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TMI Blog2017 (3) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... of the original assessment proceedings had called for the justification from the Appellant as to why depreciation claimed on "Infrastructure Usage Facility" should be allowed to the Appellant and in consideration thereto the Appellant had duly made submission to the Ld. A.O. in the original assessment proceedings. Therefore, during the course of the assessment proceedings, the ld.AO had raised the query and received the reply from the Appellant and he had examined the claim of depreciation on "Infrastructure Usage Facility" and accordingly the Ld. AO accepted the claim of such depreciation after applying his mind and no disallowance of the same was made in the original assessment order. Therefore, the Ld. Pr. CIT has grossly erred in law in holding that the order passed by the Ld. A.O. was erroneous without appreciating the facts that the Ld. A.O. had framed his opinion by applying his mind and therefore revisions proceedings ought not to have invoked by the Pr. CIT to review the assessment order. (iv) The Ld. Pr. CIT has erred in law and on facts of the case in not appreciating the facts that since the inception of the Appellant Company i.e. A.Y. 2004-05 the depreciation had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejudice to the grounds raised here, Ld. Pr. CIT has grossly erred in setting aside the order of assessing officer by directing to the Assessing Officer to reframe the Assessment after conducting necessary inquiry, instead of merely issuing a direction limited to reframe only the appellant's claim of depreciation on infrastructure usage facility as intangible asset made and allowed in original assessment. (xii) Ld. Pr. CIT has erred in not considering various facts, submissions, explanations and clarifications as given by the appellant and further erred in not appreciating the facts and law in their proper perspective. 2. The facts of the case are the assessee is engaged in the business of Operating container handling terminal and container freight station operations. The various arising out of the scrutiny of accounts of the assessee during the course of assessment proceedings are discussed in the subsequent paras. 3. Thereafter, Assessing Officer issued a notice u/s.142(1) of the Income- tax Act was served to the assessee with following quarries: 1. Please show cause as to why the depreciation amount to Rs. 24,0174,149/- claimed on 'Infrastructure Usage facility' @25% shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act, 1961 alongwith evidences. 10. On perusal of the breakup of Interest and Finance Charges, it is found that 'Loan Agency Charges of Rs. 2,83,46,695/- has been debited in the profit and loss account. Please justify the allowability of the expenses alongwith documentary evidences. Also furnish the evidence in respect of TDS made thereon and deposited in the Govt. A/c.' 11. Please furnish the details of the Rent, Advertisement, Audit Fee, Interest and Legal & Professional, Consultancy Expenses strictly in the following format: Name of the party Nature of Payment Amout paid Date of Payment Amount of TDS made, if any. Challan No.& Date on which TDS deposited in to Govt. A/c. Reasons for non- deduction of tax at Source alongwith evidences. Please ensure that your submission is supported by proper evidences. Hearing of your case is fixed on 08/02/2013 at 12:00 PM. In the event of failure to furnish the aforesaid details, the case will be proceeded with as per the details available on record and no further opportunity of being heard would be provided. 4. In response to above said notice assessee furnished reply and same is reproduced hereunder: Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion here that during the course of assessment proceedings for A.Y. 2004- 05, the then DCIT, Circle-1, Ahmedabad on the basis of the material submitted along with all the evidences including the copy of agreement dtd.05/06/2003 with detailed submission and the case laws on the subject has been cited before the A.O. and on the basis of the material on record, the then Assessing Officer has completed the assessment u/s. 143(3) of the I.T. Act for the A.Y. 2004-05 and onwards and allowed the claim of depreciation on infrastructure usage facility. Further we submit that the said written down value of infrastructure usage facility is shown since A.Y.2005-06 on which the depreciation has been claimed. To simplify the matter, we are producing the definition of lease and, easement as defined under Transfer of Property Act. Lessee A lessee of a property has a right to possession and enjoyment of the devise to the exclusion of the lessor whereas a licensee does not have such a right. Since the appellant had the right to exclusive possession and enjoyment of the disputed property, he was a lessee and not a licensee; Ajab Singh vs. Shital Puri, AIR 1993 All 138. Lease (i) If the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omething" includes removal and appropriation by the dominant owner, for the beneficial enjoyment of the dominant heritage, of any part of the soil of the servient heritage or anything growing or subsisting thereon. Illustrations (a) A, as the owner of a certain house, has a right of way thither over his neighbour Bs land for purposes connected with the beneficial enjoyment of the house. This is an easement. (b) A, as the owner of a certain house, has the right to go on his neighbour Bs land, and to take water for the purposes of his household out of a spring therein. This is an easement. (c) A, as the owner of a certain house, has the right to conduct water from Bs stream to supply the fountains in the garden attached to the house. This is an easement. (d) A, as the owner of a certain house and farm, has the right to graze a certain number of his own cattle on Bs field, or to take, for the purpose of being used in the house, by himself, his family, guests, lodgers and servants, water or fish out of Cs tank, or timber out of Ds wood, or to use, for the purpose of manuring his land, the leaves which have fallen from the trees on Es land. These are easements. (e) A dedicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has shown the details reimbursement of expenses made, payment of interest on loan and Guarantee provided by its one of the Associated Enterprises. 6. On perusal of the Audit report in Form No.3CEB submitted by the assessee during the course of assessment proceedings, it is found that the assessee had entered into International Transactions of Rs. 96,87,18,312/-. Therefore, a reference was made to the Director of Income-Tax (Transfer Pricing), Ahmedabad vide letter dated 29.12.2011 for computation of Arm's Length Price in relation to International Transaction, detailed in Audit Report in Form No.3CEB. The Transfer Pricing Officer (TPO) after examining the submissions, details/information and evidences provided by the assessee during the course of proceedings before him, passed an order under section 92CA(3) of the Income-tax Act, 1961 dated 09.01.2013 after giving adequate opportunities of being heard to the assessee (Copy enclosed with this order as Annexure-A) The TPO vide his order dated 09- 01-2013 has worked out an upward adjustments of Rs. 3,93,98,016/- on account of payment of interest to its one of the Associate Enterprises. 7. Thereafter, a draft assessment order u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is a sort of Easement right. The Easement right is nothing but license given to the licensee to enter on another person's land with usage of infrastructure facility to carry out business activities. The assessee company has been given the right to carry out its terminal operation work. The view expressed is that such right is not similar to know how...... Franchises or any other business or commercial rights of similar nature. It is also observed that lease of premises are not covered. It is not denied that the assessee company is not the owner of infrastructure facility. In fact it is not the lessee also. It is the licensee. It has got the right to use and maintenance service of certain infrastructure facility as set out in the infrastructure usage agreement more particularly schedule I of the said agreement which includes: i. Use of dredged channel i.e. water front and the entrance channel and turning circle of the container terminal and alongside the berth at the container terminal as depicted in annexure - A. ii, Use of rails and road connectivity. iii. Use of water, electricity and telecommunication. iv. Marine and port facilities. v. Medical and educational fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not meant for the beneficial use of the shop but were meant exclusively for running of the hair dressing saloon, thus creating a lease of the business and not a lease of the shop; Vidya Wati v. Hansraj, AIR 1993 Del 187. Licence The Corporation had all the supervisory powers to regulate the running of the refreshment stall. No exclusive right was created in favour of the caterer to run the refreshment stall in the manner the caterer choose to do so. Since there is no transfer of interest in the stall and as per the terms of agreement, the document can be termed as licence only and not a lease, Udai Pratap Singh v. Collector Varanasi, AIR 1991 All 104. Lease defined - A lease of immoveable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. "Easement" defined. "Easement" defined-An easement is a right which the owner or occupier of certain land possesses, as such, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is only a license by way of easement given to it to carry on business of container terminal services and also other allied services, It is required to pay regular royalty of revenue nature also. Thus, it is nothing but a license which is in the nature of commercial right. The depreciation is claimed on the license i.e. right to use the infrastructure facility. It may be noted that licenses, franchisees, etc. are categorized as intangible assets under the block of assets. It goes without saying that when licenses granted, it is In respect of some property, i.e. owner of property grants the license to another. Thus, the property itself and the license are regarded as separate assets. It may be noted that the assessee himself is owner of the license and as such is claiming depreciation. This is not a case of lease but a case of license. We have already shown the difference between lease and licenses. It is nowhere stated while finalizing earlier assessment that assets are taken on lease. Further we submit that the assessee company is not claiming depreciation on infrastructure facilities as such. The depreciation being claimed on license. The category of license is brought in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;any other business or commercial rights of similar nature' same being akin to 'license' as stipulated in s. 32(l)(ii) and therefore, they are in the nature of intangible assets eligible for depreciation at the prescribed rate. - Held -Hydrocarbons In their natural habitat embedded in a particular territory are the property of the State Government, jurisdiction over such hydrocarbons does not lie with any private person other than State Government and a person cannot carry out hydrocarbons operations unless the person had entered into production sharing agreement with the Government. In the instant case, by entering into an agreement called PCA, the Government owning the hydrocarbons, granted rights to the assessee company alongwith license for carrying on hydrocarbons operations. The business rights in license are owned by the assessee entering into PCA and such right and license can be assigned and transferred to other parties subject to the terms and conditions of 20 per cent participating interest became the member of the consortium and acquired proportionate share in rights and license granted by the Russian State for Sakhalin Block. By acquiring these business ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of business of exploration and production of mineral oil. It also cannot be said that the right so acquired was not an asset. If it is an asset being the right then it is obvious that same is commercial right, therefore, in the nature of asset in the form of license. This right had been granted to the assessee by way of license and the assessee became owner of such right i.e. license to have an access and to carry on of business of exploration and development of mineral oil. Accordingly, such an asset falls within the category of asset falling under S. 32(l)(ii), The assessee had acquired business and commercial right and license by making payment of Rs. 1,559.10 crores, which is in the nature of intangible assets entitled to claim of depreciation under S. 32(l)(ii), In view of the above discussion assessee's claim for allowing deduction of entire expenditure of Rs. 1,559.10 crores is declined. The stand of CIT in treating the alleged expenditure as deferred revenue expenditure and directing the AO to allow l/19th of the expenditure during the year is also declined, since there is no concept of deferred revenue expenditure under I.T. Act. iv. Techno Shares & Stocks Ltd. vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department was that intangible assets like business and commercial brand equity are goodwill on which depreciation is not allowable. The Bombay High Court has followed the Supreme Court's ruling in the case of CIT, Kolkata vs. Smifs Securities Ltd. (2012) 24 taxmann.com 222 (SC) wherein it has been held as under: I. Section 32 of the income-tax Act, 1961 - Depreciation - Allowance/Rate of - Assessment year 2003-04 - Whether 'goodwill' is an asset under Explanation 3(b) to section 32(1) - Held, yes - II. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance /Rate of - Whether stock exchange membership card is an asset eligible for depreciation under section 32 - Held, yes iv. The Hon'ble ITAT, Mumbai in the case of Kotak Forex Brokerage Ltd Vs. ACIT, Range 3(2), Mumbai (2009) 33 SOT 237 has held as under: "Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of Assessment year 2001-02 - Whether section 32 allows depreciation on both tangible and intangible assets - Held, yes - Whether any right which is obtained by person/company for carrying on business effectively and profitably falls within meaning of intangible asset as provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully submitted that the Id. AO during the course of the assessment proceedings called for the justification from the assessee regarding allowability of depreciation of Rs,24,01,74,149/- on "infrastructure Usage facility" @ 25 % vide his SCN dated 01/02/2013, which were furnished by the assessee vide letter dated 22/02/2013 and once the Id. AO was satisfied with the claim of the assessee, the Id, AO did not disallow the same. The Hon'ble Gujarat High Court alongwith various other High Courts, time and again, in various cases, has held that once the assessing officer examines a certain claim of the assessee in the assessment proceedings, raises queries, receives replies, but thereafter makes no addition or disallowances, without giving reasons, it would not be permissible to revise / reopen the assessment, merely on the ground that the assessing officer has not applied his mind / framed his opinion regarding the examination / verification carried out by him in the assessment proceedings. Further the assessee in its submission has relied upon the following decisions: i) CIT v. Nirma Chemicals Works (P.) Ltd. [2009] 309 ITR 67 /182 Taxman 183; ii) Gujarat Power Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving reasons, it would not be permissible to assume jurisdiction u/s 263 of the Act to revise the assessment, merely on the ground that the assessing officer has not applied his mind / framed his opinion regarding the examination / verification carried out by him in the assessment proceedings. Therefore, in view of binding decisions of the Gujarat High Court, it is requested Your Honour to drop the revision proceedings. It is further submitted that since A.Y.2004-05 till A.Y.2011-12, the assessing officer in the respective assessment year has been allowing depreciation on "infrastructure usage facility" consciously. At this juncture, the assessee would like to submit that the notice u/s 148 of the Act was issued to reopen the assessment for A.Y.2007-08 on the ground that the right to use the infrastructure facility would not be the same as "intangible assets" as enumerated in S.32 of the Act and hence not eligible for depreciation. The said notice was challenged in Writ Petition before the Gujarat High Court on one of the amongst the grounds that on perusal of the assessment order, it could be seen that the then Id. AO had allowed depreciation on infrastructure usage facility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case there is no loss of revenue to the department and therefore the assessment order passed is not the prejudicial to the interest of revenue. A bare reading of Sec.263(1) makes it clear that the prerequisite to exercise of jurisdiction of the Commissioner under it is that the order of the AO must be found to be erroneous In so far as it is prejudicial to the interest of the Revenue. The Commissioner has to be satisfied with two conditions viz. (i) That the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interest of Revenue. If one of them is absent - the order of the AO is erroneous/ but is prejudicial to the Revenue or it is not erroneous but is prejudicial to Revenue - recourse cannot be had to Sec.263 of the Act. In this connection the observations of the Supreme Court in the case of Malabar Industrial Co. Ltd. v/s.CIT (243 ITR 83) are extremely relevant. In any case, it is most respectfully submitted that on merits also the Opening WDV cannot be disturbed to disallow the impugned depreciation. It is further submitted that it is admitted facts that the assessee had acquired such assets in the A.Y.2004- 05 and accordingly, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, viz., when a particular asset is sold, discarded or destroyed in the previous year (other than the previous year in which first brought in use). Even in that event, the amount by which the moneys payable in respect of that particular building, machinery, etc., together with the amount of scrap value is to be deducted from total written down value of the 'block asset'. Once we understand and appreciate this scheme contained in the aforesaid provisions, it is not possible to accept the contention of the learned counsel for the revenue that unless a particular asset is used for the purpose of business or provision, depreciation is not allowed. No doubt, as per section 32(1) of the Act, in order to be entitled to claim depreciation, the asset is to be owned by the assessee and it is also to be used for the purpose of business or profession. However, the expression "used for the purpose of business", when applied to block asset, would mean use of block asset and not any specific building, machinery, plant or furniture in the said block asset as individual assets have lost their identity after becoming inseparable part of the block asset. That is the only manner in which var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets should be owned, wholly or partly by the assessee and it should be used for the purposes of the business or profession. The assets in question here on which depreciation is claimed is "Infrastructure usage facility" on which the assessee has claimed depreciation at 25%. The infrastructure belongs to Mundra Port and Special Economic Zone who has separately claimed depreciation on the infrastructure. The infrastructure includes marine structures, dredging - CT, plant and machinery etc. It is the assessee's claim that the depreciation is not on the infrastructure but on the right to use the infrastructure, which according to it is an intangible asset. From the wordings of Section 32 which guides the allowance of depreciation, it is clear that though intangibles are entitled to depreciation, it is only specific intangibles like know-how patents, licenses etc. which are entitled to depreciation and they have to be owned by the assessee and also used by it. The assessee is on record that it does not own the infrastructure. The question then is whether the right to use the infrastructure constitutes intangible assets like know-how, patents, licenses or any other business or co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is not transferable per se and hence would lack the element of ownership. It can be seen that Easement in any case is not covered amongst the intangible assets mentioned in Section 32(1)(ii) not even in latter part of 32(1)(ii) - "or any other business or commercial rights of similar nature." Easement is not fitting into this component also since it would have to be of the same type as the earlier intangible, if it is to qualify as per Section 32. Thus, it can be seen that the assessee's claim for depreciation is related to an expenditure which did not lead to the ownership of any asset or led to the ownership of an asset which did not qualify for depreciation as per the provisions of Section 32 of the Income Tax Act. 11. And it was also observed by the Ld. Pr.CIT that the claim of depreciation on infrastructure usage facility has been made from the very first assessment year 2004-05 of the assessee existence and hence should not be distributed now. It was seen that for assessment year 2013-14 the claim has not been allowed in the order passed regularly. 12. On the other hand assessee highlighted several judgments CIT vs. Nirma Chemicals Works Pvt. Ltd. [2009] 309 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner under that section. The Pr./Commissioner can enhance or modify the assessment. He has also the power to cancel the assessment and direct fresh assessment. 18. In case of CIT Vs. Nirma Chemicals Works (P.) Ltd. [2009] 309 ITR 67/182 Taxmann 183, the Gujarat High Court, in context of the Commissioner's power to revise the decision of the Assessing Officer under section 263 of the Act, has rejected the contention of the revenue that simply because the assessment order was silent on a particular claim made by the assessee, it would mean that such order does not reflect any application of mind. It was observed that an assessment order cannot incorporate reasons for making or granting claim of deduction. Relevant extract of which is reproduced hereunder: "The contention on behalf of the revenue that the assessment order does not reflect any application of mind as to eligibility or otherwise under section 80-I of the Act requires to be noted to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome. The reasons are not far to seek. Firstly, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t authorities under the Act has to be exercised within the areas specifically delineated by the Act and the exercise of power under one provision cannot trench upon the powers available under another provision of the Act. In this regard, it must be specifically noticed that against an order of assessment, so far as the Revenue is concerned, the power conferred under the Act is to reopen the concluded assessment under Section 147 and/or to revise the assessment order under Section 263 of the Act. The scope of the power/jurisdiction under the different provisions of the Act would naturally be different. The power and jurisdiction of the Revenue to deal with a concluded assessment, therefore, must be understood in the context of the provisions of the relevant Sections noticed above. While doing so it must also be borne in mind that the legislature had not vested in the Revenue any specific power to question an order of assessment by means of an appeal. Reverting to the specific provisions of Section 263 of the Act what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the Revenue is the basic pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt on the fulfillment of any condition precedent. All that he is required to do before reaching his decision and not before commencing the enquiry, he must give the assessee an opportunity of being heard and make or cause to make such enquiry as he deems necessary. Those requirements have nothing to do with the jurisdiction of the Commissioner. They pertain to the region of natural justice. Breach of the principles of natural justice may affect the legality of the order made but that does not affect the jurisdiction of the Commissioner. At present we are not called upon to consider whether the order made by the Commissioner is vitiated because of the contravention of any of the principles of 2(1971) 82 ITR 824 natural justice. The scope of these appeals is very narrow. All that we have to see is whether before assuming jurisdiction the Commissioner was required to issue a notice and if he was so required what that notice should have contained? Our answer to that question has already been made dear. In our judgment no notice was required to be issued by the Commissioner before assuming jurisdiction to proceed under Section 33-B. Therefore the question what that notice should contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right has been given to the assessee company, which is a sort of Easement right. The Easement right is nothing but license given to the license to enter on another person's land with usage of infrastructure facility to carry out business activities. The assessee company has been given the right to carry out its terminal operation work. The view expressed is that such right is not similar to know how .... Franchises or any other business or commercial rights of similar nature. It is also observed that lease of premises are not covered. It is not denied that the assessee company is not the owner of infrastructure facility. In fact it is not the lessee also. It is the licensee. It has got the right to use and maintenance service of certain infrastructure facility as set out in the infrastructure usage agreement more particularly schedule I of the said agreement which includes. i. Use of dredged channel i.e. water front and the entrance channel and turning circle of the container terminal and alongside the berth at the container terminal as depicted in annexure - A. ii. Use of rails and road connectivity. iii. Use of water, electricity and telecommunication. iv. Marine and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. Recently the Bombay High Court in the case of Birla Global Assets Finance Co. Ltd. in ITA No. 6835 of 2010 held that business and commercial brand equity is an intangible assets and therefore, the depreciation claim on the same is allowable under section 32 of the I.T. Act, 1961. The contention of the department was that intangible assets like business and commercial brand equity are goodwill on which depreciation is not allowable. The Bombay High Court has followed the Supreme Court's ruling in the case of CIT, Kolkata vs. Smifs Securities Ltd. (2012) 24 taxmann.com 222(SC) wherein it has been held as under:- Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/Rate of- Assessment year 2003-04- Whether 'goodwill' is an asset under Explanation 3(b) to section 32(1)- Held, yes - 23. The claim of the assessee, depreciation on "Infrastructure usage facility" has been made from the Assessment Year 2004-05 of the assessee's existence and in our considered opinion same should not be distributed in view of the foregoing observation and respectfully following the decision of the Higher Courts, we allow the appeal of the assessee. 24. In the result, appeal of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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