ACIT, NOIDA vs. M/S NOIDA TOLL BRIDGE CO. LTD.,, NOIDA

First of all we take up the appeal of the Revenue for the Assessment Year 2006-07 in and the grounds of appeal

Learned CIT(A) deleted the additions so made by the AO for the reasons mentioned in his order at pages 53 and 54 of his order.

We have heard the rival contentions and perused the facts of the case.

Now we take up ground nos.2 and 3. The brief facts of the case in grounds no.2 and 3 of the Revenue as emanating from the order of the AO are reproduced hereinbelow. “The above contention of the assessee can only be accepted if the DND flyover was a part of a factory premise or any other premise of the assessee, in which there were other constructions being used for the purpose of the business of the assessee and if this DND flyover was by way of an approach road to these other constructions, then may be it could have been assumed that the flyover, in such circumstances would have been entitled to depreciation as building @ 10%. However, the case of the assessee is completely different as it is claiming depreciation on the DND flyover, which is in fact just a road which is running from one end to another, connecting Delhi and Noida. Considering these facts, the ratio of the judgment delivered by Hon'ble Supreme Court in the case of Indore Municipal Corporation Vs. CIT 247 ITR 803 is fully applicable in the case of the assessee wherein it was held that expenditure incurred by the assessee to construct metal road on trenchinq around was not a revenue expenditure and the assessee was not entitled to depreciation on the amount of the cost of construction of such roads. Thus, it has been held by the Hon'ble Supreme Court that roads by themselves would nat constitute building, and if there is' no canstruction except the rood, meaning thereby, if there are no other buildings or factory premises or any other commercial complexes associated with that road, then depreciation cannot be allowed to the assessee. The DND Flyover is a product of the assessee company, which is now commercially exploited. Assessee itself in its submissions dated 19.11.2007 stated that principal business activityu of the assessee company is to construct toll bridges on build, own, operate and transfer (BOOT) basis. Thus, by no stretch of argument, the DND Toll bridge can be held as a depreciable capital asset. Keeping in view the above discussion and legal position, the assessee’s claim of depreciation of Rs.15,84,60,192/- is disallowed and the same is added back to its total income.”

Learned CIT(A) allowed the claim of the assessee and accordingly allowed the grounds so raised.

We have heard the rival contentions and perused the facts of the case. The issue is directly covered by the decision of Hon’ble ITAT vide order dated 19.12.2008 for the Assessment Year 2002-03 and 2003-04 in assessee’s own case where the decision of learned CIT(A) has been upheld by the ITAT, which is reproduced hereinbelow. “As far as the objection of learned DR with regard to ownership is concerned, the learned counsel for the assessee took us through clause 2.1 of the concession agreement. He pointed out that NOIDA has agreed to give exclusive rights and authority durina the concession period to development establish construct operate and maintain the NOIDA Bridge as an infrastructure facility. He took us through various clauses and pointed out that these clauses sufficiently enable the assessee to consider itself as owner of the assets. The lease period is for 30 years. Thus, it indicates that this capital asset is owned by the assessee for all the practical purposes. If the transporter refuses to pay the fees provided by the assessee for use of this, it has a right to confiscate the vehicle up to and only the fees is paid for the use of the road or realized. …… We have duly considered the rival contentions and gone through the records carefully. The only objection of the Assessing Officer for denying the depreciation to the assessee is that road in isolation, does not constitute building. This road is not within the factory premises which can be considered as a part of the plant or building. We find that expression “building” has been given an extended meaning in the Appendix 1 of the IT Rules. Now the building includes roads, bridges, culverts well and tube wells. Thus, the judgment relied upon by the Assessing Officer is not applicable on the facts of the present case. There is a change of poistion of law. The learned Ist Appellate Authority has considered this issue elaborately in the findings supra and we do not find any error in this finding. Therefore, both the appeals are dismissed.”

Since there are no change in the facts and circumstances of the case, we find that learned CIT(A) has rightly allowed the depreciation on the toll bridge during the impugned year by following the decision of the Hon’ble ITAT Delhi Benches in assessee’s own case for the Assessment Year 2002- 03 to 2005-06.

