Madras High Court
The Commissioner Of Income Tax vs M/S.Tamilnadu Road Development on 19 January, 2021
TCA.Nos.220 to 225 of 2018
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 19.1.2021
CORAM
THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM
and
THE HONOURABLE MS.JUSTICE R.N.MANJULA
Tax Case Appeal Nos.220 to 225 of 2018
The Commissioner of Income Tax,
Corporate Circle 3, Chennai-34 ...Appellant
Vs
M/s.Tamilnadu Road Development
Company Ltd., Chennai-28. ...Respondent
APPEALS under Section 260A of the Income Tax Act, 1961
against the common order dated 24.5.2017 passed by the Income Tax
Appellate Tribunal, 'B' Bench, Chennai made respectively in I.T.A.Nos.
2874 to 2879/Mds/2016 respectively for the assessment years 2007-
08 to 2010-11, 2012-13 and 2013-14.
For Appellant: Ms.V.Pushpa, JSC
For Respondent: Mr.A.S.Sriraman
1/31
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
COMMON JUDGMENT
(Judgment was delivered by T.S.SIVAGNANAM,J)
These appeals have been filed by the Revenue under Section
260A of the Income Tax Act, 1961 ('the Act' for brevity) challenging
the common order dated 24.5.2017 made respectively in I.T.A.Nos.
2874 to 2879/Mds/2016 on the file of the Income Tax Appellate
Tribunal, Chennai, 'B' Bench ('the Tribunal' for brevity) respectively for
the assessment years 2007-08 to 2010-11, 2012-13 and 2013-14.
2. The appeals were admitted on 12.6.2018 on the following
substantial questions of law:
“1. Whether the Tribunal was right in
holding that roads developed and maintained
by the assessee by agreement with the
Government on the State/National Highway
were eligible for depreciation as 'building'? And
2. Whether the Tribunal is correct in
holding that the provisions of Section 14A read
with Rule 8D will have no applicability if there
is no exempt income received ?”
3. After hearing the submissions of the learned counsel on either
side, we frame the following two other substantial questions of law
also for consideration :
“1. Whether the Tribunal is legally right
in holding that the assessee is eligible for
2/31
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
depreciation under Section 32(1)(ii) on lease
hold rights obtained by the assessee for 99
years through lease agreement ? And
2. Whether the claim of depreciation on
lease hold rights on land held by the assessee
is allowable under Section 32(1)(ii) under the
head 'intangible asset'?”
4. Accordingly, the substantial questions of law framed for
consideration are renumbered as follows :
“1. Whether the Tribunal was right in
holding that roads developed and maintained
by the assessee by agreement with the
Government on the State/National Highway
were eligible for depreciation as 'building'?
2. Whether the Tribunal is legally right in
holding that the assessee is eligible for
depreciation under Section 32(1)(ii) on lease
hold rights obtained by the assessee for 99
years through lease agreement ?
3. Whether the claim of depreciation on
lease hold rights on land held by the assessee
is allowable under Section 32(1)(ii) under the
head 'intangible asset'? And
4. Whether the Tribunal is correct in
holding that the provisions of Section 14A read
with Rule 8D will have no applicability if there
is no exempt income received?”
3/31
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
5. We have elaborately heard Ms.V.Pushpa, learned Junior
Standing Counsel appearing for the appellant/Revenue and Mr.A.S.
Sriraman, learned counsel appearing for the respondent/assessee.
6. The following tabular column would show the relevant
assessment year, in which, the respective issues arise :
AY Depreciation on Depreciation on Disallowance
road lease hold land u/s 14A
2007-08 2,75,51,087 19,29,341 -
2008-09 2,29,51,505 14,47,000 -
2009-10 68,61,960 - -
2010-11 1,73,42,150 - -
2012-13 1,85,59,715 - 97,11,917
2013-14 - - 17,02,500
7. First, we take up for consideration question No.4.
8. Mrs.V.Pushpa, learned Junior Standing Counsel appearing for
the appellant/Revenue has contended that the Tribunal committed an
error in holding that the provisions of Section 14A of the Act read with
8D of the Income Tax Rules (for short, the Rules) would have no
applicability if there was no exempt income received though the
disallowance was linked to expenditure incurred on investment fetching
exempt income. The argument of the learned Junior Standing Counsel
is that the Tribunal ought to have appreciated that the disallowance
under Section 14A of the Act did not depend upon the exempted
4/31
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
income as Section 14A of the Act and Rule 8D of the Rules never link
the disallownace with the exempted income earned.
