2011 (6) TMI 206 - AT - Income Tax

DTAA - Depreciation - The assessee is in the business of dredging and had during the relevant year done dredging work at the Indian ports - The assessee had included the assets in the block of asset of the PE when the assets were transferred from the head quarters to the PE and therefore similar treatment has to be given to the asset when it was transferred out of the PE account - The case of the assessee is that it has different operations at different sites in the world and the transfer of these assets to some other site cannot be treated as demolition/destruction of the assets - Held that the same issue has already been examined by the Tribunal in assessee s own case for the assessment year 1997-98 in which the Tribunal vide order dated 30-6-2000 in ITA No. 3474/M/00 allowed depreciation in identical situation - Decided in the favour of assessee Regarding disallowance of charter hire rentals - High Court in the case of CIT v. Southern Petrochemical Industries Corpn. Ltd. (2008 -TMI - 4489 - MADRAS HIGH COURT) in which it has been held that asset kept as standby was entitled to depreciation - Appeal is allowed

Summary

Issues involved:
1. Disallowance of depreciation on re-export of assets.
2. Disallowance of charter hire rentals for the standby period.
3. Legal validity of re-opening of assessment.

Issue 1: Disallowance of depreciation on re-export of assets:
The appeal concerns the disallowance of depreciation on assets re-exported by the assessee, a Netherlands-based company with a permanent establishment (PE) in India. The Assessing Officer contended that the assets, transferred from India, no longer existed in the PE's block of assets and should be treated as demolished or destroyed, thus disallowing depreciation. However, the CIT(A) held that the assets should be treated as sold, directing computation of depreciation accordingly. The Tribunal agreed with the assessee, emphasizing that transfer of assets to another location did not constitute demolition or sale, citing relevant case law. The Tribunal also noted previous rulings in favor of the assessee, ultimately allowing the depreciation claim.

Issue 2: Disallowance of charter hire rentals for the standby period:
The dispute revolves around disallowance of charter hire rentals for a standby period of a dredger. The Assessing Officer disallowed charges for the standby period, as per the agreement terms specifying no hire charges during idle time. The CIT(A) upheld this disallowance. However, the assessee argued that the standby period should be considered as asset usage, supported by a relevant High Court judgment. The Tribunal concurred, ruling that the standby period should be treated as asset use, thereby allowing the deduction for hire charges during the standby period.

Issue 3: Legal validity of re-opening of assessment:
As the Tribunal had already ruled in favor of the assessee on the substantive issues, the question of the legal validity of re-opening the assessment was deemed unnecessary for consideration, as it was not argued by either party. Consequently, the Tribunal allowed the appeal of the assessee, resolving the issues in their favor.

This comprehensive analysis covers the disallowance of depreciation on re-exported assets, the disallowance of charter hire rentals for the standby period, and the incidental issue of the legal validity of re-opening the assessment, providing a detailed overview of the Tribunal's judgment.