CONTAINER CORPORATION OF INDIA LTD.,NEW DELHI vs. DCIT, NEW DELHI

PER PRASHANT MAHARISHI, A. M. ITA No. 1876/Del/2012 & ITA No.2167/Del/2012 Assessment Year: 2008-09

Page 3 of 21 5. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs.7,84,00.00 made by the AO on account of income from undelivered container. 6. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

“5. We may now notice the relevance of section 80-IA of the Act. The Finance Act, 1995, with effect from April 1, 1996, for the first time brought in a provision under which a percentage of the profits derived from the operation of any "infrastructure facility" was allowed a deduction in computing the income of the assessee. This was allowed for a

Page 4 of 21 period of ten consecutive assessment years. According to Circular No. 717, dated August 14, 1995, reported in [1995] 215 ITR (St.) 17, 70, 92, which explained the rationale behind the provision, the following was the objective : "34.2 Industrial modernisation requires a massive expansion of, and qualitative improvement in infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfil the requirements of the country within a reasonable time frame. In many countries the BOT (build-operate-transfer) or the BOOT (build-own-operate-transfer) concepts have been utilised for developing new infrastructure. 34.3 Applying commercial principles in the operation of infrastructure facilities can provide both managerial and financial efficiency. In view of this, a ten-year concession including a five-year tax holiday has been allowed for any enterprise which develops, maintains and operates any new infrastructure facility such as roads, highways, expressways, bridges, airports, ports and rail systems or any other public facility of similar nature as may be notified by the Board on BOT or BOOT or similar other basis (where there is an ultimate transfer of the facility to a Government or public authority). The enterprise has to enter into an agreement with the Central or State Government or a local authority or any other statu tory authority for this purpose. The period within which the infrastructure ture facility has to be transferred needs to be stipulated in the agreement between the undertaking and the Government concerned. The enter prise has to be owned by a company registered in India or a consortium of such companies. The tax holiday will be in respect of income derived from the use of the infrastructure facilities developed by them." 6. The term "infrastructure facility" was defined in section 80-IA(12)(ca) to mean a road, highway, bridge, airport, port or rail system or any other public facility of a similar nature as may be notified by the Central Board of Direct Taxes in the Official Gazette. 7. The Finance (No. 2) Act, 1996, expanded the definition of the "infrastructure facility", to include water supply project, irrigation project, sanitation and sewerage system. The Income-tax (Amendment) Act, 1998, made several changes all of which are not relevant for our purpose. It may only be noted that again the definition of "infrastructure facility" was expanded to include a highway project including housing or other activities being integral part of the highway project. 8. The Finance (No. 2) Act, 1998, for the first time included the words "inland water ways and inland ports" in the definition of "infrastructure facility" in sub-section (12), clause (ca), with effect from April 1, 1999. Thus, the relevant clause, after the amendment, read as under : "infrastructure facility"—means (i) a road, bridge, airport, port, inland waterways and inland ports, rail system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette." 9. In paragraph 43 of Circular No. 772, dated December 23, 1995, reported in [1999] 235 ITR (St.) 35, 67, the Board explained the inclusion of "inland waterways and inland ports" in the definition of "infrastructure facility" as follows : "43. Inland port and waterways regarded as infrastructure facility :

Page 5 of 21 43.1 Under the existing provisions of section 80-IA, roads, high ways, bridge, airport, port and rail system are regarded as infrastructure facilities and the undertakings engaged in developing, maintaining or operating such infrastructure facility are entitled to a tax holiday for 5years and a deduction of 30 per cent. of profits for the next 5 years. These companies have the choice of availing of such benefits in any 10 consecutive years out of initial 12 years from the year in which they commence production. 43.2 The Government has identified national waterways, the fourth mode of transport, for improving the transport infrastructure in the country. Inland waterways and inland ports play a vital role in improving a country's infrastructure. With the objective of improving the transport infrastructure, the Act has included inland waterways and inland ports in the definition of 'infrastructure facility' as given in section 80-IA. The undertakings engaged in the development of such infrastructure would be entitled to two-tier fiscal benefits as out lined above." (underlining ours) 10. Thus, it was for the first time from the assessment year 1999-2000 that inland ports started enjoying the deduction under section 80-IA as an "infrastructure facility". The object of the Government was to strengthen and improve the country's infrastructure in general and the transport infrastructure in particular. Inland ports facilitate the transport infrastructure by taking care of the transport of the customs-cleared goods meant for export from the inland container depot to the sea-port and the imported goods directly from the sea-port to the inland container depot where they can be customs- cleared. When the entire section was recast by the Finance Act, 1999, with effect from April 1, 2000, and even after several amendments were thereafter made to the section, inland ports continued to enjoy the deduction as infrastructure facility. 11. The question before us is whether the income from the inland container depots qualify for the deduction under section 80-IA(4)(i) of the Act read with the Explanation (d). We may first notice that out of the total of 45 inland container depots operated by the assessee, except two inland container depots, all others were notified by the Central Board of Direct Taxes, vide Notification No. S. O. 744(E) issued on September 1, 1998, for the purpose of section 80-IA(12)(ca). It may be recalled that under this provision, the Board had the power to notify an infrastructure facility for the purpose of the section. The notification is reported in [1999] 233 ITR (St.) 126 and is reproduced below : "Notification No. S. O. 744(E), September 1, 1998—Income-tax Act, 1961 : Notification under section 80-IA(12)(ca) : Inland container depot and Central freight station notified as infrastructure facility. In exercise of the powers conferred by clause (ca) of sub-section (12) of section 80-IA of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby notifies inland container depot (ICD) and Central freight station (CFS) as infrastructure facility : Provided that such places are notified as inland container depot and Central freight station under section 7(aa) of the Customs Act, 1962." 12. The power to notify infrastructure facilities for the purpose of the section was taken away from the Central Board of Direct Taxes with effect from April 1, 2002. The first argument of the learned counsel for the assessee is that once the inland container depots have been notified validly by the Central Board of Direct Taxes by virtue of the powers conferred upon them, the fact that at a later point of time the power was taken away does not put an end to the validity or effect of the notification and as per the relevant

