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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
O R D E R Per Shamim Yahya, A. M.: This appeal by the Revenue is directed against the order of ld. Commissioner of Income Tax (Appeals) dated 30.06.2016 and pertains to assessment year 2013-14.
2. The grounds of appeal
read as under:
1. Whether, on the facts and in the circumstances of the case, the Ld. CIT (A) erred in holding that the assessee is entitled to claim depreciation on premises owned by it and used for the residence of the Director?
2. Whether, on the facts and in the circumstances of the case, the CIT (A) erred in holding that the assessee is entitled to such depreciation even without
M/s. Stuish Capital Services Pvt. Ltd. verifying whether the benefit out of such accommodation has been shown as perquisite in the return of the director who is using the premises? 3. Whether, on the facts and in the circumstances of the case, the CIT (A) erred in holding that the assessee is entitled to such depreciation even without verifying whether any resolution was passed by the Board of Directors authorizing the Director to occupy the flat in question for his residential purposes?
Brief facts of the case are that the assessee-company is engaged in share trading activities. The assessee e-filed its original return of income on 25.09.2013 declaring loss at Rs.55,03,360/-. The Assessing Officer while passing the assessment order u/s. 143(3) of the I. T. Act, 1961 disallowed an amount of Rs.40,20,494/-, on account of disallowance of depreciation and added it to the total income of the assessee. Thereafter, the total income of the assessee was arrived at a loss of Rs.14,82,866/-.
Against the above order, the assessee appealed before the ld. Commissioner of Income Tax (Appeals). The ld. Commissioner of Income Tax (Appeals) noted the submissions of the ld. Counsel of the assessee as under:
6.1 During the course of appellate proceedings the AR submitted that the appellant is engaged in business of share trading activities and the two directors of the company are shareholders of the company are Mr. Anil Bagri and Ms. Archana Bagri having share holding in the ratio of 95.47% and 4.53% respectively. Mr. Anil Bagri is the director in change of operations. He oversees the security trading operations of the Company, iV^lans the investments of the company and also looks after the day to day Iperations of the company. By an agreement dt. 14.03.2011, the company agreed to purchase flat in building Vivera and paid a sum of Rs. 7,77,66,281/- for the said purchase. The said flat was purchased out of own funds available with the appellant company and out of Interest free loan from directors. The appellant obtained possession and during the year allowed the flat for occupation to its directors tor residence and continue trading activities from the said house. In the next year the flat was sold. This is the only year when the flat was given to the Director and depreciation has been claimed thereon, /f 6.2 The AR vehemently argued that the AO has disallowed the depreciation on the ground that the property is a residential asset and not put to use for business purposes. The appellant submits that the AO failed to consider the CBDT Circular
M/s. Stuish Capital Services Pvt. Ltd. no. 10/14/66-IT (Al) dt. 12.12.66, in which it has been clarified that quarters built by the employers for the accommodation of their employees must be regarded as buildings used for business and thus eligible for depreciation. 6.3 The AO further relied on the judgment of Delhi High Court in case of Modi Industries Ltd. 210 ITR 1, in which it has been held that the word 'occupy' refers to occupation directly by the assessee or through an employees and occupation by an employee was held eligible for depreciation for the purpose of carrying on of business. 6.4 He further relied upon the ITAT Kolkata bench in case of Arjun Associates P Ltd., in which it has been held that once the assets is part of Block of Assets, used by Directors for residence and kept as business asset of the Company, depreciation cannot be disallowed. 6.5 In the appellant's case, the Director is the employee of the company. It uses the flat for trading and operation activities of the company. Stock Market opens at 9am every morning. The entire business of the company is trading in shares. Thus in view of the aforesaid circular and decisions, the A.O. erred in disallowing depreciation and the same be allowed.
Considering the above the ld. Commissioner of Income Tax (Appeals) held as under:
6.6 I have carefully considered the rival submissions. I agree with the arguments of the AR that the flat in question was purchased by the appellant company out of its funds and was given to one of its directors, who has substantial interest in the company and managed the business affairs of company. The asset being shown in the books of accounts, therefore, depreciation is allowable in such a situation. In view of the same and the case laws relied upon by the AR, the appellant company deservces deprecation allowance and same is allowed. Therefore, Ground No. 1 is allowed.
Against the above order, the Revenue is in appeal before us.
We have heard both the counsel and perused the records. The ld. Departmental Representative supported the order's of the assessing officer. She further placed reliance upon the ITAT decision in the case of Shresth Securities P. Ltd. vs. ACIT (in dated 27.10.2010)
M/s. Stuish Capital Services Pvt. Ltd. 8. Per Contra, the learned counsel of the assessee supported the order of the ld.
Commissioner of Income Tax (Appeals). He further submitted that the issue is squarely covered in favour of the assessee by the decision of the full bench of Hon’ble Delhi High Court in the case of CIT vs. Modi Industries Ltd. [1994] 210 ITR 1 (Del) and the CBDT Circular which reads as under:
'Assets in employees' use—Departmental circular.—Allowance of depreciation and development rebate on assets provided at the residence of employees.— "Attention is invited to the Board's letter No. F. 10/97/63-lT (Al) dated the 29th February, 1964, addressed to the Commissioner of Income-tax in which instructions were issued, inter alia, that development rebate should not be allowed on air-conditioners and fans given by an employer for the personal use of the employees or directors at their residence, on the ground that the said plant and machinery were not wholly used for the purpose of the assessee's business.
The question has been re-examined by the Board recently in the light of Board's letter F. No. 9/26/IT/60, dated the 21st March, 1960, in which it was clarified that quarters built by the employers for the accommodation of their employees must be regarded as buildings used for the purpose of the business and depreciation allowed thereon, where the occupation by the employee of the property owned by the employer is subservient to and necessary for the purpose of their duties. It is considered that what applies to buildings applies also to the fans, air-conditioners and refrigerators fitted to those buildings, as those are amenities which virtually part of such buildings.
The learned counsel for the assessee submitted that the issue has been raised in the grounds of appeal by the Revenue that the deprecation was not taken as perquisite in the hands of the directors. In this regard, learned counsel of the assessee submitted that this was not at all the case of the assessing officer.
We have carefully considered the submissions and perused the records. We find that the said flat was owned by the company. It was used by the directors for residence.
The case has also been made out that the assessee company is engaged into share trading
M/s. Stuish Capital Services Pvt. Ltd. and the said premises was also used by directors for official works of the company. Furthermore, the assessee’s case is duly supported by the CBDT circular and Hon’ble Delhi High Court decision referred here in above.
Accordingly, in the background of aforesaid discussion and precedent from the Hon’ble High Court, we decide the issue in favour of the assessee. Accordingly, we uphold the order of the ld. Commissioner of Income Tax (Appeals).
In the result, this appeal by the Revenue stands dismissed. प�रणामतः राज�व क� अपील खा�रज क� जाती है । Order pronounced in the open court on 21.05.2018 Sd/- Sd/- (Ram Lal Negi) (Shamim Yahya) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated : 21.05.2018 व.�न.स./Roshani, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. आयकर आयु�त(अपील) / The CIT(A) 3. आयकर आयु�त / CIT - concerned 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड� फाईल / Guard File 6. आदेशानुसार/ BY ORDER,