AI Drafter 
TaxTMI 
TaxTMI 
2018 (5) TMI 2064
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....g depreciation treating the road under the category allowed as 'intangible asset'. It was contended that the issue in hand is covered by the decision in the cases of Ashoka Info Pvt. Ltd. (ITA No.44/Pn/2007) from the Pune Bench of the Tribunal, ACIT vs Ashoka Buildcon Ltd. (ITA No.2317/Pn/2012), West Gujarat Expressway Ltd. (ITA No.5904 & 6244/Mum/2012), order dated 15/04/2012, Thiruvanantpuram Road Development Corporation Ltd. (ITA No.6798 and 6837/Mum /2011), order dated 23/12/2016 and ACIT vs M/s Andrapradesh Expressway ltd. (ITA No.655/Mum/2015 & CO. No. 146/Mum2016) order dated 28/02/2018. On the other hand, Shri M. Swamy, Ld. CIT-DR and Shri V. Justin, Ld. DR, invited our attention to the provision of section 32 of the Act by contending that the assessee is not the owner of the asset, therefore, the depreciation was rightly denied to the assessee. Reliance was placed upon the decision in Dinesh Kumar Gulabchand Agarwal vs CIT (2004) 267 ITR 768 (Bom.). 2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the order of the Tribunal dated 28/02/2018 in the case of M/s Andra Pradesh Expre....
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....ces of the case and ID law, the Ld. CIT(A) erred in allowing the claim of depreciation on toll road under the head Plant and Machinery to the extent of Rs. 129,47,99,193/-." 3. The appellant craves leave to add, amend, vary, omit or substitute any or the aforesaid grounds of appeal at any time before or at the time or hearing of appeal. 3. On service of the notice of appeal the assessee has filed Cross Objection raising the following grounds of Objections: 1. On the facts and circumstances of the case the appellant prays that the entire cost incurred for construction of "Project Road" amounting to Rs. 862,91,20,551/- may be allowed as deduction treating the same as revenue expenditure while computing the total income. 2. Without prejudice to Ground No. 1, on the facts and circumstances of the case, the appellant prays that, the depreciation may be granted treating the right to set up infrastructure facility being license/business of commercial rights, as intangible asset in terms of the provisions of Section- 32(1)(ii) and the appellant may be granted the depreciation treating the said right as intangible right at the applicable rate. The appella....
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....of coordinate bench in ITA No. 5904/M/2012 & 6244/M/2012 in ACIT versus West Gujarat Expressway Ltd dated 15 April 2015, wherein the depreciation was allowed on toll road as a intangible rights. The ld AR submits that the decision of West Gujarat Expressway Ltd was followed by another bench of Tribunal in Thiruvananthapuram Road Development Company Ltd versus ACIT in ITA No.(s) 6798/M/2011& 6 837/M/2011 dated 23.12.2016. The ld.AR for the assessee submits that his is not pressing ground No.1 of Cross Objection. The ld. DR not disputed the subsequent decision of the coordinate bench in allowing the depreciation on toll road on the basis of intangible assets. 5. We have considered the rival submission of both the parties and have gone through the orders of authorities below. Considering the decision of Hon'ble jurisdictional High Court in CIT Versus West Gujarat Expressway Ltd (2017) 82 taxman.com 224 (Bombay), wherein it was held that the owner ship is always vested with Government the assessee is not entitled for the depreciation in the manner in which it has been allowed by ld CIT(A) in this case. Thus, the ground of appeal raised by revenue deserves to be allowed to that extent. ....
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.... the toll road and the entire cost incurred for construction thereof was capitalized by the Appellant in its books in the assessment year 2005-06 during which the construction of the toll road was completed. As the assessment year under consideration was the first year when the road became operational, the Appellant claimed Depreciation of Rs. 59.92 crores at the rate of 10% on the capitalized cost of the toll road. The Appellant also filed necessary details of the claim of depreciation and a note was appended to the depreciation schedule stating that though the Appellant was entitled to higher claim of depreciation on toll road, the claim is made at the rate of 10%. The right to claim higher depreciation is reserved. The Appellant relied upon the standard concession document of the National Highway Authority of India and the clause therein that 'for the purpose of claiming tax depreciation, the property representing the capital investment made by the concessionaire shall be deemed to be acquired and owned by the concessionaire'." 18. The Hon'ble Bombay High Court, however, after discussing the provisions of National Highway Act, 1956 and National Highway Autho....
