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2016 (12) TMI 1140 - AT - Income TaxDepreciation on new Windmill - whether an asset, ready to be used, is actually used? - Held that:- The assessee’s claim for depreciation is without basis, both on facts and in law. We have, after visiting the law, based on factual findings and on the basis of material on record, found the assessee’s case, resting on claim of trial production, as completely unfounded, even exhorting the assessee qua any further material to evidence it’s claim of trial production, which is facile in the absence of any material on record, nay, even generation of any electricity, a fact emphasized by the Assessing Officer (AO) and confirmed by us during hearing. Rather, the trial production should lead to the removal of operational glitches or defects, even as explained by the assessee itself per its submissions before the Revenue authorities – finding reproduction in their orders, leading to regularizing its authorization, and of which the assessee ought to have adequate evidence in the regular course. The allowance by the ld. CIT(A) is on the ground of trial production, a claim we find as without basis in-as-much as there is nothing to show that the Windmill worked or even any electricity generated, by 31.3.2010. How could there be, one may ask, trial production without any production? The question of it being concluded successfully, removing all operational glitches, etc., as is required to be, is farfetched - Decided against assessee Short-term capital gain (STCG) on the sale of the old Windmill - Held that:- We have already adjudicated on the eligibility of the new Windmill, purchased on 31.3.2010, for depreciation, deciding against it in view of its’ non-user (refer paras 3 & 4 of this order). The same would, therefore, not enter the block of assets as at the relevant year-end, and its correct representation in the final accounts (as at the year end) is as (part of) ‘capital work-in-progress’. The WDV of the relevant block (i.e., comprised of Windmills) would therefore stand to be computed without including the same, with consequential effect on the computation of STCG u/s. 50. The said provision, we may further add, is by way of a legal fiction, which however is limited to the computation of the gain arising on the transfer of depreciable assets, i.e., modifies the computational provisions of ss. 48 & 49 only. The character of the gain, nevertheless, and even as explained in CIT vs. Ace Builders (P) Ltd. [2005 (3) TMI 36 - BOMBAY High Court] would remain the same. As such, where the capital asset (old Windmill) transferred is beyond the minimum holding period prescribed in its respect (thirty six months), the same would be a long term capital gain, subject to tax u/s. 112 of the Act. We decide accordingly. This decides Gd. of the Revenue’s – which has taxed the gain as STCG, appeal partly in its favour. Disallowance of commission allowed to foreign agents - non deduction of tds - Held that:- In the facts of the case, the commission is for soliciting sale orders. No part of the said activity is stated as carried out in India, where there is admittedly no permanent establishment (PE) of the non-resident agents. The income is by way of commission per se, so that no part of it can be said to be taxable in India, as clarified by the Apex Court in Toshoku Ltd. (1980 (8) TMI 2 - SUPREME Court ). The sales in the instant case, on the supply of goods in pursuance to the purchase order booked by the agents, and for which therefore commission is allowed to them, takes place outside India, thus the provisions of section 195 of the Act and, consequently, of section 40(a)(i), are inapplicable. We decide accordingly, and the assessee succeeds. Disallowance of the claim for damaged goods - Held that:- We agree that the candid declaration before us materially alters the nature of the assessee’s claim, so that the Revenue’s stance would also be required to be revised. It is unfortunate that the assessee comes out with the facts at a much later stage and not before the Revenue, particularly before the assessing authority. Be that as it may, the same, in view thereof, is to be regarded as a trade discount allowed by the assessee to its foreign buyers. Under the circumstances, we only consider it proper that the matter is restored to the file of the A.O. to examine the assessee’s claim – which is to be looked at from a businessman’s point of view, in light of the facts admitted before us, and who shall decide the same in accordance with the law, be it u/s. 37(1) or u/s. 36(1)(vi), issuing definite findings of fact. Depreciation at 80%, i.e., the rate exigible on Windmil on expenditure, being components of its cost, viz.development rights for restoration, paid to the State Government of Andhra Pradesh,Erection and commissioning expenditure and Transportation expenditure, as against at 15% allowed to it - Held that:- We find no reason not to accept the assessee’s claim or to take any different view in the matter in the admitted facts of the case, i.e., each of the expenditure forming part of the cost of the windmill, i.e., up to its’ commissioning stage, on which, therefore, depreciation is allowed. It is well settled that all the expenditure up to the commissioning of the plant is to be capitalized and, therefore, no differentiation could be made between one expenditure and another; all the expenditure incurred to bring the capital asset to the condition and location of its intended use forming part of, and is to be accordingly capitalized at its cost. We decide accordingly, and the assessee succeeds. Foreign travel expenditure of wife of partner in the assessee- firm - Held that:- We find some merit in the argument, which was also advanced before the ld. CIT(A). The product sold, i.e., footwear, is an item of common, daily wear/use, and of which its design and fashion are important aspects, and qua which she, as an informed consumer, can definitely contribute, even if informally. It is only presumable that she, accompanying her husband, engages herself physically and mentally on such tours, i.e., as claimed. The nature of evidence to prove a claim would depend on its nature, and a direct proof may not be forthcoming qua every claim. The impugned expenditure, however, is not proven to be incurred wholly and exclusively for business purposes. We, accordingly, consider it proper to restrict its allowance to 50%, so that the assessee gets part relief.
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