DCIT, CHENNAI V. M/s. Tamil Nadu Road Development Corporation Ltd., CHENNAI

ITA 2875/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4489 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 03-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 05-10-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: R SANKARANARAYANAN
• Keywords: Capital asset; Depreciation; Principle of natural justice; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 143(3); 2(14); 14A; 32; 28

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER I . T.A. NO S . 28 74, 2875, 2876, 2877, 2878 AND 2879/ MDS/201 6 ASSESSMENT YEAR S :20 0 7 - 0 8, 08 - 09,09 - 10, 10 - 11, 12 - 13 & 13 - 14 THE DEPUTY COMMISSIONER OF INCOME TAX, C ORPORATE CIRCLE 3 ( 1 ) , NEW BLOCK, 4 TH FLOOR, 121, MAHATMA GANDHI ROAD, NUNGAM BAKKAM, CHENNAI 600 034. VS. M/S. TAMIL NADU ROAD DEVELOPMENT CORPORATION LTD., NO. 171, 2 ND FLOOR, TNMB BUILDING, SOUTH KESAVAPERUMALPURAM, GREENWAYS ROAD, RA PURAM, CHENNAI 28 . [PAN : A ABC T3389H ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI S UPRIYO PAL , J CIT / RESPONDENT BY : SHRI R. SANKARANARAYANAN, C.A. / DATE OF HEARING : 08 . 0 5 .201 7 / DATE OF P RONOUNCEMENT : 24. 0 5 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS BATCH OF SIX APPEALS FILED BY THE REVENUE PERTAINING TO SAME ASSESSEE ARE DIRECTED AGAINST COMMON ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 1 1 , C HENNAI DATED 2 2 . 0 6 .201 6 RELEVANT TO THE ASSESSMENT YEAR S 20 0 7 - 0 8, 2008 - 09, 2009 - 10, 2010 - 11, 2012 - 13 AND 2013 - 14. 2. ALL APPEALS OF THE REVENUE ARE FOUND TO HAVE BEEN FILED LATE BY TWELVE DAY S BEFORE THE TRIBUNAL. BY REFERRING TO THE PETITION FOR CO NDONATION OF I.T.A. NO S . 28 74 & 24 7 9 /M/16 2 DELAY, T HE LD. DR HAS SUBMITTED THAT WHILE THE APPEAL PAPERS WERE PROCESSED FOR FILING APPEAL, THE RECORDS OF THE CASE INADVERTENTLY GOT MIXED UP WITH OTHER FILES. AS SOON AS THE RECORDS PERTAINING TO THE CASES ARE TRACED OUT APPEAL PAPERS WER E PREPARED AND THE SAME ARE FILED WITH A DELAY OF 12 DAYS. THE LD. DR, CITING THE ABOVE REASONS REQUESTED FOR CONDONING THE DELAY AND TO ADMIT THE APPEAL FOR HEARING. THE LD. COUNSEL FOR THE ASSESSEE DID NOT OBJECT TO THE SUBMISSIONS OF THE LD. DR AND TH ER EFORE , WE CONDONE THE DELAY OF 12 DAY S IN FILING THE APPEAL S AND ADMIT THE APPEAL S FOR HEARING. 3. THE FIRST COMMON ISSUE RAISED IN THE APPEALS OF THE REVENUE FOR THE ASSESSMENT YEARS 2007 - 08, 2008 - 09, 2009 - 10 AND 2010 - 11 IS THAT THE LD. CIT(A) HAS ERRED IN ALLOWING DEPRECIATION @ 10% ON ROAD LAID BY THE ASSESSEE HOLDING THAT THE ROADS ARE OF THE NATURE OF PLANT AND MACHINERY. FOR THIS PURPOSE, WE SHALL TAKE THE FACTS PERTAINING TO THE ASSESSMENT YEAR 2007 - 08. 4 BRIEF FACTS RELEVANT TO THE CASE ARE THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON ROADS AT .2,75,51,087/ - BEING 15% OF THE WRITTEN DOWN VALUE AS LAID DOWN IN THE INCOME TAX ACT. IN VIEW OF THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEA 2010 - 11, WHEREIN, IN VIEW OF THE PRECEDENCE AND THE ISSUE BEI NG SUBJUDICED BEFORE THE HON BLE MADRAS HIGH COURT AND ASSESSEE S CLAIM FOR DEPRECIATION ON ROADS WAS DISALLOWED, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF I.T.A. NO S . 