ACIT, Bangalore V. M/s Mac Charles India Ltd., Bangalore

ITA 481/BANG/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85990 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 03-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR K SHANKAR PRASAD JT
• Assessee Lawyers: P DINESH
• Keywords: Capital asset; Depreciation; Condonation of delay; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NOS. 586 & 481/BANG/2012 ASSESSMENT YEARS : 2007-08 & 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(1), BANGALORE. VS. M/S. MAC CHARLES INDIA LTD., P.B. NO.174, 28, SANKEY ROAD, BANGALORE 560 052. PAN : AAACM 9877G APPELLANT RESPONDENT CO NOS.5 & 6/BANG/2015 ITA NOS.586 & 481/BANG/2012 ASSESSMENT YEARS : 2007-08 & 2008-09 M/S. MAC CHARLES INDIA LTD., P.B. NO.174, 28, SANKEY ROAD, BANGALORE 560 052. PAN : AAACM 9877G VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(1), BANGALORE. CROSS OBJECTOR RESPONDENT REVENUE BY : DR. K. SHANKAR PRASAD, JT. CIT(DR) RESPONDENT BY : SHRI P. DINESH, ADVOCATE DATE OF HEARING : 09.01.2015 DATE OF PRONOUNCEMENT : 23.01.2015 ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 2 OF 23 O R D E R PER BENCH ITA NO.586/B/12 & CO 5/15 GROUND NOS. 1, 4 & 5 RAISED BY THE REVENUE ARE GEN ERAL IN NATURE AND CALLS FOR NO SPECIFIC ADJUDICATION. 2. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLL OWS:- 2. THE CIT(A) ERRED IN ALLOWING SETOFF OF SHORT T ERM CAPITAL LOSS ARISING ON SALE OF SHARES SPECIFIED IN SEC.111 A (THOSE ON WHICH STT PAID AND THE TAX RATE BEING 10%) AGAINST SHORT TERM CAPITAL GAIN ARISING ON OTHER ASSETS (TAXABLE @ 30% ) WHILE THE ASSESSEE HAD SHORT TERM CAPITAL GAIN ON SALE OF SHA RES SPECIFIED IN SEC.111A AND THAT LOSS SET OFF SHOULD HAVE BEEN ALL OWED AGAINST PROFITS UNDER THE SAME CATEGORY IN VIEW OF THE ABOV E TAX DIFFERENTIAL. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF HOTELEERING. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOT ICED THAT THE ASSESSEE HAD SHOWN TAXABLE SHORT TERM CAPITAL GAIN AT RS.87,68,474. THE COMPUTATION OF TAXABLE SHORT TERM CAPITAL GAIN AS D ONE BY THE ASSESSEE WAS AS FOLLOWS:- I) SHORT TERM CAPITAL GAINS/LOSS ARISING ON EQUITY SHARES AND SALE OF UNITS OF EQUITY ORIENTED MUTUAL FUNDS REFERRED TO SECTION 111A A) SHORT TERM CAPITAL GAINS, AS PER ANNEXURE-2 55 ,63,501 B) SHORT TERM LOSS, AS PER ANNEXURE-3 (64,55,880) II) OTHER SHORT TERM CAPITAL GAIN, 96,60,853 3 2,04,973 AS PER ANNEXURE-4 87,68,474 ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 3 OF 23 4. IT CAN BE SEEN FROM THE AFORESAID CALCULATION TH AT ASSESSEE HAD EARNED SHORT TERM CAPITAL GAIN AS WELL AS SHORT TER M CAPITAL LOSS IN RESPECT OF SALE OF EQUITY SHARES AND SALE OF EQUITY ORIENTE D MUTUAL FUNDS REFERRED TO IN SECTION 111A OF THE ACT. U/S. 111A OF THE ACT, IF THERE IS A SHORT TERM CAPITAL GAIN ON TRANSFER OF EQUITY SHARES IN A COMP ANY OR UNIT OF EQUITY ORIENTED FUND AND SUCH TRANSFER TAKES PLACE AFTER F INANCE ACT, 2004 AND SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TRANSA CTION TAX UNDER CHAPTER-VII OF FINANCE ACT OF 2004, THEN THE TAX PA YABLE BY THE ASSESSEE SHALL BE 10% OF SUCH SHORT TERM CAPITAL GAIN. THIS RATE OF TAX ON SHORT TERM CAPITAL GAIN ON EQUITY SHARES IN A COMPANY OR UNIT OF AN EQUITY ORIENTED FUND IS A CONCESSIONAL RATE AS AGAINST THE NORMAL R ATE OF TAX ON SHORT TERM CAPITAL GAIN AT 30%. 5. IT CAN ALSO BE SEEN FROM THE AFORESAID COMPUTATI ON OF TAXABLE SHORT TERM CAPITAL GAIN THAT THE ASSESSEE HAS SET OFF THE SHORT TERM CAPITAL LOSS ON SALE OF EQUITY SHARES AND UNITS OF EQUITY ORIENTED MUTUAL FUNDS OF RS.64,55,880 REFERRED TO IN SECTION 111A OF THE ACT AGAINST THE OTHER SHORT TERM CAPITAL GAIN OF RS.96,60,853 AND ARRIVED AT TH E OTHER SHORT TERM CAPITAL GAIN OF RS.32,04,973. BY DOING SO, THE ASSESSEE PA YS A CONCESSIONAL RATE OF TAX AT 10% ON THE SHORT TERM CAPITAL GAIN COVERE D BY SECTION 111A OF THE ACT OF RS.55,63,501. ACCORDING TO THE AO, THE ASSE SSEE OUGHT TO HAVE SET OFF THE SHORT TERM CAPITAL LOSS ON SALE OF EQUITY S HARES AND UNITS FALLING U/S. 111A OF THE ACT AGAINST THE SHORT TERM CAPITAL GAIN ARISING ON SALE OF EQUITY SHARES AND UNITS COVERED U/S. 111A OF THE ACT. ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 4 OF 23 6. IF IT IS DONE SO, THE OTHER SHORT TERM CAPITAL G AINS WHICH ARE CHARGEABLE TO TAX @ 30% WILL BE RS.87,68,474. THUS , THERE IS NO DISPUTE ABOUT THE QUANTUM OF SHORT TERM CAPITAL GAIN DECLAR ED BY THE ASSESSEE. THE DISPUTE IS ONLY WITH REGARD TO WHETHER 30% RATE OF TAX IS TO BE PAID ON THE SHORT TERM CAPITAL GAIN OF RS.87,68,474 AS CLAI MED BY THE AO OR WHETHER THE ASSESSEE SHOULD BE PERMITTED TO PAY 10% TAX ON RS.55,63,501 AND 30% TAX ON RS.32,04,973. 7. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT IT HA S THE OPTION OF SETTING OFF OF SHORT TERM LOSSES WITH ANY OTHER SHO RT TERM GAINS. THE ASSESSEE ALSO RELIED ON DECISION OF 1TAT, MUMBAI DE CISION IN ITA NO.3261/MUM/2007 DT. 03.06.09 IN WHICH IT WAS HELD THAT SET-OFF OF LONG TERM CAPITAL LOSS WITH INDEXATION IS ALLOWABLE AGAI NST LONG TERM CAPITAL GAINS WITHOUT INDEXATION ON THE REASONING THAT BOTH FALL UNDER THE SAME HEAD OF INCOME AND SUCH SETOFF IS ALLOWABLE U/S 70(3). THIS EXPLANATION WAS NOT ACCEPTED BY THE AO FOR THE REASONS THAT THE DECISIO N REFERRED TO BY THE ASSESSEE WAS WITH REGARD TO LONG TERM CAPITAL LOSS SETOFF. SECONDLY, ACCORDING TO THE AO THE DECISION REFERRED TO BY THE ASSESSEE TAKES THE VIEW THAT SET OFF SHOULD BE MADE UNDER THE SAME HEA D OF INCOME. ACCORDING TO THE AO, THE ASSESSEE DID NOT COMPUTE T HE CAPITAL GAINS IN THIS MANNER. GAINS OR LOSSES ARISING ON SALE OF SHARES/U NITS WHICH ATTRACT STT AND ARE REFERRED TO IN SEC.111A HAVE TO BE TREATED AS A SEPARATE CATEGORY/HEAD HEAD OF CAPITAL GAINS AND NET INCOME/ LOSS UNDER THIS HEAD HAS TO BE SHOWN SEPARATELY. COMPUTED IN THIS MANNER , LOSS ON SALE OF ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 5 OF 23 SHARES/UNITS ATTRACTING SIT WORKS OUT TO RS.8,92,37 9/-. THIS LOSS HAS TO BE SET-OFF AGAINST OTHER SHORT TERM CAPITAL GAINS LEAV ING NET SHORT TERM CAPITAL GAINS OF RS.87,68,474/- WHICH ARE TAXABLE @ 30%. BY DOING SO, ACCORDING TO THE AO, THE ASSESSEE IS NOT BEING DENIED THE BE NEFIT OF SETOFF BUT THE SETOFF WRONGLY MADE IS CORRECTED. THE NET EFFECT WO ULD BE TAXING RS.55,63,501/- ALSO @ 30% AS AGAINST THE ASSESSEES WORKING OF TAX @ 10% BY THE ASSESSEE. THE AO ACCORDINGLY, WORKED O UT THE TAX PAYABLE. 8. AGGRIEVED BY THE AFORESAID ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS). 9. THE CIT(APPEALS) ON THE AFORESAID ISSUE FIRSTLY REFERRED TO THE PROVISIONS OF SEC.111A OF THE ACT AND SEC.70 (1) & (2) OF THE ACT WHICH READ AS FOLLOWS: TAX ON SHORT-TERM CAPITAL GAINS IN CERTAIN CASES. 111A. (1) WHERE THE TOTAL INCOME OF AN ASSESSEE INC LUDES ANY INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS , ARISING FROM THE TRANSFER OF A SHORT-TERM CAPITAL A SSET, BEING AN EQUITY SHARE IN A COMPANY OR A UNIT OF AN EQUITY ORIENTED FUND AND (A) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE OR UNIT IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VII OF THE FINANCE (NO. 2) ACT, 2004 COMES INTO FORCE; AND (B) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TRANSACTION TAX UNDER THAT CHAPTER, THE TAX PAYABLE BY THE ASSESSEE ON THE TOTAL INCOME SHALL BE THE AGGRE GATE OF (I) THE AMOUNT OF INCOME-TAX CALCULATED ON SUC H SHORT-TERM CAPITAL GAINS AT THE RATE OF TEN PER CEN T; AND (II) THE AMOUNT OF INCOME-TAX PAYABLE ON THE BALANC E AMOUNT OF THE TOTAL INCOME AS IF SUCH BALANCE AMOUN T WERE THE TOTAL INCOME OF THE ASSESSEE: ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 6 OF 23 PROVIDED THAT IN THE CASE OF AN INDIVIDUAL OR A HIN DU UNDIVIDED FAMILY, A RESIDENT, WHERE THE TOTAL INCOM E AS REDUCED BY SUCH SHORT-TERM CAPITAL GAINS IS BELOW T HE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME- TAX, THEN, SUCH SHORT-TERM CAPITAL GAINS SHALL BE R EDUCED BY THE AMOUNT BY WHICH THE TOTAL INCOME AS SO REDUC ED FALLS SHORT OF THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX AND THE TAX ON THE BALANCE OF SUCH SHORT-TERM CAPITAL GAINS SHALL BE COMPUTED AT THE RATE OF TEN PERCENT. (2) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INC LUDES ANY SHORT TERM CAPITAL GAINS REFERRED TO IN SUB-SEC TION (1), THE DEDUCTION UNDER CHAPTER VI-A SHALL BE ALLO WED FROM THE GROSS TOTAL INCOME AS REDUCED BY SUCH CAPI TAL GAINS. (3) WHERE THE TOTAL INCOME OF AN ASSESSEE INCLUDES ANY SHORT-TERM CAPITAL GAINS REFERRED TO IN SUB-SECTION (J), THE REBATE UNDER SECTION 88 SHALL BE ALLOWED FROM T HE INCOME-TAX ON THE TOTAL INCOME AS REDUCED BY SUCH CAPITAL GAINS. EXPLANATION. FOR THE PURPOSES OF THIS SECTION, THE EXPRESSION EQUITY ORIENTED FUND SHALL HAVE THE MEANING ASSIGNED TO IT IN THE EXPLANATION TO CLAUSE (38) OF SECTION 10. SEC 70: SET OFF OF LOSS FROM ONE SOURCE AGAINST IN COME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME. 70. (1) SAVE AS OTHERWISE PROVIDED IN THIS ACT, WHE RE THE NET RESULT FOR ANY ASSESSMENT YEAR IN RESPECT OF AN Y SOURCE FALLING UNDER ANY HEAD OF INCOME, OTHER THAN CAPITAL GAINS, IS A LOSS, THE ASSESSEE SHALL BE E NTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST HIS IN COME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. (2) WHERE THE RESULT OF THE COMPUTATION MADE FOR AN Y ASSESSMENT YEAR UNDER SECTIONS 48 TO 55 IN RESPECT OF ANY SHORT-TERM CAPITAL ASSET IS A LOSS, THE ASSESSE E SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST THE INCOME, IF ANY, AS ARRIVED AT UNDER A S IMILAR COMPUTATION MADE FOR THE ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET. ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 7 OF 23 10. THE CIT(A) WAS OF THE VIEW THAT FROM A READING OF (2) TO SEC.70, LOSS IN RESPECT OF ONE SHORT-TERM CAPITAL ASSET CAN BE S ET-OFF AGAINST THE INCOME OF ANY OTHER CAPITAL ASSET. THE SECOND ASSET IS NOT SPECIFIED TO BE A SHORT- TERM CAPITAL ASSET THOUGH IT IS EVIDENT IN THE COND ITION THAT THE COMPUTATION OF BOTH THE TRANSACTIONS MUST BE MADE IN A SIMILAR MANNER. ACCORDING TO THE CIT(A), IN THE CASE OF THE ASSESSEE, THE ASSESS EE HAS SET-OFF THE LOSSES AGAINST OTHER SHORT TERM CAPITAL GAINS WHICH ARE NOT COVERED BY THE CONCESSIONAL RATE OF TAX PROVIDED BY SEC 111A. THE AOS POINT ACCORDING TO CIT(A) WAS THAT SINCE THERE WERE SPECIFIED SHORT -TERM GAINS AVAILABLE AS PER SEC 111A, THESE SHOULD HAVE BEEN FIRST REDUCED BY THE AMOUNT OF THE LOSS, AND NOT THE NON-SPECIFIED SHORT TERM CAPITAL ASSETS NOT COVERED BY THE SECTION. THE CIT(A) WAS OF THE VIEW THAT THE STAND TAKEN BY THE AO APPEARED TO STRETCH THE REQUIREMENT OF SEC 70(2), W HICH DOES NOT APPEAR TO SET ANY RESTRICTION UPON THE ASSESSEE IN THE MANNER INTERPRETED BY HIM. THE NET RESULT OF COMPUTATION UNDER THE HEAD CAPITA L GAINS INVOLVES INTRA- HEAD ADJUSTMENTS BEFOREHAND WHICH CAN BE EITHER SPE CIFIED BY LAW, OR LEFT OPEN FOR APPLICATION BY THE TAXPAYER. THE CIT(A) WA S OF THE VIEW THAT THE RELEVANT PROVISIONS OF LAW DID NOT RESTRICT THE SET -OFF OF THE LOSS FIRSTLY AGAINST INCOMES COVERED BY SEC 111A BEFORE OTHER GA INS, THOUGH IT MAY BE A FACT THAT DOING TO THE CONTRARY WOULD CAUSE LOSS TO REVENUE IN TERMS OF APPLICATION OF THE LOWER RATE OF TAX. THE CIT(A) WA S THEREFORE OF THE VIEW THAT THE STAND TAKEN BY THE AO WAS NOT THE REQUIREM ENT OF THE RELEVANT ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 8 OF 23 STATUTORY PROVISIONS. THE CIT(A) THEREFORE HELD TH AT THE COMPUTATION OF SHORT TERM CAPITAL GAIN AS DONE BY THE ASSESSEE HAD TO BE ACCEPTED. 11. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REV ENUE HAS PREFERRED GROUND NO.2 BEFORE THE TRIBUNAL. 12. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O SUBMITTED THAT BY FINANCE ACT, 2002, SECTION 70 OF THE ACT WAS AMENDE D WHEREBY IT WAS MADE CLEAR THAT LONG TERM CAPITAL GAINS WERE SUBJEC T TO LOW INCIDENCE OF TAX EARLIER AND THEREFORE LOSSES FROM TRANSFER OF SHORT TERM CAPITAL ASSETS CAN BE SET OFF AGAINST ANY CAPITAL GAINS WHETHER SHORT TERM OR LONG TERM ARISING FROM TRANSFER OF LONG TERM CAPITAL ASSET. SECTION 70 AS AMENDED BY FINANCE ACT, 2002 RECTIFIES THIS ANOMALY BY AMENDIN G THE LAW TO PROVIDE THAT LONG TERM CAPITAL LOSS ALONE BE SET OFF AGAINS T LONG TERM CAPITAL GAIN. IT WAS SUBMITTED BY HIM THAT THIS BEING THE SPIRIT BEH IND THE PROVISIONS, ON THE SAME ANALOGY, CLAIM OF THE ASSESSEE FOR SET OFF AS MADE IN THE RETURN OF INCOME WAS RIGHTLY REJECTED BY THE AO. IT WAS ALSO SUBMITTED BY HIM THAT DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE C ASE OF MAHENDRA KANHAIYALAL HUF 202 ITR 701 (GUJ) AND DECISION OF HON'BLE CALCUTTA HIGH COURT IN PUNJAB PRODUCE & TRADING CO. LTD. 159 ITR 376 ( P & H) ON WHICH THE LD. CIT(A) PLACED RELIANCE ARE CLAIMS SET OFF UNDER DIFFERENT PROVISIONS WHICH ARE NOT PARI MATERIA WITH SECTION 111A OF THE ACT. ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 9 OF 23 13. WE HAVE CONSIDERED HIS SUBMISSIONS AND ARE OF T HE VIEW THAT THE SAME ARE NOT ACCEPTABLE. A PERUSAL OF THE PROVISIO NS OF SECTION 70(2) CLEARLY SHOWS THAT IF THERE A SHORT TERM CAPITAL LO SS, THE ASSESSEE IS ENTITLED TO HAVE THE SAID CAPITAL LOSS SET OFF AGAINST ANY O THER SHORT TERM CAPITAL GAIN. THIS RIGHT GIVEN TO THE ASSESSEE IS UNQUALIF IED AND THEREFORE THE ASSESSEE IS FREE TO CHOOSE AS TO HOW THE SET OF SHO RT TERM CAPITAL LOSS HAS TO BE CLAIMED. THE ASSESSEE HAS CLAIMED THE SET OF F IN SUCH A MANNER THAT IT RESULTS IN PAYMENT OF LOW TAXES. THAT CANNOT BE A GROUND TO DENY A LEGITIMATE RIGHT WHICH THE ASSESSEE HAS IN LAW. TH IS IS THE PRINCIPLE ADOPTED BY THE CIT(A) IN ALLOWING RELIEF TO THE ASS ESSEE. WE ARE OF THE VIEW THAT THE REASONING ADOPTED BY THE CIT(A) IS JU ST AND PROPER AND CALLS FOR NO INTERFERENCE. IN VIEW OF THE ABOVE CONCLUSI ONS ON A PLAIN READING OF THE RELEVANT PROVISIONS OF SECTION 70(2) AND SECTIO N 111A OF THE ACT, WE DO NOT WISH TO REFER TO THE CASE LAWS TO WHICH A REFER ENCE HAS BEEN MADE BY THE CIT(A) IN HIS ORDER. FOR THE REASONS GIVEN ABO VE, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.2 RAISED BY THE REVENUE. 14. GROUND NO.3 RAISED BY THE REVENUE READS AS FOLL OWS:- '3. THE CIT(A) ERRED IN GRANTING DEPRECIATION ON E XPENDITURE INCURRED FOR ACQUIRING THE LEASED LAND ON WHICH WIN D MILL WAS INSTALLED BY TREATING THE LAND AS INTEGRAL PART OF WIND MILL WHILE VARIOUS COURTS INCLUDING HONBLE SUPREME COURT HELD THAT LAND & BUILDING SHOULD BE TREATED SEPARATELY FOR THE PUR POSE OF ALLOWING DEPRECIATION AND THAT THE DEPRECIATION IS ALLOWABLE ONLY ON BUILDING COST.' ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 10 OF 23 15. THE ASSESSEE CLAIMED DEPRECIATION ON WIND MILLS ACQUIRED DURING THE PREVIOUS YEAR. COST OF WIND MILLS AS SHOWN IN T HE DEPRECIATION WORKING WAS RS.9,05,15,305/-. WHILE VERIFYING THE BILLS, IT WAS FOUND BY THE AO THAT THE ABOVE COST INCLUDES AN AMOUNT OF RS.18 LAKHS BE ING CONSIDERATION CHARGED BY M/S.SUZLON ENERGY (THE PERSON WHO SOLD A ND INSTALLED THE WIND MILL) FOR TRANSFER OF LEASE HOLD RIGHTS IN LAND AT GUT NO.72, MANDARGI TALUK, GADAG DISTRICT IN FAVOUR OF THE ASSESSEE. THIS IS T HE LAND TAKEN ON LEASE BY M/S.SUZLON FROM KARNATAKA FOREST DEPARTMENT THROUGH A LEASE AGREEMENT. THE WINDMILLS ARE INSTALLED ON THE LAND SO TAKEN ON LEASE FROM THE GOVERNMENT OF KARNATAKA BY SUZLON BECAUSE OF THE HI LLY TERRAIN WHICH WILL HELP IN BETTER RUNNING OF WINDMILL AND CONSEQUENTLY BETTER GENERATION OF POWER. AFTER COMMISSIONING OF WIND MILL FOR THE AS SESSEE AT THIS LOCATION, THE LEASE HOLD RIGHTS WERE TRANSFERRED BY SUZLON TO THE ASSESSEE. A DEBIT NOTE RAISED BY M/S.SUZLON WAS FILED BEFORE THE AO B Y THE ASSESSEE. THE AO WAS OF THE VIEW THAT THE LEASE RENT PAID FOR THE LAND BY THE ASSESSEE TO SUZLON WHICH IS INCLUDED AS PART OF COST OF WINDMIL L WILL NOT QUALIFY FOR ALLOWING DEPREDATION. THE ASSESSEE SUBMITTED BEFOR E THE AO THAT LAND IS AN INTEGRAL PART OF WIND MILL WITHOUT WHICH IT CANN OT BE INSTALLED. THE AO DID NOT AGREE WITH THE STAND TAKEN BY THE ASSESSEE. A S PER I.T.RULES, DEPRECIATION @ 80% IS ALLOWABLE ONLY ON RENEWABLE E NERGY DEVICES BEING WIND MILLS AND ANY SPECIALLY DESIGNED DEVICES WHICH RUN ON WIND MILLS. ACCORDING TO THE AO, IT IS ONLY THE MACHINERY THAT IS ELIGIBLE FOR DEPRECIATION. ACCORDING TO THE AO, THE ASSESSEE MAY CAPITALIZE EXPENSES ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 11 OF 23 INCURRED FOR DELIVERY AND INSTALLATION OF MACHINERY AS THESE EXPENSES RELATE TO ACQUISITION OF ASSET. AS FAR AS LAND IS CONCERNE D, THE AO WAS OF THE VIEW THAT THE SAME MAY BE NECESSARY FOR INSTALLATION OF WINDMILL BUT LAND WAS A DIFFERENT CATEGORY OF ASSET. ACCORDING TO THE AO, I F THE ASSESSEES LOGIC IS EXTENDED, THEN IN CASE OF BLOCK OF ANY BUILDINGS, T HE LAND COST SHOULD BE INCLUDED FOR DEPRECIATION CLAIM SINCE WITHOUT LAND, THE BUILDING CANNOT EXIST. IN THE OPINION OF THE AO THAT WAS NOT THE INTENTION OF LAW. THE LEASEHOLD RIGHT ON LAND IS NOT A DEPRECIABLE ASSET. HENCE, T HE AO DISALLOWED DEPRECIATION CLAIM OF RS.7,20,000/- BEING 40% OF CO ST OF LEASEHOLD RIGHT ON LAND. 16. ON APPEAL BY THE ASSESSEE, THE CIT(A) ALLOWED THE CLAIM OF ASSESSEE, OBSERVING AS FOLLOWS:- '4.3.1 HAVING CONSIDERED THE ISSUE, I FIND THAT THE CONTENTION IS BETWEEN CONSIDERING THE LAND TO BE INTEGRAL TO THE WINDMILL SYSTEM OR NOT, AND ALSO THE ADDITIONAL POINT RAISED BY THE AO REGARDING THE LEASE-RIGHTS NOT BEING DEPRECIABLE. A T THE OUTSET, I MUST SAY THAT A WINDMILL IS A HUGE AND PERMANENT AS SET INSTALLATION, AND IT IS NOT PORTABLE. THEREFORE, TH ERE MUST BE SUFFICIENT GROUND TO HOLD THAT THE LAND UPON WHICH IT IS PERCHED IS NOT AN INTEGRAL PART OF THE STRUCTURE ITSELF. IN TH E CASE OF A BUILDING, THE UNDIVIDED SHARE OF THE LAND UPON WHIC H IT STANDS IS VALUED AND ADDED TO THE COST OF THE STRUCTURE. IN T HE SAME WAY, THE LAND IS NO LONGER FREE ONCE THE WINDMILL IS INSTALL ED, AND FOR THE LEASE PERIOD OF 30 YEARS, IT IS INTEGRATED WITH THE STRUCTURE OF THE MILL. HENCE I FIND MYSELF UNABLE TO AGREE WITH THE AO THAT THE LAND IS SEPARATE FROM THE STRUCTURE AND SHOULD BE D ENIED DEPRECIATION. WITH REGARD TO DEPRECIATION ON LEASE D LANDS, THE SUPREME COURT IN THE CASE OF MYSORE MINERALS LTD. V S CIT (1999) 239 ITR 775 (SC) HELD THAT THE BENEFICIAL OW NER IS ENTITLED TO DEPRECIATION. IN THIS CASE, THE LEASE A GREEMENT FOR THE ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 12 OF 23 LAND IS FOR 30 YEARS, AND A PERMANENT INSTALLATION IS PUT UP THEREON. HENCE, THERE IS NO DOUBT THAT THE APPELLA NT IS THE BENEFICIAL OWNER OF THE LAND FOR THE PERIOD OF THE LEASE. I DO NOT SEE SUFFICIENT GROUND FOR DENIAL OF THE DEPRECIATIO N BY THE AO ON THIS GROUND. 4.3.2 IN VIEW OF ALL THE ABOVE, I HOLD THAT DEPREC IATION ON THE LEASEHOLD LAND IS PERMISSIBLE IN LAW, AND ALSO THAT THE LAND IN QUESTION IS AN INTEGRAL PART OF THE WINDMILL STRUCT URE. THE ADDITION MADE BY THE AO IS HERBY DELETED.' 17. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE H AS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. THE ASSESSEE HAS FILED C O NO.5/BANG/2015 IN WHICH THE ASSESSEE HAS SOUGHT TO RAISE THE FOLLOWIN G GROUNDS:- '1. THE ORDER OF THE CIT (APPEALS) IS CORRECT AND T HE SAME DOES NOT REQUIRE ANY INTERFERENCE. 