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Income Tax Appellate Tribunal, KOLKATA BENCH ‘A’, KOLKATA
Before: Shri P.M. Jagtap, AM & Shri S.S. Viswanethra Ravi, JM]
order
: November 10 , 2017 ORDER
Per P.M. Jagtap, AM
This appeal is preferred by the revenue against the order of Ld. CIT (A) – 10, Kolkata dated 09.11.2015 and the same is being disposed of along with the cross-objection filed by the assessee being C.O. No. 19/Kol/2016.
In the solitary substantive ground raised
in its appeal, the revenue has challenged the action of the Ld. CIT (A) in allowing the claim of the assessee for depreciation on the cost of property.
3. The assessee in the present cases is an individual who is engaged in the business of property development under the name and style of his proprietary concern M/s. Mahaveer Construction. The return of income for the year under consideration was filed by him on 30.09.2011 declaring a total income of Rs. 86,030/-. The assessee had taken a vacant land on lease from railways for a period of 25 years which was further renewable for a period of 25 years. On the said land, the assessee being a licensee intended to construct a commercial complex consisting of 3 blocks being A, B and C. Before the completion of B Block, the assessee entered into an agreement to Sub- license the showroom space in B Block to M/s. Pantaloon Retail (India) Ltd. and M/s. PGI Retail Stores Pvt. Ltd. During the year under consideration, the assessee had received licence fee of Rs. 2,62,70,750/- from the said two sub-license and after claiming deduction for various expenses including depreciation net income of Rs. 95,853/- was declared by the assessee under the head income from business or profession in the return of income. During the course of assessment proceedings, the assessee however took a stand that the said income was inadvertently declared in the return as income from business or profession instead of income from house property. This stand of the assessee was not found acceptable by the A.O. relying inter alia on the decision of Hon’ble Supreme Court in the 3 & C.O. No. 19/Kol/2016 Sri Laxmipat Surana case of Goetze (India) Ltd. 157 Taxman 1 (SC) wherein it was held that no amendment can be made in the return at the assessment stage without revising the return. The Assessing Officer also held that the assessee was only a licensee to develop and construct a commercial complex on the vacant land owned by railways and he was not owner of the property. He, accordingly, held that the assessee was not entitled to claim depreciation on the cost of the said property in the assessment completed under section 143(3) vide an order dated 21.03.2014.
Against the order passed by the A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT (A) and after considering the submissions made by the A.O. as well as the material available on record, the Ld. CIT (A) upheld the action of the A.O. in rejecting the new stand taken by the assessee during the course of assessment proceedings that the amount received from two sub- licensee of the property was chargeable to tax under the head income from house property instead of profits and gains of business or profession. He held that the said income was rightly brought to tax by the A.O. in the hands of the assessee under the heads profits or gains of business or profession.
5. As regards the claim of the assessee for depreciation on the licensed property, the Ld. CIT (A) however allowed the said claim by virtue of Explanation 1 to Section 32. The observations recorded by the Ld. CIT (A) in this regard as contained in paragraph no 4 and 5 of his impugned order are reproduced hereunder:
“4. Therefore, only the matter of being eligible for depreciation (in a situation where the receipt learned to be assessed as business income) remains for adjudication. It is not clear whether the same has been claimed by the appellant in the return of income. There has been no specific disallowance made by the A.O. in the computation. In any case, the A.O. has rejected the request for claim on grounds that the very first requirement for claim of depreciation to be allowed, namely ownership has not been fulfilled by the assessee-appellant. It is a fact that the assessee is a licensee or lessee of the said building, having obtained the same after sanction by the Railway Authorities. It is also an undisputed fact that the construction of the said building was undertaken by the assessee-appellant after arranging necessary funds by taking loans from banks and other parties. The Assessing Officer while denying the claim of depreciation has observed that the assessee merely holds a development right under a lease and not a ownership right. It is to be observed that the same is in effect a license to a lease to hold to the premises for a period of 25 years and extendable for a further period of 25 years after expiry of the first term. It is also pertinent that the assessee-appellant is able to sub-license it to parties and collect sub-license fees from such parties. In such a situation the Explanation (1) to Section 32 would be applicable to the assessee-appellant. Explanation (1) to Section 32 of the Income Tax Act, 1961 acknowledges that depreciation can be claimed by an assessee who carries on business ‘on a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work or in relation to the building’. Clearly in such event, Section 32(1) would apply. As is the said structure or work is a building owned by the assessee.
The above view of the matter is supported by judicial citations, more recently the order of the Hon’ble Delhi High Court in the case of CIT vs Bharat Hotels Ltd. on 24th July, 2014, wherein a similar issue has been adjudicated upon in favour of the appellant. The judgment of the Apex Court in Mysore Minerals vs CIT (1999) 239 ITR 775 (SC) also has been relied upon wherein the Court has observed that the intention of legislature in the enacting section 32 would be best fulfilled by allowing the deduction in respect of depreciation to the person in whom for the time-being vests the dominion of the building and who is entitled to use it 5 & C.O. No. 19/Kol/2016 Sri Laxmipat Surana in his own right and is using the same for the purposes of the business or profession. The matter of ownership and the resultant claim of depreciation as per section 32(1) has been provided with reference to the control exercised over the property by the person claiming relaxation. It is to be observed that the appellant would appear to have control over the building, including the right to sub-lease them. In that view of the matter, I find merit in the claim of depreciation as appealed for, and direct the A.O. to allow the same. This matter therefore is adjudicated in favour of the appellant.” Aggrieved by the order of the Ld. CIT (A), the revenue has preferred this appeal before the Tribunal.
We have heard the arguments of both the sides and also perused the relevant material available on record. The first contention raised by the learned DR is that the assessee having not claimed depreciation on the licenced property in the return of income, the Ld. CIT (A) was not justified to allow the claim of the assessee for depreciation which was not made either in the original return or even by filing revised return. We are unable to accept this contention of the learned DR. In our opinion, the restriction laid down by the Hon’ble Supreme Court in the case of Goetze (India) Ltd. (supra) which is relied upon by the Assessing Officer is applicable only at the assessments stage and the Ld. CIT (A) being an appellate authority is sufficiently empowered to entertain the claim made by the assessee for depreciation for the first time before him without even filing the revised return as clarified by the Hon’ble Supreme Court in the case of Goetze (India) Ltd. (supra) itself. Even the old circular of the CBDT dated 31.08.1965 relied upon by the learned DR was issued in a different context and the same therefore is not