Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SHRI LALIET KUMAR, HON’BLE & SHRI MADHUSUDAN SAWDIA, HON’BLE
O R D E R PER LALIET KUMAR, J.M.
This appeal is filed by the assessee, feeling aggrieved by the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 17.06.2022 for the AY 2017-18.
There is a delay of 537 days in filing the appeal before the Tribunal and learned AR filed an affidavit of the Director of the company which is to the following effect.
Ld.AR had drawn our attention to Form 35, column 17, where, the address and e-mail of the consultant has been given. It was submitted by the Ld.AR that on account of reasons submitted in the affidavit filed, the order has not been communicated to the assessee, as such there was delay in filing the appeal before the Tribunal. Affidavit, supporting and explaining the contention of the assesse is on record.
The Ld.DR on the other hand has opposed the contention for the delay and it was submitted that the delay in filing the appeal is not required to be condoned.
5. We have heard both the parties, gone through the affidavit filed and find there is a reasonable cause for the assessee to file the appeal belatedly, hence condone the delay and admit the appeal for hearing in the interest of justice.
The Ld.AR has submitted that the assesse is into development and construction of a project filed its return of income for A.Y.2017-18 on 31.10.2017, declaring loss of Rs.197,63,34,479/-. Later a revised return was filed on 21.01.2019, admitting the loss of Rs.197,66,10,848/-. The case was selected for scrutiny and the Assessing Officer issued notices u/s 142(1) and 143(2) of the Act, calling for certain details. In response, the assessee filed the details and the Assessing Officer completed the assessment u/s 143(3) of the Act, determining the loss at Rs.93,28,65,450/-. The Assessing Officer disallowed the depreciation on the intangible asset amounting to Rs.162,48,67,242/-and has only restricted to the amortization of Rs.58,16,55,020/-. Relevant paragraphs of the order of the learned Assessing Officer are available at para 3 at page 4,5 and 6. The Ld.AR has submitted that the Ld.CIT(A) had examined this issue at page 31 of his order to the following effect :
1. Findings and Decision: I have carefully considered the facts of the case as well as submissions filed by the appellant. I find no force in the arguments taken. The AO has relied on circular no. 9 of 2014 dated 02-04-2014, which states in most unambiguous terms how the cost of assets is to be amortized evenly over the period of concessionaire agreement after excluded the time taken for creation of such facility. The appellant has relied upon three decisions of various ITATs. I am unable to agree with the views taken therein, because the clearcut decision of various High Courts were ignored by the Hon’ble ITATs. The first and foremost is the decision of HIGH COURT OF BOMBAY in the case of North Karnataka Expressway Ltd. v. Commissioner of Income-tax -10, [2014] 51 taxmann.com 214 (Bombay, wherein it was held as under:- “Section 32, read with section 263, of the Income-tax Act, 1961 - Depreciation - Allowability/Rates of (Toll road) - Assessment year 2005-06 - Where assessee, engaged in business of infrastructure development, in execution of an agreement with National Highway Authority, constructed a road on Build, Operate and Transfer (BOT) basis on land owned by Government, could not claim depreciation on toll road so constructed and operated - Held, yes [Paras 45 & 47] [In favour of revenue]” This decision was re-affirmed by the Hon’ble Court in the case of Commissioner of Income Tax-10 v. West Gujarat Expressway Ltd. [2017] 82 taxmann.com 224 (Bombay) wherein it was held as under:- “3. Mr. Pinto, the learned counsel for the Revenue urges only the following two questions of law for our consideration:— "(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in directing the AO to grant depreciation on assets not owned by the Respondent that goes against provisions of Section 32 of the I.T. Act? (ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in its decision of treating toll roads as plant and machinery, when this is not as per rule 5 of New Appendix I of the I.T. Rules?"
4. In view of the fact that according to us the decision in North Karnataka Expressway Ltd. (supra) concludes the issue, we proceed to hear the Appeal finally. Mr. Dalal, the learned counsel for the Respondent sought to distinguish the decision of North Karnataka Expressway Ltd. (supra) by pointing out that in the present Appeal, there is a clause which provides that for the purpose of claiming tax depreciation, the property representing the capital investment made by the appellant shall be deemed to be acquired and owned by the Appellant. According to him such a clause was not present in the decision rendered by this Court in North Karnataka Expressway Ltd. (supra). This is not so. Paragraph 8 of the order passed in North Karnataka Expressway Ltd. (supra) specifically records that the appellant relied upon a clause which is identical to that pressed into service by Mr. Dalal. Thus, the aforesaid clause being relied upon by Mr. Dalal to distinguish the decision of this Court in North Karnataka Expressway Ltd. (supra) is not sustainable. This is so as the very clause was very much a subject matter of consideration by this Court in North Karnataka Expressway Ltd. (supra). We find that this Court had dealt with the issue arising herein on merits as is evident from paragraph 24 onwards of North Karnataka Expressway Ltd. (supra).
