Tata Technologies Limited, Pune V. Deputy Commissioner of Income-tax, Circle - 7, Pune

ITA 2329/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7200 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 05-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASIF A KARMALI
• Keywords: Depreciation; Revenue expenditure
• Section: 201; 43; 13; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / ITA NO . 2329 /PUN/2017 / ASSESSMENT YEAR : 20 1 1 - 12 TATA TECHNOLOGY LIMITED, 25 RAJIV GANDHI INFOTECH PARK, HINJEWADI, PUNE - 411057 PAN :AAACT3092N ....... / APPELLANT / V/S. THE DY. COMMISSIONER OF INCOME TAX , CIRCLE 7, PUNE / RESPONDENT ASSESSEE BY : SHRI RAJENDRA AGIWAL REVENUE BY : SHRI ASIF A. KARMALI / DATE OF HEARING : 01 - 09 - 2020 / DATE OF PRONOUNCEMENT : 03 - 0 9 - 2020 / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 29 - 06 - 2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 5, PUNE [CIT(A)] FOR ASSESSMENT YEAR 201 1 - 12. 2 ITA NO . 2329/PUN/2017, A.Y. 2017 2. GROUND NO. 1 RAISED BY THE ASSESSEE CHALLENGING THE ACTION OF CIT(A) IN HOLDING THE DISALLOWANCE MADE BY THE AO IN RESPECT OF AMORTIZATION OF PREMIUM PAID ON LEASEHOLD LAND IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. HEARD BOTH PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER EXAMINED THE CLAIM OF ASSESSEE OF RS.4,30,886/ - ON ACCOUNT OF AMORTIZATION OF LEASE RENT. THE SAID EXPENDITURE CLAIMED AS REVENUE EXPENDITURE RELATING TO LAND ACQUIRED BY THE ASSESSEE ON LEASE FOR 95 YEARS OF LUMP SUM PREMIUM ON THE YEAR ENDING 31 - 03 - 2001. THE CLAIM WAS REJECTED BY THE REVENUE SINCE THEN , ACCORDING TO ASSESSING OFFICER THE ASSESSEE CONTINUES TO CLAIM THE SAID DEDUCTION , FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF HARDILLIA CHEMICALS REPORTED IN 218 ITR 598 THE SAME HAS BEEN DISALLOWED. WE FIND THE CIT(A) IN ITS IMPUGNED ORDER IN PARAS 4.4 TO 4.6 CONFIRMED THE ORDER OF ASSESSING OFFICER IN TERMS OF THE ORDER OF ITAT IN ASSESSEES OWN CASE. 4. BEF ORE US, THE LD. AR , SHRI RAJENDRA AGIWAL FAIRLY AGREED THAT THIS TRIBUNAL HELD EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF AMORTIZATION OF LEASEHOLD IS NOT ALLOWABLE DEDUCTION AND REFERRED TO PAGE 55 OF THE PAPER BOOK IN PARAS 43 TO 46. ON PERUSAL OF THE SAME WE FIND APART FROM AMORTIZATION OF LEASEHOLD PREMIUM THE ASSESSEE ALSO RAISED ALTERNATE PLEA REGARDING THE DEPRECIATION ON LEASEHOLD RIGHTS IN THE LAND , BUT HOWEVER, THIS TRIBUNAL BY PLACING RELIANCE IN THE CASE OF M/S. DRILBITS INTERNATIONAL P . LTD. OF PUNE BENCH HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION AND DISMISSED THE ISSUE OF DEDUCTION CLAIMED ON ACCOUNT OF PREMIUM PAID ON LEASEHOLD LAND. THE RELEVANT PORTION OF PARAS 43 TO 46 IN 3 ITA NO . 2329/PUN/2017, A.Y. 2017 THE ORDER DATED 27 - 02 - 2015 IN ASSESSEES OWN CASE BY THIS TRIBUNAL IS REPRODUCED HERE - IN - BELOW FOR READY REFERENCE : 43. THE SECOND ISSUE OF AMORTIZATION OF LEASEHOLD PREMIUM OVER THE PERIOD OF LEASE IS NOT ALLOWABLE AS DEDUCTION IN VIEW OF THE EXPENDITURE BEING HELD AS CAPITAL IN NATURE. THE PLEA OF THE ASSESSEE WAS THAT PREMIUM PAID FOR ACQUIRING LEASEHOLD RIGHT IN LAND IS NOTHING BUT IN THE NATURE OF ADVANCE RENT IS TO BE REJECTED IN VIEW OF THE RATIO LAID DOWN BY SPECIAL BENCH OF MUMBAI TRIBUNAL IN JCIT VS. MUKUND LTD. (SUPRA). 