9. She has referred to the concession agreement dated
22.12.2000 entered into between the State of Tamil Nadu and the
respondent/assessee in order to focus before this Court as to the
nature of work undertaken by the assessee. Therefore, it is submitted
that the issue has not been correctly decided by the Tribunal. In fact,
in the case of CIT Vs. M/s.Tamilnadu Industrial Development
Corporation Limited [T.C.A.No.509 and 510 of 2018], the issue
pertaining to disallowance under Section 14A of the Act was considered
by a Division Bench of this Court, to which, one of us (TSSJ) was a
party, and by a common judgment dated 07.7.2020, the appeals
filed by the Revenue were allowed.
10. Rather, we had an occasion to consider a similar issue in the
assessee's own case in TCA. No.485 of 2020 dated 05.1.2021, the
relevant portions of which read thus :
“8. We need not labour much to decide
the substantial question of law framed, as
identical issue was considered in the case of
Commissioner of Income Tax, Chennai vs
M/s.Celebrity Fashion Ltd. in T.C.A.No.26 of
2018 dated 21.09.2020. In the said appeal,
5/31
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
which was filed by the Revenue, identical
question of law was framed for consideration
and the same was answered against the
Revenue and in favour of the assessee on the
following lines:
"24. We had an occasion to consider a
similar question in the case of CIT, Corporate
Circle-3, Chennai Vs. Visual Graphics
Computing Services India Pvt. Ltd. [TCA.No.
414 of 2018 dated 19.8.2020]. In the said
appeal, question of law No.5, which was
framed for consideration, was as to whether
the Tribunal was right in holding that the
provisions of Section 14A of the Act read with
Rule 8D of the said Rules will have no
applicability if there is no exempt income
earned or received during the previous year
though the disallowance is linked to
expenditure incurred on investment fetching
exempt income. The said case was decided in
favour of the assessee and against the
Revenue and in doing so, we have followed the
decision of the Hon'ble Division Bench of this
Court in the case of CIT Vs. Chettinad Logistics
Pvt. Ltd. [reported in (2017) 80 Taxmann.com
221]. This decision would come to the aid and
assistance of the assessee.
........
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
28. In fact, an identical argument was
raised for consideration before the Hon'ble
Division Bench of this Court in the case of
Chettinad Logistics Pvt. Ltd., and such a
contention was rejected by rendering the
following findings:
“13. Mr.Senthil Kumar, seeks to
distinguish the judgment in Redington (India)
Ltd. case (supra) based on the fact that Rule
8D had not kicked-in by AY 2007-08, which
was the AY being considered in the said case.
14. According to us, this was not the
argument, put forth, before the Division
Bench. As a matter of fact, the Revenue relied
heavily on Rule 8D.
14.1 Mr.Ravikumar, who appeared for
the Revenue, in that matter and who is
present in this Court, informs us that he had in
fact argued that the Rule was clarifactory in
nature and would apply retrospectively, and
that, the Division Bench, therefore, discussed
the impact of Rule 8D of the Rules.
15. However, it is, our view, as indicated
above, independent of the reasoning given in
Redington (India) Ltd. case (supra) that Rule
8D cannot be read in a manner, which takes it
beyond the scope and content of the main
provision, which is, Section 14 A of the Act.
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
15.1 Therefore, as adverted to above,
Rule 8D, cannot come to the rescue of the
Revenue.
15.2 In any event, the Tribunal, via, the
impugned judgment has remitted the matter to
the Assessing Officer.
15.3 Therefore, for the foregoing
reasons, we are of the view, that no
interference is called for qua the impugned
judgment.”
As against the decision of this Court in
the case of Chettinad Logistics Pvt. Ltd., the
Revenue preferred appeals before the Hon'ble
Supreme Court and the special leave petitions
were dismissed on the ground of delay as well
as merits in the decision reported in (2018) 95
Taxmann.com 250."
