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Income Tax Appellate Tribunal, 3 [2012] 20 taxmann.com 29 (Delhi
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 19TH DAY OF SEPTEMBER, 2022 PRESENT THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON'BLE MR. JUSTICE UMESH M. ADIGA INCOME TAX APPEAL NO. 115 OF 2017
BETWEEN: BANGALORE INTERNATIONAL AIRPORT LTD. A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 ADMINISTRATION BLOCK BIAL, DEVANAHALLI BANGALORE-560 300. REPRESENTED HEREIN BY ITS MR. AKSHAY RAM APTE …APPELLANT
(BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE)
AND: 1. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(2) BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095.
THE COMMISSIONER OF INCOME TAX-I BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095 …RESPONDENTS
(BY SHRI. E.I. SANMATHI, ADVOCATE)
Digitally signed by ANUSHA V Location: High Court Of Karnataka
THIS INCOME TAX APPEAL FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 27.09.2016 PASSED IN ITA NO.510/BANG/2014, FOR THE ASSESSMENT YEAR 2010-2011, PRAYING THIS HON'BLE COURT TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ETC.,
THIS INCOME TAX APPEAL, COMING ON FOR HEARING, THIS DAY, P.S. DINESH KUMAR J, DELIVERED THE FOLLOWING: JUDGMENT
This appeal by the assessee challenging the order dated 27th September, 2016 in ITA No.510/Bang/2014 for the Assessment year 2010-2011 has been admitted to consider following questions of law: "(i) Whether the Tribunal was correct in upholding the disallowance of the depreciation to the extent of Rs. 4,00,01,168/- on the basis that the Appellant had not acquired any business and commercial rights without appreciating the material on record in the right perspective?
(ii) Whether the Tribunal was right in holding that leasehold rights partakes the character of land and would not be entitled to depreciation under Section 32 of the Act?"
Heard Shri T.Suryanarayana, learned Senior Advocate for the appellant and Shri E.I.Sanmathi, learned standing counsel for the Revenue.
Assessee is Bengaluru International Airport Ltd. Its case is, it has entered into various agreements with the Central Government, State Government, etc., and acquired certain rights. In order to enter into those agreements, it has incurred expenditure. Assessee sought to treat the said expenditure as capital asset and claimed depreciation. The Assessing Officer disallowed it on the ground that the expenses incurred in obtaining various support by way of payment towards legal, technical and management fee cannot be termed as expenses incurred for acquiring business or commercial rights falling under the definition of 'intangible asset'. Therefore, the assessee was not eligible to claim depreciation.
On appeal, CIT(A)1 held that assessee had entered into various agreements and it had acquired business and commercial rights, but there was no evidence to show that appellant had made payment to acquire those rights. With this finding, he confirmed Assessing Officer's view.
1 Commissioner of Income Tax (Appeals)
On further appeal, ITAT2 held that expenditure is revenue in nature incurred during pre-operative period and qualifies for capitalization among various fixed assets and as a result of this expenditure, it could not be said that assessee had not acquire any commercial rights. In substance, the depreciation claimed on the expenditure incurred by the assessee has been disallowed.
Shri Suryanarayana submitted that ITAT has rightly come to the conclusion that expenditure made towards pre-operative period qualifies capitalization. He relied upon Areva T & D India Ltd., Vs Deputy Commissioner of Income-tax3 in support of his contention. He urged that once there is no dispute with regard to the fact that the expenditure in question is qualified to be capitalized, further finding of the ITAT that assessee had not acquired any commercial rights is untenable. He urged that as pre-operative expenditure
2 Income Tax Appellate Tribunal 3 [2012] 20 taxmann.com 29 (Delhi) Para 13
incurred towards entering various agreements is qualified for capitalization, this appeal may be allowed.
Shri E.I.Sanmathi, learned Standing counsel for the Revenue submitted that CIT(A) has recorded in Para 4.10 that there is no evidence to show that the expenditure sought to be capitalized has been actually spent. Since amount spent has not been proved, CIT(A) has rightly disallowed the assessee's claim. Accordingly, he prayed for dismissal of this appeal.
