TMI Blog2017 (4) TMI 1370X X X X Extracts X X X X X X X X Extracts X X X X ..... granted, then, no separate claim by way of depreciation in respect of such assets can be allowed in the same or any other year. In fact, this is the view point canvassed by the Assessing Officer in disallowing the claim of depreciation. However, it is important to note that sub-section (6) has been inserted to section 11 w.e.f. 01.04.2015. The Hon'ble Delhi High Court in DIT (E) vs. Indraprastha Cancer Society (2014 (11) TMI 733 - DELHI HIGH COURT) has held that insertion of sub- section (6) to section 11 is prospective and, hence, no disallowance on account of depreciation can be made in years prior to the assessment year 2015-16. Also been brought to our notice that though the assets were acquired by the assessee company in an earlier year, but, the disallowance on account of depreciation was never made in the past. It was also stated that the assessments for the assessment years 2004-05 to 2007-08 were reopened but the ld. CIT(A) quashed the reopening. The ld. AR submitted that the quashing of reassessment by the ld. CIT(A) has been accepted by the Revenue and no further appeal was filed to the Tribunal. This contention has not been controverted by the ld. DR. This shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh loan amounting to ₹ 32.78 crore during the year which was utilised for specific business purpose, namely, acquisition of fixed assets. As against the interest free loans amounting to ₹ 24.19 crore given by the assessee to its subsidiary companies without charging any interest, the assessee had its own share capital with reserves standing at a whopping sum of ₹ 188.89 crore. Section 36(1)(iii) provides for deduction of interest of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. The essence of this provision is that the interest should be allowed so long as the capital borrowed, on which such interest is paid, is used for the purpose of business or profession. If, however, an assessee is having its own interest free surplus funds and such funds are utilised as interest free advances even for a non-business purpose, there cannot be any disallowance of interest paid on interest bearing loans. The Hon'ble Bombay High Court in CIT vs. Reliance Utilities and Power Ltd. (2001) 313 ITR 340 (Bom), has held that where an assessee possessed sufficient interest free funds of its own which were generated in the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was utilized for the purpose of fixed assets in terms of the balance-sheet as on March 31, 1999, is fallacious. In upholding the order of the Tribunal, the Hon ble High Court held that : If there be interest free funds available to an assessee sufficient to meet its investment and at the same time the assessee had raised a loan, it can be presumed that the investments were from the interest free funds available . Thereafter, the judgment of the Hon ble Supreme Court in the case of East India Pharmaceutical Works Ltd. Vs. CIT (1997) 224 ITR 627 (SC) and also the judgment of the Hon ble Calcutta High Court in Woolcombers of India Ltd. Vs. CIT (1981) 134 ITR 219 (Cal) were considered. It was finally concluded that : The principle, therefore, would be that if there are funds available both interest free and overdraft and/or loans taken, then a presumption would arise that the investments would be out of interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investment . Consequently the interest was held to be deductible in full. From the above judgment, it is manifest that there can be no presumption that the shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Centre Ltd. Upon such conversion, the assets of the erstwhile Chandigarh and Delhi societies came to be considered as the assets of the assessee company. The assessee claimed depreciation, inter alia, on the assets acquired from Delhi Society. The Assessing Officer opined that since full deduction of the cost of these assets was allowed as application of income u/s 11 of the Act, the written down value of this asset in the hands of the society was only a notional book value. The Assessing Officer canvassed a view that by taking over of the assets and liabilities of the Society on the book value of these assets, an artificial enhanced value of these assets was shown by the assessee company on which the depreciation could not be allowed. The ld. CIT(A) overturned the assessment order on this point. The Revenue is in appeal on this issue. 9. We have heard the rival submissions and perused the relevant material on record. The view point of the Assessing Officer is that the actual written down value of the assets in the hands of the Society was not the book value assigned to it. The book value was only a notional or artificial value and the real cost was actually Nil because the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also considering amendment to section 11(6), has more binding force. As the assessment year before us is 2008-09, the ratio of the decision in the Indraprastha Cancer Society (supra) would apply enabling the assessee to claim depreciation on such assets. 13. It has also been brought to our notice that though the assets were acquired by the assessee company in an earlier year, but, the disallowance on account of depreciation was never made in the past. It was also stated that the assessments for the assessment years 2004-05 to 2007-08 were reopened but the ld. CIT(A) quashed the reopening. The ld. AR submitted that the quashing of reassessment by the ld. CIT(A) has been accepted by the Revenue and no further appeal was filed to the Tribunal. This contention has not been controverted by the ld. DR. This shows that such depreciation has been allowed to the assessee in all earlier years. 14. The ld. DR relied on certain orders of the Chennai and Cochin tribunal to buttress his point of view of not allowing depreciation on assets whose cost was allowed u/s 11. These decisions will not support the case of the Revenue in view of the direct judgment of the Hon ble jurisdictional Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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