Income Tax Appellate Tribunal - Delhi
Elel Hotel & Investment Ltd.,, New Delhi vs Assessee on 11 May, 2005
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : 'B' NEW DELHI
BEFORE SHRI G.E. VEERABHDRAPPA, VICE PRESIDENT AND
SHRI RAJPAL YADAV, JUDICIAL MEMEBR
I.T.A Nos. 4513,4514/Del/09
Asstt. Years - 2003-04, 2004-05
M/s. ELEL Hotels & Investments Ltd., Vs. Dy. CIT, Central Circle-13,
9th Floor, Hotel Sea Rock,
New Delhi.
Band Stand, Bandra (W)
Mumbai
(Appellant) (Respondent)
ITA Nos. 4244,4245,4430,4431/Del/09
Asstt. years 2001-02,2002-03, 2003-04, 2004-05
Asstt. CIT Central Circle-13, Vs. M/s. ELEL Hotels & Investments Ltd.,
Central Circle-13, New Delhi. 2/40, Janpath, New Delhi.
(Appellant) (Respondent)
CO Nos. 21,22/Del/2010
Asstt. years 2001-02, 2002-03
M/s. ELEL Hotels & Investments Ltd. Vs. ACIT
2/40, Janpath, New Delhi. Cent. Circle 13, Room No. 332
ARA, Centre, Jhandewalan Extn.
New Delhi.
(Appellant) (Respondent)
Appellant by: Shri Ajay Wadhwa, CA
Respondent by: Shri Stephen George, CIT DR
ORDER
PER RAJPAL YADAV, JM:
2 ITA Nos.4513,4514,4244,4245,4430 /Del/09
Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 In this bunch of eight appeals, common issues are involved, we heard them together and deem it appropriate to dispose off them by this common order. For the facility of reference of certain details i.e. ITA No., asstt. year, name of the appellant, date of Ld. CIT(A)'s order and date of AO's order in more convenient and scientific way, we deem it appropriate to note them in the following tabular form :-
S.No. ITA No. Appellant Asstt. year Date of CIT's Date of AO's order order
1. 4244/Del/09 Department 2001-02 31.8.09 31.12.08 order under section 143(3) r w s 153A
2. 4245/Del/09 -do- 2002-03 8.9.09 -do-
3. 4430/Del/09 -do- 2003-04 14.9.2009 -do-
4. 4431/Del/09 -do- 2004-05 -do- -do-
5. CO 21/Del/10 Assessee 2001-02 31.8.2009 -do-
In ITA
4244/del/09
6. CO 22/Del/10 -do- 2002-03 8.9.09 -do-
In ITA No.
4245/Del/09
7. 4513/Del/09 -do- 2003-04 14.9.2009 31.12.08
143(3) 153A
8. 4514/Del/09 -do- 2003-04 -do- -do-
3 ITA Nos.4513,4514,4244,4245,4430 /Del/09
Asstt. years 2003-04, 2004-05, 2001-02,
2002-03,2003-04
CO Nos. 21,22/Del/10
Asstt. years 2001-02,2002-03
2. The first common grievance raised by the revenue in asstt. year 2001-02 and 2002-03, relates to deletion of disallowance of depreciation on the leased asset amounting to Rs. 666488/- and Rs. 579590/-
respectively. These grounds of appeal are also interconnected with the solitary grievance of assessee raised in its appeal for asstt. year 2003- 04 and 2004-05 wherein the Ld. CIT(A) has upheld the disallowance of depreciation amounting to Rs. 506309/- and Rs. 443912/- in asstt. year 2003-04 and 2004-05 respectively. We take all these grounds of appeal together. The facts on all vital points are common in all the four asstt. years. For the facility of reference we are taking up the facts mainly from asstt. year 2001-02. The brief facts are that assessee company had filed its return of income on 30th October, 2001 u/s 139 (1) of the Income Tax Act, declaring a loss of Rs. 1081630/-. It had claimed a deduction of Rs. 666488/- on account of depreciation u/s 32 of the Income Tax Act. The AO has completed the asstt. Order u/s 143(3) of the Act on 31st March, 2004 determining the loss at Rs. 405046/-. In this asstt. order AO has reduced the loss claimed by the assessee on the ground that he has brought to tax a sum of Rs. 681084/- representing alleged license fees receivable from ITC Ltd. under the Hotel Operator Agreement. It emerges out from the record that assessee is the owner of hotel known 4 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 as "Hotel Sea Rock" at Band Stand, BJ Road, Bandra, Mumbai. This hotel was being operated by ITC Ltd. under Hotel Operator Agreement effective from 1st July, 1986, for a period of 25 years and