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Income Tax Appellate Tribunal, “D”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM &
4327/Mum/2016 M/s. West Gujarat Expressway Ltd., आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A)- 22, Mumbai dated 09/03/2016 for A.Y.2011-12 in the matter of order passed u/s.143(3) of the IT Act.
In this appeal, assessee is basically aggrieved for disallowance of claim of depreciation on toll road u/s.32 of the IT Act by treating the same as plant and machinery.
We have considered rival contentions and found that issue under consideration is covered by the order of the Tribunal in assessee’s own case for the A.Y.2009-10 dated 15/04/2015 and also by the order for A.Y.2010-11 dated 26/05/2017. The precise observation of the Tribunal order dated 15/04/2015 for the A.Y.2009-10 is as under:- 26. As per section 32(1)(ii) depreciation is allowable on intangible assets like licenses, franchises or any other business or similar commercial rights of similar nature. The relevant part of the section for the sake of convenience is reproduced as under: “Depreciation. 32. (1) [In respect of depreciation of – (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed – ] …….” (emphasis supplied by us) 27. It is not disputed that the assessee has been given license/commercial right over the project to receive the toll. The assessee may not be the owner 4327/Mum/2016 M/s. West Gujarat Expressway Ltd., of the toll road, but he, certainly, is owner in possession of the right to collect the toll. The said right has been given to the assessee for a specified period with enduring benefit. It is also not disputed that on the expiry of the time period of the agreement, the said right of the assessee will cease to have effect which means it slowly will depreciate to the nil value. As per the provisions of the Income Tax Act, especially under section 32(1)(ii), the assessee is entitled to claim of depreciation on such type of rights. Such rights have been described as intangible assets under the Act and are eligible for claim of depreciation.
In view of the express provisions of the Act, we have no doubt to hold that the assessee is entitled to collect tax being an intangible commercial right under section 32(1)(ii) at the rate as has been prescribed under the relevant rules. Our above view is further supported by the decision of the co- ordinate Pune bench of the Tribunal in the case of M/s. Ashoka Infrastructure Ltd. Vs. ITO in & ITA No.1105/PN/2010,wherein, the Tribunal while further relying upon another decision of the Co-ordinate Bench of the Tribunal in the case of „Ashoka Infraways Pvt. Ltd. Vs. ACIT‟ in ITA No.185 & 186/PN/2012 dated 29.04.2013, has held in clear terms that the claim of the assessee for depreciation on “licence to collect toll” being an „intangible asset‟ falling within the scope of section 32(1)(ii) of the Act is liable to be upheld. The relevant part of findings of the Tribunal for the sake of convenience is reproduced as under: “6. At the time of hearing, it was a common point between the parties that an identical issue has been considered by the Pune Bench of the Tribunal in the case of Ashoka Infraways Pvt. Ltd. vs. ACIT vide ITA Nos. 185 & 186/PN/2012 dated 29.04.2013. As per the Tribunal following the precedents by way of various decisions of different Benches of the Tribunal mentioned therein, the claim of the assessee for treating the 'License to collect Toll' as an intangible asset eligible for the claim of depreciation @ 25% as per Section 32(1)(ii) of the Act was justified. The following discussion in the order of the Tribunal dated 29.04.2013 (supra) is relevant :- "7. Before us, it was a common point between the parties that the impugned issue has been adjudicated in favour of the assessee in the following decisions of the Tribunal:- i) Ashoka Buildcon Ltd. in ITA.No.1302/PN/09 dated 20.03.2012. ii) M/s. Kalyan Toll Infrastructure Ltd. in ITA.Nos.201 & 247/Ind/2008 dated 14.12.2010. iii)Dimension Construction Pvt. Ltd. in 1TA.No.222, 223, 233 & 857/PN/2009 dated 18.03.2011. iv)Ashoka Info (P) Ltd. (supra) v) Reliance Ports and Terminals Ltd. (supra).
The Ld. CIT(DR) appearing for the Revenue, has submitted that the 'intangible assets' eligible for depreciation in section 32(1)(ii) of the Act, are only those which are owned by the assessee and have been acquired after spending money. In the case of the assessee, by way of an agreement, assessee was 4327/Mum/2016 M/s. West Gujarat Expressway Ltd., awarded a work to construct a road by using own funds and the expenditure incurred was allowed to be reimbursed by permitting the assessee a concession to collect toll/fees from the motorists using the road. Therefore, it could not be said that such a right was within the purview of section 32(1)(ii) of the Act. However, the Ld. CIT(DR) has not contested the factual matrix that identical issue has been considered by our coordinate Benches in the case of Ashoka Buildcon Ltd. (supra), Kalyan Toll Infrastructure Ltd. (supra), Dimension Construction Pvt. Ltd. (supra) and Ashoka Info (P) Ltd. (supra).
