ACIT 9(1), MUMBAI V. EAGLE BURGMANN INDIA P.LTD, MUMBAI

ITA 4249/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0947 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 08-01-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 20-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Capital asset; Depreciation
• Section: 2(14); 32; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH , JM AND SHRI SANJAY ARORA , AM ./ I. T.A. NO. 4249/MUM/2012 ( / ASSESSMENT YEAR: 2004 - 05 ) ASST. CIT, RANGE - 9(1), ROOM NO. 223, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 / VS. EAGLE BURGMANN INDIA P. LTD. GAZEBO HOUSE, 52, GULMOHAR ROAD, JVPD SCHEME, VILE PARLE (W), M UMBAI - 400 049 ./ ./ PAN/GIR NO. AAACB 0449 F ( / APPELLANT ) : ( / RESPONDENT ) & . / CROSS OBJECTION NO S . 1 34 & 158 /MUM/201 3 (ARISING OUT OF ITA NO. 4249/MUM/2012) ( / ASSESSMENT YEAR: 2004 - 05) EAGLE BURGMANN INDIA P. LTD. GAZEBO HOUSE, 52, GULMOHAR ROAD, JVPD SCHEME, VILE PARLE (W), MUMBAI - 400 049 / VS. ASST. CIT, RANGE - 9(1), ROOM NO. 223, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AA ACB 0449 F ( / CROSS OBJECT OR ) : ( / RESPONDENT ) / RE VENUE BY : SHRI NEIL PHILIP / A SSESSEE BY : NONE / DATE OF HEARING : 13.01.2015 / DATE OF PRONOUNC EMENT : 08 .0 4 .2015 2 ITA NO. 4249/M/12 & CO NOS. 134 & 158/M/13 (A.Y. 2004 - 05) EAGLE BURGMANN INDIA P. LTD. / O R D E R PER SANJAY ARORA, A. M.: THIS IS A SET OF AN A PPEAL BY THE REVENUE AND TWO CROSS OBJECTION S (COS) BY THE ASSESSEE , DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 19, MUMBAI (CIT(A) FOR SHOR T) DATED 12.04.2012 , ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT S U/S.143(3) R/W S. 147 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR ASSESSMENT YEAR (A.Y. 2004 - 05) . 2. NONE APPEARED FOR AND ON BEHALF OF THE ASSESSEE WHEN THE APPE AL WAS CALLED OUT FOR HEARING, NOR ANY ADJUDICATION APPLICATION STANDS RECEIVED. UNDER THE CIRCUMSTANCES, WE CONSIDERED IT FIT AND PROPER TO PROCEED WITH THE MATTER AND DECIDE THE APPEAL ON MERITS AFTER HEARING THE PARTY BEFORE US. 3. THE SOLE ISSUE ARI SING IN THE INSTANT APPEAL IS THE VALIDITY OR OTHERWISE IN LAW OF THE PART DISALLOWANCE OF THE ASSESSEES CLAIM FOR DEPRECIATION ON BUILDING. THE ASSESSEE HAD PURCHASED AN OFFICE PREMISES IN A BUILDING AT GOREGAON IN THE YEAR 1993, FOR A CONSIDERATION OF R S .2,33,11,720/ - , AND WAS CONTINUOUSLY CLAIMING DEPRECIATION ALLOWANCE U/S. 32 ON THE SAID A SSE T. THE SAME WAS SOLD DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2008 - 09, CLAIMING, AS IT APPEARS, THE GAIN ATTRIBUTABLE TO THE COST REFERABLE TO LAND, I.E., AS INC LUDED IN THE TOTAL COST OF RS . 