28 74 & 24 7 9 /M/16 3 DEPRECIATION FOR THE YEAR UNDER CONSIDERATION AS WELL AS OTHER ASSESSMENT YEARS ALSO . 5 THE A SSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2003 - 04 AND 2004 - 05, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION @ 10% ON THE ROAD S BY TREATING IT AS BUILDING. 6. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEARS 2007 - 08 2008 - 09, 2009 - 10 AND 2010 - 11. THE MAIN ARGUMENT ADVANCED BY THE LD. DR IS THAT THE DECISION OF THE TRIBUNAL IN ASSESSEE S O WN CASE FOR EARLIER ASSESSMENT YEARS WAS NOT ACCEPTED BY THE DEPARTMENT AND THE APPEAL FILED BEFORE THE HON BLE MADRAS HIGH COURT IN TCA NO. 679/2009 IS PENDING. THEREFORE, HE PLEADED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE REVERSED AND RESTORED THAT OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A) AND SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR EARLIER ASSESSMENT YEARS AND PRAYED THAT THE SAME SHOULD BE FOLLOWED FOR ALL THE ASSESSMENT YEARS. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE BEFORE US IS I.T.A. NO S . 28 74 & 24 7 9 /M/16 4 WHETHER THE ASSESSEE CAN C LAIM DEPRECIATION ON ROADS AS PLANT AND MACHINERY OR NOT. SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 IN I.T.A. NOS. 2082/MDS/2008 & 817/MDS/2007 DATED 24.10.2008, FOR THE ASSESSMENT YEAR 20 03 - 04, THE TRIBUNAL HAS OBSERVED AT PARA 17 IS REPRODUCED AS UNDER: 17. IN THE ABOVE DETAILED DISCUSSION WE HAVE COME TO THE CONCLUSION THAT THE ASSESSEE HAS CONSTRUCTED ONLY A ROAD. NOW, THE QUESTION IS WHETHER THE CAPITAL, AS EXPENDITURE INCURRED ON SU CH ROAD WOULD MAKE IT ELIGIBLE FOR DEPRECIATION UNDER THE HEAD BUILDING . THE SAME HAS BEEN DENIED BY THE DEPARTMENT ON THE BASIS OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF INDORE MUNICIPAL CORPORATION V. CIT (SUPRA). A CAREFUL PERUSAL OF THIS DECISION WOULD SHOW THAT THIS MATTER AROSE OUT OF SPECIAL LEAVE BY ORDER DATED 05.8.1983. THOUGH THE ASST. YEAR IS NOT MENTIONED IN THE JUDGMENT BUT FROM THE ORDER REGARDING SPECIAL LEAVE, IT BECOMES CLEAR THAT IT MUST BE RELATED TO THE EARLIER YEARS BECAUSE IT WOULD LIKE SOME TIME FOR THE MATTER TO TRAVEL TO THE SUPREME COURT. A CAREFUL PERUSAL OF VARIOUS APPENDICES WHICH PRESCRIBE THE TABLE OF RATES BY WHICH DEPRECIATION IS ADMISSIBLE WOULD SHOW THAT THE APPENDIX I WHICH WAS APPLICABLE TO THE ASST. YEAR 1984 - 85 TO 1987 - 88 DID NOT MENTION IN THE NOTES THAT BUILDINGS INCLUDE ROADS, BRIDGES, CULVERTS, WELLS AND TUBE WELLS. IN THE LATER APPENDICES WHICH IS APPLICABLE FROM ASST. YEAR 1988 - 89 TO 2002 - 03 AND 2003 - 04 AND 2005 - 06 AND THE LATEST APPENDIX WHICH IS APPLICABLE FOR THE ASST. YEAR 2006 - 07 CONTAINING THE FOLLOWING NOTE: - NOTE: BUILDING INCLUDES, ROADS, BRIDGES, CULVERTS, WELLS AND TUBE WELLS. THEREFORE, IT IS ABSOLUTELY CLEAR THAT THE HON BLE SUPREME COURT HAS HELD IN THE CASE OF INDORE MUNICIPAL CORPORATION THAT THE BUILDINGS WOULD NOT INCLUDE ROADS BECAUSE APPENDIX I DID NOT CLARIFY THAT ROADS WOULD BE INCLUDED IN THE BUILDING. AS POINTED OUT, AFTER THE ASST. YEAR 1988 - 89 ALL THE APPENDICES HAVE THE NOTE THAT BUILDING WOULD INCLUDE ROADS. THEREFO RE, IN OUR VIEW, THE ASSESSEE WOULD BECOME ENTITLED TO DEPRECIATION ON THE ROAD IN THE CATEGORY OF BUILDING. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE AND DIRECT THE AO TO ALLOW DEPRECIATION ON THE ROAD AT THE RATE AP PLICABLE TO THE BUILDING . IN THE SAME ORDER, FOR THE ASSESSMENT YEAR 2004 - 05, THE TRIBUNAL HAS HELD AS UNDER: I.T.A. NO S . 28 74 & 24 7 9 /M/16 5 21. WITH REGARD TO THE SECOND GROUND, IDENTICAL ISSUE HAS BEEN ADJUDICATED BY US AS ABOVE WHILE ADJUDICATING THE ASSESSEE S APPEAL FOR THE ASS T. YEAR 2003 - 04 WHEREBY AFTER DETAILED DISCUSSION AND ANALYSIS, WE HELD THAT THE ASSESSEE S CAPITAL EXPENDITURE INCURRED ON ROAD WOULD BE ENTITLED TO DEPRECIATION IN THE CATEGORY OF BUILDING. FOLLOWING THAT DECISION FOR THIS YEAR ALSO, WE HOLD THAT THE ROA D IS ELIGIBLE FOR DEPRECIATION IN THE CATEGORY OF BUILDING AND ACCORDINGLY DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION AS DIRECTED ABOVE. 7. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, THE LD. CIT(A) HAS DIRECTED THE ASSESSING OFFIC ER TO ALLOW DEPRECIATION @ 10% ON THE ROAD BY TREATING IT AS BUILDING. THE ONLY OBJECTION OF THE LD. DR IS THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE TRIBUNAL AND THE REVENUE HAS PREFERRED FURTHER APPEAL BEFORE THE HON BLE MADRAS HIGH COURT, BUT COULD NOT BE ABLE TO PLACE ON RECORD ANY MATERIAL TO SHOW THAT THE ORDER OF THE TRIBUNAL, ON THE BASIS OF WHICH THE LD. CIT(A) HAS PASSED THE ORDER, HAS BEEN REVERSED OR SET ASIDE BY THE HON BLE JURISDICTIONAL HIGH COURT. THEREFORE, IN VIEW OF THE FACT S, CIRCUMSTANCES AND MATERIAL ON RECORD , WE DO NOT FIND ANY VALID REASON TO INTERFERE IN THE ORDERS PASSED BY THE LD. CIT(A) ON THIS ISSUE FOR ALL THE FOUR ASSESSMENT YEARS IN THIS CASE AND WHIL E CONFIRMING THE IMPUGNED ORDER , WE DISMISS THE GROUNDS OF APP EALS OF THE REVENUE BEING DEVOID OF ANY MERITS. 8. THE NEXT COMMON GROUND RAISED IN THE APPEALS OF THE REVENUE FOR THE ASSESSMENT YEARS 2007 - 08, 2008 - 09 AND 2009 - 10 IS THAT THE LD. CIT(A) HAS ERRED IN ALLOWING THE LEASE HOLD RIGHT IS ELIGIBLE FOR DEPRECI ATION AS INTANGIBLE I.T.A. NO S . 28 74 & 24 7 9 /M/16 6 ASSET AS PER PART B OF DEPRECIATION TABLE WITHOUT CONSIDERING THAT THE LEASE HOLD RIGHTS IS NOT AN INTANGIBLE ASSET. 9. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE, BY ITS OWN ADMISSION, STATES THAT THE LAND IN QUESTION WAS A LEASED LAND TAKEN FROM SIPCOT. IN THIS LIGHT, WITHOUT PREJUDICE TO THE TENURE OF THE LEASE, IT CAN BE SAID WITH CERTAINTY THAT TNRDC DOES NOT OWN TO THE ASSETS IN QUESTION. THE ASSESSEE FAILS TO CLEAR THIS QUALIFYING BENCHMARK AN D THUS NOT ELIGIBLE FOR DEPRECIATION. IN VIEW OF THE ABOVE, THE DEPRECIATION CLAIMED IN THE RETURN OF INCOME