We have carefully considered rival contentions and perused the records.
Assessee's case is, it has entered into several agreements with Central and State Governments and obtained certain rights under the said agreements. One such agreement has been referred to in Para 4.10 by CIT(A), which is a Concession Agreement with Ministry of Civil Aviation, Government of India, dated 05.07.2004. Under the said agreement, assessee was
required pay to the Government of India 4% of the Gross Revenue as 'Concession Fee' every year, which is quantified as Rs.20,43,03,000/-. CIT(A) has recorded that the said amount payable every year is a revenue expenditure. Therefore, no depreciation is eligible. To this extent, the CIT(A) is correct. His further finding is, cost allocation of Rs.13,60,00,000/- incurred to get the Concession Agreement has no evidence. Shri Sanmathi rightly pointed out that since the Department has not filed an appeal against ITAT's finding that the expenditure incurred during pre-operative period qualifies for capitalization, if the assessee demonstrate before the Assessing Officer that the expenditure of sum of Rs.13,60,00,000/- was incurred to get the Concession Agreement and respective expenditure to obtain other agreements, assessee's claim of depreciation can be allowed.
It is not in dispute that the assessee has incurred certain expenditure. Shri Sanmathi's contention is,
the expenditure was not proved before the Assessing Officer. Shri Suryanarayana submitted that subject to assessee demonstrating factual expenditure, assessee may be permitted to capitalize such expenditure and to claim depreciation on that expenditure.
In Areva T & D India Ltd., assessee-appellant therein had entered into Slump Sale Agreement and acquired know-how, business contacts, business information, etc. The Delhi High Court framed the following questions for consideration; "Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that know-how, business contacts, business information, etc. acquired as part of the slump sale described as 'goodwill&apos: were not entitled for depreciation under Section 32(1)(ii) of the Income Tax Act?"
and held that the intangible assets acquired under Slump Sale Agreement were in the nature of business or commercial rights of similar nature specified in Section 32 (1)(ii) of the Income Tax Act, 19614 and eligible for depreciation under the said act.
4 'the Act' for short
In the case on hand, assessee has entered into various agreements with Central and State Government, etc. The assessee's agreement referred to hereinabove is with the Central Government. Assessee's case is, to obtain that agreement it has incurred certain expenditure. Shri Suryanarayana, pointed out that in case the assessee transfers its rights under the agreement, it will be transfer of an intangible asset similar to the one considered in Areva T & D India Ltd., and he is right in his submission. A Concession or a right which accrues over a period of time under an agreement will be in the form of an intangible asset and when transferred, the transferee will also be entitled for continuation of the benefit. Assessing Officer has stated that the expenses in this case are mostly towards legal, technical and management fee. Such expenditure is incurred to obtain a legally enforceable agreement. In our considered view, the ITAT has rightly held that such expenses can be capitalized. It is settled that
assessee shall be entitled to claim depreciation on such expenses which can be capitalized.
Shri Sanmathi's contention that CIT(A) has recorded that the assessee has not proved the expenditure also merits consideration. It is relevant to note that CIT(A), on appreciation of material on record, has held in Para 4.9 that assessee had acquired business and commercial rights and licenses by making payment which were in the nature of 'intangible asset' entitled for claiming depreciation under Section 32(1)(ii) of the Act. This finding has not been challenged by the Revenue before the ITAT.
The second substantial question of law is whether a lease right constitutes an intangible right. In our view, Shri Suryanarayana is right in his submission because, the intangible right accrued in favour of assessee is transferable and therefore, the cost incurred towards acquiring leasehold rights shall be eligible for depreciation.
In view of the above, the following; ORDER
(i) Appeal is allowed holding that the first substantial question of law in favour of the assessee subject to assessee demonstrating before the Income Tax Officer the actual expenditure upon which depreciation of Rs.4,00,01,168/- has been claimed; and
(ii) the second substantial question of law answered in favour of the assessee and against the Revenue.
No costs.
Sd/- JUDGE
Sd/- JUDGE
AV List No.: 1 Sl No.: 24