FULL TEXT OF THE ITAT JUDGEMENT
Challenging the order dated 21/03/2017 in appeal No. 40/15-16 passed by the learned Commissioner of Income Tax (Appeals)-2, New Delhi (“Ld. CIT(A)”), for assessment year 2012-13, in the case of M/s. Central Warehousing Corporation(“the assessee”), Revenue preferred this appeal. The assessee has also filed cross-objections on the ground that provisions of section 115JB are not attracted in the case of assessee, as the assessee is not covered by Companies Act.
2. Brief facts of the case are that the assessee Corporation is an Authority constituted under the law for marketing of agricultural produce and derives bulk of its income from the letting out of godowns or warehouse for storage and processing the marketing of commodities etc. For the assessment year 2012-13, they have filed return of income on 28/09/2012 declaring normal income at Rs.2,06,15,25,500/- and book profit of 1,74,80,38,493/- under section 115JB(MAT) of the Income-tax Act, 1962 (“the Act”). Subsequently, the assessee filed a revised return of income on 29.03.2014 declaring income under normal provisions amounting to Rs.2,04,12,37,520/- and book profit at Rs.74,80,38,493/-. Assessment u/s. 143(3) of the Act was complete at Rs.2,08,50,46,500/- by making an addition of Rs.1,95,32,194/- on account of cost of Dunnage, Rs.92,76,786/- on account of registration fee paid to Indian Railways and Rs.1,50,00,000/- by disallowing the expenditure on CSR.
3. Aggrieved by such additions, the assessee preferred appeal before the CIT(A) and argued that the assessee has been using two types of Dunnages, i.e., special Dunnage for the purpose of preventing the storage from floor seepage, which has longer life and the other one ordinary Dunnage which has shorter life. It was further submitted before the ld. CIT(A) that the ordinary Dunnage gets worn out after a single use whereas the special Dunnage is of longer life. The assessee submitted that the expenditure for special Dunnage was shown under the head ‘capital asset’ and the assessee has claimed depreciation thereon whereas in respect of expenditure for ordinary Dunnage, they have debited the same to the profit and loss account and claimed it as revenue expenditure.
4. The ld. CIT(A) considered the fact that the said contention of the assessee found favour with by the CIT(A) in the earlier years 2006-07 and 2009-10 and a finding was returned that the expenditure on the ordinary Dunnage is in the nature of revenue expenditure and should be allowed accordingly u/s. 37(1) of the Act, considering the life expectancy, the level of efficiency and use of material for such Dunnage. The ld. CIT(A), therefore, accepted the contention of the assessee and deleted the addition of Rs.1,95,32,194/-.
5. In respect of disallowance of Rs.92,76,786/-, the claim for depreciation on the license/registration fee paid to Indian Railways, it is the finding of the ld. CIT(A) that the assessee had deposited the amount of Rs.50 crores as license/registration fee to the Government of India, Ministry of Railways for running container trains and the assessee claimed depreciation @25% amounting to Rs.3,52,31,426/- treating the said fee as intangible asset whereas the Assessing Officer was of the view that the expenditure was required to be amortized over the period of 20 years and on that premise, the Assessing Officer allowed only Rs. 2.50 crores being 1/20th of Rs.50 crores and added the balance amount of Rs.92,76,786/- to the income of the
6. The ld. CIT(A) considered the fact that an identical issue had arisen in the case of ONGC Videsh Limited in ITA No. 472/Del/2008 and 546/Del/2008, wherein the Tribunal held that license/registration fee paid is a commercial right and in the nature of an asset within the meaning of section 32(1)(ii) of the Act and the assessee is entitled to claim depreciation thereon. The ld. CIT(A), therefore, following the reasoning in the decision of the Tribunal allowed the claim of the assessee and directed to delete the disallowance. Challenging the said two deletions, the Revenue preferred this appeal; whereas contending that the provisions of section 115JB are not attracted to the asessee’s case, inasmuch as the assessee is not covered by the Companies Act and his balance sheet is drawn according to the rules framed under Warehousing Corporation Act, 1962, the assessee preferred the cross objections.
7. The ld. DR submitted that on perusal of the records submitted by the assessee, the Assessing Officer felt that the assessee had adopted their own method of accounting and such method is arbitrary and without any basis. As rightly held by the Assessing Officer, both the Dunnage are capital assets and expenditure debited by the assessee in the profit and loss account on investment in ordinary Dunnage are of capital nature and therefore, cannot be allowed as Revenue expenditure.
8. So also, it is the submission of the ld. DR that even though the amount of Rs.50 crores was paid towards license/registration fee, such benefits under the license/registration fee are likely to be accrued during the period of 20 years and therefore, it has to be treated as deferred revenue expenditure in the books of the assessee. Since the benefit under the license feel is for a determined period of 20 years, the assessee should have claimed deduction of such Rs.50 crores over a period of 20 years @ 2.5 crores per year and therefore, the excess amount claimed by the assessee was rightly disallowed by the Assessing Officer.
9. Per contra, the ld. AR contended that it was submitted before the Assessing Officer that the assessee corporation has been using two types of Dunnages – ordinary Dunnage and special Dunnage and there is perceptible difference in the basic ingredient, life expectancy and the nature of these two types of Dunnages. The ordinary Dunnage once used cannot be re-used whereas the special Dunnage is high efficiency flooring Dunnage wherein jute impregnated with coal tar and poly film is used as Dunnage to prevent the floor seepage having its life expectancy of over five years. The practice of the assessee has been that there is capitalization of expenditure for special Dunnage whereas debiting the expenditure for ordinary Dunnage to the profit and loss account and claimed the same to be revenue expenditure. For the earlier years also, the first appellate authority gave relief to the assessee on this count, which the ld. CIT(A) followed in this case and therefore, there is no perversity in the findings returned by the ld. CIT(A).
10. He further submitted that it is settled principle of law that license/registration fee paid to acquire the right to run the business is a commercial right to carry on the business of the assessee and therefore, it falls within the meaning of asset u/s. 32(1)(ii) of the Act whereon the assessee is entitled to claim depreciation. Since the ld. CIT(A) followed the decision of the Tribunal on these two aspects, the ld. AR submits that there is no perversity in the findings of the ld. CIT(A) and the same cannot be
11. We have perused the record in the light of submissions made on either side. At the outset, there is no dispute that the assessee has been using two types of Dunnage, though for the same purpose, but with two different life times, namely, the special Dunnage having life time of more than five years, whereas the ordinary Dunnage has to be used only for one year and un-usable thereafter. It is also not in dispute that the assessee has capitalized the expenditure on the special Dunnage in their accounts and has been claiming depreciation @ 16% per annum over the useful period and on the same analogy in respect of ordinary Dunnage, they are treating the expenditure for one year and debiting the same to the profit and loss account to claim it as revenue expenditure. It is also not in dispute that the Revenue has been accepting the capitalization of special Dunnage and allowing depreciation @ 16% per annum over the period of life expectancy of such Dunnage.
12. Having regard to this fact that the life expectancy is taken as the determining factor for the separate treatment to the Dunnage, we do not find any illegality or irregularity in the view taken by the ld. CIT(A) that because of the single use within a year in respect of ordinary Dunnage, the expenditure thereon has to be taken as revenue expenditure and no addition on that score could be made. This finding of the ld. CIT(A) cannot be said to be illegal or irregular or perverse. We, therefore, find the ground No. 1 of appeal of the Revenue as devoid of merits.
13. Now coming to the depreciation in respect of license/registration fee paid to Indian Railways, the ld. CIT(A) based his finding on the observations of the Tribunal in the case of ONGC Videsh Ltd. (supra) wherein it was held that the right granted to the assessee by way of license whereunder the assessee had become owner of such right, such license enables the assessee to have an access to carry on their business and therefore, it falls within the category of an asset u/s. 32(1)(ii) of the Act. No decision is brought to our notice to the contrary to take a different view. We, therefore, while agreeing with the ld. CIT(A), find that the claim of depreciation in respect of license/ registration fee paid by the assessee to the Indian Railways is an asset whereon depreciation u/s. 32(1) is allowable. We, therefore, dismiss ground No. 2.
14. Now coming to the cross objections of the assessee, it was the submission of the ld. Counsel that if the order of the ld. CIT(A) is upheld, the grounds of cross-objections need not be considered since it would only be academic in nature. Considering the same, we dismiss the grounds of cross objection of the assessee.
15. In the result, both the appeal of the assessee and cross objections of the assessee are dismissed.
Order pronounced in the open court on 12th February, 2020.