TO THE EFFECT OF DEPRECIATION AMOUNT WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 10. BEFORE THE LD. CIT(A), THE ASSESSEE MADE FOLLOWING S UBMISSIONS : THE ASSESSEE CLAIMED DEPRECIATION AT THE RATE OF 25% ON LEASE HOLD RIGHTS ON LAND LEASED (20 YEARS LEASE TENURE) BY SIPCOT. SECTION 32 OF THE IT ACT, 1961 PROVIDES CONDITION THAT THE ASSESSEE SHOULD HAVE OWNED WHOLLY OR PARTLY THE ASSETS AND S HOULD HAVE USED THE ASSETS FOR THE PURPOSE OF THE BUSINESS TO BE ELIGIBLE TO CLAIM DEPRECIATION AS PER THE IT ACT. THEREFORE, THE AO HELD THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEPRECIATION ON LEASE HOLD LAND. HOWEVER, TO BRING TO YOUR KIND ATTENTION, THE ASSESSEE MAKES A HUMBLE SUBMISSION THAT THE ASSESSEE BECOMES THE ELIGIBLE OWNER OF THE LEASEHOLD LAND AND BE ENTITLED TO CLAIM DEPRECIATION. THE ASSESSEE HAS PAID RS.20,50,000 PER ACRE FOR 4.90 ACRES (BEING RS.1,00,45,000 DURING AY 2006 - 07)AND HAS A CQUIRED .THE LEASEHOLD RIGHTS WHICH ESSENTIALLY QUALIFIES FOR AN ALLOWABLE REVENUE EXPENDITURE OVER A PERIOD OF TIME AS ENUMERATED UNDER THE LAW. HENCE, THE ASSESSING OFFICER'S CONTENTION THAT THE ASSESSEE IS NOT THE OWNER OF THE ASSET AND NOT ELIGIBLE FOR DEPRECIATION IS NOT CORRECT. THE TOTAL LEASE CHARGES PAID IS RS.1,11,22,820 (INCLUDING THE DEVELOPMENT CHARGES PAID OVER PERIOD OF TIME TILL AY 2009 - 10). BARRING THE RIGHT TO ALIENATE I.T.A. NO S . 28 74 & 24 7 9 /M/16 7 OR OUTRIGHT SALE OF THE PROPERTY IN UNQUALIFIED MANNER, ALL RIGHTS OF E NJOYMENT IN RESPECT OF LEASED PROPERTIES ARE WITH THE ASSESSEE. IN VIEW OF THE SUPREME COURT DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED - 225 ITR 802 (SC) THE TOTAL AMOUNT OF LEASE PREMIUM PAID IN RESPECT OF SUCH AGREEMENTS S HOULD BE AMORTIZED OVER THE PERIOD OF LEASE AND ONLY THE AMOUNT PERTAINING TO THE RELEVANT PREVIOUS YEAR SHOULD BE ALLOWED AS A DEDUCTION. EVEN IN CASE OF SUPREME COURT'S RULINGS IN EMPIRE JUTE CO. LTD. VS. CIT (1980) 124 ITR 1 & CIT VS. ASSOCIATED CEMENT CO. LTD. (1988) 172 ITR 257 (SC), IT WAS HELD THAT THE EXPENDITURE DID NOT FALL IN THE CAPITAL FIELD AND BE ALLOWED AS REVENUE EXPENDITURE. ASSESSEE ACQUIRING LAND ON LEASE FOR A PERIOD OF 99 YEARS, MAKING PAYMENT OF ADVANCE RENT IN THE SUM OF RS. 48 CRORE S, AND PAYING MONTHLY RENT OF RS. 40 PER MONTH, ADVANCE LEASE RENT PAID WAS ALLOWABLE REVENUE EXPENDITURE. REFER SUN PHARMACEUTICAL IND. LTD. 227 CTR 206, JOINT CIT V MUKUND LTD. (2007) 291 ITR (AT) 249 (MUMBAI)(SB). IN THE NATURE OF BUSINESS OF THE ASSE SSEE, IT IS VERY MUCH ESSENTIAL TO ALLOW THE EXPENDITURE INCURRED FOR OPERATIONAL PURPOSES AS REVENUE EXPENDITURE IN THE COMPUTATION OF TOTAL INCOME. IN THE PRESENT CASE, THE ASSESSEE WAS NEITHER ALLOWED DEPRECIATION ON THE LEASEHOLD RIGHTS NOR AS REVENUE EXPENDITURE WHICH IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE AND CASE LAW RELIED ON, THE LD. CIT(A) HAS HELD AS UNDER: I HAVE CAREFULLY GONE THROUGH THE OBSERVATION OF THE AO AS MENTIONED ABOVE UN DER PARA 6.1 AND THE AR'S SUBMISSION MENTIONED ABOVE UNDER PARA 6.2. 