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Issues: (i) Whether interest earned on bank deposits and short-term loans was taxable as business income or as income from other sources. (ii) Whether the right to operate the toll road and collect annuity/toll constituted an intangible asset eligible for depreciation under section 32(1)(ii).
Issue (i): Whether interest earned on bank deposits and short-term loans was taxable as business income or as income from other sources.
Analysis: The interest arose from funds deployed in the course of the assessee's infrastructure business and had nexus with its business operations and project-related arrangements. The surrounding facts showed that the receipts were not to be treated as idle surplus divorced from business activity. The Tribunal followed the principle that where the receipt is inextricably linked with the business, it retains the character of business income and does not fall in the residuary head.
Conclusion: The interest income was held taxable as business income and not as income from other sources, in favour of the assessee.
Issue (ii): Whether the right to operate the toll road and collect annuity/toll constituted an intangible asset eligible for depreciation under section 32(1)(ii).
Analysis: The assessee had constructed the road on BOT basis and acquired a valuable commercial right to operate the facility and earn revenue from it. Such right was treated as a license or, at the least, a business/commercial right of similar nature falling within the statutory concept of intangible assets. The Tribunal applied the settled view that the right to collect toll or annuity arising from BOT infrastructure projects is a depreciable intangible asset under section 32(1)(ii).
Conclusion: Depreciation on the road project right as an intangible asset was allowed, in favour of the assessee.
Final Conclusion: The additions were deleted to the extent contested, and the assessee's appeals for all three assessment years were allowed.
Ratio Decidendi: Interest receipts integrally connected with the assessee's business operations are assessable as business income, and the contractual right to operate a BOT road and collect toll or annuity is an intangible asset eligible for depreciation under section 32(1)(ii).
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