M/S. CONTAINER CORPORATION OF INDIA LTD.,NEW DELHI vs. DCIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: ‘B’, NEW DELHI BEFORE SHRI RK PANDA, ACCOUNTANT MEMBER & AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA No. 186/Del/2015 A.Y. 2010-11 M/s Container Corporation ACIT, Circle 6(2) vs. of India Ltd. New Delhi Concor Bhawan, C-3 Mathura Road, Opp. Apollo Hospital New Delhi 110 076 PAN: AAACC1205A ITA No. 77/Del/2015 A.Y. 2010-11 DCIT, Circle 3(1) M/s Container vs. New Delhi Corporation of India Ltd. Concor Bhawan, C-3 Mathura Road, Opp. Apollo Hospital New Delhi 110 076 PAN: AAACC1205A (Assessee) (Respondent)

Assessee by Sh. S. Krishnan & Sh. V. Raja Kumar, Adv. Revenue by Ms. Rachna Singh, CIT, D.R. Date of Hearing 26.07.2018 Date of Pronouncement 23/08/2018

ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd

ORDER PER BEENA A PILLAI, JUDICIAL MEMBER

The present Cross Appeals have been filed by assessee as well as Revenue against the order dated 10.11.2014 of the Ld. Commissioner of Income Tax (Appeals)-VI, New Delhi pertaining to the Assessment Year (A.Y.) 2010-11on the following grounds. ITA 77/Del/2015 (Assessee’s appeal) “1. The Ld.CIT(A) erred, on the facts and in law, in confirming the disallowance of Rs.76,27,81,794/- being claim u/s 80 IA of the Income Tax Act, 1961 (the Act) on ICDs/CFS, which are inland ports, ignoring the decision of the Hon’ble Delhi High Court in the appellant’s own case in A.Y. 2003-04 to 2005-06. 2. The Ld.CIT(A) erred, on the facts and in law, in confirming the disallowance of Rs.2,70,88,72,618/- being claim u/s 80 IA of the Act on Rail System (Rolling Stock) ignoring the decision of the Hon’ble Delhi High Court in the appellant’s own case in A.Y. 2003- 04 to 2005-06. 3. The Ld.CIT(A) erred, on the facts and in law, in confirming the disallowance of Rs.2,11,42,578/- on account of depreciation on intangible assets being License acquired from the Indian Railways for running container trains on Indian Railways. 4. The Ld.CIT(A) erred, on the facts and in law, in confirming the disallowance of Rs.2,42,00,048/- being claim of deduction on account of lease rent paid in advance against land taken on long terms lease for business purposes on pro rata basis, ignoring the

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd facts that similar claim was allowed by the Ld.CIT(A) in earlier years. 5. The Ld.CIT(A) erred, on the facts and in law, in confirming the disallowance of expenditure Rs.1,10,90,500/- u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962 ignoring the fact that the appellant had not incurred any direct or indirect expenditure in relation to the exempt income.” ITA 186/Del/2015 (Revenue’s appeal) The Assessing Officer, Dy. Commissioner of Income Tax Circle 6(2), New Delhi is hereby directed to file an appeal in the above mentioned case before the ITAT, New Delhi on the following grounds of appeal: i) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,97,00,000 made on account of disallowance of depreciation on the assets retired from active use ignoring the fact that once an individual asset is not put to use, which is a requisite condition for availing depreciation u/s 32 of the Income tax Act, 1961, the same becomes ineligible/disqualified for block of assets on which depreciation is allowed as per Rule-5 and appendix IA of the Income tax Rules 1962, but shall continue to remain the part of the block of assets for all other purpose except for the purpose of claiming depreciation unless put to use. ii) The Ld. CIT(A) has erred in law and on facts in directing the AO to allow depreciation of Rs.1,45,00,000 on the assets which were not registered in the name of the assessee. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. Page 3 of 25

ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd 2. Return declaring income of Rs.592,89,01,978/- was filed by assessee. Assessee is a Government of India Undertaking working under the administrative control of Ministry of Railways. It is engaged in the business of handling and transportation of containerized cargo. Its operating activities are mainly carried out at its Inland Container Depots (ICDs), Container Freight Stations (CFS) and Port Side Container Terminals (PSCTS) spread all over the country. Its wagons are running on Indian Railways System for carriage of container traffic. 2.1. Assessee had claimed depreciation on block of assets and containers. Assessee had also claimed deduction under section 80 IA of the Income Tax Act, 1961 (the Act) on inland port and rail system. Ld. AO while passing the assessment order disallowed the claim of assessee and 14 A disallowance was computed by Ld. A.O. 3. Aggrieved by the order of Ld. AO, assessee preferred appeal before the Ld. CIT (A) who partly allowed assessee’s appeal. 4. Aggrieved by the order of Ld.CIT(A) revenue as well as assessee are in appeal before us. 5. At the outset Ld.Counsel submitted that the grounds raised in both the appeals are covered by order of this Tribunal for Assessment Year 2008-09 in assessee’s own case which has been affirmed by Hon’ble Delhi High Court as well as Hon’ble Supreme Court. 6. ITA No. 77/Del/2015 (assessee’s appeal) Ground No. 1 is in respect of deduction denied under section 80 IA of the Act by Ld. CIT (A) on ICDs/CFS, which are inland ports. Page 4 of 25

ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd 6.1. Ld.Counsel submitted that the issue was decided by this Tribunal in ITA No. 2851 and 3680/Del/2007 for Assessment Year 2003-04 to 2005-06 against assessee, which has been reversed by Hon’ble High Court. He further submitted that decision of Hon’ble High Court reported in (2012) 21 Taxmann.com 317, which has been subsequently affirmed by Hon’ble Supreme Court in CIT vs Container Corporation of India Ltd. reported in (2018) 93 Taxmann.com 31. Ld. Counsel placed before us decision of Hon’ble Supreme Court wherein it has been held as under: “21. Moving further to the issue whether the ICDs can be termed as Inland Ports so as to entitle deduction under Section 80-IA of the IT Act. The term port, in commercial terms, is a place where vessels are in a habit of loading and unloading goods. The term 'Port' as is used in the Explanation attached to Section 80-IA(4) seems to have maritime connotation perhaps that is the reason why the word airport is found separately in the Explanation. Considering the nature of work that is performed at ICDs, they cannot be termed as Ports. However, taking into consideration the fact that a part of activities that are carried out at ports such as custom clearance are also carried out at these ICDs, the claim of the respondent herein can be considered within the term 'Inland port' as is used in the Explanation. It is significant to note that the word 'Inland Container Depots' was first introduced in the definition of 'Customs Port' as is given in Section 2(12) of the Customs Act, 1962, through amendment made by the Finance Act, 1983 with effect from 13.05.1983. 22. The term 'Inland Port' has been defined nowhere. But the Notification that has been issued by the Central Board of Excise & Customs (CBEC) dated 24.04.2007 in terms holds that considering the nature of work carried out at these ICDs they can be termed as Inland Ports. Further, the communication dated 25.05.2009 issued on behalf of the Ministry of Commerce and Industry confirming that the ICDs are Inland Ports, fortifies the claim of the respondent herein. Though both the Notification and communication are not binding on CBDT to decide whether ICDs can be termed as Inland Page 5 of 25

ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd Ports within the meaning of Section 80-IA of the IT Act, the appellant herein is unable to put forward any reasonable explanation as to why these notifications and communication should not be relied to hold ICDs as Inland Ports. Unless shown otherwise, it cannot be held that the term 'Inland Ports' is used differently under Section 80-IA of the IT Act. All these facts taken together clear the position beyond any doubt that the ICDs are Inland Ports and subject to the provisions of the Section and deduction can be claimed for the income earned out of these Depots. However, the actual computation is to be made in accordance with the different Notifications issued by the Customs department with regard to different ICDs located at different places. 23. In light of the forgoing discussion, we are of the view that judgment of the High Court does not call for any interference and, hence, the appeal is accordingly dismissed. All the connected appeals are disposed of accordingly. The parties to bear cost on their own.”

6.2. Ld.CIT, DR though supported the order passed by authorities below, could not bring out any distinguishing feature/facts for the year under consideration. 7. We have perused the submissions advanced by both the sides on the basis of the records placed before us. 7.1. It is observed that Ld. CIT (A) for the year under consideration has rejected the claim of assessee by following the order of this Tribunal in assessee’s own case for Assessment Year 2003-04 to 2005-06 (supra), Hon’ble High Court reversed the view of this Tribunal which has now been affirmed by Hon’ble Supreme Court. Further it is observed that there are no factual differences regarding this issue in Assessment Year under consideration, vis-a-vis Assessment Year 2003-04 to 2005-06 (supra).

