TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 595
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....aw that subsidy received by the assessee for meeting the operational expenses are of the revenue in nature?" iii) "Whether on the facts and in the circumstances of the case, the CIT(A) has erred in relying on the version of the assessee that the subsidy received from NHAI is towards "Equity Contribution" when this is not factually supported by the accounts of the assessee, as the assessee has not credited this amount to its paid up share capital, rather the same has been credited directly to "Capital Reserve Account?" ^? iv) "Whether on the facts and in the circumstances of the\case, the Ld. CIT-(A) erred in deleting the disallowance of Rs. 3. 03 Crores u/s 14A without appreciating that rule 8D starts with heading "Formula for determination of expenditure" and the three steps prescribed under this rule to compute the expenditure in relation to exempt income and shall be applied collectively. Therefore, the total disallowance u/s 14A has to be the aggregate of the amounts determined by special bench of Hon'ble Tribunal in the case of ITO V/s Daga Capital Management (P) Ltd (2009) 117ITD 169?" v) "Whether on the facts and in the circumstances of the case, the Ld. CIT-(A)....
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....d appellant had offered it for taxation Respectfully following the judgment of Hon'ble Delhi High Court in the case of Joint' Investments Pvt. Ltd. vs. CIT (supra), Hon'ble IT AT in the cases of Daga Global Chemicals Ltd. vs. Assessee (supra) and Pinnacle Brocom Pvt. Ltd. vs. ACIT 10(3) (supra), we disallowance U/S. 14A is restricted upto Rs. 60, 000/- which was the exempt income claimed by the appellant. In view of it out of the addition made by the A. O. of Rs. 3, 03, 49, 568/-, Rs. 60, 000/- is confirmed and the balance of Rs. 3, 02, 89, 568/- is deleted. In the result, this ground of appeal is partly allowed. 8. Against the above order of CIT(A), Revenue is in further appeal before us raising the grounds stated hereinabove. 9. However, assessee has taken the cross objection to the effect that CIT(A) was not justified in declining assessee's claim of depreciation on the BOT Rights of Nagpur-Kondhali Section Road of Rs. 95, 41, 58, 755/- claimed by the assessee u/s. 32 of the IT Act. In support of the contention that depreciation is allowed on the BOT, learned AR placed on record the order of the Co-ordinate Bench in case of Atlanta Ltd. , which is holding company ....
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....was submitted by the assessee that the expenditure incurred for constructing Mumbra bypass road on BOT basis was on the understanding that by incurring such expenditure, the assessee will acquire the commercial rights to collect the toll from the user of the facility over the concession period. Thus, it was submitted by the assessee that such commercial rights acquired by the assessee is an intangible asset under section 32(1)(ii) and eligible for depreciation @ 25%. The Assessing Officer, however, did not find merit in the submissions of the assessee. Though, the Assessing Officer agreed that the expenditure incurred on the BOT project has been correctly entered by the assessee in the books of account, however, he observed that there is no need to give any different treatment for income tax purpose. He observed that the assessee had constructed the road on behalf of the Government. Therefore, the expenditure incurred on the construction of the road is in the nature of deferred revenue expenditure and has to be amortized over the concession period. The Assessing Officer observed, though, the assessee has correctly computed the amortization of expenditure for the year under consider....
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....ession period of 15 years and considering such revised claim learned Commissioner (Appeals) has allowed the claim of the assessee without giving any opportunity to the Assessing Officer to examine assessee's claim. Learned Departmental Representative submitted, the first appellate authority while accepting the revised claim of the assessee has not followed the spirit of CBDT circular referred to by him. Therefore, he submitted, the order of the Assessing Officer on the issue should be restored. As far as the assessee's claim of depreciation on the right to collect toll on BOT road, the learned Departmental Representative relying upon the decision of the Hon'ble Jurisdictional High Court in North Karnataka Express Way Ltd. (supra) submitted that the assessee not being the owner of the road is not eligible to claim depreciation. 9. Learned Authorised Representative submitted, as per terms of the agreement, the assessee has to bear the entire cost of the Mumbra bypass road to be constructed BOT basis. He submitted, as per the terms of the agreement the cost incurred by the assessee was not to be reimbursed by the Government and in exchange what the assessee received was....
