ACIT, CIRCLE - 10(1), DELHI vs. M/S HYDERABAD RING ROAD PROJECT PRIVATE LIMITED, DELHI

The assessee company filed its return of income on 28.10.2017 declaring a loss of Rs. 4,50,83,634/-. The assessee in its return of income declared annuity income of Rs. 61,80,00,000/- against which the company claimed depreciation of Rs. 35,07,52,546/-.

The case was selected for scrutiny and the assessment proceedings u/s 143(3) of the Income-tax Act, 1961 [the Act, for short] were completed on 20.12.2019 wherein the claim of depreciation was rejected in entirety. The assessee was also denied the benefit of amortization available by CBDT Circular 9/2014, on the ground that the assessee submitted only the provisional completion certificate. Accordingly, disallowance of depreciation of Rs. 35,07,52,546/- was made and the income was assessed at Rs. 30,56,68,912/-.

Aggrieved, the assessee filed an appeal before the ld. CIT(A) which was partly allowed. The CIT(A) upheld the disallowance of depreciation but allowed the benefit of amortization basis CBDT Circular 9/2014. The CIT(A)

Grounds in CO and ITA of assessee are in respect of disallowance of depreciation @ 25% on intangible asset. With regards to the claim of depreciation, at the very outset, the ld. counsel for the assessee vehemently submitted that the instant issue is squarely covered by the recent order of the co-ordinate bench of the ITAT in the case of assessee's group concern i.e. M/s Gwalior Bypass Project Ltd case in for A.Y 2016-17 order dated 07.01.2026 and in for A.Y 2015-16 and for A.Y 2014- 15.

The ld. counsel for the assessee further submitted that there is no dispute to the fact that the costs incurred by the assessee for design, construction, development, finance, operation and maintenance of eight lane access controlled express-way, have been capitalized under the head 'Intangible Asset' in the audited financial statement. It is also not in dispute that the assessee was to design, construct, develop, finance, operate, CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] maintain and transfer the said infrastructure facility in terms of an agreement with the Government of Andhra Pradesh.

Moreover, after the end of the specified period, assessee was to transfer the said infrastructure facility to the Government of Andhra Pradesh free of charge/at NIL value. In consideration of designing, developing, constructing, maintaining the facility for a specified period and thereafter transferring it to the Government of Andhra Pradesh free of charge, assessee was granted a Right/license to do certain acts/deed and to collect Annuity from HUDA during the specified period. The ld AR stated that the aforesaid Rights emerged as a result of the costs incurred as well as the risk borne by the assessee on development, construction and maintenance of the infrastructure facility.

Further, the ld. counsel for the assessee continued by saying that rights or the license granted for 15 years is an exclusive right referring to the relevant clause of the Concessionaire agreement. The ld. counsel for the assessee submitted that it is quite evident that assessee got the right for the specified period only after incurring expenditure through its own resources on development, construction and maintenance of the infrastructure facility. Scope of Project states that "The Concessionaire CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] shall undertake its obligations at its own cost and risk”. The ld AR submitted that such an exclusive right has been adjudicated to be in the nature of 'capital/intangible asset' falling within the purview of section 32(1)(ii) of the Act and has been found eligible for claim of depreciation and placed reliance on the decision of Special Bench of the Hon'ble Tribunal in the case of Progressive Constructions Ltd, reported in (2018) 161 DTR 289 (SB) (Hyderabad Tribunal), wherein it was held that the expenditure incurred by the assessee for construction of roads under BOT contract with the Govt. of India, has given rise to an intangible asset as defined under Explanation 3(b) r/w section 32(1)(ii) of the Act and hence the assessee is eligible to claim depreciation on such asset.

The ld. counsel for the assessee continued by saying that thus, though the assessee does not become the legal owner of the highway yet it has acquired a license or at best a business/commercial right to design, build, finance and operate the highway and recoup the cost incurred by way of collection of annuity from HUDA. This right of dominion to the exclusion of others has been acquired by incurring certain cost. This is an intangible asset giving enduring benefit to the assessee for the period of concession. Hence, these rights should be considered as intangible asset.

The ld DR also placed reliance on the decision of hon’ble Bombay High Court in the case of North Karnataka Expressway Ltd (2014) 51 taxmann.com 214(Bom) wherein it was held that the assessee is not the owner of road build on BOT basis and hence not eligible for depreciation.

