| Question And Answer | |
|---|---|
| Subject: | Claiming depreciation on underlying asset (mining lease) held by Company |
| Category: | Income-Tax |
| Querist: | CA Asit Baran |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | depreciation, Equity shares, intangible asset |
| Date: | December 27, 2021 |
Dear Sir,
A company named ABC has bought 100% of the equity capital of a private limited company named XYZ. XYZ has no assets or liabilities other than a mining lease allotted by the Government. The mining lease is a valuable asset as it gives XYZ exclusive and monopoly rights.
The agreement between ABC and the sellers of the shares of XYZ makes it clear that the only reason ABC has bought the shares is to acquire control over the mining lease.
Can ABC claim that the amount paid for acquiring the shares should be treated as amount paid for acquiring the lease and should be allowed depreciation.
In other words, the submission is that the corporate veil should be lifted and the real transaction i.e. acquiring the mining lease, should be seen for purposes of grant of depreciation.
It will be greatly appreciated if your Honours can advice and also cite some case laws to support the submission.
With best regards,
CA Asit Baran
As we understand, ABC has purchased equity shares of XYZ. The Books of ABC will demonstrate investment in equity shares of XYZ. Equity shares are not subjected to depreciation. Therefore, ABC cannot claim depreciation on the amount paid to acquire equity shares.