Depreciation on BOT toll roads denied; limited toll-collection rights are not ownership or a qualifying intangible asset.

BOT toll roads and toll bridges were held not to qualify for depreciation under Section 32 because the concessionaire did not acquire ownership, and the toll-collection right was only a contractual privilege, not a qualifying intangible asset. The Court further treated such infrastructure as neither plant nor depreciable building for the assessees' claim, since ownership remained with the Government and depreciation requires a statutory asset category. On revision, the Commissioner's action under Section 263 was upheld where the assessment had allowed depreciation on a non-depreciable asset and was therefore erroneous and prejudicial to revenue; earlier relief already granted and not challenged was left undisturbed.

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Issues: (i) whether toll roads and toll bridges constructed under BOT concessionaire agreements constitute tangible assets or intangible assets eligible for depreciation under Section 32 of the Income-tax Act, 1961; (ii) if they are tangible assets, whether such roads and bridges are to be treated as plant or building for the purpose of depreciation; and (iii) whether the orders setting aside revision under Section 263 of the Income-tax Act, 1961 were sustainable.

Issue (i): whether toll roads and toll bridges constructed under BOT concessionaire agreements constitute tangible assets or intangible assets eligible for depreciation under Section 32 of the Income-tax Act, 1961.

Analysis: Depreciation under Section 32 is available only on assets that fall within the statutory categories of tangible or intangible assets. The expression "assets" in Explanation 3 to Section 32 covers buildings, machinery, plant or furniture as tangible assets, and know-how, patents, copyrights, trademarks, licences, franchises or other business or commercial rights of similar nature as intangible assets. The concessionaire arrangements did not transfer ownership of the roads or bridges to the assessees. The toll collection right was only a contractual privilege and a mode of recouping project cost, not a transfer of ownership or a qualifying intangible asset within the statutory description.

Conclusion: The toll roads and toll bridges were not eligible for depreciation as either tangible assets or intangible assets; the finding is against the assessees.

Issue (ii): if they are tangible assets, whether such roads and bridges are to be treated as plant or building for the purpose of depreciation.

Analysis: The statutory definition of plant in Section 43(3) excludes buildings, and the schedule to the Income-tax Rules, 1962 separately treats roads and bridges as buildings only for the limited purpose of the depreciation table. The Court held that toll roads and toll bridges are neither plant nor buildings in the sense required for the assessees' claim, and that ownership is a sine qua non for depreciation. The wider meaning of "owned" recognised in earlier authority was confined to its facts and could not be extended to BOT highway infrastructure retained by the Government.

Conclusion: The roads and bridges were not plant and could not be treated as depreciable buildings on the assessees' claim; the finding is against the assessees.

Issue (iii): whether the orders setting aside revision under Section 263 of the Income-tax Act, 1961 were sustainable.

Analysis: For the later assessment years, the Assessing Officer had accepted depreciation on a view that was found to be untenable in light of the correct legal position. Where the assessee had merely claimed depreciation on a non-depreciable asset, the Commissioner's invocation of revisionary power was justified because the assessment order was erroneous and prejudicial to the interests of the Revenue. However, for the earlier group of appeals, the benefit already granted and not challenged by the Department through Section 263 could not be disturbed in those proceedings.

Conclusion: The revision orders were sustainable in the appeals where Section 263 was in issue, while the earlier assessee-specific relief already granted was left undisturbed; the issue is answered substantially in favour of the Revenue.

Final Conclusion: The Court rejected the assessees' claim to depreciation on toll roads and toll bridges as plant or intangible assets, upheld the Revenue's position on the legality of revision in the relevant appeals, and disposed of the connected matters with mixed procedural and substantive results.

Ratio Decidendi: Infrastructure created under a BOT concession, where ownership remains with the Government and the assessee only enjoys a limited toll-collection right, does not constitute a depreciable asset under Section 32 unless it falls within the statutory categories of plant, building, or a qualifying intangible asset.

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