2018 (7) TMI 2181 - AT - Income Tax

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 ... Depreciation claim pertaining to its licence to collect tollway on the Second Vivekanand Bridge u/s 32(1)(ii) - depreciation on intangible asset - HELD THAT:- We find this question to be no more res integra as per tribunal’s Special Bench’s decision in M/s Progressive Construction Ltd. case [2017 (3) TMI 1167 - ITAT HYDERABAD] has on rejected Revenue’s similar arguments based on Board’s circular No. 9/2014 dated 23.04.2014. It is therefore sufficiently clear that the learned Special Bench has settled the issue treating a similar licence to collect tollway to be an intangible asset under the relevant statutory provision. We therefore adopt the above detailed reasoning mutatis mutandis to accept assessee’s instant former substantive ground. The impugned depreciation disallowance stands deleted accordingly. Leave encashment provision disallowance u/s 43B(f) - HELD THAT:- Both parties are ad idem during the course of hearing that hon'ble jurisdictional high court’s decision on Exide Industries Ltd. vs. Union of India ( [2007 (6) TMI 175 - CALCUTTA HIGH COURT]is both deleting the impugned disallowance as well as declaring the statutory provision itself as unconstitunal stands stayed in Revenue’s appeal preferred in hon'ble apex court. We therefore direct the assessing authority to keep the instant issue in abeyance till hon'ble apex court’s final verdict. This substantive ground is accepted for statistical purposes. 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.