Learned counsel for the assessee also relied upon the decision in the case of assessee where the Revenue went in appeal for the Assessment Year

Whether on the facts and circumstances of the case, the Hon’ble ITAT is justified in law in dismissing the appeal of the revenue and to hold that in isolation, road can be considered as a building for the purpose of granting depreciation? 2. Whether on the facts and circumstances of the case, the Hon’ble ITAT is justified in law in dismissing the appeal of the revenue and to hold that “Buildings” include roads, birdges, culvers, wells and tube wells etc. as per provisions of Appendix-I of the IT Rules, 1962, whereas Appendix-I is effective from assessment year 2006-07 onwards and not applicable for A.Y. 2004-05, which is the year under appeal? 3. Whether on the facts and circumstances of the case, the Hon’ble ITAT is justified in law in dismissing the appeal of the revenue and to hold that the assets on which depreciation is claimed by the assessee are owned by it, whereas in the concession Agreement dated 12.11.1997 between NOIDA authority and the assessee, it is clearly mentioned that the land on which the toll bridge has been constructed is not a property of the assessee, but has been given on lease by the NOIDA authority for a certain period (30 years) and as per the agreement, the lease can be terminated earlier also, subject to certain conditions. Therefore, the ownership of the asset in the hands of the assessee is not established.

The question nos.1, 2 and 3 in this apeal are the same as have been raised by the revenue in Income Tax Appeal No.316 of 2011 between the same parties for the assessment year 2005-06.

By a judgment delivered today between the parties, we have answered all the three questions for the assessment year 2005-06 in favour of the respondent-assessee, and against the revenue.

Following the judgment delivered today in Income Tax Appeal No.316 of 2011 between the same parties, all the three questions are decided in favour of the respondent-assessee, and against the revenue.

Also reproduced hereinbelow the decision of Hon’ble High Court of Allahabad in assessee’s case for the assessment year 2005-06 as under: “25. With the insertion of the Explanation-I to Section 32 w.e.f. 1.4.1998 there is no doubt that where the assessee is the lessee of the building in which he carries on business which is not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee of any structure or doing of any work in or in relation to by way of renovation, extension or for improvement to the building,l then the provisions of the Income Tax Act, will apply as if the said structure or work is a building owned by the assessee. Explanation-I may apply to renovation or extension or improvement to the building, the object is to extend the application of depreciation, if such buildingins which are not onwed by the assessee but in which the assessee holds a lease or other right of occupancy. Thepresent case stands on a better footing, in which the land is hled on lease and the road as capital asset has been built on it with exclusive ownership of the road, and the bridge in the assessee-company for the concessiion period, and which also includes the right to collect tolls and to regulate use of the bridge. Section 32 would, therefore, apply for the purpose of providing depreciation to be worked out in accordance with the law. For removal of doubts the legislature has provided that the building includes roads in Note(1) to Appendix-I providing for the table of rates at which the depreciation is admissible. 26. The questions no.1, 2 and 3 are thus decided in favour of the respondent- assessee and aginst the revenue. So far as question no.1 is concerned, regarding the payment in connection of “take out assistance fee’ for redemption of Deep Discount Bonds this Court has already decided the question in Income Tax Appeal No.44 of 2010 between the same parties relating to the assessment year 23002-03 in favour of the respondent-assessee and against the revenue.”

The decision relied upon by the learned DR in the case of CIT vs. West Gujarat Expressway Ltd. reported in (2016) 73 taxmann.com 139 (Bombay) and in the case of North Karnataka Expressway Ltd. reported in 2014-TIOL- 1931 HC-MUM-IT is distinguishable on the facts that in the cases decided by the Bombay High Court the model of the contract was BOT whereas in the present case it is BOOT. Secondly, the case decided by the Hon’ble Bombay High Court were with respect to National Highway whereas in the present case it is not a National Highway. In the facts and ITAs No.5246, 5247, 5248, 5249, 5286/Del/2012 10 circumstances of the case, we find no infirmity in the order of learned CIT(A) and accordinlgy both the grounds of the Revenue are dismissed.

As regards ground no.4, the brief facts of the case as emanating from the order of the AO are reproduced herein. “I have carefully considered the submissions of the assessee and not found any force in the same as the nature of payment, which is being made under Take out assistance agreement is not revenue but capital in nature. It is a payment, which is to be made in connection with redemption of Deep discount bonds and hence cannot be claimed as a revenue expense. It has been held in the case of Gujarat Mineral Development Carp. Ltd., VS. elT (1983) reported at 143 ITR 822 (Gujarat) that where expenditure is incurred in the field of fixed capital, but is on capital account but if it is in the field of circulating capital, it is on revenue account. In the case of Indian Ginning and Pressing Co. Ltd. Vs. c/T (2002) reported at 25 STC 503 (Guj HC): (2001) 252 ITR 577 (Guj.) it was held that in relation to the test of enduring benefit, what is material is to consider the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advontoqe may endure for an indefinite future. Following the ratio of the judgment quoted above, it is clear that the nature of payment under consideration, is capital in nature, as it Is connected with the fixed capital of the assessee by way of fees being paid for the redemption of bonds. Here it is pertinent to mention that this issue was raised in earlier years and has duly been upheld oy Ld. CIT (Appeals) in those years. In view of the above, the amount of Rs. 91,21,413/- paid by the assessee as “Take out Assistance fee" is disallowed as an expenditure being capital in nature and added back to the total income of the assessee.”

