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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Revenue by .. Miss Vidisha Kalra & Pradeep Kumar Singh, DR .. Shri D.V. Lakhani, AR Assessee by Date of hearing .. 17-05-2017 .. Date of pronouncement 26-05-2017 O R D E R PER MAHAVIR SINGH, JM:
These cross appeals are arising out of the order of CIT(A)-21, Mumbai, in appeal No. CIT(A)-21/IT/169/2013-14 dated 03-11-2014. The Assessment was framed by DCIT Circle 10(1), Mumbai for the A.Y. 2010-11 vide order dated 21- 03-2013 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of Revenue is as regards to the assessment of interest income under the head income from profits and gains of business or profession or under the head income from other sources. For this Revenue has raised following ground: - & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the interest income of Rs. 1,25,31,115/- is taxable under the head Business Income and not Income from other sources.
At the outset, the learned Counsel for the assessee stated that immediately preceding year i.e. AY 2009-10, the Tribunal in Assessee’s own case in dated 15-04-2015 on the very same issue dismissed Revenue’s appeal by holding that the interest income earned by assessee on the security deposits with the bank as per the common loan agreement is to be assessed as income from profits and gains of business or profession and not under the head income from other sources. The Tribunal in Para 7 of the order held as under: - “7. The ld. AR of the assessee has further submitted that the assessee has entered into an agreement dated 22.3.2005 with ‘National Highways Authority of India (in short NHAI) vide which the assessee has been granted rights/license to collect toll for the period of 20 years for up gradation, operation, maintenance and implementation of Jetpur- Rajkot Road Project. The said project has been assigned to the assessee as a concessionaire on ‘Built-Operate-Transfer (BOT) basis. The Ld. AR of the assessee has further brought our attention to the ‘Common Loan Agreement’ dated 20th June, 2005, entered between the assessee and the lender banks namely 1. Punjab National Bank, 2. Corporation Bank, 3. Indian Overseas Bank, 4. Oriental bank of Commerce, 5. Union bank of India, 6. United Bank of India, 7. Indian Bank and 8. Uco bank, vide which the above stated banks have agreed to provide loan to the assessee to part finance the said Project. As per ‘clause 7.13’ of the said loan agreement, it has been agreed that out of the net revenue generations of the said project, the borrower (assessee) would open with the Lead bank a Page 2 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
Debit Service Reserve Account equivalent to 12 months of Debt Service or Rs. 1800 lakh. The Ld. AR of the assessee has further relied upon the copy of the letter dated 31.12.2011 of the Relationship Manager of the Punjab National Bank certifying that all the original FD receipts were physically lying with the said Bank (PNB) and there was lien on the same under the Debt Service Reserve Account’. The ld. AR has further submitted that interest income from the FDRs kept with the bank as required under the ‘Common Loan Agreement’ upon which the bank has lien has been accepted as ‘business income’ in the earlier assessment years 2007-08 & 2008-09 by the Ld. CIT(A) which findings have been further upheld by the Tribunal vide orders dated 27.2.2013 for A.Y. 2007- 08(supra) and order dated 5.4.2013 for A.Y. 2008-09. From the above submissions of the assessee, it is apparent on the record that the interest income has been earned by the assessee on the security deposits with the bank as per the Common Loan Agreement as discussed above. The said interest income had been earned by the assessee out of business compulsions of deposits in the ‘Debit Service Reserve Account’, hence the said interest income is linked to the business activities of the assessee. The issue is covered with the decisions of the Tribunal in the own case of the assessee for earlier assessment years. Hence, the interest income of the assessee is ordered to be assessed as Business Income. Ground No.1 of the Revenue’s appeal is therefore dismissed. ”
The facts and circumstances of the case are exactly identical in this year also and interest income earned by the assessee is on the same security deposits with the bank as per the common loan agreement in earlier years. Respectfully, following the co-ordinate Bench decision and taking a consistent view, we uphold the order of CIT(A) and this issue of Revenue’s appeal is dismissed. & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
The next issue in this appeal of Revenue’s appeal is against the order of CIT(A) deleting the disallowance of claim of depreciation on Toll Road. For this Revenue has raised following grounds: - “2. 'On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating fact that the claim of depreciation on toll road amounting to Rs. 34,19,24,605/- is not allowable as the assessee is not the owner of that asset and that the conditions laid down in section 32 are not being fulfilled.
2.1 "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating fact that the claim of depreciation on toll road is not allowable since the assessee constructed and maintained the toll road on Build, Operate and Transfer (BOT) basis.
2.2 "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of depreciation on toll road under the head Plant and Machinery to the extent of Rs. 16,08,78,657/-."
2.3 "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) in allowing the claim of depreciation on toll road under the head building to the extent of Rs. 18,10,45)948/-.”
The assessee, in its appeal, also filed additional grounds in AY 2010-11 on the very same issue that the "Project road" is not treated as Tangible assets under the category of "Building" or "Plant and Machinery" for the purpose of granting depreciation then the depreciation may be granted treating the “right to set up infrastructure facility" being license/business of copmercia1 rights, as an intangible asset in terms of the provisions of Section 32(1)(ii) of the Act. For this assessee has raised following additional grounds: - & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
“1. On the facts and circumstances of the case and in law, in additions to Grounds No. 1 and 4 of the appeal filed on 13/09/2016, the appellant prays that if the "Project road" is not treated as Tangible assets under the category of "Building" or "Plant and Machinery" for the purpose of granting depreciation then the depreciation may be granted treating the “right to set up infrastructure facility" being license/business of copmercia1 rights, as an intangible asset in terms of the provisions of Section 32(1)(ii) and the appellant may be granted the depreciation treating the said right as intangible right at the applicable rate. The appellant prays that the depreciation may be allowed at Rs. 49,49,82,562/- under the category of "Intangible Assets".
2. On the facts and circumstances of the case, the appellant prays that if the depreciation is not granted as claimed in Ground No 1 under section 32 of Income Tax Act, then the appellant may be granted amortization by spreading over the cost of construction of road.."
At the outset, the learned Counsel for the assessee stated that this issue is also covered by Tribunal decision in assessee’s own case in & 6244/Mum/2012 for AY 2009-10 vide order dated 15-04-2015 wherein both the issues regarding depreciation as well as the asset are held to be intangible asset, Tribunal held as under: - “17. We have considered the rival contentions. So far as the reliance of the Ld. A.R. on the article/clause 38.4 of the concession agreement between the assessee and the NHAI is concerned, we find that the identical clause was also there and relied upon in the case of “North Karnataka Expressway Ltd. vs. CIT” which has also been reproduced in para 8 of the order of the Hon’ble Bombay High Court (supra). The relevant part of the order for the sake of convenience is reproduced as under: Page 5 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
“8] The appellant claimed that it was the owner of the toll road and the entire cost incurred for construction thereof was capitalized by the Appellant in its books in the assessment year 2005-06 during which the construction of the toll road was completed. As the assessment year under consideration was the first year when the road became operational, the Appellant claimed Depreciation of Rs.59.92 crores at the rate of 10% on the capitalized cost of the toll road. The Appellant also filed necessary details of the claim of depreciation and a note was appended to the depreciation schedule stating that though the Appellant was entitled to higher claim of depreciation on toll road, the claim is made at the rate of 10%. The right to claim higher depreciation is reserved. The Appellant relied upon the standard concession document of the National Highway Authority of India and the clause therein that ‘for the purpose of claiming tax depreciation, the property representing the capital investment made by the concessionaire shall be deemed to be acquired and owned by the concessionaire’.”
(emphasis supplied by us)
The Hon’ble Bombay High Court, however, after discussing the provisions of National Highway Act, 1956 and National Highway Authorities of India Act, 1988 and various case laws including that are strongly relied upon by the Ld. A.R. e.g. “Mysore Minerals Ltd. vs. CIT” reported in (1999) 239 ITR 775 SC, “CIT vs Podar Cement Pvt. Ltd. & others” reported in (1997) 226 ITR 625 SC and “CIT vs. Noida Toll Bridge Company Ltd.” & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
(Allahabad HC) (supra), has held that the national highways vest in the Union of India and if the government for the purpose of development and maintenance of the whole or any part of the national highways enters into an agreement with private parties or that merely because the national highway is built, maintained, managed and operated by private entities, in no way affects the vesting of the national highway in the Union and that does not dilute or take away the ownership of the highway or its vesting in the Union. After discussing the various decisions of the Hon’ble Supreme Court and of the Hon’ble High Courts, the contention of the assessee in that case that it was the owner of the toll road has been rejected by the Hon’ble Supreme Court. Hence, the clause 38.4 relied upon by the assessee in the present case will not be of any help to the assessee in this regard.
However, so far as the alternative claim of the assessee that if the assessee is not found as owner of the toll road, his claim of depreciation be considered in relation to investments made as falling under the other categories of assets, is concerned, we would like to revert to the decision of the Hon’ble Bombay High Court in “North Karnataka Expressway Ltd. vs. CIT” (supra). in this respect. We find the Hon’ble Bombay High Court, in para 24 of the said decision, has categorically observed that the claim of depreciation in the said case was not based on treating it as an intangible asset with a right to use the asset without being actual owner thereof. The issue under consideration was that whether the toll roads are not owned by the assessee and that he cannot claim any depreciation thereupon. Hence, the Hon’ble Bombay High Court has not discussed the issue relating to the claim of depreciation on the license for right to collect the toll as intangible asset. Further, the Hon’ble Bombay Page 7 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
High Court in para 39 of the decision (supra) has observed that as per the provisions of National Highway Act, 1956 and National Highway Authorities of India Act, 1988, the ownership of the toll road vests in Union , however, the term owner as appearing in the Income Tax Act, 1961 has been defined widely and broadly for the purpose of the provisions of the Income Tax Act so as not to allow anybody to escape the provisions thereof by urging that he has a limited right or which is not akin to ownership, therefore his income should not be brought to tax; Similarly, if he can claim any deductions from his income which is comprising of profit and gain from his business, then, that deduction can be availed by him. It is for that limited purpose that the term ‘onwer’ is defined in this manner in Income Tax Act, 1961. The above observations of the Hon’ble Bombay High Court reveal that for the purpose of claiming deduction under Income Tax Act, the term ‘owner’ as defined under the Income Tax Act can be looked into. However, that cannot control, leave alone or overreach the National Highway Act, 1956 or the National Highway Authorities of India Act, 1988. The Hon’ble Bombay High Court further, in para 47 of the said order, has observed that the assessee can definitely claim depreciation on the investments. He has definitely invested in the projects of construction development and maintenance of the National Highways and such of the assets in the form of building, plant & machinery etc. The claim for depreciation can be validly raised and granted. That the Hon’ble High Court in the said case was only concerned with the claim on the land or a road itself. Further, in concluding para 52 of the order, the Hon’ble Bombay High Court has categorically clarified that the assessee’s claim for depreciation in respect of the building, plant & machinery and falling within the purview of sub section (1) of section 32 of the Page 8 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
Income Tax Act, 1961, if considered and granted, shall not be affected by the decision of the Hon’ble Bombay High Court.
A careful reading of the entire decision of the Hon’ble Bombay High Court and in the light of the various observations made in judgment as discussed above, it is very clear that the Hon’ble Bombay High Court was concerned about the issue as to whether the assessee can claim itself as the owner of the toll road and the Hon’ble Bombay High Court has held that in view of the express provisions of the National Highway Act, 1956 and National Highway Authorities of India Act, 1988 the Union is the absolute owner of the National Highways as well as the toll roads built upon the land/National Highways in agreement and through the private parties and such private parties cannot claim themselves to be the owner of the toll road. However, the Hon’ble Bombay High Court has left upon the issue relating to the claim of depreciation, if otherwise eligible under the other provisions of the Income Tax Act.
The Ld. A.R., before us, has put the alternative claim that in view of the observations of the Hon’ble Bombay High Court either the investments made by the assessee be treated under the asset building, plant & machinery and depreciation be granted accordingly or the same be treated as intangible asset on the ground that the assessee has been granted license for right to collect the toll tax for a fixed period. Now the question before us is whether the assessee at this stage the can raise the alternative contention for claim of allowance of depreciation on the license authorizing him to collect the toll being an intangible asset or treating the project as plant & machinery? & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
We may observe that the Hon’ble Bombay High Court in the case of ‘Pruthvi Brokers & Shareholders Pvt. Ltd.’ (supra), while relying upon the various decisions of the Hon’ble Supreme Court and other Hon’ble High Courts, has held that even if a claim is not made before the AO it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon’ble Bombay High Court while relying upon the decision of the Hon’ble Supreme Court in the case of ‘Jute Corporation of India Limited vs. CIT’ 1991 Supp (2) SCC 744 = (1991) 187 ITR 688 has observed that the power of the Appellate Commissioner is coterminous with that of the Income Tax Officer and an appellate authority while hearing appeal against the order of the subordinate authority, has all the powers which the original authority may have in deciding the questions before it, subject to the restrictions or limitations, if any, prescribed by statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. An assessee is entitled to raise not merely additional legal submissions before the appellate authorities but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. The appellate authorities have jurisdiction to deal not merely with additional grounds which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed but could not have been raised at that stage. The words ‘could not have been’ raised must be construed liberally and not strictly. It is open to the assessee to claim a deduction before the Page 10 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
appellate authority which could not have been claimed before the AO. The Hon’ble Bombay High Court has further observed that the decision of Hon’ble Supreme Court in the case of ‘Goetze (India) Limited v. CIT’ (2006) 157 Taxman 1, regarding the restriction of making the claim through a revised return was limited to the powers of the Assessing Authority and the said judgment does not impinge on the power or negate the powers of the appellate authorities to entertain such claim by way of additional ground. Reliance can also be placed in this regard on the decisions of the Tribunal in the case of “PV. Ananthkrishnan vs. ACIT” in decided on 05.05.2014 and in the case of “The Presidency Co-operative Housing Society Ltd. vs. ACIT in ITA No.4051/M/2011 decided on 16.05.2014.
The present case is not a case where the assessee had not claimed any deduction on account of depreciation. The assessee has very much claimed the deduction of depreciation. However, he has claimed the same treating itself to be the owner of the toll road. Such a claim of the assessee has been allowed in the previous assessment years. The assessee was under bonafide belief that he has correctly claimed the deduction of depreciation on the toll road in view of the consistent findings of the Tribunal on this issue. However, due to the change of legal position in view of the law laid down by the Hon’ble Bombay High Court (supra), the assessee cannot be treated as the owner of the toll road. But it is not disputed that the assessee has made investments on the project and he is entitled to claim deductions in this respect. The claim of deduction has been very much put by the assessee in the return of income but wrongly treating itself as owner of the road which claim as observed above was under bonafide belief and in view of the settled legal Page 11 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11) position as was there at the time of putting the claim. Even the AO has also observed in the assessment order that it is a fact that the assessee company has incurred huge expenditure on the said project which cannot be treated as revenue expenditure allowable in one year as the same has resulted into providing enduring benefit to the assessee company, hence, the said amount would be eligible for amortization for the period of the concession agreement as it was allowed in the A.Y. 2007-08 and 2008-09. It is also a fact that the said amortization of the expenses has not been accepted by the Tribunal and the assessee in the earlier assessment years has been granted deduction as depreciation treating the road as a capital asset.
In view of the above facts, it is not disputed or contested by the Revenue that the assessee is not entitled to any deduction. The only issue in dispute is as to under what head/provision the deduction is to be allowed to the assessee. The Hon’ble Jurisdiction High Court of Bombay in the case of “Balmukund Acharya vs. DCIT” reported in (2009) 221 CTR 440 (Bom.) has held that the Hon’ble Apex Court and the various High Courts have ruled that the authorities under the Act are under obligation to act in accordance with law. Tax can be collected only as provided under the Act. If the assessee, under a mistake, misconception or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes dues are collected. While holding so, the Hon’ble Bombay High Court has relied upon the various decisions e.g. Koshti vs. CIT (2005) 193 CTR (Guj) 518 : (2005) 276 ITR 165 (Guj), C.P.A. Yoosuf vs. ITO (1970) 77 ITR 237 (Ker.), CIT vs. Bharat General Reinsurance Co. Ltd. (1971) 81 ITR 303 (Del), CIT vs. Archana R. Page 12 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
Dhanwatey (1981) 24 CTR (Bom) 142 : (1982) 136 ITR 355 (Bom). In view of the above discussed factual and legal position, we have no hesitation to hold that the assessee is entitled to put his alternate claim that the deduction allowable to him may be considered as allowable as depreciation treating the project/investments made under the head “Plant & machinery” or treating it as a right/license to collect the toll tax as intangible asset.
Having held that the assessee is entitled to the deduction on the investments made by him, we now have to discuss as to under what head the said deductions can be claimed by the assessee. It is undisputed that in view of the agreement with the NHAI, the assessee has been given the right to develop and maintain the toll road and also the right to collect toll for a specified period without having actual ownership over the said toll road. The assessee has an express right/license for recovery of toll fee to recoup the expenditure. The said right brings to the assessee an enduring benefit during the period of agreement. This fact has also been discussed by the CBDT in circular No.09/2014 dated 23.04.14. The para 4 of which, for the sake of convenience, is reproduced as under:
“There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative expenses) during the construction period. Further, expenditure incurred by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11) toll during the period of the agreement. Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT in 225 ITR 802 allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the company over a period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for the purposes of business or profession of the assessee and the same may be allowed to be spread during the tenure of concessionaire agreement.”
Having discussed the above stated factual position, the CBDT has directed to treat the above expenditure as revenue expenditure and to amortize the same over the period of the agreement as allowable business expenditure. The assessee, however, has claimed that the same is a capital expenditure and it is entitled to deductions over the investments made as depreciation. A perusal of the above reproduced para 4 of the circular reveals that it is not disputed even by the Revenue Authorities that in lieu of the investments made in the project, the assessee has been given right/license to collect the toll. It has also been specifically mentioned that it brings an enduring benefit in the form of right to the assessee. Having admitted the above position by the Revenue, now the question to be considered is whether any depreciation is allowable on such a right?
As per section 32(1)(ii) depreciation is allowable on intangible assets like licenses, franchises or any other business or similar commercial rights of similar nature. & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
The relevant part of the section for the sake of convenience is reproduced as under:
“Depreciation.
(1) [In respect of depreciation of – (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed] …….” (emphasis supplied by us)
It is not disputed that the assessee has been given license/commercial right over the project to receive the toll. The assessee may not be the owner of the toll road, but he, certainly, is owner in possession of the right to collect the toll. The said right has been given to the assessee for a specified period with enduring benefit. It is also not disputed that on the expiry of the time period of the agreement, the said right of the assessee will cease to have effect which means it slowly will depreciate to the nil value. As per the provisions of the Income Tax Act, especially under section 32(1)(ii), the assessee is entitled to claim of depreciation on such type of rights. Such rights have been described as intangible assets under the Act and are eligible for claim of depreciation.
In view of the express provisions of the Act, we have no doubt to hold that the assessee is entitled to collect tax being an intangible commercial right under section 32(1)(ii) at the rate as has been prescribed under the & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
relevant rules. Our above view is further supported by the decision of the co-ordinate Pune bench of the Tribunal in the case of M/s. Ashoka Infrastructure Ltd. Vs. ITO in & ITA No.1105/PN/2010,wherein, the Tribunal while further relying upon another decision of the Co-ordinate Bench of the Tribunal in the case of ‘Ashoka Infraways Pvt. Ltd. Vs. ACIT’ in ITA No.185 & 186/PN/2012 dated 29.04.2013, has held in clear terms that the claim of the assessee for depreciation on “licence to collect toll” being an ‘intangible asset’ falling within the scope of section 32(1)(ii) of the Act is liable to be upheld. The relevant part of findings of the Tribunal for the sake of convenience is reproduced as under:
“6. At the time of hearing, it was a common point between the parties that an identical issue has been considered by the Pune Bench of the Tribunal in the case of Ashoka Infraways Pvt. Ltd. vs. ACIT vide & 186/PN/2012 dated 29.04.2013. As per the Tribunal following the precedents by way of various decisions of different Benches of the Tribunal mentioned therein, the claim of the assessee for treating the 'License to collect Toll' as an intangible asset eligible for the claim of depreciation @ 25% as per Section 32(1)(ii) of the Act was justified. The following discussion in the order of the Tribunal dated 29.04.2013 (supra) is relevant :-
"7. Before us, it was a common point between the parties that the impugned issue has been adjudicated in favour of the assessee in the following decisions of the Tribunal:-
& 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11) i) Ashoka Buildcon Ltd. in ITA.No.1302/PN/09 dated 20.03.2012. ii) M/s. Kalyan Toll Infrastructure Ltd. in ITA.Nos.201 & 247/Ind/2008 dated 14.12.2010. iii)Dimension Construction Pvt. Ltd. in 1TA.No.222, 223, 233 & 857/PN/2009 dated 18.03.2011. iv)Ashoka Info (P) Ltd. (supra) v) Reliance Ports and Terminals Ltd. (supra).
