TMI Blog2015 (1) TMI 1232X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. We are of the view that the reasoning adopted by the CIT(A) is just and proper and calls for no interference. In view of the above conclusions on a plain reading of the relevant provisions of section 70(2) and section 111A of the Act, we do not wish to refer to the case laws to which a reference has been made by the CIT(A) in his order. Depreciation on expenditure incurred for acquiring the leased land on which wind mill was installed by treating the land as integral part of wind mill - Held that:- As far as the claim of assessee for allowing depreciation being the upfront lease charges for the land on which windmills are erected is concerned, we are of the view that the same is not allowable as held by this Tribunal in the case of V.S. Lad & Sons (2014 (6) TMI 922 - ITAT BANGALORE). We are, however, of the view that the assessee's claim in the cross objections to allow the said sum as a revenue expenditure deserves to be accepted on the basis of decision rendered in the case of V.S. Lad & Sons (supra). - CO Nos.5 & 6/Bang/2015 in ITA Nos.586 & 481/Bang/2012 - - - Dated:- 23-1-2015 - <!--[if gte mso 9]> <![endif]--> <!--[if gte mso 9] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 586/B/12 CO 5/15 Ground Nos. 1, 4 5 raised by the revenue are general in nature and calls for no specific adjudication. 2. Ground No.2 raised by the revenue reads as follows:- 2. The CIT(A) erred in allowing setoff of short term capital loss arising on sale of shares specified in Sec.111A (those on which STT paid and the tax rate being 10%) against short term capital gain arising on other assets (taxable @ 30%) while the assessee had short term capital gain on sale of shares specified in Sec.111A and that loss set off should have been allowed against profits under the same category in view of the above tax differential. 3. The assessee is a company engaged in the business of hoteleering. In the course of assessment proceedings, the AO noticed that the assessee had shown taxable short term capital gain at ₹ 87,68,474. The computation of taxable short term capital gain as done by the assessee was as follows:- I) Short Term Capital gains/Loss arising on Equity shares and sale of units of Equity Oriented Mutual Funds referred to Section 111A a) Short term capital gains, As per Anne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee should be permitted to pay 10% tax on ₹ 55,63,501 and 30% tax on ₹ 32,04,973. 7. Before the AO, the assessee submitted that it has the option of setting off of short term losses with any other short term gains. The Assessee also relied on decision of 1TAT, Mumbai decision in ITA No.3261/Mum/2007 dt. 03.06.09 in which it was held that set-off of long term capital loss with indexation is allowable against long term capital gains without indexation on the reasoning that both fall under the same head of income and such setoff is allowable u/s 70(3). This explanation was not accepted by the AO for the reasons that the decision referred to by the Assessee was with regard to long term capital loss setoff. Secondly, according to the AO the decision referred to by the Assessee takes the view that set off should be made under the same head of income. According to the AO, the assessee did not compute the capital gains in this manner. Gains or losses arising on sale of shares/units which attract STT and are referred to in Sec.111A have to be treated as a separate category/head head of capital gains and net income/loss under this head has to be shown separately. Comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income as reduced by such capital gains. (3) Where the total income of an assessee includes any short-term capital gains referred to in sub-section (J), the rebate under section 88 shall be allowed from the income-tax on the total income as reduced by such capital gains. Explanation. -For the purposes of this section, the expression equity oriented fund shall have the meaning assigned to it in the Explanation to clause (38) of section 10. Sec 70: Set off of loss from one source against income from another source under the same head of income. 70. (1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than Capital gains , is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. (2) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maly by amending the law to provide that long term capital loss alone be set off against long term capital gain. It was submitted by him that this being the spirit behind the provisions, on the same analogy, claim of the assessee for set off as made in the return of income was rightly rejected by the AO. It was also submitted by him that decision of the Hon'ble Gujarat High Court in the case of Mahendra Kanhaiyalal HUF 202 ITR 701 (Guj) and decision of Hon'ble Calcutta High Court in Punjab Produce Trading Co. Ltd. 159 ITR 376 ( P H) on which the ld. CIT(A) placed reliance are claims set off under different provisions which are not pari materia with section 111A of the Act. 13. We have considered his submissions and are of the view that the same are not acceptable. A perusal of the provisions of section 70(2) clearly shows that if there a short term capital loss, the assessee is entitled to have the said capital loss set off against any other short term capital gain. This right given to the assessee is unqualified and therefore the assessee is free to choose as to how the set of short term capital loss has to be claimed. The assessee has claimed the set off in such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mill without which it cannot be installed. The AO did not agree with the stand taken by the Assessee. As per I.T.Rules, depreciation @ 80% is allowable only on renewable energy devices being wind mills and any specially designed devices which run on wind mills. According to the AO, it is only the machinery that is eligible for depreciation. According to the AO, the assessee may capitalize expenses incurred for delivery and installation of machinery as these expenses relate to acquisition of asset. As far as land is concerned, the AO was of the view that the same may be necessary for installation of windmill but land was a different category of asset. According to the AO, if the assessee s logic is extended, then in case of block of any buildings, the land cost should be included for depreciation claim since without land, the building cannot exist. In the opinion of the AO that was not the intention of law. The leasehold right on land is not a depreciable asset. Hence, the AO disallowed depreciation claim of ₹ 7,20,000/- being 40% of cost of leasehold right on land. 16. On appeal by the assessee, the CIT(A) allowed the claim of assessee, observing as follows:- 4.3.1 Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affidavit in support of petition for condonation of delay that recently assessee came to know that Bangalore Bench of the Tribunal in the case of M/s. V.S. Lad Sons v. ACIT, in ITA Nos. 18 to 20/Bang/2013, for A.Ys. 2006-07 2007-08, by order dated 13.6.2014, while dealing with an identical issue raised in the CO, whether depreciation can be claimed on land taken on lease on which windmill is erected, held that depreciation on land cannot be allowed, but nevertheless allowed alternative plea of considering the expenditure in the form of upfront payment of lease charges of the land as a revenue expenditure allowable u/s. 37(1) of the Act. It is the further claim in the affidavit that alternative plea was not taken by the assessee and in view of the subsequent development of law, assessee should be permitted to raise alternative plea. 19. We have considered the grounds on which the condonation of delay in filing the CO is sought and are of the view that the delay was occasioned by reasonable and sufficient cause. We are also of the view that the grounds sought to be raised in the CO are legal grounds which can be decided on facts already available on record and therefore the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee while claiming depreciation included the charges paid for leasehold rights over the land, apart from the cost of machinery and claimed depreciation. According to the assessee, the leasehold rights over the land would also constitute plant on which depreciation should be allowed. According to the assessee, taking into consideration the peculiar facts of the case, where hilly terrain and mountains are required for the use of the windmills, the consideration paid for acquiring the leasehold rights over the land should also be considered as a payment made for acquisition of a plant. Alternatively, the assessee claimed that the expenditure in question is revenue expenditure and should be allowed as a deduction u/s. 37(1) of the Act. 28. According to the revenue, acquiring a right over the land and cost paid for such acquisition cannot be equated with the consideration paid for acquiring a plant. According to the revenue, acquiring leasehold rights over a land over a period of 30 years results in an enduring benefit to the assessee and therefore expenditure cannot be allowed as deduction u/s. 37(1) of the Act also. The quantum of lump sum consideration paid for acquiring le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced reliance on the decision of the Hon ble Supreme Court in the case of CIT v. B. Venkata Rao, 243 ITR 81. In the aforesaid decision, the question for consideration was as to whether a building which was specifically designed and equipped to function as nursing home would constitute plant to entitle depreciation at a higher rate of 10%, instead of being considered as a building on which the lesser rate of depreciation was alone to be allowed. The Hon ble Supreme Court applied the functional test and came to the conclusion that the building constituted a plant. Following observations were brought to our notice:- Reference was made to an earlier judgment, where also the functional test approved by this court in several decisions was applied. It was held that if it was found that the building or structure constituted an apparatus or a tool of the taxpayer by means of which business activities were carried on, it amounted to a plant ; but where the structure played no part in the carrying on of those activities but merely constituted a place wherein they were carried on, the building could not regarded as a plant. The Tribunal and the High Court in the instant case proceeded upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of 95 years. The assessee was required to construct a building thereon within two years and pay a monthly rent of ₹ 1 per annum. After the expiry of lease period, the plot together with building would revert to MIDC. The assessee had to pay a sum of ₹ 12,09,200 as premium for acquiring leasehold rights. The question before the Hon ble High Court was as to whether the aforesaid premium paid was a revenue expenditure or capital expenditure. The Hon ble Court held that while paying a lump sum premium to MIDC, the assessee was in effect paying future rents payable by it periodically. The Hon ble High Court held that the expenditure was revenue in nature, as it merely facilitates the assessee s trading operations and the test of enduring benefit should not be applied. 35. The ld. DR relied on the order of the CIT(Appeals). 36. We have given a very careful consideration to the rival submissions. On the issue whether the payment for acquiring leasehold rights on the land on which windmills are erected could be treated as cost of plant on which depreciation can be allowed, we are of the view that the fact that the windmills need to be erected on a high terrain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble High Court which is in pari materia with the facts of the present case, we are of the view that the lump sum rent paid for the entire period of 30 years has to be considered as revenue expenditure. The CIT(A) wrongly distinguished this decision as a case of lease of factory building. We therefore accept the alternative prayer of the assessee. Thus, the relevant grounds of appeal in all the three assessment years are treated as allowed on the alternative ground. 21. The ld. DR, however, placed reliance on the decision of Hon'ble Delhi High Court in the case of GAIL India Ltd. v. JCIT, (2012) 27 taxman.com 97 (Del). In that case, the facts were that assessee took on lease land from municipality for 60 to 95 years. It paid heavy premium and nominal rent for lease. Assessee was entitled to transfer benefit of lease to another party with the previous consent of municipality. The assessee claimed premium paid by amortising it over the period of lease as revenue expenditure. The Hon'ble Delhi High Court concurred with the view of Tribunal that the said expenditure was capital expenditure. It was also submitted by the ld. DR that the Hon'ble Delhi High Court in the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 37(1) of the Act. 27. There is delay in filing the CO by the assessee and reasons for the same are identical as were stated in CO No.5/B/15 for A.Y. 2007-08. For the reasons given therein, we condone the delay in filing the CO. 28. As for the merits of the claim made by the revenue in ground No.3 and the claim made by the assessee in cross objections, we are of the view that since the entire lease rent has been allowed as revenue expenditure for the A.Y. 2008-09 treating it as advance payment of rent, assessee cannot claim depreciation on the very same amount treating it as part of the cost of the plant. The reasons in this regard are found in the order in ITA No.586/B/12 for A.Y. 2007-08. Following the decision rendered therein, we hold that the claim of depreciation on expenditure incurred for acquiring leasehold land does not arise for consideration in this assessment year. Consequently, the ground raised by the revenue is allowed, while the cross objection raised by the assessee is dismissed. 29. In the result, ITA No. 586/B/12 is dismissed, ITA No.481 is partly allowed, CO No.5/B/15 is allowed and CO No.6/B/15 is dismissed. Pronounced in the open court o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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