renewable at the option of ITC for further period of 25 years. The assessee in terms of the said agreement was entitled to 23% of the gross revenue of the hotel. It was also provided in the agreement that all employees including managerial staff would be in the payroll of the assessee, salaries to be paid by ITC for and on behalf of assessee. The ITC was required to pay and discharge all operating expenses fees and taxes in respect of the hotel. According to the assessee the agreement did not create any tenancy in favour of the ITC, as specifically provided in the agreement at article No. VIII. In 1993 the hotel was severely damaged in a bomb blast during the riots in Mumbai. Pursuant to the damage, substantial number of rooms of the hotel become non functional requiring extensive repair and renovation. The dispute arose between the assessee and ITC with respect to the responsibility to repair and restore the damaged portion and other consequential issues. Both the parties were went into litigation and ultimately the dispute was settled after 12 years through the arbitration. The sole arbitrator justice Shri H Suresh has solved the dispute mainly in the following terms:-
5 ITA Nos.4513,4514,4244,4245,4430 /Del/09
Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03
(a) "Agreement for Settlement of dispute dated 11th May 2005
(b) Consent terms dated 11th May 2005
(c) Consent award of the arbitrator dated 24th May 2005.
The broad terms for the settlement of all disputes and difference were :-
(i) ITC Ltd. would hand over vacant and peaceful possession of hotel property
(ii) All liabilities relating to the workers would be borne by the appellant.
(iii) Appellant would make payment of an aggregate sum of Rs.
42.10 crores to ITC Ltd. which was accounted for in the books of account as under :-
(a) Re-payment of security deposit to ITC Ltd. Rs. 7.75 cr.
(b) Cost of store acquired from ITC Ltd. Rs.0.64 cr.
(c) Reimbursement towards transfer of Rs.3.84 cr.
Various accounts
(d) Towards termination of operator
agreement and assessee obtaining
rights to operate the hotel Rs. 30.86 cr.
Rs. 43.10 cr.
(iv) Appellant would not be entitled for any amounts relating to
license fee for any year till the date of settlement."
3. According to the arbitrator's award assessee was not to receive license fee in asstt. year 2001-02 and 2002-03.. The AO has made addition on account of accrual of license fee which was receivable by the assessee. The assessee carried the matter in appeal before the Ld. CIT(A) against the original asstt. order passed u/s 143 (3). Its appeal was also dismissed and in order to avoid litigation with the department it did not carry the dispute further.
6 ITA Nos.4513,4514,4244,4245,4430 /Del/09
Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03
4. Since the license fee receivable by the assessee was assessed as a business income the AO granted the depreciation to the assessee in the original assessment made u/s 143(3).
5. A search u/s 132 of the Act was conducted in the group cases of Shri Suresh Nanda on 28th February, 2007 which covered the premises of the assessee company also. The AO proceeded to frame the assessment u/s 153A and ultimately passed the asstt. u/s 153A read with section 143(3). In these astt. Orders AO has disallowed the depreciation to the assessee in all the four asstt. years.
6. On appeal Ld. CIT(A) took into consideration the past history and observed that license fee receivable from ITC Ltd. was assessed by the AO in the original asstt. order under the head "business". No document was found during the course of search. The AO was unable to bring any new material fact on the record which can authorize him to take a departure from the stand taken by him in the original asstt. order. Ld. CIT (A) has deleted the disallowance of depreciation in asstt. year 2001- 02 and 2002-03.
