AI Drafter 
TaxTMI 
TaxTMI 
2017 (3) TMI 28
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....e. (iii) In the present case, Ld. AO during the course of the original assessment proceedings had called for the justification from the Appellant as to why depreciation claimed on "Infrastructure Usage Facility" should be allowed to the Appellant and in consideration thereto the Appellant had duly made submission to the Ld. A.O. in the original assessment proceedings. Therefore, during the course of the assessment proceedings, the ld.AO had raised the query and received the reply from the Appellant and he had examined the claim of depreciation on "Infrastructure Usage Facility" and accordingly the Ld. AO accepted the claim of such depreciation after applying his mind and no disallowance of the same was made in the original assessment order. Therefore, the Ld. Pr. CIT has grossly erred in law in holding that the order passed by the Ld. A.O. was erroneous without appreciating the facts that the Ld. A.O. had framed his opinion by applying his mind and therefore revisions proceedings ought not to have invoked by the Pr. CIT to review the assessment order. (iv) The Ld. Pr. CIT has erred in law and on facts of the case in not appreciating the facts that since the incept....
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....nd therefore, the revisions proceedings were unwarranted in the present case. (xi) Alternatively and without prejudice to the grounds raised here, Ld. Pr. CIT has grossly erred in setting aside the order of assessing officer by directing to the Assessing Officer to reframe the Assessment after conducting necessary inquiry, instead of merely issuing a direction limited to reframe only the appellant's claim of depreciation on infrastructure usage facility as intangible asset made and allowed in original assessment. (xii) Ld. Pr. CIT has erred in not considering various facts, submissions, explanations and clarifications as given by the appellant and further erred in not appreciating the facts and law in their proper perspective. 2. The facts of the case are the assessee is engaged in the business of Operating container handling terminal and container freight station operations. The various arising out of the scrutiny of accounts of the assessee during the course of assessment proceedings are discussed in the subsequent paras. 3. Thereafter, Assessing Officer issued a notice u/s.142(1) of the Income- tax Act was served to the assessee with following quarries: ....
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.... Exp. of Rs. 284775/- has been debited in the profit and loss account. Please justify the allowability of the expenses in relation to your business in accordance of the provisions of the Income-tax Act, 1961 alongwith evidences. 10. On perusal of the breakup of Interest and Finance Charges, it is found that 'Loan Agency Charges of Rs. 2,83,46,695/- has been debited in the profit and loss account. Please justify the allowability of the expenses alongwith documentary evidences. Also furnish the evidence in respect of TDS made thereon and deposited in the Govt. A/c.' 11. Please furnish the details of the Rent, Advertisement, Audit Fee, Interest and Legal & Professional, Consultancy Expenses strictly in the following format: Name of the party Nature of Payment Amout paid Date of Payment Amount of TDS made, if any. Challan No.& Date on which TDS deposited in to Govt. A/c. Reasons for non- deduction of tax at Source alongwith evidences. Please ensure that your submission is supported by proper evidences. Hearing of your case is fixed on 08/02/2013 at 12:00 PM. In the e....
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....e is considered to be an intangible asset. Similarly the right given to the assessee to access the port to carry out the terminal operations. It may be noted that right from inception of the company, i.e. A.Y. 2004-05 the depreciation claimed on the very same infrastructure facility has been verified and allowed. It is not out of place to mention here that during the course of assessment proceedings for A.Y. 2004- 05, the then DCIT, Circle-1, Ahmedabad on the basis of the material submitted along with all the evidences including the copy of agreement dtd.05/06/2003 with detailed submission and the case laws on the subject has been cited before the A.O. and on the basis of the material on record, the then Assessing Officer has completed the assessment u/s. 143(3) of the I.T. Act for the A.Y. 2004-05 and onwards and allowed the claim of depreciation on infrastructure usage facility. Further we submit that the said written down value of infrastructure usage facility is shown since A.Y.2005-06 on which the depreciation has been claimed. To simplify the matter, we are producing the definition of lease and, easement as defined under Transfer of Property Act. Le....