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....ssessee was required to incur the entire cost of construction without it being reimbursed by the Government. However, the Government under the agreement conferred the rights on the assessee to collect revenue (toll) from persons utilizing the BOT facility at the rate prescribed through notification issued by the Government. Thus, from the terms of the agreement, it is very much clear that by investing money in construction of BOT facility the assessee obtained a commercial right to collect toll which is no doubt a valuable business right. The issue which, therefore, arises for consideration is, whether such valuable commercial right obtained by the assessee by investing in construction of BOT facility is an intangible asset as defined under section 32(1)(ii) of the Act. To answer this issue, we do not have to detain ourselves for far too long as the Special Bench of the Tribunal, Hyderabad Bench, in Progressive Construction Ltd. (supra) while dealing with identical issue has held that the right to collect toll is a valuable commercial or business right, hence, in the nature of intangible asset, as defined under section 32(1)(ii) of the Act. The observation of the Special Bench of t....
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....g propositions:- i) Whether the expenditure claim of the assessee brings into being an asset which is owned and used by the assessee in its business; ii) What is the nature of the asset that has come into being on account of the expenditure incurred by the assessee and what is the nature of such expenditure; iii) If an asset is created, whether it is a tangible asset or an intangible asset; iv) Whether the Concessionaire Agreement (C. A) held by the assessee can be regarded as a commercial or business right akin to a license; v) If such C. A. is akin to a license, what intangible asset has been created for the assessee and what is the expenditure incurred by the assessee for acquiring such intangible asset. 10. Before dealing with the issue, it is necessary to reiterate that the Government of India being desirous of implementing a project involving, construction, operation and maintenance of four lane Pune Hyderabad section of N. H. no. 9, with private sector participation of BOT invited tender from interested parties. The assessee being successful in the tender, the Government of India entered into a Concession Agreement (C. A) with the assessee on 22nd December ....
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....laiming interest over the project sites. Government of India not only will defend such claims or proceedings but also keep the concessionaire indemnified against any direct or consequential loss or damage which it may suffer on account of any such right, title, interest or charge. As per clause 2. 8 of the C. A. , though, the concessionaire shall have exclusive right to use of the project site in accordance with the provisions of the agreement and for this purpose, it may regulate the entry and use of the same by the third parties, however, it shall not part with or create any encumbrance on the whole or any part of the project site save and except, as set forth and permitted under the agreement. Clause 4. 1 of the C. A. entitles the concessionaire to levy, demand and collect fee for user of the roads by vehicles and persons in accordance with the fee notification to be issued by the Government of India. However, concessionaire cannot levy and collect any fee until it has received completion certificate. Clause 5. 1 and 5. 2 of the C. A. lays down the obligation of the concessionaire for execution and implementation of the project / project facility during the concession period. Fr....
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....as brought into existence a tangible asset in the form of roads and bridges of which the assessee is not the owner but it is the Government of India is nobody's case. Further, the learned Senior Standing Counsel's apprehension that it will lead to a situation where both Government of India and the concessionaire will claim depreciation on the asset created with the very same expenditure, in our view, is not borne out from facts on record. At the cost of repetition we must observe, as per the terms of agreement the expenses incurred by the assessee towards construction of the roads, bridges, etc. , were not going to be reimbursed by the Government of India. This fact was known to both the parties before the execution of the agreement as the tender itself has made it clear that the project is to be executed with private sector participation on BOT basis. Thus, from the very inception of the project, assessee was aware of the fact, it has to recoup the cost incurred in implementing the project along with the profit from operating the road and collecting toll charges during the concession period. Therefore, assessee has capitalized the cost incurred on the BOT project on which ....
