Tribunal rules against tax revision on toll collection right depreciation claim.

The Tribunal held that the revision under section 263 of the Income Tax Act was impermissible regarding the depreciation claim on the right to collect toll as an intangible asset. The revision order was quashed, and the appeal of the assessee was allowed.

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Issues Involved:

1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) to revise the assessment order under section 263 of the Income Tax Act, 1961.
2. Merits of the depreciation claim on "right to collect toll" as an intangible asset under section 32(1)(ii) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Jurisdiction of PCIT under Section 263

The assessee contested the jurisdiction of the PCIT to revise the assessment order under section 263 of the Act. The PCIT had revised the assessment order on the grounds that the Assessing Officer (AO) had not considered CBDT Circular No. 9 of 2014 while allowing depreciation at the rate of 25% on the cost of infrastructure facility, treating it as an intangible asset. The PCIT deemed the assessment order erroneous and prejudicial to the interest of the Revenue. The PCIT issued a show cause notice under section 263, stating that the AO failed to disallow the depreciation claim in accordance with the CBDT Circular, rendering the assessment order erroneous and prejudicial to the Revenue. The Tribunal noted that the amendment to section 263 by the Finance Act, 2015, which inserted Explanation 2, was declaratory and clarificatory in nature, providing clarity on which orders passed by the AO would be considered erroneous and prejudicial to the Revenue.

Issue 2: Merits of the Depreciation Claim on "Right to Collect Toll"

The assessee argued that the cost incurred on the construction and development of the project, classified as "Intangible Assets" in the financial statements, should be eligible for depreciation under section 32(1)(ii) of the Act. The right to collect toll was considered a valuable commercial right akin to a license, falling within the purview of "Intangible Assets." The Tribunal referred to several judicial precedents, including the Supreme Court's decision in Mysore Minerals Ltd. v. CIT, which held that legal ownership is not a prerequisite for claiming depreciation. The Tribunal also cited the case of ACIT v. West Gujarat Expressway Ltd., where it was held that the right to collect toll is an intangible asset eligible for depreciation. The Tribunal further noted that the CBDT Circular did not dispute the enduring benefit derived from the right to collect toll. The Special Bench of ITAT Hyderabad in ACIT vs. Progressive Construction Ltd. also supported the view that the right to operate a toll road and collect toll charges is an intangible asset eligible for depreciation.

Conclusion:

The Tribunal concluded that the issue of depreciation on the right to collect toll is highly debatable. Consequently, the revision under section 263 of the Act was deemed impermissible. The revision order was quashed, and the appeal of the assessee was allowed.

Order Pronouncement:

The appeal of the assessee was allowed, and the order was pronounced in the open court on 15-04-2019.

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