Delhi High Court has in the case of CIT Vs M/s Bharat Hotels held that If appellant Leasee is having entire control over the building than even though no ownership rights vest him, still he can claim depreciation on the same. It was further held that receipt of the interest free deposit from the sub lessee in the F.Y 1986-87 and 1987-88 same would be included in its business income as a taxable receipt.
Brief of the case:
AO had made addition to the income of the assessee on various grounds inclusive the addition of wrong claimed depreciation by the assessee on the basis that the assesee had just constructed the building on the land leased by some authority and assessee was just a lessee,he was having the right only to use the building ,he was not the owner of the building and only the owner could claim the depreciation .
ITAT decided the case in the favor of the assessee on the basis that the assessee was having entire control on the building.
The assessee was in the receipt of the interest free deposit from the sub lessee in the F.Y 1986-87 and 1987-88 so the same would be included in its business income as a taxable receipt.
Facts of the case:
Assessee had taken the land on 99 years lease from the Govt. authority and was having the right to construct the building over it, sublease the space .Assessee could also took the loan by pledging the building as security. The premises was insured both in the names of lessee and lesser. The assessee had claimed the depreciation on the expenditure which he invested for the construction of the building.
The assessee had also received the interest free deposit by sub-leasing the space of the building.
Contention of the assessee:
Assessee was of the view that as per explanation (1) to section 32 of the act depreciation would be claimed by the assessee if he was carrying on the business in a building not owned by him but in respect of which he was holding a lease or other right of occupancy and any capital expenditure had been incurred by him for the purpose of business.
Assessee was of the view that the interest free deposit received from the sub-lessee was a capital receipt not liable to tax.
Contention of the Revenue:
Revenue was of the view that depreciation could only be claimed by the assessee if he was the owner of the building. A lessee could not claim the depreciation.
Held by Hon’ble High Court:
Hon’ble High Court held that as the assessee had invested the full money for the construction of the building and was having full control over the building as he was having the right to sub-lease, raise a loan by pledging the building as security. Moreover the insurance was also in the name of both lessee and lesser. So the assessee was allowed to claim the depreciation of the building.
As far as the question of taxability of receipt of interest-free deposit in the A.Y 1987-88 and A.Y 1988-89 is concerned, the same would be treated as a trading receipt because the IT Act made amendment regarding the non taxability of interest-free deposit from 01-04-1988. So now after this amendment the receipt of interest free deposit would be considered as capital receipt. And thus the Hon’ble High Court held that the assessee is liable for tax as considering this as trading receipt.