2018 (2) TMI 2073 - AT - Income Tax

Partnership firm entitled to tax deduction under Section 80IA(4) & allowed depreciation on toll rights

The Tribunal held that the assessee, a partnership firm with corporate entities as partners, was eligible for deduction under Section 80IA(4) of the ... Revision u/s 263 - Eligibility of Deduction u/s 80IA - depreciation @ 25% on the project cost on WDV basis - as per CIT since the assessee is a partnership firm, cannot be considered to be a consortium so as to be eligible for claiming deduction u/s 80IA(4) - Also according to Ld. PCIT, AO has ignored the aforesaid fact and had allowed the deduction and secondly for the reason that assessee had claimed depreciation @ 25% on the project cost on WDV basis and the claim of depreciation was allowed by the AO whereas as per CBDT Circular No.9/2014, the entire cost of construction and development had to be amortised evenly over the period of concession - HELD THAT:- On the issue of depreciation @ 25% claimed by assessee and allowed by AO, it is an undisputed fact that assessee had entered into different concession agreements with Public Works Department of Maharashtra for construction of certain roads and its operation and maintenance for an agreed period on Build Operate and Transfer (BOT) basis. By virtue of the concession agreement, assessee was granted right to collect and retain toll for the defined concession period. The right to collect toll was considered by assessee to be a form of licence and thus an intangible right as per provisions of Sec.32(1)(ii) of the Act and therefore being eligible for depreciation at 25%. We find that on identical facts namely the issue of depreciation on intangible rights, was before the Coordinate Bench of Pune Tribunal in the case of Ashoka Infrastructure Pvt. Ltd [2013 (8) TMI 588 - ITAT PUNE]has held that the right to collect toll is capital expenditure and consequently the assessee is entitled to claim depreciation on such intangible assets as provided u/s 32(1)(ii) of the Act. Before us no material has been placed by the Revenue to demonstrate that the aforesaid decision of Pune Tribunal in the case of Ashoka Infrastructure (supra) has been set aside / overturned by higher judicial forum. Further, in view of the aforesaid facts, we are of the view that the view /opinion of the AO of holding the right to collect toll as an intangible asset, and therefore eligible for depreciation and allowing the claim of depreciation to the assessee was a possible view. It is a settled law that so long as the view taken by the Assessing Officer is a possible view then the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view on the matter. As far as the contention of the Revenue that on the issue of depreciation, there was no whisper of having being examined by the AO in the assessment proceedings, it has been held by various authorities that the mere fact that the issue did not fall for discussion in the assessment order would not ipso facto lead to the conclusion that the Assessing Officer did not apply his mind to the issue. Eligible for deduction u/s 80IA(4) as it being a partnership firm - It is a fact that according to provisions of Sec.80IA(4)(i)(a), the section applies to an enterprise which is a company registered in India or a consortium of companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act. It is also a fact that the word “consortium” used in the provision has not been defined in the Income Tax Act. As per the Merriam Webster dictionary, the word “consortium” means “an agreement, combination, or group (as of companies) formed to undertake an enterprise beyond the resources of any one member”. As per the Collins English Dictionary, a “Consortium” is a group of people or firms who have agreed to co-operate with each other”. We find that the Hon’ble Madhya Pradesh High Court in the case of Org Informatics [2011 (4) TMI 1536 - MADHYA PRADESH HIGH COURT] has observed that a consortium is akin to a partnership where each partner is liable for action of other partners. In the present case it is not the case of the Revenue that in the partnership firm, there are other non corporates, who are partners or the firm is not for the purpose of business. It is seen that the assessee has been granted the benefit of deduction u/s 80IA(4) in earlier years and in 2 assessment years i.e., A.Y. 2006-07 and A.Y. 2010-11, the benefit of Sec.80IA(4) was denied to the assessee by the AO for a different reason and not for the reason that the assessee was a firm and not a consortium of companies. Thus, the claim of deduction u/s 80IA(4) of the Act has been allowed to the assessee in past from A.Y. 2004-05 onwards. Further, Revenue has not brought on record any new facts in the year under consideration due to which the claim of deduction u/s 80IA(4) could be denied to the assessee. Before us, Revenue has not brought any material on record to demonstrate that the view taken by the AO was an impermissible view or was contrary to law or was upon erroneous application of legal principles necessitating the exercising of Revisionary powers u/s 263 - Decided in favour of assessee. Issues Involved:1. Eligibility of the assessee for deduction under Section 80IA(4) of the Income Tax Act.2. Claim of depreciation on toll rights at 25% on Written Down Value (WDV) basis.3. Justification for invoking powers under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT).Detailed Analysis:1. Eligibility of the Assessee for Deduction under Section 80IA(4):The PCIT argued that the assessee, being a partnership firm, was not eligible for deduction under Section 80IA(4) of the Income Tax Act, which is available to a company or a consortium of companies. The assessee countered that it is a partnership firm with three companies as partners, making it a consortium eligible for the deduction. The Tribunal noted that the term 'consortium' is not defined in the Income Tax Act but generally means a group formed to undertake an enterprise. The Tribunal found that the assessee's partnership firm, consisting only of corporate entities, fits this definition. The Tribunal also highlighted that the assessee had been allowed this deduction in previous years and that there was no change in the constitution of the partnership. Therefore, the Tribunal concluded that the assessee was eligible for the deduction under Section 80IA(4).2. Claim of Depreciation on Toll Rights at 25% on WDV Basis:The PCIT contended that the assessee’s claim for depreciation at 25% on toll rights was erroneous as per CBDT Circular No. 9/2014, which mandates that the cost of construction should be amortized over the concession period and allowed as a business expense under Section 37(1). The assessee argued that the right to collect toll is an intangible asset eligible for depreciation under Section 32(1)(ii). The Tribunal referred to its prior decisions, including Ashoka Infrastructure Pvt. Ltd., where it was held that the right to collect toll is a capital expenditure and thus eligible for depreciation. The Tribunal found that the AO's decision to allow depreciation was a possible and permissible view, and therefore, the PCIT’s invocation of Section 263 was not justified.3. Justification for Invoking Powers under Section 263:The Tribunal examined whether the conditions for invoking Section 263 by the PCIT were met. Section 263 allows the Commissioner to revise an order if it is erroneous and prejudicial to the interests of the Revenue. The Tribunal cited the Supreme Court’s decision in Malabar Industrial Co. Ltd. v. CIT, which requires both conditions to be satisfied. The Tribunal found that the AO had taken a permissible view on both the eligibility for deduction under Section 80IA(4) and the claim of depreciation on toll rights. Since the AO’s order was not unsustainable in law, it could not be considered erroneous. Therefore, the Tribunal held that the PCIT was not justified in invoking Section 263.Conclusion:The Tribunal concluded that the PCIT was not justified in invoking the revisionary powers under Section 263 of the Income Tax Act. The assessee was eligible for the deduction under Section 80IA(4) and entitled to claim depreciation on toll rights at 25% on WDV basis. The Tribunal set aside the PCIT’s order and allowed the appeal of the assessee.