Mahindra Holidays & Resorts Ltd Vs DCIT (LTU) (ITAT Chennai)
ITAT Chennai held that depreciation towards payment as non-compete fee for purpose of business of assessee is duly allowable.
Facts- The assessment of the assessee was reopened u/s 147 of the Act. Two reasons for reopening were (1) Excess claim of depreciation for 15% on Electrical Fitting Capitalized, instead of 10%, (2) Treating of non-compete fee as an intangible asset and claimed depreciation @25%.
Objections of the assessee were considered by the AO but have not accepted, finally the proposed disallowances were confirmed for Rs. 23,88,822/- and Rs. 50,00,000/-towards Excess claim of depreciation on Electrical Fitting by 5% and Depreciation @25% on non-compete fee, respectively.
Aggrieved by the order of AO u/s 143(3) r.w.s. 147 of the Act, assessee preferred an appeal before the Ld CIT(A), but no success. Now, the assessee being aggrieved with the order of Ld CIT(A), is in appeal before us.
Conclusion- We therefore are of the considered opinion that assessee’s contention that the electrical installation should be considered as Plant is fortified by the judgment of Hon’ble Jurisdictional High Court in the case of Geetha hotel Pvt Ltd.
The Hon’ble jurisdictional High Court of Madras in the case of Carborandum Universal Ltd. has held that where assessee made payment as non-compete fee for purpose of business of assessee, expenditure was on revenue count. Respectfully following the judicial precedence laid down by the Hon’ble jurisdictional High Court of Madras, which is a binding law to be followed by us, we are of the considered opinion that the depreciation on non-compete fee which was disallowed by the ld. AO and upheld by the ld. CIT(A) was an erroneous application of law and bad finding, therefore the same deserves to be reversed and we do so.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These are the appeals filed by the assessee and revenue against the separate orders dated 27.01.2017, 17.01.2018 & 30.01.2019, passed by the ld. CIT(A)-5, Chennai for the assessment years 2009-2010 to 2015-2016.
2. All these 11 appeals either by the assessee or by the department are belonged to the same assessee, having common and identical issues except difference in quantum, therefore the same, for the sake of convenience and brevity, are being disposed off by this common order.
3. First, we shall take up the appeal of the assessee in ITA No.936/CHNY/2018 for A.Y.2009-2010 and the grounds mentioned therein are as under :-
1. The order of The Commissioner of Income tax (Appeals) is contrary to law, facts and circumstances of the case.
2. The Commissioner of Income tax (Appeals) erred in confirming the reopening of the assessment u/s 147.
2.1 The Commissioner of Income tax (Appeals) ought to have appreciated that the appellant has furnished all the materials and particulars fully and truly. The assessment u/s 143(3) was completed on 28.12.2011 and issue of notice u/s 148 on 28.03.2014 has arisen only due to change of opinion and not on account of concealment of any particulars by the Appellant; hence the order is to be quashed as being without jurisdiction.
2.2 Appellant relies on the decision of the Supreme Court in the case of CIT V. Kelvinator India Limited, reported in 320 ITR 561 (SC).
3. The Commissioner of the Income tax (Appeals) erred in confirming the restriction of depreciation claimed on electrical installations to 10% as against 15% claimed by the appellant.
3.1 The Commissioner of the Income tax (Appeals) ought to have appreciated that the electrical installations installed are primarily Air Conditioners, Refrigerators, Generators, etc. and have classified under plant and machinery. Other items such as Bulbs, Holders, Adaptors and small wiring works have been classified as electrical fittings and are included under Furniture and Fittings eligible for depreciation @ 10%.
3.2 The Commissioner of the Income tax (Appeals) ought to have appreciated that the above electrical installations are to be reckoned as plant and machinery and not in the nature of electrical fittings to be capitalized under furniture and fittings. Hence the claim of the appellant that the depreciation @ 15% should be allowed.
4. The Commissioner of the Income tax (Appeals) erred in confirming the disallowance of depreciation on non-compete fee @ 25% amounting to Rs.50,00,000/-.
