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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI M. BALAGANESH & SHRI RAVISH SOOD
ORDER PER RAVISH SOOD, J.M: & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 2 North Karnataka Expressway ltd. Vs. ACIT-10(1) The captioned appeals/cross-appeal are directed against the respective orders passed by the CIT(A)-21, Mumbai, dated 11.04.2012, which in turn arises from the orders passed by the A.O under Sec. 143(3) r.w.s 263 of the Income Tax Act, 1961 (for short „Act‟) dated 23.12.2010 for A.Y. 2005-06 and under Sec. 143(3)(ii), dated 30.12.2008. As common issues are involved in the captioned appeals, therefore, the same are being taken up and disposed off by way of a consolidated order. We shall first take up the cross-appeals for the A.Y 2005-06. The assessee has assailed the order passed by the CIT(A) on th following grounds before us :
1. On the facts and the circumstances of the case and in law, the Learned Commissioner of Income tax (Appeal) has erred in concluding that the appellant is not entitled for depreciation on the toll road. The appellant prays that depreciation on the toll road may be granted treating the same as “building
2. The Learned Commissioner of Income Tax (Appeals) has rejected the claim of depreciation without considering the merits of the case. The appellant prays that each year is a separate assessment year and the appellant is entitled to claim depreciation in A.Y 2005-06. The appellant prays that claim of depreciation of Rs. 59,92,08,840/- may be granted.
3. On the facts and the circumstances of the case and in law, the appellant is entitled to claim the deduction of Rs. 6,38,88,323/-. The disallowance of Rs. 6,38,88,323/- is not justified. The appellant prays that the addition be deleted.
4. On the facts and the circumstances of the case and in law, the addition made of Rs. 6,38,88,323/- is not justified as the appellant has made the payment of the tax before the due date of filing the return. The appellant prays that the addition of Rs. 6,38,88,323/- may be deleted.
5. On the facts and the circumstances of the case and in law, the appellant is entitled to claim deduction u/s 80G on the donation of Rs. 5,26,852/-. The appellant prays that deduction u/s 80G may be granted.
6. On the facts and the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) has erred in confirming levy of interest u/s 234B. The appellant denies the liability for payment of interest u/s 234B. The interest levied u/s 234B amounting to Rs. 29,08,178/- may be deleted. & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 3 North Karnataka Expressway ltd. Vs. ACIT-10(1) 7. The Appellant craves leave to add, amend, alter, vary and/or withdraw any or all the above grounds of appeal, which are without prejudice to one another.” Further, the assessee has raised the following additional grounds of appeal before us :
“ 1. Without prejudice to Ground No. 1 and 2 of the appeal filed on 27/06/2012, the appellant prays that if the “Project Road” is not treated under the category of “Building” for the purpose of granting depreciation then the depreciation may be granted treating the said “road” under the category allowed as “Intangible Assets”. The appellant prays that the depreciation may be allowed at Rs. 149,87,12,809/- under the category of “Intangible Assets”.
Without prejudice to Ground No. 1 and 2 of the appeal filed on 27/06/2012 and additional ground no. 1, the appellant prays that if the “Project Road” is not treated under the category of “Building” or “Intangible assets” for the purpose of granting depreciation then the entire cost incurred for construction of “Project Road” should be allowed as revenue expenditure. The appellant prays that cost incurred to construct the “Project Road” and capitalized of Rs. 599.48 crores may be allowed as revenue expenditure.
3. That on the facts and in the circumstances of the case and in law, the appellant is entitled to claim the deduction of Rs. 6,38,88,323/- u/s 40(a)(ia). The disallowance of Rs. 6,38,88,323/- is not justified. The appellant prays that the addition may be deleted.
4. That on the facts and in the circumstances of the case and in law, the addition made of Rs. 6,38,88,323/- is not justified as the appellant has made the payment of the tax before the due date of filing the return. The appellant prays that the addition of Rs. 6,38,88,323/- may be deleted.
5. The appellant craves leave to add, amend, alter, vary and/or withdraw any or all the above grounds of appeal
, which are without prejudice to one another.”
2. We shall first take up the appeal of the assessee. At the very outset of the hearing of the appeal the ld. A.R had submitted that as per instructions the additional grounds of appeal no(s). 3 & 4 are not being pressed by him. The additional ground of appeal no. 5 being general is dismissed as not pressed. We, thus, confine ourselves to the admission of the additional grounds of appeal no(s). 1 and 2. As the assessee by raising the additional grounds of appeal no(s). & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 4 North Karnataka Expressway ltd. Vs. ACIT-10(1) 1 and 2 had sought adjudication of a legal issue based on the facts available on record for which no new facts are required to be looked into, we, thus, guided by the judgment of the Hon‟ble Supreme Court in the case of National Thermal Power Company Ltd. vs. CIT (1998) 229 ITR 383 (SC) have no hesitation in admitting the same.