6.3.1 THE APPELLANT HAS CAPITALIZED THE PAYMENT OF LEASEHOLD RIGHT PAID TO SIPCOT AND CLAIMED DEPRECIATION @ 25% TREATING IT AS 'INTANGIBLE ASSET'. THE AO HAS DISALLOWED THE APPELLANT'S CLAIM OF DEPRECIATION ON THE GROUND THAT THE APPELLANT DOES NOT OWN THE LAND WHICH IS A PRE - CONDITION REQUIRED FOR ALLOWING DEPRECIATION. 6.3.2 I HAVE CONSIDERED BOTH THE POINTS OF VIEW. AS PER SEC.32(1)(II), DEPRECIATION IS ALLOWABLE FOR 'ANY OTHER BUS INESS OR COMMERCIAL RIGHT OF SIMILAR NATURE BEING INTANGIBLE ASSET ACQUIRED ON OR AFTER 1.4 .1998'. AS PER RULE 5 OF INCOME TAX RULES AND PART B OF DEPRECIATION TABLE 'INTANGIBLE ASSET' IS ELIGIBLE FOR DEPRECIATION @ 25%. THE APPELLANT HAS SUBMITTED THAT T HE RIGHT TO DEVELOP AS EVIDENCED BY LEASEHOLD AGREEMENT IS AN INTANGIBLE I.T.A. NO S . 28 74 & 24 7 9 /M/16 8 ASSET AND IS ELIGIBLE FOR DEPRECIATION @ 25%. IN THIS REGARD, THE APPELLANT HAS RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT AS MENTIONED ABOVE UNDER PARA 6.2. 6.3.3 RESPECT FULLY FOLLOWING THE DECISION OF THE APEX COURT, THE AO'S DISALLOWANCE OF DEPRECIATION ON SIPCOT LEASEHOLD RIGHT IS DELETED AND THE APPELLANT'S GROUND ON THIS ISSUE IS ALLOWED IN ASSESSMENT YEARS 2007 - 08, 2008 - 09 & 2009 - 10. 11. ON BEING AGGRIEVED, THE REV ENUE IS IN APPEAL BEFORE THE TRIBUNAL. BY RELYING ON THE DECISION IN THE CASE OF CYBER PARK DEVELOPMENT & CONSTRUCTION LTD. V. DCIT 71 TAXMANN.COM 210 (BANGALORE TRIB), THE LD. DR HAS SUBMITTED THAT THE LEASE HOLD RIGHTS CANNOT BE HELD AS INTANGIBLE ASSE T AS ENVISAGED IN SECTION 32(2)(II) OF THE ACT AND PLEADED THAT THE ORDER OF THE LD. CIT(A) ON THIS ISSUE SHOULD REVERSED. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 12. WE HAVE HEARD BO TH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE THE ASSESSEE HAS CLAIMED DEPRECIATION AMOUNT TO .19,29,341/ - ON LEASE HOLD RIGHTS OF .77,17,365/ - . SINCE THE LAST IN QUESTION IS A LEASED LAND TAKEN FROM SIPCOT, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE DOES NOT OWN THE ASSETS IN QUESTION AND THEREFORE, THAT ELIGIBLE TO CLAIM DEPRECIATION. IN VIEW OF THE SUPREME COURT DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED V. CIT (SUPRA), WHEREIN, IT WAS HELD THAT THE TOTAL AMOUNT OF LEASE PREMIUM PAID IN RESPECT OF SUCH AGREEMENTS SHOULD BE I.T.A. NO S . 28 74 & 24 7 9 /M/16 9 AMORTIZED OVER THE PERIOD OF LE ASE AND ONLY THE AMOUNT PERTAINING TO THE RELEVANT PREVIOUS YEAR SHOULD BE ALLOWED AS A DEDUCTION , THE LD. CIT(A) DELETED THE DISALLOWANCE OF DEPRECIATION ON SIPCOT LEASEHOLD RIGHT. BEFORE US, THE LD. DR REFERRED ON THE DECISION IN THE CASE OF CYBER PARK D EVELOPMENT & CONSTRUCTION LTD. V. DCIT, WHEREIN, THE BANGALORE BENCHES OF THE TRIBUNAL HAS HELD THAT THE RIGHT OF ENJOYMENT TO IMMOVABLE PROPERTY UNDER A LEASE IS IMMOVABLE PROPERTY WITHIN THE MEANING GIVEN IN SECTION 103 OF THE TRANSFER OF PROPERTY ACT. U NDER SECTION 105 OF THE TRANSFER OF PROPERTY ACT, A LEASE CREATES A RIGHT OR AN INTEREST IN THE ENJOYMENT OF THE LAND PROPERTY [JASWANT SINGH MATHURASINH V. AHMEDABAD MUNICIPAL CORPORATION [1992] 5 SCC 12. THEREFORE, THE TRIBUNAL HAS HELD THAT BY VIRTUE OF LEASE ONLY AN INTEREST IN LAND IS CREATED WHICH DOES NOT QUALIFY FOR ALLOWANCE OF DEPRECIATION. 13. LET US NOW EXAMINE THE CASE ON MERITS. IT IS NEEDLESS TO STATE THAT TRANSFERRING AN IMMOVABLE PROPERTY BY WAY OF A LEASE CREATES AN INTEREST IN THE LAND AS RIGHTLY HELD BY THE BANGALORE BENCHES OF THE TRIBUNAL IN THE CASE OF CYBER PARK DEVELOPMENT & CONSTRUCTION LTD. V. DCIT(SUPRA) . ACCORDING TO SECTION 2(14) OF THE INCOME TAX A CT, THE WORD 'CAPITAL ASSET' MEANS, 'PROPERTY OF ANY KIND HELD BY AN ASSESSEE'. THEREFORE IT DOES NOT NECESSARILY MEAN THAT THE PROPERTY, WHICH THE ASSESSEE HOLDS, MUST BE HIS OWN. AS PER THE ABOVE REFERRED TO DEFINITION, ANY KIND OF PROPERTY HELD BY AN ASSESSEE I.T.A. NO S . 28 74 & 24 7 9 /M/16 10 WOULD COME WITHIN THE DEFINITION OF 'CAPITAL ASSET'. IT IS NOT POSSIBLE TO READ THE DEFINITION OF 'CAPITAL ASSET' IN A RESTRICTIVE MANNER TO MEAN THAT THE PROPERTY WHICH THE ASSESSEE OWNED BY HIMSELF ALONE WOULD COME WITHIN THE MEANING OF 'CAPITAL ASSET'. 14. IN THE CASE OF R. KRISHNAMURTHY & R. RAJAGOPALAN V. CIT 133 ITR 92 2 (MAD) , A POINT AROSE BEFORE THE HON BLE JURISDICTIONAL HIGH COURT AT THE INSTANCE OF THE ASSESSEE AS TO WHETHER TRANSFER BY WAY OF A LEASE WOULD AMOUNT TO TRANSFER OF A 'CAPITAL ASSET'? I N THAT CASE, THE ASSESSEE WAS A BODY OF INDIVIDUALS, WHO HAD PURCHA SED VARIOUS EXTENTS OF PROPERTIES IN THE YEAR 1966 FOR A STATED CONSIDERATION. THEREAFTER, THE ASSESSEE, BY AN INSTRUMENT DATED 10. 09. 1970 STYLED AS LEASE - CUM - LICENCE, GRANTED A MINING LEASE IN FAVOUR OF A COMPANY. A QUESTION AROSE WHETHER SUCH A TRA NSACTION WOULD AMOUNT TO TRANSFERRING A CAPITAL ASSET THEREBY ATTRACTING CAPITAL GAINS? T HE POINT ARG UED BY THE ASSESSEE BEFORE THE C OURT WAS THAT THE TRANSFER BY WAY OF LEASE MUST STAND EXCLUDED FROM THE TRANSFER AS DEFINED UNDER SUB - SECTION (47) OF SEC TION 2 OF THE INCOME TAX ACT. A DIV ISION BENCH OF THIS C OURT NEGATIVED THE POINT RAISED BY THE ASSESSEE. THIS COURT HELD THAT THE RIGHT CONFERRED ON A LESSEE UNDER A LEASE DEED IS A CAPITAL ASSET IN THE HANDS OF THE LESSOR. 15. FURTHER I N THE CASE OF GAS PER V. CIT 117 ITR 581, THE ASSESSEE WAS A TENANT, WHOSE RIGHTS WERE PROTECTED UNDER THE W EST B ENGAL TENANCY A CT, I.T.A. NO S . 28 74 & 24 7 9 /M/16 11 1956. HOWEVER, DUE TO A TRIPARTITE AGREEMENT ENTERED INTO BY HIM, THE LESSOR AND THE PROPOSED SUB - LESSEE, HE HAD EXTINGUISHED HIS RIGHTS, AS A RESULT OF WHICH; THE PROPOSED PARTY BECAME THE LESSEE OF THE PROPERTY. THE HON BLE C ALCUTTA H IGH C OURT HAS HELD THAT SURRENDER OF RIGHTS OF THE ASSESSEE REFERRED TO ABOVE WOULD AMOUNT TO EXTINGUISHMENT OF HIS RIGHTS IN THE LAND/CAPITAL ASSET AND THEREFO RE IT ATTRACTS CAPITAL GAINS. THIS JUDGMENT WAS AFFIRMED BY THE HON BLE S UPREME C OURT IN 192 ITR 382. 