loss of the security deposits must be considered to be a loss incidental to the business. 10. There is one more judgement which is that of the Supreme Court in CIT Vs. Madras Auto Service (P.) Ltd., 233 ITR 468. In this case also the assessee had a lease for 39 years of the property. He demolished the building and constructed new buildings at his own expenses. The new building was to belong to the lessor and not the assessee. The assessee was entitled to merely use the new building at a very low rent. In these circumstances, the Supreme Court held that the amount spent by the assessee on construction of the new building was deductible as business expenditure, the only advantage derived by him by spending the money being that he got the lease of the new building at low rent which was an advantage from the business point of view and not a capital advantage. On this basis, the amounts spent by the assessee on constructing the property for the lessor was allowed as a deduction in computing the assessee's business profits. The facts of the present case are str....
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....ontrary to the legal position that a leave and licence is distinct and separate from a lease and the former does not create any interest in the property in favour of the licensee. The judgement of the Supreme Court in the case of Madras Auto Service (P.)Ltd. (supra) supports the assessee on this point also. The improvements made by the assessee upon the properties taken on leave and licence basis were no doubt capitalized in the assessee's books and depreciation had also been allowed. But in the year under consideration, we are concerned only with the balance of the cost of the expenditure minus the depreciation actually allowed. In the judgement of the Supreme Court cited above, it was held that where the building was owned by the lessor and the lessee spends money on improving the same or even constructing a new building the lessee did not acquire any capital asset and that the only advantage which the lessee derived was that it got lease of a new building at a reduced rent which was only a business advantage and not an advantage in the capital field. Applying the ratio of this judgement to the present case, it seems to us that the present case is a fortiori in the sense the asse....
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....ay refer to the order of the Special Bench of the Tribunal, Mumbai in the case of Voltas Ltd. Vs. ACWT., (2008) 113 ITD 19(SB) where it was observed that a licence neither passes any interest nor alters or transfers property in anything but only makes an action lawful which without the licence would have been unlawful. Licence to use the property, it was observed by the Special Bench, is traditionally distinguishable from a lease inasmuch as that the licensee does not have possession or any interest in the property. Leave and licence is thus materially different from a lease. In making these observations, the Special Bench relied on section 52 of the Indian Easements Act, which defines a licence. The assessee in the present case is having a mere licence to use the property which cannot be equated to a lease or a right of occupancy involving an interest in the property. 13. It was then argued on behalf of the revenue that there is nothing in the assessment order to show that the Assessing Officer took an informed decision after weighing the various possibilities or views that can be validly taken in respect of the assessee's claims. It was argued that the Assessing Officer ought to....
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....ssment back to the Assessing Officer asking him to decide the issue afresh. In doing so, he had observed that the issue whether such income was assessable as business income or as property income was debatable. In this background, it was held by the High Court that merely because the CIT had made an observation that the issue was debatable, his power to invoke section 263 cannot be struck down if the action under that section was actually based on the fact that the Assessing Officer had not carried out a proper enquiry into the assessee's claim. This judgement, with respect, does not seem to support the revenue in the present case because as pointed out by us earlier, the CIT in the present case has not taken action on the ground of lack of enquiry by the Assessing Officer. He has merely stated that the Assessing Officer ought not to have allowed the claims of the assessee and it has been demonstrated before us on behalf of the assessee that its claims were prima-facie allowable, having regard to the judgement of the Supreme Court in CIT Vs. Madras Auto Service (P.) Ltd., (supra) and that of the Bombay High Court in IBM World Trade Corporation Vs. CIT (supra). The present case is c....