233.12 LACS , AS A LONG TERM CAPITAL GAIN (LTCG), COMPUTED AFTER AVAILING THE INDEXATION BENEFIT. THE SAME, WHERE SO , IS VALID IN LAW (REFER: CIT VS. CITIBANK N. A. [2003] 26 1 ITR 570 (BOM) . THE ASSESSEE HAD, THUS, BEEN CLAIMI NG DEPRECATION ON THE LAND COMPONENT OF THE ASSET, EVEN AS THE SAME IS ALLOWABLE ONLY ON THE COST OF THE SUPER STRUCTURE , AND NO DEPRECIATION UNDER THE ACT IS APPLICABLE ON LAND . NEITHER ANY RATE OF DEPRECIATION ON LAND HAS BEEN PRESCRIBED UNDER LAW, NOR D OES IT DEPRECIATE, I.E., IN TERMS OF WEAR AND TEAR. THE MATTER STANDS SETTLED BY THE APEX COURT IN CIT VS. ALPS THEATRE [1967] 65 ITR 377 (SC). ACCORDINGLY , RELYING ON THE SAME , AS WELL AS THE DECISION IN CIT VS. VIMAL CHAND GOLECHA [1993] 201 ITR 442 ( RAJ ), THE A.O. DISALLOWED THE CLAIM FOR DEPRECIATION PROPORTIONATELY. THE LD. CIT(A), IN APPEAL, WAS OF THE VIEW THAT WHAT HAD BEEN PURCHASED BY THE ASSESSEE WAS A CONSTRUCTED BUILDING, PAYING 3 ITA NO. 4249/M/12 & CO NOS. 134 & 158/M/13 (A.Y. 2004 - 05) EAGLE BURGMANN INDIA P. LTD. A COMPOSITE PRICE. ITS BIFURCATION INTO THE COST OF LAND AND COS T OF BUILDING IS NOT POSSIBLE, WHILE IN THE CASE OF ALPS THEATRE (SUPRA) THE CONSIDERATION FOR LAND WAS SPECIFIED. SIMILARLY , IN THE CASE OF VIMAL CHAND GOLECHA (SUPRA), THE ASSESSEE HAD PURCHASED LAND AND CONSTRUCTED BUILDING THEREON ONLY SUBSEQUENTLY , SO THAT THE COST OF THE TWO WAS SEPARATELY IDENTIFIABLE. THE SAID DECISIONS WOULD THUS NOT APPLY IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE DECISION IN ITO VS. VIKASH BEHAL [2010] 36 DTR 385 (KOL) , ALSO RELIED UPON BY THE A SSESSING OFFICER (A .O. ) , PER TAIN ED TO THE CAPITAL GAINS AND TRANSFER OF LAND TO THE DEVELOPER UNDER THE DEVELOPMENT AGREEMENT AND , THEREFORE , DISTINGUISHABLE. THE APEX COURT IN CIT V. MUGNEERAM BANGUR & CO . ( 1966 AIR 50 / 1965 SCR (3) 611 ) CLARIFIED THAT WHERE A CONTRACT IS FOR SALE OF AN UNDERTAKING FOR A LUMPSUM CONSIDERATION , I.E., AS A WHOLE, WITHOUT PLACING SEPARATE VALUES FOR EACH OF THE ITEMS THAT GO TO MAKE UP THE UNDERTAKING, THE SAME CANNOT BE SEGREGATED INTO TWO OR MORE CONSTITUENTS . LIKEWISE , BY THE HONBLE HIGH COURT S IN TH E CASE OF CIT VS. NAYVELI LIGNITE CORPORATION LTD. [2000] 243 ITR 459 (MAD) AND CIT VS. MITSUI ENGG. & SHIP BUILDING [2003] 259 I T R 248 ( D EL). THE SPECIAL BENCH OF THE T RIBUNAL IN MOTOROLA INC. VS. DY. CIT [2005] 96 TTJ 1 (DEL) (SB) HELD THAT AS THE PURCHA SER HAD ENTERED INTO A CONTRACT FOR PURCHASE OF HARDWARE AND SOFTWARE, WITHOUT ASSIGNING ANY PRICE FOR THEM SEPARATELY, IT WAS NOT OPEN FOR THE DEPARTMENT T O S PL IT THE CONSOLIDATED PAYMENT INTO T W O AND INFER ROYALTY WITH REFERENCE TO THE PAYMENT FOR SO FTWARE. THE ASSESSEE BEING ALLOWED RELIEF THUS, THE REVENUE IS IN APPEAL, WHILE THE ASSESSEE HAS PREFERRED CROSS OBJECTION (CO), RAISING IDENTICAL GROUNDS , W HICH ARE ESSENTIALLY SUPPORTIVE, WITH ONE CO BEING IN FACT TIME BARRED BY THREE DAYS. 4. THE CASE OF BOTH THE PARTIES BEFORE US , IN TERMS OF THE ARGUMENTS ADVANCED AND MATERIAL ON RECORD, REMAIN S THE SAME. THE ASSESSEE HAS , IN ADDITION, PE R ITS WRITTEN NOTES, RELIED ON THE DECISION IN THE CASE OF CIT VS. RAJESH EXPORTS LTD. [2006] 9 SOT 28 (BANG . ) ( URO ). 4 ITA NO. 4249/M/12 & CO NOS. 134 & 158/M/13 (A.Y. 2004 - 05) EAGLE BURGMANN INDIA P. LTD. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 5.1 WE FIRSTLY OBSERVE THAT THE LD. CIT(A) HAS, FOR A.Y. 2004 - 05, ONLY FOLLOWED HIS ORDER FOR A.Y. 2008 - 09 (COPY ON RECORD) . THOUGH HE HAS IN THAT VIEW OF THE MATTER STATED THAT THE BA SIS OF THE REOPENING DOES NOT HOLD GOOD, THE SAME ITSELF IS WITHOUT BASIS IN - AS - MUCH AS THE SAME WAS NOT AGITATED BEFORE HIM BY THE ASSESSEE, WHOS E S O LE CHALLENGE WAS ON THE MERITS OF THE CASE (REFER PARA 3 O F THE IMPUGNED ORDER AS WELL AS THE GROUNDS OF A PPEAL IN FORM NO. 35). EVEN BEFORE US, PER T HE GROUNDS RAISED IN THE CO S , THE ONLY ISSUE AGITATED IS QUA THE DISALLOWANCE OF DEPRECIATION ON MERITS . THE OBSERVATION BY THE LD. CIT(A) IN THIS RESPECT WOULD THEREFORE STAND TO BE VACATED ; THE ONLY ISSUE ARISI NG PER THE REVENUES APPEAL AND THE ASSESSEES CO BEING QUA THE ISSUE ON MERITS. 5.2 OUR SECOND OBSERVATION IS THAT THE COMPOSITE COST OF THE OFFICE PREMISES, I.E., CONSIST ING OF THE LAND AND BUILDING , IS STATED DIFFERENT LY , BEING AT RS.233.12 LACS AND R S.4,75,87,899/ - IN THE ORDERS FOR AY 2004 - 05 AND AY 2008 - 09 RESPECTIVELY. THE TWO ORDERS, THEREFORE, PRESUMABLY AND UNDERSTANDABLY , SPEAK OF/REFER TO DIFFERENT OFFICE PREMISES. THIS WOULD THOUGH HAVE NO BEARING ON THE ISSUE BEFORE US, I.E., WHETHER IN CASE OF A COMPOSITE CONSIDERATION TOWARD ACQUIRING A PROPERTY CONSISTING OF LAND AND BUILDING , OR INTEREST THEREIN, THE TWO ARE TO BE TREATED SEPARATELY FOR THE PURPOSES OF DEPRECIATION, ASSIGNING THEM VALUES , OR TREATED AS A SINGLE UNIT, AND DEPRECIATION CLAI MED ACCORDINGLY ON THE ENTIRE COST THERE OF. AS A COROLLARY, OR EVEN INDEPENDENTLY, WHERE, SIMILARLY, THE SALE PRI CE THEREFOR HAS BEEN CHARGED AS A COMPOSITE SUM, NOT SPECIFYING OR ASSIGNING ANY SEPARATE VALUES TO THE LAND AND THE SUPER STRUCTURE THEREON, I S THE CAPITAL GAINS TO BE SIMILARLY WORKED OUT WITH REFERENCE TO THE COMPOSITE UNIT OR SEPARATELY FOR THE LAND AND BUILDING COMPONENT S THEREOF, AND WHICH MAY OR MAY NOT BE SUBJECT TO DEPRECIATION AND, THEREFORE, HAVE IMPLICATION ON THE NATURE LONG TERM A ND SHORT TERM AND, THUS, THE QUANTUM OF THE CAPITAL GAINS AS WELL. HAVING DELINEATED THE ISSUE ARISING, WE PROCEED TO ANSWER THE SAME. 5.3 IN OUR CLEAR AND UNEQUIVOCALLY VIEW, THE MATTER STANDS ANSWERED CLEARLY AND UNAMBIGUOUSLY BY THE APEX COURT IN ALPS THEATRE (SUPRA). A PERUSAL OF THE SAID JUDGMENT 5 ITA NO. 4249/M/12 & CO NOS. 134 & 158/M/13 (A.Y. 2004 - 05) EAGLE BURGMANN INDIA P. LTD. REVEALS BOTH THE DECISION AS WELL AS ITS BASIS, I.E., THE REASON/S INFORMING THE SAME. WHAT IS SUBJECT TO DEPRECIATION, AN ACCOUNTING CONCEPT, RECOGNIZE D BY LAW, IS AN ALLOWANCE FOR WEAR AND TEAR, SO THAT T HE REAL INCOME CAN BE BROUGHT TO TAX. THE LAND, OR THE SIT U S OF THE BUILDING , IS NOT SUBJECT TO DEPRECIATION, WHICH IS CONFINED ONLY TO THE SUPERSTRUCTURE , SO THAT BUILDING UNDER THE ACT REFERS THERETO. THE HONBLE COURT EXAMINED THE MATTER FROM THE STAN D POINT