TaxTMI 
TaxTMI 
2015 (1) TMI 1232
X X X X Extracts X X X X
X X X X Extracts X X X X
....o-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-border-insideh:.5pt solid windowtext; mso-border-insidev:.5pt solid windowtext; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-fareast-language:EN-US;} SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER For the Appellant : Dr. K. Shankar Prasad, Jt. CIT(DR) For the Respondent : Shri P. Dinesh, Advocate ORDER Per Bench ITA No.586/B/12 & CO 5/15 Ground Nos. 1, 4 & 5 raised by the revenue are general in nature and calls for no specific adjudication. 2. Ground No.2 raised by the revenue reads as follows:- "2. The CIT(A) erred in allowing setoff of short term capital loss arising on sale of shares specified in Sec.111A (those on which STT paid and the tax rate being 10%) against short term capital gain arising on other assets (taxable @ 30%) while the assessee had short term capital gain on sale of shares specified in Sec.111A and that loss set off should have been allowed ag....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the other short term capital gains which are chargeable to tax @ 30% will be Rs. 87,68,474. Thus, there is no dispute about the quantum of short term capital gain declared by the assessee. The dispute is only with regard to whether 30% rate of tax is to be paid on the short term capital gain of Rs. 87,68,474 as claimed by the AO or whether the assessee should be permitted to pay 10% tax on Rs. 55,63,501 and 30% tax on Rs. 32,04,973. 7. Before the AO, the assessee submitted that it has the option of setting off of short term losses with any other short term gains. The Assessee also relied on decision of ITAT, Mumbai decision in ITA No.3261/Mum/2007 dt. 03.06.09 in which it was held that set-off of long term capital loss with indexation is allowable against long term capital gains without indexation on the reasoning that both fall under the same head of income and such setoff is allowable u/s 70(3). This explanation was not accepted by the AO for the reasons that the decision referred to by the Assessee was with regard to long term capital loss setoff. Secondly, according to the AO the decision referred to by the Assessee takes the view that set off should be made under the same ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hargeable to income-tax and the tax on the balance of such short-term capital gains shall be computed at the rate of ten percent. (2) Where the gross total income of an assessee includes any short term capital gains referred to in sub-section (1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains. (3) Where the total income of an assessee includes any short-term capital gains referred to in sub-section (J), the rebate under section 88 shall be allowed from the income-tax on the total income as reduced by such capital gains. Explanation. -For the purposes of this section, the expression 'equity oriented fund" shall have the meaning assigned to it in the Explanation to clause (38) of section 10." "Sec 70: Set off of loss from one source against income from another source under the same head of income. 70. (1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than "Capital gains", is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....capital gains were subject to low incidence of tax earlier and therefore losses from transfer of short term capital assets can be set off against any capital gains whether short term or long term arising from transfer of long term capital asset. Section 70 as amended by Finance Act, 2002 rectifies this anomaly by amending the law to provide that long term capital loss alone be set off against long term capital gain. It was submitted by him that this being the spirit behind the provisions, on the same analogy, claim of the assessee for set off as made in the return of income was rightly rejected by the AO. It was also submitted by him that decision of the Hon'ble Gujarat High Court in the case of Mahendra Kanhaiyalal HUF 202 ITR 701 (Guj) and decision of Hon'ble Calcutta High Court in Punjab Produce & Trading Co. Ltd. 159 ITR 376 ( P & H) on which the ld. CIT(A) placed reliance are claims set off under different provisions which are not pari materia with section 111A of the Act. 13. We have considered his submissions and are of the view that the same are not acceptable. A perusal of the provisions of section 70(2) clearly shows that if there a short term capital loss, the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was filed before the AO by the Assessee. The AO was of the view that the lease rent paid for the land by the Assessee to Suzlon which is included as part of cost of windmill will not qualify for allowing depredation. The Assessee submitted before the AO that land is an integral part of wind mill without which it cannot be installed. The AO did not agree with the stand taken by the Assessee. As per I.T.Rules, depreciation @ 80% is allowable only on renewable energy devices being wind mills and any specially designed devices which run on wind mills. According to the AO, it is only the machinery that is eligible for depreciation. According to the AO, the assessee may capitalize expenses incurred for delivery and installation of machinery as these expenses relate to acquisition of asset. As far as land is concerned, the AO was of the view that the same may be necessary for installation of windmill but land was a different category of asset. According to the AO, if the assessee's logic is extended, then in case of block of any buildings, the land cost should be included for depreciation claim since without land, the building cannot exist. In the opinion of the AO that was not the inten....