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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI M BALAGANESH & SHRI VIMAL KUMAR
PER VIMAL KUMAR, JM
The appeal of assessee is against order dated 16.10.2019 of the Learned Commissioner of Income Tax (Appeals) [hereinafter referred as Learned “CIT(A)”] partly allowing appeal against order dated 28.12.2016 of the Deputy Commissioner of Income Tax, Rewari Circle (hereinafter referred to as Learned AO) setting aside
interest and upholding disallowance of depreciation of Rs. 46,23,33,692/- claimed on intangible assets@ 25% taking addition of Rs. 22,52,009/- on account of interest income.
Brief facts of the case are that appellant/assessee is a Special Purpose Vehicle incorporated for carrying out construction, operation and transfer of a stretch of the Rohtak Bawal Highway Project on Built Operate and Transfer (BOT) basis. The assessee was a concessionaire for the Rohtak- Bawal Section of NH-71 Project of National Highways Authority of India (NHAI) and had, pursuant to Concession Agreement dated 13.09.2010, developed the aforesaid project under Design, Build, Finance, Operate and Transfer Basis (DBFOT). The assessee had been granted commercial right concession to operate the project for a period 28 years.
The assessee e-filed return of income for AY 2014-15 on 29.11.2014 declaring loss of Rs. 46,23,33,692/-. In return of income, the assessee claimed amortization of expenditure of Rs. 18,51,12,122/- on the BOT project. The return of income filed by the appellant was selected for scrutiny proceedings under section 143(2) of the Act.
During assessment proceedings, the appellant vide application dated 08.11.2016 filed revision of computation of income, declaring total loss of Rs. 2,32,00,58,863/-. In the revised computation, the appellant withdrew the claim of amortization of expenditure of Rs. 18,51,12,122/- and instead,
on the basis of the judicial precedents, claimed depreciation of Rs. 2,04,32,08,982/- viz. @25% on the right to collect toll granted to the appellant due to its capital investment in the BOT project-by treating the "right to collect toll" as intangible assets.
Assessment proceedings culminated in order dated 28.12.2016 under section 143(3) of the Income tax Act, 1961 ('the Act') at an assessed loss of Rs. 46,00,81,683/-, whereby the Assessing Officer (AO) made addition of Rs. 22,52,009/- on account of interest income. The claim of depreciation raised by the appellant vide revised computation of income amounting to Rs. 2,04,32,08,982/- was not allowed.
Appellant/assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Before the first appellate authority, the assessee filed detailed submissions dated 04.06.2018.
Learned CIT(A) called for a remand report from the assessing officer. The assessing officer vide remand report dated 24.4.2019 [Pg. 283 of PPB] relied upon Circular No. 9 of 2014 dated 23.04.2014 to deny the claim of depreciation to the appellant. The Learned AO submitted the order sheet entry dated 16.12.2016 [Pg. 269 of PPB] made during assessment proceedings wherein the revised claim made by the appellant regarding depreciation on intangible assets was denied by the Learned AO by relying on CBDT Circular No.9 of 2014.
The appellant filed a rejoinder to remand report dated 24.6.2019 submitting that (a) order sheet dated 16.12.2016 has been provided for the first time, and (b) Learned AO has merely relied on the CBDT circular 9/2014 without providing any reply on merits of issue.
Learned CIT(A) vide order dated 16.10.2019 denied the claim of depreciation @25% on the 'right to collect toll' by holding that there were no decision by jurisdictional Tribunal or High Court permitting the allowance of depreciation on 'right to collect toll' and the decisions of non-jurisdictional Tribunal and High Court are not binding on the Learned CIT(A). Learned CIT(A) relied upon CBDT Circular No. 9/2014 dated 23.04.2014 and held that the appellant is entitled to claim amortization of the expenditure incurred for development of the BOT project.
Being aggrieved / appellant assessee preferred present appeal.
