Chapter: Profits & Gains of Business or Profession

#CAPassion #DTCL #M17-017

Tamil Nadu Tourism Development Corp. Ltd. v. Dy. CIT (2014 - Mad. HC)

Issue: under which head of income is franchise fee received by an assessee in the tourism business, against special rights given to franchisees to undertake hotel business in assessee’s property, taxable?

Decision: HC held that such income is in nature of business income.

#CAPassion #DTCL #M17-018

CIT v. Henkel Spice India Ltd. ( 2015 - SC)

Issue: Interest income earned on share application money, deposited in a bank for a specified period, will it be taxable?

Facts: Co. issue IPO in AY 92-93. Shares allotted in AY 93-94. Those who were not allotted any share was paid with interest.
AO taxed the entire interest in AY 92-93, when IPO was issued and ignored allotment event held in AY 93-94.

The assessee contended interest would accrue only in AY 93-94, earlier than that money was only kept in trust of applicants.

HC said assessee contention is correct.

Decision: SC upheld HC decision, held that the interest income accrues to co. only in AY in which allotment is completed.

#CAPassion #DTCL #M17-019

CIT v. K and Co. (2014 - Del. HC)

Issue: Is interest income on margin money deposited with the bank for obtaining bank guarantee to carry on business, taxable as business income?

Decision: HC held that the interest income received on funds kept as margin money for obtaining the bank guarantee would be taxable under the head “PGBP”

#CAPassion #DTCL #M17-020

CIT v. TVS Motors Ltd. (2014 - Mad. HC)

Issue: Is the expenditure on replacement of dies and moulds, being parts of plant and machinery, deductible as current repairs?

Facts: TVS filed a return, further filed the revised return in which claimed deduction u/s 31 in respect of expenditure on replacement of dies and moulds.

AO rejected the claim on the ground that assessee had claimed depreciation in respect of such expenditure in earlier years.

Assessee contended that such moulds are not plant and machinery, but are attachments to make it function as per requirements of business (referring case of Super Spinning Mill Ltd. v. Asstt. CIT, 2013)

Decision: HC held that moulds and dies are not independent of plant and machinery but are parts of plant and machinery. Once the dies are worn out, they need to be replaced to make the machine in function. Thus, the assessee is eligible to claim such expenditure as deduction u/s 31.

#CAPassion #DTCL #M17-021

I.C.D.S. Ltd. v. CIT (2013 - SC)

Issue: Can depreciation on leased vehicles be denied to the lessor on the ground that the vehicles are registered in the name of the lessee and the lessor is not the actual user of the asset.

Facts: I.C.D.S. is an NBFC engaged in the business of leasing and hire purchase, purchased vehicles from manufacturers, leased out further to customers, physical possession transferred to lessee and lessee became registered owners of vehicles as per Motor vehicles Act, 1988. Lessor claimed depreciation.

AO disallowed depreciation on a ground that assessee had merely financed the purchase of these assets and was neither the owner nor the user of assets.

HC favored AO contention.

SC observed that sec 32 has twin requirements of “ownership” and “usage for business”
As far as usage is concerned, the asset must be used for business, it does not mandate actual usage by assessee itself.
As far as ownership is concerned, Motor Vehicle Act, 1988 creates a deeming legal fiction of ownership for that act only not of law in general.
In this case, lessor has a right to retain the legal title, he would be the owner of the asset in eyes of law.

Decision: SC held that assessee was entitled to claim depreciation in respect of vehicles leased out since it has satisfied both the requirements of sec. 32, viz, ownership & usage in the course of business.

CIT v BESE Yamuna Powers Ltd. (2013 - Del. HC)
What is the eligible rate of depreciation in respect of computer accessories and peripherals under Income Tax Act, 1949?
Note: what about UPS attached to a computer?
It will also be depreciated @ 60%
[CIT v. Orient Ceramics & Industries Ltd. 2013]
Held that computer accessories & peripherals form an integral part of a computer system and they cannot be used without the computer, they would be eligible for depreciation @ 60% applicable to computers including computer software.

Areva T and D India v. DCIT (2012 - Del. HC)
Whether business contracts, business information, etc., acquired by the assessee as part of slump sale and described as “goodwill” be classified as an intangible asset to be entitled to depreciation u/s 32(1)(ii)?
Assessee under a slump sale agreement purchased an ongoing business and treated part of consideration as “goodwill and claimed depreciation thereon

AO contended that assessee has failed to prove that such payment can be categorized under “other business or commercial rights of similar nature” to qualify for depreciation.

HC observed that principle of ejusdem generis provides that where there are general words following particular and specific words, the meaning of latter words shall be confined to things of the same kind.

Applying this principle in sec. 32(1)(ii), the legislature did not intend to provide depreciation on specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate.
Held that specified intangible assets acquired under slump sale agreement by the assessee are in the nature of intangible asset under the category “Other business or commercial rights of similar nature” specified in sec. 32(1)(ii).

CIT v. Smifs Securities Ltd. (2012 - SC)
Is the assessee entitle to depreciation on the value of goodwill considering it as an asset within the meaning of Exp. 3(b) to Sec. 32(1)?
Assessee paid excess consideration under amalgamation, which is treated as goodwill and claimed depreciation thereon.

AO contended that goodwill is not an asset falling under Exp. 3 to sec 32(1)

SC observed that such explanation states that ‘asset’ shall mean an intangible asset being know-how, patents, copyright, trademark, licenses, franchises or any other business or commercial rights of similar nature.
Held that Goodwill is an asset under Exp. 3(b) to sec. 32(1) and depreciation thereon is allowable under the said section.

Federal Bank Ltd. v. ACIT (2011 - Kerala HC)
Can EPABX and mobile phones be treated as computers to be entitled to higher depreciation @ 60%?

Held that EPABX and mobile phones are not computers and therefore, are not entitle to higher depreciation @ 60%.

CIT v. Smt. A. Sivakami and another (2010 - Mad. HC)
Would beneficial ownership of assets suffice for the claim of depreciation on such assets?
The assessee claimed depreciation on 3 buses. AO denied such claim on the ground that assessee was not the legal owner of the asset.

SC observed that having regard to the ground realities and object of the act, the owner is a person who is entitled to receive income from the property in his own right.
Since, in this case, the assessee had made available all the documents relating to the business and also established before the authorities that she is the beneficial owner, HC held that she was entitled to claim depreciation even though she was not the legal owner of the buses.

Gourav Kapoor
CA Passion


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