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s payment for acquiring the lease-hold rights of the land on which the windmills were erected may kindly be directed to be allowed as a deduction under Section 37(1) of the Act." 18. There is a delay of about 2 years and 3 months in filing the CO. It has been submitted in the affidavit in support of petition for condonation of delay that recently assessee came to know that Bangalore Bench of the Tribunal in the case of M/s. V.S. Lad & Sons v. ACIT, in ITA Nos. 18 to 20/Bang/2013, for A.Ys. 2006-07 & 2007-08, by order dated 13.6.2014, while dealing with an identical issue raised in the CO, whether depreciation can be claimed on land taken on lease on which windmill is erected, held that depreciation on land cannot be allowed, but nevertheless allowed alternative plea of considering the expenditure in the form of upfront payment of lease charges of the land as a revenue expenditure allowable u/s. 37(1) of the Act. It is the further claim in the affidavit that alternative plea was not taken by the assessee and in view of the subsequent development of law, assessee should be permitted to raise alternative plea. 19. We have considered the grounds on which the condonation of delay in f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lease rent for the land sub-leased to the assessee so that the windmills can be installed on hillock. In other words, the lease rent charged for the entire period of 30 years of lease was also included as part of the machinery in the bills raised by Suzlon. The assessee while claiming depreciation included the charges paid for leasehold rights over the land, apart from the cost of machinery and claimed depreciation. According to the assessee, the leasehold rights over the land would also constitute plant on which depreciation should be allowed. According to the assessee, taking into consideration the peculiar facts of the case, where hilly terrain and mountains are required for the use of the windmills, the consideration paid for acquiring the leasehold rights over the land should also be considered as a payment made for acquisition of a plant. Alternatively, the assessee claimed that the expenditure in question is revenue expenditure and should be allowed as a deduction u/s. 37(1) of the Act. 28. According to the revenue, acquiring a right over the land and cost paid for such acquisition cannot be equated with the consideration paid for acquiring a plant. According to the revenu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....riod, the leased land reverts back to Government of Karnataka and this aspect is not material for deciding the issue as to whether the land forms part of the tool with which the assessee carries on its business. 32. The ld. counsel for the assessee placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. B. Venkata Rao, 243 ITR 81. In the aforesaid decision, the question for consideration was as to whether a building which was specifically designed and equipped to function as nursing home would constitute plant to entitle depreciation at a higher rate of 10%, instead of being considered as a building on which the lesser rate of depreciation was alone to be allowed. The Hon'ble Supreme Court applied the functional test and came to the conclusion that the building constituted a plant. Following observations were brought to our notice:- "Reference was made to an earlier judgment, where also the functional test approved by this court in several decisions was applied. It was held that if it was found that the building or structure constituted an apparatus or a tool of the taxpayer by means of which business activities were carried on, it amounted to a "plan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llowed as revenue expenditure in the year of payment. 34. In the case of HMT Ltd. (supra), the facts were that the assessee entered into an agreement with MIDC for lease of a plot of land owned by MIDC in favour of the assessee. The lease was for a period of 95 years. The assessee was required to construct a building thereon within two years and pay a monthly rent of Rs. 1 per annum. After the expiry of lease period, the plot together with building would revert to MIDC. The assessee had to pay a sum of Rs. 12,09,200 as premium for acquiring leasehold rights. The question before the Hon'ble High Court was as to whether the aforesaid premium paid was a revenue expenditure or capital expenditure. The Hon'ble Court held that while paying a lump sum premium to MIDC, the assessee was in effect paying future rents payable by it periodically. The Hon'ble High Court held that the expenditure was revenue in nature, as it merely facilitates the assessee's trading operations and the test of enduring benefit should not be applied. 35. The ld. DR relied on the order of the CIT(Appeals). 36. We have given a very careful consideration to the rival submissions. On the issue whether the paym....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s as nothing but rent paid in advance. The rent paid in advance was for acquiring leasehold rights over the land. Such payment had been considered by the Hon'ble Court as revenue expenditure. In view of the aforesaid decision of the Hon'ble High Court which is in pari materia with the facts of the present case, we are of the view that the lump sum rent paid for the entire period of 30 years has to be considered as revenue expenditure. The CIT(A) wrongly distinguished this decision as a case of lease of factory building. We therefore accept the alternative prayer of the assessee. Thus, the relevant grounds of appeal in all the three assessment years are treated as allowed on the alternative ground." 21. The ld. DR, however, placed reliance on the decision of Hon'ble Delhi High Court in the case of GAIL India Ltd. v. JCIT, (2012) 27 taxman.com 97 (Del). In that case, the facts were that assessee took on lease land from municipality for 60 to 95 years. It paid heavy premium and nominal rent for lease. Assessee was entitled to transfer benefit of lease to another party with the previous consent of municipality. The assessee claimed premium paid by amortising it over the period of ....