3. Briefly stated, the assessee company which is an infrastructure company had filed its return of income for A.Y. 2005-06 on 30.10.2005, declaring a loss of (-) Rs. 22,28,15,736/- under the normal provisions and book profit of Rs. 10,13,70,151/- under Sec. 115JB of the Act. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, assessment was framed vide order passed under Sec. 143(3), dated 28.12.2007 assessing the total income of the assessee company under Sec. 115JB at Rs. 10,13,70,151/-. Thereafter, the Commissioner of Income-tax -10, Mumbai vide his order passed u/s 263 held the order passed by the A.O u/s 143(3), dated 28.12.2007 as erroneous insofar it was prejudicial to the interest of the revenue and directed him to reframe the assessment inter alia on the ground that depreciation on the toll road constructed on Build, Operate and Transfer basis was wrongly allowed to the assessee as the toll road was not owned by the assessee but belonged to the Government. Backed by the order passed by the CIT, the A.O vide his order passed under Sec. 143(3) r.w.s 263, dated 23.12.2010 inter alia disallowed the assessee‟s claim for depreciation on toll roads amounting to Rs. 59,92,08,840/-. Income of the assessee company was assessed by the A.O vide his order passed u/s 143(3) r.w.s 263, dated 23.12.2010 under the normal provisions at Rs. 44,12,50,980/- and the „book profit‟ u/s 115JB at Rs. 10,13,70,151/-.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Adopting the view that was taken by his predecessor while disposing off the appeal in the assessee‟s own case for the immediately succeeding year i.e A.Y ITA Nos. 4372 & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 5 North Karnataka Expressway ltd. Vs. ACIT-10(1) 2006-07, vide order dated 11.04.2012 the CIT(A) concluded that the assessee was not entitled for depreciation on the cost of the toll road. At the same time, it was noticed by the CIT(A) that unlike as in A.Y 2006-07 and the subsequent years where the A.O had himself allowed the assessee‟s claim of amortisation, no amortisation was allowed to the assessee during the year in question. Following the order passed by his predecessor in the assessee‟s own case for A.Y 2006-07 the CIT(A) directed the A.O to allow the assessee‟s claim of amortisation on toll road of Rs. 37,46,78,202/-.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee took us through the facts of the case. It was submitted by the ld. A.R that as per instructions the original Grounds of appeal
No(s). 3 and 4 are not being pressed. We, thus, as per the concession of the ld. A.R dismiss the Grounds of appeal No(s). 3 and 4 as not pressed. It was candidly admitted by the ld. A.R that the order passed by the CIT-10, Mumbai under Sec. 263 had been upheld by the Tribunal in dated 30th August, 2011. It was further submitted by him that the order of the Tribunal had thereafter been upheld by the Hon‟ble High Court of Bombay in ITA No. 499 of 2012; dated 14th October, 2014 and the appeal filed by the assessee was dismissed. It was, however, submitted by the ld. A.R that the Hon‟ble High Court while upholding the order of the Tribunal had categorically observed that the assessee‟s claim for depreciation in respect of the building, plant and machinery falling within the purview of sub-section (1) of Sec. 32 if considered and granted shall not be affected by its said order. It was submitted by the ld. A.R that as the assessee company had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government, therefore, it got vested with a right to an intangible asset under Explanation 3(b) r.w. Sec. 32(1)(ii) of the Act, pursuant whereto it was eligible to claim depreciation on such asset as per the specified ITA Nos. 4372 & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07
6. North Karnataka Expressway ltd. Vs. ACIT-10(1) rate. In order to buttress his aforesaid claim the ld. A.R had drawn support from the following orders :
Sr. No. Particulars 1. West Gujarat Expressway Ltd. Vs. ACIT -10(1) [ITA No. 5904 & 6244/Mum/2012; A.Y 2009-10] 2. West Gujarat Expressway Ltd. Vs. DCIT -14(3)(1) [ITA No. 634 & 664/Mum/2015; A.Y 2010-11] 3. Andhra Pradesh Expressway Ltd. Vs. ACIT – 14(1)(1) [ITA No. 655 & 146/Mum/2015; A.Y 2010-11] 4. Thiruvananthapuram Road Development Co. Ltd. Vs. ACIT-10(1) [ITA No. 6798 & 6837/Mum/2011; A.Y 2008-09] 5. Thiruvananthapuram Road Development Co. Ltd. Vs. DCIT-14(3)(1) [ITA No. 622, 636, 4346/Mum/2015 & C.O No. 25/Mum/201, A.Y 2010-11 and A.Y 2011-12] 6. West Gujarat Expressway Ltd. Vs. DCIT -14(3)(1) [ITA No. 3668 & 4327/Mum/2016; A.Y 2011-12] 7. M/s Infrastructure Leasing & Financial Services Ltd. Vs. Addl. CIT – 10(1) [ITA No. 3699, 3700, 3785 & 3786/Mum/2013; A.Y 2008-09 and A.Y 2009-10] 8. M/s Infrastructure Leasing & Financial Services Ltd. Vs. DCIT-14(2)(1) [ITA No. 7091, 7092, 7284 & 6829/Mum/2014; A.Y 2010-11 and A.Y 2011-12] 9. Selvel Advertising (P) Ltd. Vs. DCIT [58 taxmann.com 196 (Kolkata-Trib); A.Y 2006-07 to A.Y 2010-11 10. North Karnataka Expressway Ltd. Vs. CIT-10 [ITA No. 499/Mum/2012] 11. Godhra Expressway Private Ltd. Vs. DCIT [ITA No. 2123 & 2124/Hyd/2018; A.Y 2014-15 and A.Y 2015-16] 12. Second Vivekananda Bridge Tollway Co. Pvt. Ltd. Vs. DCIT 2(2) [ITA No. 19/Kol/2017; A.Y 2012-13] Ld. A.R took us through the observations of the Hon‟ble High Court in its own case i.e North Karnataka Expressway Ltd. Vs. The CIT-10, Mumbai; dated ITA Nos. 4372 & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 7 North Karnataka Expressway ltd. Vs. ACIT-10(1) 14.10.2014 for A.Y 2005-06, as were recorded at Page 60 –Para 52 of the order. It was submitted by the ld. A.R that the Hon‟ble High Court while upholding the order of the Tribunal had observed that the issue qua the assessee‟s entitlement towards depreciation in respect of building, plant and machinery falling within the purview of sub-section (1) of Sec. 32 would not be affected by its judgment. Also our attention was drawn by the ld. A.R to the observations of the ITAT, „G‟ Bench, Mumbai in the case of West Expressway Ltd. Vs. ACIT-10(1), Mumbai , recorded at Page 14 – Para 20 of its order. It was submitted by the ld. A.R that in the aforesaid orders it was clearly observed that though the assessee not being the owner of the toll road would not be eligible to claim depreciation on the same, however, its claim for depreciation if otherwise eligible under the other provisions of the Act were being left open. It was, thus, in the backdrop of his aforesaid contentions submitted by the ld. A.R that as the assessee company had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government, therefore, it got vested with a right to an intangible asset under Explanation 3(b) r.w. Sec. 32(1)(ii) of the Act, pursuant whereto it was eligible to claim depreciation on the same.
