DCIT 9(1)(2), MUMBAI vs. ATLANTA INFRA ASSETS LTD, MUMBAI

The captioned appeal by the Revenue is directed against the order of CIT(A)-16, Mumbai dated 19.11.2014 pertaining to the Assessment Year 2010-11, which in turn has arisen from the order passed by the Assessing Officer dated 22.03.2013 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

M/s. Atlanta Infra Assets Ltd.

“1. The Ld. CIT(A) has erred in facts and in law in accepting the version of the assessee that the subsidy / grant received from M/s National Highway Authority of India(NHAI) is a capital receipt.

2. The CIT(A) has erred in wrongly appreciating the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd CIT (1977) (228 ITR 253) which clearly lays down the law that subsidy received by the assessee for meeting the operational expenses are of revenue in nature.

3. The CIT(A) has erred in relying on the version of the assessee that the subsidy received from NHAI is towards "Equity Contribution" when this is not factually supported by the accounts of the assessee, as the assessee has not credited this amount to its paid up share capital, rather the same has been credited directly to "Capital Reserve Account.

The appellant prays that the order of the CIT(A) on the above ground above set aside and that of the A.O. be restored.”

shown a sum of Rs.53.68 crores under the head ‘Capital Reserves’, which represented a capital grant from National Highways Authority of India (NHAI). It was also noted that out of the said amount of Rs.53.68 crores, Rs.41.35 crores was as per the last Balance-sheet, whereas a sum of Rs.12.33 crores was received during the year. The Assessing Officer took the view that the nature of the said grant was revenue in character and alternately held that if it was to be taken as Capital in nature, it would go to reduce the cost of assets and, therefore, consequent allowance of lower depreciation. In any case, there was no addition made to the total income on this count as according to the Assessing Officer, the issue was academic in nature in the instant year. In order to impart completeness, we may reproduce the following paragraph of the assessment order :-

“5.7 Though in the current assessment year the issue is academic in nature, however, in the subsequent assessment year in which the project is completed and revenue starts flowing in, the treatment of said grant from NHAI given in the books would have effect on the taxes payable by the assessee. In such assessment year, the amortization of deferred revenue expenditure should be allowed after reduction of said grant from the total deferred revenue expenditure, as per para 5.4 above. Without prejudice and alternately as per para 5.5 above, the depreciation @ 10% should be allowed after reducing the amount of said grant from total capital cost, as per Explanation 10 to sec. 43(1).”

chargeable to tax. Against such a decision of the CIT(A), Revenue is in appeal before us on the aforestated Grounds of appeal.

5. At the time of hearing, the learned representative for the respondent-assessee quite fairly contended that the issue in dispute was of academic nature inasmuch as no addition has been made to the returned income and, therefore, the same be adjudicated in the respective year of tax effect. It was pointed out that the assessee is undertaking construction of road in terms of project awarded by NHAI, and during the year construction was going on. The learned representative pointed out that in terms of the agreement with the NHAI, assessee had a right to collect toll for 15 years, but the said right had not commenced as the construction was going on during the year under consideration. It was contended that it was only in the subsequent years of assessment, i.e. Assessment Year 2012-13 onwards when the construction was complete that the right to collect the toll commenced. It was, therefore, contended in all fairness that it would be appropriate if the mater be adjudicated in the respective years.

M/s. Atlanta Infra Assets Ltd. relating to the nature of receipt of grant from NHAI is academic in nature. Quite clearly, the determination of the nature of such grant in the instant year does not affect the tax liability of the assessee for the year. No doubt, in the subsequent assessment year when the construction of the project is complete and assessee exercises the right to collect the toll, the nature of the grant received by the assessee from NHAI would be a factor in determining the correct tax liability of the assessee. Under these circumstances, we, therefore, set-aside the orders of the authorities below on this aspect with an observation that the Revenue would be free to examine the nature as well as taxability of the grant received from NHAI in the subsequent assessment years when the project of the assessee is complete, of course, keeping in mind the then prevailing legal position. Thus, the captioned appeal of the Revenue is allowed for statistical purposes without going into the merits of the Grounds raised before us.

Order pronounced in the open court on 15th September, 2017.