Tribunal allows depreciation on toll revenue license, awaits Supreme Court ruling

The tribunal allowed the appellant's appeal, overturning the disallowance of depreciation on the license to collect toll revenue for the Second Vivekananda Bridge. The tribunal considered the license as an intangible asset eligible for depreciation under section 32(1)(ii) of the Income Tax Act. Regarding the disallowance of leave encashment provision, the tribunal directed to await the Supreme Court's final decision due to the stay on a relevant High Court decision. The order was issued on 11/07/2018.

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Issues Involved:
1. Disallowance of depreciation claimed on the licence to collect toll revenue of the Second Vivekananda Bridge.
2. Disallowance of leave encashment provision under section 43B(f) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Licence to Collect Toll Revenue:

The appellant challenged the Commissioner of Income Tax (Appeals) - Kolkata’s order, which upheld the Assessing Officer’s (AO) disallowance of depreciation amounting to Rs. 41,99,22,054 claimed under section 32(1)(ii) of the Income Tax Act, 1961. The appellant argued that the right to collect toll charges on the Second Vivekananda Bridge constituted an intangible asset.

The AO, referencing Board’s Circular No. 9/2014, denied the claim, stating that the licence to collect toll charges did not pertain to an infrastructure facility itself and the appellant was not the owner of the infrastructure. The CIT(A) supported this view, emphasizing that the appellant's right to collect toll charges did not qualify as an intangible asset under section 32(1)(ii) and was not eligible for depreciation. The CIT(A) also noted that the appellant's claim for depreciation in previous years did not establish a precedent due to the principle of res judicata not applying to income tax proceedings.

The tribunal considered the Special Bench’s decision in M/s Progressive Construction Ltd., which had rejected similar arguments by the Revenue and treated the licence to collect tollway charges as an intangible asset eligible for depreciation. The tribunal found that the appellant’s right to collect toll charges was a valuable commercial right acquired by investing in the project and thus constituted an intangible asset under section 32(1)(ii). Consequently, the tribunal deleted the disallowance of Rs. 41,99,22,054.

2. Disallowance of Leave Encashment Provision:

The appellant also contested the disallowance of Rs. 1,84,562 towards leave encashment provision under section 43B(f) of the Income Tax Act. Both parties acknowledged that the jurisdictional High Court’s decision in Exide Industries Ltd. vs. Union of India, which declared the statutory provision unconstitutional, was stayed by the Supreme Court.

Given the pending final verdict from the Supreme Court, the tribunal directed the assessing authority to keep this issue in abeyance until the apex court’s decision. Thus, this ground was accepted for statistical purposes.

Conclusion:

The tribunal partly allowed the appellant’s appeal, deleting the disallowance of depreciation on the licence to collect toll revenue and directing the assessing authority to await the Supreme Court’s final decision on the leave encashment provision issue. The order was pronounced in the open court on 11/07/2018.

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