2. IN THE ALTERNATIVE, THE RESPONDENT PRAYS THAT IN THE EVENT OF THE HONBLE TRIBUNAL HOLDING THAT THE RESPONDENT WAS NO T ENTITLED FOR THE DEPRECIATION, THE EXPENDITURE INCURRED TOWA RDS PAYMENT FOR ACQUIRING THE LEASE-HOLD RIGHTS OF THE LAND ON WHICH THE WIND- MILLS WERE ERECTED MAY KINDLY BE DIRECTED TO BE ALL OWED AS A DEDUCTION UNDER SECTION 37(1) OF THE ACT.' 18. THERE IS A DELAY OF ABOUT 2 YEARS AND 3 MONTHS IN FILING THE CO. IT HAS BEEN SUBMITTED IN THE AFFIDAVIT IN SUPPORT OF P ETITION FOR CONDONATION OF DELAY THAT RECENTLY ASSESSEE CAME TO KNOW THAT BANG ALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. V.S. LAD & SONS V. ACIT , IN ITA NOS. 18 TO 20/BANG/2013, FOR A.YS. 2006-07 & 2007-08, BY OR DER DATED 13.6.2014 , WHILE DEALING WITH AN IDENTICAL ISSUE RAISED IN THE CO, WHETHER DEPRECIATION CAN BE CLAIMED ON LAND TAKEN ON LEASE ON WHICH WIND MILL IS ERECTED, HELD ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 13 OF 23 THAT DEPRECIATION ON LAND CANNOT BE ALLOWED, BUT NE VERTHELESS ALLOWED ALTERNATIVE PLEA OF CONSIDERING THE EXPENDITURE IN THE FORM OF UPFRONT PAYMENT OF LEASE CHARGES OF THE LAND AS A REVENUE E XPENDITURE ALLOWABLE U/S. 37(1) OF THE ACT. IT IS THE FURTHER CLAIM IN THE AFFIDAVIT THAT ALTERNATIVE PLEA WAS NOT TAKEN BY THE ASSESSEE AND IN VIEW OF T HE SUBSEQUENT DEVELOPMENT OF LAW, ASSESSEE SHOULD BE PERMITTED TO RAISE ALTERNATIVE PLEA. 19. WE HAVE CONSIDERED THE GROUNDS ON WHICH THE CON DONATION OF DELAY IN FILING THE CO IS SOUGHT AND ARE OF THE VIEW THAT THE DELAY WAS OCCASIONED BY REASONABLE AND SUFFICIENT CAUSE. WE ARE ALSO OF THE VIEW THAT THE GROUNDS SOUGHT TO BE RAISED IN THE CO ARE LEGAL GRO UNDS WHICH CAN BE DECIDED ON FACTS ALREADY AVAILABLE ON RECORD AND TH EREFORE THE GROUNDS RAISED IN THE CO SHOULD BE ADMITTED FOR ADJUDICATIO N. WE ARE OF THE VIEW THAT PROCEEDINGS BEFORE THE TRIBUNAL ARE PROCEEDING S FOR PROPER DETERMINATION OF TAX LIABILITY OF AN ASSESSEE IN AC CORDANCE WITH LAW AND THEREFORE THERE SHOULD NOT BE ANY IMPEDIMENT IN DEC IDING THE QUESTIONS ON DETERMINATION OF TAX LIABILITY. THE DELAY IS CONDO NED. 20. AS FAR AS THE CLAIM OF ASSESSEE FOR ALLOWING DE PRECIATION OF A SUM OF RS.7,20,000 BEING THE UPFRONT LEASE CHARGES FOR THE LAND ON WHICH WINDMILLS ARE ERECTED IS CONCERNED, WE ARE OF THE V IEW THAT THE SAME IS NOT ALLOWABLE AS HELD BY THIS TRIBUNAL IN THE CASE OF V.S. LAD & SONS (SUPRA) . WE ARE, HOWEVER, OF THE VIEW THAT THE ASSESSEE'S CL AIM IN THE CROSS OBJECTIONS TO ALLOW THE SAID SUM OF RS.7,20,000 AS A REVENUE EXPENDITURE ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 14 OF 23 DESERVES TO BE ACCEPTED ON THE BASIS OF DECISION RE NDERED IN THE CASE OF V.S. LAD & SONS (SUPRA) , WHEREIN THE ISSUE HAS BEEN DEALT WITH BY THIS TRIBUNAL AS FOLLOWS:- ITA NOS.18 TO 20/BANG/2013 (ASSESSEES APPEALS) (A Y 2006-07 TO 2008-09) 27. A COMMON ISSUE ARISES FOR CONSIDERATION IN ALL THESE APPEALS BY THE ASSESSEE AS WE HAVE ALREADY SEEN, T HE ASSESSEE HAD INSTALLED WINDMILLS AND GENERATED POWER IN ALL THE THREE ASSESSMENT YEARS AND CLAIMED DEDUCTION U/S. 80IA(4) (IV)(A) OF THE ACT. WE HAVE ALSO SEEN THAT THE ASSESSEE HAS BEEN CLAIMING DEPRECIATION ON WINDMILLS IN ALL THESE ASSESSMENT Y EARS. THE ASSESSEE HAD PURCHASED WINDMILLS FROM M/S. SUZLON E NERGY LTD. [SUZLON FOR SHORT]. ACCORDING TO THE ASSESSEE, F OR PROPER GENERATION OF POWER THROUGH WINDMILL TURBINES, FLOW OF THE WIND AND THE SPEED AT WHICH THE WIND FLOWS IS VERY CRUCI AL. IN ALL THE DISTRICTS THE ASSESSEE HAD INSTALLED THE WINDMILLS ON HILLOCKS AND MOUNTAINS WHICH IS AN IDEAL PLACE TO KEEP THE WINDM ILL AND TURBINE SO THAT THE WINDMILL TURBINES RUN AT GOOD S PEED TO GENERATE POWER. THE MOUNTAINS AND HILLOCKS OVER WH ICH THE WINDMILLS AND TURBINES WERE INSTALLED WERE OWNED BY THE KARNATAKA FOREST DEPARTMENT. SUZLON ENTERED INTO A LEASE AGREEMENT WITH THE KARNATAKA FOREST DEPARTMENT AND HAD A RIGHT TO SUB-LEASE THE SAME TO THE THIRD PARTIES. SUZLON CHARGES LEASE RENT FOR THE LAND SUB-LEASED TO THE ASSESSEE SO THA T THE WINDMILLS CAN BE INSTALLED ON HILLOCK. IN OTHER WORDS, THE L EASE RENT CHARGED FOR THE ENTIRE PERIOD OF 30 YEARS OF LEASE WAS ALSO INCLUDED AS PART OF THE MACHINERY IN THE BILLS RAISED BY SUZLON. TH E ASSESSEE WHILE CLAIMING DEPRECIATION INCLUDED THE CHARGES PA ID FOR LEASEHOLD RIGHTS OVER THE LAND, APART FROM THE COST OF MACHINERY AND CLAIMED DEPRECIATION. ACCORDING TO THE ASSESSE E, THE LEASEHOLD RIGHTS OVER THE LAND WOULD ALSO CONSTITUT E PLANT ON WHICH DEPRECIATION SHOULD BE ALLOWED. ACCORDING TO THE ASSESSEE, TAKING INTO CONSIDERATION THE PECULIAR FA CTS OF THE CASE, WHERE HILLY TERRAIN AND MOUNTAINS ARE REQUIRED FOR THE USE OF THE WINDMILLS, THE CONSIDERATION PAID FOR ACQUIRING THE LEASEHOLD RIGHTS OVER THE LAND SHOULD ALSO BE CONSIDERED AS A PAYMENT MADE FOR ACQUISITION OF A PLANT. ALTERNATIVELY, THE ASS ESSEE CLAIMED THAT ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 15 OF 23 THE EXPENDITURE IN QUESTION IS REVENUE EXPENDITURE AND SHOULD BE ALLOWED AS A DEDUCTION U/S. 37(1) OF THE ACT. 28. ACCORDING TO THE REVENUE, ACQUIRING A RIGHT O VER THE LAND AND COST PAID FOR SUCH ACQUISITION CANNOT BE EQUATE D WITH THE CONSIDERATION PAID FOR ACQUIRING A PLANT. ACCORDIN G TO THE REVENUE, ACQUIRING LEASEHOLD RIGHTS OVER A LAND OVE R A PERIOD OF 30 YEARS RESULTS IN AN ENDURING BENEFIT TO THE ASSE SSEE AND THEREFORE EXPENDITURE CANNOT BE ALLOWED AS DEDUCTIO N U/S. 37(1) OF THE ACT ALSO. THE QUANTUM OF LUMP SUM CONSIDERA TION PAID FOR ACQUIRING LEASEHOLD RIGHTS ARE DIFFERENT IN EACH OF THE ASSESSMENT YEARS. WE NEED NOT MAKE A REFERENCE TO THOSE PAYMEN TS AS THE ISSUE TO BE DECIDED BY US IS AS TO WHETHER PAYMENT MADE FOR ACQUIRING LEASEHOLD RIGHTS CAN BE CONSIDERED AS COS T OF WINDMILL (PLANT) FOR ALLOWING DEPRECIATION; OR WHETHER ALTER NATIVE CLAIM OF THE ASSESSEE TO ALLOW THE SAID EXPENDITURE AS REVEN UE EXPENDITURE CAN BE SUSTAINED. 