2017 (10) TMI 579 - AT - Income Tax

Assessee entitled to claim depreciation on 'Right to collect Toll' as intangible asset

The Income Tax Officer, Ward 1 (1), Nashik Versus M/s. Ashoka Highways (Bhandara) Ltd.

The Income Tax Officer, Ward 1 (1), Nashik Versus M/s. Ashoka Highways (Bhandara) Ltd. - Tmi Issues Involved:1. Justification of allowing depreciation on the asset 'Right to collect Toll.'2. Eligibility of the assessee for depreciation on the asset 'Right to collect Toll.'Issue-wise Detailed Analysis:1. Justification of Allowing Depreciation on the Asset 'Right to Collect Toll':The primary issue raised by the Revenue was whether the CIT(A)-I, Nashik, was justified in allowing depreciation of Rs. 63,05,34,911/- claimed on the asset 'Right to collect Toll.' The Revenue argued that the twin conditions set forth in section 32(1) of the Income-tax Act, 1961, were not satisfied, as the road was neither owned wholly or partly by the assessee nor used in its business. The Assessing Officer had denied the depreciation claim, allowing instead the amortization of expenses.The Tribunal found that the issue was already covered by a prior decision in the case of Ashoka Infrastructure Ltd. Vs. ACIT, where it was held that the assessee was entitled to claim depreciation on the 'Right to collect Toll' as an intangible asset under section 32(1)(ii) of the Act. The Tribunal referred to the CBDT Circular No. 9/2014, which clarified that the right to collect toll fees, even if not amounting to ownership of the road, could be considered an intangible asset eligible for depreciation.2. Eligibility of the Assessee for Depreciation on the Asset 'Right to Collect Toll':The Tribunal extensively discussed the nature of the 'Right to collect Toll' and its classification as an intangible asset. It was noted that the assessee had incurred significant expenditure on the development, construction, and maintenance of infrastructure facilities, which granted it the right to collect toll. This right was considered an intangible asset as it provided enduring benefits to the assessee over the concession period.The Tribunal cited several precedents, including decisions from the Pune and Mumbai Benches, which supported the view that the right to collect toll qualified as an intangible asset under section 32(1)(ii) of the Act. The Tribunal emphasized that the right to collect toll, arising from the expenditure on infrastructure development, was capital in nature and not revenue expenditure. Consequently, the assessee was entitled to claim depreciation on this intangible asset.The Tribunal rejected the Revenue's argument that the right to collect toll should be treated as revenue expenditure and amortized over the concession period. Instead, it upheld the assessee's claim for depreciation, aligning with the precedent that such rights are intangible assets eligible for depreciation under section 32(1)(ii) of the Act.Conclusion:The Tribunal concluded that the assessee was entitled to claim depreciation on the 'Right to collect Toll' as an intangible asset under section 32(1)(ii) of the Income-tax Act, 1961. The appeal of the Revenue was dismissed, and the order of the Assessing Officer to amortize the expenditure was reversed. The Tribunal directed the Assessing Officer to allow the claim of depreciation on the intangible asset.