OF BOTH, THE CONCEPT OF DEPRECIATION AS WELL AS THE CONTEXT IN WHICH THE WORD BUILDING IS USED IN THE ACT. THE DECISION BY THE TRIBUNAL IN RAJESH EXPORTS LTD. (SUPRA), IN IGNORING THIS, WITH RESPECT, M ISSES THE RATIO OF THE DECISION IN ALPS THEAT RE (SUPRA). IN FACT, EVEN AN OBITER DICTA I N/OF THE DECISION BY THE APEX COURT IS BINDING, SO - MUCH SO THAT THE DECISION IN VIMAL CHAND GOLECHA (SUPRA) AS WELL AS BY THE HON'BLE JURISDICTIONAL HIGH COURT IN CITIBANK N. A . (SUPRA), PROCEED, F OLLOWING IT, O N THE FOOTING THAT THE LAND IS A SEPARATE CAPITAL ASSET U/S. 2(14) OF THE ACT, I.E., EVEN AFTER THE CONSTRUCTION OF BUILDING THEREON, AND, ACCORDINGLY, THE GAINS RELATABLE THERETO HAVE TO BE WORKED OUT SEPARATELY. THE LD. CIT(A), IN DISTINGUISHING THE FORMER DECISION, AGAIN, FAILS TO NOTE THE RATIO OF THE SAID DECISION, W HEREIN THE CONTROVERSY AROSE ONLY FOR THE REASON THAT THE SALE PROCEEDS ARISING ON THE SALE OF THE THEATRE WAS A CONSOLIDATED SUM, NOT INDICATING THE CONSIDERATION FOR LAND OR BUILDING, BUT F OR THE COMPOSITE UNIT . THAT IS , STATES A WRONG FACTUAL BASIS IN DISTINGUISHING THE SAME, MISSING IN EFFECT ITS RATIO, WHICH ALONE IS BINDING. THE COMPUTATION OF CAPITAL GAIN S , AS WE SEE IT , ONLY PRESENTS ANOTHER AREA WHERE THE ISSUE OF SEGREGATION OF CO ST OR, AS THE CASE MAY BE, SALE CONSIDERATION OF LAND AND BUILDING (FOR BEING TREATED SEPARATELY FOR THE PURPOSE OF COMPUTING THE INCOME UNDER THE ACT ) ARISES AND , THUS, CANNOT BE CONSIDERED AS A SEPARATE ISSUE, WITH WE HAVING IN FACT DELINEATED THE TWO TO GETHER. THE SAME, THEREFORE, DOES NOT REPRESENT A DIFFERENT ISSUE BUT A DIFFERENT MANIFESTATION OF THE SAME , PRIMARY ISSUE. THE DECISION IN VIKASH BEHAL (SUPRA) , A S EXPLAINED BY HIM, IS, THUS , ON THE SAME LINES A S BY THE HON'BLE JURISDICTIONAL HIGH COURT I N CITIBANK N. A . (SUPRA) , HAS THUS AGAIN BEEN WRONGLY DISTINGUISHED BY THE LD. CIT(A). QUANTIFICATION , IT IS AX I OMATIC , WOULD ONLY FOLLOW QUALIFICATION. ONCE IT IS PR INCIPALLY DECIDED THAT LAND AND BUILDING CANNOT BE CONSIDERED AS ONE FOR THE PURPOSE OF CL AIM OF 6 ITA NO. 4249/M/12 & CO NOS. 134 & 158/M/13 (A.Y. 2004 - 05) EAGLE BURGMANN INDIA P. LTD. DEPRECIATION (OR FOR COMPUTATION OF CAPITAL GAIN), THE MERE NON SPECIFICATION OF SEPARATE VALUES WOULD NOT ENABLE ALLOWANCE OF DEPRECATION ON AN ASSET (LAND) ON WHICH DEPRECIATION IS NOT OTHERWISE EXIGIBLE. A N Y VIEW TO THE CONTRARY WOULD BE INHERENT LY FLA WED ; RATHER, PROMOTING THE MISCHIEF OF NOT SPECIFYING THE VALUE S SEPARATELY, WHICH IS THE BASIS ON WHICH VALUATION IS NORMALLY DONE. IN FACT, THE VALUATION OF A BUILDING IS ALMOST UBIQUITOUSLY MADE BY VALUING LAND AND BUILDING COMPONENT SEPARATELY , WITH T HE PRIMARY DIFFEREN CE BETWEEN THE COST OF THE BUILDING S , I.E., AS A COMPOSITE UNIT, BEING THE DIFFEREN CE IN THE VALUE OF THE UNDERLYING LAND. THE SAME IS, IN ANY CASE, PRINCIPALLY A MATTER OF VALUATION, AND TOWARD WHICH ANY REASONABLE BASIS O R METHO D SHOULD SUFFICE. WE MAY IN THIS CONTEXT REFER TO THE DECISION BY THE APEX COURT IN KRISHNAMURTHY (A.R.) VS. CIT [1989] 176 ITR 417 (SC) . 