TMI Blog2017 (5) TMI 1752X X X X Extracts X X X X X X X X Extracts X X X X ..... of any merits. Depreciation on lease hold right as eligible for depreciation as intangible asset - HELD THAT:- Transfer by way of lease is treated as transfer of a capital asset on the principle that the lease creates an interest in the land and therefore to that extent, it extinguishes the right of the transferor. If the facts of the present case are analysed in the context of the law laid down by the Hon ble Supreme Court and various sections of the Income Tax Act, we have no difficulty at all in holding that when the assessee transfers his leasehold rights in the land in his occupation by way of a lease to another person, it amounts to extinguishing his rights in the property and since his leasehold rights had created an interest in the land, i.e. , enjoyment and possession and therefore it would definitely come within the definition of capital asset as defined under section 2(14) of the income tax act. Since the assessee does not own the assets in its own case, the Assessing Officer disallowed the depreciation as claimed by the assessee. Once the right is extinguished by means of lease deed and shall be treated as transfer of a capital asset on the principle that the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for hearing. The ld. Counsel for the assessee did not object to the submissions of the ld. DR and therefore, we condone the delay of 12 days in filing the appeals and admit the appeals for hearing. 3. The first common issue raised in the appeals of the Revenue for the assessment years 2007-08, 2008-09, 2009-10 and 2010-11 is that the ld. CIT(A) has erred in allowing depreciation @ 10% on road laid by the assessee holding that the roads are of the nature of plant and machinery. For this purpose, we shall take the facts pertaining to the assessment year 2007-08. 4 Brief facts relevant to the case are that the assessee has claimed depreciation on roads at ₹.2,75,51,087/- being 15% of the written down value as laid down in the Income Tax Act. In view of the order passed under section 143(3) of the Act in assessee s own case for the assessment yea 2010-11, wherein, in view of the precedence and the issue being subjudiced before the Hon ble Madras High Court and assessee s claim for depreciation on roads was disallowed, the Assessing Officer disallowed the claim of depreciation for the year under consideration as well as other assessment years also. 5 The assessee carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous Appendices which prescribe the table of rates by which depreciation is admissible would show that the Appendix I which was applicable to the Asst. Year 1984-85 to 1987- 88 did not mention in the Notes that buildings include Roads, bridges, culverts, wells and tube wells. In the later Appendices which is applicable from Asst. Year 1988-89 to 2002-03 and 2003-04 and 2005-06 and the latest Appendix which is applicable for the Asst. Year 2006-07 containing the following Note:- Note: Building includes, roads, bridges, culverts, wells and tube wells. Therefore, it is absolutely clear that the Hon ble Supreme Court has held in the case of Indore Municipal Corporation that the buildings would not include roads because Appendix I did not clarify that roads would be included in the building. As pointed out, after the Asst. Year 1988-89 all the Appendices have the note that building would include roads. Therefore, in our view, the assessee would become entitled to depreciation on the road in the category of building. In these circumstances, we set aside the order of the CIT(Appeals) on this issue and direct the AO to allow depreciation on the road at the rate applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn of income to the effect of depreciation amount was added back to the total income of the assessee. 10. Before the ld. CIT(A), the assessee made following submissions: The assessee claimed depreciation at the rate of 25% on lease hold rights on land leased (20 years lease tenure) by SIPCOT. Section 32 of the IT Act, 1961 provides condition that the assessee should have owned wholly or partly the assets and should have used the assets for the purpose of the business to be eligible to claim depreciation as per the IT Act. Therefore, the AO held that the assessee was not entitled to claim depreciation on lease hold land. However, to bring to your kind attention, the assessee makes a humble submission that the assessee becomes the eligible owner of the leasehold land and be entitled to claim depreciation. The assessee has paid ₹ 20,50,000 per acre for 4.90 acres (being ₹ 1,00,45,000 during AY 2006-07)and has acquired .the leasehold rights which essentially qualifies for an allowable revenue expenditure over a period of time as enumerated under the law. Hence, the assessing officer's contention that the assessee is not the owner of the asset and not elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature being intangible asset acquired on or after 1.4 .1998 . As per Rule 5 of Income Tax Rules and Part B of depreciation table intangible asset is eligible for depreciation @ 25%. The appellant has submitted that the right to develop as evidenced by leasehold agreement is an intangible asset and is eligible for depreciation @ 25%. In this regard, the appellant has relied on the decision of the Hon'ble Supreme Court as mentioned above under para 6.2. 6.3.3 Respectfully following the decision of the apex court, the AO's disallowance of depreciation on SIPCOT leasehold right is deleted and the appellant's ground on this issue is allowed in Assessment Years 2007-08, 2008-09 2009-10. 11. On being aggrieved, the Revenue is in appeal before the Tribunal. By relying on the decision in the case of Cyber Park Development Construction Ltd. v. DCIT 71 taxmann.com 210 (Bangalore Trib), the ld. DR has submitted that the lease hold rights cannot be held as intangible asset as envisaged in section 32(2)(ii) of the Act and pleaded that the order of the ld. CIT(A) on this issue should reversed. On the other hand, the ld. Counsel for the assessee has strongly suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by himself alone would come within the meaning of capital asset . 14. In the case of R. Krishnamurthy R. Rajagopalan v. CIT 133 ITR 922 (Mad), a point arose before the Hon ble Jurisdictional High Court at the instance of the assessee as to whether transfer by way of a lease would amount to transfer of a capital asset ? In that case, the assessee was a body of individuals, who had purchased various extents of properties in the year 1966 for a stated consideration. Thereafter, the assessee, by an instrument dated 10. 09. 1970 styled as lease - cum - licence, granted a mining lease in favour of a company. A question arose whether such a transaction would amount to transferring a capital asset thereby attracting capital gains? The point argued by the assessee before the Court was that the transfer by way of lease must stand excluded from the transfer as defined under sub - section (47) of section 2 of the income tax act. A division bench of this Court negatived the point raised by the assessee. This court held that the right conferred on a lessee under a lease deed is a capital asset in the hands of the lessor. 15. Further in the case of Gasper v. CIT 117 ITR 581, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed by means of lease deed and shall be treated as transfer of a capital asset on the principle that the lease creates an interest in the land and therefore, the transfer of lease would amount to transfer of a capital asset, we are of the considered opinion that the assessee is eligible to claim depreciation on the asset get transferred by means of lease deed. In view of the above, the ground raised by the Revenue is dismissed. 18. The next ground raised in the appeals of the Revenue for the assessment years 2012-13 and 2013-14 is that the ld. CIT(A) has erred in directing to delete the disallowance made under section 14A of the Act. The Assessing Officer has observed that the investment portfolio of the assessee as on 31.03.2012 stands at an aggregate value of ₹.34,05,00,000/-. The assessee has not quantified the disallowance under section 14A r.w. Rule 8D. By applying the provisions of Rule 8D(ii) (iii), the Assessing Officer has determined the expenditure of administrative/managerial nature to the extent of ₹.97,11,917/- for the assessment year 2012-13 and ₹.17,02,500/- for the assessment year 2013-14 and made disallowances. 19 The assessee carried the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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