The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that depreciation under section 32 of the Income Tax Act, 1961 cannot be claimed in respect of Assets shared with a sister concern under a license agreement.
Radisson Hospitality Marketing, the assessee/ appellant is a company engaged in the business of providing sales and marketing and reservation support services to Carlson Rezidor Group’s affiliated hotels. It filed a return of income and declared income of Rs. 3,31,40,680/-.
The case was taken for scrutiny assessment and statutory notice u/s 143(2) of the Income Tax Act was issued. AO disallowed the depreciation because assets are jointly held by M/s. Carlson Hotels (South Asia) Pvt. Ltd.
In the appeal, the assessee filed a written submission along with the paper book and additional evidence in the form of a lease agreement for sharing of premises, a list of assets purchased by the assessee and an agreement with a sister concern for sharing of expenses on-premises and fixed assets. The same was made the subject of a remand report from AO and was admitted under Rule 46A by the CIT(A. The CIT(A) declined the same.
It was submitted that assets are jointly held and only respective shares of assets are accounted for in the books of accounts of each assessee. It was submitted that depreciation is allowable in case of fractional ownership
It can be observed that the assessee does not dispute the fact that only one asset is the subject matter of dispute and the same was purchased by a sister concern. The invoice is in the favour of the sister concern thus, the de facto and de-jure owner happens to be the sister concern.
Further viewed that merely because it has allowed being shared to the sister concern, the assessee/ appellant, does not give any right, title or interest like ownership to the assessee to be entitled to claim of depreciation u/s 32 of the Income Tax Act.
A Coram comprising of Sh. Shamim Yahya, Accountant Member and Sh. Anubhav Sharma, Judicial Member held that “merely entering into an agreement or understanding of user of an asset, a License may be created in favour of the user, that does not vest the user with the interest of any nature akin to the owner for Section 32(1) of the Income Tax Act.”
While dismissing the appeal, the Tribunal held that there is no claim of depreciation beyond the law that is allowable on mutual understanding between the owner and the user.
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