Learned CIT(A) deleted the addition so made by the AO. The issue is covered against the Revenue by the decision of Hon’ble Allahabad High Court in assessee’s own case for the assessment year 2002-03 in Income Tax Appeal No.44 of 2010 dated 24.08.2012 placed at paper book page no.899 to 908 and for the assessment year 2003-04 in of 2011 dated 24.08.2012 placed at paper book page 887 to 896. In the facts and circumstances of the case, we find that there is no infirmity in the order of the learned CIT(A) who has rightly deleted the addition so made.

In the result, the appeal of the Revenue is dismissed.

Now we take up the appeal of the assessee in ITA No.5286/Del/2012. The grounds raised

We have heard the rival contentions and perused the facts of the case. It was pointed out by the learned counsel for the assessee that the said expenditure is in fact covered specifically u/s.36(1)(ii) where any sum paid to an employee as bonus or commission for services rendered is allowed. When specific section is there for allowance or an expenditure, then the general provision of the section as contained in Section 37(1) shall not ITAs No.5246, 5247, 5248, 5249, 5286/Del/2012 12 apply. The learned counsel for the assessee relied upon the decision of Hon’ble Supreme Court in the case of Shahzada Nand & Sons vs. CIT reported in (1977) 108 ITR 358 (SC) and the relevant head notes are reproduced hereinbelow.

He also relied upon the decision of Hon’ble Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd. vs. CIT reported in (1983) 12 Taxman 178 (Bom.) where he pointed out at page 8 of the judgment which is reproduced hereinbelow. “Mr. Joshi, on behalf of the Revenue, had seriously objected to the production of this document. We, however, overrruled that objection and we have taken these grounds of appeal as annex. F to the statement of the case. Ground No.8 shows that the break up of Rs.31,899, i.e., Rs.22,699, are expenses under the head “Printing and Stationery” and Rs.9,200 are the expenses under the head “Postage & Telegrams”. Now, obviously, these are expenses which are incurred consequent upon the issue of bonus shares. These are not expenses which can even be said to have been incurred for the purposes of raising any additional capital. These are expenses which have been incurred in the normal course of business and merely because the printing was done, in connection with bonus shares or the stationery was utilized probably for printing in connection withbonus shares and the p[ostage and telegrams are, in some way or other, related to the declaration of bonus shares, it is not necessary for us to treat these expenses as being of a capital nature. The Tribunal was justified in taking the view that this expenditure does not create any asset of an enduring nature.”

He also relied upon the letter no.F-No.10/67/05-IT(A)-1 issued by CBDT which is reproduced hereinbelow. “ Letter F. No.10/67/65-IT(A-I) Listing fee paid annually to stock exchange – Whether admissible as business expenditure Attention is invited to the Board’s Letter F. No.10/.44/64-IT(A-I), datred 14.1.1995 [Annex], on the above subject. The matter has been reconsidered by the Board. As the advantatges accruing to a company as a result of getting its hares listed on a stock exchange contain substantial advantages pertaining to its day to day business, it has been decided that such expenses should be considered as laid out wholly and exclusively for the purposes of the business and therefore, admissible as business expenditure under section 37(1). In view of the above, the instructions issued under the Board’s earlier letter referred to above may be treated as withdrawn. Letter : F.No. 10/67/65-IT(A-I), dated 26.08.1965.”

Learned DR, on the other hand, mainly relied upon the decision of Hon’ble Supreme Court in the case of Punjab State Industrial Development Corp. Ltd. vs. CIT, reported in (1997) 93 Taxman 5 (SC) and relevant paragraph 7 of the said judgment is as under: “7. We do not consider it necessary to examine all the decision in extenso because we are of the opinion that the fee paid to the Registrar for expansion of the capital base of the company was directly related to the capital expenditure incurred bythe company and although incidentally that would cerainly help in the business of the company and may also help in profit-making, it still retains the character of a capital expenditure since the expenditure was directly related to the expansiion of the capital base of the company. We are therefore of the opinion that the view taken by the different High Courts in favour of the revenue in this behalf is the preferable view as compared to the view based on the decision of the Madras High Courtin Kisenchand Chellaram (India) (P.) Ltd.’s case (supra). We therefore answer the question raised for our determination in the affirmative i.e. in favour of the revenue and against the assessee. 8. The tax reference will stand answered accordingly with no order as to costs.”. 26. On perusal of the facts on record, we are of the view that bonus paid is exclusively has to be dealt by Section 36(1)(ii) of the Act and which does not distinguish between capital and Revenue and therefore has to be allowed. In view of the decisions cited by learned counsel for the assessee, it is evident extra services rendered by employee is justified to be an employee expenditure especially held by Hon’ble Supreme Court in the case of ITAs No.5246, 5247, 5248, 5249, 5286/Del/2012 14 Shahzadnad and Sons (supra). The position of Hon’ble Supreme Court in the case of Punjab State Industrial Development Corpn. Ltd. Vs. CIT reported in (1997) 93 Taxman 5 (SC) is distinguishable on the facts that the issue before the Hon’ble Supreme Court was with regard to the fee paid to the Registrar for expansion of capital which is not in the present case. Moreover, we have the benefit of the letter dated 26.08.1965 where expenses listing on stock exchange is mainly for the purpose of business wholly and exclusively allowable u/s.37(1) of the Act as well. Therefore, from all angles put before us by the parties, we are of the considered view that such an expenditure incurred is wholly and exclusively for the purpose of business and is allowed as Revenue expenditure. Accordingly all the grounds of the assessee are allowed and appeal of the assessee in is allowed.

