TMI Blog2022 (10) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... the first year has been allowed. Hence, there is merit in the above said contention of the assessee. There should not be any dispute that the identity and character of the asset, which has entered into the block of asset, would be lost. In the instant case also, the TDS liability borne by the assessee on the premium amount, after it is thrown into the common hotchpotch of block asset in AY 2013-14 has lost its identity and become an inseparable part of block asset insofar as calculation of depreciation is concerned. Hence the AO could not have disallowed the depreciation claim as made in the first year. We notice that the AO has not enquired on the developments subsequent to the entering of agreement, which compelled the assessee to bear the TDS liability, which in the normal course would be deducted from the amount payable to the payee. Be that as it may, once the assessee has borne the liability of withholding tax, as per the ratio laid down by the Hon ble Madras High Court [ 1998 (11) TMI 49 - MADRAS HIGH COURT] the same would acquire the character of cost in the hands of the assessee and the same would go to increase the cost of asset. Once the cost of asset is increased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts relating to the issue are stated in brief. The assessee company is engaged in the business of manufacture and sale of large diameter carbon steel line pipes required for high pressure transmission application for gas, crude oil, petrochemical products and portable water. The assessee had borrowed funds by issuing Foreign Currency Convertible Bonds (FCCB) during the financial year 2012-13. The same was issued at a premium and the total amount of premium paid Rs. 112.05 crores. The assessee was required to deduct TDS @ 10% from the above said payment. The assessee borne the TDS liability (also called as withholding tax ). Accordingly the total premium paid by the assessee worked out to Rs. 124.45 crores, out of which the assessee claimed a sum of Rs.100.78 crores as revenue expenditure and capitalised the balance amount of Rs. 23.66 crores. The computation in this regard has been tabulated in the assessment order as under :- Particulars Amount (Rs.) Premium paid 1,12,05,07,097 10% WHT 12,40,33,655 Total Premium claimed 1,24,45,40, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractual agreement. He further held that, it has been paid by the assessee only as statutory liability on behalf of the bond holder as per the provisions of section 195A of the Act. He also expressed the view that the bond holder may also claim credit for the withholding tax as per the provisions of DTAA. Accordingly he confirmed the disallowance of depreciation made by the Assessing Officer in all the three years under consideration. 6. The learned AR submitted that the Assessing Officer has made an identical disallowance of depreciation on withholding tax borne by the assessee in A.Y. 2013-14. He submitted that the Tribunal, vide its order dated 25.11.2021 passed in ITA No. 7530/Mum/2019, has deleted the disallowance by following the decision of Hon'ble Madras High Court in case of Standard Polygraph Machines (P) Ltd. (supra). He further submitted that the depreciation claimed during the years under consideration relate to the second year, third year and fifth year of claim after acquisition of asset. He submitted that, under block concept of depreciation, the eligibility of the assessee to claim depreciation has to be examined in the year in which concerned assets entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the credit of the payee, who can adjust the same against his tax liability. In the instant case, since the assessee has borne the TDS deductible on the amount of premium payable on FCCD, the same would become additional cost to the assessee. Hence it will go to increase the premium payable on FCCB. The assessee has capitalized a portion of premium amount, which included the above said amount of Rs.12.40 crores. The amount was capitalized by the assessee in the year relevant to AY 2013-14 and it also claimed depreciation thereon, which was disallowed by the assessing officer in AY 2013-14. The Ld CIT(A), however, deleted the disallowance and hence the revenue filed appeal before the Tribunal in that year. As stated by Ld A.R, the ITAT has confirmed the order passed by Ld CIT(A), vide its order dated 25.11.2021 passed in ITA No.7530/Mum/2019, with the following observations:- 98. The issue raised in the 6th ground of appeal is against the deletion of addition of Rs.1,68,96,638/- by CIT(A) as made by the AO on account of Depreciation of claimed on account of premium. 99. During the course of Assessment Proceeding the A.O. observed that the assessee has made excess payment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld the order of ld. CIT(A) by dismissing the ground no.6 of the Revenue's appeal. Thus, we notice that the claim of depreciation has been allowed in the first year of claim. 10. Under these facts, it is contention of the assessee that the AO could not have disallowed in the subsequent years, since the depreciation has been allowed in the first year. We notice that the above said proposition of the assessee finds support from the decision rendered by Ahmedabad bench of ITAT in the case of Bodal Chemicals Ltd (supra), wherein it was held that the revenue, once allowed the deduction for the depreciation claimed by the assessee, then it is debarred to reject the claim of the assessee in the subsequent year on the WDV carried forward from the earlier assessment year. Though the AO had disallowed the claim of depreciation made in AY 2013-14, being the first year of claim, the same was deleted by Ld CIT(A) and the ITAT. As such the claim of depreciation made in the first year has been allowed. Hence, there is merit in the above said contention of the assessee. 11. In our view, the issue before us can be looked at from another angle also. There should not be any dispute that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed the depreciation claim as made in the first year. 12. On merits, we notice that the co-ordinate bench has already taken the view that the TDS liability (withholding tax) on the premium payable on FCCB and borne by the assessee, would go to increase the cost of asset and accordingly depreciation is allowable thereon. In this regard, the co-ordinate bench has followed the decision rendered by Hon ble Madras High Court in the case of Standard Polygraph Machines (P) Ltd (supra). In the above said decision, the Hon ble Madras High Court held that the TDS liability borne by the assessee shall form part of the consideration. The decision rendered by Hon ble Madras High Court is extracted below:- 2. The assessment year is 1981-82. The assessee claimed that the amount of income-tax paid by the assessee in respect of the consideration paid by the assessee to the foreign collaborator should also form part of the actual cost of the plant and machinery on which depreciation and investment allowance should be allowed. That claim was accepted by the ITO, but negatived by the Commissioner in suo motu revision under section 263 of the Income-tax Act, 1961. The Tribunal has held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee to bear the withholding tax (TDS liability). Accordingly, the tax authorities have taken the view that the capitalized value of withholding tax borne by the assessee is not eligible for depreciation. 14. We are unable to agree with the rationale given by the tax authorities. It may be true that the assessee, as per the written agreement, was liable to bear the withholding tax liability, if it exceeds 10% of the premium amount. However, as submitted by Ld A.R, the fact would remain that the assessee has ultimately borne the liability of withholding tax of 10% also. Here, the question before us is not on the correctness or otherwise of the action of the assessee in bearing the TDS liability on its own account. We notice that the AO has not enquired on the developments subsequent to the entering of agreement, which compelled the assessee to bear the TDS liability, which in the normal course would be deducted from the amount payable to the payee. Be that as it may, once the assessee has borne the liability of withholding tax, as per the ratio laid down by the Hon ble Madras High Court, the same would acquire the character of cost in the hands of the assessee and the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