Learned Representative for appellant/assessee submitted that ground No. 1 and 3 are general. The crux of ground No. 2 to 2.3 is; whether appellant assessee is entitled to claim depreciation @ 25% on the ‘right to collect toll’ acquired by way of capital investment made in the BOT project. Learned CIT(A) and Learned AO erred in not allowing the claim of depreciation is not in tandem with section 32(1)(ii) and the reliance on circular no. 9/2014 is wrongly placed.
Learned representative for appellant/assessee submitted that the "Right to collect toll" is a business/commercial right in terms of section 32(1)(ii) and depreciation @25% is allowable on the same. The appellant entered into a Concession Agreement ('the Agreement') with NHAI on 13.07.2010 for development, operation, management, and maintenance of the Rohtak Bawal section of NH-71 [including 4-laning the highway) on Design, Build, Finance, Operate and Transfer Basis (DBFOT). Total cost of project was Rs. 8,17,13,77,974/-. The appellant was, under the Agreement, granted license to collect toll for a period of 28 years such commercial right/ license was treated as 'intangible' and depreciation was claimed thereon @ 25% u/s 32(1)(ii) of the Act amounting to Rs. 204,3,08,982/-. The project became operational from 01.09.2013.
Learned representative for appellant/assessee submitted that the salient features of Agreement entered between the appellant and NHAI are as follows: 13.1 The contract envisages the design, development and construction of the Highway Project, its operation and maintenance by the concessionaire at its own cost and the ultimate transfer of the Project on DBFOT basis after a period of 28 years [Refer: Article 2 and Article 3] 13.2 The appellant is granted the right of way and would have the right to the use the site as a licensee subject to and in accordance with the terms of the Agreement [Refer: Article 3.1.2);
13.3 The rights represented by capital investment made by the appellant in the project, for the purposes of depreciation, shall be deemed to be acquired and owned by the appellant [Refer: Article 47.4.1]
Learned representative for appellant/assessee submitted that in terms of the Concession Agreement, the essence thereof is that in lieu of design, construction, development, operation and maintenance of the highway at its own cost, the appellant acquired the right to receive the toll fee from users over the operation period. The right/ license to collect Toll is clearly in the nature of license/ commercial right eligible for depreciation @25% under section 32(1)(ii) of the Act. Section 32(1)(ii) of the Act permits allowance of depreciation on "know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets" owned by an assessee and used for purposes of business.
Learned representative for appellant/assessee submitted that under the Concession Agreement, the Appellant is vested with the "license/ commercial rights" relating to collection of toll, which is a separate/ distinct commercial asset. It is ex facie evident that the right to operate toll roads granted under the Agreement and the right collect toll is in the nature of "license" vested with the appellant. further, and in any case and in the alternative, such right/ license falls under the residuary category of "any other business or commercial rights" - accordingly, the appellant is eligible to claim depreciation @ 25% as "Intangible"
under section 32(1)(ii) of the Act. Clause 27.1 which confers upon the appellant exclusive right, license and authority, to levy and collect toll fees from the vehicles utilizing the said roads - in other words, the Agreement expressly stipulates and provides that the appellant has been granted/ vested with the license/ right to collect toll; consequently, such right qualifies as a license u/s 32(1)(ii) of the Act. Further, Article 47.4.1 specifically provides that the rights represented by capital investment made by the appellant will be considered to be acquired and owned by appellant for depreciation purposes under applicable law.
