TMI Blog2015 (7) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... nce agreements, the Court concurs with the view expressed by the ITAT.- Decided in favour of assessee. Foreign exchange rate fluctuation - The direction of the CIT (A) to the AO to allow depreciation on the increase in liability on account of exchange rate fluctuation on notional basis was also upheld by ITAT - Held that:- Questions stand covered in favour of the Assessee and against the Revenue by the decision of the Division Bench of this Court in Commissioner of Income Tax v. Woodward Governor India P. Ltd. (2007 (4) TMI 118 - HIGH COURT , DELHI ) which has been affirmed by the Supreme Court in Commissioner of Income Tax v. Woodward Governor India P. Ltd. (2009 (4) TMI 4 - SUPREME COURT) - Decided in favour of assessee. - ITA 69/2000, ITA 70/2000 , ITA 71/2000, ITA 72/2000, ITA 73/2000 - - - Dated:- 24-7-2015 - Hon'ble Dr. Justice S. Muralidhar And Hon'ble Mr. Justice Vibhu Bakhru,JJ. For the Appellant : Mr. N.P.Sahni, Senior Standing counsel with Mr. Nitin Gulati, Junior standing counsel For the Respondent : Mr. Ajay Vohra, Senior Advocate with Mr Prakash Kumar and Ms Bhovita Kumar, Advocates JUDGMENT Dr. S. Muralidhar, J. 1. These appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the land so as to give DAL any legal title, right or interest therein. (vii) The obligations of the licensee were further stipulated in Clause 16 of the agreement. Inter alia, it was provided in Clause 16 (xii) that DAL would pay all rates, taxes, charges in respect of the land and any building erected thereon during the entire period of licence except the house tax since the building was to vest in NDMC for all intents and purpose . (viii) Under Clause 16(xv) the building has to be kept insured by DAL in the joint names of itself and the NDMC against damage by fire, riots, civil commotion and earth quake etc. The premium was to be paid by DAL. The rights and the powers of the NDMC were set out in Clause 17 of the agreement. (ix) Under Clause 25, the building to be constructed on the licensed space shall at all time vest in the NDMC together with all fittings, fixtures and other installations of the immovable types or of the types removal of which is likely to cause damage to the building. Clause 27 clarified that the allotment was to the made on the licence basis and the licensed premises including building would be a public premises within the meaning of the Public Premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building at the market price. Clause 18 read thus: 18. The licensor shall have a pre-emptive right to purchase the property built on the site after deducting the market value of the land at the market price then prevalent. 5. Clause 29 gave BHL the right to give out spaces in the building to sub-licencees. The said clause reads as under: 29. The licencees shall run the five Star Hotel themselves. However, the licencees may allow sub-licencees within the period of licence for running car parking, cycle scooter stand for parking and shopping arcade, banks offices (within the shopping arcade) etc. The licencees shall be further responsible for the conduct of various sub-licencees and observance of rules and regulations etc. The licencees shall be further responsible to answer that the sub-licencees shall not get any right over and above the rights and privileges of the licencees. 6. Under Clause 48, licence fee was to be enhanced after every thirty three years provided that the increase in the licence fee would not exceed 100% of that immediately before the enhancement is due. 7. One more fact that requires to be noticed is that apart from the hotel building that wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 154,1155,1156,1632, 1633 and 1634/Del/98) for the aforementioned AYs. The questions that were considered by the ITAT were answered by it in favour of the Assessee as follows: (i) The domain over the hotel property is of the Assessee. It was utilising the property and it was not the case of Revenue that the NDMC ever made a claim for depreciation. It is the Assessee who made the investment, utilised the property, met the expenses of wear and tear and replacement of the property which would be entitled for depreciation. (ii) The sub-licence agreements in respect of the spaces in the WTT and WTC showed that it as the Assessee which was made responsible to pay all fees, rates, taxes etc. The Assessee had not relinquished its right of domain over the property but had allotted spaces to different sub-licensees who had no right, title etc. except having right of sub-licence which assessee had been permitted by NDMC through the main agreement of licence. Therefore, the Assessee was entitled to depreciation in respect of the WTT and WTC buildings as well. Consequently, the Assessee was entitled to depreciation in respect of sanitary and plumbing also for the whole of the period. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity and the contradictory stand of the assessee? (viii) Whether cost of construction has to be deducted from the amount received from the sub-licencees/allottees to calculate income of the assessee? (ix) Whether the ITAT was justified in deciding the issue relating to entitlement for deduction on account of deferred licence fee? (x) Whether the ITAT was justified in directing that depreciation be calculated on basis exchange rate prevailing on the last date of the financial year? (xi) Whether the ITAT was right in allowing depreciation to be calculated on the basis of notional exchange rate when no payment had been made and their exists possibility of change in the exchange rate and the exchange rate prevailing on the date of payment may be different? 12. At the outset it was stated by Mr. Ajay Vohra, learned Senior counsel for the Respondent Assessee that question (v) relating to investment allowance need not be decided as it has to await the outcome of the Special Bench decision of the ITAT and the consequential decision of the AO thereafter. Consequently, the said question is not being decided. 13. As far as Question (ix) is concerned, it relates to the entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AL, the entire cost of construction of the buildings was borne by the assessee. (ii) This is acknowledged in Clause 19 of the first Agreement dated 11th March 1981which states that the licensor shall have a pre-emptive right to purchase the property built on the site after deducting the market value of the land at the market price then prevalent. (iii) Under Clause 16 (xv) of the same Agreement, the building has to be kept insured by DAL in the joint names of itself and the NDMC against damage by fire, riots, civil commotion and earthquake etc. (iv) Under Clause 16 (xii) the licencee was to pay all rates, taxes, charges, claims and out-goings in respect of the land and building except the house tax as building will vest in the licensor, i.e., NDMC for all intents and purpose . (v) As rightly pointed out by Mr. Vohra, the essential purpose of the vesting of the property in the NDMC is to enable it to invoke the provisions of the Public Premises (Eviction of Unauthorized Occupants), Act, 1971 for eviction of the licencee. Otherwise for all practical purposes the entire control of the buildings was with the licensee. (vi) The fact that it was for the licensee which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Court was of the view that the assessee would be entitled to depreciation. The Court held:- 14. It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time-being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the appellant-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. 19. The Court is satisfied that the during the AYs in question Assessee was indeed in full control of the three buildings, viz., the hotel building, the WTT and WTC and that in any event, notwithstanding the clarificatory amendment inserted as Explanation No. 1 in Section 32 with effect from 1st April 1988, the Assessee would be entitled to claim dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action was, in reality, a sale of floor space by the Assessee company to its shareholders. It was concluded that the residuary rights of ownership which remained with the Assessee company were negligible and of dubious value. Consequently, the deposits had to be treated as trading receipt. As far as the present case is concerned, the facts are different inasmuch as what has been transferred to the sub-licencee is only a right of occupancy for the purpose of licence and nothing more. Whatever benefit the Assessee derived from the deposits has already been reflected in its business income on which it has been taxed. 23. It was submitted by Mr. Sahni that the deposits in the hands of the Assessee should be construed to be a benefit arising from the business in terms of Section 28 (iv) and should be treated to be a taxable receipt. This argument was considered by the CIT (A). A reference was made to the order of the ITAT for the earlier AYs 1987-88 and 1988-89. After reference to the clauses of the sub-licence agreement it was concluded that the benefit derived by the Assessee on received finances by way of interest pre-deposit stands merged with the income declared by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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