16. IN THE CASE OF K. PALSHIKAR [HUF] V. CIT 172 ITR 311, A H INDU UNDIVIDED FAMILY WAS THE ASSESSEE; THEY HAD AGRICULTURAL LANDS BELONGING TO AN ANCESTO R; LATER ON, THE PROPERTY WAS DEVELOPED INTO A RESIDENTIAL ZONE; VARIOUS EXTENTS OF PROPERTIES WERE LEASED FOR A PERIOD OF 99 YEARS AND THE LEASE DOCUMENT PROVIDED FOR TERMINATION OF LEASE ON STATED FAILURES BY THE LESSEE. FOR THE ASSESSMENT YEARS MENTIONE D THEREIN, A LARGE SUM OF MONEY WAS RECEIVED AS SALAMI. A QUESTION AROSE AS TO WHETHER THE TRANSACTION EFFECTED BY THE ASSESSEE WOULD AMOUNT TO TRANSFERRING A CAPITAL ASSET WARRANTING CAPITAL GAINS TAX? T HE HON BLE S UPREME C OURT HELD THAT TRANSFER BY WAY O F LEASE WOULD AMOUNT TO TRANSFER OF A CAPITAL ASSET AND THEREFORE TAX IS LEVIABLE AS CAPITAL GAINS. 17. FROM A READING OF THE ABOVE REFERRED TO JUDGMENT, IT IS CLEAR THAT TRANSFER BY WAY OF LEASE IS TREATED AS TRANSFER OF A CAPITAL ASSET ON THE PRINCIPLE THAT THE LEASE CREATES AN INTEREST IN THE LAND AND THEREFORE TO THAT I.T.A. NO S . 28 74 & 24 7 9 /M/16 12 EXTENT, IT EXTINGUISHES THE RIGHT OF THE TRANSFEROR. IF THE FACTS OF THE PRESENT CASE ARE ANALYSED IN THE CONTEXT OF THE LAW LAID DOWN BY THE HON BLE S UPREME C OURT AND VARIOUS SECTIONS O F THE I NCOME T AX A CT, WE HAVE NO DIFFICULTY AT ALL IN HOLDING THAT WHEN THE ASSESSEE TRANSFERS HIS LEASEHOLD RIGHTS IN THE LAND IN HIS OCCUPATION BY WAY OF A LEASE TO ANOTHER PERSON, IT AMOUNTS TO EXTINGUISHING HIS RIGHTS IN THE PROPERTY AND SINCE HIS LEAS EHOLD RIGHTS HAD CREATED AN INTEREST IN THE LAND, I. E . , ENJOYMENT AND POSSESSION AND THEREFORE IT WOULD DEFINITELY COME WITHIN THE DEFINITION OF 'CAPITAL ASSET' AS DEFINED UNDER SECTION 2(14) OF THE INCOME TAX ACT. SINCE THE ASSESSEE DOES NOT OWN THE ASSE TS IN ITS OWN CASE, THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION AS CLAIMED BY THE ASSESSEE. ONCE THE RIGHT IS EXTINGUISHED BY MEANS OF LEASE DEED AND SHALL BE TREATED AS TRANSFER OF A CAPITAL ASSET ON THE PRINCIPLE THAT THE LEASE CREATES AN INTEREST IN THE LAND AND THEREFORE , THE TRANSFER OF LEASE WOULD AMOUNT TO TRANSFER OF A CAPITAL ASSET , WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON THE ASSET GET TRANSFERRED BY MEANS OF LEASE DEED. IN VIEW OF THE ABOVE, TH E GROUND RAISED BY THE REVENUE IS DISMISSED. 18 . THE NEXT GROUND RAISED IN THE APPEALS OF THE REVENUE FOR THE ASSESSMENT YEARS 2012 - 13 AND 2013 - 14 IS THAT THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICER HAS OBSERVED THAT THE INVESTMENT PORTFOLIO OF THE ASSESSEE I.T.A. NO S . 28 74 & 24 7 9 /M/16 13 AS ON 31.03.2012 STANDS AT AN AGGREGATE VALUE OF .34,05,00,000/ - . THE ASSESSEE HAS NOT QUANTIFIED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. BY APPLYING THE PROVISIONS OF RULE 8D(II) & (III), THE ASSESSING OFFICER HAS DETERMINED THE EXPENDITURE OF ADMINISTRATIVE/MANAGERIAL NATURE TO THE EXTENT OF .97,11,917/ - FOR THE ASSESSMENT YEAR 2012 - 13 AND .17,02,500/ - FOR THE ASSESSMENT YEAR 2013 - 14 AND MADE DISALLOWANCES. 19 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) FOR BOTH THE ASSESSMENT YEARS . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF SHRI M. BHASKARAN IN I.T.A. NO. 1717/MDS/2013, THE LD. CIT(A) DELETED THE ADDITION. 