TaxTMI 
TaxTMI 
2008 (12) TMI 271
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....case. 4. He erred in holding that money spent on construction was not for acquiring the licence or permission to collect toll for 201 months in spite of specific provision of the agreement. 5. The learned CIT(A) failed to appreciate that if in his view collection of toll was towards reimbursement of construction cost then it was not in the nature of income at all and ought to have been excluded from total income altogether." 2. Facts in brief as emerged from the corresponding assessment order passed under s. 143(3) dt. 31st March, 2006 were that the assessee's business was stated to be development, operation and maintenance of infrastructure facility. In the assessee's case, it was a "road project". For the year under consideration the assessee company has carried out construction and development of Ahmednagar-Karwala Road; known as State Highway No. 141. The said project was awarded by the Government of Maharashtra on 19th Feb., 1999 on build, operate and transfer (in short BOT) basis with toll collection rights. It was mentioned by the AO that one of the condition was that the said infrastructure shall be transferred to the State Government within a prescribed period i.e....
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....lusive of profit) by the entrepreneur. It is not like repayment of loan. Therefore, question of any repayment of project cost simply doesn't arise. AO has failed to appreciate the real nature of the agreement. The real nature of the BOT agreement is already explained at 'b' above. Thus, by the BOT agreement, entrepreneur has got the valuable right of collecting the toll and retaining it towards sale price of the work of construction and maintenance of the road, carried out by him at his own cost. The permission to collect toll is thus a 'licence' granted by the State Government. The dictionary meaning of the term 'licence', as per Pocket Oxford Dictionary, is "1. Official permit to own or use something, do something, or carry on a trade, 2. Permission". It is evident that the notification issued by the State Government permitting toll collection by the appellant, in consideration of construction of the Ahmednagar-Karmala Road on BOT basis, is an official permit/permission to appellant to use the said road to earn the toll income. Under s. 52 of the Easement Act, 'licence' means an authority to do something which would otherwise be inoperative, wrongful or illegal or a formal permis....
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....ect toll does not get depreciated is totally erroneous. Therefore, it is prayed to hold that the right/licence to collect toll is a depreciable asset, like that of trade marks and patents, which also get depreciated on passage of time due to reduction in its effective/permitted life. (iii) The third reason given by the AO is that. the appellant is merely a facilitator/agent, carrying out development by incurring own cost and getting it reimbursed by collecting toll, but without owing any physical asset or commercial right of any sort. It is not the case of appellant that, appellant is owing any physical i.e., tangible asset in the form of 'Licence to collect toll'. In this connection kindly note that under s. 20(1) of the Bombay Motor Vehicles-tax Act, 1958, there is complete statutory ban on levy of toll, etc. on motor vehicles, subject to provisions under sub-ss. (1A) to (1D) of s. 20 of the Act. It is under these sub-ss. (1A) to (1D) of s. 20, the State Government is empowered to levy and collect toll. It is further provided in the said sub-sections that the State Government can authorize the BOT operator to collect the toll and retain it. Thus, no unauthorized person can col....
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....lack's Law Dictionary. He has also made a reference about the terms and conditions in which the road was constructed and thereupon held that since the road was not owned wholly or partly by the assessee therefore, the claim of depreciation was not admissible under s. 32(1) of the IT Act. There was an argument before him that in the past the claim of depreciation was allowed; but the same was negated by learned CIT(A) by mentioning that for asst. yr. 2000-01 to asst. yr. 2002-03 the assessments were completed under s. 143(1), hence there was no application of mind, therefore, those orders could not support the claim of the assessee and no res judicata would apply. Assigning all those reasons, the action of the AO was upheld. 5. From the side of the appellant Shri K.A. Sathe appeared and filed a written submission. Relevant portion reproduced below. Vehement reliance was placed on a decision of Tribunal 'D' Bench, Mumbai in the case of Reliance Ports & Terminals Ltd. bearing ITA Nos. 1743, 1744 and 1745/Mum/2007, order dt. 26th Nov., 2007: "The main point involved in this appeal is whether the learned CIT(A) was justified in rejecting the claim of the assessee of depreciation o....
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.... the Entrepreneur as an agent of the Government during the concession period. (It is this clause on which the learned AO relied in his assessment order). The assessee undertook to complete the project and to observe and perform all the terms of contract documents. It also undertook to make a security deposit of Rs. 50,00,000. As per cl. 4e, he was required to hand over the physical possession of the project facility along with all existing toll stations and equipment all in good condition to the Government at the end of concession period, which as per cl. 5 was to be counted from 5th Feb., 1999. On this date i.e., on 19th Feb., 1999, the Government made an agreement of lease with the assessee (which is unregistered) granting it lease of the land on which the project was to be constructed consisting of improvement of Ahmednagar-Karmala Road, including widening of carriage way, bituminous treatment, one major bridge, twelve minor bridges, widening of CD works, road side furniture, arboriculture, construction of toll plaza booths, etc. The period of construction was of 36 months and the maintenance period was 13 years and 9 months. The expenditure incurred was to be recovered by way o....
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..... The definition of 'license' as given in Black's Law Dictionary and as reproduced by the learned CIT(A) on p. 12 of his order shows that it is 'a permission, usually revocable, to commit some act that would otherwise be unlawful; esp. an agreement not amounting to a lease or profit' that is lawful for the licensee to enter the licensor's land to do some act that otherwise would be illegal, such as hunting game. In the present case also, the assessee has obtained permission to collect toll from the vehicles using the road constructed which but for the said permission could not have been legal under Motor Vehicles-tax Act. The assessee has obviously not spent the amount on construction of road project to obtain ownership of the road by only to get the right to collect the toll. It has to be noted that the assessee is not a road contractor who can make a profit at approved percentage on the expenditure on construction. The object of the assessee is to take up the infrastructure projects on BOLT or BOT basis by which he hoped to make more profit than as a contractor. Moreover in such projects the Government was not required to spend money on the projects which in case of contracts the....
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....authorities erred in rejecting the claim of depreciation and in allowing the expenditure on deferred basis over the original period of the license. Since the period of license was variable, it was wrong to spread over the expression even on the basis of original period." 6. From the side of the Revenue, learned Departmental Representative, Shri K. Srinivasan appeared and vehemently supported the action of the Revenue authorities. He has argued that in terms of the agreement the assessee was entitled for the recovery of the expenditure which was not a license forever. The said entitlement was for a limited period hence beyond the scope of s. 32(1)(ii). He has also argued that the claimed license was neither owned, wholly or partly by the assessee, hence the claim of depreciation was out of the ambits of s. 32 of IT Act. He has also stated that since it was not an asset therefore also do not fall under the category of "block of assets" as defined in Expln. 3 to s. 32 of IT Act. Even it was not a know-how as defined in Expln. 4 of the section. Further he has referred definition of "actual cost" as defined in s. 43(1) of IT Act and argued that the cost relates to acquisition of asse....
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.... (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed." 9. Further, clauses explaining the aforecited amendment are as follows: "It is proposed to widen the scope of this section so as to provide that depreciation will also be allowed where intangible assets are owned wholly or partly by the assessee and are used by such assessee for the purposes of his business or profession. Intangible assets, such as know-how, patent right, copyrights, trade marks, licences, franchises or any other business or commercial rights of the assessee will form a separate block of assets. As and when any capital expenditure is incurred by an assessee on acquiring such intangible assets the amount of such expenditure will be added to the block of intangible assets and depreciation will be claimed on the WDV at the end of the financial year. As a consequence of this amendment, it is proposed to provide that any expe....
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....rt BOT) basis in terms of an agreement with the Maharashtra State Government for fixed period of 16 years and 9 months is an intangible asset so as to allow depreciation as prescribed under s. 32(1)(ii) of the IT Act. 12. As per foregoing discussion the appellant has completed the said project in three phases and the cost was stated to be incurred at Rs. 34,26,25,296. It has been placed on record, not in dispute that CBDT has approved the project under s. 10(23G) vide Notification No. 11516, dt. 25th Sept., 2000 only after ensuring its eligibility. 13. In terms of BOT scheme an entrepreneur is required to build an infrastructure facility by arranging its own finances. Thereupon the operation and maintenance is also the responsibility of the entrepreneur. In consideration thereof the entrepreneur is given the right to collect the toll. In this case under Motor Vehicle Act vide a notification levied a toll on the vehicles passing through the infrastructure. Learned Authorised Representative has clarified that originally the right to collect the toll was from 29th Feb., 2000 to 3rd Feb., 2005. then extended for few more months upto 17th May, 2005 and further extended upto 19th A....