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....r, the term owner as appearing in the Income Tax Act, 1961 has been defined widely and broadly for the purpose of the provisions of the Income Tax Act 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 profit 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 in Income Tax Act, 1961. The above observations of the Hon'ble Bombay High Court reveal that for the purpose of claiming deduction under Income Tax Act, the term 'owner' as defined under the Income Tax Act can be looked into. However, that cannot control, leave alone or overreach the National Highway Act, 1956 or the National Highway Authorities of India Act, 1988. The Hon'ble Bombay High Court further, in para 47 of the said order, has observed that the assessee can definitely claim depreciation on the investments. He has definitely invested in the projects of construction development and maint....
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....i Brokers & Shareholders (P.) Ltd. [2012] 349 ITR 336/208 Taxman 498/23 taxmann.com 23, while relying upon the various decisions of the Hon'ble Supreme Court and other Hon'ble High Courts, has held that even if a claim is not made before the AO it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon'ble Bombay High Court while relying upon the decision of the Hon'ble Supreme Court in the case of Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688/[1990] 53 Taxman 85 has observed that the power of the Appellate Commissioner is coterminous with that of the Income Tax Officer and an appellate authority while hearing appeal against the order of the subordinate authority, has all the powers which the original authority may have in deciding the questions before it, subject to the restrictions or limitations, if any, prescribed by statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. An assessee is entitled to raise not merely additional legal submissions befo....
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....y much put by the assessee in the return of income but wrongly treating itself as owner of the road which claim as observed above was under bonafide belief and in view of the settled legal position as was there at the time of putting the claim. Even the AO has also observed in the assessment order that it is a fact that the assessee company has incurred huge expenditure on the said project which cannot be treated as revenue expenditure allowable in one year as the same has resulted into providing enduring benefit to the assessee company, hence, the said amount would be eligible for amortization for the period of the concession agreement as it was allowed in the A.Y. 2007-08 and 2008-09. It is also a fact that the said amortization of the expenses has not been accepted by the Tribunal and the assessee in the earlier assessment years has been granted deduction as depreciation treating the road as a capital asset. 23. In view of the above facts, it is not disputed or contested by the Revenue that the assessee is not entitled to any deduction. The only issue in dispute is as to under what head/provision the deduction is to be allowed to the assessee. The Hon'ble Jurisdicti....
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.... incurred by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the toll during the period of the agreement. Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT in 225 ITR 802 allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the company over a period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for the purposes of business or profession of the assessee and the same may be allowed to be spread during the tenure of concessionaire agreement." 25. Having discussed the above stated factual position, the CBDT has directed to treat the above expenditure as revenue expenditure and to amortize the same over the period of the agreement as allowable business expenditure. The assessee, however, has claimed that the same is a capital expenditure and it is entitled to deductions over the investments made as depreciation. A perusal of the above reproduced para 4 of the circular reveals that it is not disputed even....
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....e Tribunal in the case of Ashoka Infrastructure Ltd. v. ITO [IT Appeal Nos. 989 & 1105/(PN) of 2010], wherein, the Tribunal while further relying upon another decision of the Co-ordinate Bench of the Tribunal in the case of Asstt. CIT v. Ashoka Infraways (P.) Ltd. [2013] 58 SOT 147/33 taxmann.com 499 (Pune - Trib.) has held in clear terms that the claim of the assessee for depreciation on "licence to collect toll" being an 'intangible asset' falling within the scope of section 32(1)(ii) of the Act is liable to be upheld. The relevant part of findings of the Tribunal for the sake of convenience is reproduced as under: "6. At the time of hearing, it was a common point between the parties that an identical issue has been considered by the Pune Bench of the Tribunal in the case of Ashoka Infraways Pvt. Ltd. v. ACIT vide ITA Nos. 185 & 186/PN/2012 dated 29.04.2013. As per the Tribunal following the precedents by way of various decisions of different Benches of the Tribunal mentioned therein, the claim of the assessee for treating the 'License to collect Toll' as an intangible asset eligible for the claim of depreciation @ 25% as per Section 32(1)(ii) of the Act ....
