CIT vs. Noida Medicare Centre Ltd (Delhi High Court)

The assessee imported hospital equipment valued at Rs. 2,75,11,988 during the years 1988-89 and 1992-93, without payment of custom duty, on the basis of a customs duty exemption certificate (‘CDEC’) issued by the Director General of Health Services (‘DGHS’). The equipment thus imported was capitalized by the Assessee on the actual value of the equipment paid by it. Depreciation was being claimed on the said equipment from year to year at the prescribed rate as per the Act. Subsequently, the DGHS noted that the assessee had failed to fulfil the essential condition stipulated in the relevant notification of the Customs Department dated 1st March 1968 for retaining CDECs for import of hospital equipments. Accordingly, the CDEC granted to the Assessee stood withdrawn. In AY 2005-06, upon such withdrawal, the Customs authorities raised a demand of Rs. 1,10,04,795 (reduced from Rs. 3,78,66,864) as custom duty on the Assessee for the import of equipment in the aforementioned years. In AY 2009-10, the assessee treated the said payment as ‘new’ plant and machinery and claimed 100% depreciation on it. The Tribunal allowed the claim. On appeal by the department to the High Court HELD dismissing the appeal:

The central question is whether the obligation to pay customs duty related back to the actual date of payment of customs duty or the date of import of the equipment and whether the said customs duty paid in the previous year relevant to the AY in question can be capitalized with reference to an earlier year. In Funskool (India) Limited (2007) 294 ITR 642 (Mad) the question was whether depreciation could be claimed on the additional customs duty paid in the previous year relevant to the AY in question although such customs duty was in respect of machinery that was imported and installed in an earlier year. That question was answered in the affirmative by the Madras High Court by following the judgment of the Gujarat High Court in Atlas Radio and Electronics P. Limited v. Commissioner of Income Tax (1994) 207 ITR 329 (Guj) in which it was held that even though the sales tax was paid in a subsequent year, the liability to pay sales tax arose in the accounting period relevant to the assessment year in which the machinery was purchased. It was held on the facts of that case that the development rebate had to be claimed in the AY in which the machinery was purchased. Following the above decision of the Madras High Court in Funskool (India) Limited (supra), we are of the view that in the instant case, the AO erred in disallowing the capitalization of the additional customs duty in the manner claimed by the Assessee and adding the entire customs duty paid in the relevant AY to the income of the Assessee. The impugned order of the ITAT affirming the decision of the CIT (A) that the enhanced cost of equipment should be taken into consideration from AY 2005-06 onwards and that the WDV should be reworked for the AY in question does not call for interference. However, as the assessee has not preferred an appeal against the rejection of its cross-objection by the ITAT, the question whether the assessee would be entitled to claim deprecation on the customs duty paid from the year of actual import of equipment is not considered but left open for decision in an appropriate case.