4.1 The Commissioner of the Income tax (Appeals) ought to have appreciated that the appellant has paid non-compete fees to AGS Hotels & Resorts Private Limited by executing non-compete agreement dated 22.08.2008 for a consideration of Rs.2,00,00,000/-. This agreement was entered pursuant to the purchase of the hotel business of AGS Hotels by the appellant.
4.2 The Commissioner of the Income tax (Appeals) ought to have appreciated that non-compete fee is an intangible asset eligible for depreciation u/s 32(1 (ii). Appellant relies on the decision of the supreme court in the case of Techno shares and stocks Ltd Vs. CIT, reported in 327 ITR 323(SC). And Madras High Court Decision in the case of Pentasoft Technologies Ltd Vs. DCIT, reported in 264 CTR 197(Mad).
5 Without prejudice to the above, Non-compete fee paid to ward off competition and protect the business of the appellant should be allowed as revenue deduction.
6 The Appellant craves leave to file additional grounds at the time of hearing.
4. Brief Facts: The assessee company is engaged in the business of selling vacation ownership and providing holiday facilities. Return of Income for the Assessment Year 2009-10 was filed by the assessee on 20.09.2009, declaring a total income of Rs.112,97,47,884/-. Return was processed u/s 143(1) on 29.03.2011. Scrutiny assessment u/s 143(3) of the Act was completed on 28.12.2011 determining the assessed income at Rs.302,04,55,046/-, an addition of Rs.189,07,07,163/- was made. Subsequently, the assessment was reopened u/s 147 of the Act. Reasons ITA No.1089/CHNY/18 & ITA No.1012/CHNY/19 for reopening were recorded by the AO, which were communicated to assessee vide an office letter dated 27.08.2014. Two reasons for reopening were (1) Excess claim of depreciation for 15% on Electrical Fitting Capitalized, instead of 10%, (2) Treating of non-compete fee as an intangible asset and claimed depreciation @25%. In response to the notice and letter with reasons for reopening, the assessee objected on the reopening itself, by stating that the company has submitted all the details / information called for by the AO during the scrutiny assessment proceedings including financial statements, tax audit report, computation of total income and other supporting documents. According to assessee, the order passed by AO u/s 143(3) was after examining the records of the assessee and have accepted the claim of depreciation on electrical fitting at 15% and on noncompete fee @25%, thus in absence of any fresh material reopening of assessment was not justified and the reponing was only on the basis of change of opinion. Objections of the assessee were considered by the AO but have not accepted, finally the proposed disallowances were confirmed for Rs. 23,88,822/- and Rs. 50,00,000/-towards Excess claim of depreciation on Electrical Fitting by 5% and Depreciation @25% on non-compete fee, respectively. Aggrieved by the order of AO u/s 143(3) r.w.s. 147 of the Act, assessee preferred an appeal before the Ld CIT(A), but no success.
5. Now, the assessee being aggrieved with the order of Ld CIT(A), is in appeal before us.
6. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities, the material available on record and have considered the judicial pronouncements that have been relied upon by the assessee as well as department in order to substantiate their respective contentions.
7. Ground no 1 is general in nature thus needs no separate adjudication.
8. Ground no 2, 2.1 & 2.2 regarding the objection of the assessee that the reopening of assessment u/s 147 of the Act was bad in law, assessee placed its reliance on decision of Hon’ble Supreme Court in the case of Kelvinator India limited, reported in 320 ITR 561(SC). wherein, it has been held as under:
‘The concept of “change of opinion” on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income Tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of “change of opinion” must be treated as an in- built test to check the abuse of power. Hence, after April 1, 1989, the Assessing Officer has power to reopen an assessment, provided there is “tangible material” to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief. Decisions of the Delhi High Court in CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (FB) and CIT v. Eicher Ltd. (2007) 294 ITR 310 affirmed. ‘
9. However, Ld CIT(A) found it more appropriate to follow the judgment by Hon’ble Jurisdiction High Court of Madras in the case of Mobis India Ltd. Vs. DCIT, reported in (2015) 61 Taxmann.com 442 (Madras), wherein it has been held that, “Where Assessing Officer initiated reassessment proceedings on ground that assessee’s claim for depreciation on vendor and dealer network was not allowable, assessee having participated in reassessment proceedings in pursuance to notice issued under section 143(2), impugned order passed under section 143(3) read with section 147, rejecting assessee’s claim was to be upheld.”