29. BOTH THE AO AND THE CIT(APPEALS) DECIDED THE IS SUE AGAINST THE ASSESSEE GIVING RISE TO THESE APPEALS B Y THE ASSESSEE FOR THE THREE ASSESSMENT YEARS UNDER CONSIDERATION. 30. THE REASONS GIVEN BY THE CIT(APPEALS) FOR REJ ECTING THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON THE VALUE OF LEASE RENT PAID BY INCLUDING IT AS PART OF THE PLANT (WINDMILL ) ARE AS FOLLOWS:- I HAVE CONSIDERED THE RIVAL CONTENTION CAREFULLY . IT IS NOT A BUILDING OR STRUCTURE AT WHICH THE BUSINESS A CTIVITY IS CARRIED OUT THAT HAS BEEN TAKEN ON LEASE BY THE APPELLANT. HENCE, THE FACTS OF THE CASE LAW CITED B Y THE APPELLANT IN 243 ITR 81 IS DISTINGUISHABLE. IT IS THE LAND THAT WAS TAKEN ON LEASE AND LAND BY ITSELF CANNOT B E TREATED AS PLANT AND MACHINERY AND DOES NOT HAVE DEPRECIATION RATE IN DEPRECIATION SCHEDULE ALSO. 4.3 THE ALTERNATIVE ARGUMENT OF THE APPELLANT IS THAT THE LEASE AMOUNT IS REVENUE EXPENDITURE. IN T HE CASE OF HMT LTD. 203 ITR 820, IT WAS A FACTORY BUIL DING THAT WAS TO BE RETURNED AFTER THE EXPIRY OF LEASE P ERIOD. HENCE, THE LEASE RENT IS IN THE NATURE OF RENT FOR PLANT AND MACHINERY. IN THE CASE OF THE APPELLANT, THE APPELLANT HAS OBTAINED THE RIGHT ON LAND FOR 30 YEA RS ON LEASE WHICH IS AN ENDURING BENEFIT AND LAND IS NOT A ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 16 OF 23 DEPRECIABLE ASSET AND HENCE I AM IN AGREEMENT WITH THE AO THAT THE EXPENDITURE IS CAPITAL IN NATURE. ACCORDINGLY THE ADDITION ON THIS COUNT IS CONFIRMED . 31. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE WINDMILLS ARE TO BE ERECTED AT HIGH ALTITUDE FO R PROPER GENERATION OF POWER AND THEREFORE THE LAND ON WHICH THE WINDMILLS ARE ERECTED IS A TOOL OF THE TAX PAYER AN D HAS TO BE CONSIDERED AS PART OF THE PLANT (WINDMILL). IT WAS FURTHER SUBMITTED THAT AFTER THE EXPIRY OF THE LEASE PERIOD , THE LEASED LAND REVERTS BACK TO GOVERNMENT OF KARNATAKA AND THIS AS PECT IS NOT MATERIAL FOR DECIDING THE ISSUE AS TO WHETHER THE L AND FORMS PART OF THE TOOL WITH WHICH THE ASSESSEE CARRIES ON ITS BUSINESS. 32. THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIAN CE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT V. B. VENKATA RAO, 243 ITR 81 . IN THE AFORESAID DECISION, THE QUESTION FOR CONSIDERATION WAS AS TO WHETHER A BUIL DING WHICH WAS SPECIFICALLY DESIGNED AND EQUIPPED TO FUNCTION AS NURSING HOME WOULD CONSTITUTE PLANT TO ENTITLE DEPRECIATION AT A HIGHER RATE OF 10%, INSTEAD OF BEING CONSIDERED AS A BUILD ING ON WHICH THE LESSER RATE OF DEPRECIATION WAS ALONE TO BE ALL OWED. THE HONBLE SUPREME COURT APPLIED THE FUNCTIONAL TEST A ND CAME TO THE CONCLUSION THAT THE BUILDING CONSTITUTED A PLAN T. FOLLOWING OBSERVATIONS WERE BROUGHT TO OUR NOTICE:- REFERENCE WAS MADE TO AN EARLIER JUDGMENT, WHERE A LSO THE FUNCTIONAL TEST APPROVED BY THIS COURT IN SEVER AL DECISIONS WAS APPLIED. IT WAS HELD THAT IF IT WAS FOUND THAT THE BUILDING OR STRUCTURE CONSTITUTED AN APPAR ATUS OR A TOOL OF THE TAXPAYER BY MEANS OF WHICH BUSINES S ACTIVITIES WERE CARRIED ON, IT AMOUNTED TO A PLANT ; BUT WHERE THE STRUCTURE PLAYED NO PART IN THE CARRYING ON OF THOSE ACTIVITIES BUT MERELY CONSTITUTED A PLACE WHE REIN THEY WERE CARRIED ON, THE BUILDING COULD NOT REGARD ED AS A PLANT. THE TRIBUNAL AND THE HIGH COURT IN THE IN STANT CASE PROCEEDED UPON ASSUMPTIONS OF WHAT A NURSING HOME SHOULD CONTAIN. THIS MAY NOT BE ALTOGETHER APPROPRIATE. WHAT IS TO BE DETERMINED IS WHETHER THE PARTICULAR NURSING HOME BUILDING WAS EQUIPPED SO AS TO ENABLE THE ASSESSEE TO CARRY ON THE BUSINESS OF A NURSING HOME THEREIN OR ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 17 OF 23 WHETHER IT IS JUST ANY PREMISES UTILISED FOR THAT OBJECT. WE FIND FROM THE ORDER OF THE TRIBUNAL AS ALSO THE ASSESSMENT ORDER THAT THE ASSESSEES NURSING HO ME IS EQUIPPED TO ENABLE THE STERILIZATION OF SURGICAL INSTRUMENTS AND BANDAGES TO BE CARRIED ON. IT IS REASONABLE TO ASSUME IN THE CIRCUMSTANCES, PARTICUL ARLY HAVING REGARD TO THE TRIBUNALS ORDER WHICH STATES THAT THE STERILIZATION ROOM COVERS ABOUT 250 SQ.FT. THAT THE NURSING HOME IS ALSO EQUIPPED WITH AN OPERATION THEATRE. IN THE CIRCUMSTANCE, WE THINK THAT THE FI NDING OF THE HIGH COURT SHOULD BE ACCEPTED. WE WOULD, HOWEVER, ADD THAT IN A CASE SUCH AS THIS, THE TRIBU NAL SHOULD PROCEED UPON MATERIAL PLACED BY THE ASSESSEE WHICH ESTABLISHES THAT THE BUILDING IS SPECIALLY EQ UIPPED AS A PLANT FOR THE ASSESSEES BUSINESS. THE APPEAL IS DISMISSED. NO ORDER AS TO COSTS. (EMPHASIS SUPPLIED) 33. WITH REGARD TO THE ALTERNATIVE CONTENTION THAT THE EXPENDITURE SHOULD BE TREATED AS A REVENUE EXPENDIT URE, THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF CIT V. EMPIRE JUTE CO. LTD., 124 ITR 1 (SC) , WHEREIN THE SUPREME COURT HELD THAT THE TEST OF ENDURING BENEFIT MAY NOT BE RELEVANT IN ALL CASES A ND ONE HAS TO SEE THE NATURE OF ADVANTAGE OBTAINED BY THE ASSESSE E IN A COMMERCIAL SENSE. IT IS ONLY WHEN THE ADVANTAGE IS IN A CAPITAL FIELD THAT THE EXPENDITURE SHOULD BE DISALLOWED. I F THE ADVANTAGE IS MERELY FACILITATES THE ASSESSEES TRADING OPERAT ION OR ENABLES THE MANAGEMENT AND CONDUCT OF THE ASSESSEES BUSINE SS MORE EFFICIENTLY AND MORE PROFITABLY LEAVING THE FIXED C APITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCO UNT. STRONGLY RELIANCE WAS ALSO PLACED BY THE LD. COUNSE L FOR THE ASSESSEE ON THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. HMT LTD., 203 ITR 820 (KAR) , WHEREIN IT WAS HELD THAT LEASE PREMIUM PAID HAS TO BE ALLOWED AS REVENUE EXPENDITURE IN THE YEAR OF PAYMENT. 