In the above view, following the decision of this Court in North Karnataka Expressway Ltd. (supra) we answer the two substantial questions of law in the negative i.e. in favour of the Appellant- Revenue and against the Respondent Assessee.” Further, now the facts of the case have to be analyzed. Depreciation is claimed on any asset, tangible or intangible, which is reflected in the ‘Assets’ of the balance Sheet. For something to be reflected in the Balance sheet, it must have some value. Value of an ‘Intangible Asset’ will be arrived at by following some method. So, for which ‘Intangible asset’ is the appellant asking for the depreciation to be allowed? The fundamental questions to be asked are as follows:- 1. Is there any ‘Intangible No asset’ which has been valued, reflected in the Balance sheet? 2. What are the assets on The assets are the ‘brick and which the Assessee has mortar’ physical assets claimed the depreciation? which have been created by the Assessee as a part of the BOT project.
Thus, the strange reasoning of ‘Intangible assets’ taken by the Hon’ble ITAT to ignore the decisions of Hon’ble Bombay high Court, does not apply to the instant case before me. The physical assets of the BOT project are squarely covered by the circular no. 9 of 2014 dated 02-04-2014.Respectfully following, the above decisions, the disallowance made by the AO amounting to Rs. 1,04,32,12,222/- is hereby confirmed. The ground of appeal no. 2 and 3, thus, fail.
1. In the result, the Appeal is dismissed.
7. Feeling aggrieved by the Ld.CIT(A) the assessee is in appeal before us. The assessee had filed written submissions in support of its case which is as follows :
8. Besides written submissions the assessee had also submitted Board Circular relied upon by the Ld.AO and the Ld.CIT(A), in fact operates in favour of the assessee and our attention was drawn to Clause 8 which is to the following effect :
It is hereby clarified that this Circular is applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement
Ld.AR had also drawn our attention to page 125 of the concessional agreement entered with the NHAI at para 47.4, 47.4.1 and 47.4.2, which provides as under :
47.4 Depreciation and Interest 47.4.1. For the purpose of depreciation under the Applicable Laws, the property representing the capital investment made by the Concessionaire in the Project shall be deemed to be acquired and owned by the Concessionaire. For the avoidance of doubt, the Authority shall not in any manner be liable in respect of any claims for depreciation to be made by the Concessionaire under the Applicable Laws. 47.4.2. Unless otherwise specified, any interest payable under this Agreement shall accrue on a daily outstanding basis and shall be compounded on the basis of quarterly rests.
It was submitted by the Ld.AR that based on the above circular and the clause in the agreement for the purpose of claiming depreciation, NHAI has treated the assessee as owner and the assessee is entitled to depreciation on the intangible asset / tangible asset. The assessee had also relied upon the decisions which are referred to in the written submissions.