Page 6 of 21 section as it stood at the time when the notification was issued, the assessee was eligible for the deduction for a period of 10 successive assessment years which covers the assessment years 2003-04 to 2005-06 which are the years under appeal. 13. We have examined the contention. Prior to the amendment made with effect from April 1, 2002, by the Finance Act, 2001, as noticed earlier, the Board was empowered to notify any public facility of a similar nature, other than what was mentioned as infrastructure facility. But an amendment was made and the power to notify was dropped. There was no provision made in the Act saying that the notification issued earlier would cease to have effect from April 1, 2002. Since the notification continued to have effect even beyond April 1, 2002, there is merit in the contention of the learned counsel for the assessee. Circular No. 7 of 2002, dated August 26, 2002, reported in [2002] 257 ITR (St.) 28 clarified as under : "Such projects, for which agreements have been entered into on or after April 1, 1995, but on or before March 31, 2001, and which have been notified by the Board on or before March 31, 2001, would conti nue to be exempt, subject to the fulfilment of the conditions prescribed in section 80-IA(4)(i)(b), as it existed prior to its substitution by the Finance Act, 2001." This circular fortifies the assessee's claim. 14. The next question that arises is whether the inland container depots can be considered to be inland ports. There is no definition of an inland port in the Act. However, a "port", which also qualifies for the deduction is defined in section 3(4) of the Indian Ports Act, 1908 (Act 15 of 1908), to include "also any part of a river or channel" in which the said Act is for the time being in force. The word "port" is defined in T. Ramanatha Aiyar's Law Lexicon, fourth edition (2010) in a number of ways. The most general meaning which is given is that it denotes a harbour or shelter to the vessels from a storm or as a place with a harbour where ships load or unload. It has also been defined in the commercial sense as an enclosed place where vessels load and unload goods for export or import. Commercially considered, "a port is a place where vessels are in the habit of loading and unloading goods". The law lexicon also refers to a judgment of the Bombay High Court in the case of Amership Management P. Ltd. v. Union of India [1996] 86 ELT 15 (Bom). The Bombay High Court has explained the word "port" as under : "Port is a place for loading and unloading of cargoes of vessels. The word 'port' must be construed in its usual and limited popular or commercial sense as a place where ships are in the habit of coming for the purpose of loading or unloading, embarking or disembarking. It does not mean the physical port. On this basis, it has been held that an oil rig stationed outside territorial waters is a port where ships call for loading or unloading the goods. Amership Management P. Ltd. v. Union of India [1996] 86 ELT 15 (Bom)." 15. It is interesting to note that the word "port approaches" is defined as those ports of the navigable channels leading to the port in which the Indian Ports Act is in force. There are several other definitions such as port call, port charges, port mark, port of arrival, port of entry, port of departure, port of call and so on and so forth. The whole emphasis, however, is that whenever the word "port" is used, it carries with it a maritime connection or connotation. That is perhaps why the section refers separately to airport. An airport does not have a maritime connection. But an airport is also a place where customs clearance are made both for import and export. It would be difficult to put the assessee's case as falling within the word "port" having regard to the fact that the word carries with it a maritime connotation. The inland container depots are land-

Page 7 of 21 locked and it is nobody's case that they are located in such a place where ships or vessels have direct access to them. The goods which are either removed from or brought into the inland container depots are brought or taken away either by railway wagons or by container trucks, as the case may be. But it is common ground that customs clearances take place in the inland container depots. 16. It is, therefore, for consideration as to whether the inland container depots can be said to be "inland ports" for the purposes of Explanation (d) below sub-section (4) of section 80-IA. We were not able to find a definition of the words "inland port" in any of the dictionaries. But the words "inland container depot" were introduced in section 2(12) of the Customs Act, 1962, which defines "customs port". This was by way of an amendment made by the Finance Act, 1983, with effect from May 13, 1983. Simultaneously, clause (aa) was inserted in section 7(1) of the said Act under which the CBEC was empowered to issue notification appointing the places which alone shall be considered as inland container depots for the unloading of imported goods and the loading of exported goods. On April 24, 2007, the following clarification was issued by the Central Board of Excise and Customs apparently in response to a query raised by the assessee : "F. No. 450/24/2007-Cus. IV Government of India, Ministry of Finance, Department of Revenue, Central Board of Excise and Customs New Delhi, April 24th, 2007. To, Ms. P. Alli Rani, Executive Director (Finance), Container Corporation of India Ltd., CONCOR Bhawan, C-3, Mathura Road, Opp. Appolo Hospital, New Delhi-110076. Subject : Clarification regarding 'inland port'—Regarding Kindly refer to your letter CON/FA/128/Vol-2/80-IA/2003-04, dated April 18, 2007, seeking clarification regarding 'inland port'. 2. It is stated that as per the Customs Act, 1962, section 2(12) defines 'customs port' as any port appointed under clause (a) of sec tion 7 to be a customs port and includes inland container depot (ICD) appointed under clause (aa) of section 7. Container freight stations (CFSs) are 'customs area' attached to a 'port'. The work related to customs is performed at these inland container depots/Container freight stations. Accordingly, inland container depots and Container freight stations (i.e., customs area of port) are 'inland ports". (M. M. Parthiban) Director (Customs) Ph-23093908 Copy to, Shri Jagdeep Goel, Director ITA-I, Central Board of Direct Taxes."

