TaxTMI 
TaxTMI 
2014 (11) TMI 351
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....nue. 3. The Appeal raises substantial question of law and which is formulated as under: "(i) Whether, on the facts and in the circumstances of the case, and in law, the Tribunal was justified in confirming the order passed by the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 directing the Assessing Officer to examine the allowability of depreciation on toll road?" 4. Mr. Pinto, learned counsel, waives service on behalf of the Revenue. 5. By consent of both parties, the Appeal is taken up for final hearing. 6. The Assessee is a company incorporated under the Indian Companies Act, 1956 having its registered office at the address mentioned in the cause title. 7. It is engaged in the business of infrastracture development. It is common ground that the Assessee executed a Concession Agreement on 20th November, 2001 with the National Highway Authority of India (NHAI) to construct a road styled as toll road from km 515 to km 592 in Dharwad Maharashtra border section of National Highway No.4 in the State of Karnataka. That was to be constructed and maintained on Build, Operate and Transfer (BOT) basis on the land owned by the Government. I....
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....ssibe one. Therefore, jurisdiction under section 263 of the Income Tax Act cannot be exercised. Further, the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. A copy of this reply is at Annexure F. There was a second show cause notice, copy of which is at Annexure G dated 2nd December, 2009 and that was in relation to further items of income and expediture. Even in that regard, the Assesssee showed cause and appeared before the Commissioner. However, the Commissioner, Respondent before us, set aside the assessment and directed, inter alia, that the allowability of depreciation on toll road should be examined again. 11. Aggrieved and dissatisfied with this order of the Respondent dated 17th March, 2010, an Appeal was filed before the Tribunal. By the impugned order, the Tribunal has held that the Assessing Officer has passed an order without any examination of the issue and in a mechanical manner. His order was, therefore, erroneous and prejudicial to the interest of the Revenue on the allowability of depreciation on road. Hence, the Commissioner's order was upheld and the Appeal of the Assessee was dismissed. 12. Before us, Mr. Irani s....
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....is to direct the Assessing Officer to reconsider and reexamine it in accordance with law. Alternatively, and without prejudice Mr. Pinto submits that there is no finding or opinion rendered by the Assessing Officer. Hence, this is not a case of two opinions or any possible opinion being rendered. Mr. Pinto in that regard relies upon para 4.3 of the order of the Tribunal at page 81 and 82 of the paper book. Mr. Pinto submits that the land belongs to the sovereign. The Assessee is merely permitted to enter upon it for the purpose of construction and laying of a road. At best, the Assessee could be said to be an agent and for a limited purpose, namely, to build, operate and later on transfer the road. There is no question of the Assessee claiming any ownership rights. Once, this is the settled position in law, then, the Commissioner and Tribunal did not commit any error in holding that the Assessing Officer' s claim for depreciation is not tenable in law. For all these reasons, the Appeal be dismissed. 15. With the assistance of both sides, we have perused the memo of Appeal and all Annexures thereto. We have also perused the relevant statutory provisions. In all fairness, Mr. ....
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....ovided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998, but before the 1st day of April, 1999, and is put to use before the 1st day of April, 1999, for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed. Explanation - For the purposes of this proviso, (a) the expression "commercial vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi cab", "motorcab", "tractor" and "roadroller" shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988): Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventyfive per cent of the amount calculated at the percentage, on the written down value of such assets, prescrib....
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....tion of buildings, machinery, plant or furniture being tangible assets and with which we concerned, the deductions in subsection(1) of section 32 shall be allowed provided these assets are owned wholly or partly by the Assessee and used for the purpose of his business or profession. Then, there are provisos below clause (ii) of subsection (1) and it is not necessary to refer to the same and except explanation (3) which is an explanation for the purposes of subsection (1). 18. The term depreciation as is ordinarily understood and in the context of the Income Tax Act, 1961 has been considered by the Hon'ble Supeme Court. 19. In judgment of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd. v/s. Commissioner of Income Tax, Mysore & Anr. reported in AIR 2013 (SC) 3037, the Hon'ble Supreme Court was concerned with the interpretation of section 32 of the Income Tax Act, 1961. The Hon'ble Supreme Court held as under: "10. Depreciation is the monetary equivalent of the wear and tear suffered by a capital asset that is set aside to facilitate its replacement when the asset becomes dysfunctional. In P.K. Badiani v. Commissioner of Income tax, Bombay, this C....
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....claim on depreciation, otherwise, not. 20. In Mysore Minerals Ltd., M.G. Road, Bangalore V/s. Commissioners of Income Tax, Karnataka, Bangalore, this Court said thus: ".....authorities show that the very concept the depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time. 21. Black's Law Dictionary (6th Edn.) defines 'owner' as under: " Owner. The person in which is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or personal, corporeal or incorporeal, which he has a right of enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right. The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject matter to which it is applied. Th....