5.4 FINALLY, COMING TO THE DEC ISION S RELIED BY THE LD. CIT(A), WE CONSIDER THAT THE SAID RELIANCE HAS MISCONCE IVED . T HAT WHAT IS BO UGHT IS A COMPOSITE UNIT, SO THAT THE LAND FORMS AN INTEGRAL PART OF THE BUILDING, IS PRINCIPALLY THE REASONING THE INF O RM ED THE DECISION OF THE TRIBUNAL, AND THE HONBLE HIGH COURT IN ENDORSING THE SAME , IN ALPS THEATRE (SUPRA), WHICH STOOD REJECTED BY THE APEX COURT. THE LAND, IT NEEDS TO BE APPRECIATED, DESPITE FORMING PART OF THE COMPOSITE UNIT, DOES NOT MERGE WITH THE BUILDING, AND RETAINS ITS INDEPENDENT IDENTITY. IT IS FOR THIS REASON THAT, AS HAS BEEN WITNESSED FOR CENTURIES NOW, BUILD INGS OR OTHER STRUCTURES KEEP COMING UP ON THE SAME LAND. IT IS THIS THAT LED THE HONBLE COURTS, AS IN THE CASE OF CITYBANK N. A. (SUPRA); CIT VS. PARTHAS TRUST [2001] 249 ITR 120 (KER); AND VIMAL CHAND GOLECHA (SUPRA) , TO HOLD THE TWO AS SEPARATE CAPITA L ASSETS, I.E., EVEN AFTER CONSTRUCTION ON LAND. APPLYING A DEPRECIATION RATE ON LAND, I.E., ON THE COST COMPONENT OF THE LAND , FOR THE REASON THAT THE SAME FORM S PART OF THE BUILDING , WOULD, THEREFORE, BE AS WR ONG AS IMP UT ING A NIL RAT E OF DEPRECIATION O N BUILDING ( I.E., THE SUPERSTRUCTURE) , FOR THE REASON TH AT LAND DOES NOT DEPRECIATE AND, THEREFORE, IS NOT EXIGIBLE TO DEPRECIATION. ACCORDINGLY, DEPRECIATION WOULD BE ALLOWABLE ON BUILDING EVEN WHERE THE LAND UNDERNEATH IS A LEASE - HOLD LAND OR THE ASSESSEE HAS OTHER WISE RIGHT OF OCCUPANCY THEREIN (REFER: PARTHAS TRUST ( SUPRA )). IN FACT, THE ACT, PER EXPLANATION 1 TO SECTION 32, 7 ITA NO. 4249/M/12 & CO NOS. 134 & 158/M/13 (A.Y. 2004 - 05) EAGLE BURGMANN INDIA P. LTD. EVEN PROVIDES FOR DEPRECIATION ON BUILDING NOT OWNED BY T HE ASSESSEE BUT IN RESPECT OF WHICH IT HOLDS A LEASE OR OTHER RIGHT OF OCC UPANCY. AGAIN, AS CLARIFIED BY THE APEX COURT IN CIT VS. HOOGLY MILLS CO. LTD. [2006] 287 ITR 333 (SC), NO DEPRECIATION WOULD BE EXIGIBLE ON LAND EVEN WHERE FORMING PART OF AN UNDERTAKING ACQUIRED AS A COMPOSITE UNIT. 5.5 WE MAY BEFORE CLOSING CLARIFY TH AT THOUGH WE HAVE WHILE NARRATING THE FACTS STATED THE ASSESSEE AS HAVING OSTENSIBLY CLAIMED CAPITAL GAIN S SEPARATELY ON LAND, I.E., ON THE SALE OF BUILDING, YET, AS WOULD BE APPARENT FROM THE FOREGOING , THE SAME DOES NOT FORM THE BASIS OF OUR DECISION. TH E SAID FACT IS STATED ONLY IN STATING THE CONTEXTUAL BACKGROUND IN WHICH THE ISSUE CAME TO SURFACE, AND HAS NO BEARING ON THE MERITS OF OUR DECISION, WHICH WE FIND TO BE A PART OF THE WELL SETTLED LAW IN THE MATTER. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE R EVENUE S APPEAL IS ALLOWED AND THE ASSESSEES COS ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON APRIL 08 , 201 5 SD/ - SD/ - ( JOGINDER SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 08 . 0 4 .201 5 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI