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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
ITA No. 3244/Mum/2019 A.Y. 2012-13 1 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B” MUMBAI BEFORE SHRI PRAMOD KUMAR (VICE PRESIDENT) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA No. 3244/MUM/2019 (Assessment Year: 2012-13) M/s Bul MSK Infrastructure Pvt. ACIT -15(1)(2), Ltd., 1008, 10th Floor –V, Vs. Room No. 403, 4th Floor Time Square, Plot No. 3, Aayakar Bhavan, M.K. Road, Sector 14, Belapur CBD, Mumbai 400 020 Navi Mumbai- 400614 PAN No. AACCB9447M (Assessee) (Revenue) Assessee by : Shri Devendra Jain, A.R Revenue by : Shri Tharian Oommen, Sr. D.R Date of Hearing : 23/03/2021 Date of pronouncement : 22/04/2021
ORDER PER RAVISH SOOD, J.M: The present appeal filed by the assessee is directed against the order passed by the CIT(A)-24, Mumbai, dated 25.02.2018, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟) dated 25.03.2015 for A.Y. 2012-13. The assessee has assailed the impugned order on the following grounds of appeal before us:
“1. In the facts and circumstances of the case and in law, the learned CIT(A), Mumbai has erred in sustaining the disallowance made by the assessing officer of depreciation of Rs. 2,23,79,000/- on intangible asset being 'Right to collect toll" (HOT Assets). 2. In the facts and circumstances of the case and in law, the learned CIT(A), Mumbai has erred in sustaining the disallowance made by the assessing officer of interest u/s 36(1)(iii) of Rs.79,27,350/-disregarding the binding decision of Hon'ble Bombay High Court in case of CIT v. Reliance Utilities & Power Ltd. [2009] 178 TAXMAN 135 (BOM.) 3. The appellant craves leave to add, alter, delete or modify all or any of the above grounds of appeal. All the above grounds are without prejudice to each other.”
ITA No. 3244/Mum/2019 A.Y. 2012-13 2 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
Briefly stated, the assessee which is an infrastructure company had e- filed its return of income for A.Y. 2012-13 on 27.09.2012, declaring a loss of (- ) Rs. 1,26,65,163/-. 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 taken up for scrutiny assessment under Sec. 143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that the assessee company had claimed depreciation of Rs.3,09,04,333/- on carriage ways @ 25% by treating the same as intangible assets. Observing, that the cost of any infrastructure facility undertaken on BOT basis, specially a highway toll way project, de hors vesting of ownership of the same with the assessee i.e BOT operator would not qualify as an intangible asset, the A.O, was of the view that the assessee would not be eligible for claim of depreciation on the same under Sec. 32 of the Act. It was observed by the A.O that the rights of the BOT operator would be confined to exploiting the infrastructure facility over the period of time provided in the concessionaire agreement executed with the relevant authority. At the same time, the A.O was of the view that as the assessee company had incurred huge expenditure i.e Rs.1,36,17,330/- on building the aforesaid infrastructure facility, therefore, it would be entitled to claim the expenditure so incurred as a deduction. In the backdrop of his aforesaid observations, the A.O was of the view that the assessee in all fairness would be entitled to amortize the aforesaid expenditure over the years for which it had undertaken the infrastructure facility on BOT basis. Accordingly, the A.O relying on the CBDT Circular No. 9/2014, dated 23.04.2014, was of the view that the cost of construction incurred by the assessee on infrastructure facility for development of roads/highways under the BOT project may be amortized evenly over the period of the concessionaire agreement after excluding the time taken for creation of such facility. Backed by his aforesaid deliberations the A.O amortized the cost of Rs.12,36,17,330/- that was incurred by the assessee over a period of 14 years 6 months as was provided in the
ITA No. 3244/Mum/2019 A.Y. 2012-13 3 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
concessionaire agreement that was entered into by the assessee with NHAI. As such, the A.O substituted the assessee‟s claim for depreciation under Sec. 32 of Rs.3,09,04,333/- by a deduction of the amortized expenditure of Rs.85,25,333/- for the year in question. Further, it was noticed by the A.O that the assessee during the year in question had given loans and advances of Rs.5.30 crores. Observing, that the assessee had huge borrowed funds on which interest had been paid, the A.O called upon it to explain that as to why the correlating interest expenditure pertaining to the capital advance may not be disallowed under Sec. 36(1)(iii) of the Act. As the reply filed by the assessee did not find favour with the A.O, he therein disallowed a proportionate interest of Rs.79,27,350/- under Sec. 36(1)(iii) of the Act. After making the aforesaid disallowances the A.O vide his order passed under Sec. 143(3), dated 25.03.2015 assessed the income of the assessee company at Rs.1,76,41,190/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Observing, that as per the CBDT Circular No. 9/2014 the assessee was only entitled to claim amortization of the expenditure that was incurred by it on building infrastructure facility evenly over the period of the concessionaire agreement, the CIT(A) was of the view that the A.O had rightly rejected the assessee‟s claim for depreciation on right/license to collect toll under Sec. 32(1)(ii) of the Act. Also, the disallowance of the interest expenditure under Sec. 36(1)(iii) by the A.O was upheld by the CIT(A). 5. 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 at the very outset of the hearing of the appeal submitted that the issue pertaining to the entitlement of an assessee i.e BOT operator towards a claim of depreciation under Sec. 32(1)(ii) w.r.t the intangible right to collect toll was squarely covered by the order of the Tribunal in the case of ACIT, Circle 6(2)(2), Mumbai Vs. M/s Essel Sagar Damoh Toll Roads Ltd., ITA No. 7114/Mum/2016, dated 20.09.2019. As regards the issue
