In Mahanadi Coalfields Ltd vs Deputy Commissioner of Income Tax, the Cuttack bench of the Income Tax Appellate Tribunal (ITAT) recently ruled that lease-hold rights being intangible assets are not eligible for depreciation under section 32(1)(ii) of the Income Tax Act 1961.
The assessee in the instant case, is a Government of India Enterprises and engaged in the exploration, prospecting, development, and administration of collieries & production of coal and filed its return of income for the relevant assessment year and declared total income at Rs.275926.69 lakhs. During the financial year, the Assessee claimed depreciation on premium paid for leasehold land as intangible assets.
During the course of assessment proceedings, the Assessing Officer (AO) noticed that the Assessee-Company acquired the said land from the Government for exploration of coal out of the designated allotment of land. He also noticed that in the preceding year, such a claim has been disallowed by the CIT(A) and the Tribunal.
Before the AO, the Assessee submitted that the amount paid for the leased land are the commercial assets of the company and the price paid is actually for the purchase of a mining right which is a capital expenditure. However, the AO refused to accept the contention of the Assessee and disallowed the claim of the Assessee.
On appeal, the CIT(A) also rejected the claim of the Assessee and upheld the decision of the AO by referring the preceding order passed by the Tribunal in the Assessee’s own case. Aggrieved by the order of the authority the Assessee carried the matter before the Tribunal on further appeal.
After analyzing the above narrated facts and circumstances deeply the Tribunal bench comprising of Judicial Member Pavan Kumar Gadale and Accountant Member N.S Saini jointly upheld the orders of the lower authorities and held that leasehold rights are not eligible for depreciation under section 32(1)(ii) of the Act considering it as an intangible asset.
The division bench further observed that the depreciation under section 32 is restricted to the tangible/intangible assets which are specifically enumerated therein and depreciation is not allowable on all tangible/intangible assets. The tenancy rights cannot be construed as intangible assets falling within the meaning and explanation of section 32(1) and, therefore, there is no question of allowing depreciation on said rights. While dismissing the appeal filed by the Assessee the bench further held that the depreciation is not allowable under section 32(1)(iii) of the Act in respect of intangible assets.
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