1) Tirumala Music Centre (P) Ltd vs. ACIT (ITAT Hyderabad)
S. 32(1)(ii): Any right (including leasehold rights) which enables carrying on business effectively and profitably is an “intangible asset” & eligible for depreciation
S. 32(1)(ii) allows depreciation on “business or commercial rights” The expression “business or commercial rights” means rights obtained for effectively carrying on business or commerce. Commerce is a wider term which encompasses business in its fold. Therefore, any right which is obtained for carrying on business effectively and profitably has to fall within the meaning of the term “intangible asset” (Kotak Forex Brokerage Ltd 33 SOT 237(Mum) & Smifs Securities Ltd 348 ITR 302 (SC) followed)
2) ITO vs. Shailesh D. Shah/ Yusuf R Tanwar vs. ITO (ITAT Mumbai)
S. 41(1): Liability outstanding for long period of time is assessable as income (despite no write-back in A/cs) if assessee unable to prove genuineness of liability
It is very improbable that payments to labour can remain outstanding for more than three years. The assessee has not been able to produce the records relating to the name, addresses and bills of the labour etc to prove that the liability continues to exist. It is accordingly a case of cessation of liability. The assessee has just continued the entry of the same in his books of account without any intention to pay back the same. The view that such sums shown as liability is assessable to tax is sanctioned by Chipsoft Technology 210 Taxman 173 (Del) (attached) where the view was taken that it would be illogical to say that a debtor or an employer, holding on to unpaid dues, should be given the benefit of his showing the amount as a liability, even though he would be entitled in law to say that a claim for its recovery is time barred, and continue to enjoy the amount. This view is not contrary to the view taken in Vardhaman Overseas Ltd 343 ITR 408 (Del) where the law was laid down that s. 41(1) does not apply if the amount of liability is not written back in the accounts. If both judgements are read in harmony, it can be observed that the assessee cannot be allowed to show an amount as a liability even though he has no intention to pay it back but to enjoy the same for an unlimited period without being added to his income only on the excuse that he has not written off the same in his books of accounts. However, if the facts of the case establish that the liability has been genuinely shown by the assessee and his subsequent conduct shows that he has paid back the said credits and his intention was not to enjoy the amount for unlimited period without any intention to pay back the same, then it cannot be said to be a case of cessation of liability. On facts, not only is the existence of outstanding liability of labour charges for so many years improbable in the normal course of business but the assessee has also failed to give any evidence regarding the identity & genuineness of the creditors. Accordingly it is a case of cessation of liability and s. 41(1) applies (Yusuf R. Tanwar vs. ITO followed (attached))
3) DCIT vs. Swarna Tollway Pvt. Ltd (ITAT Hyderabad)
S. 32: Road constructed on Build-Operate-Transfer (“BOT”) terms is eligible for depreciation even though assessee is not the legal owner of the road
Though the NHAI remains legal owner of the site with full powers to hold, dispose of and deal with the site consistent with the provisions of the agreement, the assessee had been granted not merely possession but also right to enjoyment of the site and NHAI was obliged to defend this right and the assessee has the power to exclude others. The very concept of depreciation suggests that the tax benefit on account of depreciation belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby loosing gradually investment cost by wear and tear and would need to replace the same by having lost its value fully over a period of time. The term “owned” as occurring in s. 32 (1) of the Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings, though a formal deed of title may not have been executed and registered (Mysore Minerals 239 ITR 775 (SC), Noida Toll Bridge 213 Taxman 333 etc referred)
4) ITO vs. Haresh Chand Agarwal HUF (ITAT Agra)
S. 147: Failure to compute capital gains u/s 50C does not lead to escapement of income
S. 50C is not a final determination to prove that it is a case of escapement of income. The report of the approved valuer may give estimated figure on the basis of facts of each case. Therefore, mere applicability of s. 50C would not disclose any escapement of income in the facts and circumstances of the case. The AO at the original assessment stage considered all the documents and material produced before him and has accepted the cost of property as was declared by the assessee. The reassessment is on change of opinion which is not justified.
5) Fibars Infratech Pvt. Ltd vs. ITO (ITAT Hyderabad)
S. 2(47)(v): A development agreement by which possession is transferred to developer is not a “transfer” for capital gains purposes if developer’s willingness to perform his part of the contract is not ascertainable with certainty
S. 2(47)(v) provides that the term ‘transfer‘ includes “any transaction involving the allowing of, the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act”. In order to be “of the nature referred to in s. 53A of the Transfer of Property Act”, the necessary precondition is that the transferee should be willing to perform his part of the contract. The “willingness” has to be absolute and unconditional. If willingness is studded with a condition, it is no more than an offer and cannot be termed as willingness. On facts, the “willingness” of the developer to perform his part of the obligations is not ascertainable in AY 2007-08 because (a) the consideration was not paid to the assessee, (b) the building plans had not been approved, (c) there was no progress with regard to development in the AY, (d) there was no investment by the developer in the construction activity during the AY. It is not possible to say whether the developer is prepared to carry out those parts of the agreement to their logical end. The fact that the assessee has given possession is not relevant. Consequently, s. 2(47)(v) does not apply and the capital gains is not assessable to tax (Chaturbhuj Dwarakadas Kapadia 260 ITR 491 (Bom) explained/ distinguished)
S. 32(1)(ii): Any right (including leasehold rights) which enables carrying on business effectively and profitably is an “intangible asset” & eligible for depreciation
S. 32(1)(ii) allows depreciation on “business or commercial rights” The expression “business or commercial rights” means rights obtained for effectively carrying on business or commerce. Commerce is a wider term which encompasses business in its fold. Therefore, any right which is obtained for carrying on business effectively and profitably has to fall within the meaning of the term “intangible asset” (Kotak Forex Brokerage Ltd 33 SOT 237(Mum) & Smifs Securities Ltd 348 ITR 302 (SC) followed)
2) ITO vs. Shailesh D. Shah/ Yusuf R Tanwar vs. ITO (ITAT Mumbai)
S. 41(1): Liability outstanding for long period of time is assessable as income (despite no write-back in A/cs) if assessee unable to prove genuineness of liability
It is very improbable that payments to labour can remain outstanding for more than three years. The assessee has not been able to produce the records relating to the name, addresses and bills of the labour etc to prove that the liability continues to exist. It is accordingly a case of cessation of liability. The assessee has just continued the entry of the same in his books of account without any intention to pay back the same. The view that such sums shown as liability is assessable to tax is sanctioned by Chipsoft Technology 210 Taxman 173 (Del) (attached) where the view was taken that it would be illogical to say that a debtor or an employer, holding on to unpaid dues, should be given the benefit of his showing the amount as a liability, even though he would be entitled in law to say that a claim for its recovery is time barred, and continue to enjoy the amount. This view is not contrary to the view taken in Vardhaman Overseas Ltd 343 ITR 408 (Del) where the law was laid down that s. 41(1) does not apply if the amount of liability is not written back in the accounts. If both judgements are read in harmony, it can be observed that the assessee cannot be allowed to show an amount as a liability even though he has no intention to pay it back but to enjoy the same for an unlimited period without being added to his income only on the excuse that he has not written off the same in his books of accounts. However, if the facts of the case establish that the liability has been genuinely shown by the assessee and his subsequent conduct shows that he has paid back the said credits and his intention was not to enjoy the amount for unlimited period without any intention to pay back the same, then it cannot be said to be a case of cessation of liability. On facts, not only is the existence of outstanding liability of labour charges for so many years improbable in the normal course of business but the assessee has also failed to give any evidence regarding the identity & genuineness of the creditors. Accordingly it is a case of cessation of liability and s. 41(1) applies (Yusuf R. Tanwar vs. ITO followed (attached))
3) DCIT vs. Swarna Tollway Pvt. Ltd (ITAT Hyderabad)
S. 32: Road constructed on Build-Operate-Transfer (“BOT”) terms is eligible for depreciation even though assessee is not the legal owner of the road
Though the NHAI remains legal owner of the site with full powers to hold, dispose of and deal with the site consistent with the provisions of the agreement, the assessee had been granted not merely possession but also right to enjoyment of the site and NHAI was obliged to defend this right and the assessee has the power to exclude others. The very concept of depreciation suggests that the tax benefit on account of depreciation belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby loosing gradually investment cost by wear and tear and would need to replace the same by having lost its value fully over a period of time. The term “owned” as occurring in s. 32 (1) of the Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings, though a formal deed of title may not have been executed and registered (Mysore Minerals 239 ITR 775 (SC), Noida Toll Bridge 213 Taxman 333 etc referred)
4) ITO vs. Haresh Chand Agarwal HUF (ITAT Agra)
S. 147: Failure to compute capital gains u/s 50C does not lead to escapement of income
S. 50C is not a final determination to prove that it is a case of escapement of income. The report of the approved valuer may give estimated figure on the basis of facts of each case. Therefore, mere applicability of s. 50C would not disclose any escapement of income in the facts and circumstances of the case. The AO at the original assessment stage considered all the documents and material produced before him and has accepted the cost of property as was declared by the assessee. The reassessment is on change of opinion which is not justified.
5) Fibars Infratech Pvt. Ltd vs. ITO (ITAT Hyderabad)
S. 2(47)(v): A development agreement by which possession is transferred to developer is not a “transfer” for capital gains purposes if developer’s willingness to perform his part of the contract is not ascertainable with certainty
S. 2(47)(v) provides that the term ‘transfer‘ includes “any transaction involving the allowing of, the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act”. In order to be “of the nature referred to in s. 53A of the Transfer of Property Act”, the necessary precondition is that the transferee should be willing to perform his part of the contract. The “willingness” has to be absolute and unconditional. If willingness is studded with a condition, it is no more than an offer and cannot be termed as willingness. On facts, the “willingness” of the developer to perform his part of the obligations is not ascertainable in AY 2007-08 because (a) the consideration was not paid to the assessee, (b) the building plans had not been approved, (c) there was no progress with regard to development in the AY, (d) there was no investment by the developer in the construction activity during the AY. It is not possible to say whether the developer is prepared to carry out those parts of the agreement to their logical end. The fact that the assessee has given possession is not relevant. Consequently, s. 2(47)(v) does not apply and the capital gains is not assessable to tax (Chaturbhuj Dwarakadas Kapadia 260 ITR 491 (Bom) explained/ distinguished)
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