9. Thus, by applying the above decision,
this Tax Case Appeal is allowed and the
substantial question of law is answered in
favour of the appellant/assessee.”
11. We do not find any justifiable reason to take a different view
and the legal position in the assessee's own case wholly covers the
said question. Further, the decision in the case of M/s.Tamilnadu
Industrial Development Corporation Limited does not render
assistance to the case of the Revenue. Accordingly, substantial
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
question of law No.4 is answered against the Revenue.
12. Next, we take up for consideration the issue pertaining to the
claim for depreciation on the roads, which have been developed and
maintained by the assessee pursuant to the agreement entered into
with the State Government.
13. The assessee is a joint venture company formed by the Tamil
Nadu Industrial Development Corporation Limited and the Tidel Park
for creation of infrastructural facility such as road systems, highways,
bridge system by bringing private resources in the development of the
said projects. The assessee was granted right to implement the East
Coast Road project. The assessee, while filing the return of income for
the relevant assessment years, claimed depreciation at the rate of
15% on improvement to the IT Carridor (Road) considering the roads
as 'plant and machinery'.
14. The Assessing Officer did not accept the said claim, but
allowed depreciation at the rate of 10% considering the roads to be a
'building' in terms of the definition contained in the Notes to New
Appendix I in the Income Tax Rules, 1962.
15. Aggrieved by the same, the assessee preferred appeals
before the Commissioner of Income Tax (Appeals)-11, Chennai-34 [for
brevity, the CIT(A)] by contending that the depreciation should be
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
granted at the rate of 15% by treating road as 'plant and
machinery' for the assessment years 2007-08 to 2010-11. For the
assessment year 2013-14, the assessee claimed depreciation at 25%
by treating investment in road as an intangible property. The CIT(A)
partly allowed the appeals and directed the Assessing Officer to allow
depreciation at 10% on the road by treating it as a 'building'. The
claim made by the assessee for grant of depreciation at 25% by
treating investment in road as an intangible property was rejected.
16. The Revenue carried the matter by way of appeals before the
Tribunal. However, the Tribunal, by the impugned common order,
rejected the appeals and in doing so, followed its earlier decision dated
24.10.2008 in the assessee's own case for the assessment years
2003-04 and 2004-05 respectively made in ITA.Nos.2082/Mds/2008
and 817/Mds/2007. In paragraph 6 of the impugned common order,
the said decision of the Tribunal has been referred to.
17. The learned Junior Standing Counsel appearing for the
appellant/Revenue has contended that the said decision of the Tribunal
has not been accepted by the Revenue and an appeal has been filed
before this Court against the same. In fact, such a submission was
made before the Tribunal, when the Tribunal heard the present
appeals. However, there was no material produced by the Revenue
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
before the Tribunal to show that the common order dated 24.10.2008
passed for the earlier assessment years namely 2003-04 and 2004-05
has been reversed or modified by this Court. Therefore, the Tribunal
chose to follow its earlier decision.
18. Hence, before us, the learned Junior Standing Counsel
submits that she will make her submissions on merits and this Court
may take a decision notwithstanding the fact that the Revenue has not
accepted the decision of the Tribunal dated 24.10.2008 in the
assessee's own case for the earlier assessment years namely 2003-04
and 2004-05. Based on the said submission, we have heard the matter
on merits.
19. The learned Junior Standing Counsel appearing for the
appellant – Revenue has pitched her case by placing strong reliance on
the decision of the Bombay High Court in the case of North
Karnataka Expressway Ltd. Vs. CIT [reported in (2014) 51
Taxmann.com 214]. It is submitted by the learned Junior Standing
Counsel that when the assessee was engaged in the business of
infrastructural development in execution of agreement with the
National Highways Authority or as in the present case, with the State
Government and had constructed a road on Build, Operate and
Transfer (BOT) basis on the land owned by the Government, the
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
assessee could not claim depreciation on the toll road so constructed
and operated by treating it as a building under Section 32 of the Act.
20. The learned Junior Standing Counsel has also placed reliance
on the decision of the High Court of Delhi in the case of Moradabad
Toll Road Co. Ltd. Vs. ACIT [reported in (2014) 52 Taxmann.
com 21] to support the proposition that toll road would not qualify as
a plant so as to entitle the assessee a higher rate of depreciation.
