ITO, New Delhi V. M/s. Millennium Spire India Management (P) Ltd., New Delhi

ITA 3297/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82193 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 18-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 24-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Search and seizure; Valuation report; Competent authority
• Section: 133(6); 32

Judgement Text

DELHI BENCH E : NEW DELHI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 3297 /DEL/ 2013 (ASSESSMENT YEAR: 2009 - 10 ) ITO, WARD - 6(4), ROOM NO.418, 4 TH FLOOR, C.R. BUILDING, I.P. ESTATE, NEW DELHI VS. MILLENNIUM SPIRE INDIA MANAGEMENT (P) LTD., 4H, M - 6 PLAZA, DISTRICT CENTRE JASOLA, NEW DELHI PAN:AACCT3674J (APPELLANT) (RESPONDENT) O R D E R PER A. T. VARKEY, JUDICIAL MEMBER THIS IS AN APPEAL ARISING FROM THE ORDER OF THE LD CIT(A) - IX, NEW DELHI DATED 26.03.2013 FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE SOLITARY ISSUE INVOLVED IN THE INSTANT APPEAL PERTAIN S TO DISALLOWANCE OF DEPRECIATION OF RS.81,20,505/ - ON COMMERCIAL PROPERTY , WHICH HAS BEEN CLAIMED BY THE ASSESSEE TO HAVE BEEN USED IN THE COURSE OF THE BUSINESS BY THE ASSESSEE. 3. BRIEF FACTS OF T HE CASE ARE THAT THE ASSESSEE HAD ENTERED INTO TWO SEPARAT E SALE AGREEMENTS BOTH DT.15. 0 1.2007 WITH HEAVEN BUILDWELL PVT. LTD. FOR PURCHASE OF OFFICE UNIT NOS .4H AND 4J EACH MEASURING 1500 SQ. FT. ON THE 4 TH FLOOR OF COMMERCIAL COMPLEX ON PLOT NO .6, JASOLA COMMERCIAL CENTRE, NEW DELHI BUILT BY INDIA COLONIZERS PV T. LTD. FO R AN AGGREGATE CONSIDERATION OF RS.6,75,00,000/ - . THE COST OF COMMERCIAL OF FICE COMPRISED OF : - (A) COST OF FLAT PAID TO SELLER RS 6,75,00,000/ - (B) BROKERAGE RS 6,14,715/ - (C) FREEHOLD CHARGES RS 14,55,000/ - (D) COST OF CIVIL, ELECTRICAL, SANITARY WORK ETC. RS 33,85,433/ - TOTAL COST RS 7,29,55,148/ - 4. THE SAID ASSET PURCHASED DURING A . Y . 2008 - 09 WAS, AFTER FIT - OUT, BROUGHT TO USE W.E. F . 1 ST MAY, 2008 AND DEPRECIATION OF RS 72,46,021/ - APPELLANT BY : VIVEK AGGARWAL, CA RESPONDENT BY : J.P. CHANDRAKER, SR. DR PAGE 2 OF 6 CLAIMED ACCORDINGLY. 5 . THE BALANCE DEPRECIATION WAS OF RS.8,74,483/ - PERTAIN S TO DEPRECIATION UNDER THE HEAD , PLANT AND MACHINERY, COMPUTER AND FURNITURE AND FITTINGS. 6 . DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTED TH AT THE ASSESSEE CLAIMED DEPRECIAT ION ON WHOLE OF THE PRICE PAID FOR ACQUIRIN G OF THESE OFFICE SPACES ON THE GROUND THAT THE OFFICE SPACES ON THE 4 TH FLOOR WERE PURCHASED FROM THE BUILDERS IN A MULTI - STOREYED BUILDINGS WHEREIN LAND IS NOT SEPARATE AND THAT THE ASSESSEE HAD NO RIGHT OR CLAIM ON THE LAND ON WHICH THE BUILDING IS SITUATED . THE AO DID NOT AGREE WITH THIS CLAIM OF DEPRECIATION AND IN THE LIGHT OF THERE BEING NO VALUATION REPORT REGARDING THE COST OF CONSTRUCTION ETC. PROCEEDED TO DISALLOW THE ENTIRE CLAIM OF DEP RECIATION. 