Per Contra, the ld. Departmental Representative (for short „D.R‟) submitted that the lower authorities had rightly rejected the assessee‟s claim for depreciation under Sec. 32(1)(ii) in respect of its “right to collect toll”, for the reason, that the ownership of the toll roads was not vested with the assessee. In order to support its aforesaid contention the ld. D.R had relied on the CBDT Circular No. 9/2014. Also, support was drawn by the ld. D.R from the judgments of the Hon‟ble High Court of Bombay in the case of North Karnataka Expressway Ltd. Vs. CIT-10 (2015) 272 ITR 145 (Bom) and CIT Vs. West Gujarat Expressway Ltd. (2017) 390 ITR 398 (Bom). It was further submitted by the ld. D.R that amortisation may be allowed to the assessee w.r.t the toll roads. & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 8 North Karnataka Expressway ltd. Vs. ACIT-10(1) 7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, and also the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought for adjudicating the solitary issue, viz. that as to whether or not the assessee‟s claim for depreciation on “license to collect toll”, an intangible asset, falls within the scope of Sec. 32(1)(ii) of the Act, and thus, is as per the mandate of law. It is the claim of the revenue that the issue in hand is covered against the assessee by the judgment of the Hon‟ble High Court of Bombay in the assessee‟s own case for the year in question i.e North Karnataka Expressway Ltd. Vs. CIT-10 (2015) 272 ITR 145 (Bom) and that passed in the case of CIT Vs. West Gujarat Expressway Ltd. (2017) 390 ITR 398 (Bom). On the contrary, it is the claim of the assessee that the issue raised in the aforesaid cases was confined to the aspect that as to whether or not an Infrastructure Development Company which had constructed a “toll road” on BOT basis on land owned by the Central Government would be entitled for depreciation on the same. It is the claim of the ld. A.R that as the issue as to whether an Infrastructure Development Company which had constructed a “toll road” on BOT basis on land owned by the Central Government would be entitled towards claim of depreciation under Sec. 32(1)(ii) in respect of its intangible rights i.e. “right to collect toll” was neither raised before or adjudicated upon by the Hon‟ble High Court in either of the aforesaid cases, therefore, the reliance placed by the revenue on the said judicial pronouncements would not assist its case.
We have given a thoughtful consideration to the issue before us in the backdrop of the material available on record and the contentions advanced by the ld. authorized representatives for both the parties. Admittedly, as the assessee which being an Infrastructure Development Company had constructed the “toll road” on build, operate and transfer (BOT) basis on the land owned by the Central Government, not being the owner of the said road would not be & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 9 North Karnataka Expressway ltd. Vs. ACIT-10(1) eligible for claim of depreciation on the same. Our aforesaid view is fortified by the judgment of the Hon‟ble High Court of Bombay in the assessee‟s own case for the year in question, viz. North Karnataka Expressway Ltd. Vs. CIT-10(2015) 272 ITR 145 (Bom). Hon‟ble High Court in its said order had after exhaustively deliberating on the provisions of the National Highway Act, 1956, had therein observed, that though the Central Government as per Sec. 8-A of the National Highway Act, 1956 is empowered to enter into an agreement with any person in relation to the development and maintenance of the whole or any part of a National Highway, but that in no way would affect the vesting of the National Highways in the Union. It was observed by the Hon‟ble High Court that the ownership of the National Highway as stands vested with the Central Government under Sec.4 of the National Highway Act, 1956 would not be diluted, for the reason, that the Central Government as per Sec.8-A (supra) had entered into an agreement with any person for development and maintenance of the whole or any part of the National Highway. To sum up, the Hon‟ble High Court had concluded that an Infrastructure Development Company that had constructed a „toll road‟ on build, operate and transfer (BOT) basis on the land owned by the Government, not being the owner of the said road would thus not be entitled for depreciation on the same. At this stage, we may herein observe, that the Hon‟ble High Court while concluding as hereinabove had also observed, that as the assessee had invested in the project of construction, development and maintenance of the National Highway, therefore, claim for depreciation on the assets in the form of building and plant & machinery etc. can be validly raised and granted. Also, the Hon‟ble High Court in its order had referred to the observations recorded by the CIT in his order passed under Sec.263 of the Act, wherein he had while declining the assesses claim for depreciation on „toll road‟ had categorically stated that it was not the case of the assessee that the claim of depreciation was being raised in respect of its intangible rights i.e right to use the asset without being the actual owner of the same. & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 10 North Karnataka Expressway ltd. Vs. ACIT-10(1) 9. As observed by us hereinabove, the view taken by the Hon‟ble High Court of Bombay in its order passed in the assessee‟s own case was thereafter once again reiterated by the Hon‟ble Court in the case of CIT-10, Vs. M/s West Gujarat Expressway Ltd. (ITA No. 2357 of 2013, dated 05.04.2016). We find that both of the aforementioned judgements of the Hon‟ble jurisdictional High Court were rendered in context of the issue that as to whether or not an Infrastructure Development Company which had constructed a „toll road‟ on BOT basis on the land owned by Central Government would be entitled for depreciation on such “toll road”. We find that the Hon‟ble High Court had observed that in the absence of ownership of the „toll road‟ which belonged to the Central Government, the assessee would not be entitled to claim depreciation on the same. The issue as to whether or not an Infrastructure Development Company that had constructed a „toll road‟ on BOT basis on the land owned by Central Government would be entitled to claim depreciation under Sec.32(1)(ii) in respect of its “right to collect toll” i.e an intangible asset was however not raised in both of the aforesaid cases. Our aforesaid view stands fortified from a perusal of the order of the Hon‟ble High Court in the case of North Karnataka Expressway Ltd. Vs. CIT-10 (2015) 272 ITR 145 (Bom), wherein at Para 20 the Hon‟ble High Court had observed that the question before them was as to when a person who is in the business of Infrastructure Development constructs a road on build, operate and transfer (BOT) basis on the land owned by the Government, then, can it claim depreciation on such „toll road‟. We find that the Hon‟ble High Court had observed that though an Infrastructure Development company that had constructed a road on BOT basis on the land owned by the Central Government was not entitled to claim depreciation on the „‟toll roads” as it was not owner of the same, however, it could definitely claim depreciation on its investments made in the project and such other assets in the form of building and plant and machinery etc. Accordingly, it was observed by the Hon‟ble High Court at Para 47 of its order that the claim for depreciation could be validly raised and granted & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 11 North Karnataka Expressway ltd. Vs. ACIT-10(1) to the extent stated hereinabove. Also, it was observed by the Hon‟ble High Court that it was concerned only with the claim of the assessee as regards depreciation on the road itself. To sum up, the Hon‟ble High Court in its aforesaid judgment had confined its adjudication to the issue that as to whether or not an Infrastructure Development Company that had constructed a road on BOT basis on land owned by the Central Government would be eligible to claim depreciation on such „toll road‟ so constructed and operated by it. Accordingly, we are of the considered view, that the issue as to whether an Infrastructure Development company that had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government would be entitled to claim depreciation under Sec. 32(1)(ii) in respect of its intangible rights i.e “right to collect toll” had not been adjudicated by the Hon‟ble High Court in its aforesaid order in the case of North Karnataka Expressway Ltd. (supra). We find that the Hon‟ble High Court of Bombay had thereafter once again reiterated its aforesaid view while disposing off the appeal of the revenue in the case of CIT-10 Vs. M/s West Gujarat Expressway Ltd. (ITA No. 2357 of 2013, dated 05.04.2016). As is discernible from the order, the only two issues which were raised by the revenue in its aforesaid appeal before the High Court were, viz. (i). Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in directing the A.O to grant depreciation on assets not owned by the Respondent that goes against provisions of Section 32 of the I.T Act?; and (ii). Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in its decision of treating toll roads as plant and machinery, when this is not as per rule 5 of New Appendix of the I.T Rules?. As such, we find that the revenue had only sought the adjudication of the issue as to whether the Tribunal was right in allowing depreciation to the assessee on “toll roads” by treating the same as plant and machinery. It is in the backdrop of the aforesaid issues which were raised by the revenue that the Hon‟ble High Court by relying on its earlier order in the case of North Karnataka Expressway ITA Nos. 4372 & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 12 North Karnataka Expressway ltd. Vs. ACIT-10(1) Ltd. Vs. CIT-10 (2015) 372 ITR 145 (Bom), had concluded, that the issue therein involved was squarely covered by the said decision. Accordingly, the Hon‟ble High Court by drawing support from the observations recorded in its earlier order in the case of North Karnataka Expressway Ltd. (supra) had therein answered the aforesaid two substantial questions of law in the negative i.e in favour of the appellant revenue and against the respondent assessee. In our considered view, the Hon‟ble High Court in its aforesaid order i.e CIT-10, Mumbai Vs. M/s West Gujarat Expressway Ltd., of 2013, dated 05.04.2016, had confined its adjudication to the aforesaid two substantial questions of law which were raised by the revenue before it. Our aforesaid view is fortified by the order of a coordinate bench of the Tribunal, Mumbai in the case of Thiruvanthapuram Road Development Company Ltd. Vs. DCIT-14(3)(1), Mumbai [ITA NO. 622/Mum/2015, dated 23.05.2018]. In the aforesaid case involving facts identical to those as in the case of the assessee before us, we find that the assessee had claimed that it was entitled for depreciation on “right to collect toll” u/s 32(1)(ii) of the Act. Relying on the judgment of the Hon‟ble High Court of Bombay in the case of CIT-10, Vs. M/s West Gujarat Expressway Ltd. (ITA No. 2357 of 2013, dated 05.04.2016), it was the claim of the revenue that the issue was covered against the assessee. We find, that the Tribunal rejected the aforesaid claim of the revenue, for the reason, that the issue as regards the entitlement of an Infrastructure Development company that had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government towards claim depreciation under Sec. 32(1)(ii) in respect of its intangible rights i.e “right to collect toll” had not been adjudicated by the Hon‟ble High Court in its aforesaid order. In fact, it was observed by the Tribunal that the Hon‟ble High Court in the aforesaid case had adjudicated that an Infrastructure Development company that had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government would not be entitled to claim depreciation on such “toll road”. The observations of the Tribunal are as under: & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 13 North Karnataka Expressway ltd. Vs. ACIT-10(1) “The Mumbai bench of the Tribunal in the aforesaid decision in ACIT Vs. M/s Andhra Pradesh Expressway by a later decision dated 28/02/2018 duly considered various decisions including the decision reversed by the Hon‟ble High Court in CIT Vs. West Gujarat Expressway Ltd. (2016) 73 taxmann.com 139; (2017) 390 ITR 400 (Bom)., order dated 05/04/2016. Before us also, the Ld. CIT- DR/Ld. D.R contended that in view of this decision from the Hon‟ble High Court, the assessee is not entitled to depreciation. We have gone through this order and found that the issue before the Hon‟ble High Court was with respect to treating toll road as plant and machinery and if that situation decided in favour of the revenue.” In the backdrop of the aforesaid facts, we are of the considered view that the reliance placed by the Ld. D.R on the aforesaid judgments of the Hon‟ble High Court of Bombay i.e North Karnataka Expressway Ltd. Vs. CIT-10 (2015) 372 ITR 145 (Bom) and CIT-10, Vs. M/s West Gujarat Expressway Ltd. (ITA No. 2357 of 2013, dated 05.04.2016), would not assist the case of the revenue for rebutting the claim of the assessee towards deprecation u/s 32(1)(ii) in respect of its intangible rights i.e “right to collect toll” .
We find that the „Special bench‟ of the Tribunal in the case of ACIT, Circle 10(2), Hyderabad, Vs. Progressive Construction Ltd. (2018) 191 TTJ 549 (Hyd.) (SB), had concluded, that where an Infrastructure Development company that had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government gets vested with a right to an intangible asset under Explanation 3(b) r.w. Sec.32(1)(ii) of the Act, the assessee would be eligible to claim depreciation on such asset as per the specified rate. Apart from that, it was observed by the Tribunal, that where the assessee had never claimed expenditure incurred for construction of the road on build, operate and transfer (BOT) basis, as a deferred revenue expenditure, the same could not have been amortized in terms of CBDT Circular No. 9 of 2014, dated, 23.04.2014. The observations of the „Special bench‟ of the Tribunal which seizes the issue under consideration before us are as under:
11. Undisputedly, for executing the project, assessee has incurred expenses of Rs.214 crore. It is also not disputed that as per the terms of the C.A., the Government of India is not obliged / required to reimburse the cost incurred by the assessee to execute / implement the project facilities. The only right / benefit allowed to the assessee by the Government of India is to operate the project / project facilities during the concession period of 11 years 7 months and to collect toll & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 14 North Karnataka Expressway ltd. Vs. ACIT-10(1) charges from vehicles / persons using the project / project facilities. Thus, as could be seen, the only manner in which the assessee can recoup the cost incurred by it in implementing the project / project facility is to operate the road during the concession period and collect the toll charges from user of the project facility by third parties. Admittedly, the assessee has taken up the project as a business venture with a profit motive and certainly not as a work of charity. Further, by investing huge some of Rs.214 crore, the assessee has obtained a valuable business / commercial right to operate the project facility and collect toll charges. Therefore, in our considered opinion, right acquired by the assessee for operating the project facility and collecting toll charges is an intangible asset created by the assessee by incurring the expenses of Rs.214 crore. The contention of the learned Senior Standing Counsel that expenditure of Rs.214 crore has brought into existence a tangible asset in the form of roads and bridges of which the assessee is not the owner but it is the Government of India is nobody's case. Further, the learned Senior Standing Counsel's apprehension that it will lead to a