21. In the instant case, the assessee has not challenged the
decision of the CIT(A) or that of the Tribunal granting depreciation at
the rate of 10%. Therefore, we are not required to decide as to
whether the assessee is entitled to a higher rate of depreciation. What
is required to be decided in the instant case is as to whether the
CIT(A) and the Tribunal were right in holding that the development
done by the assessee by forming the road would qualify as a plant so
as to be entitled to depreciation under Section 32 of the Act.
22. On a careful perusal of the decision of the Bombay High
Court in the case of North Karnataka Expressway Ltd., and more
particularly the finding rendered in paragraph 47 of the said judgment,
it is clear that the Court has pointed out that they were not concerned
in the said case with the ownership of a building or a land beneath
which was not conveyed and sold or transferred by execution of a
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
conveyance or a sale deed. It was further pointed out that depending
upon the facts and circumstances in each case, the claim of ownership
could be made, that it was not that in every case the principles
referred to by the Hon'ble Supreme Court would apply and that
depending on the nature of the claim, the context and the
circumstances, in which, it arose, these principles would have to be
invoked and applied. It was also pointed out that there was no general
rule, which could be said to be laid down. Ultimately, in the said
decision, the Court held that the assessee definitely invested in the
project of construction development and maintenance of the National
Highway and such of the assets in the form of building and plant and
machinery etc., and that the claim for depreciation could be validly
raised and granted.
23. In fact, the decision of the Bombay High Court in the case of
North Karnataka Expressway Ltd., would lend support to the case
of the assessee as argued by the assessee before the Assessing Officer
by claiming it as plant and machinery. However, since the assessee is
not on appeal against the said finding, we are of the view that the
decision of the Bombay High Court in the case of North Karnataka
Expressway Ltd., does not advance the case of the Revenue before
us.
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
24. On this issue, it would be beneficial to refer to the decision of
the Rajasthan High Court in the case of PCIT Vs. GVK Jaipur
Expressway Ltd. [reported in (2018) 100 Taxmann.com 95].
This decision was rendered by the Court on 10.10.2017, which was
much after the decision of the Bombay High Court in the case of
North Karnataka Expressway Ltd., which was rendered on
14.10.2014.
25. In the decision of the Rajasthan High Court in the case of
GVK Jaipur Expressway Ltd., the Court has taken into consideration
all the decisions and more particularly the decisions of the
(i) Delhi High Court in the case of
Moradabad Toll Road Co. Ltd.;
(ii) Allahabad High Court in the case of
CIT Vs. Noida Toll Bridge Co. Ltd.
[reported in (2013) 30 Taxmann.com
207];
(iii) Madras High Court in the case of
CIT Vs. VGP Housing (P) Ltd [reported in
(2016) 66 Taxmann.com 354];
(iv) Rajasthan High Court in the case
of CIT Vs. Jawahar Kala Kendra [reported
in (2014) 43 Taxmann.com 159]; and
(v) Rajasthan High Court in the case
of CIT Vs. Mohd. Bux Shokat Ali [reported
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
in (2001) 118 Taxman 712],
and it was held that while considering the issue as to whether the
national highway was a road or not, one had to go by the common
parlance of road where public at large had an access. As in the case on
hand, the assessee therein was granted licence for construction,
against which, they had a right to use and collect licence fee to use the
land, that in that view of the matter, they had a right to restrict the
people without non payment of toll tax and that if the definition, which
was given under the Act was looked into, even a development made
while occupying the premises and development of a road was the main
agreement between the parties and that therefore, the argument of
the Revenue that it would not qualify for depreciation was not
sustainable. Accordingly, the view taken by the Tribunal was confirmed.
26. The special leave petition filed by the Revenue against the
decision of the Rajasthan High Court in the case of GVK Jaipur
Expressway Ltd., was dismissed by the Hon'ble Supreme Court as
reported in (2018) 100 Taxmann.com 96.