The Ld. CIT(DR) appearing for the Revenue, has submitted that the 'intangible assets' eligible for depreciation in section 32(1)(ii) of the Act, are only those which are owned by 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. However, the Ld. CIT(DR) has not contested the factual matrix that identical issue has been considered by our coordinate Benches in the case of Ashoka Buildcon Ltd. (supra), Kalyan Toll Infrastructure Ltd. (supra), Dimension Construction Pvt. Ltd. (supra) and Ashoka Info (P) Ltd. (supra).
& 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
On the other hand, the Ld. Representative for the respondent assessee pointed out that the aforesaid argument set up by the Revenue has also been considered in the aforesaid precedents before concluding that the impugned 'Right to collect Toll' was an 'intangible asset' eligible for claim of depreciation @ 25% as per sec. 32(1)01) of the Act.
10.We have carefully considered the rival submissions. Factually speaking, there is no dispute to the fact that the costs capitalised by the assessee under the head 'License to collect Toll' have been incurred for development and construction of the infrastructure facility, i.e., Dewas Bypass Road. It is also not in dispute that the assessee was to build, operate and transfer the said infrastructure facility in terms of an agreement with the Government of Madhya Pradesh. The expenditure on development, construction and maintenance of the infrastructure facility for a specified period was to be incurred by the assessee out of its own funds. Moreover, after the end of the specified period, assessee was to transfer the said infrastructure facility to the Government of Madhya Pradesh free of charge. In consideration of developing, constructing, maintaining the facility for a specified period and thereafter transferring it to the Government of Madhya Pradesh free of charge, assessee was granted a Right to collect Toll' from the motorists using the said infrastructure facility during the specified period. The said Right to collect the Toll' is emerging as a result of the costs incurred by the assessee on Page 18 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11) development, construction and maintenance of the infrastructure facility. Such a right has been adjudicated by the Tribunal in the aforesaid precedents to be in the nature of 'intangible asset' falling within the purview of section 32(1)(i/) of the Act and has been found eligible for claim of depreciation. No decision to the contrary has been cited by the Ld. DR before us and, therefore, we find no reasons to depart from the accepted position based on the aforesaid decisions.
11. So however, the plea of the Ld. DR before us is to the effect that the impugned right is not of the nature referred to in section 32(1)(ii) of the Act for the reason that the agreement with the Government of Madhya Pradesh only allowed the assessee to recover the costs incurred for constructing the road facility whereas section 32(1)(i1) of the Act required that the assets mentioned therein should be acquired by the assessee after spending money. The said argument in our view is factually and legally misplaced. Factually speaking, it is wrong to say that impugned right acquired by the assessee was without incurrence of any cost. In fact, it is quite evident that assessee got the right to collect toll for the specified period only after incurring expenditure through its own resources on development, construction and maintenance of the infrastructure facility. Secondly, section 32(1)(i1) permits allowance of depreciation on assets specified therein being 'intangible assets' which are wholly or partly owned by the assessee and used for the purposes of its business. The aforesaid condition is fully satisfied by the Page 19 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
assessee and therefore considered in the aforesaid perspective we find no justification for the plea raised by the Revenue before us.
In the result, we affirm the order of the CIT(A) in holding that the assessee was eligible for depreciation on the ‘Right to collect Toll', being an ‘intangible asset' falling within the purview of section 32(1)(i1) of the Act following the aforesaid precedents."
7. In terms of the aforesaid precedent, the claim of the assessee in the present case for depreciation on 'License to collect Toll', being an 'intangible asset' falling with the scope of Section 32(1)(ii) of the Act is liable to be upheld. We hold so.
8. In so far as the reliance placed by the CIT(A) on the judgement of the Hon'ble Bombay High Court in the case of Techno Shares And Stocks Ltd. (supra) is concerned it may only be noted that the said judgement has since been altered by the Hon'ble Supreme Court vide its order reported at (2010) 327 ITR 323 (SC). Accordingly, in view of the aforesaid discussion, we hereby allow the Ground of Appeal No. 1.1 raised by the assessee.”
In view of our observations made in the preceding paras and also agreeing with the above reproduced findings of the Tribunal, we hold that the assessee is entitled to the claim of depreciation on the road to collect toll being an intangible asset falling within the purview of section 32(1) (ii) of the Act.
So far as the other alternative contention of the assessee that the project be treated as plant & machinery and the depreciation be accordingly allowed to it, we do Page 20 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
not find that the said license of right to collect toll in any way falls in the definition of plant & machinery. As held by the Hon’ble Bombay High Court, even the assessee is not the owner of the toll road. The assessee has been given only the right to develop, maintain and operate the toll road and further to collect the toll for the specified period. This right as discussed above is an intangible asset falling under section 32(1)(ii) of the Act.
So far as the contention of the Revenue that the investment made by the assessee be treated as a revenue expenditure and be amortized for the period of the agreement, is concerned, we do not find any force in the same on the ground that not only the AO but also the CBDT in the circular (supra) as discussed above has admitted that the license of right to collect toll free has been given to the assessee in lieu of the investments made and that such a right brings to the assessee an enduring benefit. The investments made under such circumstances cannot be said to be of revenue in nature but, as discussed above, are of capital in nature. The assessee, thus, is entitled to claim depreciation on such type of capital asset.
32. In view of our above findings, this ground of the Revenue is hereby dismissed but on a different footing as discussed above and in terms of our observations made above”
8. When a query was put to the Ld. CIT DR, she has not argued anything on the issue and fairly admitted that ‘Yes’ this Tribunal has decided this issue in the immediately earlier assessment year.
9. We find that the facts and circumstances are exactly identical in this year also and there is no change in facts. Hence, taking a consistent view and respectively following the Tribunal’s decision of immediately preceding & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
assessment year, we allow the claim of the assessee and also allow additional grounds of appeal raised by assessee. Accordingly, this issue is allowed in favour of assessee.
10. The next issue in assessee’s appeal is as regards to the order of CIT(A) confirming the action of AO in assessing notional interest as income from other sources. For this assessee has raised following three grounds: - “1. On the facts & in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs. 19,97,260/- which has been brought to tax based on the assumption that the appellant has earned notional interest income amounting to Rs. 19,97,260/-. The appellant prays that the addition confirmed by the Learned Commissioner of Income Tax (A) to the extent of Rs. 19,97,260/- may be deleted.
2. On the facts & in the circumstances of the case, the appellant prays that, on the facts of the case, no interest income in respect of O&M grant has accrued to the appellant in the F.Y. 2009-10 and the appellant is not entitled to receive any interest income. The Learned Commissioner of Income Tax (A) has erred in confirming that the interest income has accrued to the appellant and has confirmed the addition of Rs. 19,97,260/-.
3. On the facts & in the circumstances of the case, the appellant prays that, the appellant never received any interest income in respect of O&M grant either in earlier assessment year or in subsequent assessment year and NHAI has also not paid any interest to the appellant. The Ld. Commissioner of Income Tax (A) has erred in confirming the addition of Rs. 19,97,260/- ignoring the principal that there is no income on notional basis
Briefly stated facts are that during FY 2009-10 relevant to this AY 2010- 11, the O & M grant of Rs. 6 crores were sanctioned to the assessee and out of Page 22 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
this 6 crores, Rs. 3 crores were received by the assessee and the balance of Rs. 3 crores were outstanding as on 31-03-2010. The following are the details of receipts and instalments: - “O&M Grant amount Due Date Date of Receipt a) Rs. 1,50,00,000/- 30/06/2009 10/12/2009 b) Rs. 1,50,00,000/- 30/09/2009 10/12/2009 c) Rs. 1,50,00,000/- 31/12/2009 07/10/2010 d) Rs. 1,50,00,000/- 31/03/2010 07/10/2010 Actually, the assessee is entitled to receive O & M grant from FY 2008-09 and the outstanding amount as on 31-03-2009 was Rs. 16 crores and the said amount was actually received in FY 2009-10, the AO calculated interest from 01-04-2009 to the date of receipt of grants and the details are as under: - “O&M grant receivable Rate of Date of Interest for Interest As on 01/04/2009 Interest Receipt the period Amount Rs. 12,00,00,000/- 15% 09/04/2009 9 days Rs.4,44,836/- Rs. 4,00,00,000/- 15% 13/08/2009 135 days Rs.22,19,178/- ---------------- Rs.26,64,014/- The AO also computed the disallowance in respect to the amount due on 30-06- 2009 and actually received on 10-12-2009 at Rs. 1.50 crores and similarly, the due date for instalment was on 30-09-2009 and actual date of receipt was on 10- 12-2009 for a sum of Rs. 1.50 crores again. Thereby the AO disallowed a sum of Rs.19,97,260/- plus Rs. 26,64,014/- aggregating to Rs. 46,60,274/-. The AO computed this as notional interest. Aggrieved, assessee preferred the appeal before CIT(A) who also confirmed the action of the AO by observing in Para 5.3 as under “5.3 I have considered appellant's submissions and clauses of the agreement. The appellant had entered into Concession Agreement with NHAI. The clauses 23.8 and 23.9 are as under: & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
“23.8 The O&M Support' quoted by the Concessionaire for each year during the Operations period shall be disbursed by NHAI to the Concessionaire by credit to the Escrow Account in quarterly installments and the first such installments shall be paid by NHAI until the grant is fully disbursed to the concessionaire.
23.9 If NHAI shall fail to disburse any tranche of the O&L Support within the periods set forth for the payment thereof to the Concessionaire, NHAI shall pay interest on such delayed tranche @ SBI PLR plus two per cent."
On reading of the above clauses it is clear that if there is any delay in payment, appellant will be receiving interest of 2%. In the present case appellant contends that appellant had not received any interest from the NHAI, hence, this interest was not offered. However, A.O. treated this income as accrued to the appellant added it in the assessment. On examination of the above clause, it is clear that appellant had right to receive interest amount from NHAI if there is delay in the payment, hence, interest is normally accrued to the appellant and the appellant had right to receive this interest from the NHAI. Hence, this right to receive this interest to the appellant which is embedded in the agreement and which appellant has to be rightfully receive as per the agreement entered into with NHAI, hence, this income has to be considered as income accrued to the appellant. In view of the detailed agreement, I consider that this interest income was offered as interest income and has been approved to the appellant, hence, this has to be offered as income in the return of income filed. The appellant has failed to offer this income, hence, I find no & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11) error in A.Os addition in the assessment order as income is accrued to the appellant. The appellant had submitted the working of interest calculation on O&M grant received of Rs.46,60,274/- of FY 2009-10 in page 55 of paper book and interest calculation on O&M grant received of Rs.19,97,260/- of FY 2010-11 in page 56 of the paper book. The A.O. is directed to verify the correct interest income which is accrued to the appellant and add the same to the total income of the appellant. In view of the above discussion A.Os view is upheld. However, A,O. is directed to verify the amount to be added. This ground of appeal is partly a11owed."
Aggrieved, assessee preferred the appeal before Tribunal.
12. Before us, the learned Counsel for the assessee first of all drew our attention to grants of concession chapter 2 includes at pages 50 to 61 of the assessee’s paper book and he particularly drew our attention to clause 23.8 and 28.9 which reads as under: -
“23.8 The O&M Support' quoted by the Concessionaire for each year during the Operations period shall be disbursed by NHAI to the Concessionaire by credit to the Escrow Account in quarterly installments and the first such installments shall be paid by NHAI until the grant is fully disbursed to the concessionaire.
23.9 If NHAI shall fail to disburse any tranche of the O&L Support within the periods set forth for the payment thereof to the Concessionaire, NHAI shall pay interest on such delayed tranche @ SBI PLR plus two per cent."
In view of the clauses, the learned Counsel for the assessee stated that National Highway Authority of India has never paid interest amount as per clause 23.9 of Page 25 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11) the concession agreement to the company for delay in distribution of O & M grant/support. The learned Counsel for the assessee stated he has not booked any income on account of interest and moreover, the AO just presumed the income that assessee might have earned interest on the delayed payment. In view of the agreement, the learned Counsel for the assessee made statement at bar that till date no interest has been paid by National Highway Authority of India on these grants.
We have heard the rival contentions and gone through the facts and circumstances of the case. The assessee is receiving O&M grants from National Highway Authority of India for construction of road projects. National Highway Authority of India has never debited any interest or assessee has never credited any interest in its books of accounts. The AO has assessed notional interest on the delayed payment of grants, whether this can be assessed as notional income or not/? This issue has been decided by Hon’ble Supreme Court in the case of UCO Bank Ltd. Vs. CIT (1999) 237 ITR 889 (SC), wherein it is held as under: - “In the premises, the majority decision in State Bank of Travancore's case (supra) cannot be looked upon as laying down that a circular which is properly issued under section 119 for proper administration of the Act and for relieving the rigour of too literal a construction of the law for the benefit of the assessee in certain situations would not be binding on the departmental authorities. This would be contrary to the ratio laid down by the Bench of five Judges in Navnitlal C. Javeri's case (supra). In fact, State Bank of Travancore's case (supra) has already been distinguished in the case of Keshavji Ravji & Co. (supra) by a Bench of three Judges in a similar fashion. It is held only as laying down that a circular cannot alter the provisions of the Act. It, being in the nature of a concession, could always be prospectively withdrawn. In the present case, the circulars which have been in force are meant to ensure that while assessing the Page 26 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
income accrued by way of interest on a 'sticky' loan, the notional interest which is transferred to a suspense account pertaining to doubtful loans would not be included in the income of the assessee, if for three years such interest is not actually received. The very fact that the assessee, although generally using a mercantile system of accounting, keeps such interest amounts in a suspense account and does not bring these amounts to the profit and loss account, goes to show that the assessee is following a mixed system of accounting by which such interest is included in its income only when it is actually received. Looking to the method of accounting so adopted by the assessee in such cases, the circulars which have been issued are consistent with the provisions of section 145 and are meant to ensure that assessees of the kind specified who have to account for all such amounts of interest on doubtful loans are uniformly given the benefit under the circular and such interest amounts are not included in the income of the assessee until actually received if the conditions of the circular are satisfied. The circular of 9-10-1984 also serves another practical purpose of laying down a uniform test for the assessing authority to decide whether the interest income which is transferred to the suspense account is, in fact, arising in respect of a doubtful or 'sticky' loan. This is done by providing that non-receipt of interest for the first three years will not be treated as interest on a doubtful loan. But if after three years, the payment of interest is not received, from the fourth year onwards it will be treated as interest on a doubtful loan and will be added to the income only when it is actually received.
12. We do not see any inconsistency or contradiction between the circular so issued and section 145. In fact, the circular clarifies the way in which these amounts are Page 27 of 32 & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to section 145 or illegal in any form. It is meant for a uniform administration of law by all the income-tax authorities in a specific situation and, therefore, validly issued under section 119. As such, the circular would be binding on the department.”