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.... thereof the dominant owner; the land on which the liability is imposed is called the servient heritage, and the owner or occupier thereof the servient owner. Explanation.-In the first and second clauses of this section, expression "land" includes also things permanently attached to earth: the expression "beneficial enjoyment" includes also possible convenience, remote advantage, and even a mere amenity; and the expression "to do something" includes removal and appropriation by the dominant owner, for the beneficial enjoyment of the dominant heritage, of any part of the soil of the servient heritage or anything growing or subsisting thereon. Illustrations (a) A, as the owner of a certain house, has a right of way thither over his neighbour Bs land for purposes connected with the beneficial enjoyment of the house. This is an easement. (b) A, as the owner of a certain house, has the right to go on his neighbour Bs land, and to take water for the purposes of his household out of a spring therein. This is an easement. (c) A, as the owner of a certain house, has the right to conduct water from Bs stream to supply the fountains in the garden a....
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....s not the owner of tangible and visible assets. However, there is no bar on it if it wants to transfer the licenses granted by this. Again, for allowing depreciation perfect title and legal ownership is not required. If the asset is used and payment is made depreciation is allowable. 5. During the year under consideration, the assessee company had entered into International Transaction with its Associated Enterprises. The assessee had furnished the details of transactions as per Annexure-2 of Form No.3CEB. The assessee has shown the details reimbursement of expenses made, payment of interest on loan and Guarantee provided by its one of the Associated Enterprises. 6. On perusal of the Audit report in Form No.3CEB submitted by the assessee during the course of assessment proceedings, it is found that the assessee had entered into International Transactions of Rs. 96,87,18,312/-. Therefore, a reference was made to the Director of Income-Tax (Transfer Pricing), Ahmedabad vide letter dated 29.12.2011 for computation of Arm's Length Price in relation to International Transaction, detailed in Audit Report in Form No.3CEB. The Transfer Pricing Officer (TPO) after examining the submis....
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.... @ 25% should be allowed to the assessee. For ready reference, the reply furnished to the Ld.AO vide letter dated 22.02.2013 is reproduced hereunder: "Your good self has asked details regarding why depreciation claimed on 'Infrastructure Usage Facility'@25% should not be disallowed. At the outset we submit that the infrastructure usage facility is sort of license given by Mundra Port to the assessee company to operate its container operation in Mundra Port area. The exclusive right has been given to the assessee company, which is a sort of Easement right. The Easement right is nothing but license given to the licensee to enter on another person's land with usage of infrastructure facility to carry out business activities. The assessee company has been given the right to carry out its terminal operation work. The view expressed is that such right is not similar to know how...... Franchises or any other business or commercial rights of similar nature. It is also observed that lease of premises are not covered. It is not denied that the assessee company is not the owner of infrastructure facility. In fact it is not the lessee also. It is the licensee. It has....
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....s not have such a right. Since the appellant had the right to exclusive possession and enjoyment of the disputed property, he was a lessee and not a licensee; Ajab Singh vs. Shital Puri, AIR 1993 All 138. Lease (i) If the agreement between the parties shows an intention to create an interest in the property in favour of the grantee what results is said to be a lease. A licensee on the other hand does not create an interest in property; Mrs, Karuna Manoharlal Ohri v. Vipinbhai U. Sanghani, AIR 1993 Bom 177. (ii) The furniture and fittings and the tools and implements which have been given alongwith the shop were not meant for the beneficial use of the shop but were meant exclusively for running of the hair dressing saloon, thus creating a lease of the business and not a lease of the shop; Vidya Wati v. Hansraj, AIR 1993 Del 187. Licence The Corporation had all the supervisory powers to regulate the running of the refreshment stall. No exclusive right was created in favour of the caterer to run the refreshment stall in the manner the caterer choose to do so. Since there is no transfer of interest in the stall and as per the terms of agreem....
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.... his own cattle on Bs field, or to take, for the purpose of being used in the house, by himself, his family, guests, lodgers and servants, water or fish out of Cs tank, or timber out of Ds wood, or to use, for the purpose of manuring his land, the leaves which have fallen from the trees on Es land. These are easements. (e) A dedicates to the public the right to occupy the surface of certain land for the purpose of passing and re-passing. This right is not an easement. (f) A is bound to cleanse a watercourse running through his land and keep it free from obstruction for the benefit of B, a lower riparian owner. This is not an easement. Thus, it will be seen that the assessee is not the lessor of the premises. It is only a license by way of easement given to it to carry on business of container terminal services and also other allied services, It is required to pay regular royalty of revenue nature also. Thus, it is nothing but a license which is in the nature of commercial right. The depreciation is claimed on the license i.e. right to use the infrastructure facility. It may be noted that licenses, franchisees, etc. are categorized as intangible a....