27. So far as decision of the Bombay High Court in the case of
North Karnataka Expressway Ltd. is concerned, the said decision
was followed in the decision of the Bombay High Court in the case of
CIT-10 Vs. West Gujarat Expressway Ltd. [reported in (2017)
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
82 Taxmann.com 224] and the appeal filed by the Revenue was
allowed against which, the assessee preferred an appeal to the Hon'ble
Supreme Court, which has been entertained, leave granted and tagged
with other appeals, which are pending as reported in (2016) 73
Taxmann.com 150 (SC).
28. In the light of the above legal position, we are of the
considered view that the reasons assigned by the Tribunal in
dismissing the appeals filed by the Revenue call for no interference.
Accordingly, substantial question of law No.1 is also answered
against the Revenue and in favour of the assessee and it is held
that the assessee is entitled for depreciation at the rate of
10%.
29. Substantial question of law Nos.2 and 3 are identical and
virtually one and the same, questioning the correctness of the decision
of the Tribunal in holding that the assessee is eligible for depreciation
under Section 32(1)(ii) of the Act on the lease hold rights obtained by
the assessee for a period of 99 years pursuant to an agreement
entered into between themselves and the SIPCOT.
30. To be noted, neither the Assessing Officer nor the Tribunal
had gone into the terms and conditions of the lease agreement. This
issue arises for consideration only for the assessment years 2007-08
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
and 2008-09. In respect of the other assessment years, which are
subject matter of consideration in these batch of appeals, viz., 2009-
10, 2010-11, 2012-13 and 2013-14, the assessee had been granted a
relief.
31. The issue would be as to whether the Tribunal was right in
confirming the order passed by the Commissioner of Income Tax-III,
Chennai dated 18.11.2013, granting the benefit of depreciation for the
assessment year 2009-10 on the lease hold right obtained by the
assessee from the SIPCOT.
32. The assessment for the years 2007-08 and 2008-09 was
reopened by issuance of notice. One of the reasons for reopening the
assessment was on the claim for depreciation amounting to
Rs.19,29,341/- on the lease hold right of Rs.77,17,365/- for the
assessment year 2007-08 and the claim for depreciation amounting to
Rs.14,47,006/- on the lease hold rights of Rs.57,88,024/- for the
assessment year 2008-09.
33. In the proposal to reopen, the Assessing Officer stated that a
plain reading of Section 32 of the Act showed that to claim
depreciation, the assessee must have owned, wholly or partly, the
assets and should have used the same for the purpose of business of
the assessee to be eligible for depreciation. The assessee was called
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
upon to explain. By a common reply dated 25.6.2014, the assessee
stated that they entered into an agreement with the SIPCOT, IT Park,
Siruseri, over a land measuring 4.90 acres for a period of 99 years and
such an agreement was executed on 21.9.2005 and registered as Doc.
No.6285 of 2005 on the file of Sub Registrar, Tiruporur. The assessee
reproduced one of the covenants contained in the said agreement, viz.,
covenant No.8.
34. The Assessing Officer, after referring to the reply given by
the assessee, extracted the said covenant and opined that the
assessee, by his own admission, stated that the land in question was a
lease land taken from the SIPCOT, that the assessee did not own the
asset in question and that therefore, they failed to clear the qualifying
benchmark for being eligible for depreciation. Accordingly, the claim for
depreciation was rejected and the return of income was added back to
the income of the assessee.
35. The assessee filed appeal before the CIT(A) stating that the
assessee claimed depreciation at the rate of 25% on lease hold rights
of land leased (20 years) by the SIPCOT. The assessee referred to
Section 32 of the Act and submitted that it provided that the assessee
should have owned, wholly or partly, the assets and should have used
the assets for the purpose of business to be eligible to claim
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
depreciation under the Act, which was rejected by the Assessing
Officer without taking note of the fact that the assessee became the
eligible owner of the lease hold land and would be entitled to claim
depreciation. Further, the assessee contended that they paid
Rs.20,15,000/- per acre for 4.90 acres and acquired the lease hold
rights, which essentially qualified the assessee for an allowable
revenue expenditure over a period of time as enumerated under law.
Therefore, the assessee further contended that the conclusion arrived
at by the Assessing Officer that the assessee was not the owner of the
asset and not eligible for depreciation, was incorrect.
