TaxTMI 
TaxTMI 
2022 (6) TMI 1018
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....sessee in respect of Iron Ore rights, without appreciating the fact that the shareholders of RRS Minerals i.e., Mr. Bharat Bussa and Mrs. Rita Bussa who got 15.75 crores each as per the agreement dated 15.10.2009 were not having any right and the so called right for purchase of iron ore was with the company i.e. RRS and not with the shareholder and the assessee has never bought the business rights from RRS on which assessee is claiming depreciation? 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in directing the AO to delete the disallowance of depreciation of Rs. 4,44,07,662/- claimed by the assessee in respect of Iron Ore rights, without appreciating the fact that the decision of the Hon'ble Supreme Court in the case of Mysore Minerals Ltd. vs. CIT (1199) 101 Taxman 166 (SC) is distinguishable from the facts of the instant case under consideration as the assessee has never bought the business rights from RRS on which assessee is claiming depreciation? 3. (a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in directing the AO to delete the disallowance of depreciation of Rs.4,....
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....gible asset'. In the assessment proceedings, the assessee has been asked to furnish the details of the same and its explanation for allowability of the claim of depreciation on such rights. 6.2 In response, the assessee company vide its AR's letter dated 8/2/2016, 11/3/2016 and 21/3/2016 submitted the details and the explanation, as per which, the assessee company has taken over the company RRS minerals resources private limited which had exclusive Iron ore rights in respect of Iron ore extracted from the mines owned by Messer's M S Gharse minerals ( MSMG). The assessee submitted agreement dated 9/8/2006 and entered into by the erstwhile mine owners MSMG through which RRS acquired exclusive right on a long-term in respect of purchase of Iron Ore extracted by MSMG. The assessee had paid Rs. 11.30 crores to MSG M for acquiring the long-term rights to purchase the Iron ore extracted by MSG M at a predetermined rate until the year 2027. The assessee further submitted that vide agreement dated 14/10/2009, the assessee company acquired shares of the promoters of RRS. By Virtue of 100 % holding of RRS, it becomes wholly owned subsidiary. The assessee company thereafter approached....
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....urt order of merger of RRS with the assessee company and consequently, no asset would be remaining on which assessee could claim depreciation. v. There is a clear difference between the amount paid to RRS and the shareholders of RRS. The amount paid to company is for the purchase of long-term intangible right to purchase Iron Ore at a predetermined rate from MSG are an amount paid to shareholder of RRS is to purchase the company. vi. Assessee submission regarding capitalization of the amount paid to shareholder of RRS is not acceptable and not found to be tenable as no asset is created apart from investment in shares and on such assets no depreciation can be claimed or allowed." 07. Accordingly, the learned assessing officer computed the disallowance on proportionate basis on Rs. 31.58 crores. He computed that Total Depreciation claimed is Rs. 65,940,884/- on total expenditure incurred of Rs. 46,89,12,953/-. Ld AO computed that expenditure on which depreciation is not allowable is Rs. 315,787,820 and therefore proportionate depreciation of Rs 4,44,07,662/- [ 6,59,40,884/- *31,57,87.820/ 46,89,12,953] is disallowed. 08. Assessee aggrieved with the....
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....mmencement of Iron Ore business. (B) 4. Total Costs capitalized as intangible Assets being in the nature of depreciable Commercial rights (A.Y. 2011-12) (A+B) 153,225,133 3. The AO has accepted in principle accepted acquisition of Commercial business rights in the form of rights to procure Iron Ore at a pre-determined price for a period upto the year 2027. The AO has also accepted that these rights are Intangible Assets and has allowed depreciation in respect of Furthers costs of Rs. 153,225, 133 incurred. The AO however has disallowed depreciation in respect of costs of Rs. 315,787,820 incurred to acquire RRS from its promoters. Accordingly, the AO has disallowed depreciation of Rs. 4,44,07,662 out of total depreciation of Rs. 6,59,40,884 claimed by the appellant in respect of Iron Ore rights. The disallowance has been made in proportion of Costs of acquisition of RRS to Total Costs of acquisition. In para 6.3 of the assessment order, the AO has discussed reasons for the disallowance which are however contrary to the facts and prevalent applicable laws. 4. By virtue of acquisition of RRS from its promoters, RRS became wholly owned subsidiary of....
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....the allowability of the claim of the same, the assessee company contended before the assessing officer that it had taken over the company RRS Mineral Resources Pvt. Ltd. (RRS) which had exclusive Iron Ore rights in respect of Iron Ore extracted from some Iron Ore mines at Goa, owned by one M/s M.S. Gharse Minerals (MSGM.) Brief facts of the case are that through an agreement dated 09.08.2006 entered into by RRS and mine owners MSGM, RRS acquired exclusive rights for a long term in respect of purchase of iron ore extracted by MSGM for a consideration of Rs.11.30 crores. Thereafter, vide agreement dated 14.10.2009, the assessee company acquired shares of RRS thereby becoming wholly owned subsidiary for a consideration of Rs.31.50 crores. Subsequently, Hon'ble Bombay High Court vide Order dated 15.10.2010 permitted merger of its wholly owned subsidiary w.e.f 15.10.2009. The assessee company capitalized all these deposits and other expenses aggregating to Rs.46.89 crores as Iron Ore Rights during A.Y.2011-12. The said rights are, therefore, treated as Intangible assets and subsequently, depreciation at the rate of 25 % has been claimed by the assessee from the year A.Y.201....
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....009 which are reproduced as under:- "(i): In the premises M/s. RRS Minerals Resources Pvt. Ltd (the company) is holding buying and selling rights in respect of Iron Ore/ Fines extracted out of mines known as Garco Mines at ZamblimolachoSoddo' situated at Muguli and CostiSarvoderm, Goa, as per the terms of Memorandum of Agreement dated 28 July 2006 and an agreement dated 9 August, 2006. (i): The purchasers being interested to acquire the business and the aforesaid rights of the company (i.e. RRS) of buying and selling rights in respect of Iron Ore/ Fines extracted out of mines known as Garco Mines at Zamblimolacho Soddo! situated at Muguli and Costi Sarvoderm, Goa, is required to acquire the entire paid up share capital and control over the company and thereby the business and aforesaid rights (rights of buying and selling rights in respect of Iron Ore/ Fines extracted out of mines known as Garco Mines at Zamblimolacho Soddo) of the company." 3.2.6 The AR by placing his reliance on these covenants submitted that the appellant company always intended to acquire the business and the aforesaid intangible rights and the payment made to buy the said company....
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....y the appellant has been allowed. Same was the case for AY 2011-12, where the assessment was although completed under section 143(1) of the Income Tax Act, 1961. 3.2.10 The AO while making the disallowance was primarily of the view that the shareholders of the company did not have any intangible right with them and therefore they could not have sold those rights. The AO was predominantly of the View that the payment to shareholders of RRS was made for making investment in shares of RRS and not for buying any intangible rights from them. 3.2.11 It is however observed from the agreement dated 14/10/2009 that the said agreement was a tripartite agreement wherein the company RRS was also a party to this agreement. In that agreement, the company RRS which was holding valuable rights was also a party to each of the covenant therein and was also accordingly liable to act upon and implement the same. It is further noticed from the covenants in clause (i) and (i) on page 5 of the agreement that the appellant has specifically conveyed its interest of acquiring the business and the intangible rights of exclusively buying and selling of Iron Ore extracted from the mines known....
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....n in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the appellant-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings, for the purpose of its business in its own right. Still the assessee has been denied the benefit of section 32. On the other hand, the Housing Board would be denied the benefit of section 32 because in spite of its being the legal owner it was not using the building for its business or profession. We do not think such a benefit-to-none situation could have been intended by the Legislature. The finding of fact arrived at in the case at hand' is that though a document of title was not executed by the Housing Board in favour of the assessee, but the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee where ....
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....set includes any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons, or by way of any agreement or in any other manner whatsoever). This has the effect of transferring or enabling the enjoyment of immovable property. The ratio of this judgment could also be applied to the case at hand where valuable rights have been acquired through acquisition of shares of the company RRS. 3.2.15 in the matter of Madhukar C. Ashar v. Union of India [2016] 69 taxmann.com 221 (Bombay), Hon'ble Bombay High Court has held that where there is no change in facts and in law, past practice followed and accepted by the revenue cannot be allowed to be changed. Same was the position of law declared by the Supreme Court of India in the matter of Bharat Sanchar Nigam Limited v. UOI [2006] 282 ITR 273 (SC). In para 6 of the order, Hon'ble Bombay High Court held as under: "6: We find that the impugned order of the CIT completely ignores the past practice accepted by the revenue in orders passed under section 143(3) of the Act taxing the income of the AOP on allocation in the hands of its individual....
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.... not pointed out that the orders passed in earlier years are per incuriam or could be distinguished for valid reasons. 3.2.16 In the matter of CIT V. Smifs Securities Limited [2012] 24 taxmann.com 222(SC), the Supreme Court has held that depreciation on similar facts is to be allowed. In this case, one 'YNS Shares and securities Pvt. Ltd. was merged with the assessee company. The assessee paid consideration over and above the net value of assets acquired and claimed the amount so paid in excess of value as Intangible assets in form of Goodwill and claimed depreciation in that regard. The Supreme Court of India in para 6 of the order has affirmed the findings of lower authorities that the difference between cost of an asset and the amount paid constituted goodwill and that the assessee company in process of amalgamation has acquired a capital right in the form of goodwill because of which the market worth of the assessee company stood increased. The ratio of this judgment squarely covers the issue at hand. In the case of this appellant, it has paid Rs. 31.50 Crores to acquire business and intangible rights in the form of exclusive buying and selling rights for Iron Ore.....
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.... Crores is merely to buy shares of the company RRS and thus, no assets eligible for depreciation have been created, which is not a proper view on the basis of facts and the evidence on record as discussed above. Therefore, the AO is directed to delete the disallowance of depreciation of Rs 4,44,07.662/- claimed by the appellant in respect of Iron Ore rights These grounds of appeal are allowed." 09. Thus, LD AO is aggrieved with the order of the learned CIT - A is in appeal before us. 010. The learned department representative referred to paragraph number 6.3 of the assessment order. He submitted that there were two payments made by the assessee. There is no dispute on allowability of depreciation on a sum of Rs. 11.30 crores paid by the assessee to MSMG for buying the rights of purchasing iron ore. The dispute is with respect to payment of Rs. 31.58 crores paid by the assessee company to the shareholders of RRS minerals private limited for purchase of shares of that company. He submitted that 'shares' cannot be classified as an intangible asset on which depreciation can be allowed. He submitted that shares are not an intangible assets referred to under the provisions of Secti....
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....mpany was having intangible assets in the form of Purchase rights of Iron ore. Therefore, assessee in substances did not acquire shares but intangible assets in form of purchase rights of Iron ore. He stated that the dispute is whether depreciation is allowable on this sum or not. He further stated that assessee has also paid Rs. 11 crores on 24/11/2009 for acquiring the commercial right [of exclusive purchase of iron ore from Gharse Mines] from Gharse family who were owners of the mine and there is no dispute of depreciation on the same. He also referred to several other payments made by the assessee on processing fees, stamp duty charges and interest paid which resulted into a total payment of Rs. 469,012,953/- for acquisition of iron ore rights. From the above sum nominal value of the share capital of Rs. 1 lakh is reduced, which is cancelled on the account of merger and therefore the total cost of iron or rights is Rs. 468,912,953. This was capitalized in balance sheet and in depreciation schedule for income tax purposes first in AY 2011-12. The LD AO allowed this claim of assessee u/s 143 (1) rws 154 of the Act. He extensively referred to the contract agreement dated 9/8/2006 ....
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....not be any question for not allowing the depreciation on the opening amount of WDV of the asset, so long as it continues to be used for the business of the assessee. He further referred to the decision of the honourable Bombay High Court in case of CIT versus Sonic Biochem Extractions Private Limited In Income Tax Appeal Number 2088 of 2013 dated 17th number 2015 to substantiate that the 'user test' is required to be satisfied only at the time of the purchase of plant and machinery when it first becomes the part of the block of the assets for the first time and not subsequently. He therefore submitted that the claim of the assessee has been correctly allowed by the learned CIT - A. accordingly, the appeal filed by the learned assessing officer deserves to be dismissed. 012. We have carefully considered the rival contention and perused the orders of the lower authorities. Even at the cost of repetition, but in order to bring clarity on the facts, certain documents placed before us requires to be appreciated. 013. Firstly on 9/8/2006 an agreement was entered into between M/s M S Gharse minerals, a partnership firm which is identified as a 'seller' with another company Messer RR....
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....s resources private limited, (now the assessee) wherein Rs. 11 crore were paid as nonrefundable advance for purchase of Iron Ore. the agreement is also known as agreement for sale and purchase of Iron Ore. 017. There are certain other expenses incurred by the assessee or Other parties with which we are not concerned. 018. The undisputed facts show that there is no dispute between the parties on allowability of depreciation on payment of Rs. 11 crores as per agreement dated 24/11/2009. 019. The only dispute is whether the depreciation is allowable to the assessee on payment of Rs. 31.58 crores made by the assessee for purchase of shares of RRS mineral resources Ltd as an intangible asset or not. 020. Provisions of Section 32 of The Income Tax Act describes that depreciation is allowable with respect to two different types of assets (i) tangible assets and (ii) intangible assets. The several assets are mentioned therein which can be stated to be intangible assets. We do not find that in 32 (1) (ii) 'shares in a company' are enlisted as 'intangible assets' on which depreciation is allowed. In the present case, what have been acquired by assessee are shares of RRS Minerals ....
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....is devoid of any merits. 024. The learned CIT - A has also accepted the plea of the assessee with respect to the consistency as in assessment year 2011 - 12 depreciation has been allowed. We find that in the guise of consistency, it can never be held that 'shares' are intangible asset on which depreciation can be allowed u/s 32(1) (ii) of the Act. Such is also not the mandate of the decision of the honourable Bombay High Court relied upon by the learned CIT - A in 69 taxmann.com 24. 025. Section 32 (1) (ii) defines intangible assets as ' know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature' . Even otherwise shares are financial assets classified as tangible assets because they derive value from contractual claims. Hence, same are not depreciable u/s 32 (1) (ii) of The Act. 026. The learned CIT - A has accepted argument of the assessee that issue is covered in favour of the assessee by the decision of the honourable Supreme Court in case of Mysore minerals Ltd [1999] 106 Taxman 166 (SC)/[1999] 239 ITR 775 (SC)/[1999] . The issue before the honourable court was that when assessee purchased for the use of....