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Asst. CIT, Range-9(1), Room No. 223, Aayakar Bhavan, M. K. Road, Mumbai-400 020 Vs. Eagle Burgmann India P. Ltd. Gazebo House, 52, Gulmohar Road, JVPD Scheme, Vile Parle (W), Mumbai-400 049
April, 09th 2015

        ,        ,                                     

                   ./I.T.A. No. 4249/Mum/2012
                  (   / Assessment Year: 2004-05)
Asst. CIT, Range-9(1),                        Eagle Burgmann India P. Ltd.
Room No. 223,                                 Gazebo House, 52, Gulmohar Road,
Aayakar Bhavan, M. K. Road,                   JVPD Scheme, Vile Parle (W),
Mumbai-400 020                        Vs.     Mumbai-400 049

     . /  . /PAN/GIR No. AAACB 0449 F
         ( /Appellant)                   :           (     / Respondent)

                   ./ Cross objection Nos. 134 & 158/Mum/2013
                     (Arising out of ITA No. 4249/Mum/2012)
                  (   / Assessment Year: 2004-05)
Eagle Burgmann India P. Ltd.                  Asst. CIT, Range-9(1),
Gazebo House, 52, Gulmohar Road,              Room No. 223,
JVPD Scheme, Vile Parle (W),                  Aayakar Bhavan, M. K. Road,
Mumbai-400 049                        Vs.     Mumbai-400 020

     . /  . /PAN/GIR No. AAACB 0449 F
     (    / Cross objector)              :           (     / Respondent)

             /Revenue by                :    Shri Neil Philip
          / Assessee by                 :    None

                                        :    13.01.2015
                  Date of Hearing
                                        :    08.04.2015
          Date of Pronouncement
                                               ITA No. 4249/M/12 & CO N os. 134 & 158/M/13
                                                                           (A.Y. 2004-05)
                                                                 Eagle Burgmann India P. Ltd.
                                       / O R D E R
Per Sanjay Arora, A. M.:
       This is a set of an Appeal by the Revenue and two cross objections (COs) by the
Assessee, directed against the Order by the Commissioner of Income Tax (Appeals)-19,
Mumbai (`CIT(A)' for short) dated 12.04.2012, allowing the assessee's appeal contesting
its assessments u/s.143(3) r/w s. 147 of the Income Tax Act, 1961 (`the Act' hereinafter)
for assessment year (A.Y. 2004-05).

2.     None appeared for and on behalf of the assessee when the appeal was called out
for hearing, nor any adjudication application stands received. Under the circumstances,
we considered it fit and proper to proceed with the matter and decide the appeal on merits
after hearing the party before us.

3.     The sole issue arising in the instant appeal is the validity or otherwise in law of the
part disallowance of the assessee's claim for depreciation on building. The assessee had
purchased an office premises in a building at Goregaon in the year 1993, for a
consideration of Rs.2,33,11,720/-, and was continuously claiming depreciation allowance
u/s. 32 on the said asset. The same was sold during the previous year relevant to A.Y.
2008-09, claiming, as it appears, the gain attributable to the cost referable to land, i.e., as
included in the total cost of Rs. 233.12 lacs, as a long term capital gain (LTCG),
computed after availing the indexation benefit. The same, where so, is valid in law (refer:
CIT vs. Citibank N. A. [2003] 261 ITR 570 (Bom). The assessee had, thus, been claiming
deprecation on the land component of the asset, even as the same is allowable only on the
cost of the super structure, and no depreciation under the Act is applicable on land.
Neither any rate of depreciation on land has been prescribed under law, nor does it
depreciate, i.e., in terms of wear and tear. The matter stands settled by the apex court in
CIT vs. Alps Theatre [1967] 65 ITR 377 (SC). Accordingly, relying on the same, as well
as the decision in CIT vs. Vimal Chand Golecha [1993] 201 ITR 442 (Raj), the A.O.
disallowed the claim for depreciation proportionately. The ld. CIT(A), in appeal, was of
the view that what had been purchased by the assessee was a constructed building, paying
                                             ITA No. 4249/M/12 & CO N os. 134 & 158/M/13
                                                                         (A.Y. 2004-05)
                                                               Eagle Burgmann India P. Ltd.
a composite price. Its bifurcation into the cost of `land' and cost of `building' is not
possible, while in the case of Alps Theatre (supra) the consideration for land was
specified. Similarly, in the case of Vimal Chand Golecha (supra), the assessee had
purchased land and constructed building thereon only subsequently, so that the cost of the
two was separately identifiable. The said decisions would thus not apply in the facts and
circumstances of the case. The decision in ITO vs. Vikash Behal [2010] 36 DTR 385
(Kol), also relied upon by the Assessing Officer (A.O.), pertained to the capital gains and
transfer of land to the developer under the development agreement and, therefore,
distinguishable. The apex court in CIT v. Mugneeram Bangur & Co. (1966 AIR 50/1965
SCR (3) 611) clarified that where a contract is for sale of an undertaking for a lumpsum
consideration, i.e., as a whole, without placing separate values for each of the items that
go to make up the undertaking, the same cannot be segregated into two or more
constituents. Likewise, by the hon'ble high courts in the case of CIT vs. Nayveli Lignite
Corporation Ltd. [2000] 243 ITR 459 (Mad) and CIT vs. Mitsui Engg. & Ship Building
[2003] 259 ITR 248 (Del). The Special Bench of the Tribunal in Motorola Inc. vs. Dy.
CIT [2005] 96 TTJ 1 (Del) (SB) held that as the purchaser had entered into a contract for
purchase of hardware and software, without assigning any price for them separately, it
was not open for the Department to split the consolidated payment into two and infer
`royalty' with reference to the `payment' for software. The assessee being allowed relief
thus, the Revenue is in appeal, while the assessee has preferred cross objection (CO),
raising identical grounds, which are essentially supportive, with one CO being in fact
time barred by three days.

4.    The case of both the parties before us, in terms of the arguments advanced and
material on record, remains the same. The assessee has, in addition, per its written notes,
relied on the decision in the case of CIT vs. Rajesh Exports Ltd. [2006] 9 SOT 28 (Bang.)
                                             ITA No. 4249/M/12 & CO N os. 134 & 158/M/13
                                                                         (A.Y. 2004-05)
                                                               Eagle Burgmann India P. Ltd.
5.    We have heard the parties and perused the material on record.
5.1   We firstly observe that the ld. CIT(A) has, for A.Y. 2004-05, only followed his
order for A.Y. 2008-09 (copy on record). Though he has in that view of the matter stated
that the basis of the reopening does not hold good, the same itself is without basis in-as-
much as the same was not agitated before him by the assessee, whose sole challenge was
on the merits of the case (refer para 3 of the impugned order as well as the grounds of
appeal in Form No. 35). Even before us, per the grounds raised in the COs, the only issue
agitated is qua the disallowance of depreciation on merits. The observation by the ld.
CIT(A) in this respect would therefore stand to be vacated; the only issue arising per the
Revenue's appeal and the assessee's CO being qua the issue on merits.

5.2   Our second observation is that the composite cost of the office premises, i.e.,
consisting of the land and building, is stated differently, being at Rs.233.12 lacs and
Rs.4,75,87,899/- in the orders for AY 2004-05 and AY 2008-09 respectively. The two
orders, therefore, presumably and understandably, speak of/refer to different office
premises. This would though have no bearing on the issue before us, i.e., whether in case
of a composite consideration toward acquiring a property consisting of land and building,
or interest therein, the two are to be treated separately for the purposes of depreciation,
assigning them values, or treated as a single unit, and depreciation claimed accordingly
on the entire cost thereof. As a corollary, or even independently, where, similarly, the
sale price therefor has been charged as a composite sum, not specifying or assigning any
separate values to the land and the super structure thereon, is the capital gains to be
similarly worked out with reference to the composite unit or separately for the land and
building components thereof, and which may or may not be subject to depreciation and,
therefore, have implication on the nature ­ long term and short term and, thus, the
quantum of the capital gains as well. Having delineated the issue arising, we proceed to
answer the same.

5.3   In our clear and unequivocally view, the matter stands answered clearly and
unambiguously by the apex court in Alps Theatre (supra). A perusal of the said judgment
                                               ITA No. 4249/M/12 & CO N os. 134 & 158/M/13
                                                                           (A.Y. 2004-05)
                                                                 Eagle Burgmann India P. Ltd.
reveals both the decision as well as its' basis, i.e., the reason/s informing the same. What
is subject to depreciation, an accounting concept, recognized by law, is an allowance for
wear and tear, so that the real income can be brought to tax. The land, or the situs of the
building, is not subject to depreciation, which is confined only to the superstructure, so
that `building' under the Act refers thereto. The hon'ble court examined the matter from
the stand point of both, the concept of depreciation as well as the context in which the
word `building' is used in the Act. The decision by the tribunal in Rajesh Exports Ltd.
(supra), in ignoring this, with respect, misses the ratio of the decision in Alps Theatre
(supra). In fact, even an obiter dicta in/of the decision by the apex court is binding, so-
much so that the decision in Vimal Chand Golecha (supra) as well as by the hon'ble
jurisdictional high court in Citibank N. A. (supra), proceed, following it, on the footing
that the land is a separate capital asset u/s. 2(14) of the Act, i.e., even after the
construction of building thereon, and, accordingly, the gains relatable thereto have to be
worked out separately. The ld. CIT(A), in distinguishing the former decision, again, fails
to note the ratio of the said decision, wherein the controversy arose only for the reason
that the sale proceeds arising on the sale of the theatre was a consolidated sum, not
indicating the consideration for land or building, but for the composite unit. That is, states
a wrong factual basis in distinguishing the same, missing in effect its' ratio, which alone
is binding. The computation of `capital gains', as we see it, only presents another area
where the issue of segregation of cost or, as the case may be, sale consideration of land
and building (for being treated separately for the purpose of computing the income under
the Act) arises and, thus, cannot be considered as a separate issue, with we having in fact
delineated the two together. The same, therefore, does not represent a different issue but a
different manifestation of the same, primary issue. The decision in Vikash Behal (supra),
as explained by him, is, thus, on the same lines as by the hon'ble jurisdictional high court
in Citibank N. A. (supra), has thus again been wrongly distinguished by the ld. CIT(A).
Quantification, it is axiomatic, would only follow qualification. Once it is principally
decided that land and building cannot be considered as one for the purpose of claim of
                                              ITA No. 4249/M/12 & CO N os. 134 & 158/M/13
                                                                          (A.Y. 2004-05)
                                                                Eagle Burgmann India P. Ltd.
depreciation (or for computation of capital gain), the mere non specification of separate
values would not enable allowance of deprecation on an asset (land) on which
depreciation is not otherwise exigible. Any view to the contrary would be inherently
flawed; rather, promoting the mischief of not specifying the values separately, which is
the basis on which valuation is normally done. In fact, the valuation of a `building' is
almost ubiquitously made by valuing land and building component separately, with the
primary difference between the cost of the buildings, i.e., as a composite unit, being the
difference in the value of the underlying land. The same is, in any case, principally a
matter of valuation, and toward which any reasonable basis or method should suffice. We
may in this context refer to the decision by the apex court in Krishnamurthy (A.R.) vs.
CIT [1989] 176 ITR 417 (SC).

5.4    Finally, coming to the decisions relied by the ld. CIT(A), we consider that the said
reliance has misconceived. That what is bought is a composite unit, so that the land forms
an integral part of the building, is principally the reasoning the informed the decision of
the tribunal, and the hon'ble high court in endorsing the same, in Alps Theatre (supra),
which stood rejected by the apex court. The land, it needs to be appreciated, despite
forming part of the composite unit, does not merge with the building, and retains its
independent identity. It is for this reason that, as has been witnessed for centuries now,
buildings or other structures keep coming up on the same land. It is this that led the
hon'ble courts, as in the case of Citybank N. A. (supra); CIT vs. Parthas Trust [2001] 249
ITR 120 (Ker); and Vimal Chand Golecha (supra), to hold the two as separate capital
assets, i.e., even after construction on land. Applying a depreciation rate on land, i.e., on
the cost component of the land, for the reason that the same forms part of the building,
would, therefore, be as wrong as imputing a nil rate of depreciation on building (i.e., the
superstructure), for the reason that land does not depreciate and, therefore, is not exigible
to depreciation. Accordingly, depreciation would be allowable on building even where
the land underneath is a lease-hold land or the assessee has otherwise right of occupancy
therein (refer: Parthas Trust (supra)). In fact, the Act, per Explanation 1 to section 32,
                                              ITA No. 4249/M/12 & CO N os. 134 & 158/M/13
                                                                          (A.Y. 2004-05)
                                                                Eagle Burgmann India P. Ltd.
even provides for depreciation on building not owned by the assessee but in respect of
which it holds a lease or other right of occupancy. Again, as clarified by the apex court in
CIT vs. Hoogly Mills Co. Ltd. [2006] 287 ITR 333 (SC), no depreciation would be
exigible on land even where forming part of an undertaking acquired as a composite unit.

5.5    We may before closing clarify that though we have while narrating the facts stated
the assessee as having ostensibly claimed capital gains separately on land, i.e., on the sale
of building, yet, as would be apparent from the foregoing, the same does not form the
basis of our decision. The said `fact' is stated only in stating the contextual background in
which the issue came to surface, and has no bearing on the merits of our decision, which
we find to be a part of the well settled law in the matter. We decide accordingly.

6.     In the result, the Revenue's appeal is allowed and the assessee's Cos are
                     Order pronounced in the open court on April 08, 2015

               Sd/-                                      Sd/-
       (Joginder Singh)                             (Sanjay Arora)
          / Judicial Member                           / Accountant Member
 Mumbai;  Dated : 08.04.2015
. ../Roshani, Sr. PS
         /Copy of the Order forwarded to :
1.  / The Appellant
2.  / The Respondent
3.      () / The CIT(A)
4.       / CIT - concerned
5.                 ,     ,   / DR, ITAT, Mumbai
6.      / Guard File
                                                    / BY ORDER,

                                              /  (Dy./Asstt. Registrar)
                                          ,  / ITAT, Mumbai
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