36. Further, the assessee stated that except the right of
alienation of the said asset, the assessee was conferred with all rights
of enjoyment in respect of the lease property and therefore, they
would be entitled to claim depreciation. The assessee placed reliance
on the decision of the Hon'ble Supreme Court in the case of Madras
Industrial Investment Corporation Ltd. Vs. CIT [reported in
(1997) 225 ITR 802] wherein it was held that the total amount of
lease premium paid in respect of such agreements should be
amortized over the period of lease and only the amount pertaining to
the relevant previous year should be allowed as deduction. Further, the
assessee relied on the decisions of the Hon'ble Supreme Court in the
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
case of Empire Jute Co. Ltd. Vs. CIT [reported in (1980) 124 ITR
1] and in the case of CIT Vs. Associated Cement Co. Ltd.,
[reported in (1988) 172 ITR 257] wherein it was held that the
expenditure, which did not fall in the capital field, should be allowed as
revenue expenditure.
37. Further, the assessee submitted that the assessee, on
acquiring the land on lease for a period of 99 years, making payment
of advance rent to the tune of Rs.48 Crores and paying a sum of Rs.40
lakhs per month as monthly rent, the advance lease rent paid by the
assessee was allowable as revenue expenditure. To support such
contention, the assessee placed reliance on the decision of the Special
Bench of the Mumbai Tribunal in the case of JCIT Vs. Mukund Ltd.
[reported in (2007) 291 ITR (AT) 249]. Thus, the assessee
pleaded before the CIT(A) that considering the nature of business of
the assessee, it was essential to allow the expenditure incurred for
operational purposes as revenue expenditure in the computation of
total income. The assessee pointed out that the Assessing Officer
neither allowed depreciation on the lease hold rights nor treated the
same as revenue expenditure and in doing so, violated the principles of
natural justice.
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
38. The CIT(A) took note of the submissions, but did not
examine the nature of transaction between the assessee and the
SIPCOT and more particularly, the terms and conditions contained in
the agreement dated 21.9.2005. In fact, even the Assessing Officer did
not go into the full contents of the agreement dated 21.9.2005, but
appears to have been guided only by the reply given by the assessee
dated 25.6.2014 in response to the notice issued under Section 148 of
the Act wherein the assessee extracted Clause 8 of the agreement
dated 21.9.2005.
39. In our considered view, there should have been a deeper
examination of the conditions contained in the agreement to arrive at a
correct conclusion with regard to the nature of transaction between the
assessee and the SIPCOT.
40. The CIT(A) referred to Section 32(1)(ii) of the Act and
observed that in terms of the said provision, depreciation was
allowable for “any other business or commercial right of similar nature
being intangible asset acquired on or after 01.4.1998”. Further, the
CIT(A) referred to Rule 5 of the Rules and Part-B of the Depreciation
Table wherein the depreciation on intangible assets was allowable at
25%. The CIT(A) referred to the submission of the assessee that the
right to develop the property as per the agreement was an intangible
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
asset and therefore, the assessee was eligible for depreciation at 25%.
The CIT(A) stated that the assessee relied on the decisions of the
Hon'ble Supreme Court and following the said decisions, held that the
assessee was entitled to depreciation on the lease hold right at 25%.
41. Aggrieved by the same, the Revenue was on appeal before
the Tribunal contending that the CIT(A) erred in allowing the
assessee's claim for depreciation on the ground that the lease hold
land was an intangible asset without considering the fact that the lease
hold right was not an intangible asset. In this regard, reliance was
placed on the decision of the Bangalore Tribunal in the case of Cyber
Park Development & Construction Ltd. Vs. DCIT, Circle 11/(2),
Bangalore [reported in (2016) 71 taxmann.com 210].
42. The Tribunal noted the submissions of the Revenue by
placing reliance on the decision of the Bangalore Tribunal in the case of
Cyber Park Development & Construction Ltd., and held that
transferring an immovable property by way of lease created an interest
in the land, as has been held in Cyber Park Development &
Construction Ltd., and taking note of the definition of 'capital
asset', as defined under Section 2(14) of the Act, the property need
not be owned by the assessee, it was held that the definition 'capital
asset' could not be given restrictive meaning.