situation where both Government of India and the concessionaire will claim depreciation on the asset created with the very same expenditure, in our view, is not borne out from facts on record. At the cost of repetition we must observe, as per the terms of agreement the expenses incurred by the assessee towards construction of the roads, bridges, etc., were not going to be reimbursed by the Government of India. This fact was known to both the parties before the execution of the agreement as the tender itself has made it clear that the project is to be executed with private sector participation on BOT basis. Thus, from the very inception of the project, assessee was aware of the fact, it has to recoup the cost incurred in implementing the project along with the profit from operating the road and collecting toll charges during the concession period. Therefore, assessee has capitalized the cost incurred on the BOT project on which it has claimed depreciation. Thus, in our view, the expenditure incurred by the assessee of Rs.214 crore for creating the project or project facilities has created an intangible asset in the form of right to operate the project facility and collect toll charges. Further, it is the contention of the learned Senior Standing Counsel that if at all any right is created under the C.A. for collecting toll, such right accrued to the assessee on the date of execution of agreement i.e., 22nd December 2005, therefore, the expenditure incurred by such date should be the value of intangible asset which can alone be considered for depreciation under section 32(1)(ii) of the Act. We are afraid, we cannot accept the above argument of the learned Senior Standing Counsel. When the C.A. confers a right on the assessee to operate the project facility and collect toll charges over the concession period of 11 years and 7 months, the assessee can start operating and collecting toll charges only when the project facility is ready for use. Therefore, until the project is completed and ready for use by vehicles or persons assessee cannot collect toll charges for user of the project facilities. Thus, the right to operate the project facility and collect toll charges is integrally connected to the completion of the project facility which cannot be done unless the assessee invests its fund for completing the project. Therefore, keeping in view the aforesaid fact, it cannot be said that the right to collect toll has accrued to the assessee on the date of execution of the agreement. If we accept the aforesaid argument of the learned Senior Standing Counsel, in other words, it would mean that without even executing and completing the project facility, assessee would be collecting toll charges. Therefore, the contention of the learned Senior Standing Counsel that the expenditure incurred by the assessee till execution of the agreement can only be considered as an intangible asset, in our view, is illogical, hence, cannot be accepted. Thus, having held that the expenditure of Rs.214 crore incurred by the assessee has resulted in creation of an intangible asset of enduring nature for the assessee, it is necessary now to examine whether such intangible asset comes within the scope and ambit of section 32(1)(ii) of the Act. For this purpose, & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 15 North Karnataka Expressway ltd. Vs. ACIT-10(1) it is necessary to look into the said provision which is reproduced hereunder for the sake of convenience. Depreciation. 32(1)(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature67, being intangible assets acquired on or after the 1st day of April, 1998, owned67, wholly or partly, by the assessee67 and used for the purposes of the business67 or profession, the following deductions shall be allowed—] 12. Explanation 3 to section 32(1) defines intangible asset as under:- 85[Explanation 3.—For the purposes of this sub-section, 86[the expression assets"] shall mean— (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature87.
A plain reading of the aforesaid provisions would indicate that certain kind of assets being knowhow, patents, copyrights, trademarks, license, franchise, or any other businesses or commercial rights of similar nature are to be treated as intangible asset and would be eligible for depreciation at the specified rate. It is the claim of the assessee that the right acquired under C.A. to operate the project facility and collect toll charges is in the nature of license. However, the learned Senior Standing Counsel has strongly countered the aforesaid claim of the assessee by referring to the definition of license as provided under the Indian Easements Act, 1882. For better appreciation, we intend to reproduce herein below the definition of “license” as provided under section 52 of the Indian Easements Act, 1882: - "License" defined:- Where on person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a license."
It has been the contention of the learned Senior Standing Counsel that as the term "license" has not been defined under the Income Tax Act, 1961, the definition of "license" under the Indian Easements Act, 1882, has to be looked into. Accepting the aforesaid contention of the learned Senior Standing Counsel, let us examine the definition of "license" extracted herein above. A plain reading of section 52 of the Act makes it clear, a right granted to a person to do or continue to do something in the immovable property of the grantor, which, in the absence of such right would be unlawful and such right does not amount to an easement or interest in the property, then such right is called a license. If we examine the facts of the present case, vis-a-vis, the definition of license under the Indian Easements Act, 1882, it would be clear that immovable property on which the project / project facility is executed / implemented is owned by the Government of India and it has full power to hold, dispose off and deal with the immovable property. By virtue of the C.A., assessee has only been granted a limited right to execute the project and operate the project & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 16 North Karnataka Expressway ltd. Vs. ACIT-10(1) facility during the concession period, on expiry of which the project / project facility will revert back to the Government of India. What the Government of India has granted to the assessee is the right to use the project site during the concession period and in the absence of such right, it would have been unlawful on the part of the concessionaire to do or continue to do anything on such property. However, the right granted to the concessionaire has not created any right, title or interest over the property. The right granted by the Government of India to the assessee under the C.A. has a license permitting the assessee to do certain acts and deeds which otherwise would have been unlawful or not possible to do in the absence of the C.A. Thus, in our view, the right granted to the assessee under the C.A. to operate the project / project facility and collect toll charges is a license or akin to license, hence, being an intangible asset is eligible for depreciation under section 32(1)(ii) of the Act.
Even assuming that the right granted under the C.A. is not a license or akin to license, it requires examination whether it can still be considered as an intangible asset as described under section 32(1)(ii) of the Act. In this context, it has been the contention of the learned Senior Standing Counsel that the intangible asset mentioned under section 32(1)(ii) of the Act are specifically identified assets, except, the assets termed as “any other business or commercial rights of similar nature". He had submitted, applying the principle of ejusdem generis the rights referred to in the expression "any other business or commercial rights of similar nature", should be similar to one or more of the specifically identified assets preceding such expression. The aforesaid contention of the learned Departmental Representative is unacceptable for the reasons enumerated hereinafter.
