TaxTMI 
TaxTMI 
2010 (2) TMI 756
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....r directing the Assessing Officer to reconsider the claim of depreciation allowed on toll road, which is a business asset of the assessee. For this, the assessee has raised common grounds in all the five appeals relating to this issue. As the facts and circumstances are exactly identical in all five appeals on this issue, accordingly we will take up the appeal in the case of Gujarat Road and Infrastructure Co. Ltd. (earlier known as Gujarat Toll Road Investment Co. Ltd. successor of Vadodara Halol Toll Road Co. Ltd.) Ahmedabad, in I.T.A. No. 1453/Ahd/2008 and the relevant grounds as raised by the assessee are being reproduced from the assessment year 2003-04: "(1) On the facts and circumstances of the case the appellant submits that the order passed by the learned Commissioner of Income-tax under section 263 is bad in law and the Commissioner of Income-tax has no jurisdiction to pass the order under section 263. The appellant prays that the order passed under section 263 may be cancelled. (2) On the facts and circumstances of the case the appellant submits that the order passed by the learned Assessing Officer is not erroneous and prejudicial to the interests of the....
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....us." The brief facts leading to the above common issue are that the assessee is engaged in the business of setting up of infrastructural facilities by constructing roads. The assessee-company has constructed, operated and managed Vadodara Halol Toll Road (VHTR in short) for 31.7 k.m. of a toll road connecting Vadodara to Halol. The assessee-company has widened and strengthen the existing two lane road to four lane road vide project commenced in October, 2000. The above road was constructed by the assessee as per policy of the Government of India in a public private partnership (PPP in short) under the special purpose vehicles (SPV in short) granting concession by the Government of Gujarat permitting it to construct toll roads by forming the SPV. The assessee is a party in this SPV, which is a joint venture between the Government of Gujarat and IL and FS group. As per the policy of the Government of India the assessee has constructed a toll road on B.O.O.T basis, i.e. "build, own, operate and transfer". The toll roads were constructed by the assessee and these were maintained and operated by the assessee. The assessee's business plans as approved by the Government clearly es....
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.... amounting to Rs. 28,27,21,005. A revised return was filed by you on February 11, 2006 returning the loss of Rs.23,46,43,995 stating that the company has been merged with Gujarat Toll Road Investment Co. Ltd. with effect from October 1, 2003 vide the hon'ble High Court's order dated May 11, 2005. It is further stated that the loss as per profit and loss account of Rs. 10,01,59,636 pertained to the period from April 1, 2003 to September 30, 2003 and the unabsorbed business loss and unabsorbed depreciation will be claimed by the amalgamated company from the assessment year 2004-05. The revised return was accepted by the Assessing Officer taking into account the business results of six months by order dated November 15, 2006 and also allowed the benefit of carry forward of accumulated business loss as well as unabsorbed depreciation under section 72A of the Income-tax Act, 1961, by virtue of the amalgamation. It would be pertinent to mention here that set off and carry forward can be allowed in the case of an industrial undertaking or a ship or a hotel with another company for an amalgamation of a banking company. Sub-section (7) (assessee) of section 72A defines the meaning o....
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.... owned the asset for 30 years of minimum period. (iii) The asset has been used for the purpose of the business. He stated that all the three conditions are fully satisfied and for the entitlement of depreciation on toll road the assessee relied on the decision of the hon'ble apex court in the case of CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. [1992] 196 ITR 149. He also submitted that the depreciation on toll road has rightly been allowed by the Assessing Officer on the following grounds: "(i) Road constructed by the assessee forms the most important source of its revenue. (ii) The basic objective of the assessee-company is to construct the toll road under 'build-own-operate-transfer' Scheme. (iii) Thus, the basic criteria of claiming depreciation, e.g., existence of a capital asset, ownership of such assets and the assets were put to use by the assessee-company for its business purposes have all been met. (iv) Once the eligibility for depreciation has been satisfied, the rate has to be determined road, bridges and buildings form part of the 'buildings' as per appendix to the Income-tax Rules, 1962. Thus, the claim of depreciati....
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.... totally distinguishable from the facts of this case. In addition to this, the other judicial decisions relied upon by the appellant also do not support the averments of the assessee. Learned counsel has simply culled the ratio of the decisions from different judicial decisions. In the fitness of things, I am tempted to analyse the concept of ratio decidendi in a judicial decision. It would be worthwhile to refer to one of the locus classicus on the subject. Learning the law (Eleventh Edition, Stevens and Sons, London, 1982) by Prof. Glanville Williams (at page 67) "that part of a case that is said to possess authority is the ratio decidendi, that is to say, the rule of law upon which the decision is founds . . ." The ratio decidendi of a case can be defined as the material facts of the case plus decision thereon. This view has been approved by the Constitution Bench of the hon'ble Supreme Court in Krishena Kumar v. UOI [1990] 4 SCC 207 and also in (per J. S. Anand i). 11. At the outset, it would be pertinent to point out here that the assessee's reliance upon the doctrine of merger of the order of the Assessing Officer with that of the Commissioner of Income-tax (Appeals) ....
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.... linking them together and which are being used for carrying on its business by the assessee. These were the facts of the case Gwalior Rayon Silk Manufacturing Co. Ltd. reported in [1992] 196 ITR 149 which are also distinguishable from the facts of the case under consideration. Therefore, it cannot be said by any stretch of imagination that the roads per se would constitute buildings." Aggrieved against the revision order passed by the Commissioner of Income-tax, Gandhinagar under section 263 of the Act, the assessee preferred appeal before us. Before us learned counsel for the assessee, Shri Dilip Lakhani made three fold arguments. First of all, he stated the facts that as per the policy of the Government of India the assessee has constructed a toll road on B.O.O.T basis by raising the resources. The responsibility to maintain and operate and to collect toll from the vehicles, which will use this toll road, is on the assessee. Learned counsel for the assessee stated that the business plan as approved by the Government clearly establishes that the assessee has set up infrastructure facilities by constructing a toll road in the course of carrying out its business activity an....
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....nor prejudicial to the interests of the Revenue in view of the fact that here the Assessing Officer has taken a possible view and once two views are possible and the Assessing Officer has taken one view - then the order passed by him cannot be treated as erroneous. For this, he relied on the decision of the hon'ble apex court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83. He also relied on the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. Max India Ltd. [2004] 268 ITR 128. Another facet of the argument made by learned counsel for the assessee is on the merits. He stated that the toll road constructed by the assessee is an integral part of business activity and without which it could not carry on the business activity. According to learned counsel the entire revenue earned is directly from operating the toll road and without constructing the same it would not have been possible to carry on the business activity. He submitted that the following tests have been satisfied to claim depreciation in the case of the assessee: "(i) It is a capital asset. (ii) The assessee has owned the asset for 30 years of minimum ....
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.... to Income-tax Rules, 1962 has also been satisfied. He distinguished the case law relied on by the Commissioner of Income-tax and the learned Commissioner of Income-tax-Departmental representative in the case of Indore Municipal Corporation [2001] 247 ITR 803. He stated that in the case of IMC, it was a local body which derived income from sale of manure prepared out of waste and night soil dumped in the trenching grounds outside the municipal limits and it constructed a metal road over the trenching ground and claimed that the said expenditure should be treated as road and claimed depreciation. The Madhya Pradesh High Court held that the metal road for hauling composed could not be considered as expenditure and the assessee was not entitled to depreciation. The hon'ble Supreme Court also held that the said metal roads cannot be treated as roads as there was no other construction on the open ground except the roads and the roads by themselves cannot constitute building. He stated in the facts before us, the toll road is constructed and there are toll plazas and administrative buildings and the roads are connected to these buildings which are toll plazas as well as buildings....
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.... the assessee cannot refuse entry to any vehicle on this road as this road owned by government and not by the assessee. Another facet of argument made by the learned Commissioner of Income-tax-Departmental representative is that the roads are not buildings falling under the definition as provided under section 32 of the Act. He referred to the provisions of section 32(1), by virtue of which depreciation is allowed on various assets including buildings, if owned by the assessee and used for the purposes of his business, the depreciation is to be allowed. But here the assessee is neither owner of the road nor the road falls under the definition of building as there was no other construction except the roads and the roads by themselves could not constitute buildings and accordingly the assessee was not entitled depreciation on the cost of construction of the road. He referred to the case law of the hon'ble apex court in the case of Indore Municipal Corporation [2001] 247 ITR 803. In view of these arguments, the learned Commissioner of Income-tax-Departmental representative urge the Bench to uphold the order of the Commissioner of Income-tax passed under section 263 of the Act.....
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....enue and the basic objective is to construct the toll road under the B.O.O.T scheme. Thus, the assessee has fulfilled the basic criteria for claiming depreciation, i.e., existence of a capital asset, ownership of such asset and most important that the assessee were put to use for its business purpose. We find that learned counsel for the assessee has made a fine distinction in the facts of the present case with that of Indore Municipal Corporation [2001] 247 ITR 803 by stating the fact that IMC was a local body which derived income from sale of manure prepared out of waste and night soil dumped in the trenching grounds outside the municipal limits and it constructed a metal road over the trenching ground and claimed that the said expenditure should be treated as road and claimed depreciation. The hon'ble Madhya Pradesh High Court held that the metal road for hauling composed could not be considered as expenditure and the assessee was not entitled to depreciation. The hon'ble Supreme Court also held that the said metal roads cannot be treated as buildings as there was no other construction on the open ground except roads and the roads by themselves cannot constitute building. We fin....
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....eed of title may not have been executed and registered as contemplated by the Transfer of Property Act, 1882, the Registration Act, etc. In the present case neither the Commissioner of Income-tax in the revision order under section 263 of the Act or by the Assessing Officer while framing original assessment has raised this issue, but learned counsel for the assessee categorically stated that this toll road was constructed on B.O.O.T basis, i.e., means "build", "own", "operate" and "transfer". According to him, the entire responsibility for maintaining and operating this toll road for 31 years is on the assessee as he has to collect toll-fee. Once this concept of B.O.O.T has been accepted by the Government of India under infrastructure policy and the Government of Gujarat also entered in a joint venture with the assessee and formed the SPV, the question of ownership rest with the assessee for the purposes of claim of depreciation. Accordingly, this issue on merits is allowed in favour of the assessee. As regards the argument of learned counsel for the assessee as regards to merger theory, the arguments become academic, hence, need no answer. Coming to the issue in I. T. A. N....
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....ty and existence and the Assessing Officer is aware about this fact as can be inferred from page 1 of the assessment order. He stated that after the order of the hon'ble jurisdictional High Court dated May 11, 2005 VHTRL is not any more a legal entity in existence and no proceedings can take place against VHTRL. The Assessing Officer has issued notice under section 143(2) to VHTRL and this fact is also recorded by the Assessing Officer on page 1 of the assessment order. The assessment order is passed against VHTRL and this fact is also evident from page 1 of the assessment order. He further stated that VHTRL had filed the return of income originally for the period April 1, 2003 to March 31, 2004 as the due date of filing the return was October 30, 2004 and the hon'ble jurisdictional High Court had not passed any order till October 30, 2004 and the order of the hon'ble jurisdictional High Court is dated May 11, 2005, in respect of the previous year April 1, 2003 to September 30, 2003. VHTRL has offered in the revised return income only for the period for which it was legally in existence. The Assessing Officer has also made a reference to the revised return and the said facts are re....