ITA No. 3244/Mum/2019 A.Y. 2012-13 4 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
pertaining to the disallowance of the assessee‟s claim for deduction under Sec. 36(1)(iii) of the Act, it was submitted by the ld. A.R that as the assessee had sufficient self-owned funds and internal accruals to make the impugned advances thus, no disallowance under Sec. 36(1)(iii) was called for in its hands. In support of its aforesaid contention reliance was placed on the order of the Hon‟ble Supreme Court in the case of CIT Vs. Reliance Industries Ltd. (2019) 102 taxman.com 52 (SC). 6. 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. A.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). As regards the disallowance of the interest expenditure under Sec. 36(1)(iii), the ld. DR relied on the orders of the lower authorities. 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 by the revenue for adjudicating two issues, viz. (i). that as to whether or not the assessee is right in law and the facts of the case in concluding that its claim for depreciation on “license to collect toll” being an intangible asset falling within the scope of Sec. 32(1)(ii) of the Act was as per the mandate of law; and (ii). that whether or not the lower authorities are right in law and facts of the case in disallowing the assessee‟s claim for deduction of interest expenditure under Sec. 36(1)(iii) of the Act. Insofar the first issue is concerned, it is the claim of the revenue that the same is covered against the assessee by the judgments of the Hon‟ble
ITA No. 3244/Mum/2019 A.Y. 2012-13 5 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
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). 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 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, or not. 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 te aforesaid cases, therefore, the reliance placed by the revenue on the said judicial pronouncements which were distinguishable in the backdrop of the issue involved in the said matters, would thus not assist its case. 8. 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 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 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 case of North Karnataka Expressway Ltd. Vs. CIT-10(2015) 272 ITR 145 (Bom). A perusal of the order reveals, that the Hon‟ble High Court 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, that the ownership of the
ITA No. 3244/Mum/2019 A.Y. 2012-13 6 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
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 which 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 under 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. 9. As observed by us hereinabove, the view taken by the Hon‟ble High Court of Bombay in its order passed in the case of North Karnataka Expressway Ltd.(supra), 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
ITA No. 3244/Mum/2019 A.Y. 2012-13 7 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
Government, the assessee would not be entitled to claim depreciation on the same. The issue as to whether an Infrastructure Development Company which 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 which 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 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 which 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 which 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
ITA No. 3244/Mum/2019 A.Y. 2012-13 8 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
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 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. 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., ITA No. 2357 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
ITA No. 3244/Mum/2019 A.Y. 2012-13 9 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
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 which 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 which 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: “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
ITA No. 3244/Mum/2019 A.Y. 2012-13 10 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
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:
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 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
ITA No. 3244/Mum/2019 A.Y. 2012-13 11 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
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, 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.