We find from the above judgment of Hon’ble Supreme Court in the case of UCO Bank (supra), wherein the principle laid down in respect of accrual of interest is doubtful, the assessee has not to recognize the income and they have also discussed the board circular dated 06-10-1952, which provides that where interest accruing on doubtful debts is credited to a suspense account, it need not be included in the assessee’s taxable income provided the AO is satisfied that recovery is practically improbable. But the facts in the present case, are much better and on a strong footings in the given facts that the assessee received a sum of Rs. 3 crores in FY 2009-10 relevant to this AY 2010-11 and the balance 3 crores was received in FY 2010-11 exactly on 07-10-2010, but assessee never received any interest on this amount from NHAI and NHAI never claimed any expense on interest on this amount. Although in Para 23.9 of the concession agreement recognized the interest payment but NHAI has never paid any interest on the balance amount. Under the provisions of the Act, the income which is received or which is accrued or deemed to accrue or income which arises or deemed to arise can only be chargeable to tax but no interest has accrued to the assessee or is actually received and this fact is evident that in FY 2010-11 the assessee received a sum of Rs. 3 crores only without any interest. It was also clarified by the assessee’s Counsel during the course of hearing that there is no claim pending against NHAI as the income has not accrued to the assessee and do not have a right to receive this notional interest.
In this similar circumstances the Hon’ble Delhi High Court in the case of CIT vs. Asian Hotels Ltd. (2010) 323 ITR 490 (Del) has held considering the provisions of section 28 (iv) of the Act that the question of any notional interest & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
on an interest free deposits being added to the interest of the assessee on the basis that it may have earned by assessee if placed in a fixed deposit, does not arise. Further, the Delhi High Court also considered the provisions of section 23(1)(a) of the Act, which is for determining the income from house property and concerns determination of annual letting value of such property. This contemplates the possible rent that the property might fetch but certainly not the interest in the fixed deposit that may be placed by the tenant with the landlord in connection with the letting out of such property. The notional interest was not assessable either as business income or as income from house property. Similarly, Hon’ble Supreme Court in the case of Southern Technologies Ltd. vs. JCIT (2010) 320 ITR 577 (SC) has considered the theory of real income. Hon’ble Supreme Court has considered the issue as under:-
“37. The point to be noted is that the Income-tax Act is a tax on "real income
, i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act. Therefore, if by Explanation to section 36(1)(vii) a provision for doubtful debt is kept out of the ambit of the bad debt which is written off then, one has to take into account the saidExplanation in computation of total income under the Income-tax Act failing which one cannot ascertain the real profits. This is where the concept of add back" comes in. In our view, a provision for NPA debited to P&L Account under the 1998 Directions is only a notional expense and, therefore, there would be add back to that extent in the computation of total income under the Income-tax Act.
One of the contentions raised on behalf of NBFC before us was that in this case there is no scope for "add back" of the Provision against NPA to the taxable income of the assessee. We find no merit in this contention. Under the Income-tax Act, the charge is on Profits and Gains, not on gross receipts (which, however, has Profits & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
embedded in it). Therefore, subject to the requirements of the Income-tax Act, profits to be assessed under the Income-tax Act have got to be Real Profits which have to be computed on ordinary principles of commercial accounting. In other words, profits have got to be computed after deducting Losses/Expenses incurred for business, even though such losses/expenses may not be admissible under sections 30 to 43D of the Income-tax Act, unless such Losses/Expenses are expressly or by necessary implication disallowed by the Act. Therefore, even applying the theory of Real Income, a debit which is expressly disallowed by Explanation to section 36(1)(vii), if claimed, has got to be added back to the total income of the assessee because the said Act seeks to tax the "real income" which is income computed according to ordinary commercial principles but subject to the provisions of the Income-tax Act. Under section 36(1)(vii) read with the Explanation, a "write off" is a condition for allowance. If "real profit" is to be computed one needs to take into account the concept of "write off" in contradistinction to the "provision for doubtful debt".
Applicability of section 145
At the outset, we may state that in essence RBI Directions, 1998 are Prudential/Provisioning Norms issued by RBI under Chapter III-B of the RBI Act, 1934. These Norms deal essentially with Income Recognition. They force the NBFCs to disclose the amount of NPA in their financial accounts. They force the NBFCs to reflect "true and correct" profits. By virtue of section 45Q, an overriding effect is given to the Directions, 1998 vis-à- vis. "income recognition" principles in the Companies Act, 1956. These Directions constitute a code by itself. However, these Directions, 1998 and the Income-tax Act & 664/Mum/2015 West Gujarat Expressway Ltd. (A.Y:2010-11)
operate in different areas. These Directions, 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the "permissible deductions" or "their exclusion" under the Income-tax Act. The inconsistency between these Directions and Companies Act is only in the matter of Income Recognition and presentation of Financial Statements. The Accounting Policies adopted by an NBFC cannot determine the taxable income. It is well settled that the Accounting Policies followed by a company can be changed unless the-Assessing Officer comes to the conclusion that such change would result in understatement of profits. However, here is the case where the Assessing Officer has to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act. Hence, as far as Income Recognition is concerned, section 145 of the Income-tax Act has no role to play in the present dispute.”
In view of the above facts on the issue and the case laws discussed above, we are of the view that the lower authorities erred in assessing the notional interest on the delayed payment of O&M grants received by assessee. We delete the addition and allow this issue of assessee’s appeal.
In the result, the appeal of Revenue is dismissed and that of assessee is allowed.
Order pronounced in the open court on 26-05-2017.