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2019 (9) TMI 1545
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....ssee was not correct in claiming the depreciation u/s 32 onConcession Rights Toll by treating the same as intangible assets. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in relying on the order of the Hon'ble Mumbai ITAT in the case of M/s West Gujarat Expressway Ltd. (2015) 154 lTD 103 (Mum) dated 15.04.2015, which has been not accepted by the department and appeal has been filed before the Hon‟ble Mumbai High Court. 3. On the facts and in the circumstances of the case and in law, on the case of M/s West Gujarat Expressway Ltd the Hon'ble Mumbai High Court has decided the similar issue in favour of revenue in A.Y. 2007-08 and 2008-09 in appeal No. ITA 2357/2013 and 2190/2013 respectively vide order dated 05.04.2016. 4. The Appellant prays that the order of the CIT (Appeals) on the above grounds be set aside and that of the A.O be restored. 5. The Appellant craves leave to amend or alter any ground or to submit additional newground, which may be necessary." 2. Briefly stated, the assessee company which is engaged in the business of construction and maintenance of toll roads on build, o....
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....t qualify as an intangible asset. Accordingly, the A.O held a conviction that as the assessee did not "own‟ the assets, therefore, the primary condition for claim of depreciation having not been satisfied, the assessee would not be eligible for claim of depreciation under Sec.32 of the Act. At the same time, the A.O was of the view that the huge expenditure of Rs. 61,80,02,353/- incurred by the assessee on building the aforesaid entire facility was to be amortized over a period of 12 years i.e the period for which the assessee had under taken the infrastructure facility on BOT basis. While concluding as hereinabove, the A.O had fortified his aforesaid view by drawing support from the CBDT Circular No. 9 of 2014, dated 23.04.2014. On the basis of his aforesaid observations, the A.O considering the fact that the concessionaire period of the assessee was spread over 05.12.2011 to 23.02.2022, therefore, worked out the allowable amortization for the period of 117 days i.e 05.11.2011 to 31.03.2012 pertaining to the year under consideration i.e F.Y. 2011-12 at Rs. 1,93,85,060/-. Accordingly, the A.O substituted the claim of depreciation of Rs. 7,72,50,294 raised by the assessee by t....
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....n the basis of the misconceived facts had disallowed the claim of depreciation raised by the assessee in respect of its "right to collect toll". It was submitted by the ld. A.R, that as the aforesaid right vested with the assessee was an "intangible asset" within the meaning of Sec.32(1)(ii) of the Act, therefore, the claim of deprecation raised by the assessee was in conformity with the mandate of law. Insofar the reliance placed by the ld. D.R on the judgments of the Hon‟ble High Court of Bombay in the case of North Karnataka Expressway Ltd. Vs. CIT-10, Mumbai (2015) 372 ITR 145 (Bom) and CIT-10, Mumbai Vs. M/s West Gujarat Expressway Ltd (ITA No.2357 of 2013, dated 05.04.2016) was concerned, it was submitted by the ld. A.R, that the limited issue before the Hon‟ble High Court was as to whether the assessee which was an infrastructure development company that had constructed a road on build, operate and transfer (BOT) basis would be entitled to claim depreciation on the "toll road". It was submitted by the ld. A.R, that the Hon‟ble High Court had only in context of the said limited issue before them, had concluded that the assessee could not be granted depreciat....
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....herefore, the CIT(A) had rightly vacated the order passed by the A.O and allowed the same. 7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, and also the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought by the revenue for adjudicating as to whether the CIT(A) is right in law and the facts of the case in concluding that the assesses claim for depreciation on "license to collect toll", being an intangible asset, falling within the scope of Sec. 32(1)(ii) of the Act, was as per the mandate of law. It is the claim of the revenue, that the issue is covered against the assessee by the judgments of the Hon‟ble High Court of Bombay in the case of North Karnataka Expressway Ltd. Vs. CIT-10 (2015) 272 ITR 145 (Bom) and CIT Vs. West Gujarat Expressway Ltd. (2017) 390 ITR 398 (Bom). On the contrary, it is the claim of the assessee that the issue raised in the aforesaid cases was confined to the aspect, as to whether an Infrastructure Development Company which had constructed a "toll road" on BOT basis on land owned by the Central Govern....
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....(BOT) basis on the land owned by the Government, not being the owner of the said road would thus not be entitled for depreciation on the same. At this stage, we may herein observe, that the Hon‟ble High Court while concluding as hereinabove, had also observed, that as the assessee had invested in the project of construction, development and maintenance of the National Highway, therefore, claim for depreciation on the assets in the form of building and plant & machinery etc. can be validly raised and granted. Also, the Hon‟ble High Court in its order had referred to the observations recorded by the CIT in his under passed under Sec.263 of the Act, wherein he had while declining the assesses claim for depreciation on "toll road‟ had categorically stated, that it was not the case of the assessee that the claim of depreciation was being raised in respect of its intangible rights i.e right to use the asset without being the actual owner of the same. 9. As observed by us hereinabove, the view taken by the Hon‟ble High Court of Bombay in its order passed in the case of North Karnataka Expressway Ltd.(supra), was thereafter once again reiterated by the Hon‟....