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.... allowable on specific assets owned by the Assessee and used for the above purpose. The toll road belongs to the Government and the Assessee is not the owner of the said road. Therefore, the depreciation is not allowable on toll road. 22. We do not find that when this notice was issued by the Commissioner to the Assessee under section 263 of the Income Tax Act, there has been any divergence or contradiction as complained by Shri Irani. We do not find any basis for the complaint that the notice and the order passed by the Commissioner of Income Tax are at variance or that the order travels beyond the notice. The essential foundation for the notice is as noted above. The Commissioner issued another show cause notice on 2nd December, 2009 and in which also he alleged that the claim of depreciation has been erroneously granted and the order of the Assessing Officer to that extent is erroneous and prejudicial to the interest of the Revenue. The Assessee replied to the show cause notice and gave detailed explanation on how the claim arises. Hence, there was no prejudice nor can it be said that the Assessee was in any manner handicapped in dealing with the show cause notice. 23. The....
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.... Court of Bombay in case of Gabriel India (supra), is therefore, not applicable on the facts of the present case. The learned AR for the Assessee has argued that depreciation was allowable based on some decisions of the Tribunal and therefore, Assessing Officer had taken one of the possible views and in such cases order cannot be said to be erroneous and prejudical to the interest of the revenue. Reliance has been on the case of Malabar Industrial Co. (supra) in which it has been held that in case Assessing Officer has taken one of the possible views, assessment cannot be said to be erroneous and prejudicial to the interest of the revenue. But the question of taking one of the two possible views arises only when the Assessing Officer has taken a view after necessary examination of the issue. In case Assessing Officer has allowed the claim mechanically without any examination, it cannot be said that he has taken one of the two possible views. It will be a case of passing order without any examination which will be obviously erroneous and prejudicial to the interest of the revenue. In our view, claim had been allowed by Assessing Officer in a very mechanical manner ....
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....elopment of road infrastructure is essential for economic development of the country. However, due to constrain of resources, it has not been possible to allocate sufficient funds for the development of road sector in the country. Therefore, a need has been felt to tap private entrepreneurship and private resources in the development of road sector. With this in view, the Government has taken a number of measures like the declaration of road sector as an industry and infrastructure facility and certain other concessions. A number of private investors including foreign investors have shown interest in the proposal to open the road sector for private investment. However, in the absence of an enabling provision in the National Highways Act, 1956, it is not possible to enter into agreements with private investors for the development of roads." 30. A bare perusal thereof, would indicate that after the policy of globalization, liberalization and privatization, the Act has been amended so as to provide for participation of private entities so as to develop and maintain whole or part of the National Highways. Naturally, these private entities would have to be involved by enabli....
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....enter into agreements for development and maintenance of national highways - (1) Notwithstanding anything contained in this Act, the Central Government may enter into an agreement with any person in relation to the development and maintenance of the whole or any part of a national highway. (2) Notwithstanding anything contained in section 7, the person referred to in subsection (1) is entitled to collect and retain fees at such rate, for services or benefits rendered by him as the Central Government may, by notification in the Official Gazette, specify having regard to the expenditure involved in building, maintenance, management and operation of the whole or part of such national highway, interest on the capital invested, reasonable return, the volume of traffic and the period of such agreement. (3) A person referred to in subsection (1) shall have powers to regulate and control the traffic in accordance with the provisions contained in Chapter VIII of the Motor Vehicles Act, 1988 (59 of 1988) on the national highway forming subject matter of such agreement, for proper management thereof." It is this section which has been inserted by Act 26 of 1995. ....
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.... to the Central Government. Under this provision, the function of execution of the field activities including survey, investigations and preparation of projects on national highways have been delegated to the respective State Governments, the Central Government retaining the activities pertaining to planning, approval of design and estimates, monitoring, etc. This system if commonly known as the "Agency System" since the State Governments are paid "Agency Charges" incurred by them on works executed on the national highway system. 2. Though the "Agency System" of execution of national highway works by the State Public Works Department has been functioning for a period of about 40 years, difficulties have been experienced from time to time. 3. Since the Central Government have no direct administrative control over the executing agency, there have been instances when the Central Government had to remain helpless in case a State Government overlooked the acts of omission or commission on the part of its staff engaged in the construction and maintenance of national highways. This has part of its staff engaged in the construction and maintenance of national highways. Th....