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Subject : Reference from Concor and CFS Association of India regarding confirming that inland container depots/container freight stations are inland ports regarding The undersigned is directed to refer to this Department's O. M. of even number dated September 1, 2008, on the above subject. In this regard, Concor and CFS Association of India have represented that in order to accord tax benefit under section 80-IA of Income-tax Act, 1961, the Ministry of Finance required a more specific reply clarifying the status of inland container depots/container freight stations in the country. A copy of the representation is enclosed. 3. The matter has been examined in this Department and it is clarified that inland container depots/container freight stations are inland ports. The Central Board of Direct Taxes may accordingly take decision for the purpose of exemption of inland container depots/container freight stations of Concor or a private party under section 80-IA of Income-tax Act. (S. G. Sood) Under Secretary to the Govt. of India, Department of Revenue, (Shri Padam Singh, Under Secretary (ITA-I) Central Board of Direct Taxes, North Block, New Delhi. Fax : 23095417" 18. It is significant to note that copies of both the aforesaid communications have been marked to the Central Board of Direct Taxes. The position, therefore, has been put beyond doubt by these communications. 19. The learned counsel for the assessee has drawn our attention to the definition of "dry port" as per Handbook on the Management and Operations of Dry Ports published by UNCTAD (Union Nations Conference on Trade and Development). In this handbook, an inland container depot has also been defined. The extracts from this book have been given at page 253 (annexure 15) of the paper book and the same is reproduced below : "Dry port—Customs clearance depot located inland away from seaport(s) giving maritime access to it (see also inland container depot). ICD—Inland clearance depot—a terminal located in the hinterland of a gateway port serving as a dry port for customs examination and clearance of cargoes, thereby

Page 9 of 21 eliminating customs formalities at the sea port. Alternatively also known as 'inland customs depot' (see also dry port). It further goes on to give a more elaborate definition under the heading "dry ports defined" as under : An early definition of dry port which appeared in a United Nations text in 1982 was :

'An inland terminal to which shipping companies issue their own import bills of lading for import cargoes assuming full responsibility of costs and conditions and from which shipping companies issue their own bills of lading for export cargoes'. It further goes to add as under : Recently a dry port or inland clearance depot (ICD) was defined as :

'A common user inland facility with public authority status, equipped with fixed installations and offering services of handling and temporary storage of any kinds of goods (including containers) carried under customs transit by any applicable mode of inland surface transport, placed under customs control and with customs and other agencies competent to clear goods for home use, ware housing, temporary admissions, re-export, temporary storage for onward transit and outright exports.' (ECE/UNCTAD/CCC)." The above extracts from the hand book supports the claim of the assessee. 20. We have also been able to find that the words "inland port" are defined in Chapter 277B of the Inland Port Authority Act of the State of Nevada, U. S. A. as under : "an area located away from traditional borders but having direct access to highway, railway and air transport facilities and, if applicable, intermodal facilities." This definition also supports the assessee's claim. 21. The Tribunal erred in holding that because of the change made by the Finance Act, 2001, with effect from April 1, 2002, by dropping the power of the Central Board of Direct Taxes to notify any other public facility of similar nature for the purpose of section 80-IA of the Act, the inland container depot cannot be considered as inland port. The error committed by the Tribunal is to overlook that both before and after the above amendment, inland ports were specifically mentioned as an infrastructure facility in the statutory provision and in the understanding of the CBEC, which administers the Customs Act, an inland container depot was actually an inland port. There is also no dispute that even in 1983 amendments had been made to the Customs Act by treating the inland container depots as part of the customs port for purpose of customs formalities and clearances. In these circumstances, the real question was not whether the Central Board of Direct Taxes notified the inland container depot as an inland port but whether the inland container depot can be considered to be an inland port. In our opinion, having regard to the provisions of the Customs Act, the communications issued by the CBEC as well as the Ministry of Commerce and Industry, the object of including "inland port" as an infrastructure facility and also having regard to the fact that customs clearance also takes place in the inland container depot, the assessee's claim that the

Page 10 of 21 inland container depots are inland ports under Explanation (d) to section 80-IA(4) requires to be upheld. 22. The actual computation of the profits of the inland port have to be made in accordance with the notification issued by the Customs Department with regard to the different inland container depots located at different places. This is a matter of computation and calculation in accordance with the area that has been specifically notified by the Customs Department as inland container depot. The Assessing Officer will compute the deduction in accordance with the relevant notification.” 9. We are also aware that revenue has filed a Special Leave petition against the above decision of the Hon'ble High Court which has been admitted and now pending for disposal. Despite pending SLP before the Hon'ble Supreme Court , we are duty bound to follow the decision of the Hon'ble High Court. Therefore, respectfully following the decision of the Hon'ble High Court we hold that assessee is eligible for deduction u/s 80IA of the Act on income derived from ICDs and CFS as they are held to be “inland port” which is classified as an infrastructure facility u/s 80IA(4) of the Income Tax Act. 10. After holding that the assessee is eligible for deduction u/s 80IA(4)of the act , we direct the ld Assessing Officer to compute profits in accordance with the applicable laws and circulars. In the result ground No. 2 of the appeal of the assessee is allowed accordingly. 11. Ground No. 3 and 4 of the appeal of the assessee are against confirmation of the disallowance of a sum of Rs. 50 crores being registration fees paid to the Ministry of Railways for movement of container trains on India Railways. The ld Assessing Officer allowed 1/20th of the amount as deduction. The ground No. 4 was against denying the claim of depreciation of Rs. 82031250/- being 20% of the amount of Rs. 50 crores. Brief facts of the case is that appellant company has paid Rs. 50 crores to Ministry of Railways as non refundable registration fees towards license for running container trains on India Railways. The appellant claimed depreciation @25% on the above sum. In its annual accounts it has also mentioned as significant accounting policy that registration fee paid to Railway Ministry for approval of movement of container on Indian Railway facilities is capitalized as an intangible asset to be amortized over a period of 20 years. According to the assessee the license or any other business or commercial rights of similar nature is „intangible assets‟ , therefore the right to ply on Indian Railways is a „commercial right‟ and therefore depreciation @25% was claimed. The ld Assessing Officer disallowed the same holding that it is deferred revenue expenditure and not an intangible asset. On an appeal before the ld CIT(A), who confirmed the finding of the ld Assessing Officer and therefore the assessee is in appeal before us. 12. The ld Authorised Representative submitted that the assessee got above right vide policy statement stated 09.01.2006 issued by Ministry of Railways. That policy was framed to

Page 11 of 21 permit rail linking of Inland Container Depots . According to that at the time of submission of request the assessee was to deposit a non refundable registration fee of Rs. 50 crores for application for all routes. On that basis a modalities of granting new licenses were framed and the validity period fixed for 20 years with the right to transfer. Therefore, it was submitted by him that such a right is significant to the business of the assessee. He therefore submitted that without the authority of the above license the assessee could not have run its container on Indian Railway Tracks and therefore such rights are capital in nature falling into the definition of depreciable assets u/s 32 (1)(ii) as „licenses‟ subject to depreciation. He, further submitted that the assessee has acquired the license which is owned by it and used for the purposes of the business and therefore depreciation is allowable to the assessee. For this proposition he relied upon the decision of Hon'ble High Court in 331 ITR 192 and 345 ITR 421. For the claim of the depreciation he relied upon the decision of Hon'ble Supreme Court in 327 ITR 323. He further relied on the decision of Hon‟ble Bombay High Court in 323 ITR 69 and Allahabad High Court in 213 Taxmann.com 333. 13. The ld Departmental Representative submitted that as the assessee has not incurred any capital expenditure but only paid non refundable fee and therefore there is no capital assets coming in to existence and depreciation on this has rightly been disallowed by lower authorities. 14. We have carefully considered the rival contentions. In the present case undisputedly the assessee has paid Rs. 50 crores to the Ministry of Railway as non refundable registration fee for 20 years towards license for running container trains on Indian Railways facilities in terms of policy statement dated 09.01.2006. According to that policy it was permitted to move various operators container trains on Indian Railways. The registration fee of applicants who are not eligible would be refundable without interest. No such refund has been received by the assessee and therefore, it is apparent that appellant has been granted that new license. According to that license , it is flexible permission to run trains between any pairs of trains to any points in the entire country and there will be no limit on number of trains on any of the routes. The above permission was valid for a period of 20 years and further extendable by 10 years. Such permission is transferable from one operator to another operator subject to rules and conditions. On reading of the above policy documents it is apparent that assessee has acquired a commercial right to operate trains on the Indian Railway Track for 20 years by payment of Rs. 50 crores and which is transferable. The Hon'ble Delhi High Court in case of Areva T&D India Ltd Vs. DCIT 345 ITR 421 has held that intangible assets includes business claims, business information, business records and assets which are invaluable for carrying on the business of the assessee. It was further held that the intangible assets were comparable to a license to carry on the existing business and in

Page 12 of 21 absence of such intangible assets it would have been difficult for the assessee to carry on its business. Therefore, it was held that such intangible assets are eligible for depreciation in terms of section 32(1)(ii) of the Act as under:-

“12. In the present case, it is seen that the assessee, vide slump sale agreement dated June 30, 2004, acquired, as a going concern, the transmission and distribution business of the transferor company with effect from April 1, 2004. As a result thereof, the running business of transmission and distribution was acquired by the transferee lock, stock and barrel minus the trade mark of the transferor which was retained by the transferor, for lump sum consideration of Rs. 44.7 crores. It is further seen that the book value of the net tangible assets (assets minus liabilities) acquired was recorded in the balance-sheet of the transferor as on the date of transfer as Rs. 28.11 crores. The said assets and liabilities were recorded in the books of transferee at the same value as appeared in the books of the transferor. The balance payment of Rs. 16,58,76,000 over and above the book value of net tangible assets, was allocated by the transferee towards acquisition of bundle of business and commercial rights, clearly defined in the slump sale agreement, compendiously termed as "goodwill" in the books of account, which comprised, inter alia, the following : (i) business claims, (ii) business information, (iii) business records, (iv) contracts, (v) skilled employees, (vi) know-how. It is also observed that the Assessing Officer accepted the allocation of the slump consideration of Rs. 44.7 crores paid by the transferee, between tangible assets and intangible assets (described as goodwill) acquired as part of the running business. The Assessing Officer, however, held that depreciation in terms of section 32(1)(ii) of the Act was not, in law, available on goodwill. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal approved the reasoning of the Assessing Officer thereby holding disallowance of depreciation on the amount described as goodwill. It was thus argued on behalf of the assessee-company that section 32(1)(ii) would mean rights similar in nature as the specified assets, viz., intangible, valuable and capable of being transferred and that such assets were eligible for depreciation. On behalf of the respondent it was argued that applying the doctrine of noscitur sociis the expression "any other business or commercial rights of similar nature" used in Explanation 3(b) to section 32(1) has to take colour from the preceding words "know-how, patents, copyrights, trade marks, licences, franchises". It was urged that the Supreme Court had clearly held in Techno Shares and Stocks Ltd. [2010] 327 ITR 323 (SC) that "Our judgment should not be understood to mean that every business or commercial right would constitute a "licence" or a "franchise" in terms of section 32(1)(ii) of the 1961 Act". 13. In the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression "business or commercial rights of similar nature" specified in section 32(1)(ii) of the Act. It is seen that such rights need not answer the description of "know-how, patents, trade marks, licences or franchises" but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred to in section 32(1)(ii) of the Act preceding the term "business or commercial rights of similar nature", it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets,

Page 13 of 21 which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of "business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., know-how, patents, trade marks, copyrights, licences or franchises. The nature of "business or commercial rights" can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in the case of the assessee, intangible assets, viz., business claims ; business information ; business records ; contracts ; employees ; and know-how, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets are, therefore, comparable to a licence to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares and Stocks Ltd. [2010] 327 ITR 323 (SC) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a "licence" or "akin to a licence" which is one of the items falling in section 32(1)(ii) of the Act. 14. In view of the above discussion, we are of the view that the specified 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 Act and were accordingly eligible for depreciation under that section.” 15. As Assessee has earned a benefit of enduring nature of plying on Indian Railway tracks for a period of 20 years , we do not have any hesitation to hold that it is a capital asset in the form of right to operate. It is a valuable commercial right available to the assessee for a considerable long period therefore, following the decision of the Hon'ble Delhi High Court we are of the view that the assessee has acquired a „commercial right‟ which is eligible for depreciation u/s 32(1)(ii) of the Income Tax Act. Therefore, ground No. 3 and 4 of the appeal of the assessee is allowed holding that the assessee has acquired intangible assets which is a valuable commercial right for Rs. 50 crores and same is eligible for depreciation u/s 32(1)(ii) of the Act. In view of this ground No. 3 and 4 of the appeal of the assessee are allowed with above direction. 16. Now we come to the appeal of the revenue. 17. The first ground of appeal is against the addition deleted by ld CIT(A) of Rs. 636287/- on assets retired from active use on account of obsolescence and condemnation. 18. The brief facts of the issue is that the assessee has reduced from the gross block of plant and machinery the above sum stating that it was retired from active use. Therefore, the ld Assessing Officer disallowed the depreciation claimed on the above assets. On appeal before the ld CIT(A), he deleted the addition for the reason that the above issue was covered by the

Page 14 of 21 decision in earlier years. He allowed the claim following the decision of the Hon'ble Delhi High Court in case of CST Vs. Bharat Aluminium 187 Taxmann 111. 19. The ld Departmental Representative relied on the order of the AO. Whereas the ld AR submitted that the issue is now squarely covered in favour of the assessee by the decision of the Hon'ble Delhi High Court in case of CIT Vs. Yamaha Motor India Pvt. Ltd 328 ITR 297. 20. We have carefully considered the rival contentions. The first appellate authority has allowed the claim of the assessee who following the decision of the earlier years in its own case and further following the decision of the Hon'ble Delhi High Court. The Hon'ble Delhi High Court in case of CIT Vs. Yamaha Motor India Pvt. Ltd has considered an identical issue in 328 ITR 297 as under:-

Page 15 of 21 machinery may not be actually used in the relevant previous year as long as it is used for the purposes of business in the earlier years. 10. We, therefore, answer the two questions of law by holding that the Income-tax Appellate Tribunal was correct in law in directing the Assessing Officer to recompute depreciation after reducing the scrap value of the assets which have been discarded and written off in the books of account for the year under consideration from the written down value of the block of assets. Actual user of the machinery is not required with respect to discarded machinery and the condition for eligibility for depreciation that the machinery being used for the purpose of the business would mean that the discarded machinery is used for the purpose of the business in the earlier years for which depreciation has been allowed.” 21. The ld DR could not point about any infirmity in the order of the ld CIT(A) wherein he has followed the order of the Hon'ble High Court and further, could not controvert the decision cited by the ld AR covering the issue in favour of the assessee. In view of this ground No. 1 of the appeal of the revenue is dismissed. 22. Ground No. 2 of the appeal of the revenue is pertaining to deletion of the addition of 43.78 crores on termination of contracts. 23. The brief facts of the issue are that the company has entered into contract for supply of wagons which were terminated for non fulfillment of obligation on part of the suppliers. Therefore, the company invoked bank guarantee issued by the supplier. The matter was in dispute and referred to the Arbitration Tribunal and company paid the sum and which was reduced from the contingent liability. The assessee invoked the bank guarantee of Rs. 30.42 crores and Rs. 13.36 crores from the two parties and ld Assessing Officer treated the same as income of the assessee. The ld CIT(A) deleted the above addition holding that the amount realized from bank guarantee is in the nature of capital receipt and has to be kept as current liability until the settlement of the dispute. He further, held that as the advice received from CAG the above amount is required to be shown under the head current liabilities till the settlement of dispute. He further held that in this case the purchase were made by the appellant on capital account and therefore whatever is received on that account would be a capital receipt in nature. 24. The ld DR relied upon the order of the AO and whereas the ld AR relied upon the order of the ld CIT(A) and also stated that the receipts and the claims are all disputed with litigation pending and claims have not attained finality and therefore, revenue cannot be recognized. 25. We have carefully considered the rival contentions and the facts are undisputed that the claims are unsettled as stated by the parties as the matter is pending before the Hon'ble Delhi High Court against the Arbitration Tribunal Award. In view of this the matter is still not attained finality and therefore the sums received by the assessee by invoking the bank guarantee cannot be taxed as an income. The ld DR could not controvert that the claims have not reached finality and in that circumstances how the order of the ld CIT(A) is erroneous. In

Page 16 of 21 view of this we do not find any infirmity in the order of the ld CIT(A) and dismiss ground No. 2 of the appeal of the revenue. 26. Ground No. 3 of the appeal of the revenue is against claim of the assessee of Rs. 5096729/- on account of annual amortization of expenditure on leasehold land. The annual accounts of the assessee shows that gross block of land and building consists of Rs. 15.51 crores in respect of which sale deed are yet to be executed. It was submitted by that the capital expenditure incurred on land which are not belonging to the assessee are written off over a period of its utility for determining books profit. However for the purpose of computation of deprecation it has been claimed as per IT Rules, 1962. Therefore the ld Assessing Officer disallowed a sum of Rs. 5096729/- as depreciation on the assets not owned by the company and used for the purposes of the business. The ld CIT(A) allowed the claim of the assessee as it was stated before him that this sum is related to buildings which were owned and also put to use by the company but were not registered in the name of the company. Therefore, based on the decision of the Hon'ble Supreme Court in case of Mysore Minerals Ltd Vs. CIT 239 ITR 775 he deleted the disallowance. 27. The ld DR relied upon the order of the ld Assessing Officer and ld AR relied upon the order of the ld CIT(A). 28. We have carefully considered the rival contentions and the order of the ld CIT(A) wherein relying upon the decision of the Hon'ble Supreme Court in case of Mysore Minerals vs CIT (supra) the claim of the assessee is allowed. It was further noted by him that the ld Assessing Officer has not disputed the fact that the assessee has taken possession of the building used it for the purpose of business and full consideration has been paid by the company. Even before us this could not be controverted by revenue. Therefore, we confirm the finding of the ld CIT(A) in deleting the disallowance of depreciation of Rs. 5096729/- and hence, ground No. 3 of the appeal of the revenue is dismissed. 29. Ground No. 4 of the appeal of the revenue is on the issue of deferred revenue expenditure on commercial rights granted by Ministry of Railway to the assessee. This issue is covered by our decision in ground No. 3 and 4 of the appeal of the assessee and therefore we dismiss ground No. 4 of the appeal of the revenue. 30. Ground No. 5 of the appeal of the revenue is against deletion of the addition of Rs. 7.84 crores made by the AO on account of income from undelivered container. 31. The brief facts of the issue is that during the year the assessee has realized a sum of Rs. 17.84 crores from auction of undelivered containers and Rs. 5.74 crores is paid as custom duty and only Rs. 10 crores has been recognized as income leaving aside Rs. 7.84 crores as current liabilities. Before the AO the assessee did not supply any reply on merit or have any explanation for allowability of the claim and therefore this addition was made. The ld CIT(A)