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd 7.2. Respectfully following the decision of Hon’ble Supreme Court, we allow this claim of assessee. 7.3. Accordingly this ground raised by assessee stands allowed. 8. Ground No. 2 is regarding disallowance of the claim under section 80 IA of the Act on rail system (rolling stock). 8.1. Ld. Counsel submitted that this ground has also attained finality with the decision of Hon’ble High Court in assessee’s own case, in Container Corporation of India Ltd. vs. ACIT reported in (2012) 21 Taxmann.com 317. He submitted that Hon’ble High Court observed and held as under: “9. The question before us is whether the income from ICDs qualify for the deduction under Section 80IA(4)(i) of the Act read with the Explanation (d). We may first notice that out of the total of 45 ICDs operated by the assessee, except two ICDs, all others were notified by the CBDT vide notification No.S.O.744(E) issued on 1st September, 1998 for the purpose of Section 80IA(12)(ca). It may be recalled that under this provision, the Board had the power to notify an infrastructure facility for the purpose of the Section. The notification is reported in (1999) 233 ITR St. 126 and is reproduced below:- "Notification No.S.O.744(E), September 1st, 1998 - Income-tax Act, 1961: Notification under section 80 - IA(12) (ca) : Inland Container Depot and Central Freight Station notified as infrastructure facility. In exercise of the powers conferred by clause (ca) of sub-section (12) of section 80-IA of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby notifies Inland Container Depot (ICD) and Central Freight Station (CFS) as infrastructure facility : Provided that such places are notified as Inland Container Depot and Central Freight Station under section 7(aa) of the Customs Act, 1962." 10. The power to notify infrastructure facilities for the purpose of the Section was taken away from the CBDT with effect from Page 7 of 25

ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd 1.4.2002. The first argument of the learned counsel for the assessee is that once the ICDs have been notified validly by the CBDT by virtue of the powers conferred upon them, the fact that at a later point of time the power was taken away does not put an end to the validity or effect of the notification and as per the relevant Section as it stood at the time when the notification was issued, the assessee was eligible for the deduction for a period of 10 successive assessment years which covers the assessment years 2003-04 to 2005-06 which are the years under appeal. 11. We have examined the contention. Prior to the amendment made with effect from 1.4.2002 by the Finance Act, 2001, as noticed earlier, the Board was empowered to notify any public facility of a similar nature, other than what was mentioned as infrastructure facility. But an amendment was made and the power to notify was dropped. There was no provision made in the Act saying that the notification issued earlier would cease to have effect from 1.4.2002. Since the notification continued to have effect even beyond 1.4.2002, there is merit in the contention of the learned counsel for the assessee. Circular No.7/2002, dated 26th August, 2002, reported in (2002) 257 ITR (St.) 28 clarified as under: "Such projects, for which agreements have been entered into on or after April 1, 1995, but on or before March 31, 2001, and which have been notified by the Board on or before March 31, 2001, would continue to be exempt, subject to the fulfillment of the conditions prescribed in section 80-IA(4)(i)(b), as it existed prior to its substitution by the Finance Act, 2001." This circular fortifies the assessee's claim.”

8.2. Ld.Counsel has also placed before us a subsequent order passed by Hon’ble Delhi High Court dated 31/10/17 wherein following the above reproduced view, appeal filed by revenue has been dismissed in ITA No. 917/2017 and 918/2017. 8.3. Ld.CIT.DR though supported the order passed by authorities below, could not bring out any distinguishing feature/facts for the year under consideration.

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd 9. We have perused the submissions advanced by both the sides on the basis of the records placed before us. 9.1. It is observed that Ld.CIT(A) for the year under consideration has rejected the claim of assessee by following the order of his predecessor in assessee’s own case for Assessment Year 2003-04 to 2005-06 (supra), which has been reversed by Hon’ble Delhi high Court. Further it is observed that there are no factual differences regarding this issue in Assessment Year under consideration, vis-a-vis Assessment Year 2003-04 to 2005-06 (supra). 9.2. Respectfully following the decision of Hon’ble Delhi High Court, we allow this claim of assessee. 9.3. Accordingly this ground raised by assessee stands allowed.

ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd container trains on Indian Railways. The registration fee of applicants who are not eligible would be refundable without interest. No such refund has been received by the assessee and therefore, it is apparent that appellant has been granted that new license. According to that license, it is flexible permission to run trains between any pairs of trains to any points in the entire country and there will be no limit on number of trains on any of the routes. The above permission was valid for a period of 20 years and further extendable by 10 years. Such permission is transferable from one operator to another operator subject to rules and conditions. On reading of the above policy documents it is apparent that assessee has acquired a commercial right to operate trains on the Indian Railway Track for 20 years by payment of Rs. 50 crores and which is transferable. The Hon'ble Delhi High Court in case of Areva T&D India Ltd Vs. DCIT 345 ITR 421 has held that intangible assets includes business claims, business information, business records and assets which are invaluable for carrying on the business of the assessee. It was further held that the intangible assets were comparable to a license to carry on the existing business and in Page 12 of 21 absence of such intangible assets it would have been difficult for the assessee to carry on its business. Therefore, it was held that such intangible assets are eligible for depreciation in terms of section 32(1)(ii) of the Act as under:- “12. In the present case, it is seen that the assessee, vide slump sale agreement dated June 30, 2004, acquired, as a going concern, the transmission and distribution business of the transferor

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd company with effect from April 1, 2004. As a result thereof, the running business of transmission and distribution was acquired by the transferee lock, stock and barrel minus the trade mark of the transferor which was retained by the transferor, for lump sum consideration of Rs. 44.7 crores. It is further seen that the book value of the net tangible assets (assets minus liabilities) acquired was recorded in the balance-sheet of the transferor as on the date of transfer as Rs. 28.11 crores. The said assets and liabilities were recorded in the books of transferee at the same value as appeared in the books of the transferor. The balance payment of Rs. 16,58,76,000 over and above the book value of net tangible assets, was allocated by the transferee towards acquisition of bundle of business and commercial rights, clearly defined in the slump sale agreement, compendiously termed as "goodwill" in the books of account, which comprised, inter alia, the following : (i) business claims, (ii) business information, (iii) business records, (iv) contracts, (v) skilled employees, (vi) know-how. It is also observed that the Assessing Officer accepted the allocation of the slump consideration of Rs. 44.7 crores paid by the transferee, between tangible assets and intangible assets (described as goodwill) acquired as part of the running business. The Assessing Officer, however, held that depreciation in terms of section 32(1)(ii) of the Act was not, in law, available on goodwill. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal approved the reasoning of the Assessing Officer thereby holding disallowance of depreciation on the amount described as goodwill. It was thus argued on behalf of the assessee-company that section 32(1)(ii) would mean rights similar in nature as the specified Page 11 of 25

ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd assets, viz., intangible, valuable and capable of being transferred and that such assets were eligible for depreciation. On behalf of the respondent it was argued that applying the doctrine of noscitur sociis the expression "any other business or commercial rights of similar nature" used in Explanation 3(b) to section 32(1) has to take colour from the preceding words "know-how, patents, copyrights, trade marks, licences, franchises". It was urged that the Supreme Court had clearly held in Techno Shares and Stocks Ltd. [2010] 327 ITR 323 (SC) that "Our judgment should not be understood to mean that every business or commercial right would constitute a "licence" or a "franchise" in terms of section 32(1)(ii) of the 1961 Act". 13. In the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression "business or commercial rights of similar nature" specified in section 32(1)(ii) of the Act. It is seen that such rights need not answer the description of "know-how, patents, trade marks, licences or franchises" but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred to in section 32(1)(ii) of the Act preceding the term "business or commercial rights of similar nature", it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been additionally used,

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, Page 13 of 21 which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of "business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., know-how, patents, trade marks, copyrights, licences or franchises. The nature of "business or commercial rights" can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in the case of the assessee, intangible assets, viz., business claims ; business information ; business records ; contracts ; employees ; and know- how, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets are, therefore, comparable to a licence to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares and Stocks Ltd. [2010] 327 ITR 323 (SC) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the Page 13 of 25

ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd assessee to access the market and has an economic and money value is a "licence" or "akin to a licence" which is one of the items falling in section 32(1)(ii) of the Act. 14. In view of the above discussion, we are of the view that the specified intangible assets acquired under slump sale agreement were in the nature of "business or commercial rights of similar nature" specified in section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that section.” 15. As Assessee has earned a benefit of enduring nature of plying on Indian Railway tracks for a period of 20 years , we do not have any hesitation to hold that it is a capital asset in the form of right to operate. It is a valuable commercial right available to the assessee for a considerable long period therefore, following the decision of the Hon'ble Delhi High Court we are of the view that the assessee has acquired a „commercial right‟ which is eligible for depreciation u/s 32(1)(ii) of the Income Tax Act. Therefore, ground No. 3 and 4 of the appeal of the assessee is allowed holding that the assessee has acquired intangible assets which is a valuable commercial right for Rs. 50 crores and same is eligible for depreciation u/s 32(1)(ii) of the Act. In view of this ground No. 3 and 4 of the appeal of the assessee are allowed with above direction.” 10.2. Ld.Counsel thus submitted that the issue is squarely covered in favour of assessee by an order passed by this Tribunal in assessee’s own case for Assessment Year 2008-09 and 2009- 10 in ITA No.1876/Del/2012 and 6377/Del/2012, vide order dt. 18.01.2017.

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd 10.3. On the contrary, Ld.CIT, D.R. (by way of written submissions) submitted that the A.O. rightly treated non- refundable registration fee of Rs.50 crores as deferred revenue expenditure whereas assessee has reflected it as an intangible asset, terming it as ‘License Fee’ and has claimed depreciation under the Act. 11. We have perused the submissions advanced by both the sides in the light of the records placed before us. This Tribunal for A.Y. 2008-09 in assessee’s own case vide order dated 18/01/2017 held that, commercial right acquired by assessee by way of this license for earning enduring benefit for a period of 20 years would amount to capital asset. It is also observed that this view of Tribunal derives support from decision of Hon’ble Delhi High Court in the case of Areva T&D India Ltd. vs. DCIT reported in 345 ITR 421. 11.1. Under such circumstances respectfully following the same view, we hold intangible asset acquired by assessee is eligible for depreciation @ 25% u/s 32(1)(ii) of the Act. 11.2. Accordingly ground raised by assessee stand allowed. 12. Ground No. 4 is in respect of disallowance of deduction on account of lease rent paid in advance against the land taken on long-term lease for business purposes on pro rata basis. 12.1. Ld.Counsel submitted that this issue is also covered by order of this Tribunal in assessee’s own case for Assessment Year 2008-09 and 2009-10 wherein following view has been taken:

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd “52. We have carefully considered the rival contentions and also noted the para extracted by Ld CIT(A) in para No. 7.1 of his order of AY 2004-05. The ld Assessing Officer has followed the decision of Hon’ble Bombay High Court in case CIT Vs. Indian Oil Corporation wherein premium paid on leasehold land is disallowed and also it was held that such premium said cannot be included in the cost of the building constructed thereon. The Ld.CIT(A) followed his own decision for AY 2004-05 which was in respect of amortization of leasehold land and it is not the issue of deprecation on leasehold land. The decision of Hon’ble Delhi High Court relied upon by the Ld AR also do not apply to the facts of the ease because that decision also do not apply to the leasehold land. We are conscious about the difference between amortization of leasehold premium paid and equalization of lease charges and therefore both cannot be compared. It is also not ascertained by the lower authority whether the claim of the assessee on depreciation can be considered u/s 32(1) (ii) of the Income Tax Act or not and this fact is not available on record we set aside this ground of appeal of the revenue back to the file of Assessing Officer with a direction to the assessee to furnish the complete details of the claim of the assessee clearly bringing out the facts whether it is a claim of the depreciation or whether it is a claim of the allowability of expenditure.” 12.2. Ld. CIT DR did not object for the issue being set aside with a direction clearly bringing on the facts whether it is the claim of depreciation or whether the claim of allowability of expenditure.