10. Respectfully following the decision in the case of Mobis India Ltd. (supra), Ld CIT(A) had upheld the reopening of assessment on the basis, that the assessee had participated in the reassessment proceedings by furnishing written submission before the AO, was upheld.
11. On perusal of the judgment in the case of Mobis India Ltd.(supra), it is transpired that in the said case, the assessee company did not file any objections to the reasons for the reopening of the above assessments, participated in the reassessment proceedings and obtained an adverse order, the writ of the petitioner assessee was failed with the observations that:
“The Act provides complete machinery for the assessment/reassessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities, and the assessee could not be permitted to abandon that machinery and to invoke the jurisdiction of the High Court under Article 226 of the Constitution when he had adequate remedy open to him by an appeal to the Commissioner of Income Tax (Appeals).”
“The Writ Court ought not to have entertained the Writ Petition filed by the assessee, wherein he has only questioned the correctness or otherwise of the notices issued under Section 148 of the Act, the re-assessment orders passed and the consequential demand notices issued thereon.”
12. Finally, Hon’ble Madras High Court in the Mobis India Ltd. (supra), has held that: It is not in dispute that as against the impugned proceedings, the assessee is having efficacious remedy of appeal under section 246A before the Commissioner (Appeals) and without exhausting the same, the assessee has approached the Court and hence, the instant writ petition is not maintainable.
13. In view of forgoing discussion in the case of Mobis India Ltd.(supra), we do notice that the facts of present case are departing than that of the facts of the case referred to, thus, we do not perceive any reason to subscribe to the reasoning based on which a view has been taken by the Ld CIT(A) with regard to validating the reopening of the assessment.
14. On the issue of reopening Ld AR drew our attention to the objections filed by the assessee against the reopening of assessment, at page 16 and 17 of the paper book (dated 13 March 2022) of the assessee. According to objections raised by the appellant the issue relating to excess depreciation on electrical fittings was already in dispute and was pending for adjudication by way of rectification under the provisions of section 154 of the Act. It was also the submission that Ld AO has examined the issues raised for reopening during the course of assessment proceedings u/s 143(3). Assessee company had submitted all the details sought by the Ld AO while completing the assessment, the said details, includes statement of total income, depreciation statement along with working of claim of depreciation @15% on electrical fittings, tax audit report, financial statement consisting of P&L Account, Balance Sheet along with schedules. Thus, having all the material information in hand, Ld AO had applied his mind and completed the assessment proceedings, therefore having no new material to arrive at a conclusion that any income has escaped assessment. No basis to invoke the provisions of section 147 of the Act.
15. Contrary to the submission of the assessee, Ld CITDR on the issue of reopening has submitted that the reopening was done justifiably by the Ld Assessing Officer. The reopening was valid since the same was done within 4 years of the original assessment order u/s 143(3). No queries on the issues raised under reopening proceedings were asked by the AO during the scrutiny assessment. On this issue of change of opinion, Ld CITDR, relied on the judgment in the case of Cognizant Technology Solution India P. Ltd., WP No. 2024 of 2016 and WMP No. 1765 of 2016, order dated 18.08.2021, wherein Hon’ble Madras High Court has observed and held as under: –
13. Regarding the reasons furnished for reopening of assessment, it is clarified that the very same materials were initially sought for by the original Assessment Officer, the petitioner in turn submitted the informations and the materials, which were considered by the Assessing officer and a final assessment order was passed on 31.03.2014 for the assessment year 2010-2011.
14. When the very same materials which were furnished, scrutinised, considered and a decision is taken, there is no reason for initiation of reopening proceedings and therefore, the respondents have miserably failed to establish that there is a tangible material for invoking Section 147 of the Act. Thus, the very initiation is in violation of the essential ingredients contemplated under Section 147 of the Act. Regarding the other grounds raised for reopening, depreciation claimed for the unit at Kolkatta Bantala (SEZ), the petitioner has stated that the said issue was also elaborately considered.
16. Regarding the grounds raised for 60% dis-allowance instead of 40% as claimed by the petitioner-Assessee, the judgment in the case of Deputy Commissioner of Income Tax vs. Cognizant Technology Solutions India Pvt Ltd (petitioner’s case) [pronounced on 10.02.2012 in ITA No.1921/Mds/2010], the Income Tax Appellate Tribunal, Chennai Bench, in paragraph-5, held in favour of the petitioner as under:-
“5. We have considered the rival submissions. It is noticed that the issue of re-opening has been decided by the learned CIT(A) by following the decision of the Hon’ble Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. reported in 256 ITR 1 which has been approved by the Hon’ble Supreme Court in 320 ITR 561. It is also noticed that the learned CIT(A) following the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts, reported in 259 ITR 19 (S.C) has held that as the Assessing Officer has not passed a speaking order in regard to the objections raised by the assessee, the assessment is quashed. This finding of the learned CIT(A) is not acceptable insofar as per the decision of the Hon’ble Supreme Court in the case of GKN I.T.A. No.1921/Mds/2010 Driveshafts, the Assessing Officer is duty bound to give reasons recorded for the purpose of re-opening to the assessee as also pass a speaking order dealing with the assessee’s objections, if any. Just because the Assessing Officer has not passed a speaking order in regard to the objections raised by the assessee, it would not mean that the re-opening would be invalid. However, in the present case as the facts are clearly available and as it is noticed that all the facts necessary for adjudicating the issue were available before the Assessing Officer when the original assessment order itself was passed u/s 143(3) on 17-03-2005, in view of the decision of the Hon’ble Supreme Court in the case of Kelvinator of India Ltd., referred to supra, the re-opening is liable to be held to be invalid as the same is beyond the period of 4 years and the re-opening is only on the basis of change of opinion. In the circumstances, the re-opening of the assessment stands quashed by following the principles laid down by the Hon’ble Supreme Court in the case of Kelvinator of India Ltd., referred to supra. In the circumstances, the appeal of the Revenue is dismissed.”
17. The Hon’ble Madras High Court in the case of Cognizant Technology Solution India P. Ltd.(supra), in para 56 to 61 has held as under :-
56. However, change of opinion is a ground for setting aside the reopening of assessment. Change of opinion is nothing but if the Assessing Authority adjudicated an issue, formed an opinion and given a finding in the assessment order and the very same opinion formed in respect of any material, cannot be a ground for reopening of assessment. Therefore, the Courts are expected to be cautious while considering the ground of change of opinion. It is always possible to misunderstand the concept of change of opinion. To make it very clear, change of opinion is that the issue, intricacies in accounts on a particular material or issues adjudicated and an assessment order is passed and the very same intricacy or issue wherein a clear finding has been arrived by the Assessing Authority cannot be a ground for reopening of assessment. However, from and out of the same issue and on the same material, if the Assessing Authority identified some under-assessment or the other reasons as contemplated under Section 147 of the Act, then reopening is permissible. Therefore, materials may be one and the same, issue may be one and the same and in respect of final conclusion, if there was any non-consideration resulted escapement in the original assessment order and the Assessing Authority found that there was an under-assessment, which resulted loss of revenue, then also reopening of assessment is certainly possible. Under these circumstances, mere comparison of issues already adjudicated in the original assessment proceedings always may not be a ground for the purpose of setting aside the entire reopening proceedings. Whether from and out of the said issue, a different dimension is identified to establish that there was a loss of revenue due to non-consideration of a particular issue within or the intricacy in some accounting system, then the Assessing Officer is undoubtedly empowered to initiate reopening proceedings by issuing notice under Section 148 of the Act. Thus, the wider scope contemplated under Section 147 for reopening of assessment to protect the interest of Revenue is to be interpreted pragmatically, so as to ensure that if the Assessing Officer has reason to believe, which is not change of opinion, then he must be allowed to complete the reassessment proceedings as contemplated under the provisions of the Act.