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....uildings for its employees and construct wayside amenities near the national highways vested in it; (h) the Authority will, on behlaf of the Government, be empowered to collect fees for services or benefits rendered by it under section 7 of the National Highways Act, 1956; (i) for the proper management of highways, the Authority will regulate and control the plying of vehicles on the highways vested in it; (j) with the approval of the Central Government, the Authority will raise funds through the floating of bonds, issue of debentures etc. 34. By section 3 under Chapter II, the National Highways Authority of India has been constituted and by further sections its constitution and composition has been set out. Chapter III of the Act is entitled "property and contracts". Section 11 thereof reads as under: "11. Power of the Central Government to vest or entrust any national highway in the Authority - The Central Government may, from time to time, by notification in the Official Gazette, vest in, or entrust to, the Authority, such national highway or any stretch thereof as may be specified in such notification." 35. A perusal of the same would i....
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.... or entrusted to, it for the proper management thereof; (e) develop and provide consultancy and construction services in India and abroad and carry on research activities in relation to the development, maintenance and management of highways or any facilities thereat; (f) provide such facilities and amenities for the users of the highways vested in, or entrusted to, it as are, in the opinion of the Authority, necessary for the smooth flow of traffic on such highways; (g) from one or more companies under the Companies Act, 1956 (1 of 1956), to further the efficient discharge of the functions imposed on it by this Act; [(h) engage, or entrust any of its functions to, any person on such terms and conditions as may be prescribed;] (i) advise the Central Government on matters relating to highways; (j) assist, on such terms and conditions as may be mutually agreed upon, any State Government in the formulation and implementation of schemes for highway development; (k) collect fees on behalf of the Central Government for services or benefits rendered under section 7 of the National Highways Act, 1956 (48 of 1956), as amended fr....
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....e. The National Highways Act and the National Highways Authority of India Act are, therefore, special statutes and when the concept of ownership and vesting therein is of absolute nature that cannot be said to be in any manner restricted or curtailed by a general definition or understanding of the term owner as appearing in the Income Tax Act, 1961. The term is defined widely and broadly in the Income Tax Act, 1961 so as not to allow anybody to escape the provisions thereof by urging that he has a limited right or which is not akin to ownership. Therefore, his income should not be brought to tax. Similarly, if he can claim any deductions from his income which is comprising of profits and gain from his business, then, that deduction can be availed by him. It is for that limited purpose that the term 'owner' is defined in this manner Income Tax Act, 1961. However, as held above, that cannot control leave alone overreach The National Highways Act, 1956 or the National Highways Authority of India Act, 1988. 40. Mr. Irani has fairly brought to our notice a notification issued by the Central Government entrusting the stretches as specified in column (3) of the table annexed to....
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.... and regulation of such education and training provided by States and other agencies." "30. Carriage of passengers and goods by railway, sea or air, or by national waterways in mechanically propelled vessels." "89. Terminal taxes on goods or passengers, carried by railway, sea or air, taxes on railway fares and freights." Entry 13, Entry 56 and Entry 57 of List II are as follows : "13. Communications, that is to say, roads, bridges, ferries, and other means of communication not specified in List I; municipal tramways; ropeways; inland waterways and traffic thereon subject to the provisions of List I and List III with regard to such waterways; vehicles other than mechanically propelled vehicles." "56. Taxes on goods and passengers carried by road or on inland waterways." "57. Taxes on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List III." 4. The National Highways Act 1956 provides for the declaration of certain highways to be National Highways. Sec. 2(1) of the Act declares the Highways specified in the Schedule 'except such p....
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....ational Highways is reserved for inclusion in the State List. A consideration of these several entries appears to us to make it clear that taxes on passengers and goods carried on National Highways also fall directly and squarely within and are included in entry 56 of List II. 9. We proceed to the next submission of the learned counsel for the appellants that the legislative power to impose taxes under entry 56 of List II was of a regulatory and compensatory nature and consequently the taxing power of the State Legislature could only be exercised with respect to goods and passengers carried on roads, maintained by the State Government and not on National Highways which were maintained by the Union Government. In the counter affidavit filed by Shri Rajender Singh, Taxation Commissioner, on behalf of the State of Haryana, it was claimed that the tax was not of a regulatory and compensatory nature but that it was a general revenue measure. This position was abandoned during the course of argument and Shri Bhagat learned counsel for the State of Haryana conceded that the tax was of a regulatory and compensatory nature. Nor, of course, is the Court bound by any statement made b....
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....urther empowers the Central Government to give directions to the State Government as to the carrying out of the provisions of the Act and Sec. 8 authorises the Central Government to enter into an agreement with the State Government in relation to the development and maintenance of the whole or part of a National Highway situated within the State including a provision for the sharing of expenditure. Therefore, the State Government is not altogether devoid of responsibility in the matter of development and maintenance of a national highway, though the primary responsibility is that of the Union Government. It is under a statutory obligation to obey the directions given by the Central Government with respect to the development and maintenance of national highways and may enter into an agreement to share the expenditure. That part of the highway which is within a municipal area is excluded from the definition of a national highway and therefore, the responsibility for the development and maintenance of that part of the highway is certainly on the State Government and the Municipal Committee concerned. Since the development and maintenance of that part of the highway which is within a m....
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....ge that where a taxing provision is capable of two interpretations and both of which are possible, then, the one which is favourable to the Assessee should be preferred. He also relies upon the observations in that behalf in the above judgment of the Hon'ble Supreme Court and which are to the following effect: "What is ownership? The terms "own", "ownership", "owned" are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used Black's Law Dictionary (6th edition), defines "owner" as under: "Owner. The person in whom is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or persoal, corporeal or incorporeal, which he has a right to enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right. The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject matter to which it is applied. The primary meaning of the word as applied to land....
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....td. (1997) 226 ITR 625 (SC), the question which came up for consideration before this Court was whether the rental income from the house property which had come to vest in the Assessee, but as to which the Assessee was not legal owner for want of deed of title, was liable to be assessed as income from house property or as income from other sources. To be assessable as income from house property within the meaning of section 22 of the Act the property should be such "of which the Assessee is the owner." This Court upon a juristic analysis of the underlying scheme of the Act and resorting to contextual and purposive interpretation, also having reviewed several conflicting decisions of different High Courts, held that the liability to be assessed was fixed on a person who receives or is entitled to receive the income from the property in his own right. Vide para 55, the Court has held (page 653): "We are conscious of the settled position that under the common law 'owner' means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section ....
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....ugh a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc. But nevertheless is entitled to hold the property to the exclusion of all others." 47. Once again these observations must be seen in the backdrop of the facts where the Assessee had purchased for the use of its staff seven low income group houses from the Housing Board. The Assessee had made part payment and was in turn given allotment of the houses followed by delivery of possession by the Housing Board. The actual deed of conveyance is not executed by the Housing Board in favour of the Assessee. The claim for depreciation under section 32 of the Income Tax Act, 1961 in respect of buildings used for the purpose of the business of the Assessee, was rejected by the Assessing Officer and on the ground that the Assessee had not become owner as no conveyance deed was executed in its favour. The Assessee's Appeal was allowed by the Commissioner of Income Tax but on Revenue's Appeal, the Income Tax Appellate Tribunal set aside the judgment of the Commissioner of Income Tax. The Tribunal referred a question of law to the Hon'ble H....
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....icipality for injunction restraining the Municipal Board from demolishing or interfering with the constructions made by him was decreed in O.S. No.86/1948 and that decee has become final. In the present suit, the municipality is not a party. Therefore, the contention that the Municipality had not leased the site to the respondent by a document as required by Municipal Act, would be of no avail. Equally, the plea that it acted beyond the scope of its authority, is not available to the Municipality. The plea of the State taken before the High Court, and before us, by Mr. Dixit, learned counsel for the appellant, is that the State is the owner of the property inspite of the fact it had vested in the Municipality as a "street" under section 116(g) of the Act. It was submitted that when the property is put to a different use, it is open to the Government to assert, its title and required anyone in illegal possession of the property to vacate. There is not much dispute that the property belonged to the State before the Municipal Act was passed. The High Court has found that the State was the owner of the property till the Municipal Act was passed and this finding was not challenged befor....
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..... Thus the property in question falls within the definition of the word 'street'. The question as to the nature of the right that vest in the Municipality under section 116(g) of the Uttar Pradesh Municipalities Act will have to be considered. This Court in Municipal Board, Mangalur V/s. Mahadeoji Maharaj, (1965) 2 SCR 242; (AIR 1965 SC 1147) had to consider the nature of the right that vested in the Municipality over the streets, Subba Rao, J. (as he then was) after considering the decisions of the English Courts and the High Court, summed up the law on this subject as follows: "The inference that the side lands are also included in the public way is drawn easily as the said lands are between the metal road and the drains admittedly maintained by the Municipal Board. Such a public pathway vests in the Municipality, but the Municipality does not own the soil. It has the exclusive right to manage and control the surface of the soil and 'so much of the soil below and of the space above the surface as is necessary to enable it to adequately maintain the street as a street. It has also a certain property in the soil of the street which would enable it as owner to b....
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....land on either side of the highway ad medium filum, or in any other person who may have dedicated the street to the publilc as the case may be. The Court after pointing out that the Madras Municipal Act was modelled after the English Metropolis Local Management Act, 1855, referred to the English cases which dealt with the vesting of the street in the Municipality and observed: "The conclusion to be drawn from the English case law is that what is vested in urban authorities under statutes similar to the District Municipalities Act, is not the land over which the street is formed, but the street qua street and that the property in the street thus vested in a Municipal Council is not general property or a species of property known to the Common Law, but a special property created by statute and vested in a corporate body for public purposes, that such property as it has in the street continues only so long as the street is a highway by being excluded by notification IV of 1884 or by being legally stopped up or diverted, or by the operation of the law of limitation (assuming that by such operation the highway can be extinguished), the interest of the corporate body determines.....