Learned representative for appellant/assessee submitted that the commercial and business rights in the nature of license, franchise, membership have been held to be intangible assets eligible for depreciation under section 32(1)(ii) of the Act. Reliance in this regard was placed on the following decisions:- Techno Shares & Stocks Lad. vs. CIT [2010] 327 ITR 323 (SC); CIT vs. Smifs Securities Ltd. [2012] 348 ITR 302 (SC)). ACIT vs. Progressive Construction Ltd. [2018) 63 ITR (T) 516 (Hyd.) Special Bench. - Pune Solapur Expressway P. Ltd. vs. ACIT ITA No. 3326/Del/2018 decided on 10.11.2021 - Gwalior Bypass Projects Ltd. vs. ACIT ITA No. 1297/Del/2019 (Delhi Trib) decided on 26.7.2022 - BSC C&C Kurali Toll Road Ltd. vs. ACIT ITA No. 3141/Del/2019 (Delhi Trib) decided on 13.02.2023 - DCIT, Circle 25(1) vs. Telecommunication Consultants India Ltd. ITA No. 3801/Del/2018 decided on 26.7.2023 - ITO vs. Andhra Pradesh Expressway Ltd: ITA No. 1522/Mum/2023 and Ors decided on 25.8.2023 7
Learned authorised representative for appellant/assessee submitted that Learned AO and Learned CIT(A) erred in relying on CBDT circular No. 09/2014 to disallow the claim of depreciation. The circular issued by the CBDT is not binding on the assessee or the appellate authority because the CBDT cannot pass any direction/circular so as to require any Income Tax Authority to make a particular assessment or to dispose of a particular case in a particular manner. Reliance was placed on following binding judicial precedents:- - UCO Bank vs CIT 237 ITR 889(SC) - Keshavji Ravji and Company vs. CIT: 183 ITR1, 17 (SC); - CIT vs. Indra Industries: 248 ITR 338 (SC); - CIT vs. Honda Cycles Pvt. Ltd. & ors. 228 ITR 463(SC); - CCE vs. Ratan Melting & Wire Industries [2008 13 SCC 1](SC) So appeal may be accepted.
Learned representative for department submitted that the Learned AO disallowed the impugned claim of depreciation following the CBDT circular no. 9/2014 dated 23/04/2014. Hon’ble Bombay High Court, in the case of North Karnataka Expressway Ltd., while considering the case of an assessee who had claimed to be the owner of the roads constructed by it and has claimed depreciation thereon u/s 32 of the I.T. Act held that the assessee is not the owner of the roads and therefore, is not entitled to the claim of depreciation thereon. It is also pertinent to mention here that the 'intangible assets' eligible for depreciation in section 32(1)(ii) of the Act, are only those which are owned by 8
the assessee and have been acquired after spending money. In the case of the assessee, by way of an agreement, assessee was 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. The issue has also been adjudicated in favour of the Revenue in the case of CIT vs. West Gujarat Expressway Ltd (Supra) whereas the learned ITA Nos 1729 2145 and 2146 of 2018.
From examination of record in light of aforesaid rival contention it is crystal clear that assessee has challenged disallowance of depreciation claim @ 25% on the Road Construction Project in view of the CBDT Circular No. 9/2014 dated 23.04.2014.
The rights under BOT projects have been considered to be intangible assets in judgment of Special Bench of ITAT Hyderabad in ACIT Hyderabad M/s. Progressive Construction Limited, Hyderabad, ITA No. 214/Hyd./2014 reported as [2018] 63 ITR 516 (Hyd.) wherein, while dealing with the similar issue, it was held that - “17. In the case of Techno Shares and Stocks Ltd. (supra), 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.”
Coordinate benches Delhi in ITA No. 3801/Del/2018 in the case of DCIT vs. M/s. Telecommunication Consultants India Ltd. decided on 26.07.2023 and ITA No. 5555/Del/2018 M/s. Gwalior-Bypass Project Ltd. vs. DCIT has dealt with the issue in above terms. 22. In view of above material facts and well settled principle of law the appellant/Assessee is entitled to claim depreciation @25% on road construction as admissible on intangible assets. Therefore, the impugned orders are not legal and deserve to be set aside.
No other point was argued.
Hence, the appeal of the assessee is allowed for statistical purposes. Both the impugned orders are set aside.
Order pronounced in the open court on 6th June, 2024.
sd/- sd/- (M BALAGANESH) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 06/06/2024 Veena Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order