2021 (6) TMI 55 - AT - Income Tax

Appeal allowed on depreciation issue, 'right to collect toll' recognized as intangible asset for depreciation

M/s Bul MSK Infrastructure Pvt. Ltd. Versus ACIT -15 (1) (2), Mumbai

The Tribunal allowed the appeal on the depreciation issue, recognizing the 'right to collect toll' as an intangible asset eligible for depreciation under ... Depreciation on intangible asset being 'Right to collect toll' (HOT Assets) - assessee company had claimed depreciation on carriage ways @ 25% by treating the same as intangible assets - AO relying on the CBDT Circular No. 9/2014, dated 23.04.2014, was of the view that the cost of construction incurred by the assessee on infrastructure facility for development of roads/highways under the BOT project may be amortized evenly over the period of the concessionaire agreement after excluding the time taken for creation of such facility - HELD THAT:- The issue as to whether an Infrastructure Development company which had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government would be eligible for claim of depreciation in respect of its intangible rights i.e “right to collect toll” under Sec. 32(1)(ii), is squarely covered by the aforesaid order of the ‘Special bench’ of the Tribunal in the case of ACIT, Circle 10(2), Hyderabad, Vs. Progressive Construction Ltd.[2017 (3) TMI 1167 - ITAT HYDERABAD] and also the orders of the coordinate benches of the Tribunal viz. (i) DCIT, Circle-9(1)(2),Mumbai Vs. M/s Atlanta Ltd. Mumbai [2018 (2) TMI 1514 - ITAT MUMBAI] and (ii) ACIT Vs. M/s PNG Tata Ltd. [2019 (8) TMI 347 - ITAT CHENNAI] We, thus, finding ourselves to be in agreement with the view taken by the Tribunal in the aforesaid cases, respectfully follow the same. Accordingly, the claim of the assessee towards depreciation under Sec.32(1)(ii) in respect of its intangible rights i.e “right to collect toll”, being in conformity with the mandate of law, is found to be in order. We thus not finding favour with the view taken by the CIT(A) therein set aside the same. The Ground of appeal No. 1 is allowed in terms of our aforesaid observations. Disallowance u/s 36(1)(iii) of interest - sufficient self-owned funds and internal accruals to give the advances - HELD THAT:- Admittedly, in case, if an assessee has sufficient interest free funds available with it which would suffice to meet its investments, then, no disallowance of any part of the interest expenditure pertaining to such investments would be called for in its hands. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in case of CIT Vs. Reliance Industries Ltd. [2019 (1) TMI 757 - SUPREME COURT] As is discernible from the order of the CIT(A), we find that it was the inter alia claim of the assessee before him that as the advances in question were given out of its internal accruals and self-owned funds thus, no disallowance under Sec. 36(1)(iii) was liable to be made. However, as the claim of the assessee that it had sufficient self-owned funds and internal accruals to justify the advances given during the year in question is not clearly borne from the records, therefore, in our considered view the matter in all fairness requires to be revisited by the A.O. Accordingly, we herein restore the aforesaid issue to the file of the A.O with a direction to re-adjudicate the same in the backdrop of case of CIT Vs. Reliance Industries Ltd.. In case, the claim of the assessee that it had sufficient self-owned funds and internal accruals to meet out the advances in question is found in order, then, no disallowance of any part of the interest expenditure would be called for under Sec. 36(1)(iii) of the Act.Ground of appeal No. 2 is allowed for statistical purpose. Issues Involved:1. Disallowance of depreciation on intangible asset 'Right to collect toll'.2. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Disallowance of Depreciation on Intangible Asset 'Right to Collect Toll':The assessee, an infrastructure company, claimed depreciation on carriage ways, treating them as intangible assets. The Assessing Officer (A.O) disallowed this claim, arguing that the ownership of the toll roads did not vest with the assessee and thus did not qualify as an intangible asset under Section 32 of the Income Tax Act, 1961. The A.O relied on CBDT Circular No. 9/2014, suggesting that the cost incurred should be amortized over the concession period rather than claimed as depreciation.The CIT(A) upheld the A.O's decision, citing the same circular and disallowing the depreciation claim. The assessee appealed to the Tribunal, arguing that the right to collect toll was an intangible asset under Section 32(1)(ii) and citing precedents where similar claims were allowed.The Tribunal examined the issue in detail, considering various judicial pronouncements, including the judgments of the Hon’ble High Court of Bombay in the cases of North Karnataka Expressway Ltd. and West Gujarat Expressway Ltd. The Tribunal noted that these cases did not address the specific issue of depreciation on the 'right to collect toll' as an intangible asset.The Tribunal referred to the Special Bench decision in Progressive Construction Ltd., which concluded that an infrastructure company constructing a road on a BOT basis acquires an intangible asset under Explanation 3(b) r.w. Section 32(1)(ii) and is eligible for depreciation. The Tribunal found that the right to collect toll is a valuable business/commercial right, akin to a license, and thus qualifies as an intangible asset eligible for depreciation.The Tribunal allowed the assessee's claim for depreciation on the 'right to collect toll', setting aside the CIT(A)'s decision.2. Disallowance of Interest under Section 36(1)(iii):The A.O disallowed interest expenditure under Section 36(1)(iii), arguing that it pertained to capital advances made by the assessee. The CIT(A) upheld this disallowance.The assessee contended that it had sufficient self-owned funds and internal accruals to cover the advances, relying on the Supreme Court judgment in CIT vs. Reliance Industries Ltd., which held that if an assessee has sufficient interest-free funds to cover investments, no disallowance of interest expenditure is warranted.The Tribunal noted that the records did not clearly establish the assessee's claim of having sufficient self-owned funds. Therefore, it restored the issue to the A.O for re-adjudication, directing the A.O to verify the availability of self-owned funds and internal accruals in light of the Supreme Court judgment. If the assessee's claim is substantiated, no disallowance should be made under Section 36(1)(iii).General Grounds:The third ground of appeal was dismissed as not pressed.Conclusion:The Tribunal allowed the appeal on the depreciation issue, recognizing the 'right to collect toll' as an intangible asset eligible for depreciation under Section 32(1)(ii). The interest disallowance issue was remanded to the A.O for re-examination, with directions to verify the availability of self-owned funds and internal accruals. The general ground was dismissed as not pressed. The appeal was thus allowed in terms of these observations.