The ld. DR further relied on the Mumbai Tribunal in the case of Hazaribagh Ranchi Expressway Ltd. vs. ACIT [2024] 167 taxmann.com 571 wherein it has been categorically held that the judgment of the Hon'ble Madras High Court in L & T Infrastructure Development Projects Ltd. CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] [supra] is the sole High Court decision on the issue and, in the absence of any contrary decision of any other High Court including the jurisdictional High Court, is binding on the Tribunal. The Tribunal further held that depreciation on the right to collect toll is not allowable and that the grant of amortization by the Assessing Officer in accordance with CBDT Circular No. 9/2014 is legally correct. Accordingly, the assessee's claim for depreciation was rejected.

Furthermore, reliance was placed on the decision of the Tribunal in for A.Y 2015-16, titled as Vijayawada Gundugolanu Road Project vide order dated 06-08-2024 wherein, following the judgment of the Hon'ble Madras High Court in L & T Infrastructure Development Projects Ltd [supra], it has been held that the "right to collect toll" is not an intangible asset within the meaning of Explanation 3(b) to Section 32(1)(ii) of the Act and dismissed the assessee's claim for depreciation.

In his rejoinder, the ld. counsel for the assessee strongly distinguished the decision in L & T Infrastructure Development Projects Ltd (supra) stating that the Hon’ble Madras High Court did not take into consideration the decisions of Hon’ble Supreme Court and hon’ble Delhi Page 9 of CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] High Court in the following cases: (i)Techno Shares & Stocks v/s CIT, [2010] 327 ITR 323 (SC);(ii) CIT v/s Smifs Securities Ltd., [2012] 348 ITR 302 (SC)and (iii) Areva T. and D India Ltd. v/s DCIT, [2012] 345 ITR 421 (Delhi High Court).

The ld counsel of the assessee further distinguished the Madras High Court decision by stating that firstly, the scope of work in L & T Infrastructure Development Projects Ltd case was construction, operation and maintenance of the respective toll bridges while in the assessee’s case it encompasses Design, Construction, Development, Finance, Operation and Maintenance. Secondly, in L & T Infrastructure Development Projects Ltd the project cost has been amortised in the books of account whereas in the assessee’s case, it has been capitalized in the books of account as intangible asset and depreciation claimed. Thirdly, L & T Infrastructure Development Projects Ltd case, the assessee in consideration for building the Road, gets Right to collect toll and no separate consideration was given by Government whereas in the assessee’s case, the assessee is given a separate consideration in the form of right to the annuity from Government and no right to receive toll as the same is given to the HUDA. Fourthly, there is no mention of license being granted CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] to L & T Infrastructure Development Projects Ltd whereas the assessee has been granted exclusive rights and license by HUDA.

With respect to arguments that facts in the assessee’s case are distinguishable as compared with the facts in L & T Infrastructure Development Projects Ltd, the ld DR vehemently submitted that a perusal of the Assessee's Concessionaire agreement (at Assessee's Paper Book, Pg. 109- 155, Para A-F, clearly establishes that the project has been awarded on a BOT (Annuity) basis only, similar to one given to in the case of L & T Infrastructure Development Projects Ltd.

With regards to the submission by the Assessee that L & T Infrastructure Development Projects (supra), only amortised the cost and did not claim depreciation, the ld DR submitted that it is factually incorrect. The ld DR submitted that the Hon'ble Madras High Court judgment clearly records that the assessee in L&T Infrastructure had claimed depreciation in its Profit & Loss account. The ld DR referred to Paragraph 47 of the Hon'ble Madras High Court judgment to show that the assessee in L&T Infrastructure had claimed depreciation in its Profit & Loss account as follows:

However, for the purpose of Income Tax, the respective assessees claimed depreciation at 25% as plants under Section 32 of the Income Tax Act, 1961 read with Rule 5 of the Income Tax Rules, 1962."

We have heard the rival submissions and have perused the relevant material on record. The admitted facts are that the assessee was awarded by the Hyderabad Urban Development Authority ("HUDA") a unit of Govt. of Andhra Pradesh, a project of Design, Construction, Development, Finance, Operation and Maintenance of Eight lane access-controlled expressway under Phase II, in the state of Andhra Pradesh, India, for the package from Narsingi to Kollur from Km 0.00 to Km 12.00, on BOT (Build, Operate and Transfer) on Annuity basis. The assessee showed the Annuity of Rs. 61,80,00,000/- as its income against which the company claimed depreciation of Rs. 35,07,52,546/-.