7 ITA Nos.4513,4514,4244,4245,4430 /Del/09
Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03
7. In asstt. year 2003-04 and 2004-05 Ld. CIT (A) was of the opinion that since in view of arbitration award no license fee was to be received by the assessee therefore there is no business income and as such assessee is not entitled for the depreciation. He disallowed the claim of depreciation in asstt. year 2003-04 and 2004-05.
8. Ld. Counsel for the assessee while impugning the order of Ld. CIT(A) in asstt. Year 2003-04 and 2004-05 in the appeals of assessee contended that hotel business was never discontinued. Earlier it was being carried out under the Hotel Operation Agreement. ITC used to operate the hotel during the disputed period also, effectively ITC has operated the hotel till May, 2005. Thereafter the business continued by means of operator / management agreement with claridges hotel Pvt. Ltd.. During the asstt. year 2007-08 assessee managed and operated the hotel itself. On the strength of Hon'ble Delhi High court's decision in the case of Capital Bus Service Pvt. Ltd. vs. CIT reported 123 ITR 404 (Delhi). He contended that allowance for normal deprecation does not depend on the actual working of machinery. It is seen if the machinery in question is employed by the assessee for the purpose of the business and for no other business. If it is kept by him ready for actual use 8 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 depreciation would be allowed. Similarly he relied upon the following decisions :-
1 Multican Builders LTd. v. CIT (2005) 270 ITR 142 (Cal) 2 CIT Vs. Southern Petrochemical Industries (P) Ltd. (2008) 301 ITR 255 (Mad) 3 CIT Vs. ESPN Software India (P) Ltd. (2008) 301 ITR 368 (Del) 4 CIT Vs. Hughes Escorts Communications Ltd. (2009) 311 ITR 253 (Del) 5 CIT v. India Tea and Timber Trading Co. (1996) 221 ITR 857 (Gau) 6 CIT V. Vindhyachal Distilleries Pvt. Ltd. (2005) 272 ITR 583 (MP)
9. On the other hand Ld. DR relied upon the order of Ld. CIT(A). In asstt. year 2003-04 and 2004-05 whereas with regard to 2001-02 he relied upon the order of AO .
10. We have duly considered the rival contention and gone through the record carefully. In order to avail depreciation u/s 32 of the Income Tax Act an assessee is required to prove the ownership of the asset and its user for the purpose of business or profession. As far as ownership of asset is concerned the AO has not disputed. The only area of difference between the assessee and the AO is that in asstt. year 2003-04 and 2004-05 there is no business receipt hence assessee is not entitled to the depreciation. The Ld. Revenue authorities have considered accrual 9 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 of business receipt or generation of income as sine qua non for an assessee to prove the actual user of the asset. Interpretation of expression "used" employed in section 32 had come up on a number of occasions before the Hon'ble Supreme Court, Hon'ble High Court and the Tribunal. Recently the Hon'ble Presi-dent of the Tribunal while sitting as a 3rd Member in the case of Sanghvi Movers (P.) Ltd. v. Dy. CIT [2008] 110 ITD 1 (Pune) has made a lucid enunciation of law on this point. We cannot do better than to extract some of the findings recorded in para 15 of his order which reads as under :-
"15. I have given careful thought to the rival submissions of the parties. There is no dispute first condition for getting depreciation, i.e., ownership of the asset has been fully established in this case. The controversy relates to the second condition, i.e., the user of the asset for purposes of business. Facts leading to the controversy have already been noted above. I would like now to refer to the relevant decisions on controversy.