7 . THE AO SOUGHT INFORMATION U/S 133(6) OF THE INCOME TAX ACT , 1961 (HEREIN AFTER THE ACT) FROM THE DEVELOPER M/S INDIA COLONIZER PRIVATE LIMITED, VIDE LETTER RECEIVED ON 14.12.2011. IN REPLY TO THE QUESTION AS TO HOW THE PRICE OF COMMERCIAL S PACE SOLD TO THE ASSESSEE HAS BEEN DERIVED AT AND HOW MUCH OF THE VALUE OF THE COMMERCIAL SPACE IS DERIVED FROM VALUE OF THE LAND AND HOW MUCH IS DERIVED FROM CONSTRUCTION, THE DEVELOPER REPLIED THAT THE COST OF CONSTRUCTION WAS ADDED TO THE COST OF LAND A ND THE PRICE OF THE COMMERCIAL SPACE WAS ARRIVED AT. THE SAME WAS CHARGED TO M/ S . MILLENNIUM SPIRE I NDIA MANAGEMENT PRIVATE LIMITED. ON BEING ASKED AS TO WHETHER THE CONTRACT WITH BUYER OF COMMERCIAL SPACE HAS ANY CLAU SE WITH REGARD TO THE TREATMENT OF LAND IN CASE OF NATURAL CALAMITY AFFECTING THE STRUCTURE OR ANY OTHER REASON AFFECTING THE BUILDING . AND IF NOT HOW THE OWNERSHIP OVER THE LAND SHALL BE SETTLED IN SUCH SITU A TION S . THE DEVELOPER REPLIED THAT IN CASE OF NATURAL CA L AMITY AFFECTING THE STRUCTURE DUE TO ANY OTHER REASON THE OWNERSHIP OF THE LAND WOULD BE DIVIDED AMONG ALL THE OCCUPANTS. 8 . THE LD CIT(A) HOWEVER DELETED THE DISALLOWANCE OF DEPRECIATION AND HENCE THE APPEAL BY THE REVENUE IS BEFORE US. 9 . THE LD DR CONTENDED THAT THE LD CIT(A) HAS FAILED TO APPRECIATE THAT NO DEPRECIATION CAN BE ALLOWED ON COST OF LAND FORMING PART OF THE COST OF BUILDING. HE SUBMITTED THAT THE PRICE OF LAND WAS EMBEDDED IN THE VALUE OF COMMERCIAL PROPERTY USED FOR BUSINESS BY THE ASSESSEE. AND AS SUCH PAGE 3 OF 6 PROPORTIONATE OWNERSHIP OF LAND GETS TRANSFERRED TO THE ASSESSEE ON PURCHASE OF COMMERCIAL SPACE. HE SUBMITTED THAT THE LD CIT(A) ERRED IN HOLDING THAT THE DELHI APARTMENT OWNERSHIP ACT IS NOT EFFECTIVE, DESPITE THE FACT THAT THE SAME WAS PASSED BY THE PARLIAMENT AND THE HONBLE DELHI HIGH COURT HAS DIRECTED FOR IMPLEMENTATION OF THE ACT. ON THE OTHER HAND, THE COUNSEL FOR THE ASSESSEE, CONTENDED AS UNDER: - THE FIRST SUBMISSION IS THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON WHOLE OF THE PRICE PAID FOR ACQUIRING OF THE SAID OFFICE BUILDINGS ON THE GROUND THAT THE OFFICE BUILDINGS WERE PURCHASED FROM THE BUILDERS IN A MULTI - STOREYED BUILDING WHEREIN LAND IS N OT SEPARABLE. THEREFORE, THE VALUE OF THE CONSTRUCTION AND VALUE OF THE LAND CANNOT BE DETERMINED. THE