TMI Blog2017 (3) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... n though there was a clause that in case of default, the right would vest with the exchange, the same would not make no difference, because till the time the member was not defaulting, he was entitled to use the floor of exchange under the license. Recently the Bombay High Court in the case of Birla Global Assets Finance Co. Ltd. [2012 (10) TMI 1047 - HIGH COURT OF BOMBAY] held that business and commercial brand equity is an intangible assets and therefore, the depreciation claim on the same is allowable under section 32 of the I.T. Act, 1961. The claim of the assessee, depreciation on “Infrastructure usage facility” has been made from the Assessment Year 2004-05 of the assessee’s existence and in our considered opinion same should not be distributed in view of the foregoing observation and respectfully following the decision of the Higher Courts, we allow the appeal of the assessee. - I.T.A. No. 1253/Ahd/2016 - - - Dated:- 23-1-2017 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER And SHRI MAHAVIR PRASAD, JUDICIAL MEMBER Appellant by : Shri S.N. Soparkar, A.R. Respondent by : Shri Jagdish, CIT D.R. ORDER Per Shri Mahavir Prasad, Judicial Member This appeal h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act to disallow the depreciation on Infrastructure Usage Facility , however, the Hon ble Gujarat High Court held that the A.O. in the original assessment proceedings had already formed an opinion in allowing depreciation on Infrastructure Usage Facility and accordingly notice issued u/s 148 of the Act to re-appreciate or to change an opinion was found to be invalid and bad in the eyes of law by the Hon ble Gujarat High Court. (vi) The Ld. Pr. CIT has failed to appreciate that when Id. AO has raised the issue, which was duly clarified and explained by the Appellant in the original assessment proceedings and when the Ld.AO has adopted one of plausible view, which is rational and logical, the same cannot be revised u/s 263 of the Act. (vii) Under the circumstances, the very assumption of power u/s. 263 of the Act is unjustified and bad in law and therefore, order u/s. 263 of the Act deserved to be quashed. (viii) The ld. Pr. CIT has further failed to appreciate that there is distinction between lack of inquiry and inadequate inquiry and if there was any inquiry, even inadequate that would not by itself occasion to the ld. Pr. CIT to pass order u/s 263 of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of payment of Royalty. Also furnish the evidences for TDS made thereon and deposited in the Govt. A/c. 4. Please furnish the copy of ledger account of Foreign Exchange Loss alongwith copies of supporting documents. 5. On perusal of the Audit Report in Form No.3CD, it is found that the auditor has pointed out that Depreciation amounting to ₹ 33,10,469/- of prior period has been debited in the Profit and Loss account. In this regard, please show cause as to why the same should not be disallowed being not pertaining to the period under consideration. Your justification in this regard should be supported by the documentary evidences. 6. On perusal of the statement of income, it is notices that Provisions of Doubful Debts amounting to ₹ 16,27,017/- of previous year has been claimed. In this regard, please show cause as to why the same should not be disallowed since it is not actually written off during the year consideration. Your jurisdiction in this regard should be supported by the documentary evidences. 7. On perusal of the statement of income, it is noticed that Depreciation on Forex Loss amounting to ₹ 8,00,582/- has been claimed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Mundra Port to the assessee company to operate its containe operation in Mundra Port area. The exclusive right has been given to the assessee company, which is a sort of Easement right. The Easement right is nothing but license given to the licensee to enter on another person's land with usage of infrastructure facility to carry out business activities. The assessee company has been given the right carry out its terminal operation work. The view expressed is that such right is not similar to know how ... Franchises or any other business or commercial rights of similar nature. It is also observed that lease of premises are not covered. It is not denied that the assessee company is not the owner of infrastructure facility. In fact it is not the lessee also. It is the licensee. It has got the right to use and maintenance service of certain infrastructure facility as set out in the infrastructure usage agreement more particularly schedule I of the said agreement which includes: i. Use of dredged channel i.e. water front and the entrance channel and turning circle of the container terminal and alongside the berth at the container terminal as depicted in annexure - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest in property; Mrs. Karuna Manoharlal Ohri v. Vipinbhai U. Sanghani, AIR 1993 Bom 177. (ii) The furniture and fittings and the tools and implements which have been given along with the shop were not meant for the beneficial use of the shop but were meant exclusively for running of the hair dressing saloon, thus creating a lease of the business and not a lease of the shop; Vidya Wati v. Hansraj, AIR 1993 Del 187. License The Corporation had all the supervisory powers to regulate the running of the refreshment stall. No exclusive right was created in favour of the caterer to run the refreshment stall in the manner the caterer choose to do so. Since there is no transfer of interest in the stall and as per the terms of agreement, the document can be termed as license only and not a lease; Udai Pratap Singh v. Collector Varanasi, AIR 1991 All 104. Lease defined - A lease of immoveable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is bound to cleanse a watercourse running through his land and keep it free from obstruction for the benefit of B, a lower riparian owner. This is not an easement. Thus, it will be seen that the assessee is not the lessor of the premises. It is only a license by way of easement given to it to carry on business of container terminal services and also other allied services. It is required to pay regular royalty of revenue nature also. Thus, it is nothing but a license which is in the nature of commercial right. The depreciation is claimed on the license i.e. right to use the infrastructure facility. It may be noted that licenses, franchisees, etc. are categorized as intangible assets under the block of assets. It goes without saying that when licenses granted, it is in respect of some property, i.e. owner of property grants the license to another. Thus, the property itself and the license are regarded as separate assets. It may be noted that the assessee himself is owner of the license and as such is claiming depreciation; this is not a case of lease but a case of license. We have already shown the difference between lease and licenses. It is nowhere stated while finalizin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porating the addition of ₹ 3,93,98,016/- in respect of Arm s Length price of international transaction, as stated above. The said draft assessment order was duly served upon the assessee on 20.03.2013 requiring the assessee to submit the acceptance and/or objections, if any, to the Draft Assessment Order. Meanwhile, rectification order under section 154 of the Income-tax Act, 1961 was passed on 07.05.2013 by the Dy. Commissioner of Income-tax, TPO-II, Ahmedabad reducing the upward adjustment to ₹ 82,56,027/-. In response to the draft assessment order, the assessee vide letter dated 25.04.2013 has submitted that the company has decided to prefer an appeal before the CIT against the proposed disallowance as outlined under the draft assessment order instead of filing an objection to the Dispute Resolution Panel as provided in the Section 144C as well as the Income-tax Notification dated 20.11.2009. Accordingly, the assessee has requested to pass the final assessment order u/s.143(3) of the Act to enable the company to file appeal before the Hon ble CIT. 8. In view of the above final assessment order was passed by making the addition disallowance in the draft assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer of Property Act. The view expressed that restrictive meaning or ejusdem generies meaning is to be given to the word any other commercial right of similar nature is not correct. In this connection, it may be noted that in Techno Shares Stocks Ltd vs. C1T 327 ITR 323 (SC) It has been held that such right was akin to license. It gave the right to member to access the exchange is considered to be an intangible asset. Similarly the right given to the assessee to access the port to carry out the terminal operations. It may be noted that right from inception of the company, i.e. A.Y, 2004-05 the depreciation claimed on the very same infrastructure facility has been verified and allowed. It is not out of place to mention here that during the course of assessment proceedings for A.Y. 2004-05, the then DCIT, Circle-1, Ahmedabad on the basis of the material submitted alongwith all the evidences including the copy of agreement dtd.05/06/2003 with detailed submission and the case laws on the subject has been cited before the A.O. and on the basis of the material on record, the then Assessing Officer has completed the assessment u/s.143(3) of the I.T. Act for the A.Y, 2004-05 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o and continue to do something, or to prevent and continue to prevent something being done, in or upon, or in respect of, certain other land not his own. Dominant and servient heritages and owners. The land for the beneficial enjoyment of which the right exists is called the dominant heritage, and the owner or occupier thereof the dominant owner; the land on which the liability is imposed is called the servient heritage, and the owner or occupier thereof the servient owner. Explanation - In the first and second clauses of this section, the expression land includes also things permanently attached to the earth: the expression beneficial enjoyment includes also possible convenience, remote advantage, and even a mere amenity; and the expression to do something includes removal and appropriation by the dominant owner, for the beneficial enjoyment of the dominant heritage, of any part of the soil of the servient heritage or anything growing or subsisting thereon. Illustrations (a) A, as the owner of a certain house, has a right of way thither over his neighbour Bs land for purposes connected with the beneficial enjoyment of the house, This is an easement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as separate assets. Earlier no depreciation was allowed on such payments. However, after category of intangible assets is brought in rules, the depreciation is allowable. The assessee company cannot transfer this facility to others, It may be noted that the assessee company is not the owner of tangible and visible assets. However, there is no bar on it if it wants to transfer the licenses granted by this. Again, for allowing depreciation perfect title and legal ownership is not required. If the assets is used and payment is made depreciation is allowable. Kindly refer to the decision of: i. S. Amika vs. DCIT 15 taxmann.com 28 (Ker). it has been made clear that Apkari License is transferable even if it is transferable with some approval of some authority it cannot be said that it is not transferable. It cannot be the case where the license is a right in personem but it is a right in rem i.e. the transferee in such case steps in the shoes of the assessee. In the above decision the High Court has allowed the claim of the depreciation in the hands of the transferee. ii. The reliance can be placed also on Piem Hotels Ltd. vs. DCIT 128 ITD 272 (MUM) The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these business rights and production licenses, the assessee became entitled to carry on hydrocarbons operations in the Sakhalin project. The law has specified items of intangible assets eligible for depreciation in the following categories : (i) know-how (ii) patents (iii) copyrights (iv) trademarks (v) licenses (vi) franchises (vii) any other business or commercial rights of similar nature. So far as claim of depreciation in case of intangible assets falling in the category of any other business or commercial rights of similar nature is concerned, all the business or commercial rights are not by themselves assets eligible for depreciation, and that only those rights which are similar in nature with the know-how, patents, copyrights, trademarks, licenses, etc. are eligible for claim of depreciation. In view of principles of ejusdem generis, the expression any other business or commercial rights has to be read in the company of the preceding words. This rule of interpretation makes an attempt to reconcile incompatibility between the specific and elucidated rights of business or commercial nature. In such circumstances, the expression 'any other business or commercial ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv. Techno Shares Stocks Ltd. vs. CIT - 327 1TR 323 (SC), wherein the Apex Court has held that membership card is entitled to depreciation. Hera it is noteworthy that eventhough floor of exchange was owned by the stock exchange on the basis of right to use the floor of exchange, the depreciation was granted tp the member, It was held that right of membership was license or akin to Iicense and had a commercial value. The court also clarified that even though there was a clause that in case of default, the right would vest with the exchange, the same would not make no difference, because till the time the member was not defaulting, he was entitled to use the floor of exchange und jr the license. v. Ashoka Info (P) Ltd. vs. Asstt. CIT [2009] 123 TTJ (Pune) 77 The assessee-company had carried out, under a license, construction and development of a Highway on build, operate and transfer (BOT) basis with toll collection rights. The said license was claimed to be in the nature of 'intangible asset' as defined in Section 32{l)(ii). Held that the period of license does not determine the nature of the assets but if the nature of the assets is intangible then the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofitably falls within meaning of intangible asset as provided in section 32(l)(ii) and depreciation is allowable on same - Held, yes - Whether goodwill is a bundle of rights which include, inter alia, patents, trademarks, licenses, franchises, etc., and they assume importance in commercial world as they represent a particular benefit or advantage or reputation built by a person/company/business-house over a period of time and customers associate themselves with such assets - Held, yes - Whether in view of above position goodwill is also to be treated as an intangible asset of similar nature referred to in clause (ii) of section 32(1) and, consequently, depreciation would be allowable on same - Held, yes Interpretation of statutes : Rule of Ejusdem Generis ix. Further, the Hon'ble Mumbai ITAT in the case of DCIT, 1(1), OSD Mumbai vs. Weizmann Forex Ltd, (2012) 21 taxmann.com 99 has held as under: Section 32 of the Income tax Act, 1961 - Depreciation - Allowance /Rate of - Assessment year 2007-08 - Whether in case of intangible asset being commercial/business rights, diminution in value or physical wear and tear is not an essential condition for admissibility for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Works (P.) Ltd. [2009] 309 ITR 67 /182 Taxman 183; ii) Gujarat Power Corporation Ltd. vs. ACIT 350 ITR 266 @ paras 37, 42-43; iii) Ganesh Housing Corporation Ltd. vs. DCIT 214 Taxmann 18; iv) Rayon Silk Mills v. CIT [1996] 221 ITR 155; v) CIT v. Eicher Ltd. [2007] 294 ITR 310 / 163 Taxman 259; vi) (1) CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 / 187 Taxman 312 {SC) (2) Eicher Ltd., ( supra); vii) Hari Iron Trading Co. v. CIT [2003] 263 ITR 437 /131 Taxman 535; viii) Asian Paints Ltd. v. Dy. CIT [2009] 308 ITR 195; ix) CITv. Gabriel India Ltd. [1993] 203 ITR 108; x) CIT vs. Vikas Polymers' case 341 ITR 537; xi) CIT vs. Honda Siel Power Products Ltd. in 333 ITR 547 @ 557-558; xii) Jet Electronics vs. ACIT 116 TTJ 225 @ 235, 236; xiii) CIT vs. Sunbeam Auto Ltd. reported in 332 ITR 167, Admittedly in the present case before Your Honour, the Id. AO during the course of the assessment proceedings called for the justification from the assessee regarding allowability of depreciation of ₹ 24,01,74,149/- on Infrastructure Usage facility @ 25 % vide his SCN dated 01/02/2013, which were furnished by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat on perusal of the assessment order, it could be seen that the then Id. AO had allowed depreciation on infrastructure usage facility after considering all the materials on record and therefore now it was not open for the AO to reopen the assessment merely on the basis of change of opinion and for the purpose of re-appreciating the materials on record, which was impressible in the eyes of law. The Hon'ble Gujarat High Court after considering the facts of the case and laws of the land held the notice issued u/s 148 as invalid, erroneous and bad in the eyes of law. Having referred to the order of the Hon'ble Gujarat High Court, the assessee most respectfully submitted that even in A.Y.2007-08, it was found that the then Id. AO had formed an opinion during the course of the assessment proceedings while allowing depreciation on infrastructure usage facility, and therefore, notice issued u/s 148 of the Act to re-appreciate or to change an opinion was found to be invalid and bad in the eyes of law by the Hon'ble Gujarat High Court. The assessee most respectfully submits that when learned assessing officer has raised these issues, which were duly clarified and expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation. It is further submitted that it is admitted facts that the assessee had acquired such assets in the A.Y.2004- 05 and accordingly, the assessee had transferred such asset into the Block of Intangible Assets and claimed depreciation thereon for the first time in A.Y.2004-05. It is also admitted facts that the Id. AO in earlier assessment years has accepted the claim of depreciation made by the assessee. The assessee submits that now the law is settled that the depreciation can be claimed on the Block of Asset and not on individual or separate assets. Under the circumstances when the Id. AO has accepted all the while closing WDV as on 31/03/2004, the same cannot be ignored to disallow the depreciation thereon merely on the ground that now it is realized that the year no. 1 in which the asset was acquired, now it is not an eligible asset to claim depreciation. The assessee strongly submits that once the asset becomes part of the Block of Assets, it loses its character and therefore under no circumstances, in the subsequent year, the same Block of Assets can be disturbed to disallow the deprecation thereon. Reliance is placed on Delhi High Court decision in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure in the said block asset as individual assets have lost their identity after becoming inseparable part of the block asset. That is the only manner in which various provisions can be harmonized. Once we look into the provisions of this angle, answer to the argument of the learned counsel for the revenue predicated on second proviso to section 32 shall also be provided. It was her submission that if a particular asset is acquired after 30th September during the previous year and is put to use for a period of less than 180 days in the previous year, the deduction under sub-section (1) of section 32 is restricted to 50 per cent of amount admissible. On that basis, she had argued that requirement of user of individual asset remains intact. Answer to this argument is that this would be the position in the first year when the particular asset is acquired. With the user, it would meet the requirement of section 32, In the subsequent years, it is the use of block asset, which becomes the yardstick and not the individual asset already acquired in the earlier years, other than the previous year in which it is first brought into use. In the instant case, the PSL equipment was purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not own the infrastructure. The question then is whether the right to use the infrastructure constitutes intangible assets like know-how, patents, licenses or any other business or commercial rights of similar nature. It is the assessee's claim that infrastructure usage facility constitutes a license which is owned by it and also used by it and hence it satisfies all the conditions for grant of depreciation. However, it is further contended vide its letter dated 22.02.2013 addressed to the assessing officer in the course of assessment as under: At the outset we submit that the infrastructure usage facility is sort of license given by Mundra Port to the assessee company to operate its container operation in Mundra port area. The exclusive right has been given to the assessee company, which is a sort of Easement right. The Easement right is nothing but license given to the licensee to enter on another person's land with usage of infrastructure facility to carry out business activities. The assessee company has been given the right to carry out its terminal operation work. The view expressed is that such right is not similar to know how............Franchises or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 2013-14 the claim has not been allowed in the order passed regularly. 