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd 13. We have perused the submissions advanced by both the sides in the light of the records placed before us. As there is no change in the factual circumstances, respectfully following the aforestated view taken by this Tribunal in assessee’s own case for Assessment Year 2008-09 and 2009-10, we set aside this issue to the file of Ld. AO with the direction to assessee to furnish all requisite details in respect of the claim of depreciation. Ld. AO shall then verify the details to determine whether the claim of assessee is allowable or not as per law. 13.1. Accordingly this ground raised by assessee stands allowed for statistical purposes. 14. Ground No. 5 is in respect of disallowance computed under section 14A read with Rule 8D. 14.1. Ld. Counsel submitted that exempt income earned by assessee during the year under consideration amounts to Rs.29,64, 769/-. He submitted that Assessing Officer disallowed an expenditure of Rs.1,10,90,500/-under section 14 A by taking 0.5% of average investments under rule 8D (2) (iii). Placing reliance upon para 9.2 of assessment order Ld.Counsel submitted that Assessing Officer has accepted that no direct expenses was incurred by assessee for earning exempt income. In all fairness, Ld.Counsel submitted that issue may be set-aside to Ld.AO with a direction to recompute disallowance under section 14 A read with Rule 8D, having regard to recent decisions passed by Hon’ble Delhi High Court as well as Hon’ble Supreme Court in the case of Maxopp Investments Ltd vs. CIT reported in (2018) 91 Taxmann.com 154.

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd 14.2. Ld. CIT DR did not object to the issue being set aside to Ld. AO for recomputation in the light of the ratio laid down by Hon’ble Supreme Court in case of Maxopp investments Ltd vs. CIT (supra). 15. We have perused the submissions advanced by both the sides in the light of the records placed before us. 15.1. In the light of the above submissions by both the sides, we are inclined to set aside this issue to Ld. AO for recomputing the disallowance having regard to the ratio laid down by Hon’ble Supreme Court in case of Maxopp investments Ltd vs. CIT (supra). Accordingly this ground raised by assessee stands allowed for statistical purposes. 15.2. In the result appeal filed by assessee stands allowed as discussed above.

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd 31/10/2017. He submitted that there is no factual difference in these Assessment Years. 16.2. Ld.CIT DR though supported the order of Ld.AO, could not controvert the aforesaid observation by Hon’ble Delhi High Court on this issue. 17. We have perused the submissions of both the sides in the light of the records placed before us. 17.1. It is observed that this Tribunal for Assessment Year 2008-09 decided this issue by observing as under: “20. We have carefully considered the rival contentions. The first appellate authority has allowed the claim of the assessee who following the decision of the earlier years in its own case and further following the decision of the Hon’ble Delhi High Court. The Hon’ble Delhi High Court in case of CIT Vs. Yamaha Motor India Pvt. Ltd has considered an identical issue in 328 ITR 297 as under:- 6. The relevant and related provisions, in this regard, for decision of the issue are section 32(1) (which requires that the assets are used for the purposes of the business), section 32(1)(iii) (lays down the details and requirements with respect to claim of depreciation inter alia of discarded machinery), section 43(6)(c)(i)(B) (defines written down value with respect to block of assets), section 50(2) (under the head of profits chargeable to tax on the aspect of discarded machinery). 7. On the aspect of passive user, there are two decisions of two Division Benches of this Court in the cases reported as CIT v. Refrigeration and Allied Industries Ltd. [2001] 247 ITR 12_ (Delhi) and Capital Bus Services P. Ltd. v. CIT [1980] 123 ITR 404 (Delhi). Page 19 of 25

ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd In this view of the matter, we need not refer to the judgments of any other court as we are bound by the earlier judgments of this court. In fact, we also agree with the ratio of both the decisions which hold that as long as the machinery is available for use, though not actually used, it falls within the expression " used for the purposes of the business" and the assessee can claim the benefit of depreciation. 8. Looking at the facts from this point of view, an actual user is not required as has been contended by the Revenue. 9. The matter can be looked at from another angle also. No doubt, the expression used in section 32 is " used for the purposes of the business" . However, this expression has to be read harmoniously with the expression "discarded" as found in sub-clause (iii) of sub- section (I). Obviously, when a thing is discarded it is not used. Thus " use" and " discarding" are not in the same field and cannot stand together. However, if we adopt a harmonious reading of the expressions " used for the purposes of the business" and " discarded" then it would show that " used for the purposes of the business ’’ only means that the assessee has used the machinery’ for the purposes of the business in earlier years. It is not disputed in the facts of the present case, and as discussed above, that the machinery in question was in fact used in the previous year and depreciation was allowed on the block of assets in the previous years. Taking therefore a realistic approach and adopting a harmonious construction, we feel that the expression " used for the purpose of the business" as found in section 32 when used with respect to discarded machinery would mean that the user in the business is not in the relevant financial year/previous year but in Page 20 of 25

ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd the earlier financial years. Any other interpretation would lead to an incongruous situation because on the one hand the depreciation is allowed on discarded machinery after allowing, inter alia, an adjustment for scrap value, yet, on the other hand user would be required of the discarded machinery which use is not possible because of various reasons viz., the age of the machinery, or that it has become obsolete as new technology has come in and so on. We thus hold that the discarded machinery may not be actually used in the relevant previous year as long as it is used for the purposes of business in the earlier years.