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....industan Coca-Cola Beverages Pvt. Ltd. - 331 ITR 192 has held that goodwill also a commercial right entitled for depreciation. It has been held that it is similar to patent copyrights, etc. Goodwill is also an intangible asset ii. ITO vs. Medicorp Technologies India Ltd. 122 TTJ 394 (Chennai): Held that Non compete right acquired by the assessee company is eligible for depreciation under clause {ii} of section 32(1) as intangible asset being of the same nature as business/commercial right of patent etc. iii. ONGC Videsh Business Ltd. vs. Dy.CIT -127 TTJ 497 (Del.) - License for carrying on hydrocarbons operations - Commercial rights of exploration of mineral oils acquired by assessee entering into production sharing agreement with the Russian Government fall under the expression 'any other business or commercial rights of similar nature' same being akin to 'license' as stipulated in s. 32(l)(ii) and therefore, they are in the nature of intangible assets eligible for depreciation at the prescribed rate. - Held -Hydrocarbons In their natural habitat embedded in a particular territory are the property of the State Government, jurisdiction ove....
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....lar to one of the categories i.e., license as the assessee being in the nature of intangible assets are eligible for the claim of depreciation at the rate prescribed under S. 32(l)(ii). The AO himself in his order had observed that as a result of entering into such an agreement i.e. PCA, the assessee company has been granted licenses by Russian Government to explore and produce hydrocarbons In the agreement area. There is no dispute to the fact that assessee has Incurred expenditure of Rs. 1,599.09 crores for obtaining the right and license for exploration of oil. It is not possible to say that such expenditure was neither capital nor revenue in nature. If it is held to be capital, then it is obvious that what the assessee has acquired was a participating right which is in the nature of commercial right of carrying on of business of exploration and production of mineral oil. It also cannot be said that the right so acquired was not an asset. If it is an asset being the right then it is obvious that same is commercial right, therefore, in the nature of asset in the form of license. This right had been granted to the assessee by way of license and the assessee became owner of such ri....
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....l collection was granted. It was immaterial whether the license was granted far a specified time or forever. vi. Reliance Ports & Terminals Ltd. [IT Appeal Nos.1743, 1744 & 1745 (Mum.) of 2007, dtd. 26/11/2007], it was held that in a case where the assessee has a right to use the jetty and a concession was availed, then such commercial rights is an intangible asset. Following the said decision, it was to be held that the assessee's right in question was an intangible asset on which depreciation was allowable under section 32(l)(ii). vii. Recently the Bombay High Court in the case of Birla Global Assets Finance Co. Ltd, in ITA No, 6835 of 2010 held that business and commercial brand equity is an intangible assets and therefore, the depreciation claim on the same is allowable under section 32 of the I.T. Act, 1961. The contention of the department was that intangible assets like business and commercial brand equity are goodwill on which depreciation is not allowable. The Bombay High Court has followed the Supreme Court's ruling in the case of CIT, Kolkata vs. Smifs Securities Ltd. (2012) 24 taxmann.com 222 (SC) wherein it has been held as under: I. ....
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....stomer lists, marketing strategies and software, etc., relating to Western Union business - Whether since assessee paid consideration for purpose of enhancing its network in field of money transfer business by acquiring rights over infrastructure and other advantages attached to marketing network, same fell under category of Intangible asset' as contemplated under section 32(l)(ii) and, thus, assessee was entitled to claim depreciation in respect of said expenditure - Held, yes [In favour of assessee]" Thus, the narrow view cannot be taken in respect of "commercial right of similar nature". In fact, the assessee has obtained rights of license to operate container terminal services in the port area and this license is vital for carrying out its business and without this license the assessee is not in a position to run and operate their business, commercial activities.(Annexure-l)" It is most respectfully submitted that the Id. AO during the course of the assessment proceedings called for the justification from the assessee regarding allowability of depreciation of Rs,24,01,74,149/- on "infrastructure Usage facility" @ 25 % vide his SCN dated 01/02/2013, which were furni....
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.... to the assessee. It was also submitted that during the course of the assessment proceedings for A.Y.2004-05, the then DCIT, Circle - 1, Ahmedabad on the basis of material submitted along with all the evidences including the copy of the agreement dated 05/06/2003 with detailed submission and the case laws on the subject cited before the then AO and on the basis of materials on record, the then AO has completed the assessment u/s 143(3) of the Act for the AY 2004-05 and onwards and allowed the claim of depreciation on infrastructure usage facility. The Id. AO after considering the factual and legal submission as furnished by the assessee, he did not make any disallowance. Having regard to the said facts of the case, the entire issue Is covered by the various decisions of the Gujarat High Court and other High Courts which holds that once the assessing officer examines a certain claim of the assessee in the assessment proceedings, raises queries, receives replies, but thereafter makes no addition or disallowances, without giving reasons, it would not be permissible to assume jurisdiction u/s 263 of the Act to revise the assessment, merely on the ground that the assessing offi....
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....ven by the Mundra Port to the assessee company to operate its container operations in Mundra Port area. The exclusive right has been given to the assessee company is nothing but the Easement right whereby the license is given to the licensee to enter into another person's land with usage of infrastructure facility to carry out business activities. Such rights are commercial rights, which is intangible assets as per S.32(l)(ii) of the Act on which the assessee is eligible to claim depreciation. Reliance is further placed on the Delhi High Court decision in the case of CIT vs. Hindustan Coco Cola Beverages Pvt. Ltd. 331ITR 192. When the assessing officer is allowing such depreciation consciously since A.Y.2004-05 till A.Y.2011-12, and when the view adopted by the AO is one of the plausible views, it cannot be said that the view taken by the Id. AO is erroneous. It is further submitted that he return of income was filed on 17/09/2009 declaring total loss at Rs,14,82,20,958/- and the assessment was also finalized at loss. It is therefore submitted that in any case there is no loss of revenue to the department and therefore the assessment order passed is not the pr....
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.... we are inclined to affirm the view taken by the Tribunal in the Instant case. While doing so, we have in mind the rationale and purpose for which the concept of block asset was introduced by the amendment in the provisions of the Act, as reflected in the Circular dated 23-9-1988 of the CBDT, Intention behind these provisions is apparent. Once the various assets are clubbed together and become block asset within the meaning of section 2(11) of the Act, for the purpose of depreciation, it is one asset. Every time, a new asset is acquired, it is to be thrown into the common hotchpotch, i.e., block asset on meeting the requirement of depreciation allowable at the same rate. The value of the block asset increases and the depreciation is to be given on the aforesaid value, which is to be treated as written down value. Individual assets lose their identity from that very moment it becomes inseparable part of block asset Insofar as calculation of depreciation is concerned. Fusion of various assets into the block asset gets disturbed only when eventuality contained in clause (iii) of section 32 takes place, viz., when a particular asset is sold, discarded or destroyed in the previous year ....
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....ar. Since it is not in dispute for the year in question and block of assets was used, the assessee was rightly given the benefit of depreciation in the years in question. The question stands answered against the revenue. 10. The explanation given by the assessee did not meet any of the defects pointed out with regard to the wrong depreciation claimed any allowed by the A.O. At any rate, the records do not show that the A.O. has looked into these aspects on arriving judiciously at the decision during the course of assessment proceedings. Depreciation is allowed to an assessee mainly as per provisions of Section 32 of the Income Tax Act, The relevant portion reads as under: 32 (1) in respect of depreciation of------------- (ii) Know how, patents, copy rights, trade marks, licenses, franchises or any other business or commercial rights of similar nature----------- owned, wholly or partly, by the assessee and used for the purposes of the business or profession ---------. From the above it can be seen that the depreciation is available to intangible assets but of the type specified in section 32(1)(ii) and such assets should be owned, wholly or ....
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....facility. In fact it is not the lessee also. It is the licensee. It has got the right to use and maintenance service of certain infrastructure facility as set out in the infrastructure usage agreement.........., (emphasis added) From the above we can see that the assessee has initially made out a case that the asset in question is a sort of license. It can be seen from the wordings itself that the assessee is not sure whether it is a license. Thereafter it makes a claim that the asset in question is an Easement right - in the words of the assessee, again, "A sort of Easement right," Apparently this is because even as per the assessee's submissions "infrastructure usage facility" cannot partake the character of a license because a license does not create an *Interest in property [Mrs. Karuna Manoharlal Ohri v. Vipinbhai U. Sanghani, AIR 1993 Bom77] and hence claiming such facility to be a license would have resulted in the assessee being denied of depreciation as not having an interest, it would also not be owner of such facility as required u/s. 32. Then comes the question as to whether it is an Easement right as is now being claimed. Easement rights are related to lan....