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
43. The Tribunal referred to the decision of this Court in the case
of A.R.Krishnamurthy and A.R.Rajagopalan Vs. CIT [reported in
(1982) 133 ITR 922], the decision of the Calcutta High Court in the
case of in A.Gasper Vs. CIT [reported in (1979) 117 ITR 581] and
the decision of the Hon'ble Supreme Court in the case of R.K.
Palshikar (HUF) Vs. CIT [reported in (1988) 172 ITR 311] and
held that transfer by way of lease was to be treated as a transfer of
capital asset, as the lease created an interest in the land and
therefore, to that extent, it extinguished the right of the transferor.
44. With regard to the assessee's case, the Tribunal held that
when the assessee transferred his lease hold rights in the land in his
occupation by way of lease to another person, it amounted to
extinguishing his rights in the property and since his lease hold rights
had created an interest in the land, i.e. an enjoyment and possession,
it would fall within the definition of 'capital asset' as defined under
Section 2(14) of the Act. Thus, the Tribunal came to the conclusion
that transfer of lease would amount to a transfer of capital asset and
hence, the assessee was eligible to claim depreciation on the asset,
which was transferred to them by way of a lease deed. On the said
ground, the appeal filed by the Revenue was dismissed.
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
45. As pointed out earlier, the factual aspect has not been
analysed by the Assessing Officer though the assessment was primarily
reopened for the reason to consider the correctness of the claim for
depreciation on the lease hold right enjoyed by the assessee.
Unfortunately, the Assessing Officer was solely guided by the reply
given by the assessee dated 25.6.2014, in which, they have extracted
condition No.8 of the agreement dated 21.9.2005. On a plain reading
of the said condition, at the first blush, one gets an impression that the
assessee was also a beneficiary of a common facility, which the
SIPCOT was obliged to provide all entrepreneurs, who have been
allotted sites/units in the IT Park.
46. Even before us, the copy of the agreement dated 21.9.2005,
styled as a “lease deed” has not been placed for consideration. The
CIT(A) did not examine the obligations, which were to be fulfilled by
the assessee under the lease agreement. In fact, in the strict sense,
terming it as a lease agreement itself may be a misnomer because,
such agreement is bound to contain various conditions, which the
assessee had to fulfil.
47. After hearing Mr.A.S.Sriraman, learned counsel appearing for
the assessee, we come to know that the land, on which, the facility has
been developed by the assessee, is owned by the SIPCOT and it
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
appears that the development consists of providing roads inside the IT
Park, establishment of a multi-level car parking, etc. Under the said
agreement, the assessee had to develop these facilities and maintain
them and the period is stated to be 99 years, which is virtually
perpetual. Therefore, a deeper examination of the factual issue would
have given a quietus to the matter even at the level of the Assessing
Officer.
48. Before the Tribunal, the argument appears to have been
whether the lease hold right would qualify as a 'capital asset' as
defined under Section 2(14) of the Act. In our considered view, such
issue would not arise for consideration in the facts of the present case
because what was required to be examined was the type of transaction
between the assessee and the SIPCOT.
49. Interestingly, the assessee, in their appeal petition before the
CIT(A), made an alternate prayer while they would state that their
claim for depreciation on lease hold right was allowable and
alternatively they would state that it was essential to allow the
expenditure incurred for operational purposes as revenue expenditure.
Their argument was that the Assessing Officer could not have denied
both the reliefs.
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
50. One more interesting fact is that such depreciation has been
allowed on the lease hold land for the assessment years 2009-10,
2010-11, 2012-13 and 2013-14. It is not clear as to whether in those
years, there was any detailed consideration with regard to the factual
aspect, which is now being agitated before us.
51. In our considered view, the decision in the case of Cyber
Park Development & Construction Ltd., was couched on a different
set of facts and would not be of assistance to the case of the Revenue.
52. Ms.V.Pushpa, learned Junior Standing Counsel for the
Revenue would place reliance on the decision of the Hon'ble Supreme
Court in Mother Hospital (P.) Ltd., vs. CIT, Trichur [reported in
(2017) 79 Taxmann.com 375]. In the said decision, it has been
held that in terms of Explanation 1 to Section 32(1) of the Act, it is
only when the assessee holds a lease right or other right of occupancy
and any capital expenditure is incurred by it on construction or
renovation or improvement of building, the assessee would be entitled
to depreciation to the extent of such expenditure incurred. It is the
submission of the learned Junior Standing Counsel that this decision
will fully support the argument of the Revenue.