44. ANOTHER ALTERNATE PLEA WAS RAISED BY THE ASSESSEE THAT THE DEPRECIATION ON SUCH LEASEHOLD RIGHTS IN THE LAND SHOULD BE ALLOWED IN VIEW OF THE SAME BEING AN INTANGIBLE ASSET. THE PUNE BENCH OF THE TRIBUNAL IN PIAGGIO VEHICLE PVT. LTD. VS. JT.CIT IN ITA NOS.965 & 96 6/PN/2009 RELATING TO ASSESSMENT YEARS 2004 - 05 & 2003 - 04, VIDE ORDER DATED 06.04.2011 HAD SET - ASIDE THE MATTER TO DECIDE THE APPLICABILITY OF DEPRECIATION ON LEASEHOLD RIGHTS IN THE LAND UNDER THE PROVISIONS OF THE ACT, SINCE ASPECTS WERE NOT CONSIDERED B Y THE REVENUE AUTHORITIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR APPELLATE PROCEEDINGS. 45. HOWEVER, WE FIND THAT THE PUNE BENCH OF THE TRIBUNAL IN M/S. DRILBITS INTERNATIONAL P. LTD. VS. DCIT IN ITA NO.1361/PN/2010, RELATING TO ASSESSMENT YEAR 20 06 - 07, VIDE ORDER DATED 23.08.2011 HAD CONSIDERED THE ISSUE OF ALLOWABILITY OF DEPRECIATION ON LEASEHOLD RIGHTS OF LAND AND HAD HELD THAT NO SUCH DEPRECIATION IS ALLOWABLE TO THE ASSESSEE ON THE PREMISE THAT A PERSON HOLDING FREEHOLD LAND WOULD NOT BE ALLO WED DEPRECIATION ON SUCH LAND AND WHERE THE PERSON HOLDS LEASEHOLD RIGHTS IN THE LAND IF DEPRECIATION IS ALLOWED, THEN IT WOULD PLACE THE PERSON HOLDING FREEHOLD LAND TO BE AT DIS - ADVANTAGE AND THE SAME IS NOT JUSTIFIABLE. THE TRIBUNAL ALSO HELD THAT THE L EASEHOLD RIGHTS IN THE LAND WERE NOT INTANGIBLE ASSETS. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL VIDE PARA 13 ARE AS UNDER: - 13. AFTER CONSIDERING THE ABOVE SUBMISSIONS, WE DO NOT FIND SUBSTANCE IN THE CONTENTION OF THE LD. A.R. THAT THE LEASEHOLD RIGHT S IN THE LAND ARE ENTITLED TO DEPRECIATION. THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES (SUPRA) IS NOT HELPFUL TO THE ASSESSEE AS THE HONBLE SUPREME COURT HAS BEEN PLEASED TO HOLD IN ITS DECISION IN THAT CASE THAT THEIR JUDGMENT SHO ULD NOT BE CONSTRUED TO MEAN THAT EVERY BUSINESS OR COMMERCIAL RIGHT WOULD CONSTITUTE A LICENSE OR FRANCHISE IN TERMS OF SEC. 32(1)(II) OF THE ACT. THE DEPRECIATION EVEN UNDER THE AMENDED SEC. 32 OF THE ACT IS ALLOWABLE ONLY ON THE RESTRICTED CATEGORIES OF TANGIBLE/INTANGIBLE ASSETS WHICH ARE SPECIFICALLY ENUMERATED IN THE SECTION. THE INTANGIBLE ASSET ON WHICH THE DEPRECIATION IS ALLOWABLE U/S. 32(1)(II) OF THE ACT ARE KNOW - HOW, PATENT, COPY RIGHTS, TRADE MARKS, FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIA L RIGHTS OF SIMILAR NATURE ACQUIRED ON OR AFTER 1.4.1998. UNDER THESE CIRCUMSTANCES, WE FULLY CONCUR WITH THE SUBMISSION OF THE LD. D.R. THAT THE PROVISIONS OF THE ACT CANNOT BE INTERPRETED TO MEAN THAT LEASEHOLD RIGHTS GRANTING SUCH TYPE OF OWNERSHIP OVER LAND ETC., WOULD ALSO QUALIFY AS INTANGIBLE ASSETS FOR THE ITA NO.1361/PN/2010 M/S.DRILBITS INTERNATIONAL P. LTD. A.Y. 2006 - 07 PAGE OF 28 6 PURPOSE OF DEPRECIATION UNDER THE ACT. CERTAINLY, THIS WOULD LEAD TO A CONFLICTING SITUATION WHERE LAND ACQUIRED ON FREEHOLD BASIS WOULD NOT BE ELIGIBLE FOR DEPRECIATION BUT SIMILAR LAND ACQUIRED ON LEASEHOLD BASIS WOULD BE ELIGIBLE FOR DEPRECIATION THAT TOO AT A HIGHER RATE. UNDER THESE CIRCUMSTANCE, WE ARE NOT INCLINED TO INTERFERE WITH THE ACTION OF THE A.O IN DISAL LOWING THE CLAIMED DEPRECIATION IN QUESTION ON LEASEHOLD RIGHTS OVER THE LAND TREATING THE SAME AS INTANGIBLE ASSET U/S. 32(1)(II) OF THE ACT. THE GROUND NOS. 2 & 2.1 ARE THUS REJECTED. 