We have already held earlier in the order that by incurring the expenditure of 'Rs.214 crore assessee has acquired the right to operate the project and collect toll charges. Therefore, such right acquired by the assessee is a valuable business or commercial right because through such means, the assessee is going to recoup not only the cost incurred in executing the project but also with some amount of profit. Therefore, there cannot be any dispute that the right to operate the project facility and collect toll charges therefrom in lieu of the expenditure incurred in executing the project is an intangible asset created for the enduring benefit of the assessee. Now, it has to be seen whether such intangible asset comes within the expression "any other business or commercial rights of similar nature". As could be seen from the definition of intangible asset, specifically identified items like knowhow, patents, copyrights, trademarks, licenses, franchises are not of the same category, but, distinct from each other. However, one thing common amongst these assets is, they all are part of the tool of the trade and facilitate smooth carrying on of business. Therefore, any other intangible asset which may not be identifiable with the specified items, but, is of similar nature would come within the expression “any other business or commercial rights of similar nature". The Hon'ble Supreme Court in CIT v/s Smifs Securities (supra) after interpreting the definition of intangible asset as provided in Explanation 3 to section 32(1), while opining that principle of ejusdem generis would strictly apply in interpreting the definition of intangible asset as provided by Explanation 3(b) of section 32, at the same time, held that even applying the said principle „goodwill' would fall under the expression "any other business or commercial rights of similar nature". Thus, as could be seen, even though, „goodwill' is not one of the specifically identifiable assets preceding the expressing "any other business or commercial rights of similar nature", however, the Hon'ble Supreme Court held that „goodwill' will come within the expression "any other business or commercial rights of similar nature". Therefore, the contention of the learned Senior Standing Counsel that to come within the expression "any other & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 17 North Karnataka Expressway ltd. Vs. ACIT-10(1) business or commercial rights of similar nature" the intangible asset should be akin to any one of the specifically identifiable assets is not a correct interpretation of the statutory provisions. Had it been the case, then „goodwill' would not have been treated as an intangible asset. The Hon'ble Delhi High Court in case of Areva T and D India Ltd. (supra), while interpreting the aforesaid expression by applying the principles of ejusdem generis observed, the right as finds place in the expression “business or commercial rights of similar nature” need not answer the description of knowhow, patents, trademarks, license or franchises, but must be of similar nature as the specified asset. The Court observed, looking at the meaning of categories of specified intangible assets referred to in section 32(1)(ii) of the Act preceding the term “businessor commercial right of similar nature”, it could be seen that the said intangible assets are not of the same line and are clearly distinct from one another. The Court observed, the use of words “business or commercial rights of similar nature”, after the specified intangible assets clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets which were neither visible nor possible to exhaustively enumerate. The Hon'ble Court, therefore observed, in the circumstances the nature of business or commercial right cannot be restricted only to knowhow, patents, trademarks, copyrights, licence or franchise. The Court observed, any intangible assets which are invaluable and result in smoothly carrying on the business as part of the tool of the trade of the assessee would come within the expression “any other business or commercial right of similar nature”.
In the case of Techno Shares and Stocks Ltd. v/s CIT, [2010] 327 ITR 323 (SC), the Hon'ble Supreme Court while examining the assessee's claim of depreciation on BSE Membership Card, after interpreting the provisions of section 32(1)(ii), held that as the membership card allows a member to participate in a trading session on the floor of the exchange, such membership is a business or commercial right, hence, similar to license or franchise, therefore, an intangible asset. In the present case, undisputedly by virtue of C.A. the assessee has acquired the right to operate the toll road / bridge and collect toll charges in lieu of investment made by it in implementing the project. Therefore, the right to operate the toll road / bridge and collect toll charges is a business or commercial right as envisaged under section 32(1)(ii) r/w Explanation 3(b) of the said provisions. Therefore, in our considered opinion, the assessee is eligible to claim depreciation on WDV as an intangible asset. Thus, we answer the question framed by the Special Bench as under:- The expenditure incurred by the assessee for construction of road under BOT contract by the Government of India has given rise to an intangible asset as defined under Explanation 3(b) r/w section 32(1)(ii) of the Act. Hence, assessee is eligible to claim depreciation on such asset at the specified rate.
In view of our aforesaid conclusion, there is no need to answer the second part of the question framed. This disposes of grounds no.2, 3, 5 and 6.” We find that the aforesaid order of the „Special bench‟ of the Tribunal, had thereafter been followed by the ITAT “J” bench, Mumbai, in the case of DCIT, Circle-9(1)(2),Mumbai Vs. M/s Atlanta Ltd. Mumbai (ITA No. 3415/Mum/2015, dated 24.01.2018). Also, a similar view had been taken by the ITAT, Chennai in ITA Nos. 4372 & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 18 North Karnataka Expressway ltd. Vs. ACIT-10(1) the case of ACIT, Co-operative circle 5(2), Chennai Vs. M/s PNG Toll Way Ltd (ITA No. 238/CHNNY/2019, dated 26.07.2019; AND ITAT “E” Bench, Mumbai in the case of ACIT (Cir). 6(2)(2), Mumbai Vs. M/s Essel Sagar Damoh Toll Roads Ltd, & C.O No. 84/Mum/2018; A.Y 2011-12, dated 20.09.2019. In the backdrop of the aforesaid judicial pronouncements, we are of the considered view that the issue as to whether an Infrastructure Development company that had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government would be eligible for claim of depreciation in respect of its intangible rights i.e “right to collect toll” under Sec. 32(1)(ii) is squarely covered by the aforesaid order of the „Special bench‟ of the Tribunal in the case of ACIT, Circle 10(2), Hyderabad, Vs. Progressive Construction Ltd. (2018) 191 TTJ 549 (Hyd.) (SB) and also the orders of the coordinate benches of the Tribunal viz. (i) DCIT, Circle-9(1)(2),Mumbai Vs. M/s Atlanta Ltd. Mumbai (ITA No. 3415/Mum/2015, dated 24.01.2018); (ii) ACIT Vs. M/s PNG Tata Ltd. (ITA No. 238/CHNNY/2019, dated 26.07.2019); AND (iii). ACIT (Cir). 6(2)(2), Mumbai Vs. M/s Essel Sagar Damoh Toll Roads Ltd, ITA No. 7114/Mum/2016 & C.O No. 84/Mum/2018; A.Y 2011-12, dated 20.09.2019. We, thus, finding ourselves to be in agreement with the view taken by the Tribunal in the aforesaid cases respectfully follow the same. Accordingly, the claim of the assessee towards depreciation under Sec.32(1)(ii) in respect of its intangible rights i.e “right to collect toll” being in conformity with the mandate of law is found to be in order. We thus not finding favour with the view taken by the CIT(A) therein set-aside the same. The Ground of appeal
No. 1 is dismissed in terms of our aforesaid observations. The Ground of appeal No. 2 r.w additional ground of appeal no. 1 are allowed in terms of our aforesaid observations.