15.1 In Machinery Mfrs. Corpn. Ltd. v. CIT [1957] 31 ITR 203 (Bom.), the Bombay High Court has observed that the expression 'used' is section 10(2)(vi) of the Indian Income-tax Act, 1922, corresponding to section 32 of the Act, has to be given a wider meaning. The expression includes passive as well as active user. It has been judicially held in a number of cases that depreciation might be allowed in certain cases even though the machinery was not in use or was kept idle. The words 'used for the purposes of business' are capable of larger and narrower interpretation. If the expression used is construed strictly, it can be taken as connoting or requiring the active requirement or actual working of the machinery, plant or building in the business. On the other hand, a wider meaning will include not only cases where machinery and plant, etc., are actively employed but also case where there is what may be 10 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 described as passive user of the same in the business and the same can be said to be in use when it is kept ready for use. 15.2 In the case of Whittle Anderson Ltd. (supra), Their Lordships of the Bombay High Court were concerned with the question whether ginning machines remaining idle under pooling agreement could be said to be used so as to be entitled to the depreciation. Their Lordships made the following relevant observations :
Now the expression "use or used" has several times received interpretation at the hands not only of this court and of the other High Courts but by the Supreme Court itself. So far as this Court is concerned, in CIT v. Vishwanath Bhaskar Sathe [1937] 5 ITR 21 (Bom.), in a case which was very similar to the present case, this court, with reference to the provisions of section 10(2)(vi) of the Indian Income-tax Act, said that the word "used" in that section should be understood in a wide sense so as to embrace passive as well as active user. They pointed out that when machinery is kept ready for use at any moment in a particular factory under an express agreement from which taxable profits are earned, the machinery can be said to be used for the purpose of the business which earned the profits, although it was not actually worked, and the depreciation allowance granted by section 10(2)(vi) could be given in respect of such machinery. No doubt, that was said in connection with clause
(vi) of section 10(2), but the Supreme Court has pointed out that all these clauses are in pari materia and the expression used in either of them would apply to the other : see the Liquidators of Pursa Ltd. v.
CIT [1954] 25 ITR 265; [1954] SCR 767 (SC).
In Vishwanath Bhaskar Sathe's case, the facts were similar to the present case. The assessee owned a ginning factory and was a member of a pool with the owners of other ginning factories. During the assessment year in question in that case the assessee's factory had not been actually employed in the work of ginning in accordance with the pooling agreement, though he had received a share of the profits. That was because the assessee was under the agreement bound at his own expense to keep the gins and other working plant and machinery in good repair and condition and working order even when his factory was not working, so that it may be ready for actual use at any moment. It was held that, under these circumstances, the assessee was entitled to the allowance under section 10(2)(vi)'.
11 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 Their Lordships further made reference to decision of Supreme Court as under :
'In Liquidators of Pursa Ltd. [1954] 2 ITR 265; [1954] SCR 767 (SC) referring to this expression in section 10(2)(vi), "used for the purpose of business", the Supreme Court ruled that it meant "used for the purpose of enabling the owner to carry on the business and earn profits in the business".' In the penultimate para, Their Lordships held as under :
'The agreement clearly provided that, although two out of the four presses which were directly in the pooling arrangement were to remain idle while the two presses worked, it is clear that the owners of those presses which were idle had to keep them ready for use at any time and the contingency for their use could also, upon the terms of the agreement, arise at any time and having regard to the definition of the word "used" as indicated in the authorities to which we have referred, it is clear that even these presses which remained under forced idleness were in use during the entire period of the year.' 15.3 In the case of Dilip Singh Sardarsingh Bagga (supra), the Bombay High Court on the question of allowing depreciation and after relevant provisions of the Motor Vehicles Act, observed as under :
'In view of the foregoing discussion, we are of the clear opinion that the assessee, who had purchased the motor vehicle for valuable consideration and used the same for his business, cannot be denied the benefit of depreciation on the ground that the transfer was not recorded under the Motor Vehicles Act or that the vehicles stood in the name of the vendor in the records of the authorities under the Motor Vehicles Act.' 15.4 In the case of CIT v. Salkia Transport Associates [1983] 143 ITR 39 (Cal.) five buses owned by the assessee were not registered under the Motor Vehicles Act. Their Lordships noted relevant provisions of the Motor Vehicles Act and on the question whether the assessee was entitled to depreciation under the above circumstances observed as under :
'That the assessee has purchased five new buses is not disputed. The only argument is that the vehicles were not registered in the name of the assessee under the Motor Vehicles Act. But that is one of the factors that has to be taken into consideration for deciding the
12 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 questions of ownership of the buses. It cannot be said as a matter of law that unless the buses are registered in the name of the assessee, the assessee cannot be regarded as the owner of the buses. On the contrary, the essential pre-requisite for registration under section 22(1) of the Motor Vehicles Act is ownership of the motor vehicle. Unless a person is the owner of a motor vehicle he is not entitled to get it registered in his name under section 22(1) of the Motor Vehicle Act. The Tribunal in this case has come to the conclusion on a review of the facts and also of the agreement that the assessee was the owner of the five new buses and as such was entitled to claim depreciation allowance on these buses. The Tribunal has not committed any error of law in coming to this conclusion. The requirement of section 32 of the Income-tax Act is that the vehicles must be "owned by the assessee". This section does not require that the assessee must be a registered owner of the vehicles in order to claim depreciation allowance in respect of them. We are of the view that, in the facts of this case, the new buses were owned by the assessee within the meaning of section 32 of the Income-tax Act and the assessee was entitled to claim depreciation allowance on these vehicles.' 15.5 In the case of Anil Bulk Carriers (P.) Ltd. v. CIT [2005] 276 ITR 625 (All.), trucks purchased by the assessee for oil transport business were registered with transport authority only on 1-4-1997. These trucks were also fined for their user for the year ending 31-3-1997. On the question whether assessee was entitled to depreciation in the assessment year 1997-98 on above trucks, Their Lordships after considering all relevant decisions, observed as under :
'The Tribunal was obsessed with a view that since the registration of the vehicle by the registering officer under the Motor Vehicle Act, 1988 was granted on 1-4-1997, the vehicle could not be plied on 31- 3-1997. The Tribunal approached the said problem with wrong angle. For the income-tax purposes the Tribunal was required to examine as to whether the assets (oil tankers) were used during the previous assessment year or not. The user of oil tankers even prior to obtaining registration from the registering-authority or without payment of road tax, etc., may be violative of the provisions of the Motor Vehicle Act, 1988. But nonetheless if the vehicle was plied even without obtaining registration or payment of road tax, etc. it 13 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 cannot be said, as a matter of fact, that the vehicle has not been used. The attention of the Tribunal was not drawn towards rule 47 of the Motor Vehicles Rules which gives seven days time to apply for registration of the vehicle with the registering authority under the Motor Vehicles Act. The finding recorded by the Tribunal that the oil tankers were not used on the last date of the previous year is not based on legal evidence, and has given rise to a substantial question of law involved in the appeal and, therefore, it is not correct to say that the appeal is concluded by finding of fact and is not maintainable.
In view of above exposition of law the case in hand is to be examined. The two oil tankers along with mounted bodies were purchased for the business by the assessee who is a transporter during the accounting year. It is not the case of the Department that these oil tankers were not necessary for the business purposes of the assessee-appellant. These oil tankers were actually plied on the road on the last date of the accounting year were challanged and also fined by the CMM, Kanpur. Therefore, the oil tankers were actually put to use in the relevant accounting year by the assessee for its business purposes. Alternatively the assessee was entitled for depreciation on these two oil tankers as they were purchased during the relevant accounting year for business purposes and were ready to use, road tax was deposited and the oil tankers were got registered with the registering authority on the last date of the accounting year. Failure of the assessee to produce the hire contract with the parties is in respect of the two oil tankers is of little significance in view of exposition of law that the word "used" under section 32 of the Act has to be given wider meaning and it will include assets ready for use.' 15.6 The Punjab and Haryana High Court in CIT v. Pepsu Road Transport Corpn. [2002] 253 ITR 303 has held that the assessee who was the transporter had to keep spare engines in the store, was entitled to depreciation on the spare engines in the store, as the engines were meant to be used in the case of need. There is a normal depreciation of value even when machines or equipment is merely kept in the store. Looking to the nature of business of that assessee, who was a transporter it was held that keeping spare engines in store to meet emergent situations, was the requirement of business.
14 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 15.7 In the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775 (SC), Their Lordships of Supreme Court in respect of claim of depreciation made the following observations :
'Section 32 of the Income-tax Act, 1961, confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee to secure the benefit intended to be given by the Legislature to the assessee. It is also well settled that where there are two possible interpretations of taxing provision, the one which is favourable to the assessee should be preferred. Generally speaking depreciation is allowance for the diminution in the value due to wear and tear of a capital asset employed by an assessee in his business. Black's Law Dictionary (fifth edition) defined depreciation to mean, inter alia :
'A fall in value; reduction of worth. The deterioration, or the loss or lessening in value, arising from age, use, and improvements, due to better methods. A decline in value of property caused by wear or obsolescence and is usually measured by a set formula which reflects, these elements over a given period of useful life of property ... Consistent, gradual process of estimating and allocating cost of capital investments over estimated useful life of asset in order to match cost against earnings.' An overall view of the above said authorities shows that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.
It is evident from above noted decisions that depreciation is an allowance for diminution in value due to wear and tear of a capital asset and that claim on account of depreciation legitimately belongs to one who has invested in the capital asset.
15.8 Reference to section 32(1) as existing in all material time reveals that building, machinery and other assets mentioned in sub-section (1) when owned by the assessee and 'used for purposes of the 15 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 business or profession' are entitled to depreciation. It has been noted that section 32 confers the benefit on the assessee and it is required to be construed liberally and in a manner which is favourable to the assessee. I find force in assessee's submission that decision of Hon'ble Bombay High Court in the case of Dineshkumar Gulabchand Agrawal (supra) has to be read in the light of other decisions of Bombay High Court and of the Supreme Court and when so read, it does not lay any different law. Expression 'used' is to be construed in the context of facts and circumstances of the case and would include not only active use of asset but also passive use of asset for purposes of business. This is what has been consistently held by the Supreme Court and the Bombay High Court in the decisions cited supra. Permanent registration under the Motor Vehicles Act is not sine qua non for claim of depreciation. Temporary registration for a limited period pending permanent registration is good enough to claim depreciation on asset owned by the assessee and used in business, as noted in the decisions of different High Courts. No decision taking a contrary view was cited before me. Hiring of asset is one way of establishing user of the asset in business. But 'user' or 'used' can be proved independent of hiring agreement. Through other evidence assessee can prove that assets were used for the purposes of business or profession. The expression 'purposes of business' itself is very wide expression and it is not necessary that receipt of income must be shown to be entitled to claim depreciation." [Emphasis supplied]
11. In the light of above proposition if we examine the facts of the present case then it would reveal that business assets owned by the assessee in the shape of hotel was used for the hotel business. It is a different matter that in these accounting years on account of certain disputes with ITC limited assessee has not received license fees. But
16 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 non receipt of license fee would not be a factor that business assets were not used for the purpose of the business. There is one more angel in the controversy. The parties under the agreement to operate the hotel i.e. the assessee as well as ITC were litigating after the bomb blast on so many issues. In the arbitration ultimately it is the assessee who has to pay a sum of Rs. 43.10 crore in total to the ITC. Keeping in view this payment required to be made by the assessee the arbitrator might have considered the factor of non payment of license fee to the assessee. In other words at the most passive user cannot be disbelieved. Therefore the claim of depreciation cannot be denied to the assessee merely on the ground that license fee was not received by the assessee. Earning of income actually in a year is one of the corroborative factor, to demonstrate the user of assets only. It is not the sole criteria for grant of depreciation. In view of the above discussion we allow the ground of appeal raised by the assessee in asstt. Year 2003-04 and 2004-05 and reject the ground of appeal raised by the revenue in asstt. year 2001-02 and 2002-03.