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....tion to the issue as to whether an Infrastructure Development Company which had constructed a road on BOT basis on land owned by the Central Government would be eligible to claim depreciation on such "toll road‟ so constructed and operated by it, or not. Accordingly, we are of the considered view, that the issue as to whether an Infrastructure Development company which had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government would be entitled to claim depreciation under Sec. 32(1)(ii) in respect of its intangible rights i.e "right to collect toll", had not been adjudicated by the Hon‟ble High Court in its aforesaid order in the case of North Karnataka Expressway Ltd. (supra). We find that the Hon‟ble High Court of Bombay had thereafter once again reiterated its aforesaid view, while disposing off the appeal of the revenue in the case of CIT-10 Vs. M/s West Gujarat Expressway Ltd. (ITA No. 2357 of 2013, dated 05.04.2016). As is discernible from the order, the only two issues which were raised by the revenue in its aforesaid appeal before the High Court, were viz. (i). Whether on the facts and in the circumstances....
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....of an Infrastructure Development company which had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government, towards claim depreciation under Sec. 32(1)(ii) in respect of its intangible rights i.e "right to collect toll", had not been adjudicated by the Hon‟ble High Court in its aforesaid order. In fact, it was observed by the Tribunal, that the Hon‟ble High Court in the aforesaid case had adjudicated, that an Infrastructure Development company which had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government, would not be entitled to claim depreciation on such "toll road". The observations of the Tribunal, are as under: "The Mumbai bench of the Tribunal in the aforesaid decision in ACIT Vs. M/s Andhra Pradesh Expressway by a later decision dated 28/02/2018 duly considered various decisions including the decision reversed by the Hon‟ble High Court in CIT Vs. West Gujarat Expressway Ltd. (2016) 73 taxmann.com 139; (2017) 390 ITR 400 (Bom)., order dated 05/04/2016. Before us also, the Ld. CIT- DR/Ld. D.R contended that in view of this decision from the HonR....
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....anner in which the assessee can recoup the cost incurred by it in implementing the project / project facility is to operate the road during the concession period and collect the toll charges from user of the project facility by third parties. Admittedly, the assessee has taken up the project as a business venture with a profit motive and certainly not as a work of charity. Further, by investing huge some of Rs. 214 crore, the assessee has obtained a valuable business / commercial right to operate the project facility and collect toll charges. Therefore, in our considered opinion, right acquired by the assessee for operating the project facility and collecting toll charges is an intangible asset created by the assessee by incurring the expenses of Rs. 214 crore. The contention of the learned Senior Standing Counsel that expenditure of Rs. 214 crore has 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 deprec....
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.... the date of execution of the agreement. If we accept the aforesaid argument of the learned Senior Standing Counsel, in other words, it would mean that without even executing and completing the project facility, assessee would be collecting toll charges. Therefore, the contention of the learned Senior Standing Counsel that the expenditure incurred by the assessee till execution of the agreement can only be considered as an intangible asset, in our view, is illogical, hence, cannot be accepted. Thus, having held that the expenditure of Rs. 214 crore incurred by the assessee has resulted in creation of an intangible asset of enduring nature for the assessee, it is necessary now to examine whether such intangible asset comes within the scope and ambit of section 32(1)(ii) of the Act. For this purpose, it is necessary to look into the said provision 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 asses....
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....t in the property, then such right is called a license. If we examine the facts of the present case, vis-a-vis, the definition of license under the Indian Easements Act, 1882, it would be clear that immovable property on which the project / project facility is executed / implemented is owned by the Government of India and it has full power to hold, dispose off and deal with the immovable property. By virtue of the C.A., assessee has only been granted a limited right to execute the project and operate the project facility during the concession period, on expiry of which the project / project facility will revert back to the Government of India. What the Government of India has granted to the assessee is the right to use the project site during the concession period and in the absence of such right, it would have been unlawful on the part of the concessionaire to do or continue 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 ....
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....n of business. Therefore, any other intangible asset which may not be identifiable with the specified items, but, is of similar nature would come within the expression "any other business or commercial rights of similar nature". The Hon'ble Supreme Court in CIT v/s Smifs Securities (supra) after interpreting the definition of intangible asset as provided in Explanation 3 to section 32(1), while opining that principle of ejusdem generis would strictly apply in interpreting the definition of intangible asset as provided by Explanation 3(b) of section 32, at the same time, held that even applying the said principle "goodwill' would fall under the expression "any other businessor commercial rights of similar nature". Thus, as could be seen, even though, "goodwill' is not one of the specifically identifiable assets preceding the expressing "any other business or commercial rights ofsimilar 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 otherbusiness or co....
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....acquired the right to operate the toll road / bridge and collect toll charges in lieu of investment made by it in implementing the project. Therefore, the right to operate the toll road / bridge and collect toll charges is a business or commercial right as envisaged under section 32(1)(ii) r/w Explanation 3(b) of the said provisions. Therefore, in our considered opinion, the assessee is eligible to claim depreciation on WDV as an intangible asset. Thus, we answer the question framed by the SpecialBench as under:- The expenditure incurred by the assessee for construction of road under BOT contract by the Government of India has given rise to an intangible asset as defined under Explanation 3(b) r/w section 32(1)(ii) of the Act. Hence, assessee is eligible to claim depreciation on such asset at the specified rate. 18. In view of our aforesaid conclusion, there is no need to answer the second part of the question framed. This disposes of grounds no.2, 3, 5 and 6." We find that the aforesaid order of the "Special bench‟ of the Tribunal, had thereafter been followed by the ITAT "J" bench, Mumbai, in the case of DCIT, Circle-9(1)(2),Mumbai Vs. M/s Atlanta Ltd. ....