SECOND SUBMISSION IS THAT THE ASSESSEE PURCHASE A BUILDING AND PURCHASE PRICE (AS PER SALE DEED) IS COMPOSITE ONE WHERE SALE DEED DOES NOT INDICATE THE PRICE OF LAND AND BUILDING SEPARATELY, THE ENTIRE AMOUNT IS PAID TO VENDOR IS QUALIFIED FOR DEPRECIATION. THE THIRD SUBMISSION IS THAT THE AGREEMENT WITH THE BUILDER FOR PURCHASE OF THE SAID PROPERTY DOES NOT INDICATE THAT ANY RIGHT OR INTEREST IN OWNERS HIP OF LAND IS BEING TRANSFERRED TO THE PURCHASER. AND THE PRICE PAID FOR THE BUILDING WAS COMPOSITE AND THERE WAS NO BIFURCATION BETWEEN LAND AND BUILDING. THE FOURTH SUBMISSION IS THAT EVEN IN RESPONSE TO NOTICE U/S 133(6), THE DEVELOPER REPLIED THAT THE COST OF CONSTRUCTION WAS ADDED TO THE COST OF LAND AND THE PRICE OF THE COMMERCIAL SPACE WAS ARRIVED AT AND THE SAME WAS CHARGED FROM THE ASSESSEE. THE FIFTH SUBMISSION IS THAT DELHI APARTMENT OWNERSHIP ACT HAS NOT BEEN IMPLEMENTED IN DELHI AS THE GOVERN MENT HAS NOT APPOINTED THE 'COMPETENT AUTHORITY' TILL DATE. THEREFORE, RELIANCE PLACED BY AO IS WHOLLY MISCONCEIVED. 10 . WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RECORDS. WE HAVE PERUSED THE AGREEMENT DATED 03.01.2006 BETWEEN M/S. INDIA COLONIZE RS PVT. LTD. AND MR. INDER ARAVINDER SINGH, THE ORIGINAL ALLOTTEE, WHO ASSIGNED THEIR RESPECTIVE RIGHTS TO THE APPELLANT AT A PRICE. 11 . THE RELEVANT CLAUSES OF THE AGREEMENT HAS ALSO BEEN EXTRACTED BY THE LD CIT(A) WHICH ARE AS UNDER: - CLAUSE 6 OF THE AGREEMENT (PAGE 4) 'THAT IN CONSIDERATION OF THE PAYMENT MADE/TO BE MADE BY THE SPACE BUYER TO THE DEVELOPERS AND IN THE MANNER APPEARING HEREINAFTER, THE DEVELOPERS HEREBY AGREES TO TRANSFER, CONVEY AND ASSIGN TO THE PAGE 4 OF 6 SPACE BUYER AND THE S PACE BUYER AGREES TO HAVE AND ACQUIRE THE 'SAID PREMISES' AT THE RATE MENTIONED AGAINST IT AND UPON THE TERMS AND CONDITIONS SET OUT HEREUNDER AS MUTUALLY AGREED BY AND BETWEEN THE PARTIES HERETO.' CLAUSE 7 OF AGREEMENT THAT IT IS MADE CLEAR THAT WHAT IS TO BE SOLD IS THE SPACE DESCRIBED ABOVE. THE LAND UNDERNEATH IS LEASED OUT BY THE DDA AND SUCH LESSEE RIGHTS WILL ULTIMATELY BE SHARED BY THE OWNERS OF VARIOUS SPACES INCLUDING THE BUYER HEREIN THROUGH THE MEDIUM OF A SOCIETY OR ANY OTHER APPROPRIATE BODY . ALTHOUGH NO INTEREST IN THE LAND HAS BEEN AGREED TO BE TRANSFERRED AS SUCH, NEVERTHELESS IT IS MADE CLEAR THAT THE SPACE BUYER SHALL HAVE NO RIGHT TO CLAIM PARTITION OF THE LAND. (COMMENT - TILL DATE NO SUCH SOCIETY OR BODY HAS BEEN FORMED AND NO LAND HA S BEEN TRANSFERRED) CLAUSE 8 OF AGREEMENT 'THE TERM 'PREMISES' MEAN THE INSIDE OF WHAT IS HEREBY AGREED TO BE SOLD WHILE THE TERM 'COMPLEX' AS