57. As elaborately discussed in the aforementioned paragraphs, disposal of objections submitted by the petitioner on the reasons furnished is to be done based on objective satisfaction and not on subjective satisfaction. An elaborate adjudication is required and such adjudications are to be done during the course of reopening proceedings and certainly not at the stage of disposal of objections filed by the Assessee on the reasons furnished. Once the Assessing Officer prima facie arrived a conclusion that he has reason to believe and reasons are furnished, objections received and disposed of by the authority, the said procedure as directed by the Hon’ble Supreme Court of India in GKN Driveshafts case (cited supra), is to be construed as completion of compliance of the principles of natural justice.
58. To clarify the objective satisfaction, which is required for the disposal of the objections filed on the reasons furnished, the Authority Competent cannot simply reject the objections without providing convincing reasons for rejection. The disposal of objections must contain an acceptable reason in the point of view of a prudent man and such rejection must be in the context of the reopening proceedings and the reasons furnished. To further clarify, the disposal does not mean mere disposal of objection and such disposal must be meaningful and sensible and relatable to the reasons furnished for reopening of assessment and to the objective satisfaction of the Authority Competent.
59. Considering the initiation of reopening proceedings, reasons furnished and the disposal of objections in the impugned proceedings dated 02.11.2015, this Court has no hesitation in arriving a conclusion that the respondents have established the reasons to believe for reopening of assessment, which is a precondition contemplated under Section 147 of the Act. Further adjudications with reference to the disputed facts are to be done during the course of reopening proceedings and the High Court cannot venture into an adjudication of such disputed facts with reference to the intricacies in accounting system based on certain original documents in the writ proceedings under Article 226 of the Constitution of India. The power of judicial review under Article 226 of the Constitution of India is to ensure that the processes through which a decision is taken by the Competent Authority in consonance with the provisions of the Act, but not the decision itself. This being the scope of power of judicial review, the High Court is not expected to adjudicate certain disputed facts with reference to original documents and evidences, which is to be done by the Competent Original Authority and thereafter by the Appellate Authority in the manner known to law. Once the adjudications are done by the Original Authority and by the Appellate Authorities as contemplated under the Statutes, then those findings of the Authorities at various stages would be of greater assistance to the High Court for the purpose of exercise of the power of judicial review under Article 226 of the Constitution of India in an effective and efficient manner.
60. Based on the elaborate discussions made in the aforementioned paragraphs, the petitioner has to cooperate for the completion of the reopening proceedings, which is to be done as expeditiously as possible.
61. Accordingly, the writ petition stands dismissed. However, there shall be no order as to costs. Consequently, connected miscellaneous petition is also dismissed.
18. Ld CITDR further submitted that the present case is identical to the case referred to in Cognizant Technology Solution India P. Ltd. (supra), wherein the judgment in the case of Kelvinator of India Ltd. (supra) was also discussed and distinguished by the Hon’ble Madras High Court. Accordingly, the reopening in the present case is validly upheld by the Ld CIT(A) and deserves to be sustained.
19. We have considered the rival contentions, submissions, material available on records and perused the case laws relied upon by the parties. In the present case since no specific query was raised by the Ld AO in original assessment proceedings on the issues, which could have said to be turn out and became the basis on which the reopening assessment was initiated. Also, the reopening was originated within the specified time limit of 4 years, principle of law defined in the case law Kelvinator of India Ltd., referred to supra cannot rescue the contention of the assessee. Contention, that the reopening was based on change of opinion is also not acceptable, since no finding on the issues raised under reopening was formed by the Ld AO in the original assessment proceedings. In view of such facts and principal of law laid down by the Hon’ble Jurisdictional High Court as discussed herein above, we are of the considered opinion that Ld CIT(A) has rightly upheld the reopening of the assessment, which needs no interference. Therefore, ground no 2, 2.1 and 2.2 of the appeal of the assessee for the AY 2009-10 in ITA 936/CHNY/2018, challenging the validity of reopening stands rejected.
20. The next issue raised by the assessee in ground no. 3, 3.1 and 3.2 is with regard to restriction of depreciation on electrical installations to 10% as against the claim of assessee of 15%.