12. On the other hand assessee highlighted several judgments CIT vs. Nirma Chemicals Works Pvt. Ltd. [2009] 309 ITR 67/182 Taxmann 183; Gujarat Power Corporation Ltd. Vs. ACIT 350 ITR 266; and Ganesh Housing Corporation Ltd. Vs. DCIT 214 Taxmann 18 etc. 13. Finally Ld. Pr. CIT has held that order passed by the AO without making enquiries is held to be erroneous in so far as it is prejudicial to the interest of revenue and order passed by the AO under section 143(3) r.w.s. 144C of the Act dated 23.05.2013 was set aside and AO was directed to reframe the assessment after conducting necessary inquiry and after granting sufficient opportunity of hearing to the assessee. 14. We have gone through the relevant record and impugned order and written submission filed by the assessee under section 263 of the ITA Act, CIT/Pr. CIT has power to call for and examine the records of any proceeding and he does not need to show any reason. It is a part of his administrative control and examine them. 15. The second condition is that he may consider that any order passed under the Act by the AO is erroneous i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that the carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowance which an assessee feels aggrieved with, 19. It is submitted by the Ld.DR, that in the case of Crompton Greaves Ltd. ITA No.1994/Mum/2013 vide its order dated 01.02.2016 whereby it held as under: The Hon ble Supreme Court in the case of Sundaram Pillai Vs. Pattabiram reported in (1985)1 SCC 591, whereby Fazal Ali, J culled out from earlier cases the following as objects of an explanation to a statutory provision (emphasis added):- (a) To explain the meaning and intendment of the Act itself, (b) Where there is any obscurity or vagueness in the main enactment to clarify the same so as to make it consistent with the dominant object which it seems to subserve, (c) To provide an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verting to the specific provisions of Section 263 of the Act what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the Revenue is the basic pre-condition for exercise of jurisdiction under Section 263 of the Act. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the Section to give the assessee an opportunity of being heard. It is in the context of the above position that this Court has repeatedly held that unlike the power of reopening an assessment under Section 147 of the Act, the power of revision under Section 263 is not contingent on the giving of a notice to show cause. In fact, Section 263 has been understood not to require any specific show cause notice to be served on the assessee. Rather, what is required under the said provision is an opportunity of hearing to the assessee. The two requirements are different; the first would comprehend a prior notice detailing the specific grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answer to that question has already been made dear. In our judgment no notice was required to be issued by the Commissioner before assuming jurisdiction to proceed under Section 33-B. Therefore the question what that notice should contain does not arise for consideration. It is not necessary not proper for us in this case to consider as to the nature of the enquiry to be held under Section 33-B. Therefore, we refrain from spelling out what principles of natural justice should be observed in an enquiry under Section 33-B. This Court in Gita Devi Aggarwal v. CIT, West Bengal ruled that Section 33-B does not in express terms require a notice to be served on the assessee as in the case of Section 34. Section 33-B merely requires that an opportunity of being heard should be given to the assessee and the stringent requirement of service of notice under Section 34 cannot, therefore, be applied to a proceeding under Section 33-B, (Page 827-828). [Note: Section 33-B and Section 34 of the Income Tax Act, 1922 corresponds to Section 263 and Section 147 of the Income Tax Act, 1961] It may be that in a given case and in most cases it is so done a notice proposing the revisional exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entrance channel and turning circle of the container terminal and alongside the berth at the container terminal as depicted in annexure A. ii. Use of rails and road connectivity. iii. Use of water, electricity and telecommunication. iv. Marine and port facilities. v. Medical and educational facilities. The term license, easement and lease are went well defined under Transfer of Property Act. The view expressed that restrictive meaning or ejusdem generies meaning is to be given to the word any other commercial right of similar nature is not correct. In this connection, it may be noted that in Techno Shares Stocks Ltd vs. CIT 327 ITR 323 (SC) It has been held the such right was akin to license. It gave the right to member to access the exchanges is considered to be an intangible asset. Similarly the right given to the assessee to access the port to carry out the terminal operations. It may be noted that right from inception of the company, i.e. A.Y. 2004-05 the depreciation claimed on the very same infrastructure facility has been verified and allowed. It is not out of place to mention here that during the course of assessment proceedings for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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