Now we take up the appeal of the assessee for the assessment year 2007-08, in ITA No.5286/Del/2012 where the issue with regard to the agency fees is identical as in Revenue’s Appeal in ITA No.5246/Del/2012, and therefore, following our own order hereinabove. The Revenue’s ground is dismissed.

As regards the ground no.2 of the Revenue, the brief facts of the case as emanating from the order of the AO are reproduced hereinbelow. “12. On perusal of the balance sheet, it is seen that assessee has shown a sum of Rs.2,00,57,868/- as Advance Payment and unexpired discouns shown under the head current liability. Accordingly, assessee was asked to explain the nature of this unexpired discounst shown under the head liability. In response to the query, assessee has stated that this pertains to the toll receipts, which the customer has not used during the year under consideration. Assessee was further asked to explain as to why the reciepts received from the customer have been kept aside in the balance sheet. In response assessee stated that customer purchases card of tolls which is consumed on to and fro basis, and when the customer utilized full to and fro the receipts is taken into consideration. The assessee has also submitted the copy of refund being made by the company to the customer. The submission of the assessee is not tenable and convincing because the assessee received the tolls through electronic cards as revenue receipt and thereafter treatment thereoif as ITAs No.5246, 5247, 5248, 5249, 5286/Del/2012 15 liability is clear deferment of tax incidence on the ground of unutilization of to and from and other submission of refund to be made to customer in case the customer intends to take refund. The other submission is not acceptable because if a customer intends to take refund, which can be adjusted against the concerned year’s receipt and after adjusting refund, net revenue toll receipts will be taxable. Thus the entire submission of the assessee is not tenable, but is a clear cut avoidance of tax incidence. Accordingly, a sum of Rs.2,00,57,868/- is added to the income of assessee, for which penlaty proceedings u/s.271(1)(c) are being initiated separately.”

Learned CIT(A) at page 45 deleted the addition and we find no infirmity in his order. We find that the assessee had disclosed the advance payments received on account of toll and advertisement revenue as Advance Payment/Unexpired Discounts under the head Current Liabilities in its books of accounts. Out of total amount ofRs.2,00,57,868/-, Rs.63,03,382/- represented advance received on accountof advertisement fees whereas the balance amounting to Rs 1,37,54,486 represented advance on account of toll fees. The Assessing Officer treated the entire amount as income of the appeal assessee, being a corporate entity, is required to maintain its books of accounts on accrual basis and in compliance with the Accounting Standards issued by the Institute of Chartered Accountants of India. In this regard Accounting Standard - AS·9 issued by the Institute of Chartered Accountants of India, is required to be mandatorily followed by all corporate entities. Reading of the aforesaid AS-9, makes it clear that the revenue should be recognized only when the services are rendered and in case where services are rendered partially, revenue should be recognised proportionate to the degree of completion of the services. In the instant case, the assessee recoqnised advertisement revenue proportionately on the basis of period falling under the particular financial year. So far as toll fee is concerned while issuing new cards (Silver and Gold cards) the assessee collects administration fees, security deposit and toll usage fees. While

In the result, the appeal of the Revenue in is dismissed.

As regards appeal of the Revenue in ITA No.5248/Del/2012 and 5249/Del/2012 for the assessment years 2008-09 and 2009-10 which are dealing with the depreciation of toll bridge and agency fees the issues are identical to the issues raised by the Revenue in ITA No.5246/Del/2012 where the Revenue’s grounds being dismissed by us hereinabove.

Following our order hereinabove, both the grounds in both the appeals are dismissed.

In the result, the appeals of the Revenue in both the years are dismissed.

To sum up, the appeal of the Revenue in ITAs No.5246 to 5249/Del/2012 are dismissed and appeal of the assessee in is allowed.