2 0. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL FOR BOTH THE ASSESSMENT YEARS. 21. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELO W. THE ASSESSEE IS A NODAL AGENCY OF GOVERNMENT OF TAMIL NADU FOR IMPLEMENTATION OF THE INDUSTRIAL POLICY IN TAMILNADU FOR CREATION OF INFRASTRUCTURE FACILITIES SUCH AS ROAD, BRIDGES, ETC. TNRDC WAS SET UP WITH THE MANDATE OF DEVELOPING INITIATIVES IN THE ROAD SECTOR BY CATALYZING PRIVATE SECTOR RESOURCES AND INVESTMENTS UNDER PUBLIC - PRIVATE PARTNERSHIP (PPP) FRAMEWORK. NEITHER THE ASSESSEE IS A PRIVATE LIMITED COMPANY OR MADE INVESTMENTS WITH THE INTENTION TO EARN I.T.A. NO S . 28 74 & 24 7 9 /M/16 14 EXEMPT INCOME. AS PER PARA 2.11 OF PUBLIC PRIVATE PARTNERSHIP (PPP) AGREEMENT RELEVANT TO ALLOCATION OF SURPLUS CLAUSE, IT EXPRESSWAY LIMITED CANNOT ISSUE DIVIDEND AND THE INCOME HAS TO BE PLOUGHED BACK FOR THE OPERATIONS OF THE COMPANY. IN SUCH CASE, THE IT EXPRESSWAY LIMITED CANNOT DECLARE ANY DIVIDEND AND THERE IS NO QUESTION OF ACCRUAL OR RECEIPT OF INCOME IN THE HANDS OF THE ASSESSEE. THE INVESTMENTS ARE NOT WITH THE INTENTION TO EARN INCOME OUT OF IT AND MOREOVER, NO INCOME HAS BEEN ACCRUED OR RECEIVED BY THE ASSESSEE OUT OF THE INVESTMENTS . THUS, IT WAS THE SUBMISSION THAT THE WHEN THERE WAS NO DIVIDEND INCOME EARNED, THE QUESTION OF SECTION 14A OF THE ACT DOES NOT APPLY. WHEN THERE WAS NO DIVIDEND INCOME EARNED OR LIKELY TO ACCRUE SUBSEQUENTLY, WE ARE OF THE OPINION THAT THE RECENT JUDGEME NT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT IN T.C.A. NO. 520 OF 2016 DATED 23.12.2016 SQUARELY APPLIES TO THE CASE OF THE ASSESSEE. IN THAT CASE, THE HON BLE HIGH COURT HAS HELD THAT WHEN THERE IS NO EXEMPT INCOME THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE BY HOLDING AS UNDER: 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE OTHER AND CONSEQUENTL Y THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN THE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHING CONCEPT, IN A YEAR WHERE THERE IS NO EXEMPT INCOME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SU CH ASSUMED INCOME. (MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. CIT (225 ITR 802). THE LANGUAGE OF S. 14A(1) SHOULD BE READ IN THAT CONTEXT AND SUCH THAT IT ADVANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. 16. IN CONCLUSION, WE ARE OF THE VIEW THAT THE PROVISIONS OF S. 14A READ WITH RULE 8D OF THE RULES CANNOT BE MADE APPLICABLE IN A VACUUM I.E., IN THE I.T.A. NO S . 28 74 & 24 7 9 /M/16 15 ABSENCE OF EXEMPT INCOME. THE QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT AND THE APPEAL ALLOWED. NO COS TS. 22. IN VIEW OF THE ABOVE DECISION, WE DO NOT FIND ANY FLAW IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE FOR BOTH THE ASSESSMENT IS DISMISSED. 23. IN THE RESULT, ALL THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 24 TH MAY , 201 7 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 24 . 0 5 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.