2021 (7) TMI 32 - HC - Income Tax

High Court allows depreciation claim on project assets despite not being legal owner

Commissioner of Income Tax-I Chennai. Versus M/s. L & T Transportation infrastructure Ltd.

The Madras High Court held that despite not being the legal owner of project assets like roads and bridges, the assessee was entitled to claim ... Disallowance of depreciation of project assets being road and bridge - Addition on the ground that the assessee is not the owner of the project assets and hence is not eligible for claiming depreciation of such assets - HELD THAT:- As relying on M/S GVK JAIPUR EXPRESSWAY LTD. [2018 (10) TMI 591 - SC ORDER] assessee is entitled to claim depreciation of public roads, treating the same as building. - Decided against the Revenue. Issues:Disallowance of depreciation of project assets being road and bridge - eligibility of the assessee for claiming depreciation - interpretation of 'owner of the assets' - substantial question of law regarding entitlement to claim depreciation at the rate of 10% - applicability of the decision in Principal Commissioner of Income Tax Vs. GVK Jaipur Expressway Ltd.Analysis:The judgment of the Madras High Court revolves around the disallowance of depreciation of project assets, specifically roads and bridges, during certain assessment years by the Assessing Officer. The primary issue is whether the assessee, despite not being the legal owner of the project assets, is eligible to claim depreciation on them. The Assessing Officer disallowed the depreciation on the grounds that the assessee was not the owner of the assets. However, the assessee argued that since the entire cost of the project had to be borne by them and recovered through toll fees, they should be entitled to claim depreciation.The case involved a Build, Operate, and Transfer (BOT) agreement with the government, where the assessee developed and maintained roads and bridges. The Income Tax Appellate Tribunal dismissed the appeals of the Revenue, leading to the present appeals. The core legal question raised was whether the assessee could claim depreciation at the rate of 10% applicable to buildings on the roads and bridges, even though they were not considered the legal owner of the assets under the agreement.The counsels referred to a significant decision by the Supreme Court in Principal Commissioner of Income Tax Vs. GVK Jaipur Expressway Ltd., which interpreted the term 'owned' in the Income-tax Act, 1961. The Supreme Court held that ownership for depreciation purposes should be understood in a broader sense, focusing on possession, dominion, and the right to use the property. It emphasized that the legislative intent was to allow depreciation to the person in possession and using the property for business purposes, even if a formal deed of title had not been executed.Based on the Supreme Court's decision, the High Court concluded that the assessee was entitled to claim depreciation on the public roads, treating them as buildings. The judgment favored the assessee, answering the substantial question of law against the Revenue. Consequently, the appeals were dismissed, with no order as to costs.This detailed analysis of the judgment showcases the legal interpretation and application of depreciation rules in the context of project assets, emphasizing the broader understanding of ownership for depreciation purposes as established by the Supreme Court.