Assessee's Road Development Depreciation Upheld

The High Court confirmed that roads developed and maintained by the assessee are eligible for depreciation at 10%. The matter regarding depreciation on leasehold rights was remanded to the Assessing Officer for further examination of the lease agreement. The High Court upheld the Tribunal's decision that Section 14A read with Rule 8D does not apply if no exempt income is received. The appeals were partly allowed, with specific directions for fresh consideration on the issue of leasehold rights and depreciation.

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Issues Involved:
1. Eligibility of roads developed and maintained by the assessee for depreciation as 'building'.
2. Eligibility of the assessee for depreciation under Section 32(1)(ii) on leasehold rights obtained for 99 years.
3. Allowability of depreciation on leasehold rights on land under Section 32(1)(ii) under the head 'intangible asset'.
4. Applicability of Section 14A read with Rule 8D if there is no exempt income received.

Detailed Analysis:

Issue 1: Depreciation on Roads as 'Building'
The tribunal held that roads developed and maintained by the assessee under an agreement with the government on the State/National Highway are eligible for depreciation as 'building'. The assessee claimed depreciation at 15%, treating roads as 'plant and machinery'. The Assessing Officer allowed depreciation at 10%, treating roads as 'building'. The Tribunal followed its earlier decision in the assessee's own case for the assessment years 2003-04 and 2004-05, which was not reversed or modified by the High Court. The High Court upheld the Tribunal's decision, noting that the decision of the Bombay High Court in North Karnataka Expressway Ltd. supported the assessee's case. The Rajasthan High Court's decision in GVK Jaipur Expressway Ltd. also supported the Tribunal's view. Hence, the substantial question of law was answered against the Revenue, confirming the assessee's entitlement to depreciation at 10%.

Issue 2 & 3: Depreciation on Leasehold Rights as 'Intangible Asset'
The Tribunal held that the assessee is eligible for depreciation under Section 32(1)(ii) on leasehold rights obtained for 99 years. The Assessing Officer and CIT(A) did not examine the terms and conditions of the lease agreement thoroughly. For assessment years 2007-08 and 2008-09, the Assessing Officer reopened the assessment, questioning the claim for depreciation on leasehold rights. The assessee argued that they were entitled to depreciation as they had acquired leasehold rights, which qualified as an allowable revenue expenditure. The Tribunal, relying on various judicial precedents, concluded that transfer of leasehold rights amounted to a transfer of capital asset, thus eligible for depreciation. However, the High Court noted that the factual aspects were not adequately examined and remanded the matter to the Assessing Officer for a fresh decision on merits, directing a thorough analysis of the lease agreement.

Issue 4: Applicability of Section 14A read with Rule 8D
The Tribunal held that the provisions of Section 14A read with Rule 8D have no applicability if there is no exempt income received. The Revenue argued that disallowance under Section 14A did not depend on exempt income. The High Court referred to its earlier decision in the assessee's own case and other precedents, including the decision in CIT Vs. Chettinad Logistics Pvt. Ltd., which supported the Tribunal's view. The High Court upheld the Tribunal's decision, answering the substantial question of law against the Revenue.

Conclusion:
1. Depreciation on Roads: The High Court confirmed the Tribunal's decision that roads developed and maintained by the assessee are eligible for depreciation at 10%.
2. Depreciation on Leasehold Rights: The matter was remanded to the Assessing Officer for a fresh decision after thorough examination of the lease agreement.
3. Applicability of Section 14A: The High Court upheld the Tribunal's decision that Section 14A read with Rule 8D does not apply if no exempt income is received.

The appeals were thus partly allowed, with specific directions for fresh consideration on the issue of leasehold rights and depreciation.

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