11. The additional ground of appeal No. 2 is dismissed in terms of our aforesaid observations. & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 19 North Karnataka Expressway ltd. Vs. ACIT-10(1)
12. The assessee has assailed the levy of interest u/s 234B of the Act. As the levy of interest is mandatory as held by the Hon‟ble Supreme Court in the case of CIT Vs. Anju M.H. Ghaswala (2001) 252 ITR 1 (SC), therefore, the same being consequential, the A.O is directed to recompute the same while giving effect to our aforesaid order. The Ground of appeal No. 6 is disposed of in terms of our aforesaid observations.
13. The Ground of appeal No. 7 and the additional ground of appeal no. 5 being general in nature are dismissed as not pressed.
14. Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observations. A.Y 2005-06 (Revenue‟s appeal) 15. We shall now take up the appeal of the department for A.Y 2005-06. The revenue has assailed the impugned order passed by the CIT(A) on the following grounds of appeal before us :
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing amortization for 16 years whereas the agreement was for 17 years and 6 months.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the adhoc disallowance of Rs. 5 lacs on account of motor car expenses even though depreciation was claimed only for one car proving that the second car was not used for business purpose.
3. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of hte Assessing Officer be restored.
The appellant craves leave to amend, or alter any grounds or add a new ground, which may be necessary.”
16. As we have allowed the assessee‟s appeal and therein observed that its claim for depreciation under Sec. 32(1)(ii) in respect of its intangible rights i.e & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 20 North Karnataka Expressway ltd. Vs. ACIT-10(1) “right to collect toll” being in conformity with the mandate of law is found to be in order, therefore, the grievance raised by the revenue as regards quantification of the amount of amortisation is rendered as infructuous. We shall, however, make it clear that as the assessee has been held eligible for claim of depreciation under Sec. 32(1)(ii) w.r.t its intangible rights i.e “right to collect toll”, it would, thus, as a consequence thereto stand divested of the amortization that was allowed pursuant to the direction of the CIT(A). The Ground of appeal
No. 1 is dismissed as infructuous in terms of our aforesaid observations.
17. We shall now deal with the grievance of the revenue that the CIT(A) had erred in vacating the ad hoc disallowance of Rs. 5 lac that was made by the A.O on account of motor car expenses. It was submitted by the ld. D.R that as the assessee had admittedly claimed depreciation for only one car, the A.O, thus, had rightly concluded that as the second car was not used by the assessee for its business purposes, the motor car expenses pertaining to the same as were booked in the financial statements were liable to be disallowed. Per Contra, the ld. A.R relied on the order of the CIT(A).
18. On a perusal of the records it transpires that the assessee had purchased two vehicles, viz. (i). Terran; and (ii). Honda CRV. On a perusal of the depreciation chart it was observed by the A.O that the assessee had not claimed depreciation on the Honda CRV vehicle that was purchased by the assessee in the immediately preceding year i.e A.Y 2004-05. Backed by the aforesaid facts, the CIT-10, Mumbai in his order passed u/s 263 had directed that if the aforesaid vehicle i.e Honda CRV was not used by the assessee for its business purpose, then, the expenses on fuel, maintenance and expenditure on driver salary as was claimed by the assessee as a deduction while computing its income was liable to be disallowed. On the basis of the aforesaid directions of the CIT, the A.O vide his order passed u/s 143(3) r.w.s 263, dated 23.12.2010 disallowed the assessee‟s claim for expenditure incurred on fuel, maintenance and driver‟s & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 21 North Karnataka Expressway ltd. Vs. ACIT-10(1) salary of Rs. 5 lac on an ad hoc basis. On appeal, the CIT(A) observed that the CIT-10, Mumbai in his order passed u/s 263 had proceeded on incorrect facts for concluding that the assessee had not claimed depreciation on the Honda CRV vehicle that was purchased by the assessee in the immediately preceding year i.e A.Y 2004-05. It was observed by the CIT(A) that the CIT-10, Mumbai had erred in comparing the additions to vehicles of Rs. 40,96,398/- for 15 months period as per “Schedule C‟ to the fixed assets forming part of the balance sheet with the WDV of vehicles of Rs. 14,08,601/- as on 31.03.2004 as per Annexure – II of the fixed assets forming part of the assessee‟s tax audit report. On a perusal of the details, it was observed by the CIT(A) that the assessee had purchased Honda CRV vehicle on 18.02.2004 for a consideration of Rs. 17, 27, 511/-. It was further observed by the CIT(A) that though the assessee had claimed depreciation on the Honda CRV vehicle that was purchased in A.Y 2004-05, the CIT-10 in his order passed u/s 263 had however wrongly observed that the assessee had not capitalized the said vehicle in its books of account and not claimed depreciation on the same. It was noticed by the CIT(A) that the CIT-10, Mumbai in his order passed u/s 263 had on the basis of a wrong comparison of the Annexure-II to fixed assets forming part of the balance sheet for the period of 12 months i.e 01.04.2004 to 31.03.2005 as against the financial statement of the assessee prepared for the period 01.01.2004 to 31.03.2005 i.e for 15 months as per the provisions of Companies Act, therein erred in concluding that the assessee had not claimed depreciation on the Honda CRV vehicle that was purchased on 18.02.2004. It was further noticed by the CIT(A) that the A.O without considering the submissions of the assessee had followed the directions given by the CIT-10, Mumbai in his order passed u/s 263 and made an ad hoc disallowance of motor vehicle expenses of Rs. 5 lac. Backed by his aforesaid observations, the CIT(A) was of the view that as the assessee had duly claimed depreciation on the Honda CRV vehicle both in the year of purchase i.e A.Y 2004-05 and the year in question thus the said vehicle was admittedly used by ITA Nos. 4372 & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 22 North Karnataka Expressway ltd. Vs. ACIT-10(1) the assessee for its business purposes. Accordingly, the CIT(A) on the basis of his aforesaid observations vacated the ad hoc disallowance of Rs. 5 lac made by the A.O as regards the expenses on fuel, maintenance and expenditure on driver‟s salary.