USED IN THIS AGREEMENT REFERS TO THE OVERALL COMPLEX, VARIOUS FACILITIES AND COMMON AREAS THEREIN EXCLUDING THO SE PREMISES WHICH HAVE BEEN SOLD TO OTHERS. ' CLAUSE 9 OF AGREEMENT 'THA T IT IS MUTUALLY AGREED THAT SAVE AND EXCEPT IN RESPECT OF THE 'SAID PREMISES' HEREBY AGREED TO BE ACQUIRED BY THE SPACE BUYER, HE/SHE/THEY SHALL HAVE NO CLAIM, RIGHT, TITLE OR INTE REST OF ANY NATURE OR KIND WHATSOEVER EXCEPT RIGHT TO INGRESS/EGRESS OVER OR IN RESPECT OF LAND, OPEN SPACES AND ALL OR ANY OF THE COMMON AREAS SUCH AS LOBBIES, STAIRCASE, LIFTS, CORRIDORS, TERRACE AND ROOF ETC. WHICH SHALL REMAIN THE PROPERTY OF THE DEVEL OPERS, WHO MAY USE AND UTILIZE THE SAME IN ANY MANNER THEY LIKE AND THE SPACE BUYER SHALL HAVE NO CLAIM OR OBJECTION TO THE SAME. ' CLAUSE 13 OF AGREEMENT PG 5, NOTWITHSTANDING THE FACT THAT A PORTION OF THE COMMON AREA HAS BEEN INCLUDED FOR THE PURPOSE OF CALCULATING THE SUPER AREA OF THE 'SAID PREMISES', IT IS SPECIALLY MADE CLEAR THAT IT IS ONLY THE INSIDE SPACE IN THE 'SAID PREMISES' THAT HAS BEEN AGREED TO BE CONVEYED AND TRANSFERRED TO THE SPACE BUYER AND THE INCLUSION OF THE COMMON AREAS IN THE COM PUTATION DOES NOT GIVE ANY INTEREST THEREIN AS SUCH TO THE SPACE BUYER, EXCEPT AS PROVIDED HEREUNDER. CLAUSE 72 OF THE AGREEMENT PG17, 'IN THE EVENT OF AN ADDITIONAL STOREY BEING PERMITTED AT ANY LATER TIME, SUCH CONSTRUCTION RIGHT SHALL BELONG TO THE DE VELOPERS AS DISTINCT FROM BODY/SOCIETY/AGENCY ' 12 . FROM A PERUSAL OF THE ABOVE TERMS OF THE AGREEMENT, WE FIND T HAT IT IS A COMPOSITE AGREEMENT ; AND THERE IS NO SEPARATE CONSIDERATION ATTRIBUTABLE SPECIFICALLY TO THE LAND. THEREFORE THE ISSUE IS WHETHER ON PURCHASE OF COMMERCIAL SPACE FOR A COMPOSITE CONSIDERATION, THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON THE COMPOSITE CONSIDERATION. THIS ISSUE WAS PAGE 5 OF 6 CONSIDERED BY THE BANGALORE BENCH OF ITAT IN THE CASE OF JCIT VS. RAJESH EXPORTS 9 SOT 28 (BANG.) I TAT BANGALORE AND IT WAS HELD AS UNDER: - 9 SOT 28 (BANG.) ITAT BANGALORE 'NOW THE QUESTION IS IF IT IS A LAND, THEN DEPRECIATION UNDER SECTION 32 OF THE ACT IS ALLOWABLE. SECTION 32(1) READS AS UNDER: '32(1) IN RESPECT OF DEPRECIATION OF - (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS; IT IS CLEAR FROM A READING OF SECTION 32(1) THAT THE WORD 'BUILDING' IS USED BY THE LEGISLATURE. THE TERM 'BUILDING' USED IN SECTION 10(2) OF THE 1922 ACT HAD COME UP FOR JUDICIAL EXAMINATION BEFORE THE HON'BLE SUPREME COURT IN THE CASE OF CIT V ALPS THEATRE (65ITR377 ). THE QUESTION BEFORE THE SUPREME COURT WAS WHETHER THE COST OF LAND IS ENTITLED TO DEPRECIATION ALONG