It is also an admitted fact that the assessee was to design, construct, develop, finance, operate, maintain and transfer (DCDFOMT), the said infrastructure facility in terms of an agreement with the Government of Andhra Pradesh. It is also not in dispute that the assessee has capitalized the costs incurred on design, construction, development, finance, operation and maintenance of eight lane access controlled express-way, under the head 'Intangible Asset' in the audited financial statement.

The question before us is whether this ‘right’ to get ‘annuity’ is ‘intangible asset’. We find that the Hon'ble Madras High Court in the case of M/s. L & T Infrastructure Development V ACIT in TCA no 868 of 2009 dated 29.12.2022 wherein while dealing with the identical issue has answered the substantial question of law against the assessee and in favour of the Revenue, holding that rights emanating from Concessionaire agreements cannot be equated with "intangible asset", such as licenses, CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] franchises, or other business or commercial rights of similar nature so as to qualify for depreciation under Section 32 the Act as follows: 120. We are of the view that the second part of the 1 substantial question of law as to whether the respective assessees have any "Intangible Assets" under the respective Concessionaire Agreements as per the definition in Explanation 3(b) to Section 32 of the Income Tax Act, 1961 also requires to be answered against the assessee. The definition of the above expression has already been extracted above.

The expression used in the last part of the definition of "Intangible Asset" is licenses, franchises or any other business or commercial rights of similar nature".

The meaning of the above expression "licenses" and the phrase" any other business or commercial rights of similar nature" has to be inferred from the meaning of the words along with which they have been used. Their meaning has to be inferred from the meaning of the expression "know-how", "patents", "copy rights", "trademark", "franchises" by applying the principle of nocitur a sociis.

In Maxwell's Interpretation of Statutes (12th Edition) at page 289, it has been stated as follows:- "Where two or more words which are susceptible of analogous meaning are coupled together, nocitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general.

As per the above principle the words must take colour from words with which they are associated.

In Skinner & Co.v.Shew and Co. (1893) 1 Ch 413 (D), it was observed: "The rule of ejusdem generis is intended to be applied where general words have been used following particular and specific Page 14 of CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] words of the on the established rule of construction that the Legislature presumed to use the general words in a restricted sense, that is to say, asbelonging to the same genus as the particular and specific words. Such a restricted meaning has to be given to words of general import only where the context of the whole scheme of legislation requires it. But where the context and the object and mischief of the enactment do not require such restricted meaning to be attached to words of general import, it becomes the duty of the Courts to give these words their plain and ordinary meaning. In our opinion, in the context of the object and the-mischief of the enactment there is no room for the application of the rule of ejusdem generis. Hence it follows that the vacancy as declared by the order impugned in this case, even though it may not be covered by the specific words used, is certainly covered by the legal import of the words "or otherwise"."

Therefore, it cannot be construed that the respective assessees had acquired "intangible assets" within the meaning of the definition in Explanation 3(b) to section 32 of the Income Tax Act, 1961 under the respective concessionaire agreement for the purpose of claiming depreciation.

By no stretch of imagination can it be construed that the respective assessees have been conferred upon any "intangible assets" under the concessionaire agreements for the purpose of the aforesaid provision.

In the light of the above discussion we are constrained to answer the second part of the first substantial question of law also against the assessee and in favour of the revenue.

The decision of above hon’ble Madras High Court was followed by the Mumbai Tribunal in the case of Hazaribagh Ranchi Expressway Ltd. vs. CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] ACIT (supra) wherein the claim of depreciation was rejected holding that depreciation on the right to collect toll is not allowable. The Tribunal found that the judgment of the Hon'ble Madras High Court in L & T Infrastructure Development Projects Ltd. [supra] is the sole High Court decision on the said issue and, in the absence of any contrary decision of any other High Court, including the jurisdictional High Court, is binding on the Tribunal. The Tribunal further held that the grant of amortization by the Assessing Officer in accordance with CBDT Circular No. 9/2014 is legally correct.