34. IN THE CASE OF HMT LTD. (SUPRA) , THE FACTS WERE THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH MIDC FOR LE ASE OF A PLOT OF LAND OWNED BY MIDC IN FAVOUR OF THE ASSESSEE. T HE LEASE WAS FOR A PERIOD OF 95 YEARS. THE ASSESSEE WAS REQUIRED TO CONSTRUCT A ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 18 OF 23 BUILDING THEREON WITHIN TWO YEARS AND PAY A MONTHLY RENT OF RS.1 PER ANNUM. AFTER THE EXPIRY OF LEASE PERIOD, THE P LOT TOGETHER WITH BUILDING WOULD REVERT TO MIDC. THE ASSESSEE H AD TO PAY A SUM OF RS.12,09,200 AS PREMIUM FOR ACQUIRING LEASEH OLD RIGHTS. THE QUESTION BEFORE THE HONBLE HIGH COURT WAS AS T O WHETHER THE AFORESAID PREMIUM PAID WAS A REVENUE EXPENDITUR E OR CAPITAL EXPENDITURE. THE HONBLE COURT HELD THAT WHILE PAY ING A LUMP SUM PREMIUM TO MIDC, THE ASSESSEE WAS IN EFFECT PAY ING FUTURE RENTS PAYABLE BY IT PERIODICALLY. THE HONBLE HIGH COURT HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE, AS IT M ERELY FACILITATES THE ASSESSEES TRADING OPERATIONS AND THE TEST OF E NDURING BENEFIT SHOULD NOT BE APPLIED. 35. THE LD. DR RELIED ON THE ORDER OF THE CIT(APPEA LS). 36. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. ON THE ISSUE WHETHER THE PAYMENT FOR ACQUIRING LEASEHOLD RIGHTS ON THE LAND ON WHICH WINDMILLS ARE ERECTED COULD BE TREATED AS COST OF PLANT ON WHICH DEPRECIATION C AN BE ALLOWED, WE ARE OF THE VIEW THAT THE FACT THAT THE WINDMILLS NEED TO BE ERECTED ON A HIGH TERRAIN FOR EFFECTIVE GENERATION OF POWER CANNOT BE THE BASIS TO CONCLUDE THAT RENTS PAID FOR ACQUIR ING LEASEHOLD RIGHTS OVER THE LAND AS PART OF THE COST OF PLANT F OR THE PURPOSE OF ALLOWING DEPRECIATION. THE ARGUMENT OF THE LD. COU NSEL FOR THE ASSESSEE HAS BEEN THAT REQUIREMENT OF ERECTING THE WINDMILL AT MOUNTAIN TERRAINS AT A HIGH ALTITUDE IS A TECHNICAL REQUIREMENT FOR GENERATION OF POWER. THOUGH THIS CONTENTION HAS NO T BEE DISPUTED BY THE REVENUE, THERE IS NO EVIDENCE ON RE CORD TO SHOW THAT THERE IS A TECHNICAL REQUIREMENT OF ERECTING T HE WINDMILLS AT HIGH ALTITUDES. WE WILL, HOWEVER, PROCEED ON THE A SSUMPTION THAT SUCH A TECHNICAL REQUIREMENT EXISTS. EVEN THEN, IN OUR VIEW, THE LEASE RENT PAID FOR ACQUIRING LEASEHOLD RIGHTS OVER THE LAND CAN NEVER BE TREATED AS COST OF THE PLANT (WINDMILL). THE FUNCTIONAL TEST CANNOT BE EXTENDED TO A CASE OF LEASE RENT FOR ACQUIRING LEASEHOLD RIGHTS OVER THE LAND, WHATEVER BE THE TEC HNICAL REQUIREMENT OF ERECTING A PLANT. THE LAW IS WELL S ETTLED THAT NO DEPRECIATION IS TO BE ALLOWED ON LAND. BY PLACING RELIANCE ON THE FUNCTIONAL TEST, IT IS NOT POSSIBLE TO ALLOW DEPREC IATION ON LAND INDIRECTLY. IF SUCH A CLAIM WERE TO BE ALLOWED, TH EN IT COULD BE EXTENDED TO A CASE OF A LAND OVER WHICH A SHOPPING MALL IS CONSTRUCTED. A SHOPPING MALL REQUIRES A GOOD AREA/ LOCATION, MAIN ROAD FOR GOOD BUSINESS. CAN IT BE SAID THAT THE RE NT PAID FOR THE ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 19 OF 23 LAND OVER WHICH THE SHOPPING MALL IS CONSTRUCTED IS PART OF THE BUILDING ON WHICH DEPRECIATION IS TO BE ALLOWED? I N OUR VIEW, BY APPLYING THE FUNCTIONAL TEST, IT IS POSSIBLE TO CON TEND IN ALL THE CASES THAT THE LAND IS A TOOL OF TRADE AND HAS TO B E REGARDED AS PLANT OR BUILDING. WE THEREFORE DECLINE TO ACCEPT THE PROPOSITION CANVASSED ON BEHALF OF THE ASSESSEE. 37. WITH REGARD TO THE ALTERNATIVE CLAIM MADE BY TH E ASSESSEE, THE CLAIM CANNOT FALL WITHIN THE PARAMETERS OF SECT ION 30 OF THE ACT, BECAUSE THAT SECTION COVERS ONLY RENT PAID ON BUILDING. THE CLAIM HAS THEREFORE TO BE CONSIDERED U/S. 37(1) OF THE ACT. ON THIS ASPECT, WE FIND THAT THE HONBLE HIGH COURT OF KARN ATAKA IN THE CASE OF HMT LTD. (SUPRA), HAS CONSIDERED THE PREMIUM FOR ACQUIRING LEASEHOLD RIGHTS AS NOTHING BUT RENT PAID IN ADVANCE. THE RENT PAID IN ADVANCE WAS FOR ACQUIRING LEASEHOL D RIGHTS OVER THE LAND. SUCH PAYMENT HAD BEEN CONSIDERED BY THE HONBLE COURT AS REVENUE EXPENDITURE. IN VIEW OF THE AFOR ESAID DECISION OF THE HONBLE HIGH COURT WHICH IS IN PARI MATERIA WITH THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE LU MP SUM RENT PAID FOR THE ENTIRE PERIOD OF 30 YEARS HAS TO BE CO NSIDERED AS REVENUE EXPENDITURE. THE CIT(A) WRONGLY DISTINGUIS HED THIS DECISION AS A CASE OF LEASE OF FACTORY BUILDING. W E THEREFORE ACCEPT THE ALTERNATIVE PRAYER OF THE ASSESSEE. THU S, THE RELEVANT GROUNDS OF APPEAL IN ALL THE THREE ASSESSMENT YEARS ARE TREATED AS ALLOWED ON THE ALTERNATIVE GROUND. 21. THE LD. DR, HOWEVER, PLACED RELIANCE ON THE DEC ISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF GAIL INDIA LTD. V. JCIT, (2012) 27 TAXMAN.COM 97 (DEL) . IN THAT CASE, THE FACTS WERE THAT ASSESSEE TOOK ON LEASE LAND FROM MUNICIPALITY FOR 60 TO 95 YEARS. I T PAID HEAVY PREMIUM AND NOMINAL RENT FOR LEASE. ASSESSEE WAS ENTITLED TO T RANSFER BENEFIT OF LEASE TO ANOTHER PARTY WITH THE PREVIOUS CONSENT OF MUNICIPA LITY. THE ASSESSEE CLAIMED PREMIUM PAID BY AMORTISING IT OVER THE PERI OD OF LEASE AS REVENUE EXPENDITURE. THE HON'BLE DELHI HIGH COURT CONCURRE D WITH THE VIEW OF ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 20 OF 23 TRIBUNAL THAT THE SAID EXPENDITURE WAS CAPITAL EXPE NDITURE. IT WAS ALSO SUBMITTED BY THE LD. DR THAT THE HON'BLE DELHI HIGH COURT IN THE AFORESAID DECISION HAS ALSO TAKEN NOTE OF THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT RENDERED IN HMT LTD. (SUPRA) . 22. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. D R AND ARE OF THE VIEW THAT THE FACTS OF THE ASSESSEE'S CASE ARE IDEN TICAL WITH THE CASE DECIDED BY THE HON'BLE HIGH COURT OF KARNATAKA IN HMT LTD. (SUPRA). THE SAID DECISION BEING THAT OF JURISDICTIONAL HIGH COU RT, WE ARE BOUND TO FOLLOW THE SAME. THE HON'BLE DELHI HIGH COURT IN GAIL INDIA LTD. (SUPRA) IN PARA 7 DEALT WITH THE DECISION OF HON'BLE HIGH COUR T OF KARNATAKA IN THE CASE OF HMT LTD. (SUPRA) AND CAME TO THE CONCLUSION THAT WHAT WAS PAID IN THE SAID CASE WAS ADVANCE RENT AND THEREFORE IT COULD BE AMORTISED. THEY DISTINGUISHED THE CASE WHERE PREMIUM IS PAID F OR ACQUIRING LEASEHOLD RIGHTS. IN THE PRESENT CASE, AS WE HAVE ALREADY SE EN, THE PAYMENT IS IN THE NATURE OF ADVANCE RENT AND THEREFORE THE DECISION O F HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF HMT LTD. (SUPRA) WILL SQUARELY APPLY TO THE ASSESSEE'S CASE. 23. FOLLOWING THE JUDGMENT OF HON'BLE HIGH COURT OF KARNATAKA IN HMT LTD. (SUPRA) AND THE DECISION OF THIS TRIBUNAL IN V.S. LAD & SONS (SUPRA) , WE HOLD THAT THE SUM OF RS.7,20,000 BE ALLOWED AS A REVENUE EXPENDITURE. ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 21 OF 23 GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED, WH ILE CROSS OBJECTIONS RAISED BY THE ASSESSEE IS ALLOWED. ITA NO.481/B/12 & CO 6/15 24. GROUND NOS.1, 4 & 5 RAISED BY THE REVENUE IN IT A NO.481/B/12 ARE GENERAL IN NATURE AND CALLS FOR NO ADJUDICATION. 25. GROUND NO.2 RAISED BY THE REVENUE IS IDENTICAL WITH GROUND NO.2 RAISED IN ITA NO.586/B/12 FOR A.Y. 2007-08, UNDER I DENTICAL FACTS AND CIRCUMSTANCES. FOR THE REASONS STATED THEREIN FOR A.Y. 2007-08, WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE AND D ISMISS GROUND NO.2 RAISED BY THE REVENUE. 26. GROUND NO.3 RAISED BY THE REVENUE AND THE GROUN DS RAISED IN THE CROSS OBJECTIONS OF THE ASSESSEE IN CO NO.6/B/15 AR E AS FOLLOWS:- '1. THE ORDER OF THE CIT (APPEALS) IS CORRECT AND THE SAME DOES NOT REQUIRE ANY INTERFERENCE. 2. IN THE ALTERNATIVE, THE RESPONDENT PRAYS THAT IN THE EVENT OF THE HONBLE TRIBUNAL HOLDING THAT THE RESPONDENT WAS NO T ENTITLED FOR THE DEPRECIATION, THE EXPENDITURE INCURRED TOWA RDS PAYMENT FOR ACQUIRING THE LEASE-HOLD RIGHTS OF THE LAND ON WHICH THE WIND- MILLS WERE ERECTED MAY KINDLY BE DIRECTED TO BE ALL OWED AS A DEDUCTION UNDER SECTION 37(1) OF THE ACT.' 27. THERE IS DELAY IN FILING THE CO BY THE ASSESSEE AND REASONS FOR THE SAME ARE IDENTICAL AS WERE STATED IN CO NO.5/B/15 F OR A.Y. 2007-08. FOR THE REASONS GIVEN THEREIN, WE CONDONE THE DELAY IN FILING THE CO. ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 22 OF 23 28. AS FOR THE MERITS OF THE CLAIM MADE BY THE REVE NUE IN GROUND NO.3 AND THE CLAIM MADE BY THE ASSESSEE IN CROSS OBJECTI ONS, WE ARE OF THE VIEW THAT SINCE THE ENTIRE LEASE RENT HAS BEEN ALLOWED A S REVENUE EXPENDITURE FOR THE A.Y. 2008-09 TREATING IT AS ADVANCE PAYMENT OF RENT, ASSESSEE CANNOT CLAIM DEPRECIATION ON THE VERY SAME AMOUNT T REATING IT AS PART OF THE COST OF THE PLANT. THE REASONS IN THIS REGARD ARE FOUND IN THE ORDER IN ITA NO.586/B/12 FOR A.Y. 2007-08. FOLLOWING THE DECISI ON RENDERED THEREIN, WE HOLD THAT THE CLAIM OF DEPRECIATION ON EXPENDITURE INCURRED FOR ACQUIRING LEASEHOLD LAND DOES NOT ARISE FOR CONSIDERATION IN THIS ASSESSMENT YEAR. CONSEQUENTLY, THE GROUND RAISED BY THE REVENUE IS A LLOWED, WHILE THE CROSS OBJECTION RAISED BY THE ASSESSEE IS DISMISSED. 29. IN THE RESULT, ITA NO. 586/B/12 IS DISMISSED, I TA NO.481 IS PARTLY ALLOWED, CO NO.5/B/15 IS ALLOWED AND CO NO.6/B/15 I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JANUARY, 2015. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 23 RD JANUARY, 2015. /D S/ ITA NOS. 486 & 481/BANG/2012 & CO NOS. 5 & 6/BANG/2015 PAGE 23 OF 23 COPY TO: 1. REVENUE 2. ASSESSEE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.