ITA No. 3244/Mum/2019 A.Y. 2012-13 12 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
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." 14. 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 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. 15. 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 similarnature". He had submitted, applying the principle of ejusdem generis the rights referred to in the expression "any other business orcommercial 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.
ITA No. 3244/Mum/2019 A.Y. 2012-13 13 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
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 businessor 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 ofsimilar 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 otherbusiness 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 orcommercial 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”. 17. 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
ITA No. 3244/Mum/2019 A.Y. 2012-13 14 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
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 SpecialBench 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. 18. 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 the case of ACIT, cooperative circle 5(2), Chennai Vs. M/s PNG Toll Way Ltd (ITA No. 238/CHNNY/2019, dated 26.07.2019. In the backdrop of the aforesaid judicial pronouncements, we are of the considered view that the issue as to whether an Infrastructure Development company which 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); and (ii) ACIT Vs. M/s PNG Tata Ltd. (ITA No. 238/CHNNY/2019, dated 26.07.2019. 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
ITA No. 3244/Mum/2019 A.Y. 2012-13 15 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
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 allowed in terms of our aforesaid observations. 11. We shall now deal with the claim of the ld. A.R that no disallowance under Sec. 36(1)(iii) could have been validly made by the A.O. As is discernible from the assessment order, the A.O being of the view that the interest pertaining to the capital advance given by the assessee was liable to be capitalized, had thus, disallowed under Sec. 36(1)(iii) of the Act an amount of Rs.79,27,350/-. On appeal, the CIT(A) finding no infirmity in the view taken by the A.O had upheld the same. Before us, it is the claim of the of the ld. A.R that as the assessee had sufficient self-owned funds and internal accruals to give the advances in question, therefore, no disallowance under Sec. 36(1)(iii) was called for in its hands. 12. We have given a thoughtful consideration to the aforesaid issue in the backdrop of the contentions advanced by the authorized representative for both the parties. Admittedly, in case, if an assessee has sufficient interest free funds available with it which would suffice to meet its investments, then, no disallowance of any part of the interest expenditure pertaining to such investments would be called for in its hands. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in case of CIT Vs. Reliance Industries Ltd. (2019) 102 taxman.com 52 (SC). As is discernible from the order of the CIT(A), we find that it was the inter alia claim of the assessee before him that as the advances in question were given out of its internal accruals and self-owned funds thus, no disallowance under Sec. 36(1)(iii) was liable to be made. However, as the claim of the assessee that it had sufficient self-owned funds and internal accruals to justify the advances given during the year in question is not clearly borne from the records, therefore, in our considered view the matter in all fairness requires to be revisited by the A.O. Accordingly, we herein restore the aforesaid issue to the file of the A.O with a direction to re-adjudicate the same in the backdrop of the judgment of the
ITA No. 3244/Mum/2019 A.Y. 2012-13 16 M/s Bul MSK Infrastructure Pvt. Ltd. Vs. ACIT-15(1)(2)
Hon’ble Supreme Court in the case of CIT Vs. Reliance Industries Ltd. (2019) 102 taxman.com 52 (SC). In case, the claim of the assessee that it had sufficient self-owned funds and internal accruals to meet out the advances in question is found in order, then, no disallowance of any part of the interest expenditure would be called for under Sec. 36(1)(iii) of the Act. Needless to say, the A.O shall in the course of the „set-aside‟ proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate its aforesaid claim on the basis of fresh documentary evidence. Accordingly, the aforesaid issue is restored to the file of the A.O in terms of our aforesaid directions. The Ground of appeal No. 2 is allowed for statistical purpose.
The Ground of appeal No. 3 being general is dismissed as not pressed.
Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observations.
Order pronounced in the open court on 22.04.2021
Sd/- Sd/- (Pramod Kumar) (Ravish Sood) VICE PRESIDENT JUDICIAL MEMBER Mumbai; Dated: 22.04.2021 PS: Rohit Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary) ITAT, Mumbai.