TMI Blog2017 (1) TMI 1586X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of container trains on India Railways - as per assessee right to ply on Indian Railways is a "commercial right" and therefore depreciation @25% was claimed - Held that:- As Assessee has earned a benefit of enduring nature of plying on Indian Railway tracks for a period of 20 years , we do not have any hesitation to hold that it is a capital asset in the form of right to operate. It is a valuable commercial right available to the assessee for a considerable long period therefore we are of the view that the assessee has acquired a "commercial right‟ which is eligible for depreciation u/s 32(1)(ii) - Appeal of the assessee is allowed holding that the assessee has acquired intangible assets which is a valuable commercial right for ₹ 50 crores and same is eligible for depreciation u/s 32(1)(ii) of the Act Addition on assets retired from active use on account of obsolescence and condemnation - Held that:- As decided in assessee' own case as relying on CIT Vs. Yamaha Motor India Pvt. Ltd has considered an identical issue in [2009 (8) TMI 27 - DELHI HIGH COURT] as long as the machinery is available for use, though not actually used, it falls within the expression " used f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also not ascertained by the lower authority whether the claim of the assessee on depreciation can be considered u/s 32(1)(ii) of the Income Tax Act or not and this fact is not available on record we set aside this ground of appeal of the revenue back to the file of Assessing Officer with a direction to the assessee to furnish the complete details of the claim of the assessee clearly bringing out the facts whether it is a claim of the depreciation or whether it is a claim of the allowability of expenditure. Disallowance of depreciation at higher rate on computer peripherals @60% instead of 25% - Held that:- Now the issue is squarely cover in favour of the assessee by the decision of the Hon'ble Delhi High Court in case of CIT Vs. BSES Yamuna power Ltd (2010 (8) TMI 58 - DELHI HIGH COURT) depreciation @60% on account of computer peripherals is allowed. - ITA No. 1876/Del/2012, ITA No.2167/Del/2012 , ITA No.6377/Del/2012, ITA No.214/Del/2013 - - - Dated:- 19-1-2017 - SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER Assessee by : Sh. S Krishnan, Adv Revenue by: Mr. Deepika Mittal, CIT DR O R D E R PER PRASHANT MAHARISHI, A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 7,84,00.00 made by the AO on account of income from undelivered container. 6. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 4. We first take up the appeal of the assessee. The ground No. 1 of the appeal of the assessee is general in nature and therefore same is dismissed. 5. Ground No. 2 of the appeal of the assessee was against the confirmation of the disallowance of claim of deduction of ₹ 812083246/- u/s 80(IA) of the Act on Inland Container Depot and Container Freight stations which are claimed to be inland port‟. The brief facts are that the appellant is a govt company working under the Ministry of Railways and is engaged in the business of handling and transportation of container cargo. Its operating activities are mainly carried out at ICDS, CFS, and Port side container terminals (PSCT) across the country. Its wagons are running on Indian Railway tracks for container traffic and therefore, appellant claims that it is engaged in developing, operating and maintaining infrastructure facilities and income derived from these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time frame. In many countries the BOT (build-operate-transfer) or the BOOT (build-own-operate-transfer) concepts have been utilised for developing new infrastructure. 34.3 Applying commercial principles in the operation of infrastructure facilities can provide both managerial and financial efficiency. In view of this, a ten-year concession including a five-year tax holiday has been allowed for any enterprise which develops, maintains and operates any new infrastructure facility such as roads, highways, expressways, bridges, airports, ports and rail systems or any other public facility of similar nature as may be notified by the Board on BOT or BOOT or similar other basis (where there is an ultimate transfer of the facility to a Government or public authority). The enterprise has to enter into an agreement with the Central or State Government or a local authority or any other statu tory authority for this purpose. The period within which the infrastructure ture facility has to be transferred needs to be stipulated in the agreement between the undertaking and the Government concerned. The enter prise has to be owned by a company registered in India or a consortium of such companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays and inland ports play a vital role in improving a country's infrastructure. With the objective of improving the transport infrastructure, the Act has included inland waterways and inland ports in the definition of 'infrastructure facility' as given in section 80-IA. The undertakings engaged in the development of such infrastructure would be entitled to two-tier fiscal benefits as out lined above. (underlining ours) 10. Thus, it was for the first time from the assessment year 1999-2000 that inland ports started enjoying the deduction under section 80-IA as an infrastructure facility . The object of the Government was to strengthen and improve the country's infrastructure in general and the transport infrastructure in particular. Inland ports facilitate the transport infrastructure by taking care of the transport of the customs-cleared goods meant