2021 (1) TMI 1119 - AT - Income Tax

Tribunal allows depreciation for toll collection rights under Income Tax Act

The Tribunal ruled in favor of the assessee, holding that the right to collect toll under the concessionaire agreement with NHAI constituted an intangible ... Depreciation u/s 32(1)(ii) in respect of its “right to collect toll” - whether or not the assessee’s claim for depreciation on “license to collect toll”, an intangible asset, falls within the scope of Sec.32(1)(ii) ? - assessee’s stand qua its claim is that it has been holding the concessionare rights in the nature of license to collect road toll of an intangible asset u/s 32(1) - HELD THAT:- We are of the considered view that the issue as to whether an Infrastructure Development company that had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government would be eligible for claim of depreciation in respect of its intangible rights i.e “right to collect toll” under Sec. 32(1)(ii) - See Progressive Construction Ltd. [2017 (3) TMI 1167 - ITAT HYDERABAD] There does not appear to be any dispute about the fact that the Assessing Officer’s assessment order; take for instance, the order dated 30th December, 2017 has not controverted the assessee’s plea that Clause 3.1 of the concession agreement has resulted in the NHAI granting concessionary rights to reconstruct, operate and maintain the corresponding national highway project. We wish to repeat here that the Assessing Officer has only quoted the Board’s Circular No.9/2014 dated 23rd April, 2014 in favour of amortization by following matching concept only. We observe in these factual backdrop that Revenue’s arguments supporting the impugned disallowance are not sustainable.We make it clear that assessee’s stand qua its claim is that it has been holding the concessionare rights in the nature of license to collect road toll of an intangible asset u/s 32(1) Coming to the exclusive usage part; we see no material on record which would indicate that anybody other than the assessee is entitled to dilute its rights to construct, operate, maintain the project in lieu of the toll collections right for the specified agreement period. We therefore hold that the assessee’s right to collect toll would form an exclusive right in the nature of license eligible to be treated as an intangible asset as per Special Bench’s decision (supra).We thus decline the Revenue’s arguments supporting the impugned depreciation disallowance - Decided in favour of assessee. Issues:Challenge to disallowance of depreciation claim in assessment years 2014-15 and 2015-16.Analysis:In the present case, the assessee appealed against the disallowance of its depreciation claim in the assessment years 2014-15 and 2015-16. The dispute centered around the concessionaire agreement entered into by the assessee with the National Highway Authority of India (NHAI) on a build, operate, and transfer (BOT) basis. The Assessing Officer and the CIT(A) disallowed the depreciation claim based on CBDT Circular No.9/2014, which mandated amortization of expenditure incurred on road projects for the agreement's duration only. The authorized representative argued that the agreement conferred a right or commercial right under section 32(1) of the Income Tax Act, making it eligible for depreciation. The Revenue contended that the assessee did not own the road project nor acquired any commercial rights, citing legal precedents. The Tribunal noted that the concession agreement granted the assessee concessionary rights to operate and maintain the highway project, qualifying as an intangible asset for depreciation purposes. The Tribunal rejected the Revenue's arguments and allowed the assessee's depreciation claim.The Tribunal emphasized that the assessee held concessionaire rights as a license to collect toll, constituting an intangible asset eligible for depreciation under section 32(1) of the Act. The Tribunal distinguished the case from legal precedents where ownership claims were denied under the NHAI Act, clarifying that the assessee's claim was based on the license to collect toll as an intangible asset. Additionally, the Tribunal found no evidence to suggest that anyone other than the assessee could dilute its rights to construct, operate, and maintain the project during the agreement period. Consequently, the Tribunal ruled in favor of the assessee, holding that the right to collect toll constituted an exclusive license eligible for treatment as an intangible asset, in line with the Special Bench's decision. As a result, the Tribunal directed the deletion of the disallowed depreciation in both assessment years, allowing the assessee's appeals.