Airport tax treatment clarified: maintenance costs, operating rights depreciation, and fiduciary security fee collections were dealt with separately.

Airport tax treatment turned on whether airport operating rights and related assets qualified for depreciation, whether maintenance and refurbishment costs were revenue expenditure, and whether Passenger Service Fee-Security Component formed taxable income. The Tribunal treated expenditure on perimeter road strengthening and terminal refurbishment as revenue because it preserved existing assets without creating a new one, and allowed depreciation on the upfront fee paid to secure commercial operating rights as an intangible asset. It also held that PSF-SC was collected in fiduciary capacity and diverted at source for security purposes, so it was not taxable in the assessee's hands. Taxiways, taxi tracks and parking bays were treated as plant eligible for higher depreciation, while section 14A and leave encashment issues were remanded for fresh factual examination.

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Issues: (i) whether expenditure incurred on strengthening of perimeter road and refurbishment of terminal civil works was revenue expenditure; (ii) whether upfront fee paid to Airport Authority of India was an intangible asset eligible for depreciation; (iii) whether Passenger Service Fee - Security Component formed part of the assessee's taxable income; (iv) whether taxiways, taxi tracks and parking bays were eligible for depreciation at the rate applicable to plant and machinery; and (v) whether disallowance under section 14A and provision for leave encashment were sustainable.

Issue (i): whether expenditure incurred on strengthening of perimeter road and refurbishment of terminal civil works was revenue expenditure.

Analysis: The expenditure was incurred to preserve and maintain existing airport assets and did not bring any new asset into existence. The Tribunal followed its earlier year's decision on identical facts and held that mere capitalization in the books did not determine the nature of the expenditure for tax purposes.

Conclusion: The expenditure was held to be revenue in nature and the Revenue's challenge failed.

Issue (ii): whether upfront fee paid to Airport Authority of India was an intangible asset eligible for depreciation.

Analysis: The upfront payment secured a commercial right to operate and manage the airport and to collect charges in terms of the operating agreement. The right was treated as akin to a licence and, therefore, as a business or commercial right falling within the statutory concept of intangible assets.

Conclusion: The upfront fee was held to be an intangible asset and depreciation was allowed.

Issue (iii): whether Passenger Service Fee - Security Component formed part of the assessee's taxable income.

Analysis: The amount was collected under the regulatory framework only for security purposes, kept in a separate escrow account, and held in fiduciary capacity. The assessee had no beneficial right or unfettered dominion over the funds, and the Court applied the doctrine of diversion of income by overriding title and the principle that there is no estoppel against law. The administrative instructions could not override the charging provisions of the Act.

Conclusion: The amount was held to be not taxable in the assessee's hands and the addition was deleted.

Issue (iv): whether taxiways, taxi tracks and parking bays were eligible for depreciation at the rate applicable to plant and machinery.

Analysis: The structures were found to be specially designed and integral tools for the operation of the airport, and not merely civil constructions. Following the earlier year's decision, they were treated as part of the plant used in the business.

Conclusion: Depreciation at the rate applicable to plant and machinery was allowed.

Issue (v): whether disallowance under section 14A and provision for leave encashment were sustainable.

Analysis: These issues were remanded for fresh factual examination and speaking adjudication because the lower appellate order lacked adequate factual analysis.

Conclusion: No final merits finding was recorded on these issues; they were sent back for reconsideration.

Final Conclusion: The assessee succeeded on the principal substantive controversies concerning revenue expenditure, depreciation, and the taxability of PSF-SC, while some ancillary issues were restored for fresh adjudication.

Ratio Decidendi: Where a receipt is collected and held only in fiduciary capacity under a regulatory mandate with no beneficial dominion in the recipient, it is diverted at source and does not constitute taxable income; likewise, airport operating rights and similar commercial rights can qualify as intangible assets for depreciation.

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