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.... examining the records as indicated above. During this particular stage of consideration, there is no question of the assessee appearing or making any submission. If after calling for and examining the records the Pr./Commissioner "considers" that the order of the AO is erroneous, in so far as it is prejudicial to the interests of the revenue. 16. The third condition of section 263 comes into operation, after these two stages, which are purely administrative. The proceeding in the next stage, which is the third stage, acquires quasi-judicial character. The third stage requires him to do what is stated in the statue: "he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment". This requires that Pr/Commissioner must give the assessee an opportunity of being heard. It also confers on the Commissioner the power to cause or make such inquiry as he deems necessary. 17. The fourth condition under section 263 is the powe....
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....rt thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act if it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) It cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same. 20. In the recent decision of the Apex Court in the case of CIT Vs. Amitabh Bachchan, the Supreme Court held on the issue of show cause by CIT in the case of 263 proceedings as under: "Under the Act different shades of power have been conferred on different authorities to deal with orders of assessment passed by the primary authority. While Section 147 confers power on the Assessing Authority itself to proceed against income escaping assessment, Section 154 of the Act empowers such authority to correct a mistake apparent on the face of the record. The power of appeal and revision is contained in Chapter XX of the Act which includes Section 263 that confer suo motu power of revision in the learned C.I.T(A). T....
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....ng to be afforded to the assessee. (emphasis added) Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. Reference in this regard may be illustratively made to the decisions of this Court in Gita Devi Aggarwal vs. Commissioner of Income Tax, West Bengal and others 1 and 1(1970) 76 ITR 496 in The C.I.T., West Bengal, II, Calcutta vs. M/s Electro House2. Paragraph 4 of the decision in The C.I.T., West Bengal, II, Calcutta vs. M/s Electro House (supra) being illumination of the issue indicated above may be usefully reproduced hereunder: "This section unlike Section 34 does not prescribe any notice to be given. It only requires the Commissioner to give an opportunity to the assessee of being heard. The section does not speak of any notice. It is unfortunate that the High Court failed to notice the difference in language between Sections 33-B and 34. For the assumption of jurisdiction to proceed under Section 34, the notice as prescribed in that section is a condition precedent. But no such notice is contemplated by Section 33-B. The jurisd....
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....ection (Section 263) to raise the said notice to the status of a mandatory show cause notice affecting the initiation of the exercise in the absence thereof or to require the C.I.T. to confine himself to the terms of the notice and foreclosing consideration of any other issue or question of fact. This is not the purport of Section 263, Of course, there can be no dispute that while the C.I.T. is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the C. I. T. prior to the finalization of the decision." The Apex Court held in the aforesaid judgment that the issuance of show cause notice is not mandatory and only the principles of natural justice is required to be followed. The Apex Court also held that enquiry should also be completed on the issue which requires investigation and incomplete investigations is prejudicial to the interest of the revenue. 16. On the other hand with regard to depreciation amounting to Rs. 24,01,74,149/- claimed on "Infrastructure Usage Facility" ....
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....cluding the copy of agreement dtd.05/06/2003 with detailed submission and the case laws on the subject has been cited before the AO and on the basis of the material on record, the then Assessing Officer has completed the assessment u/s.143(3) of the IT Act for the A.Y. 2004-05 and onwards and allowed the claim of depreciation on infrastructure usage facility. Further we submit that the said written down value of infrastructure usage facility is shown since A.Y.2005-06 on which the depreciation has been claimed. To simplify the matter, we are producing the definition of lease and easement as defined under transfer of Property Act. 21. In the case of Techno Shares & Stocks Ltd. Vs. CIT - 327 ITR 323 (SC), wherein the Apex Court has held that membership card is entitled to depreciation. Here it is noteworthy that even though floor of exchange was owned by the stock exchange on the basis of right to use the floor of exchange, the depreciation was granted to the member. It was held that right of membership was license or akin to license and had a commercial value. The court also clarified that even though there was a clause that in case of default, the right would vest with ....