21. Ld AR has drew our attention to para B.1 of their submissions on the issue with regard to restriction of depreciation on electrical installations to 10% as against the claim of assessee of 15% before the Ld AO while objecting on the reasons to reopening, placed before us on page 25-26 of Assessee’s Paper Book, the same is extracted herein below for consideration: –
B.1 Claim of depreciation @ 15% on ‘electrical fittings’:
B.1.1 We wish to submit that electrical installations installed at our resorts are primarily Air Conditioners. Refrigerators, Generators, etc. and have been classifièd~Tm3er” Plant Machinery. Items such as Bulbs, Folders, Adaptors and small wiring works have been classified as electrical fittings and are included under Furniture’s Fittings Eligible for depreciation @10%.
B.1.2 We submit that the above electrical installations are to be reckoned as Plant & Machinery for the purpose of our business and are not in the nature of electrical fittings to be capitalized under Furniture & Fittings. We also wish to submit that, being in the business of providing holiday packages, owning and maintaining resorts form an integral part of our business. These resorts are an apparatus or adjunct for running the business and hence electrical installations are rightly to be capitalized only under Plant & Machinery. Hence, electrical installations in such resorts are to be treated as falling under Plant & Machinery block of assets.
B.1.3 We also submit that such electrical installations are required by the nature of our business and did not merely form part of the setting in which our business was being carried on. Hence they are rightly capitalized under Plant & Machinery block of assets.
B.1.4 We wish to draw inference from the decision of the Madras High Court in the case of Geetha Hotels (P) Ltd. vs. CLT [254 ITR 649] where it has been held that electrical installations and sanitary fittings in a hotel building is to be treated as being “Plant” and cannot be treated as building for the purpose of depreciation. The relevant extract of the decision of the High Court is as under –
“The apex Court in the case of CIT vs. Anand Theatres (2000) 160 CTR (SC) 492: (2000) 244 ITR 192 (SC), approved the manner in which this Court had construed the judgment of the apex Court in the case of Taj Mahal Hotel (supra). The sanitary fittings and the electrical installations, therefore, are clearly “plant”. Once they are regarded as plant the fad that they are used in a hotel building and fixed to the building does not render these fittings depreciable in the same manner as the building itself when the provisions dealing with depreciation in the Act make a clear distinction among building, machinery and plant. ”
(Emphasis supplied)
“Electrical installations” such as lighting and small power installations, installation and testing of lighting fixtures, telephone systems, panes, distribution boards, cabling, earthing, internal/external water supply and drainage systems, sanitary fittings and fixtures, landscaping, etc. have also been included under Plant & Machinery.
Therefore, we submit that these electrical installations are to be considered as part of plant & machinery eligible for depreciation @ 15%.
22. Against the aforesaid submissions of the Ld AR, Ld CITDR has pointed out that the requisite details pertaining to the electrical installations were not provided by the assessee to the AO as well as to Ld CIT(A) and therefore in absence of such details it is impossible to decide the nature and utility of the assets which are the key factors for deciding the rate of depreciation. Ld DR drew our attention to Para 8.2 of the order of Ld CIT(A), wherein it was observed that the details regarding the electrical fittings were not produced by the AR of the assessee before the AO during the assessment proceedings, further, Ld CIT(A) has observed that the breakup of the additions made to electrical equipment contains addition on account of ceiling fans, exhaust fans and pedestal fans on which a higher depreciation of 15% was claimed. Ld CIT(A) finds that the addition made by the Ld AO is sustainable and thus upheld the same. It was therefore submitted by the LD CITDR to affirm the decision of Ld CIT(A) on this ground.