17 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03
12. In asstt. year 2003-04 and 2004-05 the common ground of appeal raised by the revenue is that Ld. CIT(A) has erred in deleting the addition of Rs. 32,21,213/- and Rs. 3413764/- respectively.
13. These additions have been made by the AO on the basis of license fees receivable by the assessee from the ITC. Ld. CIT(A) has deleted the addition on the ground that arbitrator has given his award while settling the dispute between the assessee and ITC on 24th May, 2005. According to this award assessee was not to receive any license fee from the ITC. Thus no amount was due to the assessee. Ld. Counsel for the assessee pointed out that in asstt. year 1997-98 a similar addition was made which has been deleted by the Tribunal in ITA No. 3806/Mumbai/2001. He placed on record the copy of the Tribunal's order. On the other hand Ld. DR relied upon the order of AO.
14. We have duly considered the rival contention and gone through the record carefully. In asstt. years 1995-96 and 1997-98 Tribunal has held that in view of the arbitration's award no amount was due to the assessee from the ITC on account of license fee and therefore no 18 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 addition can be made on account of license fee receivable. The finding of the Tribunal recorded in para 9 read as under :-
"9. From the above facts, it is clear that the assesee's right to receive license fee from M/s. ITC Ltd. in terms of the agreement, which was in dispute, was ultimately settled. The agreement which gave rise to such right was itself a subject mater of dispute, due to unforeseen circumstances that has occurred in this case i.e. serial bomb blasts. The ITC Ltd. has not paid the assessee such license fees and has been disputing the payment of the same,. In these circumstances, we are of the considered opinion that no income accrued to the assessee in the form of license fee for these impugned assessment years. Thus, we allow the grounds of appeal of the assessee for both the assessment years on this issue and delete the addition of license fee in question."
15. The assessee was to receive license fee in view of hotel operator agreement effective from 1st July, 1986, on account of bomb blast in the hotel, a dispute arose between the parties and this right to receive license fee was disputed. The dispute between the parties was settled by an arbitration award which held that the assessee is not entitled to receive license fee. Taking into consideration the settlement of dispute by way of arbitration award and finding of the Ld. CIT(A) coupled with the order of the ITAT in 1997-98 we do not find any merit in these grounds of appeal. They are rejected.
19 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03
16. The grounds raised by the assessee in the cross objection filed in asstt. years 2001-02 and 2002-03 are common with the additional ground of appeal raised in asstt. years 2003-04 and 2004-05. In all these grounds of appeal assessee has pleaded that in the facts and circumstances of the case Ld. AO was not justified in issuing notices u/s 153A as no assessment or reassessment was pending as on the date of initiation of search which could have been abetted in terms of second proviso to section 153A (1) of the Income Tax Act. Thus revenue authorities had no right in law to review / re consider, the issue of claim of depreciation of assets leased to the ITC, when no material in respect of these issues was found during the course of search. The assessee in other words has challenged the validity of asstt. framed u/s 153A. However Ld. Counsel for the assessee did not press these grounds of appeal at the time of hearing. Hence they are rejected. In the result appeals of the revenue are dismissed. Cross objections of the assessee 20 ITA Nos.4513,4514,4244,4245,4430 /Del/09 Asstt. years 2003-04, 2004-05, 2001-02, 2002-03,2003-04 CO Nos. 21,22/Del/10 Asstt. years 2001-02,2002-03 are dismissed. Two appeals of the assessee in asstt. year 2003-04 and 2004-05 are partly allowed.
17. Order pronounced in the open court on 16.4.2010.
[G.E. VEERABHDRAPPA] [RAJPAL YADAV]
VICE PRESIDENT JUDICIAL MEMBER
Veena
Dated
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
TRUE COPY By Order,
Deputy Registrar,
ITAT