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....s of an agreement with the Government of Madhya Pradesh. The expenditure on development, construction and maintenance of the infrastructure facility for a specified period was to be incurred by the assessee out of its own funds. Moreover, after the end of the specified period, assessee was to transfer the said infrastructure facility to the Government of Madhya Pradesh free of charge. In consideration of developing, constructing, maintaining the facility for a specified period and thereafter transferring it to the Government of Madhya Pradesh free of charge, assessee was granted a Right to collect Toll' from the motorists using the said infrastructure facility during the specified period. The said Right to collect the Toll' is emerging as a result of the costs incurred by the assessee on development, construction and maintenance of the infrastructure facility. Such a right has been adjudicated by the Tribunal in the aforesaid precedents to be in the nature of 'intangible asset' falling within the purview of section 32(1)(i/) of the Act and has been found eligible for claim of depreciation. No decision to the contrary has been cited by the Ld. DR before us and, there....
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....' 29. In view of our observations made in the preceding paras and also agreeing with the above reproduced findings of the Tribunal, we hold that the assessee is entitled to the claim of depreciation on the road to collect toll being an intangible asset falling within the purview of section 32(1) (ii) of the Act. 30. So far as the other alternative contention of the assessee that the project be treated as plant & machinery and the depreciation be accordingly allowed to it, we do not find that the said license of right to collect toll in any way falls in the definition of plant & machinery. As held by the Hon'ble Bombay High Court, even the assessee is not the owner of the toll road. The assessee has been given only the right to develop, maintain and operate the toll road and further to collect the toll for the specified period. This right as discussed above is an intangible asset falling under section 32(1)(ii) of the Act. 31. So far as the contention of the Revenue that the investment made by the assessee be treated as a revenue expenditure and be amortized for the period of the agreement, is concerned, we do not find any force in the same on the ....
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.... percentage on the actual cost thereof to the assessee as may be prescribed31; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed32: Provided that no deduction shall be allowed under this clause in respect of- (a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975 but before the 1st day of April, 2001, unless it is used- (i) in a business of running it on hire for tourists ; or (ii) outside India in his business or profession in another country ; and (b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42 : Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under thi....
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....cribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991: Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv)of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the ass....
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....y the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, the provisions of clause (iia)shall have effect, as if for the words "twenty per cent", the words "thirty-five per cent" had been substituted : Provided further that no deduction shall be allowed in respect of- (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income....
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....(iv) [***] (v) [***] (vi) [***] (1A) [***] (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and subsection (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years." 2.3. If the aforesaid section is analyzed though it speaks about depreciation on the building, machinery, plant or furniture owned by the assessee, wholly or partially and used for the purposes of business or profession, as claimed by the Ld. CIT-DR/DR. However, sub-clause (ii) speaks about knowhow, patents, copyrights, trademarks, license....
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....that we have to notice the facts and circumstances in which the claim was raised. Admittedly, the Assessee is in the business of infrastracture development and in the course of which it had constructed the above referred toll road. There is a Concession Agreement with the National Highway Authority of India. The question, therefore, is that when a person like the Assessee who is in the business of infrastructure development in execution of such agreement constructs a road and on Build, Operate and Transfer (BOT) basis on the land owned by the Government, can it claim depreciation on the toll road. 21. When this larger question was posed before the authorities, what they have held is that the Assessing Officer in allowing such a claim has not even considered the basic facts rather there is no consideration of the claim at all and before granting it. The Commissioner came to the conclusion that the depreciation is 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 tha....
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....ome tax, Bombay, this Court has observed that allowance for depreciation is to replace the value of an asset to the extent it has depreciated during the period of accounting relevant to the assessment year and as the value has, to that extent, been lost, the corresponding allowance for depreciation takes place." 2.4. Undoubtedly, we are in agreement with the contention of the Ld. CIT-DR/DR to the effect that the assessee is not the owner of the asset/road. However, the assessee made a huge investment for creation of the asset for Govt. Of India and simultaneously acquired certain rights in the property enabling it to earn income by way of collection of toll fee for a specified period, thus, in the process, recovering of its cost of investment with certain amount of profit. In any way, for the assessee, BOT road, bridges etc. as intangible asset and the assessee is claiming depreciation on the very same asset created with its own expenditure. Thus, such an intangible asset comes within the expression 'other business or commercial rights'. Thus, in our view it falls within the category of any other business or commercial rights of similar nature as provided u/s 32(1)(ii) of the Ac....