The Delhi Tribunal in for A.Y 2015-16, titled as Vijayawada Gundugolanu Road Project vide order dated 06-08-2024, wherein the author is a party, following the judgment of the Hon'ble Madras High Court (supra), has held that the "right to collect toll" is not an intangible asset within the meaning of Explanation 3(b) to Section 32(1)(ii) of the Act. The Tribunal, following the judgment of the Hon'ble Madras High Court, dismissed the assessee's claim for depreciation. The relevant para of the decision of the co-ordinate bench reads as under:

We find the assessee’s arguments that there exists distinguishing features in facts as available in L & T Infrastructure Development Projects Ltd (supra) as against the assessee’s facts, are not convincing. As far as the scope of work is concerned, both L & T Infrastructure Development Projects Ltd as well as the assessee, are required to build road infrastructure involving construction, operation and maintenance on BOT basis. Only because the assessee’s scope is wider to include Design and Development, does not bring any material difference in the claim of depreciation. The key factor, in both cases, is that both the concessionaire has to build the road infrastructure on (BOT) basis i.e., build, operate and then transfer it to the respective organs of the government. The only difference is with regard to compensation for finance of the project. Whereas in L & T Infrastructure Development Projects Ltd, the cost is recouped from collection of toll whereas in the assessee’s case, the cost is Page 17 of CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] recouped from the grant given by HUDA in the nature of “Annuity”. In the case of the assessee, for cost of construction is borne by assessee and thereafter remunerated by HUDA in the form of Annuity for the specified period. Again there is no material difference as both the procedure are designed to compensate the cost of the project. We are therefore of the considered view that “right to collect toll” is identical/similar to “right to get grant in the nature of Annuity”.

As far as accounting treatment given to the cost of road infrastructure is concerned, we find that in L & T Infrastructure Development Projects Ltd, the project cost has been capitalized and amortised in the books of account but for the purpose of Income Tax, depreciation was claimed on the same treating the toll bridge as plant/building. Likewise in assessee’s case also the project cost of Road infrastructure has been capitalized in the books of account but for the purpose of Income Tax, depreciation was claimed on the same treating the Right to receive Annuity as intangible asset.

Lastly, the assessee’s attempt to distinguish L & T Infrastructure Development Projects Ltd with its own, on the ground that L & T Infrastructure was not granted License whereas the assessee has been Page 18 of CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] granted by HUDA exclusive rights and license to implement the project, also fails because L & T Infrastructure Development Projects Ltd was granted “right to Toll” which is similar to “Right to get annuity” as discussed above. Further, in light of Hon’ble Madras High Court (supra) wherein it was held that such right and license can not be construed as “intangible assets”, the assessee’s claim for treating the “right to get annuity” as “intangible asset” and claim depreciation on the same is considered as invalid and not permissible under the law. In view of the discussions made hereinabove and the judicial precedents governing the issue, the “right to get annuity” as compensation for construction of road project does not result in the creation or acquisition of any "intangible asset" within the meaning of Explanation 3(b) to Section 32 of the Income- tax Act, 1961.

In so far as reliance of the assessee on the decision of Delhi ITAT in the case of M/s Gwalior Bypass Project Ltd (supra) is concerned, we find that the decision of hon’ble Madras High Court in the case of L & T Infrastructure Development Projects Ltd (supra) was brought to the notice of the hon’ble ITAT Bench. We therefore , respectfully distinguish CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] the decision of ITAT in the case of M/s Gwalior Bypass Project Ltd (supra). Accordingly the Grounds of the assessee in CO as well as ITA is dismissed.

The ld. DR submitted that the ld. CIT(A) lacked jurisdiction u/s 251(1)(a) of the Act to direct the Assessing Officer to grant amortization considering the fact that the assessee submitted only provisional certificate for completion whereas the said Circular mandates furnishing of final completion of certificate. Therefore, the Assessing Officer rightly disallowed the depreciation fully in accordance with law and the ld. CIT(A)’s grant of amortization is factually and legally untenable.

Per contra, the ld AR reiterated that assessee has shown the project cost as an intangible asset in its books of account from its very inception and has not claimed the cost incurred as a deferred revenue expenditure subject to amortization. It is submitted that in the present year, the assessee is only claiming depreciation on the opening WDV. Hence, there CO No. 81/DEL/2025 Hyderabad Ring Road Project Vs ACIT [A.Y. 2017-18] is no scope now to examine the expenditure now as a deferred revenue expenditure subject to amortization when the same has been subject to depreciation in the preceding years.

Placing reliance on the CBDT Circular 9/19, the ld AR stated that the Circular itself states that in the BOT arrangement, assessee is entitled to recover the cost incurred on development of such project which brings to it an enduring benefit in the form of right to collect toll during the period of agreement and hence it should be considered capital in nature and not revenue thereby entitled for depreciation and not amortization.

We have heard the rival submissions and have perused the relevant material on record. We find that the Concessionaire Agreement at Article XV at clause 15.1 provides as follows:

In the result Appeal of the assessee in as well as Cross Objection of the assessee in CO No. 81/DEL/2025 are dismissed. The Appeal of the Revenue in is also dismissed.