for export from the inland container depot to the sea-port and the imported goods directly from the sea-port to the inland container depot where they can be customs-cleared. When the entire section was recast by the Finance Act, 1999, with effect from April 1, 2000, and even after several amendments were thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a similar nature, other than what was mentioned as infrastructure facility. But an amendment was made and the power to notify was dropped. There was no provision made in the Act saying that the notification issued earlier would cease to have effect from April 1, 2002. Since the notification continued to have effect even beyond April 1, 2002, there is merit in the contention of the learned counsel for the assessee. Circular No. 7 of 2002, dated August 26, 2002, reported in [2002] 257 ITR (St.) 28 clarified as under : Such projects, for which agreements have been entered into on or after April 1, 1995, but on or before March 31, 2001, and which have been notified by the Board on or before March 31, 2001, would conti nue to be exempt, subject to the fulfilment of the conditions prescribed in section 80-IA(4)(i)(b), as it existed prior to its substitution by the Finance Act, 2001. This circular fortifies the assessee's claim. 14. The next question that arises is whether the inland container depots can be considered to be inland ports. There is no definition of an inland port in the Act. However, a port , which also qualifies for the deduction is defined in section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e direct access to them. The goods which are either removed from or brought into the inland container depots are brought or taken away either by railway wagons or by container trucks, as the case may be. But it is common ground that customs clearances take place in the inland container depots. 16. It is, therefore, for consideration as to whether the inland container depots can be said to be inland ports for the purposes of Explanation (d) below sub-section (4) of section 80-IA. We were not able to find a definition of the words inland port in any of the dictionaries. But the words inland container depot were introduced in section 2(12) of the Customs Act, 1962, which defines customs port . This was by way of an amendment made by the Finance Act, 1983, with effect from May 13, 1983. Simultaneously, clause (aa) was inserted in section 7(1) of the said Act under which the CBEC was empowered to issue notification appointing the places which alone shall be considered as inland container depots for the unloading of imported goods and the loading of exported goods. On April 24, 2007, the following clarification was issued by the Central Board of Excise and Customs apparently in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter has been examined in this Department and it is clarified that inland container depots/container freight stations are inland ports. The Central Board of Direct Taxes may accordingly take decision for the purpose of exemption of inland container depots/container freight stations of Concor or a private party under section 80-IA of Income-tax Act. (S. G. Sood) Under Secretary to the Govt. of India, Department of Revenue, (Shri Padam Singh, Under Secretary (ITA-I) Central Board of Direct Taxes, North Block, New Delhi. Fax : 23095417 18. It is significant to note that copies of both the aforesaid communications have been marked to the Central Board of Direct Taxes. The position, therefore, has been put beyond doubt by these communications. 19. The learned counsel for the assessee has drawn our attention to the definition of dry port as per Handbook on the Management and Operations of Dry Ports published by UNCTAD (Union Nations Conference on Trade and Development). In this handbook, an inland container depot has also been defined. The extracts from this book have been given at page 253 (annexure 15) of the paper book and the same is reproduced belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h before and after the above amendment, inland ports were specifically mentioned as an infrastructure facility in the statutory provision and in the understanding of the CBEC, which administers the Customs Act, an inland container depot was actually an inland port. There is also no dispute that even in 1983 amendments had been made to the Customs Act by treating the inland container depots as part of the customs port for purpose of customs formalities and clearances. In these circumstances, the real question was not whether the Central Board of Direct Taxes notified the inland container depot as an inland port but whether the inland container depot can be considered to be an inland port. In our opinion, having regard to the provisions of the Customs Act, the communications issued by the CBEC as well as the Ministry of Commerce and Industry, the object of including inland port as an infrastructure facility and also having regard to the fact that customs clearance also takes place in the inland container depot, the assessee's claim that the inland container depots are inland ports under Explanation (d) to section 80-IA(4) requires to be upheld. 22. The actual computation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights of similar nature is intangible assets‟ , therefore the right to ply on Indian Railways is a commercial right‟ and therefore depreciation @25% was claimed. The ld Assessing Officer disallowed the same holding that it is deferred revenue expenditure and not an intangible asset. On an appeal before the ld CIT(A), who confirmed the finding of the ld Assessing Officer and therefore the assessee is in appeal before us. 12. The ld Authorised Representative submitted that the assessee got above right vide policy statement stated 09.01.2006 issued by Ministry of Railways. That policy was framed to permit rail linking of Inland Container Depots . According to that at the time of submission of request the assessee was to deposit a non refundable registration fee of ₹ 50 crores for application for all routes. On that basis a modalities of granting new licenses were framed and the validity period fixed for 20 years with the right to transfer. Therefore, it was submitted by him that such a right is significant to the business of the assessee. He therefore submitted that without the authority of the above license the assessee could not have run its container on India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claims, business information, business records and assets which are invaluable for carrying on the business of the assessee. It was further held that the intangible assets were comparable to a license to carry on the existing business and in absence of such intangible assets it would have been difficult for the assessee to carry on its business. Therefore, it was held that such intangible assets are eligible for depreciation in terms of section 32(1)(ii) of the Act as under:- 12. In the present case, it is seen that the assessee, vide slump sale agreement dated June 30, 2004, acquired, as a going concern, the transmission and distribution business of the transferor company with effect from April 1, 2004. As a result thereof, the running business of transmission and distribution was acquired by the transferee lock, stock and barrel minus the trade mark of the transferor which was retained by the transferor, for lump sum consideration of ₹ 44.7 crores. It is further seen that the book value of the net tangible assets (assets minus liabilities) acquired was recorded in the balance-sheet of the transferor as on the date of transfer as ₹ 28.11 crores. The said assets and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 32(1)(ii) of the Act. It is seen that such rights need not answer the description of know-how, patents, trade marks, licences or franchises but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred to in section 32(1)(ii) of the Act preceding the term business or commercial rights of similar nature , it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words business or commercial rights of similar nature have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, Page 13 of 21 which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of business or commercial rights cannot be restricted to only the aforesaid six categories of assets, viz., know-how, patents, trade marks, copyrights, licences or franchises. The nature of business or commercial rights can be of the same g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired intangible assets which is a valuable commercial right for ₹ 50 crores and same is eligible for depreciation u/s 32(1)(ii) of the Act. In view of this ground No. 3 and 4 of the appeal of the assessee are allowed with above direction. 16. Now we come to the appeal of the revenue. 17. The first ground of appeal is against the addition deleted by ld CIT(A) of ₹ 636287/- on assets retired from active use on account of obsolescence and condemnation. 18. The brief facts of the issue is that the assessee has reduced from the gross block of plant and machinery the above sum stating that it was retired from active use. Therefore, the ld Assessing Officer disallowed the depreciation claimed on the above assets. On appeal before the ld CIT(A), he deleted the addition for the reason that the above issue was covered by the decision in earlier years. He allowed the claim following the decision of the Hon'ble Delhi High Court in case of CST Vs. Bharat Aluminium 187 Taxmann 111. 19. The ld Departmental Representative relied on the order of the AO. Whereas the ld AR submitted that the issue is now squarely covered in favour of the assessee by the decision of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has used the machinery for the purposes of the business in earlier years. It is not disputed in the facts of the present case, and as discussed above, that the machinery in question was in fact used in the previous year and depreciation was allowed on the block of assets in the previous years. Taking therefore a realistic approach and adopting a harmonious construction, we feel that the expression used for the purpose of the business as found in section 32 when used with respect to discarded machinery would mean that the user in the business is not in the relevant financial year/previous year but in the earlier financial years. Any other interpretation would lead to an incongruous situation because on the one hand the depreciation is allowed on discarded machinery after allowing, inter alia, an adjustment for scrap value, yet, on the other hand user would be required of the discarded machinery which use is not possible because of various reasons, viz., the age of the machinery, or that it has become obsolete as new technology has come in and so on. We thus hold that the discarded machinery may not be actually used in the relevant previous year as long as it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the AO and whereas the ld AR relied upon the order of the ld CIT(A) and also stated that the receipts and the claims are all disputed with litigation pending and claims have not attained finality and therefore, revenue cannot be recognized. 25. We have carefully considered the rival contentions and the facts are undisputed that the claims are unsettled as stated by the parties as the matter is pending before the Hon'ble Delhi High Court against the Arbitration Tribunal Award. In view of this the matter is still not attained finality and therefore the sums received by the assessee by invoking the bank guarantee cannot be taxed as an income. The ld DR could not controvert that the claims have not reached finality and in that circumstances how the order of the ld CIT(A) is erroneous. In view of this we do not find any infirmity in the order of the ld CIT(A) and dismiss ground No. 2 of the appeal of the revenue. 26. Ground No. 3 of the appeal of the revenue is against claim of the assessee of ₹ 5096729/- on account of annual amortization of expenditure on leasehold land. The annual accounts of the assessee shows that gross block of land and building consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as custom duty and only ₹ 10 crores has been recognized as income leaving aside ₹ 7.84 crores as current liabilities. Before the AO the assessee did not supply any reply on merit or have any explanation for allowability of the claim and therefore this addition was made. The ld CIT(A) deleted the above addition that the assessee has shown ₹ 2.54 crores under the head current liability‟ and is liable to refunded back to the customers and with respect to ₹ 5.30 crores he held that it is a custom duty which has been paid to the Govt. on various dates. 32. Ld DR submitted that as no information has been provided to the AO the ld CIT(A) has wrongly allowed the same. 33. The ld AR relied upon the order of the ld CIT(A). 34. We have carefully considered the rival contentions. The ld CIT(A) has deleted the addition holding that the assessee has paid custom duty on various dates at ₹ 2.54 crores is required to be refunded to the customers. However, the assessee has not provided any details before the ld Assessing Officer. It is also not clear whether the custom duty was paid during the year or was also outstanding at the end of the year. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for depreciation as an intangible asset u/s 32(1)(ii) of the Income Tax Act. Therefore we also hold accordingly in ground No. 2 and 3 of the appeal of the assessee. In the result ground No. 2 and 3 of the appeal of the assessee are allowed. 40. In the result appeal of the assessee is partly allowed. 41. Now we come to the appeal of the revenue for the AY 2009-10 42. The revenue has raised the following grounds of appeal in ITA No. 214/Del/2013 for Assessment Year 2009-10. 1. The Ld. CIT(A) has erred in law and on facts in deleting the addition amounting to ₹ 84,84,10,427/-made on account of disallowance of deduction claimed u/s 80IA on ICD's in the light of the old provision of Explanation inserted by Finance Act, 2000 w.e.f 1.4.2001 and CBDT Notification dated 1.9.98, the requirement of notification by the Custom Department treating the ICD as infrastructure facility was applicable only upto the assessment year 2002-03. Once the phrase 'any other facility of similar nature' has been taken away by the new Explanation substituted by Finance Act 2001 w.e.f. 1.4.2002, the ICDs are no more infrastructure facility for the purposes of deduction u/s 80 IA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts in deleting the addition amounting to ₹ 2,59,12,954/-made on account of disallowance of depreciation on land ignoring that land cannot be considered as a depreciable asset and no depreciation rates are prescribed as per I-T Act Rules. 7. The Ld. CIT(A) has erred in law and on facts in deleting the addition amounting to ₹ 26,14,345/-made on account of disallowance of extra depreciation claimed on computer peripherals ignoring the fact that as per the provisions of section 32 of the I-T Act computer peripherals are out of ambit of the term computer including computer software used exhaustively for the purpose of claiming depreciation @60% of block 6(i) of block of assets as specified in the Act. 43. The first ground of appeal is on the issue of claim of the assessee of ₹ 848410427/- u/s 80IA on ICDs and CFS. The above issue has been decided by us in favour of the assessee in ground No. 2 and 3 of the appeal of the revenue for AY 2008-09. We have held that assessee is eligible for deduction u/s 80IA on income derived from infrastructure facilities of ICDs and CFS. We also hold similarly for this year too. In the result ground No. 1 revenue is dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years without ascertaining the fact that of this year compared to the earlier year. He stated that depreciation on land is not allowable. 51. The ld AR relied upon the order of the ld CIT(A) and as well as submitted that the issue is now squarely covered by the Hon'ble Delhi High Court in case of CIT Vs. Indian Railway Finance Corporation Ltd. dated 27/07/2011. He referred to para 19 of that decision. 52. We have carefully considered the rival contentions and also noted the para extracted by ld CIT(A) in para No. 7.1 of his order of AY 2004-05. The ld Assessing Officer has followed the decision of Hon‟ble Bombay High Court in case CIT Vs. Indian Oil Corporation wherein premium paid on leasehold land is disallowed and also it was held that such premium said cannot be included in the cost of the building constructed thereon. The ld CIT(A) followed his own decision for AY 2004-05 which was in respect of amortization of leasehold land and it is not the issue of deprecation on leasehold land. The decision of Hon'ble Delhi High Court relied upon by the ld AR also do not apply to the facts of the case because that decision also do not apply to the leasehold land. We ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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