2014 (11) TMI 401 - AT - Income Tax

Tribunal upholds depreciation claim for roads under BOT agreement as intangible asset.

DCIT, Circle 16(3), Hyderabad Versus M/s. Progressive Construction Ltd.

DCIT, Circle 16(3), Hyderabad Versus M/s. Progressive Construction Ltd. - TMI Issues Involved:1. Allowance of depreciation on roads/bridges constructed under a BOT agreement.2. Classification of the right to collect toll as an intangible asset under section 32(1)(ii) of the IT Act.3. Consistency in the depreciation claim across different assessment years.4. Applicability of Board Circular No.9 of 2014 regarding amortization of expenditure.Detailed Analysis:1. Allowance of Depreciation on Roads/Bridges Constructed Under a BOT Agreement:The core issue is whether the assessee is entitled to claim depreciation on roads constructed under a Build, Operate, and Transfer (BOT) agreement with the National Highway Authority of India (NHAI). The assessee had incurred significant expenditure on the construction of a road project and claimed depreciation on the basis that the right to collect toll is an intangible asset under section 32(1)(ii) of the IT Act. The Assessing Officer (AO) disallowed the depreciation claim, arguing that the ownership of the road is not with the assessee and that the right to collect toll does not qualify as an intangible asset.2. Classification of the Right to Collect Toll as an Intangible Asset:The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the depreciation claim by the assessee, relying on various case laws, including the decision of the ITAT Hyderabad Bench in the case of Nyse Infrastructure Private Limited and the Delhi High Court in the case of Noida Toll Bridge. The CIT(A) concluded that the right to collect toll is a commercial right or a business right, which qualifies as an intangible asset under section 32(1)(ii) of the IT Act. The CIT(A) noted that the assessee had acquired the right to exploit the asset (the road) for a period of 11 years, which is in the nature of a license granted by the owner (NHAI).3. Consistency in the Depreciation Claim:The AO had also objected to the inconsistency in the depreciation claims made by the assessee in different assessment years. In the previous year, the assessee had claimed depreciation at 10% towards building, while in the current year, it claimed 25% towards plant and machinery. The CIT(A) addressed this by stating that the principle of res judicata is not applicable in Income Tax proceedings, and the facts and case law support the stand of the assessee in the current year. The CIT(A) directed the AO to allow the depreciation claim of Rs. 52,84,84,830.4. Applicability of Board Circular No.9 of 2014:The Revenue's appeal also referenced Board Circular No.9 of 2014, which clarified that expenditure incurred on the development and construction of infrastructural facilities like roads/highways on a BOT basis with the right to collect toll can be amortized over the period of the toll concessionaire agreement. The tribunal noted that the circular supports the assessee's position, as it allows the cost incurred towards the development of roads/highways to be treated as revenue expenditure, which can be amortized. The tribunal concluded that since the assessee chose to claim depreciation, there was no reason to disallow it, and upheld the CIT(A)'s decision.Conclusion:The tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that allowed the assessee's claim for depreciation on the basis that the right to collect toll is an intangible asset under section 32(1)(ii) of the IT Act. The tribunal found no merit in the Revenue's grounds and upheld the depreciation claim, supporting the view that the entire cost incurred on the project should be allowed as a deduction, either as amortized revenue expenditure or as depreciation. The appeal of the Revenue was dismissed, and the order was pronounced in the open court on 07.11.2014.