2024 (10) TMI 739 - AT - Income Tax

ITAT denies depreciation claim under Section 32(1)(ii) for toll roads constructed on BOT basis

ITAT Mumbai denied depreciation claim u/s 32(1)(ii) on toll roads constructed under BOT basis. Assessee sought depreciation treating toll collection ... Depreciation claimed u/s 32(1)(ii) on toll roads - Appellant prays that the right to set up an 'infrastructure facility' and collect annuity thereon being in the nature of a 'license' or 'business' or 'commercial right' be regarded as an 'intangible asset in terms of the provision of Section 32(1)(ii) - assessee submitted that it claimed depreciation treating the road as “plant and machinery” and depreciation @15% of the total cost of construction of the project facility - assessee submitted that if the road is treated as a “building” then depreciation @10% be allowed, and if, in the alternative, it is treated as an intangible asset, then the depreciation @25% may be allowed - HELD THAT:- In light of the detailed analysis of case law relied upon by both sides we are of the considered view that the decision of L & T Infrastructure Development Projects Limited. [2023 (2) TMI 32 - MADRAS HIGH COURT] being the sole decision by any Hon’ble High Court on the issue under consideration before us, is binding on us in the absence of any contrary decision by any other Hon’ble High Court including the Hon’ble Jurisdictional High Court. Further, the decision in L & T Infrastructure Development Projects Limited (supra) has been rendered by a forum higher in the judicial hierarchy as compared to the decision in DCIT v/s Progressive Constructions Ltd [2017 (3) TMI 1167 - ITAT HYDERABAD] rendered by the Special Bench of the Tribunal on this issue. Therefore, we are of the considered view that the learned CIT(A) correctly denied the claim of depreciation by the assessee on the right to collect toll on the roads developed by it on a BOT basis - claim of depreciation by treating the road as a tangible asset, has already been found to be covered against the assessee by the decisions of the Hon’ble Jurisdictional High Court. Decided against assessee. Issues Involved:1. Disallowance of Depreciation on Project Road as an Intangible Asset.2. Alternative Claims for Depreciation on Project Road as Plant and Machinery or Building.3. Treatment of Construction Cost as Revenue Expenditure.Issue-wise Detailed Analysis:1. Disallowance of Depreciation on Project Road as an Intangible Asset:The primary issue in the appeals was whether the assessee could claim depreciation on the toll road constructed under a Build, Operate, and Transfer (BOT) agreement as an 'intangible asset' under Section 32(1)(ii) of the Income Tax Act, 1961. The assessee argued that the right to collect toll constituted a 'license' or 'business or commercial right,' thus qualifying as an intangible asset eligible for depreciation at 25%. The Assessing Officer (AO) disallowed this claim, reasoning that the asset was on a lease basis for 18 years, and the ownership would revert to the state government post-lease. The CIT(A) upheld this decision, referencing judgments from the Hon'ble Jurisdictional High Court and Hon'ble Madras High Court, which ruled that roads on government land under BOT do not confer ownership or intangible asset status to the developer. The Tribunal agreed with the CIT(A), noting the binding precedent set by the Hon'ble Madras High Court in L & T Infrastructure Development Projects Limited, which interpreted the relevant statutory provisions using the principle of noscitur a sociis, thus denying the claim of depreciation on the right to collect toll as an intangible asset.2. Alternative Claims for Depreciation on Project Road as Plant and Machinery or Building:The assessee made alternate claims for depreciation if the toll road was not considered an intangible asset. It sought depreciation at 15% by treating the road as 'plant and machinery' or at 10% by treating it as a 'building.' These claims were also disallowed by the AO and CIT(A), following the precedent that the assessee is not the owner of the road and thus cannot claim depreciation on it. The Tribunal upheld these findings, citing the Hon'ble Jurisdictional High Court's decisions that denied depreciation on toll roads by considering them as tangible assets.3. Treatment of Construction Cost as Revenue Expenditure:The assessee further argued that if the toll road was not eligible for depreciation under any category, the entire construction cost should be allowed as revenue expenditure. The AO allowed amortization of the cost over the concession period, granting 1/18th of the cost as deferred revenue expenditure, aligning with CBDT Circular No. 9 of 2014. The CIT(A) upheld this treatment, and the Tribunal found no error in this approach, affirming that the amortization was consistent with the applicable guidelines.Conclusion:The Tribunal dismissed the appeals for both assessment years 2013-14 and 2014-15, upholding the CIT(A)'s decision to deny depreciation on the toll road as an intangible asset, plant and machinery, or building. The Tribunal also confirmed the treatment of construction costs as deferred revenue expenditure over the concession period. The decisions were based on binding precedents from higher courts and relevant statutory interpretations.