WITH COST OF BUILDING STANDING THEREON. REVERSING THE JUDGMENT OF THE PUNJ AB & HARYANA HIGH COURT; THE HON'BLE SUPREME COURT HELD THAT BUILDING DOES NOT INCLUDE THE SITE BECAUSE THERE CANNOT BE ANY QUESTION OF DESTRUCTION OF SITE. IT IS FURTHER HELD THAT THE WORD USED IS 'DEPRECIATION' AND DEPRECIATION MEANS DECREASE IN VALUE OF PROPERTY THROUGH WEAR & TEAR DETERIORATION, OBSOLESCENCE. (WEBSTER'S NEW WORD DICTIONARY). IN THAT SENSE, LAND CANNOT DEPRECIATE. DEPRECIATION IS ALLOWABLE ONLY ON THE VALUE OF SUPERSTRUCTURE ON THE LAND AND NOT ON THE VALUE OF LAND. THE LEGAL PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF ALPS THEATRE (SUPRA) STILL HOLDS GOOD. EVEN UNDER SECTION 32 OF THE IT ACT, 1961, THE WORD USED IS 'BUILDING' AND BUILDING IS TO BE INTERPRETED THE SUPERSTRUCTURE. AS FAR AS THE FACTS BEFORE US ARE CONC ERNED, THOUGH IT IS VEHEMENTLY ARGUED BY THE LEARNED COUNSEL FOR ASSESSEE THAT THE PURCHASE PRICE OF LAND WAS A COMPOSITE ONE AND FOR THE SAKE OF CONVENIENCE, THE PRICE OF LAND AND PRICE OF BUILDING WAS SEPARATELY SHOWN, WE ARE AFRAID THAT HIS CONTENTION C AN BE ACCEPTED. AS FAR AS THE CONVEYANCE DEED IS CONCERNED, CONSIDERATION PAID BY THE ASSESSEE FOR LAND IS SHOWN SEPARATELY. IF THE TRANSACTION WAS COMPOSITE ONE, THEN NO DISTINCTION AT LEAST IN THE CONSIDERATION PAID TO THE VENDOR WOULD HAVE BEEN MADE. WE ARE OF THE OPINION THAT AS THERE IS A CLEAR - CUT IDENTITY IN RESPECT OF PRICE PAID TO THE LAND AND BUILDING, THE ASSESSING OFFICER WAS RIGHT IN ALLOWING DEPRECIATION ONLY ON THE BUILDING. THE CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO A LLOW DEPRECIATION ON THE COST OF LAND AS THE SAME IS NOT CONTEMPLATED UNDER SECTION 32 OF THE ACT. IN THE RESULT, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER. IN THE RESULT, THE REVENUE'S APPEAL IS PARTLY AL LOWED. ' 13 . HAVING CONSIDERED THE ABOVE CASE - LAWS AND IN THE ABSENCE OF ANY OTHER CONTRARY DECISION IN RESPECT OF A COMPOSITE CONSIDERATION, WE ARE INCLINED TO CONFIRM THE IMPUGNED ORDER OF THE LD CIT(A). THE LD DR HAS NOT PAGE 6 OF 6 ASSAILED THE FACTUAL POSITION THAT THE CONSIDERATION PAID WAS NOT A COMPOSITE CONSIDERATION , BY POINTING OUT ANY MATERIAL SO AS TO PERSUADE US TO COME TO A CONCLUSION THAT THERE WAS BIFURCATION OF CONSIDERATION BETWEEN LAND AND BUILDING. THEREFORE WE CONFIRM THE ORDER AND DISMISS THE A PPEAL. 14 . IN THE RESULT THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 3 . 12 .2014. - S D / - - S D / - ( PRAMOD KUMAR ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2 3 / 12 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI