I have claimed depreciation on plant and machinery used at a club house and garden. The Assessing Officer says I showed no income from letting them out and is not the owner of the facilities. Can I still claim depreciation under s.57?
No. The Mumbai Bench held that s.57(ii) has to be read with s.56(2)(ii) and (iii), and that on a conjoint reading the income must actually be chargeable under the head income from other sources before depreciation can be claimed against it. Since no income had been shown, the mandatory condition was not fulfilled and the disallowance was upheld.
Decided by the ITAT (Shri Narendra Kumar Billaiya, Accountant Member and Shri Sunil Kumar Singh, Judicial Member ('G' Bench, Mumbai)) on 2025-01-13, reported as I.T.A. Nos. 3944/Mum/2024 and 3945/Mum/2024 (ITAT Mumbai), AYs 2013-14 and 2014-15. It bears on section 57(ii), section 57, section 56(2)(ii), section 56(2)(iii), section 56, section 32, section 37(1) of the Income Tax Act 1961, in Deductions & Disallowances, Assessment & Scrutiny and How Tax Law Is Read matters.
This is the first thing to check before claiming under s.57(ii), and it is the point on which such claims usually fail. Clause (ii) is not a free-standing depreciation allowance: it imports s.30(a)(ii) and (c), s.31 and s.32(1) and (2), subject to s.38, but only 'in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56'. No income of that nature, no deduction. The rest of the same order is a useful contrast — the Tribunal directed that parking receipts be treated as business income on the principle of consistency, following the Bombay High Court in National Leasing Limited and the Supreme Court in Radhasoami Satsang, and allowed depreciation on the parking floors as incidental to the hotel business, and allowed the expenditure under s.37(1). So the same order shows both routes: if the receipt can be brought under s.28, the deduction restrictions of s.57 fall away.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee was engaged in hospitality and club-related activity. By an agreement dated 24 June 2004 with Mars Enterprises, a partnership firm, it leased 4,713.782 sq. mtrs. of land for 29 years for building and running a hotel, the lessee paying 5 per cent of the hotel's gross turnover annually as royalty; by another agreement of the same date it leased 3,106.26 sq. mtrs. for 35 years for construction of a club house against a fixed percentage of the club's annual gross turnover as royalty. The assessee had shown parking receipts as business income since 2008 and the Assessing Officer had accepted that treatment, but for the year under consideration treated the Rs 53,00,000 of parking income as income from other sources. The proposed hotel building was never completed, though ground, lower and upper basements were constructed adjoining the existing hotel, and the Assessing Officer denied depreciation on the parking floors on the footing that they were part of an incomplete building. The assessee had also installed plant and machinery for maintaining the swimming pool and club house and claimed depreciation on it; that claim was denied because no income had been shown on letting out plant and machinery and the assessee was not the owner of the swimming pool, garden or club house. Expenses of Rs 50,44,870 comprising legal and professional fees, repairs and maintenance of building and of plant and machinery and landscaping were also disallowed on the footing that the lessee was to bear them. The appeals were 40 days late and the delay was condoned on the Chartered Accountant's affidavit.
Both appeals were partly allowed. On the s.57(ii) ground the disallowance was upheld and the ground dismissed: a conjoint reading of s.56(2)(ii) and (iii) with s.57(ii) shows that the income must be chargeable under the head income from other sources for the claim of depreciation, and since no income had been shown by the assessee the mandatory condition was not fulfilled. On the other grounds the assessee succeeded: the parking receipts were directed to be treated as business income on the principle of consistency, depreciation on the parking floors was directed to be allowed as a facility incidental to the hotel business, and the disallowed expenditure was directed to be allowed.
On the s.57(ii) issue the Tribunal set out the text of s.57(ii), which allows deductions in accordance with s.30(a)(ii) and (c), s.31 and s.32(1) and (2), subject to s.38, 'in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56', and then set out s.56(1) and s.56(2)(ii) and (iii), which charge income from machinery, plant or furniture let on hire, and income from the inseparable letting of such assets with buildings, where not chargeable as business income. Reading the two together, the Tribunal held that the income must be chargeable under the head income from other sources before depreciation can be claimed, and that the assessee having shown no such income had not fulfilled the mandatory condition. On the parking receipts the Tribunal relied on the Bombay High Court in National Leasing Limited (ITA No. 685 of 2007, judgment dated 21 October 2024), which had applied the rule of consistency drawn from Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC), and held that as no new facts had been brought on record and the law had not changed, the Assessing Officer must treat the parking receipts as business income. On depreciation for the parking floors it held that the parking facility was part and parcel of the hotel business and incidental to it. On the expenditure it held that as the royalty and parking receipts were business income, the expenses the assessee actually incurred had to be allowed under s.37(1), and that the lessee's contractual obligation to incur them was not a reason to deny the claim.
the assessee has not fulfilled the mandatory condition of Section 56(2)(ii) & (iii) and Section 57(ii) of the Act.
