TMI Blog2010 (4) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 -do- 4. 4431/Del/09 -do- 2004-05 -do- -do- 5. CO 21/Del/10 in ITA No. 4244/Del/09 Assessee 2001-02 31.8.2009 -do- 6. CO 22/Del/10 in ITA No. 4245/Del/ 09 -do- 2002-03 8.9.2009 -do- 7. 4513/Del/09 -do- 2003-04 14.9.2009 31.12.08 143(3), 153A 8. 4514/Del/09 -do- 2003-04 -do- -do- The first common grievance raised by the Revenue in the assessment years 2001-02 and 2002-03, relates to deletion of disallowance of depreciation on the leased asset amounting to Rs. 6,66,488 and Rs. 5,79,590 respectively. These grounds of appeal are also interconnected with the solitary grievance of the assessee raised in its appeals for the assessment years 2003-04 and 2004-05 wherein the learned Commissioner of Income-tax (Appeals) has upheld the disallowance of depreciation amounting to Rs.5,06,309 and Rs. 4,43,912 in the assessment years 2003-04 and 2004-05 respectively. We take all these grounds of appeal together. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated May 11, 2005. (c) Consent award of the arbitrator dated May 24, 2005. The broad terms for the settlement of all disputes and differences were: (i) ITC Ltd. would hand over vacant and peaceful possession of hotel property. (ii) All liabilities relating to the workers would be borne by the appellant. (iii) The appellant would make payment of an aggregate sum of Rs.42.10 crores to ITC Ltd. which was accounted for in the books of account as under : (a) Repayment of security deposit to ITC Ltd. Rs. 7.75 crores (b) Cost of store acquired from ITC Ltd. Rs. 0.64 crores (c) Reimbursement towards transfer of various accounts Rs. 3.84 crores (d) Towards termination of operator agreement and the assessee obtaining rights to operate the hotel Rs. 30.86 crores Rs. 43.10 crores (iv) The appellant would not be entitled to any amounts relating to licence fee for any year till the date of settlement. According to the arbitrator s award the assessee was not to receive licence fee in the assessment years 2001-02 and 2002-03. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hotel during the disputed period also, effectively ITC has operated the hotel till May, 2005. Thereafter the business continued by means of operator/management agreement with Claridges Hotel Pvt. Ltd. During the assessment year 2007-08 the assessee managed and operated the hotel itself. On the strength of the hon ble Delhi High Court s decision in the case of Capital Bus Service Pvt. Ltd. v. CIT [1980] 123 ITR 404. He contended that allowance for normal depreciation does not depend on the actual working of machinery. It is seen if the machinery in question is employed by the assessee for the purpose of the business and for no other business. If it is kept by him ready for actual use depreciation would be allowed. Similarly he relied upon the following decisions : (1) Multican Builders Ltd. v. CIT [2005] 270 ITR 142 (Cal) ; (2) CIT v. Southern Petrochemical Industries Corporation Ltd. [2008] 301 ITR 255 (Mad) ; (3) CIT v. ESPN Software India P. Ltd. [2008] 301 ITR 368 (Delhi) ; (4) CIT v. Hughes Escorts Communications Ltd. [2009] 311 ITR 253 (Delhi) ; (5) CIT v. India Tea and Timber Trading Co. [1996] 221 ITR 857 (Gauhati) ; and (6) CIT v. Vindhyachal Distilleries Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even though the machinery was not in use or was kept idle. The words used for the purposes of business are capable of larger and narrower interpretation. If the expression used is construed strictly, it can be taken as connoting or requiring the active requirement or actual working of the machinery, plant or building in the business. On the other hand, a wider meaning will include not only cases where machinery and plant, etc., are actively employed but also cases where there is what may be described as passive user of the same in the business and the same can be said to be in use when it is kept ready for use. 15.2 In the case of Whittle Anderson Ltd. v. CIT [1971] 79 ITR 613 (Bom), their Lordships of the Bombay High Court were concerned with the question whether ginning machines remaining idle under pooling agreement could be said to be used so as to be entitled to depreciation. Their Lordships made the following relevant observations (page 627) : Now the expression use or used has several times received interpretation at the hands not only of this court and of the other High Courts but by the Supreme Court itself. So far as this court is concerned, in CIT v. Viswanath B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which were directly in the pooling arrangement were to remain idle while the two presses worked, it is clear that the owners of those presses which were idle had to keep them ready for use at any time and the contingency for their use could also, upon the terms of the agreement, arise at any time and having regard to the definition of the word used as indicated in the authorities to which we have referred, it is clear that even these presses which remained under forced idleness were in use during the entire period of the year. 15.3 In the case of CIT v. Dilip Singh Sardarsingh Bagga [1993] 201 ITR 995, the Bombay High Court on the question of allowing depreciation and after the relevant provisions of the Motor Vehicles Act, observed as under (page 1002) : In view of the foregoing discussion, we are of the clear opinion that the assessee, who had purchased the motor vehicle for valuable consideration and used the same for his business, cannot be denied the benefit of depreciation on the ground that the transfer was not recorded under the Motor Vehicles Act or that the vehicles stood in the name of the vendor in the records of the authorities under the Motor Vehicles Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 629, 632) : The Tribunal was obsessed with a view that since the registration of the vehicle by the registering officer under the Motor Vehicles Act, 1988 was granted on April 1, 1997, the vehicle could not be plied on March 31, 1997. The Tribunal approached the said problem with wrong angle. For the income-tax purposes the Tribunal was required to examine as to whether the assets (oil tankers) were used during the previous assessment year or not. The user of oil tankers even prior to obtaining registration from the registering authority or without payment of road tax, etc., may be violative of the provisions of the Motor Vehicles Act, 1988. But none the less if the vehicle was plied even without obtaining registration or payment of road tax, etc., it cannot be said, as a matter of fact, that the vehicle has not been used. The attention of the Tribunal was not drawn towards rule 47 of the Motor Vehicles Rules which gives seven days time to apply for registration of the vehicle with the registering authority under the Motor Vehicles Act. The finding recorded by the Tribunal that the oil tankers were not used on the last date of the previous year is not based on legal evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld enable the assessee to secure the benefit intended to be given by the Legislature to the assessee. It is also well settled that where there are two possible interpretations of a taxing provision, the one which is favourable to the assessee should be preferred . . . Generally speaking depreciation is an allowance for the diminution in the value due to wear and tear of a capital asset employed by an assessee in his business. Black s Law Dictionary (fifth edition) defined depreciation to mean, inter alia : A fall in value ; reduction of worth. The deterioration, or the loss or lessening in value, arising from age, use, and improvements, due to better methods. A decline in value of property caused by wear or obsolescence and is usually measured by a set formula which reflects these elements over a given period of useful life of property . . . Consistent, gradual process of estimating and allocating cost of capital investments over estimated useful life of asset in order to match cost against earnings . . . An overall view of the above said authorities shows that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the present case then it would reveal that business assets owned by the assessee in the shape of hotel were used for the hotel business. It is a different matter that in these accounting years on account of certain disputes with ITC limited the assessee has not received licence fee. But non-receipt of licence fee would not be a factor that business assets were not used for the purpose of the business. There is one more angle in the controversy. The parties under the agreement to operate the hotel, i.e., the assessee as well as ITC were litigating after the bomb blast on so many issues. In the arbitration ultimately it is the assessee who has to pay a sum of Rs. 43.10 crores in total to the ITC. Keeping in view this payment required to be made by the assessee the arbitrator might have considered the factor of non-payment of licence fee to the assessee. In other words at the most passive user cannot be disbelieved. Therefore the claim of depreciation cannot be denied to the assessee merely on the ground that licence fee was not received by the assessee. Earning of income actually in a year is one of the corroborative factors, to demonstrate the user of assets only. It is not the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars on this issue and delete the addition of licence fee in question." The assessee was to receive licence fee in view of hotel operator agreement effective from July 1, 1986, on account of bomb blast in the hotel, a dispute arose between the parties and this right to receive licence fee was disputed. The dispute between the parties was settled by an arbitration award which held that the assessee is not entitled to receive licence fee. Taking into consideration the settlement of dispute by way of arbitration award and finding of the learned Commissioner of Income-tax (Appeals) coupled with the order of the Income-tax Appellate Tribunal in 1997-98 we do not find any merit in these grounds of appeal. They are rejected. The grounds raised by the assessee in the cross-objection filed in the assessment years 2001-02 and 2002-03 are common with the additional ground of appeal raised in the assessment years 2003-04 and 2004-05. In all these grounds of appeal the assessee has pleaded that in the facts and circumstances of the case the learned Assessing Officer was not justified in issuing notices under section 153A as no assessment or reassessment was pending as on the date of initiation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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