TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 777
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....94 and 795 of 2016 have been admitted, by order dated 22.11.2016, framing the following substantial questions of law: "(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was not eligible to claim depreciation on sums paid to SIPCOT for development of common infrastructural facilities? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the common infrastructural facilities were not amenities used for carrying out the business of the Assessee ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in not holding that the assessee has acquired a commercial right to use the common infrastructure facilities for the purpose of its business and hence assessee is entitled to depreciation on such intangible asset ? (iv) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in not holding that, if the assessee was not eligible to claim depreciation on sums paid to SIPCOT, the amount was allowable as revenue expenditure." 3. Tax Appeals in TCA Nos.798 and....
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....laim of depreciation on the sum paid to State Industries Promotion Corporation of Tamilnadu Limited (SIPCOT) for development of infrastructural facilities. 6. The substantial question of law 4 arises in TCA Nos.794 and 795 of 2016 and the substantial question of law 4 along with 5 arises in TCA Nos.798 and 800 to 803 of 2018, which pertains to the alternate claim made by the assessee claiming deduction on the sum paid to SIPCOT as revenue expenditure. The substantial questions of law 6 and 7 arise only in TCA No.802 of 2018 that pertains to the claim of deduction as revenue expenditure towards the issue of rights share. 7. During the course of arguments, the learned counsel for the assessee submitted that in view of the materials placed in the enquiry, he is not pressing the appeal in respect of the questions of law 6 and 7. In view of the submissions made, the appeal pertaining to question of law 6 and 7 stands dismissed as not pressed. Substantial questions of law 1 to 3: 8. The assessee had filed the return of income for AY 2008-2009 on 30.09.2008, declaring a total loss of Rs. 15,16,36,876/-. The case was selected for scrutiny and notice under Section 143(2) was ....
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....ed the same. Though this alternate claim has not been dealt with by the Tribunal in TCA Nos.794 and 795 of 2016, in view of the same having been decided by the Tribunal in the other set of cases, which is considered by this Court in deciding these substantial questions of law, we do not propose to remand TCA Nos.794 and 795 of 2016, as the finding and decision to be rendered on this issue would govern all the cases. 13. The Tribunal had dismissed the appeals holding that to claim depreciation under Section 32 of the Act, the assessee should be the owner of the property/asset and the same should be used for the business of assessee. Unless and until the capital asset is used as a tool for carrying out the business of assessee and the assessee becomes the owner, he is not eligible for depreciation. Assailing the common orders, the assessee has preferred the above appeals. 14. Mr.R.Vijayaraghavan, learned counsel for the assessee argued that a sum of Rs. 6.20 crores paid by the assessee is for development of the infrastructure and the right acquired by the assessee is an intangible asset and as such, the assessee is entitled to claim depreciation on the sum paid, as it is a comm....
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....ssee had only claimed exemption towards the payment made to SIPCOT as development charges and had never claimed it as an intangible asset. 20. The learned Senior Standing Counsel further by relying on Section 32(1)(ii) of the Act submitted that the words 'commercial rights of similar nature' in the provision would only relate to the commercial rights of similar nature like, patents, copyrights, trademarks, licences, franchises and cannot be extended to include the amenities in the layout. Further, when the assessee does not enjoy the infrastructure absolutely and there are many establishments entitled to use the infrastructure, the assessee neither fully nor partly owns the facilities to qualify for an exemption under Section 32(1)(ii) of the Act. The authorities and the Tribunal had in detail dealt with these issues in rejecting the claim of depreciation. 21. Heard the rival submissions and considered the materials available on record. 22. The assessee is engaged in the business of manufacturing grey iron and aluminium die castings for automobiles etc., and other marine applications. The assessee had entered into a lease deed dated 10.03.2006 with SIPCOT a State Governmen....
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.... assessee had filed the return by including this Rs. 6.20 crores paid to SIPCOT towards development charges as part of the building and had claimed depreciation as a commercial right under Section 32 of the Act. The AO disallowed the claim made by the assessee, as payment made towards common infrastructural facilities cannot be treated as part of the building and it is an asset forming part of the land. 28. The CIT(A) had confirmed the assessment holding that the assessee not being the owner of the development is not eligible to claim depreciation. Further the development charges have been collected for developing the area as a whole and it does not pertain to develop any individual plot. The Tribunal had also rejected the appeal holding that the amenities are not the tools for carrying out the business of the assessee. Unless and until the capital asset is used as a tool for carrying out the business and further only in case the assessee is an owner, he would not be eligible for depreciation. When the facilities are owned by SIPCOT, the mere contribution for development of the infrastructure will not make the assessee an owner. 29. For better understanding, Section 32(1)(ii)....