46. IN VIEW THEREOF, WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE. A CCORDINGLY, THE ALTERNATE PLEA RAISED BY THE ASSESSEE ALSO FAILS AND THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, DISMISSED. 5. IN THE LIGHT OF THE ABOVE ORDER, WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION OF EXPENDITURE INCURRED ON ACCOUNT OF 4 ITA NO . 2329/PUN/2017, A.Y. 2017 AMORTIZATION OF LEASE RENT AND ALSO ALTERNATE PLEA CLAIMING DEPRECIATION ON SUCH LEASEHOLD LAND. THUS, GROUND NO. 1 RAISED BY THE ASSESSEE FAILS AND IS DISMISSED. 6. GROUND NO. 2 RAISED BY THE ASSESSEE CHALLENGING THE ACTION OF CIT(A) IN HOLDING THE DISALLOWANCE OF PROVISION FOR EXPENDITURE UNDER BHAVISHYA KALYAN YOJANA (BKY) SCHEME IN THE FACTS AND CIRCUMSTANCES OF THE CAS E. 7. HEARD BOTH PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WITH RELEVANT DETAILS ON THE CLAIM OF DEDUCTION ON ACCOUNT OF BHAVISHYA KALYAN YOJANA. THE ASSESSEE EXPLAINED THE BHAVISHYA KALY AN YOJANA IS AN EMPLOYEE WELFARE SCHEME WHEREIN IN THE EVENT OF DEATH OF THE EMPLOYEE NOMINEE WILL BE PAID 50% OF THE LAST DRAWN SALARY. THE ASSESSING OFFICER BASING ON THE EARLIER ORDERS DISALLOWED THE SAME. THE CIT(A) BY FOLLOWING THE ORDER OF THIS TRI BUNAL IN ASSESSEES OWN CASE FOR A.YS. 2001 - 02 AND 2003 - 04 CONFIRMED THE ORDER OF ASSESSING OFFICER. 8. THE LD. AR FAIRLY AGREED WITH THIS ISSUE ALSO DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE AGAINST THE ASSESSEE BUT HOWEVER, HE SUBMITTED THAT THE CIT(A) MUST HAVE REMANDED THE ISSUE TO THE FILE OF ASSESSING OFFICER IN TERMS OF OBSERVATIONS MADE BY THIS TRIBUNAL IN ASSESSEES OWN CASE AND DREW OUR ATTENTION TO THE FINDINGS OF THIS TRIBUNAL AT PAGE 89 OF THE PAPER BOOK. THE LD. DR ALSO FAIRLY AGREED THAT THE CIT(A) DID NOT GRANT AN OPPORTUNITY TO ASSESSEE IN SENDING THE ISSUE TO THE FILE OF ASSESSING OFFICER IN TERMS OF ORDER OF THIS TRIBUNAL AND AGREED FOR REMANDING THE MATTER TO THE FILE OF ASSESSING OFFICER. 5 ITA NO . 2329/PUN/2017, A.Y. 2017 9. ON PERUSAL OF THE OBSERVATIONS MAD E BY THIS TRIBUNAL IN PARA 7.2 IN ASSESSEES OWN CASE VIDE CONSOLIDATED ORDER DATED 29 - 05 - 2015 FOR A.YS. 2004 - 05, 2005 - 06, 2007 - 08 AND 2008 - 09 , WE FIND THAT THIS TRIBUNAL HELD THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION ON A LIABILITY WHICH IS NOT CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AND IT IS A CONTINGENT LIABILITY. HOWEVER, THE TRIBUNAL HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM OF EXPENDITURE IN RESPECT OF BENEFIT PAYABLE TO EX - EMPLOYEES WHO HAVE RETIRED AND FULFILLED THE CONDITION S OF SCHEME , DIRECTED THE ASSESSING OFFICER TO DETERMINE THE DEDUCTION ON ACCOUNT OF BHAVISHYA KALYAN YOJANA SCHEME AND MEDICAL INSURANCE SCHEME. THE RELEVANT PORTION AT PARA 7.2 IS REPRODUCED HERE - IN - BELOW FOR READY REFERENCE: 7.2 WE OBSERVE THAT BOTH THE ISSUES ARE CONSIDERED BY THE TRIBUNAL IN ITA NO. 1345/PN/2011 (SUPRA). THE FINDINGS OF THE CO - ORDINATE BENCH ARE AS UNDER: 87. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED BEFORE US THAT THE LIABILITY HAD BEEN WORKED OUT ON THE BASIS OF ACTUARIAL VALUATION AND WHERE THE VALUATION HAS BEEN MADE ON A SCIENTIFIC BASIS, THEN SUCH LIABILITY IS TO BE ALLOWED IN THE HA NDS OF THE ASSESSEE AS HELD BY THE HONBLE SUPREME COURT IN ROTORK CONTROLS INDIA (P) LTD. VS. CIT (SUPRA). FURTHER RELIANCE ON WAS PLACED ON THE RATIO LAID DOWN BY THE CHANDIGARH BENCH OF THE TRIBUNAL IN M/S. GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. VS. ACIT (SUPRA). ON THE PERUSAL OF THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEARS, IT IS APPARENT THAT THE TRIBUNAL HAS COME TO A FINDING THAT THE LIABILITY OF THE ASSESSEE HAS NOT CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION, SINCE THE SAID LIABILITY WOULD ONLY ARISE ON THE HAPPENING OF CERTAIN EVENTS WHICH WOULD HAPPEN IN THE FUTURE, HENCE THE LIABILITY IS A CONTINGENT LIABILITY. THE ISSUE OF THE LIABILITY HAVING BEEN WORKED OUT ON THE BASIS OF AS - 15 OR SCIENTIFIC METHOD IS DIFFERENT A SPECT OF THE ISSUE, BUT THE FIRST POINT TO BE CONSIDERED IS THE NATURE OF LIABILITY I.E. WHETHER IT HAD ARISEN IN THE YEAR UNDER CONSIDERATION OR IT WOULD ARISE ON THE HAPPENING OF CERTAIN EVENT IN FUTURE. THE FINDING OF THE TRIBUNAL IN THE CASE OF ASSESS EE WAS THAT THE LIABILITY TO PAY UNDER BKY SCHEME OR MEDICLAIM INSURANCE SCHEME WOULD ONLY ARISE ON THE HAPPENING OF CERTAIN EVENTS IN FUTURE AND CONSEQUENTLY, THE TRIBUNAL CAME TO A FINDING THAT THE LIABILITY HAVING NOT BEEN CRYSTALLIZED DURING THE YEAR U NDER CONSIDERATION WAS A CONTINGENT LIABILITY AND WAS NOT ALLOWABLE IN THE HANDS OF THE ASSESSEE. WE ARE IN CONFORMITY WITH THE FINDING OF TRIBUNAL IN THIS REGARD AND APPLYING THE SAME, WE HOLD THAT ASSESSEE IS NOT ENTITLED TO THE CLAIM OF ALLOWANCE OF PR OVISION FOR EXPENDITURE UNDER BKY SCHEME OF RS.54,16,204/ - AND ALSO THE PROVISION MADE FOR EXPENDITURE IN RESPECT OF MEDICLAIM INSURANCE COVERAGE SCHEME AMOUNTING TO RS.19,53,311/ - . HOWEVER, AS HELD BY THE TRIBUNAL, THE ASSESSEE IS ENTITLED TO CLAIM OF EX PENDITURE IN RESPECT OF BENEFIT PAYABLE TO EX - EMPLOYEES, WHO HAVE RETIRED & FULFILL THE CONDITIONS OF THE SCHEME. REFERENCE IS MADE TO PARAS 46 AND 51 OF THE ORDER OF THE TRIBUNAL (SUPRA). ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DETERMINE THE DED UCTION ON ACCOUNT OF BKY SCHEME AND MEDICAL INSURANCE SCHEME , IN VIEW THEREOF, THE GROUNDS 6 ITA NO . 2329/PUN/2017, A.Y. 2017 OF APPEAL NOS.3 AND 4 RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. SINCE, THE ISSUE IN PRESENT SET OF APPEALS IS SIMILAR TO THE ONE ALREADY DECIDED BY THE TRI BUNAL, WE REMIT THIS ISSUE BACK TO THE ASSESSING OFFICER WITH A DIRECTION TO DETERMINE THE DEDUCTION ON ACCOUNT OF BKY SCHEME AND MEDI - CLAIM INSURANCE IN THE SAME TERMS. ACCORDINGLY, BOTH THE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 10. IN VIEW OF THE S AME, WE DIRECT THE ASSESSING OFFICER TO DETERMINE THE DEDUCTION ON ACCOUNT OF BHAVISHYA KALYAN YOJANA SCHEME AND MEDI - CLAIM INSURANCE AS INDICATED ABOVE. THUS, GROUND NO. 2 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL OF ASSE SSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03 RD SEPTEMBER, 2020 . SD/ - SD/ - ( P.M. JAGTAP ) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 03 RD SEPTEMBER, 2020. RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) - 5, PUNE 4. THE PR. CIT - 4, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE