TAG CHEMICALS (INDIA) PRIVATE LTD,ERNAKULAM vs. ACIT CIRCLE 1(1) , TRIVANDRUM

The only issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowance made by the Assessing Officer (AO) of Rs. 52,58,260/- representing depreciation on lease premium paid for using the land taken on lease.

The AO during the assessment proceedings found that the assessee has taken lease hold right on land from Kerala Industrial Infrastructure Development TAG Chemicals (India) Pvt. Ltd. Corporation and claimed depreciation thereon at Rs. 52,58,260/- only. As per the AO the lease hold right was taken with respect to land which is not depreciable and therefore the AO disallowed the same and added to the total income of the assessee. On appeal the learned CIT(A) confirmed the same.

Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.

The learned A.R. before us submitted that the Mumbai Tribunal in the case of DCIT v. International Airport Pvt. Ltd. In for AY 2012-13 vide order dated 27.11.2017 involving identical facts and circumstances has decided the issue in favour of the assessee. Therefore, the learned A.R. contended that the assessee should be allowed the benefit of depreciation as provided u/s 32 of the Income Tax Act, 1961 (“the Act”) treating the same as intangible asset.

Without prejudice to the above, the learned A.R. also contended that it is not disputed that the lease premium expenditure was incurred exclusively for the purpose of business and therefore the same should be allowed as deduction u/s 37 of the Act if depreciation is denied.

On the other hand, the learned Sr. D.R. vehemently supported the orders of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the Mumbai Tribunal in the case cited above has decided the matter involving identical facts and circumstances in favour of the assessee. The relevant extract is reproduced as under: - “3. Ground no.1 relates to the deletion of disallowance of 25% of depreciation on upfront fees of Rs. 150 crores. Both the parties agreed that the issue is covered in favour of the assessee by this Tribunal, vide its order dated 14.02.2014, for A.Y. 2007-08 in & 7111/Mum/2011, which decision was followed for A.Y. 2008-09. The Tribunal for A.Y. 2007-08 has observed as under: "10.2 That the AO has stated that the assessee has got lease hold rights for a period of 30 years and whereas the assessee has contended that the assessee has got a license for a period of 30 years and as such it is an "intangible assets". Thus, the assessee is entitled for depreciation as per section 32(1)(ii) of the Act. We observe that the said amount of Rs.150 crores paid by assessee is non-refundable. The assessee has got the privilege under "OMDA" to collect charges of the nature as mentioned in the agreement entered into i.e. "OMDA" from the users of Airport premises. We observe that it is not a case where the assessee has got the transfer of a right to enjoy the Airport premises. The assessee only got a license or right to do something at the Airport premises. The Hon'ble Apex Court has held in the case of B. M. Lal (supra) that the transaction is a lease, if it grants the interest in the land and whereas it is a license if it gives a personal privilege with no interest in the land. We are of the considered view that the assessee has got the economic/commercial right under the said agreement to collect charges from the users of the Airport premises which is similar to grant of a license to the assessee. This case is similar to the case of Technoshares and Stocks Ltd and others (supra), wherein the Hon'ble Apex Court has held that a right given to member of Stock-Exchange to carry on the business at the premises of the Stock- Exchange is a business or commercial right which is akin to license in terms of section 32(1)(ii) of the Act, therefore, eligible for depreciation. Their Lordships have held that right to participate in the market is an economic and money value, itself satisfies the test of being a license. There is no dispute to the fact that the said payment of Rs.150 crores paid to "AAI" has not resulted to the assessee in the acquisition of any "tangible assets" like building, machinery, plants or furniture. Therefore the said payment of Rs.150 crores has not resulted into acquisition of "tangible assets". Thus, the assessee has only acquired right to collect charges from the users of the Airport preemies, which is a business or commercial right in the form of license and therefore it is an "intangible assets" as per section 32(1)(ii) of the Act. The Hon'ble Delhi High Court in the case of Hindustan Coca Cola Beverages Pvt Ltd (supra) has also held that the assets which are included in the definition of "intangible assets" include, along with other things, any other business or commercial rights of similar nature. In this regard, it is relevant to state that the decision of Delhi High Court in the case of ONGC Videsh Ltd (supra) has held that the assessee who was assigned the rights to participate in oil exploration in Russia through a consortium for a period of 25 years and paid the total consideration for obtaining 20% membership in the consortium, amounting to Rs. 155.9 crores, was treated to acquire a license, being intangible assets, and thus assessee was entitled to claim depreciation u/s. 32(1)(ii) of the Act. Pune Bench of the Tribunal in the case of Ashoka Info (P) Ltd (supra) has also held that the expenditure incurred on construction of highway is eligible for depreciation @25%, as this expenditure has given rise to an intangible assets' in the hands of the assessee. In view of above decisions and the facts of the case, we hold that the Id. CIT(A) has rightly held that the pavment of upfront fee of Rs.150 crores paid by assessee to "AAI" has created capital assets in the form of license to develop and modernize the Airport to the charges as per terms and conditions as prescribed under the agreement entered into which is an "intangible assets" to the assessee. Thus assessee is entitled for depreciation.

Respectfully following the principles laid down by the Mumbai Tribunal as discussed above, we hold that the assessee is entitled for depreciation under the provisions of section 32 of the Act. Even at the time of hearing, the learned Sr. D.R. could not bring anything on record contrary to the arguments advanced by the learned A.R. of the assessee.Accordingly, we set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him.

In the result, the appeal filed by the assessee is hereby allowed.