On the other hand, the Ld. Representative for the respondent assessee pointed out that the aforesaid argument set up by the Revenue has also been considered in the aforesaid precedents before concluding that the impugned 'Right to collect Toll' was an 'intangible asset' eligible for claim of depreciation @ 25% as per sec. 32(1)01) of the Act. 10.We have carefully considered the rival submissions. Factually speaking, there is no dispute to the fact that the costs capitalised by the assessee under the head 'License to collect Toll' have been incurred for development and construction of the infrastructure facility, i.e., Dewas By-pass Road. It is also not in dispute that the assessee was to build, operate and transfer the said infrastructure facility in terms of an agreement with the Government of Madhya Pradesh. The expenditure on development, construction and maintenance of the infrastructure facility for a specified period was to be incurred by the assessee out of its own funds. Moreover, after the end of the specified period, assessee was to transfer the said infrastructure facility to the Government of Madhya Pradesh free of charge. In consideration of developing, constructing, maintaining the facility for a specified period and thereafter transferring it to the Government of Madhya Pradesh free of charge, assessee was granted a Right to collect Toll' from the motorists using the said infrastructure facility during the specified period. The said Right to collect the Toll' is emerging as a result of the costs incurred by the assessee on development, construction and maintenance of the infrastructure facility. Such a right has been adjudicated by the Tribunal in the aforesaid precedents to be in the nature of 'intangible asset' falling within the purview of section 32(1)(i/) of the Act and has been found eligible for claim of depreciation. No decision to the contrary has been cited by the Ld. DR before us and, therefore, we find no reasons to depart from the accepted position based on the aforesaid decisions.
So however, the plea of the Ld. DR before us is to the 4327/Mum/2016 M/s. West Gujarat Expressway Ltd., effect that the impugned right is not of the nature referred to in section 32(1)(ii) of the Act for the reason that the agreement with the Government of Madhya Pradesh only allowed the assessee to recover the costs incurred for constructing the road facility whereas section 32(1)(i1) of the Act required that the assets mentioned therein should be acquired by the assessee after spending money. The said argument in our view is factually and legally misplaced. Factually speaking, it is wrong to say that impugned right acquired by the assessee was without incurrence of any cost. In fact, it is quite evident that assessee got the right to collect toll for the specified period only after incurring expenditure through its own resources on development, construction and maintenance of the infrastructure facility. Secondly, section 32(1)(i1) permits allowance of depreciation on assets specified therein being 'intangible assets' which are wholly or partly owned by the assessee and used for the purposes of its business. The aforesaid condition is fully satisfied by the assessee and therefore considered in the aforesaid perspective we find no justification for the plea raised by the Revenue before us.
In the result, we affirm the order of the CIT(A) in holding that the assessee was eligible for depreciation on the „Right to collect Toll', being an „intangible asset' falling within the purview of section 32(1)(i1) of the Act following the aforesaid precedents."
In terms of the aforesaid precedent, the claim of the assessee in the present case for depreciation on 'License to collect Toll', being an 'intangible asset' falling with the scope of Section 32(1)(ii) of the Act is liable to be upheld. We hold so.
8. In so far as the reliance placed by the CIT(A) on the judgement of the Hon'ble Bombay High Court in the case of Techno Shares And Stocks Ltd. (supra) is concerned it may only be noted that the said judgement has since been altered by the Hon'ble Supreme Court vide its order reported at (2010) 327 ITR 323 (SC). Accordingly, in view of the aforesaid discussion, we hereby allow the Ground of Appeal
No. 1.1 raised by the assessee.”
29. In view of our observations made in the preceding paras and also agreeing with the above reproduced findings of the Tribunal, we hold that the assessee is entitled to the claim of depreciation on the road to collect toll being an intangible asset falling within the purview of section 32(1) (ii) of the Act.
30. So far as the other alternative contention of the assessee that the project be treated as plant & machinery and the depreciation be accordingly allowed to it, we do not find that the said license of right to collect toll in any way falls in the definition of plant & machinery. As held by the Hon‟ble 4327/Mum/2016 M/s. West Gujarat Expressway Ltd., Bombay High Court, even the assessee is not the owner of the toll road. The assessee has been given only the right to develop, maintain and operate the toll road and further to collect the toll for the specified period. This right as discussed above is an intangible asset falling under section 32(1)(ii) of the Act.
31. So far as the contention of the Revenue that the investment made by the assessee be treated as a revenue expenditure and be amortized for the period of the agreement, is concerned, we do not find any force in the same on the ground that not only the AO but also the CBDT in the circular (supra) as discussed above has admitted that the license of right to collect toll free has been given to the assessee in lieu of the investments made and that such a right brings to the assessee an enduring benefit. The investments made under such circumstances cannot be said to be of revenue in nature but, as discussed above, are of capital in nature. The assessee, thus, is entitled to claim depreciation on such type of capital asset.
