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Asst. Commissioner of Income Tax Versus Shri Burgis Keki Daruwalla

2015 (5) TMI 544 - ITAT MUMBAI

Penalty u/s 271(1)(c) - tenancy rights were not acquired on 02/05/2005 and further tenancy rights are not covered u/s 32 of the Act for claim of depreciation - Held that:- If the assessee does not make a claim then no deduction may be granted. Non-allowance per se does not mean that there is concealment or furnishing inaccurate particulars. It is only after necessary permissions were obtained from the Municipal Corporation, the assessee entered into a formal lease agreement. The totality of fact .....

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And Shri B.R. Baskaran JJ. For the Appellant : Smt. N.V. Nadkarni-DR For the Respondent : Shri Hormuzd Jamshedji ORDER Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 27/07/2010 of the ld. First Appellate Authority, Mumbai, deleting the penalty of ₹ 10,72,500/-, imposed u/s 271(1)(c) of the Act. 2. At the time of hearing, Shri Vivek Batra, ld. DR, advanced his arguments which are identical to the ground raised by submitting that the assessee furnis .....

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particular of such income. It was also pleaded that the impugned issue is covered in favour of the assessee in his own case for AY 2006-07 and 2007-08 (ITA no.4564/Mum/2009 and 7464/Mum/2010) order dated 26/02/2015. This factual matrix was not controverted by the Revenue. 2.1. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion, we are reproducing hereunder the relevant portion of the order of the Tribunal dated 26/02/2015 for r .....

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.7S lacs. perusal of the depreciation chart showed that the assessee had acquired office premises tenancy right for ₹ 1.43 crores and had claimed depreciation of ₹ 3S.7S lacs @ 25% on it. The assessee was asked to submit the documents pertaining to the acquisition of tenancy right and to explain as to how the depreciation is allowable. The assessee filed detailed reply explaining the acquisition of office premises by way of tenancy right and further explained the acquisition of offic .....

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ngible assets mentioned in section 32(1)(ii} of the Act and, therefore, not depreciable in nature. The depreciation claimed by the assessee was disallowed. The assessee carried the matter before the C!T(A). The claim of the assessee before the CIT(A) was twofold. Firstly, depreciation @25% should be allowed Shri Burgis Keki Daruwalla 4 treating tenancy right as intangible asset and secondly, in alternative tenancy rights are in perpetuity and, therefore, depreciation @10% to office building shou .....

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e revenue is that the CIT(A) ought not to have allowed depreciation @10%. The assessee's grievance is twofold. Firstly, it is the claim of the assessee that tenancy right should be treated as intangible asset and depreciation @25% should be allowed. Secondly, in alternative, the CIT(A) erred in not allowing depreciation @1O% on and from A.Y. 2006-07. In so far as the first claim of the assessee that tenancy right is akin to intangible asset therefore [depreciation @25% should be allowed is c .....

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n In Explanation (3) to section 32(1) :- "(b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature". 5. A bare perusal of the definition of intangible assets on which depreciation is available u/s 32 makes it vivid that the intangible assets so classified. are know-how; patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. We ar .....

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ness or commercial rights'} as employed in the definition of "intangible" assets as pet the above Explanation, must mean only the intangible assets similar to those which precede it, that is, "know-how, patents, copyrights, trademarks, licences, franchises". The former category of intangible assets includes such assets with which the business is directly carried on. In other words, these are intangible assets by which either the permission to carry on the business or manu .....

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can carry on manufacturing a an place but the business cannot be carried on without licence, or without specific know-how, copy right, or trade mark etc. Reverting to the extant case, only an intangible asset of the nature of know-how, patents, copyrights, trademarks, licences, franchises etc. can be brought within the ambit of "any other business or commercial right". The legislature has made its intention crystal clear by the use of words "of similar nature" immediately aft .....

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ghts cannot be construed as "intangible" assets falling within the meaning of Explanation 3 to section 32(1). The reliance of the Id. DR on the judgment of the Hon'ble Supreme Court in Techno Shares (supra) is of no consequence. In that case the question was whether depreciation can be granted on the Bombay Stock Exchange Membership card. As the ownership of such Membership Card is sine qua non to conduct the business on the floor of stock exchange, the Hon'ble Supreme Court he .....

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e view taken by the authorities below on this issue. This ground fails. Respectfully following the decision of the co-ordinate Bench, assessee's claim for depreciation @25% on tenancy right is dismissed. Shri Burgis Keki Daruwalla 7 5. Now coming to the alternative claim of the assessee, we find that C!T(A) has very elaborately considered this claim in the light of various provisions of the agreement. Following observations of the CIT(A) is worth mentioning here: "4.1. I have carefully .....

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e Landlords are prevented from creating any tenancy, leave and license and also not to enter into any agreement which may adversely affect the tenancy rights of the tenant. The landlord is also prevented from selling the premises. No kind of encumbrances can be created by the landlord. The relevant para of the agreement reads as under (pg. 15 of the Comp.) "6(x) the Prospective Landlords agree and undertake that as long as the Prospective Tenants are in use and occupation of the said licens .....

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ses." Shri Burgis Keki Daruwalla 8 c) The Landlords are also not allowed to terminate the lease agreement for any reason except for the non payment of monthly rent for a continuous period of six months. The relevant para of the said agreement reads as under (Pg. 17 of the comp.): "10. The Prospective Landlords shall not be entitled to terminate the tenancy of the Prospective Tenants under this agreement for any reason whatsoever save and except for non- payment of the reserved monthly .....

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dered the decision of the Honble Supreme Court in the case of Mysore Minerals Ltd, 239 ITR 775 and the decision of the Hon'ble Karnataka High Court in the case of Bharat Earth Movers Ltd. 244 ITR 547. The OT(A) finally concluded by observing that "Here is a case of acquiring a business premises in the name of tenancy, In the instant case the appellant has acquired the property and has become the virtual owner. He is also the actual user. Therefore he is entitle to depreciation ... " .....

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en as the date of possession and usage by the assessee for the purpose of the allowability of depreciation. We, therefore, modify the findings of the CIT(A) and direct the AO to allow the claim of depreciation as per the provisions of law in the A.Y. 2006-07. 7. In the result, appeals filed by the revenue are dismissed and that of the assessee is partly allowed. 2.2. Without going into much deliberation, we find that the Tribunal vide order dated 26/02/2015 (ITA Nos. 4564/Mum/2009 and 7464/Mum/2 .....

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