Page 17 of 21 deleted the above addition that the assessee has shown Rs. 2.54 crores under the head „current liability‟ and is liable to refunded back to the customers and with respect to Rs. 5.30 crores he held that it is a custom duty which has been paid to the Govt. on various dates. 32. Ld DR submitted that as no information has been provided to the AO the ld CIT(A) has wrongly allowed the same. 33. The ld AR relied upon the order of the ld CIT(A). 34. We have carefully considered the rival contentions. The ld CIT(A) has deleted the addition holding that the assessee has paid custom duty on various dates at Rs. 2.54 crores is required to be refunded to the customers. However, the assessee has not provided any details before the ld Assessing Officer. It is also not clear whether the custom duty was paid during the year or was also outstanding at the end of the year. Further the ld CIT(A) has stated that the assessee has shown current liability the sum of Rs. 2.54 cores is liable to be refunded back to the customers. However, no such details about who are those customers and when the sum has been refunded. In view of this we set aside ground No. 5 of the appeal of the revenue back to the file of the ld Assessing Officer with a direction to the assessee to provide complete details of the total sum of Rs. 17.84 cores received from auction of undelivered containers and then AO is directed to decide the issue afresh. In the result ground No. 5 of the appeal of the revenue is allowed with above direction. 35. In the result appeal of the revenue is partly allowed. ITA No.6377/Del/2012 & ITA No.214/Del/2013 Assessment Year: 2009-10 36. Now we come to the appeal of assessee for the AY 2009-10. 37. The assessee has raised the following grounds of appeal in ITA No. 6377/Del/2012 for Assessment Year 2009-10. “1. That on the facts and in the circumstances of the case, the order passed by the ld Assessing Officer is bad both in eyes of law and on facts. 2. That on the facts and in the circumstances of the case and in law the ld CIT(A) has erred both on facts and in law in partly confirming the disallowance by the AO,, and restricting the allowance of deduction at 1/20th of the amount of Rs. 50 crores being registration fee paid to the Ministry of Railways for approval of movement of container trains on India Railways. 3. That on the facts and in the circumstances of the case and in law the ld CIT(A) has erred both on facts and in law in denying the claim of deduction of Rs. 6,15,23,438/- being 25% of the amount of Rs. 50 crores which is allowable in full as per the law/ rules.” 38. The first ground of the appeal of the assessee is general in nature and therefore same is dismissed. 39. Ground No. 2 and 3 of the appeal of the assessee are with respect to disallowance of depreciation on intangible assets being a sum of Rs. 50 cores as registration fees paid to the Ministry of Railways for approval of movement of container trains. The parties confirmed

Page 18 of 21 before us that the facts and circumstances of these ground are similar to the ground No. 3 and 4 of the appeal of the assessee in AY 2008-09. Therefore, we also hold in this year that assessee has acquired commercial rights which is eligible for depreciation as an intangible asset u/s 32(1)(ii) of the Income Tax Act. Therefore we also hold accordingly in ground No. 2 and 3 of the appeal of the assessee. In the result ground No. 2 and 3 of the appeal of the assessee are allowed. 40. In the result appeal of the assessee is partly allowed. 41. Now we come to the appeal of the revenue for the AY 2009-10 42. The revenue has raised the following grounds of appeal in ITA No. 214/Del/2013 for Assessment Year 2009-10. “1. The Ld. CIT(A) has erred in law and on facts in deleting the addition amounting to Rs. 84,84,10,427/-made on account of disallowance of deduction claimed u/s 80IA on ICD's in the light of the old provision of Explanation inserted by Finance Act, 2000 w.e.f 1.4.2001 and CBDT Notification dated 1.9.98, the requirement of notification by the Custom Department treating the ICD as infrastructure facility was applicable only upto the assessment year 2002-03. Once the phrase 'any other facility of similar nature' has been taken away by the new Explanation substituted by Finance Act 2001 w.e.f. 1.4.2002, the ICDs are no more infrastructure facility for the purposes of deduction u/s 80 IA. Therefore, the appellant was not entitled for any deduction u/s 80 IA against income derived from ICDs. Thus, the notification by Customs Authorities is no more relevant for the deduction u/s 80 IA from the assessment year 2003-04 onwards. 2. The Ld. CIT(A) has erred in law and on facts in deleting the addition amounting to Rs. 84,84,10,427/-made on account of disallowance of deduction claimed u/s 80IA on rolling stock ignoring that the same cannot be included within the meaning of "infrastructure facility" as per explanation under subsection (4)(c) of section 80IA of the Act as the rolling stock does not form part of rail system. 3. The Ld. CIT(A) has erred in law and on facts in deleting the addition amounting to Rs. 5,67,216/-made on account of disallowance of assets retired from active use ignoring the fact that once the individual asset is not put to use, which is pre-quisite condition for availing depreciation u/s 32 of the l.T. Act, the same becomes ineligible/disqualified for block of assets on which depreciation is allowed as per Rule-5 and appendix IA of the Income Tax Rules 1962 but shall continue to remain the part of the block of assets for all other purpose except for the purpose of claiming depreciation unless put to use. 4. The Ld. CIT(A) has erred in law and on facts in deleting the addition amounting to Rs. 16.00,030/-made on account of disallowance of assets retired from active use ignoring the fact that once the individual asset is not put to use, which is pre-quisite condition for availing depreciation u/s 32 of the l.T.Act , the same becomes ineligible/disqualified for block of assets on which depreciation is allowed as per Rule-5 and appendix IA of the Income Tax Rules 1962 but shall continue to remain the part of the block of assets for all other purpose except for the purpose of claiming depreciation unless put to use. 5. The Ld. CIT(A) has erred in law and on facts in deleting the addition amounting to Rs. 6,15,23,438/-made on account of disallowance of depreciation on registration fee ignoring the fact that the assessee has itself declared the same as deferred revenue expenditure as per para 3(ii) of schedule 10(Significant Accounting Policies) and hence the same cannot be treated as intangible asset and accordingly no depreciation is allowable on the same.

