TaxTMI 
TaxTMI 
2022 (7) TMI 1440
X X X X Extracts X X X X
X X X X Extracts X X X X
....of depreciation @ 10% on highway project was in accordance with the provisions of the Act. The order so passed is erroneous, bad in law and must be quashed. 3. That the rejection of claim of depreciation on highway project amounting to Rs. 49,32,87,659/- on the basis of ownership issue and instead allowing deduction for amortization cost on highway project developed on BOT basis of Rs. 38,46,29,754/-, on the basis of CBDT circular is misconceived, erroneous and does not sustain in law. Hence, the disallowance sustained by the Ld. CIT(A) are illegal, bad in law and without jurisdiction. 4. The Ld. CIT(A) has grossly erred on facts and in law in sustaining the wrong amount of amortization expenditure taken by Ld. AO in the assessment order without appreciating the facts and submission of the appellant. 5. That on the facts & circumstances of the case, the both the lower Authorities has erred in law in not considering the correct amount of amortization expenditure of Rs. 39,63,46,436/- and allowing wrong amount of amortization cost of Rs. 38,46,29,754/-. The orders so passed by the learned CIT-(A) and Ld. AO are illegal, bad in law & deserves to be quashed. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Y 2012-13; [ii] BSC C&C Kurali Toll Road Ltd. v. DCIT Circle-5(1), Delhi (ITA Nos. 1592 & 1593/Del/2017) A.Y 2012-13 & A.Y 2013-14; [iii] Valecha Badwani Sendhwa Tollways v. PCIT-11, Mumbai (ITA No. 2848/MUM/2018) A.Y. 2013-14; [iv] ACIT-l0(l), Mumbai v. M/s West Gujarat Expressway Ltd. (ITA No. 5904/M/2012) A.Y 2009-10 and (ITA No. 6244/M/2012) A.Y. 200910; [v] M/s Mokama Munger Highway Ltd v. ACIT Hyderabad (ITA Nos. 1729, 2145 & 2146/Hyd/2018) A.Y. 2013-14 to 2015-16; [vi] DCIT Circle-16(2), Hyderabad v. M/s Madhurai Tuticorin Expressway Ltd., Hyderabad (ITA Nos. 2119, 2120 & 2121/HYD/2018) A.Y. 2012-13, 2013-14 & 2014-15; [vii] ACIT Corporate Circle 5(2), Chennai v. M/s PNG Tollway Ltd (ITA No. 238/Chny/2019) A.Y. 2014-15; [viii] M/s Kosi Bridge Infrastructure Company v. PCIT-6 (ITA No. 3471 /MUM/2019) A.Y. 2012-13 & (ITA No. 3578 /MUM/2019) A.Y-201415; [ix] M/s Madras Industrial Investment Corp. Ltd. v. Commissioner of Income Tax (Supreme Court of India) dated 04.04.1997; [x] Uco Bank, Calcutta v. CIT, Bengaluru (Civil Appeal No.235 of 1996) A.Y. 1981-82; [xi] CIT v. Mrs Avtar Mohan Singh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecution/ construction of highway project. The company was awarded the highway project for development of four lane road project of Gwalior Bypass in the state of Madhya Pradesh under North-South Corridor (NHDP-11) on Design, Build, Operate and Transfer (BOT) basis from National Highway Authority of India (NHAI). 6.3 The company in the books of accounts treated the expenditure made on execution/ construction of such highway as fixed asset and amortized the said expenses incurred on the project over the life of the tender, i.e. over the period when the appellant company would be allowed to operate such highway and earn income from toll charges. The amortization expenses debited by the company in the books of accounts for the said project amounted to Rs.39,63,46,436/-. Further, while making the computation of income, the appellant company added the said amortization expense back to the net profit and instead treated the same as 'fixed asset being the road project' as 'building' and claimed depreciation at the rate of 10% amounting to Rs. 49,32,87,659/-. 6.4 The AO after considering the facts of the case and after placing reliance on the Circular Numbe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Hon'ble Tribunal in its above mentioned order. Hon'ble High Court of Bombay in the case of North Karnataka Expressway Ltd. v. CIT [2014] 51 taxmann.com 214 (Bom), wherein, Hon'ble Court held that where assessee, an infrastructure development company, constructed a road on Build, Operate and Transfer (BOT) basis on land owned by Government, assessee could not claim depreciation on toll road so constructed and operated. 6.8 After considering the decision of the Hon'ble High Court, I am of the view that the AO was correct in making the adjustment and disallowing the depreciation and allowing the amortization expenses for the reasons discussed in the assessment order. 6.9 Furthermore, the amount of amortization allowed by the AO is different from the amortization amount claimed by the appellant company in the financial statement. The appellant though raised objection with regard to the same, however, failed to justify the said error. The appellant company failed to rebut the computation of amortization expense made by the AO in the order and only submitted that the AO mistakenly erred in treating an amount of Rs. 38,46,29,754/-instead of the amou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provement in the project site as may be necessary or appropriate to implement the project and to provide project facility in terms of the agreement. Clause-2.5 of the agreement provides that the concessionaire without prior written consent or approval of the Government of India cannot use the project site for any purpose, other than, for the purpose of the project / project facilities as permitted under the C.A. Clause 2.7 of the C.A. makes it clear that the project site belongs to and has vested in Government of India and the Government of India has full power to hold, dispose off and deal with the same consistent with the provisions of the C.A. However, it also makes it clear that the concessionaire, subject to complying with the terms / conditions of the agreement remains in peaceful possession and enjoyment of the project site during the concession period. It further provides, in the event the concessionaire is obstructed by any person claiming any right, title or interest over the project site or any part thereof or in the event of any enforceable action including any attachment, distraint, appointment of receiver or liquidator being initiated by any person claiming interest o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o execute / implement the project facilities. The only right / benefit allowed to the assessee by the Government of India is to operate the project / project facilities during the concession period of 11 years 7 months and to collect toll charges from vehicles / persons using the project / project facilities. Thus, as could be seen, the only manner 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 cror....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... operate the project facility and collect toll charges is integrally connected to the completion of the project facility which cannot be done unless the assessee invests its fund for completing the project. Therefore, keeping in view the aforesaid fact, it cannot be said that the right to collect toll has accrued to the assessee on 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 r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e definition of "license" extracted herein above. A plain reading of section 52 of the Act makes it clear, a right granted to a person to do or continue to do something in the immovable property of the grantor, which, in the absence of such right would be unlawful and such right does not amount to an easement or interest 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... definition of intangible asset, specifically identified items like knowhow, patents, copyrights, trademarks, licenses, franchises are not of the same category, but, distinct from each other. However, one thing common amongst these assets is, they all are part of the tool of the trade and facilitate smooth carrying on 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 business or 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 commerc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that as the membership card allows a member to participate in a trading session on the floor of the exchange, such membership is a business or commercial right, hence, similar to license or franchise, therefore, an intangible asset. In the present case, undisputedly by virtue of C.A. the assessee has 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 Special Bench 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 n....