2024 (2) TMI 390 - AT - Income Tax

Tribunal Allows 25% Depreciation on Toll Collection Rights as Intangible Asset, Orders Recalculation of Deductions.

Roadstar Investment Managers Ltd. Versus The Assistant Commissioner of Income Tax, Circle 14 (1) (1), Mumbai

The Tribunal ruled that the right to collect toll on infrastructure facilities qualifies as an intangible asset eligible for 25% depreciation under ... Depreciation on right to collect toll tax on road developed by the Assessee - depreciation on right to collect toll on such road as intangible asset u/s 32(1)(ii) - Whether depreciation may be granted treating the said 'road' under the category allowed as 'Intangible Assets' @ 25%? - Disallowance of deduction allowable u/s 80IA (4) replacing the amount of amortised value of deduction with allowable depreciation - admission of additional ground - HELD THAT:- Whether the Assessee is eligible for depreciation on right to collect toll tax on road developed by the Assessee or not is already decided by the co-ordinate bench in Assessee’s own case bearing [2021 (6) TMI 94 - ITAT MUMBAI] for assessment year 2005-06 and 2006-07. These orders of ITAT were followed by the co-ordinate benches in Assessee’s case for assessment year 2008-09, 2009-10 and 2010-11[2021 (9) TMI 1536 - ITAT MUMBAI] Thus, it is clear that the right to set up infrastructure facility and collect toll on that is a commercial right, which is an intangible asset in terms of provisions u/s 32(1) (ii) of the Act. Therefore, the Assessee is entitled to claim depreciation. Before CIT (A), the Assessee has made the claim by raising an additional ground, which was incorrectly not admitted. As the issue is squarely covered in favour of the Assessee and the ground should have been admitted by the CIT (A), therefore this non-admission is not sustainable. On the merits, in Assessee’s own case we direct the Ld. AO to grant depreciation on the right to collect toll tax on infrastructure facilities considering same as intangible asset entitled to depreciation at the rate of 25%. We also direct the Ld. AO to re-compute the deduction allowable to the Assessee u/s 80IA (4) by replacing the amount of amortised value of deduction with allowable depreciation. Appeal of the Assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the right to set up an infrastructure facility and collect toll/annuity constitutes an 'intangible asset' within the meaning of section 32(1)(ii) of the Income-tax Act, 1961 and is eligible for depreciation. 2. Whether depreciation on such right/intangible asset is to be allowed at the rate of 25%. 3. Whether a first appellate authority may refuse to admit an additional ground raising entitlement to depreciation for the first time on appeal when the issue is covered by earlier decisions in the assessee's own case (i.e., admissibility of additional ground and effect of coordinate bench precedent). ISSUE-WISE DETAILED ANALYSIS Issue 1: Characterisation of right to collect toll as an 'intangible asset' under section 32(1)(ii) Legal framework: Section 32(1)(ii) allows depreciation on intangible assets such as rights, titles, and interests used for the purposes of the business or profession. The legal question is whether a contractual/ statutory right to set up infrastructure and collect toll/annuity qualifies as a commercial/business right falling within that provision. Precedent treatment: The tribunal refers to earlier coordinate-bench decisions in the assessee's own case for multiple assessment years, which held that the right to set up an infrastructure facility and collect toll is a commercial right and thus an intangible asset under section 32(1)(ii). Interpretation and reasoning: The Court observes that the right to set up and operate the infrastructure to receive tolls represents a commercial right akin to a licence or business/commercial right, rather than a mere physical asset or a non-depreciable entitlement. The right produces revenue (annuity/toll) and was treated in earlier coordinate-bench rulings as an intangible asset. The tribunal respectfully follows those coordinate-bench conclusions, treating the right as an intangible asset within the statutory meaning and eligible for depreciation. Ratio vs. Obiter: The holding that the right constitutes an intangible asset and is within section 32(1)(ii) is treated as ratio in this decision because it is determinative of the assessee's entitlement to depreciation and is applied to direct relief (i.e., remand for computation). Reliance on prior coordinate-bench rulings constitutes binding precedent for the tribunal in the case context (ratio as applied). Conclusions: The right to set up infrastructure and collect toll/annuity is an intangible asset for the purposes of section 32(1)(ii) and therefore eligible for depreciation. Issue 2: Rate of depreciation (25%) on the intangible right Legal framework: Section 32 prescribes depreciation rates for classes of assets; the contested rate for intangible assets of this nature is 25% as claimed by the assessee and accepted by earlier co-ordinate benches in the assessee's cases. Precedent treatment: Coordinate-bench decisions in the assessee's own matters for several assessment years awarded depreciation at 25% on the same right, and those decisions were followed in subsequent coordinate-bench rulings. Interpretation and reasoning: The tribunal applies the established practice from the assessee's prior coordinate-bench rulings that classified the right as an intangible asset attracting the prescribed rate of 25%. There is no contrary reasoning or distinguishing factual matrix presented that would justify departing from the consistent treatment. Ratio vs. Obiter: The determination that 25% is the applicable rate is treated as ratio insofar as it is applied to permit recalculation of tax liability and directs the assessing officer to allow depreciation at that rate. Conclusions: Depreciation on the intangible right to collect toll is allowable at 25%; the assessing officer is directed to grant such depreciation. Issue 3: Admissibility of additional ground on appeal and effect of coordinate-bench precedent Legal framework: An appellate authority has discretion to admit or reject additional grounds raised on appeal. Principles relevant include the requirement that grounds be germane and admissible in the appellate forum, and that prior decisions of co-ordinate benches in the same assessee's case can render an issue effectively settled. Precedent treatment: The tribunal notes that the earlier coordinate-bench decisions of the same assessee on identical issues for multiple assessment years establish consistent precedent favouring the assessee. Interpretation and reasoning: The tribunal reasons that the additional ground raised before the first appellate authority (claiming depreciation on the right as intangible asset) should have been admitted because the matter was squarely covered in favour of the assessee by earlier coordinate-bench decisions. Non-admission by the first appellate authority was incorrect and unsustainable where established coordinate-bench precedent directly addressed the same question. Given that the issue had not been considered by the assessing officer during assessment proceedings, admitting the ground was necessary to give effect to settled position under tribunal precedent and to enable correct tax computation. Ratio vs. Obiter: The conclusion that the failure to admit the ground was unsustainable is ratio as it affects admissibility and remedies-leading to admission of the ground and remand for recalculation. Observations on the general discretion of appellate authorities are ancillary but applied concretely (primarily ratio as applied to the facts). Conclusions: The first appellate authority erred in not admitting the additional ground. Where the issue is covered by coordinate-bench precedent in the assessee's favour, the additional ground should have been admitted and the assessing officer directed to allow depreciation and recompute allowances accordingly. Remedial direction and consequential computation Interpretation and reasoning: Because the right is to be treated as an intangible asset and depreciation at 25% allowed, the tribunal directs the assessing officer to grant depreciation on the right to collect toll and to re-compute the deduction under section 80IA(4) by replacing the amount of amortised value previously taken with the allowable depreciation figure. Ratio vs. Obiter: The directive to recompute tax consequences and replace amortised deduction with allowable depreciation is dispositive (ratio) for the assessment year under appeal. Conclusions: The assessing officer is directed to allow depreciation at 25% on the intangible right and to recompute the deduction under section 80IA(4) accordingly; the appeal is allowed on this ground.