Tribunal allows depreciation claim on toll way rights as intangible assets

The Tribunal upheld the CIT(A)'s decision, allowing the assessee to claim depreciation on toll way rights as intangible assets under section 32(1)(ii) of the Income Tax Act. The Tribunal determined that the right to collect toll charges qualifies as an intangible asset, rejecting the Revenue's argument based on CBDT Circular No. 9/2014 advocating amortization. The decision aligned with precedent, establishing toll way rights as depreciable intangible assets despite the circular's guidance.

---

---

Issues Involved:
1. Whether the toll way rights can be treated as an intangible asset under section 32(1)(ii) of the Income Tax Act, 1961.
2. Whether the assessee is entitled to claim depreciation on toll way rights.
3. Whether the CBDT Circular No. 9/2014 dated 23.04.2014 mandates amortization of expenses instead of depreciation for BOT projects.

Detailed Analysis:

1. Treatment of Toll Way Rights as an Intangible Asset:
The primary issue in this case was whether the toll way rights acquired by the assessee could be classified as an intangible asset under section 32(1)(ii) of the Income Tax Act, 1961. The assessee, a Special Purpose Vehicle incorporated for the purpose of converting a two-lane highway into a six-lane highway under a Build, Operate, and Transfer (BOT) agreement with the National Highway Authority of India (NHAI), claimed depreciation on the toll way rights as an intangible asset. The Assessing Officer (AO) disallowed this claim, citing CBDT Circular No. 9/2014, which suggests that costs incurred on infrastructure development under BOT projects should be amortized over the concession period.

The Tribunal referenced the Special Bench decision in the case of M/s. Progressive Constructions Ltd., which established that the right to operate a toll road and collect toll charges constitutes an intangible asset. This right is akin to a license, which is explicitly listed as an intangible asset under section 32(1)(ii). The Tribunal concluded that the toll way rights are indeed intangible assets, thereby allowing the assessee to claim depreciation.

2. Entitlement to Claim Depreciation:
The Tribunal examined whether the assessee was entitled to claim depreciation on the toll way rights. The assessee had capitalized the total toll collection right as an intangible asset and claimed depreciation at the rate applicable to intangibles. The AO, however, allowed only the amortization of the construction cost over the concession period, resulting in a significant disallowance.

The Tribunal upheld the assessee’s claim by referring to the Special Bench decision and the Tribunal's own decision in the assessee's case for the previous assessment year. The Tribunal noted that the right to collect toll charges is a business or commercial right of a similar nature to a license, thus qualifying as an intangible asset eligible for depreciation under section 32(1)(ii).

3. CBDT Circular No. 9/2014 and Amortization of Expenses:
The Revenue argued that according to CBDT Circular No. 9/2014, the cost of construction on infrastructure development under BOT projects should be amortized as allowable business expenditure. The AO had followed this circular to allow amortization instead of depreciation.

The Tribunal, however, found that the circular did not override the statutory provisions of the Income Tax Act. The Tribunal emphasized that the right to collect toll charges created an intangible asset, and under section 32(1)(ii), such an asset is eligible for depreciation. The Tribunal thus directed the AO to allow the assessee’s claim of depreciation at the rate of 25%, treating the toll way rights as an intangible asset.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)’s decision to allow the assessee’s claim of depreciation on toll way rights as an intangible asset under section 32(1)(ii) of the Income Tax Act. The decision was based on the interpretation that the right to collect toll charges constitutes an intangible asset eligible for depreciation, notwithstanding the CBDT Circular advocating amortization. The Tribunal’s ruling was consistent with previous decisions in similar cases, affirming the treatment of such rights as intangible assets.

---