53. On the contrary, Mr.A.S.Sriraman, learned counsel for the
assessee would submit that the decision of the Hon'ble Supreme Court
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
in the case of Mother Hospital (P.) Ltd., would support the case of
the assessee and in this regard, referred to paragraph 10 of the
judgment wherein it has been stated that from the plain language of
Explanation 1 to Section 32(1) of the Act, it was clear that when the
assessee held a lease right or other right of occupancy and any capital
expenditure was incurred by the assessee on the construction of any
structure or doing of any work in or in relation to and by way of
renovation or extension or improvement to the building and the
expenditure on construction was incurred by the assessee, then the
assessee would be entitled to depreciation to the extent of any such
expenditure incurred.
54. In our considered view, these decisions cannot be straight
away applied to the cases on hand without taking note of the factual
position, which, as already been pointed out, was not done by the
Assessing Officer or the CIT(A) or for that matter, the Tribunal. In fact,
the assessee has to be partially blamed for not submitting an effective
reply to the notice issued under Section 148 of the Act.
55. Further, we find that the decision of this Court in the case of
A.R.Krishnamurthy and A.R.Rajagopalan was in respect of a lease-
cum-licence granted by the State Government for conducting mining
activities in favour of the assessee company and it appears to be an
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
exclusive right and the question was as to whether such a transaction
would amount to transferring a capital asset and thereby attracting
capital gains. This being not the case of the assessee, this decision is
wholly inapplicable.
56. The decision of the Calcutta High Court in the case of
A.Gasper was in respect of right conferred on a statutory tenant and
the question was when the right got extinguished on account of a
sublease, would it amount to extinguishment of the rights in a capital
asset to attract capital gains. This being not the case of the assessee
herein, this decision cannot be made applicable.
57. Similarly, in the decision of the Hon'ble Supreme Court in the
case of R.K.Palshikar, the question, which arose, was as to whether
the transaction effected by the assessee would amount to transferring
a capital asset warranting capital gains tax.
58. In our considered view, the Tribunal need not have taken the
matter thus far to render a verdict in favour of the assessee especially
when the Lower Authorities did not know the factual position. Thus, we
are of the firm opinion that the matter has to be re-adjudicated by the
Assessing Officer, for which purpose, the Assessing Officer has to
threadbare analyse the agreement dated 21.9.2005 entered into
between the assessee and the SIPCOT and not go merely by the
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
nomenclature or the title of the document. But, the Assessing Officer
should examine the contents. It would also be well open to the
assessee to raise the alternate plea, which they raised before the
Assessing Officer stating that the expenditure incurred for operational
purposes ought to have been allowed as a revenue expenditure.
59. For the above reasons, the finding rendered by the Tribunal,
the CIT(A) and the Assessing Officer with regard to the disallowance of
depreciation on lease hold rights for the assessment years 2007-08
and 2008-09 is set aside and the matter is remanded to the Tribunal to
take a fresh decision on merits and in accordance with law, after due
opportunity to the assessee.
60. In the result, the tax case appeals are partly allowed to the
extent indicated hereinbelow:-
(i) Substantial question of law No.1 is
answered against the Revenue and in favour of
the assessee and it is held that the assessee is
entitled for depreciation at the rate of 10%.
(ii) Substantial question of law Nos.2 and
3 are left open, as the issue has been
remanded to the Assessing Officer for a fresh
consideration; and
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
(iii) Substantial question of law No.4 is
answered against the Revenue following the
decision rendered by us in the assessee's own
case in T.C.A.No.485 of 2020 dated 05.1.2021.
No costs.
19.1.2021
To
The Income Tax Appellate Tribunal, 'B' Bench, Chennai.
RS
https://www.mhc.tn.gov.in/judis/
TCA.Nos.220 to 225 of 2018
T.S.SIVAGNANAM,J
AND
R.N.MANJULA,J
RS/ABR
TCA.Nos.220 to 225 of 2018
19.1.2021
https://www.mhc.tn.gov.in/judis/