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....n which is reproduced hereunder for the sake of convenience. Depreciation. 32(1)(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature67, being intangible assets acquired on or after the 1st day of April, 1998, owned67, wholly or partly, by the assessee67 and used for the purposes of the business67 or profession, the following deductions shall be allowed--] 12. Explanation 3 to section 32(1) defines intangible asset as under:- [Explanation 3. --For the purposes of this sub-section, 86[the expression ―assets" ] shall mean-- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature . 13. A plain reading of the aforesaid provisions would indicate that certain kind of assets being knowhow, patents, copyrights, trademarks, license, franchise, or any other businesses or commercial rights of similar nature are to be treated as intangible asset and would be eligible for depreciation at the specified rate. It is the claim of the assess....
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....ue to do anything on such property. However, the right granted to the concessionaire has not created any right, title or interest over the property. The right granted by the Government of India to the assessee under the C. A. has a license permitting the assessee to do certain acts and deeds which otherwise would have been unlawful or not possible to do in the absence of the C. A. Thus, in our view, the right granted to the assessee under the C. A. to operate the project / project facility and collect toll charges is a license or akin to license, hence, being an intangible asset is eligible for depreciation under section 32(1)(ii) of the Act. 15. Even assuming that the right granted under the C. A. is not a license or akin to license, it requires examination whether it can still be considered as an intangible asset as described under section 32(1)(ii) of the Act. In this context, it has been the contention of the learned Senior Standing Counsel that the intangible asset mentioned under section 32(1)(ii) of the Act are specifically identified assets, except, the assets termed as ―any other business or commercial rights of similar nature". He had submitted, applying the prin....
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....pressing ―any other business or commercial rights of similar nature", however, the Hon'ble Supreme Court held that ‗goodwill' will come within the expression ―any other business or commercial rights of similar nature". Therefore, the contention of the learned Senior Standing Counsel that to come within the expression ―any other business or commercial rights of similar nature" the intangible asset should be akin to any one of the specifically identifiable assets is not a correct interpretation of the statutory provisions. Had it been the case, then ‗goodwill' would not have been treated as an intangible asset. The Hon'ble Delhi High Court in case of Areva T and D India Ltd. (supra), while interpreting the aforesaid expression by applying the principles of ejusdem generis observed, the right as finds place in the expression ―business or commercial rights of similar nature" need not answer the description of knowhow, patents, trademarks, license or franchises, but must be of similar nature as the specified asset. The Court observed, looking at the meaning of categories of specified intangible assets referred to in section 32(1)(ii) o....
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....h asset at the specified rate." 11. The ratio laid down in the aforesaid decision of the Special Bench squarely applies to the facts of the present case. Therefore, in our considered opinion, the assessee is entitled to claim depreciation on the cost incurred on construction of the BOT facility, since, by incurring such investment the assessee has acquired a valuable commercial or business right in the nature described under section 32(1)(ii) r/w Explanation 32(1), Explanation-3(b) of the Act. 12. Even otherwise also, the assessee's claim of depreciation could not have been denied in the impugned assessment year. This is for the reason that in assessment year 2008-09, assessee had claimed depreciation on the investment made on BOT facility by treating it as a capital asset in the nature of intangible asset. The Assessing Officer after examining the claim of the assessee allowed the claim of depreciation. This fact is evident from the depreciation schedule forming part of financial statement as well as the assessment order passed under section 143(3) of the Act for the said assessment year. Again, in the assessment year 2009-10 also, the assessee claimed depreciation on th....
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....he CIT(A) has reduced the subsidy from the cost of the toll road and thereafter considered amortization. 14. By the impugned order, CIT(A) held that subsidy is capital receipt, therefore, not to be reduced from the cost of the toll road and assessee is eligible for amortization of the entire amount of the toll road. We found that in the assessee's own case for the A. Y. 2010-11, the Revenue has approached to the Tribunal against the order of CIT(A) for directing not to reduce subsidy from the cost of the toll road and the matter was restored back to the file of the Revenue authorities for deciding afresh after considering the contention of assessee with regard to the nature of such subsidy. Respectfully following the order of the Tribunal in assessee's own case, we restore the matter back to the file of the AO for deciding afresh after considering the order of Tribunal and considering the assessee's contention and verifying the nature of subsidy so received by the assessee. We direct accordingly. 15. So far as disallowance u/s. 14A is concerned, we found that a categorical finding has been recorded by CIT(A) to the effect that during the year under consideration, assessee was in ....