“10. We, therefore, answer the two questions of law by holding that the Income-tax Appellate Tribunal was correct in law in directing the Assessing Officer to recompute depreciation after reducing the scrap value of the assets which have been discarded and written off in the books of account for the year under consideration from the written down value of the block of assets. Actual user of the machinery is not required with respect to discarded machinery and the condition for eligibility for depreciation that the machinery being used for the purpose of the business would mean that the discarded machinery is used for the purpose of the business in the earlier years for which depreciation has been allowed. ” 21. The Ld.DR could not point about any infirmity in the order of the Ld. CIT(A) wherein he has followed the order of the Hon'ble High Court and further, could not controvert the decision cited by the Ld AR covering the issue in favour of the assessee. In view of this ground No. 1 of the appeal of the revenue is Page 21 of 25

ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd dismissed.”

17.2. It has been further submitted by Ld. Counsel that the aforestated view has been upheld by Hon’ble Delhi High Court in ITA No. 917-918/2017 vide order dated 31/10/2017 wherein, Hon’ble Court held as under: “5. The last question urged is with respect to amortised depreciation. The ITAT correctly, in our opinion, applied section 32 of Income Tax Act, 1961. No question of law, therefore, arises.” Respectfully following the same we dismiss this ground raised by revenue. 18. Ground No. (ii) is in respect of allowing depreciation on assets which were not registered in the name of assessee. Ld. Counsel submitted that this issue has also been settled in favour of assessee by order of this Tribunal in assessee’s own case for Assessment Year 2008-09, which has now attained finality because revenue had not raised this issue before Hon’ble High Court. 18.1. He submitted that this Tribunal decided by observing as under: “25. We have carefully considered the rival contentions and the facts are undisputed that the claims are unsettled as stated by the parties as the matter is pending before the Hon'ble Delhi High Court against the Arbitration Tribunal Award. In view of this the matter is still not attained finality and therefore the sums received by the assessee by invoking the bank guarantee cannot be taxed as an income. The Ld.DR could not controvert that the claims have not reached finality and in that circumstances how the order of the Ld.CIT(A) is erroneous. In view of this we do not find any infirmity in the order of the

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd Ld.CIT(A) and dismiss ground no.2 of the appeal of the revenue.”

18.2. Ld.CIT DR though supported the order of Ld.AO, could not controvert that the issue had not been challenged before Hon’ble High Court. Thus in our considered opinion, the view taken by this Tribunal in assessee’s own case for Assessment Year 2008-09 has attained finality. 19. Respectfully following the same, we dismiss this ground raised by revenue. 19.1. Accordingly grounds raised by revenue stands dismissed. 20. In the result appeal filed by revenue stands dismissed. Order pronounced in the Open Court on 23rd August, 2018.

Sd/- Sd/-

(R.K.PANDA) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dt. 23rd August, 2018

*Gmv

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT - TRUE COPY -

By Order,

ASSISTANT REGISTRAR ITAT Delhi Benches

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ITA 77/Del/2015 A.Y. 2010-11 M/s Container Corpn. Of India Ltd. vs. DCIT, Circle 3(1) & ITA186/Del/2015 A.Y. 2010-11 ACIT Circle 6(2) vs. M/s Container Corpn. Of India Ltd

S.No. Details Date Initials Designation 1 Draft dictated on Dragon 02/08/18 Sr. PS/PS 2 Draft placed before author Sr. PS/PS 06/08/18 Draft proposed & placed 3 JM/AM before the Second Member Draft discussed/approved 4 AM/AM by Second Member Approved Draft comes to 5 Sr. PS/PS the Sr. PS/PS 6 Kept for pronouncement 23/8/18 Sr. PS/PS 7 File sent to Bench Clerk Sr. PS/PS Date on which the file goes 8 to Head Clerk Date on which file goes to 9 A.R. 10 Date of Dispatch of order

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