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Handle my notice → Ask a CA on WhatsAppNo. The Mumbai Bench held that s.57(ii) has to be read with s.56(2)(ii) and (iii), and that on a conjoint reading the income must actually be chargeable under the head income from other sources before depreciation can be claimed against it. Since no income had been shown, the mandatory condition was not fulfilled and the disallowance was upheld. This was decided by the ITAT (Shri Narendra Kumar Billaiya, Accountant Member and Shri Sunil Kumar Singh, Judicial Member ('G' Bench, Mumbai)) and bears on section 57(ii), section 57, section 56(2)(ii), section 56(2)(iii), section 56, section 32, section 37(1) of the Income Tax Act 1961. It is reported as I.T.A. Nos. 3944/Mum/2024 and 3945/Mum/2024 (ITAT Mumbai), AYs 2013-14 and 2014-15. This is the first thing to check before claiming under s.57(ii), and it is the point on which such claims usually fail. Clause (ii) is not a free-standing depreciation allowance: it imports s.30(a)(ii) and (c), s.31 and s.32(1) and (2), subject to s.38, but only 'in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56'. No income of that nature, no deduction. The rest of the same order is a useful contrast — the Tribunal directed that parking receipts be treated as business income on the principle of consistency, following the Bombay High Court in National Leasing Limited and the Supreme Court in Radhasoami Satsang, and allowed depreciation on the parking floors as incidental to the hotel business, and allowed the expenditure under s.37(1). So the same order shows both routes: if the receipt can be brought under s.28, the deduction restrictions of s.57 fall away. If it applies to you, the first step is this: Before claiming under s.57(ii), identify the income under s.56(2)(ii) or (iii) that the deduction is set against, and show it in the return under that head.
The assessee was engaged in hospitality and club-related activity. By an agreement dated 24 June 2004 with Mars Enterprises, a partnership firm, it leased 4,713.782 sq. mtrs. of land for 29 years for building and running a hotel, the lessee paying 5 per cent of the hotel's gross turnover annually as royalty; by another agreement of the same date it leased 3,106.26 sq. mtrs. for 35 years for construction of a club house against a fixed percentage of the club's annual gross turnover as royalty. The assessee had shown parking receipts as business income since 2008 and the Assessing Officer had accepted that treatment, but for the year under consideration treated the Rs 53,00,000 of parking income as income from other sources. The proposed hotel building was never completed, though ground, lower and upper basements were constructed adjoining the existing hotel, and the Assessing Officer denied depreciation on the parking floors on the footing that they were part of an incomplete building. The assessee had also installed plant and machinery for maintaining the swimming pool and club house and claimed depreciation on it; that claim was denied because no income had been shown on letting out plant and machinery and the assessee was not the owner of the swimming pool, garden or club house. Expenses of Rs 50,44,870 comprising legal and professional fees, repairs and maintenance of building and of plant and machinery and landscaping were also disallowed on the footing that the lessee was to bear them. The appeals were 40 days late and the delay was condoned on the Chartered Accountant's affidavit. The matter was decided on 2025-01-13 by the ITAT (Shri Narendra Kumar Billaiya, Accountant Member and Shri Sunil Kumar Singh, Judicial Member ('G' Bench, Mumbai)). On those facts the ITAT held as follows. Both appeals were partly allowed. On the s.57(ii) ground the disallowance was upheld and the ground dismissed: a conjoint reading of s.56(2)(ii) and (iii) with s.57(ii) shows that the income must be chargeable under the head income from other sources for the claim of depreciation, and since no income had been shown by the assessee the mandatory condition was not fulfilled. On the other grounds the assessee succeeded: the parking receipts were directed to be treated as business income on the principle of consistency, depreciation on the parking floors was directed to be allowed as a facility incidental to the hotel business, and the disallowed expenditure was directed to be allowed.
On the s.57(ii) issue the Tribunal set out the text of s.57(ii), which allows deductions in accordance with s.30(a)(ii) and (c), s.31 and s.32(1) and (2), subject to s.38, 'in the case of income of the nature referred to in clauses (ii) and (iii) of sub-section (2) of section 56', and then set out s.56(1) and s.56(2)(ii) and (iii), which charge income from machinery, plant or furniture let on hire, and income from the inseparable letting of such assets with buildings, where not chargeable as business income. Reading the two together, the Tribunal held that the income must be chargeable under the head income from other sources before depreciation can be claimed, and that the assessee having shown no such income had not fulfilled the mandatory condition. On the parking receipts the Tribunal relied on the Bombay High Court in National Leasing Limited (ITA No. 685 of 2007, judgment dated 21 October 2024), which had applied the rule of consistency drawn from Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC), and held that as no new facts had been brought on record and the law had not changed, the Assessing Officer must treat the parking receipts as business income. On depreciation for the parking floors it held that the parking facility was part and parcel of the hotel business and incidental to it. On the expenditure it held that as the royalty and parking receipts were business income, the expenses the assessee actually incurred had to be allowed under s.37(1), and that the lessee's contractual obligation to incur them was not a reason to deny the claim. In the words reproduced by the source cited on this page: "the assessee has not fulfilled the mandatory condition of Section 56(2)(ii) & (iii) and Section 57(ii) of the Act." The decision followed or applied Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) — applied on consistency; National Leasing Limited & Ors (Bombay High Court, ITA No. 685 of 2007, 21 October 2024) — followed.
It was decided by the ITAT on 2025-01-13 and is reported as I.T.A. Nos. 3944/Mum/2024 and 3945/Mum/2024 (ITAT Mumbai), AYs 2013-14 and 2014-15. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 57(ii), section 57, section 56(2)(ii), section 56(2)(iii), section 56, section 32, section 37(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Both appeals were partly allowed. On the s.57(ii) ground the disallowance was upheld and the ground dismissed: a conjoint reading of s.56(2)(ii) and (iii) with s.57(ii) shows that the income must be chargeable under the head income from other sources for the claim of depreciation, and since no income had been shown by the assessee the mandatory condition was not fulfilled. On the other grounds the assessee succeeded: the parking receipts were directed to be treated as business income on the principle of consistency, depreciation on the parking floors was directed to be allowed as a facility incidental to the hotel business, and the disallowed expenditure was directed to be allowed. It arises in Deductions & Disallowances, Assessment & Scrutiny and How Tax Law Is Read matters, on section 57(ii), section 57, section 56(2)(ii), section 56(2)(iii), section 56, section 32, section 37(1) of the Income Tax Act 1961, and was decided by Shri Narendra Kumar Billaiya, Accountant Member and Shri Sunil Kumar Singh, Judicial Member ('G' Bench, Mumbai). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the assets are used in your own business rather than let on hire, claim under s.32 with s.28 and not under s.57(ii) at all — that is what succeeded for the parking floors in this very order. Where a head of income has been accepted for several years, plead consistency with the assessment records; the Tribunal accepted it here for the parking receipts, following Radhasoami Satsang and National Leasing. Do not assume ownership alone supports the claim; the Assessing Officer's objection combined the absence of income with the absence of ownership, and the Tribunal decided it on the income limb. Where the lessee is contractually bound to bear expenses, that alone does not defeat your s.37(1) claim if you actually incurred them and the income is assessed as business income — the Tribunal so held at its para 13.
Validity check could not be completed. Validity check could not be completed. No search for later treatment of this order or for an appeal from it was run in this pass. The text of s.57(ii) reproduced in the order matches the text printed on the Income-tax Department's current section page (Year: 2025). No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order runs from para 1 to para 14 with sub-numbered paragraphs 5.1, 5.2, 8.1, 10.1, 11.1, 11.2 and 12.1; the s.57(ii) holding is at para 11.2. The extract of s.57(ii) reproduced in the order carries the departmental footnote markers 79, 80 and 81 as printed. The order records both the extract of s.57 and of s.56(2) with rows of asterisks marking omitted clauses. Para 8 records the lease agreement date as '24/06/2024' where paras 5 and 5.1 give 24 June 2004; the 2024 reading appears to be a typographical error in the order. The disposal at para 14 reads 'In the result, appeal both the appeals of the assessee are partly allowed' as printed. The order was pronounced on 13 January 2025 and covers AYs 2013-14 and 2014-15; indiankanoon carries the same order at two document ids. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Both appeals were partly allowed. On the s.57(ii) ground the disallowance was upheld and the ground dismissed: a conjoint reading of s.56(2)(ii) and (iii) with s.57(ii) shows that the income must be chargeable under the head income from other sources for the claim of depreciation, and since no income had been shown by the assessee the mandatory condition was not fulfilled. On the other grounds the assessee succeeded: the parking receipts were directed to be treated as business income on the principle of consistency, depreciation on the parking floors was directed to be allowed as a facility incidental to the hotel business, and the disallowed expenditure was directed to be allowed.
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