ITAT allows 25% depreciation on toll collection rights under BOT contract as intangible business asset under section 32(1)(ii)

ITAT Delhi held that expenditure incurred for road construction under BOT contract creates an intangible asset, being the right to collect toll charges in lieu of capital investment. Following precedent from Progressive Construction Limited case, the tribunal ruled that toll collection rights constitute business or commercial rights under section 32(1)(ii) read with Explanation 3(b). The assessee was entitled to claim depreciation at 25% on the written down value of such intangible assets. Appeal allowed.

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Issues involved:
The judgment deals with the claim of depreciation on intangible assets, specifically the "right to collect toll," under section 32(1)(ii) of the Income Tax Act, 1961.

Summary:

Issue 1: Claim of amortization and depreciation
The appellant, a Special Purpose Vehicle for a highway project, filed a return of income claiming amortization of expenditure on the project. During assessment, the claim was revised to depreciation on the right to collect toll. The Assessing Officer disallowed the claim, leading to an appeal.

Issue 2: Disallowance of depreciation
The Commissioner of Income Tax (Appeals) denied the claim of depreciation on the 'right to collect toll,' citing lack of jurisdictional decisions supporting the allowance. The appellant argued that the right qualifies as an intangible asset eligible for depreciation under section 32(1)(ii) of the Act.

Issue 3: Interpretation of Concession Agreement
The appellant contended that the Concession Agreement with NHAI granted a license to collect toll, which should be considered an intangible asset for depreciation purposes. The appellant relied on various judicial precedents supporting the depreciation claim on similar business/commercial rights.

Separate Judgment:
The appellate tribunal allowed the appeal, setting aside the orders disallowing the depreciation claim. The tribunal held that the appellant is entitled to claim depreciation at 25% on the road construction project as admissible on intangible assets, based on established legal principles and precedents.

This comprehensive summary outlines the key issues, arguments, and the final decision of the appellate tribunal in favor of the appellant's claim for depreciation on the 'right to collect toll' as an intangible asset.

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