Per contra the Ld.DR on the other hand, submitted that the order passed by the Ld.AO and confirmed by the Ld.CIT(A) are in accordance with law. The Ld.DR had submitted that the concessional agreement between the NHAI and the assessee never transferred the ownership of the asset to the assessee and the assessee for all purposes was a licensee . Our attention was drawn to various clauses of the concessional agreement. Our attention was drawn to Right and Title over the Site, which is captured in Sl.43 in index in the form of 43.1 to 43.4, which are available at page 119 of the paper book. It was also submitted that the NHAI has a right to cancel the contract and take back the asset to its benefit to the exclusion of the assessee. The Ld.DR had drawn our attention to the termination clause in the agreement which states as under :
The
Ld.DR had also referred to page 111 of the paper book which deals with the Assignment and Charges and Article 38, Divestment of Rights and Interest at page 106. On the basis of the above said clauses, the Ld.DR had submitted that there is no transfer of asset or ownership by NHAI to the assesse. Further more, it was the contention of the Ld.DR that the Article 47 at page 125 and 47.4.1 is required to be read in light of the fact that the NHAI cannot decide the taxability or ownership in derogation of the other applicable laws. In other words, the Ld.DR submitted that two individuals cannot decide that assessee will be for the purpose of depreciation only and for the purpose of other purposes, ownership will not be passed on to the assessee and will vest with NHAI. It was submitted that there cannot be piecemeal transfer or assignment of road by the NHAI to the assessee. It was submitted that what has been invested by the assessee was in the form of material and labour, because the right over the land was all alone with the NHAI and at no point of time, either the land or the right over the land has been transferred by NHAI to the assessee. Further it was submitted that the NHAI is a Body which is required to develop infrastructure throughout India and it has a limited right and authority. NHAI cannot adjudicate or decide the fact of ownership. The land or infrastructure can only be transferred in the manner contemplated under the Transfer of Property Act. The Transfer of Property Act only determines the transfer of ownership and in the present case, there is no transfer of ownership by NHAI to the assessee. Furthermore, it was submitted that the assessee had merely laid down the roads on the land provided and therefore the road which is forming part and parcel of the building is only entitled to depreciation @10% as per the definition in Income Tax Rules, 1962, which defines as under :
The primary contention of the Revenue is that the assessee is not entitled to depreciation as there is no ownership over the land, infrastructure etc. of the property. Lastly it was submitted by the Ld.DR that the decision relied upon by the assessee are of the Tribunal whereas, the Ld.CIT(A) after relying upon the decision of the Hon’ble High Court of Mumbai in the case of North Karnataka Expressway Ltd. Vs. CIT [2014] 51 taxmann.com 214 (Bombay) and others have decided the issue in favour of the assessee. It was also the contention of the Ld.DR that in both the cases the issue before the Hon’ble High Court was BOT (Build, Operate and Transfer) project, which does not mean that there was any transfer of ownership of infrastructure / land by NHAI to the licensed concessionaire merely the concessionaire after building the infrastructure is required to operate and maintain ownership always remains with NHAI and it can always cancel, assign or terminate the contract and take back the possession of the property.
We have heard the rival contentions and gone through the material available on record. The claim of depreciation under the scheme of income tax as provided under section 32 of the Act which is as under :
Depreciation. 32. (1) In respect of depreciation of— (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, 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, not being goodwill of a business or profession, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed— (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: Provided that no deduction shall be allowed under this clause in respect of— (a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975 but before the 1st day of April, 2001, unless it is used— (i) in a business of running it on hire for tourists ; or (ii) outside India in his business or profession in another country ; and (b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42 : Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) or clause (iia), as the case may be: Provided also that where an asset referred to in clause (iia)or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than one hundred and eighty days in that previous year, and the deduction under this sub-section in respect of such asset is restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (iia)for that previous year, then, the deduction for the balance fifty per cent of the amount calculated at the percentage prescribed for such asset under clause (iia)shall be allowed under this sub-section in the immediately succeeding previous year in respect of such asset: Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998 but before the 1st day of April, 1999 and is put to use before the 1st day of April, 1999 for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed. Explanation.—For the purposes of this proviso,— (a) the expression "commercial vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi-cab", "motor-cab", "tractor" and "road-roller"; (b) the expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor-cab", "tractor" and "road roller" shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988): Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991: Provided also that the aggregate deduction, in respect of depre- ciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv)of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them. Explanation 1.—Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explanation 2.—For the purposes of this sub-section "written down value of the block of assets" shall have the same meaning as in clause (c) of sub-section (6) of section 43. Explanation 3.—For the purposes of this sub-section, the expression "assets" shall mean— (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, not being goodwill of a business or profession. Explanation 4.—For the purposes of this sub-section, the expression "know-how" means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto). Explanation 5.—For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income; (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) : Provided that where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, the provisions of clause (iia)shall have effect, as if for the words "twenty per cent", the words "thirty-five per cent" had been substituted : Provided further that no deduction shall be allowed in respect of— (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year; (iii) in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof : Provided that such deficiency is actually written off in the books of the assessee. Explanation.—For the purposes of this clause,— (1) "moneys payable" in respect of any building, machinery, plant or furniture includes— (a) any insurance, salvage or compensation moneys payable in respect thereof; (b) where the building, machinery, plant or furniture is sold, the price for which it is sold, so, however, that where the actual cost of a motor car is, in accordance with the proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the moneys payable in respect of such motor car shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso; (2) "sold" includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company or in a scheme of amalgamation of a banking company, as referred to in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a banking institution as referred to in sub-section (15) of section 45 of the said Act, sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of that Act, of any asset by the banking company to the banking institution. (iv) [***] (v) [***] (vi) [***] (1A) [***] (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.
From the bare perusal of the section 32 of the Act for the purpose of claiming depreciation over the immovable asset, it is necessary that the immovable asset tangible or intangible have to be owned by the assessee. In the present case as is clear from the terms of the concessional agreement, the immovable asset belongs to the NHAI and the assessee was merely a licensee for the limited purpose of claiming depreciation. In our view, it is necessary that the assessee should be owner of the property and owner of the building machinery, plant or furniture, either wholly owned by it or partially owned by it and is used for business purpose. In the present case the infrastructure is not either owned wholly or partially by the assessee. Merely the assessee has raised some construction with the permission of the licensor as a licensee. As per section 52 of Indian Easements Act, 1882, if the construction is in the nature of permanent and is erected with the permission of the licensor then the assessee would not become owner of the structure. In view of the above, we are of the considered opinion that the assessee is not the owner of the structure and is not entitled to any depreciation within the meaning of section 32 of the Act. Furthermore, the issue is no more res-integra and this issue has already been adjudicated by the Hon’ble High Court of Mumbai in the case of North Karnataka Expressway Ltd. Vs. CIT(supra), wherein, relevant finding given by the Hon’ble High Court is extracted as under:
“32. To our mind, a reading of these sections together and harmoniously so also the Act as a whole, the National Highways vest in the union and for the purposes of the Act, they include all appurtenant lands whether demarcated or not, all bridges, culverts, tunnels, causeways, carriageways and other structures constructed on or across such highways and all fences, trees, posts and boundary, furlong and mile stones appurtenant to such Highways are included in the term Highways. There is a exclusive responsibility of development and maintenance of National Highway and which is of the Central Government. It is in these circumstances that we find that by section 8-A the Central Government is empowered to enter into an agreement with any person in relation to the development and maintenance of the whole or any part of a National Highway, but that in no way affects the vesting of the National Highways in the Union. Section 8-A cannot be said to be overriding section 4 and section 5. It is only for purposes of development and maintenance of the whole or any part of the National Highway through private parties or by involving them that this provision has been inserted. Merely because the National Highway is built, maintained, managed and operated by private entities does not mean that the vesting of the National Highway in the Union is effected. That does not dilute the right conferred by section 4 or take away the ownership of this Highway, meaning thereby, its vesting in the union. It is thus, the union in which the National Highway vests and that is all pervasive.
It would not be proper, therefore, to read into section 32 of the Income Tax Act, 1961 something which is defeating and frustrating the mandate of these laws. It can never be intended by the legislature that the broad and wide definition of the term "owner" as appearing in the Income Tax Act, 1961 would interfere with or take away the absolute rights of the above nature conferred in the union of the National Highways. This is too well settled and to require a reference to any judgment. That a provision in one statute or a definition in one statute cannot be interpreted so as to defeat and frustrate another law or statute or any definition therein and when that another statute is a special legislation. The words and definitions in a general enactment can never be held to be contradicting, overriding the stipulations and provisions in a special statute. The National Highways Act and the National Highways Authority of India Act are, therefore, special statutes and when the concept of ownership and vesting therein is of absolute nature that cannot be said to be in any manner restricted or curtailed by a general definition or understanding of the term owner as appearing in the Income Tax Act, 1961. The term is defined widely and broadly in the Income Tax Act, 1961 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 profits and gain from his business, then, that deduction can be availed by him. It is for that limited purpose that the term 'owner' is defined in this manner Income Tax Act, 1961. However, as held above, that cannot control leave alone overreach The National Highways Act, 1956 or the National Highways Authority of India Act, 1988.
We are not in agreement with Mr. Irani because the reference to this judgment is not in the context of what was the essential controversy before the Hon'ble Supreme Court but with regard to the position of the Central Government and the State Government qua the National Highway. That position has been reiterated and it is to that extent that we have referred to this judgment. Pertinently, this judgment is neither overruled or distinguished by any further judgment rendered by the Hon'ble Supreme Court.”
Similar view had been expressed by the Hon’ble Gujarat High Court, which has been referred by the Ld.CIT(A). In view of the above, we are of the considered opinion that the decision relied upon by the Ld.AR which are of the Tribunal, will not have overriding against the decision of Hon’ble High Court. The Tribunal being subordinate to the jurisdiction of the High Court is required to follow the decision of the superior namely, High Court accordingly, the decision of the Hon’ble High Court is binding. Accordingly, this issue is decided against the assessee.
In the result, the appeal of the assessee dismissed.