Golf Course Developed on Land to be Considered “Plant & Machinery”, Hence Depreciation Allowed: Delhi ITAT

Facts of the Case:

• Assessee is a company engaged in the business of operation of golf course, construction of hotels, housing complex and merchandising.
• Assessee had claimed depreciation on the golf course at the rate of 15% considering it as Plant and Machinery.
• Assessing Officer (AO) disallowed the depreciation on the golf course as according to him the development was done on land and only the value land has enhanced by such construction. AO further added back security deposit and membership fees received by the assessee.

Contention of the Department:

• Golf course is a part of the improvement on the land and it cannot be held as a plant and machinery.
• Playing equipment, creating landscaping, holes, ponds and others are being done in the regular course to facilitate the game of golf and not into any production of goods and services.
• The fact that security deposit is refundable or not is an immaterial fact and membership fees received by the assessee is assessable as income for the assessment year in which it is received. Therefore, it should be considered as revenue income.

Contention of the Assessee:

• Assessee was of the view that the golf course is a building and depreciation should be allowed. In Assesee’s own case in previous years, golf course had been held as a plant and machinery and depreciation allowed.
• Assessee uses golf course as the tool of his business to earn revenue, thus depreciation has to be charged.
• Assessee has created a service facility for its members by creating these facilities like playing equipment, creating landscaping, holes, ponds and others and it produces revenue for the assessee.
• Advance membership fees has been recognized as capital receipt and offered to tax on accrual basis and security deposit is of refundable nature, as a result, tax is not to be charged on the same.

Decision held at ITAT Delhi Bench:

• It was held that the golf course is a business tool, hence it should be treated as plant and machinery and thus, depreciation is allowed to be charged.
• It was further held that assessee followed mercantile system of accounting and has received advance membership fees for which the services were to be rendered in subsequent years and assessee has already offered such income in the subsequent years on accrual basis.
• Security Deposit is refundable to the members; thus, it becomes a liability of the assessee, which is required to be repaid. Thus, as per law, it is required to be treated as deposit and thus capital receipt.

Conclusion:

• Depreciation is allowed to be charged on golf course developed on land if it has been used for the purpose of business, since then it would be held as a plant and machinery.
• Membership fees received should be recognized as income on accrual basis as and when such service has been rendered subsequently.
• Security deposit, being refundable, has to be treated as a capital receipt, as it a liability for the assessee.

Source: [2020] 116 taxmann.com 574 (Delhi – Trib.) Landbase India Ltd. v. Assistant Commissioner of Income-tax