As the facts and circumstances during the year under consideration is parimateria, respectfully following the order of the Tribunal in assessee’s own case, we direct the AO to allow assessee’s claim of depreciation in terms of the direction given by the Tribunal in its order dated 15/04/2015.
The second ground taken by assessee relates to treating interest income as income from business. We had carefully gone through the orders of the authorities below and found that this issue is also covered by the order of the Tribunal in assessee’s own case. Precise observation of the Tribunal in its order dated 15/04/2015 for the A.Y.2009-10 is as under:- 3. The issue raised vide ground No.1 is as to whether the interest income of Rs.1,34,59,582/- is to be assessed under the head “Income from other sources” or as “Business income” of the assessee. The Assessing Officer (hereinafter referred to as the AO) found that the interest income of Rs.1,34,59,582/- derived from bank deposits had been included by the assessee into its business income. He, however, observed that since the said income was not derived from business activity of the assessee company, hence the same was taxable under the head “Income from other sources”.
4327/Mum/2016 M/s. West Gujarat Expressway Ltd.,
4. In the first appeal, the Ld. CIT(A) directed that the interest income be assessed as business income observing as under: The 4th ground of appeal
is that the A.O. erred in taxing the “4. interest income of Rs.1,34,59,582/- under the head income from other sources instead of taxing the same under the head income form business and profession. 4.1 I have considered the facts of the case. The A.O. has discussed this issue in para 7 of the assessment order. This issue was also there in appellant's case in A.Y.2007-08 wherein the undersigned decided the issue as under: "3.3. I have carefully considered the facts of the case. The appellant has explained that it started earning the business receipts i.e. earning toll revenue from the portion of the project completed and total revenue received was Rs.6.41 crores. Out of this amount, the appellant invested funds of Rs.6.16 crores into fixed deposits and earned interest income of Rs.5,59,939/-. In the facts and circumstances the decision of Hon'ble Mumbai High Court in the case of CIT vs. Lok Holdings 308 ITR 356 was applicable. In that case the assessee was engaged in development of properties. Advance from customers intending to purchase flats was deposited with the banks in the course of business. The interest income was held to be assessable as business income and not as income from other sources. In the case under consideration also the business receipts were deposited into bank and therefore, following the decision of Hon'ble Mumbai High Court in the case of Lok Holdings, the interest income was assessable as business income. The A.O. is directed to assess the same as business income. This ground of appeal is allowed." This issue was also there in A.Y.2008-09 wherein by following the appeal order of A.Y.2007-08, the undersigned directed the A.O. to consider the interest income under the head income from business or profession. The facts of the year under consideration are same that the appellant had earned interest income of Rs.1,32,17,891/- on deployment of business receipts in the fixed deposits and had also earned interest of Rs.2,76,011/- on bank guarantee. Following the appeal order of earlier years, the A.O. is directed to assess interest income under the head income from business and profession. This ground of appeal is allowed.” 4.1 Aggrieved by the order of the Ld. CIT(A), the Revenue has come in appeal on this issue before us.
5. We have heard the rival contentions of the Ld. Representatives of both the parties and have also gone through the records. A perusal of the above 4327/Mum/2016 M/s. West Gujarat Expressway Ltd., reproduced findings of the Ld. CIT(A) on this issue reveals that the Ld. CIT(A) has allowed the claim of the assessee directing that the interest income be treated as business income relying upon his own findings given in the earlier assessment year 2007-08 for which he had relied upon the decision of the Hon‟ble Bombay High Court in the case of “CIT vs. Lok Holdings” 308 ITR 356. The Ld. A.R. of the assessee has stressed that the said findings of the Ld. CIT(A) given in relation to assessment year 2007-08 have been further upheld by the Tribunal vide order dated 27.02.13 passed in & 14/M/2011.
6. We have perused the said order dated 27.02.1 3(supra) of the Tribunal. The relevant issue has been taken by the Tribunal vide para 21 of the said order. The Tribunal has allowed the claim of the assessee in view of the findings given while adjudicating the another issue relating to some other interest income of the assessee, the claim regarding treatment of which as „business income‟ was rejected by the Ld. CIT(A). The said issue has been discussed vide paras 2 to 8 of the assessee‟s appeal for assessment year 2007-08. The Tribunal has observed that since it was a matter of short term deposit temporarily made out of borrowed funds pending utilization of the same, hence the issue was covered with the decision of the Hon‟ble Allahabad High Court in the case of “CIT vs. Jhunjhunwala Vanaspati Ltd.” 11 DTR 21 and further with that of the Hon‟ble Bombay High Court in the case of “CIT vs. Varun Shipping Company Ltd” 334 ITR 263 (HC). The Tribunal, therefore, allowed the claim of the assessee for treatment of the income as business income.