We have deliberated at length on the observations of the CIT(A) in context of the issue in question i.e disallowance on an ad hoc basis of the assessee‟s claim of motor vehicle expenses. As the view taken by the CIT-10, Mumbai in his order passed u/s 263 that the assessee had not claimed depreciation on the Honda CRV vehicle that was purchased by it in A.Y 2004-05 is found to be incorrect, therefore, the very assumption drawn by him that the said vehicle was not used by the assessee for its business purposes falls to ground and cannot be sustained. As the assessee had duly claimed depreciation as regards the vehicle in question i.e Honda CRV both in the year of purchase i.e A.Y 2004-05 and the year in question which had been allowed by the department, thus, it can safely or in fact inescapably be concluded that the said vehicle was used by the assessee for its business purpose. We, thus, in terms of our aforesaid observations finding no infirmity in the view taken by the CIT(A) who in our considered view had rightly vacated the ad hoc disallowance of motor vehicle expenses of Rs. 5 lac, sustain the same. The Ground of appeal
No. 2 raised by the revenue is dismissed.
20. The Grounds of appeal No. 3 and 4 being general are dismissed as not pressed.
21. Resultantly, the appeal filed by the revenue is dismissed. A.Y 2006-07 (Assessee‟s appeal) & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 23 North Karnataka Expressway ltd. Vs. ACIT-10(1)
22. We shall now take up the assessee‟s appeal for A.Y 2006-07. The assessee has assailed the impugned order on the following grounds of appel before us :
1. On the facts and the circumstances of the case and in law, the Learned Commissioner of Income tax (Appeals) has erred in concluding that the appellant is not entitled for depreciation on the toll road. The appellant prays that depreciation on the toll road may be granted treating the same as “building
2. The Learned Commissioner of Income Tax (Appeal) has rejected the claim of depreciation without considering the merits of the case. The appellant prays that each year is a separate assessment year and the appellant is entitled to claim depreciation in A.Y 2006-07. The appellant prays that claim of depreciation of Rs. 53,92,87,956/- may be granted.
The Appellant craves leave to add, amend, alter, vary and/or withdraw any or all the above grounds of appeal, which are without prejudice to one another.” Further, the assessee has raised the following additional ground of appeal before us :
“1. Without prejudice to Ground No. 1 and 2 of the appeal filed on 27/06/2012 and additional ground no. 1, the appellant prays that if the “Project Road” is not treated under the category of “Building” for the purpose of granting depreciation then the depreciation may be granted treating the said “road” under the category allowed as “Intangible assets”. The appellant prays that the depreciation may be allowed at Rs. 112,40,34,607/- under the category of “Intangible assets”.
Briefly stated, the assessee company had e-filed its return of income for A.Y. 2006-07 on 25.11.2006, declaring a loss of (-) Rs. 20,79,03,714/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. During the course of the assessment proceedings it was observed by the A.O that the assessee company which was set up with the object of promoting, developing, financing, building/constructing, modifying, operating and maintaining the Belgaum-Maharashtra Border Road on & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 24 North Karnataka Expressway ltd. Vs. ACIT-10(1) NH-4 and its ancillary facilities had raised a claim for depreciation of Rs. 53,92,87,956/- on the toll roads. Holding a conviction that the assessee did not own the toll roads as the same remained vested with the Government of India, the A.O disallowed the assessee‟s claim for depreciation of Rs. 53,92,87,956/-. However, the A.O allowed amortising of the total cost of the toll roads of Rs. 599,20,88,396/- over the concessionaire period of 17 years and 6 months and allowed the corresponding deduction of Rs. 34,24,05,051/- for the year under consideration. Resultantly, the net disallowance considering the rejection of depreciation was worked out by the A.O at Rs. 19,68,82,905/-. After inter alia disallowing the assessee‟s claim for depreciation on toll roads and substituting the same by the amortisation expenditure relatable to the year in question, the A.O vide his order passed u/s 143(3)(ii), dated 30.12.2008 assessed the loss of the assessee company at (Rs. 1,06,87,938/-).
Aggrieved, the assessee carried the matter in appeal before the CIT(A). It was observed by the CIT(A) that the construction of the Belgaum-Maharashtra toll road was completed by the assessee company in the A.Y 2005-06. It was noticed by him that the assessee had claimed depreciation on the toll road for the very first time in A.Y 2005-06. It was observed by the CIT(A) that though the assessee during the year under consideration had raised a claim for depreciation on the toll roads however the same was disallowed by the A.O who allowed the assesses alternative claim of amortization. It was further observed by the CIT(A) that in the original return of income for A.Y 2007-08 the assessee had claimed depreciation on the toll roads which however by way of a revised return of income was substituted by a claim for amortization of the cost of toll road. As noticed by the CIT(A) the assessee had in A.Y 2008-09 also withdrawn its claim for depreciation on the toll roads and substituted the same by its claim for amortization of the cost of toll road. Backed by his aforesaid observations, the CIT(A) was of the view that on the same set of facts the assessee could not be ITA Nos. 4372 & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 25 North Karnataka Expressway ltd. Vs. ACIT-10(1) allowed to make different claims of depreciation and amortization in different years. Also, the CIT(A) was of the view that allowing assessee‟s claim for depreciation in the year under consideration would create legal, accounting and other problems to the revenue as well as the assessee. Accordingly, the CIT(A) rejected the assessee‟s claim for depreciation and restricted the assesee‟s entitlement towards amortization of the cost of toll road.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. Both the ld. authorised representatives for the respective parties before us were in agreement that the facts and the issue involved in the present appeal remained the same as were there before us in the assessee‟s appeal for the immediately preceding year i.e A.Y 2005-06 in . As the facts and the issue involved in the captioned appeal remains the same as were there before us in the assessee‟s appeal for A.Y 2005-06 in therefore, our order therein passed shall apply mutatis mutandis for the purpose of disposal of the present appeal. We, thus, on the same terms herein conclude that the claim of the assessee towards depreciation under Sec.32(1)(ii) in respect of its intangible rights i.e “right to collect toll” being in conformity with the mandate of law is found to be in order. We, thus, not finding favour with the view taken by the CIT(A) therein set-aside the same. The Ground of appeal
No. 2 r.w the additional ground of appeal no. 1 are allowed in terms of our aforesaid observations. The Ground of appeal No. 1 is dismissed in terms of our aforesaid observations.
26. The Ground of appeal No. 3 being general in nature is dismissed as not pressed.
27. Resultantly, the appeal of the assessee is allowed in terms of our aforesaid observations.
ITA Nos. 4372 & 4373, 4709/Mum/2012 A.Y. 2005-06 & 2006-07 26 North Karnataka Expressway ltd. Vs. ACIT-10(1) 28. The appeals of the assessee for A.Y 2005-06, and A.Y 2006-07, ITA No. 4373/Mum/2010 are allowed, while for the appeal of the revenue i.e ITA No. 4709/Mum/2010 is dismissed in terms of our aforesaid observations.