Toll road BOOT operator treated as owner, allowed depreciation and take-out fee deduction under Section 32

HC held that the assessee, which constructed and operated a toll road/bridge on BOOT basis on leased land, was entitled to depreciation under Section 32. Relying on principles that "owner" includes a person having dominion and exclusive right to use and enjoy the asset, the court held that, for the concession period, the assessee effectively owned the road and bridge, including the right to collect tolls and regulate use. Explanation 1 to Section 32 supported treating such capital expenditure as on a building owned by the assessee. HC decided the depreciation issue and the take-out assistance fee for redemption of Deep Discount Bonds in favour of the assessee.

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Issues Involved:
1. Depreciation on Toll Road/Bridge as "Building"
2. Applicability of Appendix-I of the I.T. Rules, 1962 for AY 2005-06
3. Ownership of the Toll Road/Bridge
4. Treatment of Take Out Assistance Fee

Detailed Analysis:

1. Depreciation on Toll Road/Bridge as "Building"
The primary issue was whether the toll road/bridge constructed by the assessee could be considered as a "building" for the purpose of granting depreciation. The assessee argued that under the Build-Own-Operate-Transfer (BOOT) basis, the road and bridge should be treated as buildings, thus eligible for depreciation. The Income Tax Department contended that roads and bridges do not fall within the definition of "building" unless they are within factory premises. The court referred to various precedents, including CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd., which held that roads within factory premises are considered buildings. The court concluded that the road and bridge constructed by the assessee under the concession agreement are integral parts of the infrastructure project and qualify as buildings for depreciation purposes.

2. Applicability of Appendix-I of the I.T. Rules, 1962 for AY 2005-06
The second issue was whether the provisions of Appendix-I of the I.T. Rules, 1962, which include roads and bridges within the definition of buildings, were applicable for the assessment year 2005-06. The Income Tax Department argued that Appendix-I was effective from AY 2006-07 onwards and not applicable for AY 2005-06. The court, however, noted that the note defining buildings to include roads and bridges has been unchanged since its addition in Appendix-I w.e.f. 2.4.1997. Therefore, the court held that the provisions were applicable for the assessment year 2005-06.

3. Ownership of the Toll Road/Bridge
The third issue was whether the assessee could claim depreciation on the toll road/bridge given that the land was leased by the NOIDA authority and not owned by the assessee. The Income Tax Department argued that the ownership of the asset was not established. The court examined the Concession Agreement, which granted the assessee exclusive rights to develop, establish, finance, design, construct, own, operate, and maintain the Noida Bridge for 30 years. The court referred to Mysore Mineral Ltd vs. CIT and CIT v. Podar Cement Pvt. Ltd, which held that ownership for depreciation purposes includes possession and control of the asset. The court concluded that the assessee had sufficient ownership rights over the toll road/bridge to claim depreciation.

4. Treatment of Take Out Assistance Fee
The fourth issue was whether the payment made in connection with the redemption of deep discount bonds could be claimed as revenue expenditure. The assessee argued that the take out assistance fee should be treated as revenue expenditure. The court referred to its previous decision in Income Tax Appeal No. 44 of 2010, where it was held that such payments are revenue expenditures. Therefore, the court upheld the assessee's claim to treat the take out assistance fee as revenue expenditure.

Conclusion:
The court dismissed the appeal filed by the Income Tax Department, confirming the orders of the CIT (A) and ITAT. It held that the toll road/bridge qualifies as a building for depreciation purposes, the provisions of Appendix-I are applicable for AY 2005-06, the assessee had sufficient ownership rights over the toll road/bridge, and the take out assistance fee is a revenue expenditure. All four questions were decided in favor of the respondent-assessee and against the revenue.

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