The Income Tax Appellate Tribunal (ITAT), Mumbai recently ruled that the depreciation claimed by the concerned Assesee under Section 32 of the Income Tax Act, 1961 may only be permissible if the income from assets is chargeable under the head of “Income from Other Sources.
Striton Properties Private Limited (Erstwhile Mars Hotel and Resorts Private Limited), Mumbai (Striton), an entity involved in the business of hospitality and club related activity. Striton entered into an agreement with Mars Enterprises (Mars) for a period of 29 years for the building and running of the hotel wherein Mars would pay 5% of the gross turnover of the hotel as royalty to Striton.
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The Assessee showed the income received from parking facilities under business income since 2008 and the same were accepted by the concerned Assessing Officer (AO), but the AO rejected such classification for the Assessment Years (A.Y.) 2013-14 and 2014-15. The AO treated the parking income as “Income from Other Sources,” leading to the denial of depreciation on the parking structure and related assets.
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Chartered Accountant (CA) Ravikant S. Pathak, argued that the AO’s decision was contrary to the principle of consistency, as the parking receipts had been classified as business income in previous years.
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Senior Departmental Representative Bhangepatil Pushkaraj Ramesh countered that depreciation under Section 32 is only permissible if the asset is either used for business purposes or its income is taxable under “Income from Other Sources.” He pointed out that under Sections 56(2)(ii) & (iii) and 57(ii), depreciation can only be claimed if the asset is leased out and generates taxable revenue.
The two-member Bench of Accountant Member Narendra Kumar Billaiya and Judicial Member Sunil Kumar Singh observed the ratio laid down by the Supreme Court in Radhasoami Satsang v. Commissioner of Income-tax (1992) to emphasize that income classifications cannot be arbitrarily altered if they have been consistently classified under a certain head for many past assessments.
In light of the observation, the Bench held that the Assessee is entitled to avail depreciation even on part of the building used as parking facility, with the parking being part and parcel of the building, thus entitling the same to be includable for the calculation of depreciation.
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