23. We have considered the rival contentions, submissions and the judicial pronouncements pressed to service for consideration. Admittedly, as observed by the Ld CIT(A) no details relating to electrical installation were submitted by the assessee before the Ld AO, however, apparently while filing the objection on reopening the assessee has narrated the details of installations in para B.1.4 extracted herein before. If any further information or clarification was required, it was very much within the powers of the Ld AO or Ld CIT(A) to call for such details, but no such details were called for by the revenue authorities. In such circumstances, to decide on this ground regarding disallowance of higher depreciation on Electrical Installation, decision of the Hon’ble Jurisdictional High Court of Madras in the case of Geetha Hotels Pvt Ltd. Vs CIT reported in 254 ITR 649 is relevant, wherein it has been held that:
“5. The apex Court in the case of CIT vs. Anand Theatres (2000) 160 CTR (SC) 492 : (2000) 244 ITR 192 (SC), approved the manner in which this Court had construed the judgment of the apex Court in the case of Taj Mahal Hotel (supra). The sanitary fittings and the electrical installations, therefore, are clearly “plant”. Once they are regarded as plant the fact that they are used in a hotel building and fixed to the building does not render these fittings depreciable in the same manner as the building itself, when the provisions dealing with depreciation in the Act make a clear distinction among building, machinery and plant. When a thing by itself is to be classified under one head as “plant” or “building”, it should not, normally, when used along with an item falling under another head be treated as also falling under the other head by a process of osmosis as it were. The electrical installations and sanitary fittings which by themselves are “plant” for the purpose of depreciation in the scheme of s. 32, cannot be regarded as “building” when such fittings are fitted to the building. Those fittings do not become brick or mortar which are essential for the construction of the buildings. They remain electrical and sanitary fittings which are meant to be used for a purpose other than giving shelter. These installations are installations which are capable of being used in a wide variety of circumstances to make a variety of goods. Their use is not confined to hotel building. Such installations, therefore, remain “plant” only even when they are installed in a building used as a hotel. The Tribunal was right in the view that it took that such fittings are not eligible for initial depreciation as they cannot be regarded as falling within the scope of the term “building” used in s. 32 of the Act.”
24. In the aforesaid judgment Geetha Hotels Pvt Ltd.(supra) Hon’ble court has discussed the issue with respect to considering the Electrical Installation and sanitary fittings as building on the question of law raised by the assessee that “Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in disallowing the claim for initial depreciation under s. 32(1)(v) of the IT Act, 1961, in respect of electrical installations and sanitary fittings embedded in the hotel building itself ?” is, therefore, answered in favour of the Revenue and against the assessee.” The above question was decided against the assessee but at the same time it was also held that “The sanitary fittings and the electrical installations, therefore, are clearly “plant”. Respectfully following the observations of the Hon’ble Madras High Court in the case of Geetha Hotels (P) Ltd. (supra), which was relied upon by the assessee in its objections on reasons for reopening but the same was not contravened or distinguished by the Ld AO while disposing the objections of the assessee in present case vide letter dated 23.10.2014 neither any observation have been offered by the Ld CIT(A) on the same. We therefore are of the considered opinion that assessee’s contention that the electrical installation should be considered as Plant is fortified by the judgment of Hon’ble Jurisdictional High Court in the case of Geetha hotel Pvt Ltd (supra) and consequently ground no 3, 3.1 and 3.2 of ITA 936/CHNY/2018 are decided in favour of the assessee in terms of our observation herein above.
25. The next issue raised by the assessee in ground no. 4, 4.1 and 4.2 is with regard to disallowance of depreciation on non-compete fee.
26. On the issue regarding disallowance of depreciation on non-compete fee, Ld AR drew our attention to para B.2 of their submissions before the Ld AO while objecting on the reasons to reopening, placed before us on page 25-26 of Assessee’s Paper Book, the same is extracted herein below for consideration: –
B.2 Claim of deprecation on non-compete fees under ‘intangible assets’ @ 25%.
B.2.1 With regard to claim of depreciation on non-compete fee, we submit that it is an intangible asset eligible for depreciation under Section 32(1)(ii) of the Act.
B.2.2 The Company has paid non-compete fees to AGS Hotels & Resorts Private Limited by executing a non-compete agreement dated 22.08.2008 for a consideration of Rs.2,00,00,000 (Rupees Iwo Crores Only). This non-compete agreement is entered pursuant to the purchase of the hotel business of AGS Hotels by the assessee.
B.2.3 In this regard, we rely on the decision of the jurisdictional Madras High Court in the case of Pentasoft Technologies Ltd. vs DC’IT[(2014) 264 CTR 197] wherein it has been held that -.on-compete fee is an intangible asset eligible for depreciation under Section 32(1 )(ii) of the Act. Your goodself s observation that the facts arc different in the said case is not acceptable for the following reasons:
