IT: All types of crafts or modes of transport aided by flight, are entitled to 40 per cent depreciation
IT: Payment made in cash to Airport Authority is not disallowable under section 40A(3)
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[2013] 37 taxmann.com 308 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
SRC Aviation (P.) Ltd.*
S. RAVINDRA BHAT AND R.V. EASWAR, JJ.
IT APPEAL NOS. 487 TO 490 OF 2012†
SEPTEMBER 3, 2012
I. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of [Airplane-Aeroengine] - Whether in depreciation table 'airplane-aeroengine' which is entitled to 40 per cent depreciation, cannot be given a restrictive interpretation so as to include aeroengine only; it will also include 'aircraft' which gives a broader description which includes all manner of craft or means of transport aided by flights such as balloons, planes, etc. - Held, yes [Para 13] [In favour of assessee]
II. Section 40A(3) of the Income-tax Act, 1961, read with rule 6DD(k) of the Income-tax Rules, 1962 - Business disallowance - Cash payment exceeding prescribed limit [Payment to statutory bodies] - Whether where assessee had to make payment in cash exceeding prescribed limit in respect of route navigational and parking charge for aircraft as required by Airport Authority which is a statutory body, same would be allowable - Held, yes [Para 16] [In favour of assessee]
FACTS-I
| ■ | The assessee was engaged in the business of air-chartering/air taxi services and claimed 40 per cent depreciation for the acquisition of the aircraft. | |
| ■ | The Assessing Officer allowed the claim. | |
| ■ | However, by invoking section 263, the Commissioner (Appeals) held that depreciation granted to the extent of 40 per cent was wrong and granted 20 per cent of depreciation. | |
| ■ | On appeal, the Tribunal reversed the order of the Commissioner (Appeals) on ground aircraft purchased by the assessee fell within description of aeroplane of Entry III (3)(i) of the Depreciation Rules. | |
| ■ | On appeal: |
HELD-I
| ■ | The generic term 'aircraft' is broader and there can be no doubt that it encompasses the expression 'aeroplane'. The question is whether the Beechcraft Super King Air B-200C purchased by the assessee fell within the description of aeroplane. The revenue sought to urge that the 'airplane -aero-engine' included only aero-engine which can be used for airplane, covered by the Entry III (3)(i) in the head 'plant and machinery'. There was no warrant for such a restrictive interpretation. Even with regard to the history of the entry all that can be inferred is that 'aircraft' is a broader description which includes all manner of craft or means of transport aided by flight (such as balloons, planes, etc.) within the Depreciation Rules. For the reasons best known, the rule making authority confined and narrowed the definition to 'aeroplane'. This conclusion is also supported by the fact that other Entries in rule III (3) of the depreciation table extend to the entire vehicles such as commercially pliable buses, cars, etc. They do not confine the scope of depreciation only to parts of such vehicles. [Para 13] | |
| ■ | In view of the above discussion, it is to be held that the Tribunal's judgment does not disclose any error as regards the interpretation of entry III (3)(i) of the Depreciation Rules. Its upholding the depreciation allowable in the present case to the tune of 40 per cent cannot be termed as unjustified or unwarranted. [Para 14] |
FACTS-II
| ■ | The assessee claimed paid charges in cash in excess of prescribed limit in respect of the route navigational and parking charges for aircraft as required by Airport Authority of India. | |
| ■ | The revenue sought to disallow the claim of expenditure on the ground that rule 6DD(k) was not applicable as the cash was not paid to agent. | |
| ■ | On appeal: |
HELD-II
| ■ | The Airport Authority of India is a statutory body entitled to claim its dues and even entitled to frame rules and regulations under the parent Act. In such an eventuality, once the authority required that cash had to be paid as a condition for flight clearance required by the assessee, it had really no choice in the matter. The interpretation urged by the revenue is far removed from reality. Furthermore, this Court is fortified in holding that such expenditure in cash is deductible by reference to rule 6DD(b) which states that when the payment is made to the Government, as per the Government of India Rules, it is deductible. [Para 16] |
CASE REVIEW-I
SRC Aviation (P.) Ltd. v. Dy. CIT [2011] 48 SOT 72 (URO)/14 taxmann.com 115 (Delhi) (para 13) affirmed.
CASES REFERRED TO
SRC Aviation (P.) Ltd. v. Dy. CIT [2011] 48 SOT 72 (URO)/14 taxmann.com 115 (Delhi) (para 5), Maxopp Investment Ltd. v. CIT [2012] 347 ITR 272/[2011] 203 Taxman 364/15 taxmann.com 390 (Delhi) (para 8), CIT v. Kirloskar Oil Engines [1998] 230 ITR 88 (Bom.) (para 10) andInternational Airports Authority of India v. Grand Slam International [1995] 3 SCC 151 (para 16).
Ms. Rashmi Chopra for the Appellant.
JUDGMENT
C. M. No. 14792 of 2012 in I. T. A. No. 487 of 2012
C. M. No. 14794 of 2012 in I. T. A. No. 488 of 2012
C. M. No. 14797 of 2012 in I. T. A. No. 490 of 2012
1. Exemption allowed, subject to all just exceptions.
2. The applications stand disposed of.
C. M. No. 14793 of 2012 in I. T. A. No. 487 of 2012
C. M. No. 14795 of 2012 in I. T. A. No. 488 of 2012
C. M. No. 14796 of 2012 in I. T. A. No. 489 of 2012
C. M. No. 14798 of 2012 in I. T. A. No. 490 of 2012
3. For the reasons stated in the application, the delay in filing the appeals is condoned.
4. The applications stand disposed of.
I. T. A. Nos. 487 of 2012, 488 of 2012, 489 of 2012 and 490 of 2012
5. The appellant claims to be aggrieved by an order dated August 26, 2011, in Appeal Nos. 2215/Del/2010, 1557/Del/2010, 1558/Del/2010 and 3824/ Del/2010-since reported in SRC Aviation (P.) Ltd. v. Dy. CIT [2011] 48 SOT 72 (URO)/14 taxmann.com 115 (Delhi). Three appeals had been preferred by the SRC Aviation (P.) Ltd. and one appeal by DCIT.
6. The following questions are sought to be urged, i.e.,
| "1. | Whether the deletion of disallowance under section 14A was justified ? | |
| 2. | Whether the depreciation deductible under the head 'plant and machinery', particularly the relevant entry 'Aeroplane-Aero-engines' prescribing 40 per cent depreciation was applicable and justifiably applied by the Tribunal and the Commissioner (Appeals) in the facts of this case ? | |
| 3. | Whether, in the facts of the present case, the cash payment claimed as deductible as expenditure incurred, was correctly allowed by application of rule 6DD(k) of the Income-tax Rules ?" |
7. The assessee is engaged in the business of air-chartering/air taxi services. The Commissioner of Income-tax, invoking his powers under section 263 of Income-tax Act, 1961 ("the Act", for short) held that depreciation granted to the extent of 40 per cent, on account of its acquiring "Beechcraft Super King Air B-200C" was wrongly granted and the correct depreciation ought to have been 20 per cent. In respect of this and the other items such as the disallowance under section 14A (expenditure claimed) as well as the amount under section 40A(3), the assessee felt aggrieved and approached the Income-tax Appellate Tribunal ("the Tribunal", for short).
8. So far as the first question, i.e., applicability of section 14A is concerned, this court is of the opinion that the law having been declared in Maxopp Investment Ltd. v. CIT [2012] 347 ITR 272/[2011] 203 Taxman 364/15 taxmann.com 390 (Delhi), the matter has to be remitted. The Tribunal's decision to that extent is upheld. The Assessing Officer shall take into consideration the direction in Maxopp Investment Ltd. (supra) while carrying out the directions of the Tribunal.
9. So far as the second question regarding the correct rate applicable for depreciation of aircraft is concerned, the counsel for the Revenue urged that till 1987-88 the relevant entry read as follows :
| "D(l) Aeroplanes-Aircraft, aerial photographic apparatus - | 30 per cent. | |
| (NESA) | ||
| E(l) Aeroplanes-Aero engines (NESA)". - | 40 per cent. | |
| However, with effect from April 1, 1988, the relevant entry reads as follows : | ||
| 3(i) "Aeroplane-Aero-engines" | 40 per cent. |
10. It was urged that the deletion of the expression "aircraft" is a significant change which entitled the assessee in this case to claim larger depreciation of 40 per cent for the acquisition of its Beechcraft Super King Air B-200C. Learned counsel also placed reliance on the Aircraft Act, 1934, and a decision of the Bombay High Court in CIT v. Kirloskar Oil Engines [1998] 230 ITR 88.
11. The relevant discussion of the Tribunal on this score is as follows (SRC Aviation (P.) Ltd. (supra)) :
"We have carefully considered the rival submissions in the light of the material placed before us. The learned Commissioner of Income-tax, while invoking the power under section 263, has mainly relied upon the earlier description of depreciation rate which was applicable for the assessment years 1984-85 to 1987-88 in which the aeroplane as aircraft and aeroplane as aero-engines were treated differently for the purpose of computing depreciation. From such description of different rates of depreciation, it is the case of the learned Commissioner of Income-tax that the aircraft owned by the assessee cannot be termed to be aeroplane which only is entitled for higher depreciation under the rates of depreciation applicable for the years under consideration as described in Appendix I. For this purpose, the learned Commissioner of Income-tax has also relied upon the decision of the hon'ble Bombay High Court in the case of CIT v. Kirloskar Oil Engines (supra). In our opinion, such reliance by the Commissioner of Income-tax on the decision of the hon'ble Bombay High Court is misplaced as in that case the assessee was the owner of the aircraft and it claimed depreciation at 40 per cent. Appendix I, as applicable for the relevant assessment years in the case of that assessee, had described depreciation in respect of aeroplanes under item D(l) and item E(l) which read as under :
'D(l) Aeroplanes-Aircraft, aerial photographic apparatus (NESA)
E(l) Aeroplanes-Aero-engines (NESA).'
Under item D(l), the rate of depreciation was described as 30 per cent and under item E(l) it was described as 40 per cent. Referring to the abovementioned rates, it was observed by the hon'ble Bombay High Court that the aforementioned two items are quite different and distinct. That both the items are given under the heading 'aeroplanes'. Item D(l) described the rates of depreciation on 'aircraft and aerial photographic apparatus', whereas item E(l) describe the rate of depreciation of aero-engines. As the assessee was admittedly claiming depreciation on aircraft, it was held that it will fall under item D(l) which have specific one and, therefore, the assessee will be entitled for depreciation at 30 per cent, and the depreciation at 40 per cent is applicable only on aero-engines and the aero engines is not covered under aircrafts. But the position under Appendix I which is applicable in the case of the assessee is different. In the present case, there is no such classification under the head 'Aeroplanes' as it was applicable in the case of CIT v. Kirloskar Oil Engines (supra). During the year under consideration, only one description is there which is in item 3 which read as under :
'Aeroplane-aero-engines'
No other separate head has been given for claiming of depreciation under the head 'Aeroplanes' which was distinctively described in the old Appendix as applicable in the case of CIT v. Kirloskar Oil Engines (supra)."
12. The Tribunal then discussed the different meanings of the expression aircraft and air-plane" in the ensuing part of its order (SRC Aviation (P.) Ltd.(supra)) :
"If it is so, then, the description of depreciation rate at 40 per cent under the head 'Aeroplane-aero-engines' cannot be understood to be depreciation rate prescribed only for aero-engines as that will never fall within the category of 'aeroplane' as aero-engines is only a power unit of an aircraft. Therefore, no analogy can be drawn from the old Appendix to hold that the aircraft cannot be granted depreciation under the head 'Aeroplane' as the term 'aeroplane' does not describe the aircraft therein. The definition of 'aircraft' has already been given in the above part of this order. Apart from that, the Aircraft Act, 1934, describe the 'aircraft' as under :
'"Aircraft" means any machine which can derive support in the atmosphere from reactions of the air against the earth's surface) and includes balloons, whether fixed or free, airships, kites, gliders and flying machines.'
Further, Encyclopedia Britannica (Macropaedia), Volume I describe the 'aircraft' in broad two categories which are defined as under :
'All aircrafts fall into two general categories-lighter-than-air or heavier-than-air. Several distinct types are recognized within each group. Each may perform a variety of missions calling for modifications for special usage.
Lighter-than-air craft rise and float because they displace a volume of air the weight of which is equal to or greater than the total weight of the aircraft. Such aircraft include balloons and airships.
Heavier-than-air craft derive their flight capability (lift) form the dynamic reaction of air flowing around suitably shaped surfaces (wings or airfoils). Such craft include gliders and sailplanes, conventional airplanes, short takeoff and landing (STOL) airplanes, and vertical takeoff and landing (VTOL) aircraft.'
The International Civil Aviation Organisation (ICAO) in its Aviation Glossary Terms and Definitions has defined 'Aircraft' and 'Aeroplane' as under :
'Aircraft-An aircraft is any machine that can derive support in the atmosphere from the reactions of the air other than the reactions of the air against the earth's surface (ICAO annexure 1, annexure 6 Part I).
Aeroplane-A power driven heavier than air aircraft, deriving its lift in flight chiefly from aerodynamic reactions on surfaces which remain fixed under given conditions of flight (ICAO annexure I, annexure 6).'
A combined reading of all these definitions will be that aeroplane in comparison to aircraft has a fixed wings and is powered by propellers or jets. Though both the definitions have been given by the learned Commissioner of Income-tax in his order, he has ignored the submission of the assessee that aircraft owned by it has fixed wings and is powered by propellers or jets on the ground which should be heavier than the aircraft. We find no justification in such observations of the learned Commissioner of Income-tax that the aircraft of the assessee should not be described as 'aeroplane' simply for the reason that 'aeroplane' is a machine much bigger, heavier and powerful than an aircraft which travels in the air more than an aircraft. Though technical details have not been furnished before us, but, it is clear from the picture submitted to us that the aircraft owned by the assessee has fixed wings and has the characteristics of the aeroplane though it may be of a smaller capacity which is able to fly only nine passengers on board. But, for that reason the aircraft owned by the assessee cannot be thrown out of the category of 'aeroplane' and the aircraft owned by the assessee cannot be considered only as 'plant and machinery' which is a term distinct to such type of aircraft.
Further, it has been demonstrated by the learned authorised representative of the assessee that in many cases the Department is considering such aircraft as 'aeroplane' and granting depreciation to the respective assessees at 40 per cent, and such contention of the assessee is based on the information given by the Department itself. The Department has not been able to bring on record any of the cases wherein such aircraft has been considered by them eligible for depreciation under the head 'machinery and plant'. Not going into the controversy whether or not the issue regarding the claim of depreciation was deliberated during the course of original assessment proceedings, we are of the opinion that the Assessing Officer had granted the depreciation to the assessee at 40 per cent, in accordance with the provisions of the rule, therefore, such grant of depreciation cannot be considered to be a claim not supported by law, as the Department cannot straightaway show that such claim of depreciation was not in accordance with the law and, in such, circumstances, the powers under section 263 could not be invoked."
13. This court is conscious of the fact that the generic term "aircraft" is broader and there can be no doubt that it encompasses the expression "aeroplane". However, this court is not called upon to interpret the term "aircraft" in the present appeal. The question is whether the Beechcraft Super King Air B-200C purchased by the assessee fell within the description of aeroplane. The learned counsel for the Revenue sought to urge that the "airplane-aero-engine" included only aero-engine which can be used for airplane, covered by the entry III(3)(i) in the head "plant and machinery". We see no warrant for such a restrictive interpretation. Even with regard to the history of the entry all that can be inferred is that "aircraft" is a broader description which includes all manner of craft or means of transport aided by flight (such as balloons, planes, etc.) within the Depreciation Rules. For the reasons best known, the rule-making authority confined and narrowed the definition to "aeroplane". This conclusion is also supported by the fact that other entries in rule 111(3) of the depreciation table extend to the entire vehicles such as commercially pliable buses, cars, etc. They do not confine the scope of depreciation only to parts of such vehicles.
14. In view of the above discussion, this court is satisfied that the Tribunal's judgment does not disclose any error as regards the interpretation of entry 111(3) (i) of the Depreciation Rules. Its upholding the depreciation allowable in the present case to the tune of 40 per cent cannot be termed as unjustified or unwarranted.
15. On the third issue, the Tribunal concluded that the charges payable and claimed by the assessee were in respect of the route navigational and parking charges for an aircraft required by the Airport Authority of India. The relevant procedure was outlined through a letter dated December 22, 2009, written by the Airport Authority of India which stated that as per the Rules of RNFC (route navigation facilities charges) and TNLC (traffic) (terminal navigation landing charges) charges with AAI and DIAL are to be paid in cash before the departure of a non-scheduled flight. Therefore, the Revenue had urged that this payment, though supported by the facts of the case do not fall within rule 6DD(k) which allows expenditure in cash only when it is made by a person to an agent who is required to make payment in cash.
16. The Revenue stressed upon the fact that cash was not paid to the agent and, therefore, rule 6DD(k) was inapplicable. There can be no dispute that the Airport Authority of India is a statutory body entitled to claim its dues and even entitled to frame rules and regulations under the parent Act (see judgment of the Supreme Court in International Airports Authority of India v. Grand Slam International [1995] 3 SCC 151. In such an eventuality, once the Authority required that cash had to be paid as a condition for flight clearance required by the assessee, it had really no choice in the matter. The interpretation urged by the Revenue is far removed from reality. Furthermore, this court is fortified in holding that such expenditure in cash is deductible by reference to rule 6DD(b) which states that when the payment is made to the Government, as per the Government of India Rules, it is deductible.
17. For the above reasons, this court finds no reason to interfere with the orders of the Tribunal in all the three aspects. The appeals are, accordingly, dismissed.
SBRegards
Prarthana Jalan
__._,_.___
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