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....nambiguous that the assessee has to own the intangible asset wholly or partly for the purpose of claiming depreciation, it cannot be read or interpreted in any other way. In the instant case, the assessee having only the long-term leasehold right over the infrastructural facilities is not an owner either wholly or partly owning the intangible asset. Therefore, the claim of depreciation made by the assessee under Section 32 of the Act has been rightly disallowed by the authorities and confirmed by the Tribunal. 34. In view of the above conclusion, we need not further go into the issue as to whether the commercial rights of similar nature would get restricted with the trademarks, licences, franchises etc., or would also include the rights in infrastructure developments. 35. In the decision relied on by the assessee, in the case of Techno Shares & Stocks stated supra, the Hon'ble Supreme Court held that the right of membership is akin to a licence, which would come within the term 'any other business or commercial right of similar nature' in terms of Section 32(1)(ii) of the Act and held that the same qualifies for deduction. Further, in the case of Bangalore Internation....
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....n of income. As such, since the assessee had not made any claim nor debited in the books of accounts, the alternate claim was rejected. 40. Mr.R.Vijayaraghavan, learned counsel for the assessee argued that the finding of the Tribunal that the alternate claim is rejected because the assessee never charged in its books nor claimed in the return of income is erroneous and perverse, since there cannot be a double debit. When the assessee had already claimed it as capital expenditure and when such a claim is rejected, then the alternate relief to the assessee is to be granted. In this regard, the learned counsel relied on the decision of the Division Bench of the Bombay High Court in the case of CIBA of India Ltd. Vs. Commissioner of Income Tax reported in (1993) 202 ITR 1 (Bom) for the proposition that the authorities and the Tribunal would be under duty to grant the alternate relief, when the relief claimed by the assessee is rejected for some reason. It is his further contention that the contributions made towards the development purposes, like roads and bridges, which are used for the business in which the assessee does not have a right of ownership, has to be treated as revenue ....
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....Ltd. Vs. Commissioner of Income Tax, Gujarat reported in (1992) 3 Supreme Court Cases 535; the Hon'ble Supreme Court in Brooke Bond India Ltd. Vs. Commissioner of Income Tax reported in [1997] 225 ITR 798 (SC); the Hon'ble Supreme Court in Rotork Controls India (P) Ltd. Vs. Commissioner of Income Tax, Chennai reported in [2009] 314 ITR 62 (SC), decision of the Division Bench of this Court in the case of Commissioner of Income Tax, Madurai Vs. Viswams reported in [2019] 414 ITR 148 (Madras), the decision of the Division Bench of this Court in the case of Commissioner of Income Tax Vs. K.V.Nellaiappan reported in [2022] 135 taxmann.com 223 (Madras). 46. The aforesaid decisions are mainly relied for the proposition that the betterment charges paid by the assessee and the expenditure made towards the renovation leading to enduring benefit cannot be treated as revenue expenditure. 47. Heard the rival submissions and gave our anxious consideration and perused the materials available on record. 48. The assessee had paid a sum of Rs. 6.20 crores towards development charges as per the lease deed dated 10.03.2006 which has been executed with SIPCOT in respect of 99 years long-term l....
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....ated as a capital and cannot be taken as a revenue expenditure. It is her contention that the amenities are provided for the beneficial enjoyment and additional facilities of all the industrial undertakings in common and the same does not form part of the business operations of the assessee. 51. We are not in agreement with the contention of the revenue. The development charges found in the agreement could not be narrowly considered that it is only towards amenities for beneficial enjoyment. The infrastructural facilities for which the development charges have been contributed by the assessee include roads, streets, water facilities, drainage, etc. The amenities that include parks, recreation places, canteen etc. are recreational facilities that may or may not be strictly required for the business purposes of the assessee. Whereas the infrastructural developments towards roads, streets and other facilities are basic requirements, without which the assessee will not be in a position to put up the factory or run the business. 52. The assessee, who had contributed this amount towards the infrastructural development, though does not own the same and is also developed by SIPCOT, s....
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....n of the profit-making apparatus of the assessee. The amount of Rs. 50,000 was contributed by the assessee for the purpose of facilitating the conduct of the business of the assessee and making it more efficient and profitable and it was clearly an expenditure on revenue account." 54. Further the Division Bench of this Court in Commissioner of Income Tax Vs. Coats Viyella India Ltd. reported in (2002) 253 ITR 667 (Mad) by relying on the decision in the case of L.H.Sugar Factory & Oil Mills (P) Ltd. cited supra, allowed the contributions made by the assessee towards construction of the bridge, though not owned by him and built by the government is allowable as a revenue expenditure. The relevant paragraphs are extracted hereunder for easy reference:- "3. Here, the bridge is one which is built across the river. The bridge is not owned by assessee. It is built by the Government, and the assessee does not acquire any rights of ownership over the bridge in the short-term or in the long run by reason of the contribution that it agreed to pay towards the construction of the bridge. So far as the assessee is concerned, the payment made is an outgo in return for which it receive....
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....ahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC), where, dealing with the scope of the powers of the Tribunal under s.33(4) of the Indian Income-tax Act, 1922(corresponding to s.254(1) of the present Act), it was held : ". . . There is nothing in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions, whether of law or of fact, which relate to the assessment of the assessee may be raised before the Tribunal: if for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him." (emphasis supplied) 9. In that view of the matter, we are of the clear opinion that the Tribunal was not justified in refusing to consider the alternative submission of the assessee that, in the event the expenditure in question was held by it to be capital in nature, suitable directions should be given for a....