Page 19 of 21 6. The Ld. CIT(A) has erred in law and on facts in deleting the addition amounting to Rs. 2,59,12,954/-made on account of disallowance of depreciation on land ignoring that land cannot be considered as a depreciable asset and no depreciation rates are prescribed as per I-T Act Rules. 7. The Ld. CIT(A) has erred in law and on facts in deleting the addition amounting to Rs. 26,14,345/-made on account of disallowance of extra depreciation claimed on computer peripherals ignoring the fact that as per the provisions of section 32 of the I- T Act computer peripherals are out of ambit of the term "computer including computer software" used exhaustively for the purpose of claiming depreciation @60% of block 6(i) of block of assets as specified in the Act.” 43. The first ground of appeal is on the issue of claim of the assessee of Rs. 848410427/- u/s 80IA on ICDs and CFS. The above issue has been decided by us in favour of the assessee in ground No. 2 and 3 of the appeal of the revenue for AY 2008-09. We have held that assessee is eligible for deduction u/s 80IA on income derived from infrastructure facilities of ICDs and CFS. We also hold similarly for this year too. In the result ground No. 1 revenue is dismissed. 44. Ground No. 2 of the appeal of the revenue is with respect to claim of deduction u/s 80IA for rolling stock. The parties before us have confirmed that this issue is covered in favour of the assessee by the decision of the coordinate bench in appellant‟s own case for AY 2003-04 to 2005-06. The ld CIT(A) has also follow that decision in ITA No. 2851 and 3680/Del/2007 wherein in para No. 31 it has been held that rolling stock is part and parcel of rail system and accordingly, it is eligible for claim of deduction u/s 80IA of the Income Tax Act. in views of this we respectfully following the decision of the coordinate bench filed no infirmity in the order of the ld CIT(A) and dismiss ground No. 2 of the appeal of the revenue. 45. Ground No. 3 and 4 of the appeal of the revenue are against deletion of disallowance of assets retired from active use. 46. The parties have stated that these grounds are identical to ground No. 1 of the appeal of the revenue for AY 2008-09. We have relying on the decision of the Hon'ble Delhi High Court in CIT Vs. Yamaha Motor Co. Ltd has held that depreciation on assets retired from active use cannot be disallowed. Therefore, following our own decision for AY 2008-09 we dismiss ground No. 3 and 4 of the appeal of the revenue. 47. Ground No. 5 of the appeal of the revenue is against disallowance of depreciation on registration fees of Rs. 61523438/-. 48. The parties submitted that above issue is with respect to intangible assets on registration fees paid to Ministry of Railways. The above issue has already been decided by us by deciding ground No. 3 and 4 of the appeal of the assessee wherein we have held that the assessee is eligible for depreciation on intangible assets of registration fees paid to Ministry of Railway u/s 32(1)(ii) of the Income Tax Act. Therefore, we hold the same for ground No. 5 of the appeal of the revenue and dismiss the ground of appeal.

Page 20 of 21 49. Ground No. 6 of the appeal of the revenue is against the deletion of disallowance of depreciation on land amounting to Rs. 25912954/-. The ld AO stated that as deprecation on land is not allowable and same was disallowed. The ld CIT(A) allowed the claim of the assessee following his own order for AY 2004-05. 50. The ld DR submitted that assessee has claimed deprecation on land and ld CIT(A) has merely followed his own order for earlier years without ascertaining the fact that of this year compared to the earlier year. He stated that depreciation on land is not allowable. 51. The ld AR relied upon the order of the ld CIT(A) and as well as submitted that the issue is now squarely covered by the Hon'ble Delhi High Court in case of CIT Vs. Indian Railway Finance Corporation Ltd. dated 27/07/2011. He referred to para 19 of that decision. 52. We have carefully considered the rival contentions and also noted the para extracted by ld CIT(A) in para No. 7.1 of his order of AY 2004-05. The ld Assessing Officer has followed the decision of Hon‟ble Bombay High Court in case CIT Vs. Indian Oil Corporation wherein premium paid on leasehold land is disallowed and also it was held that such premium said cannot be included in the cost of the building constructed thereon. The ld CIT(A) followed his own decision for AY 2004-05 which was in respect of amortization of leasehold land and it is not the issue of deprecation on leasehold land. The decision of Hon'ble Delhi High Court relied upon by the ld AR also do not apply to the facts of the case because that decision also do not apply to the leasehold land. We are conscious about the difference between amortization of leasehold premium paid and equalization of lease charges and therefore both cannot be compared. It is also not ascertained by the lower authority whether the claim of the assessee on depreciation can be considered u/s 32(1)(ii) of the Income Tax Act or not and this fact is not available on record we set aside this ground of appeal of the revenue back to the file of Assessing Officer with a direction to the assessee to furnish the complete details of the claim of the assessee clearly bringing out the facts whether it is a claim of the depreciation or whether it is a claim of the allowability of expenditure. 53. Ground No. 7 of the appeal of the revenue is against disallowance of depreciation at higher rate on computer peripherals @60% instead of 25%. 54. The ld AO has disallowed depreciation on the same holding that computer accessories and peripherals are not eligible for depreciation at the higher rate whereas the ld CIT(A) allowed the claim of the assessee following the decision of the tribunal in the own case of the assessee for earlier years. Now the issue is squarely cover in favour of the assessee by the decision of the Hon'ble Delhi High Court in case of CIT Vs. BSES Yamuna power Ltd 358 ITR 47 Del) depreciation @60% on account of computer peripherals is allowed. Therefore, we dismiss ground No. 7 of the appeal of the revenue.

Page 21 of 21 55. In the result appeal of the revenue is partly allowed. Order pronounced in the open court on 19/01/2017. -Sd/- -Sd/- (I.C.SUDHIR) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 19 /01/2017 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi