Airport tax treatment clarifies depreciation, revenue expenditure, capital receipt and section 14A limits for operators.

Passenger service fee security receipts were treated as non-taxable in the assessee's hands, and the additional ground on that question was admitted. The upfront fee for airport rights was recognised as a depreciable intangible asset because it conferred a commercial right akin to a licence. Expenditure on nallah realignment, CPWD staff reallocation and allied airport development was held revenue in nature, while retrenchment compensation paid under the operating arrangement was allowed outside section 35DDA. Development fee collected under section 22A of the Airports Authority of India Act was characterised as a capital receipt. In the absence of exempt income, disallowance under section 14A read with Rule 8D was deleted, and taxiways, aprons, parking bays and bridges were allowed depreciation at plant and machinery rates.

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Issues: (i) Whether the passenger service fee security component disclosed by the assessee could be treated as taxable income and an additional ground could be admitted; (ii) whether the upfront fee paid for airport rights was eligible for depreciation as an intangible asset; (iii) whether expenditure on realignment of nallahs, reallocation of CPWD staff and allied airport development expenses was revenue expenditure; (iv) whether retrenchment compensation paid under the airport operating arrangement was allowable and outside section 35DDA; (v) whether development fee collected under section 22A of the Airports Authority of India Act, 1994 was a capital receipt; (vi) whether disallowance under section 14A read with Rule 8D could survive in the absence of exempt income; (vii) whether taxiways, aprons, parking bays and bridges were entitled to depreciation at plant and machinery rates.

Issue (i): Whether the passenger service fee security component disclosed by the assessee could be treated as taxable income and an additional ground could be admitted?

Analysis: The receipt was held to be a legal issue arising from facts already on record, and the Tribunal followed its earlier view that an additional ground raising such a question could be entertained. On merits, the amount was treated as not taxable in the assessee's hands, subject to the safeguards earlier directed regarding use of the funds and deposit of any related refund.

Conclusion: The additional ground was admitted and allowed, and the receipt was held not taxable in the assessee's hands subject to the stated directions.

Issue (ii): Whether the upfront fee paid for airport rights was eligible for depreciation as an intangible asset?

Analysis: The payment secured a commercial right akin to a licence to develop and operate the airport and to collect charges from users. It did not result in acquisition of a tangible asset, but created a business or commercial right of similar nature to those recognised as intangible assets for depreciation purposes.

Conclusion: Depreciation was allowable, and the disallowance was deleted in favour of the assessee.

Issue (iii): Whether expenditure on realignment of nallahs, reallocation of CPWD staff and allied airport development expenses was revenue expenditure?

Analysis: The expenditure was incurred for the efficient running, maintenance and development of the airport and did not result in acquisition of an asset owned by the assessee. The enduring benefit test was not applied mechanically, and the outlays were treated as facilitating business operations rather than creating capital assets.

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

Issue (iv): Whether retrenchment compensation paid under the airport operating arrangement was allowable and outside section 35DDA?

Analysis: The payment was made to the Airport Authority of India under the operating agreement and not directly to employees on voluntary retirement. Since section 35DDA applies to sums paid to employees in connection with voluntary retirement, its conditions were not attracted.

Conclusion: The deduction was upheld in favour of the assessee and section 35DDA was held inapplicable.

Issue (v): Whether development fee collected under section 22A of the Airports Authority of India Act, 1994 was a capital receipt?

Analysis: The levy was collected under statutory authority for the specific purpose of bridging funding gaps for aeronautical assets, with strict restrictions on use, audit and supervision. It was treated as a cess or tax in nature, meant for capital development, and not as income available for free appropriation.

Conclusion: The development fee was held to be a capital receipt and not taxable as revenue income.

Issue (vi): Whether disallowance under section 14A read with Rule 8D could survive in the absence of exempt income?

Analysis: The assessee had not earned any exempt income during the year. Following the settled view applied in the earlier years, section 14A disallowance was not sustainable where no exempt income had arisen.

Conclusion: The disallowance under section 14A read with Rule 8D was deleted.

Issue (vii): Whether taxiways, aprons, parking bays and bridges were entitled to depreciation at plant and machinery rates?

Analysis: These assets were integral to airport operations and were not mere concrete structures. They were treated as functional operational assets forming part of plant and machinery for depreciation purposes.

Conclusion: Depreciation at plant and machinery rates was upheld in favour of the assessee.

Final Conclusion: The cross-appeals were disposed of substantially in favour of the assessee, with the assessee obtaining relief on the substantive tax issues and the Revenue's challenges being rejected or only sent back for statistical disposal where applicable.

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