TaxTMI 
TaxTMI 
2021 (9) TMI 1536
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.... case and facts narrated. The assessee has raised the following grounds of appeal. "1. On the facts and circumstances of the case and the Ld. CIT(A) has erred in confirming that the interest income of Rs. 2,37,11,860/- is chargeable to tax under the head income from other sources. The appellant prays that the addition confirmed by the CIT(A) may be deleted. 2. On the facts and in circumstances of the case the appellant prays that the interest income of Rs. 2,37,11,860/- be taxed under the head income from Business & profession. 3. The appellant craves the permission to add, alter or amend the ground of appeal at the time of hearing. The assessee has raised the additional ground of appeal. "The appellant prays that the right to set up an infrastructure facility and collect annuity thereon being in the nature of a license or business or commercial right be regarded as an intangible asset in terms of the provision of Sec. 32(1)(ii). The appellant prays that they had constructed the road and have the right to earn revenue in the form of annuity from the use of such intangible asset being a license or business or commercial right as contemplated in....
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....ount u/sec 40(a)(ii) of the Act of Rs. 13,004/-.(v) The A.O. on perusal of the profit and loss account found that the assessee has disclosed the interest income of Rs. 2,37,11,860/- as Business income. The A.O. observed that the assessee company has not carried out any business activities and interest income has to be taxed under income from other sources. The A.O. was not satisfied with the explanations filed on the disputed issue and observed that the interest income cannot be taxed as a business income and has to be treated as income from other sources.(vi) The A.O. disallowed miscellaneous expenses to the extent of Rs 1,35,003/- as no proper documentary evidences was produced. Finally the Assessing Officer (A.O.) has assessed the total income (Loss) of Rs 4,34,81,491/- and calculated Book Profits u/s 115JB of the Act of Rs.41,902/- and passed the order u/s 143(3) of the Act dated 31.12.2010. 3. Aggrieved by the order, the assessee has filed an appeal before the CIT(A). The CIT(A) considered the grounds of appeal, submissions of the assessee, findings of the A.O and the judicial decisions in respect of treatment of interest income under income other sources. The CIT(A) dealt ....
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....ions are that the assessee has business funds and has invested the funds in short term deposits and extended loans on call money basis and the interest was earned/accrued on financial instruments. The assessee has been following this system from the earlier years and the interest income has been offered as a business income. Whereas the only difference of opinion with the CIT(A) that, these surplus funds are not necessary to the assessee and there is no requirement for the assessee to make deposits. Whereas the Ld. AR submitted that there are prerequisites for making deposits/loans for the business operations /projects and the assessee has already suffered for various other business delays. We find on the similar issue of treatment of interest income as business income and set off against capital work in progress or to taxed under the head income from other sources, in the recent decision of co-ordinate bench of the Hon'ble Tribunal in a group company case of M/s East Hyderabad Expressways Ltd in ITA No. 6694/Mum/2017 & 3670,3503/Mum/2016 dated 30-08- 2021 has observed at Para 6.1 to 6.4 of the order, which is read as under: 6.1. We have heard rival submissions and perused....
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....Crores, assessee had borrowed funds of Rs.363.18 Crores as on 31/03/2011 from various banks. We find that as a precondition to granting of loans, the Consortium bank had imposed a condition that assessee should open an Escrow Aaccount and that the loan amounts received from the banks should be deposited in such escrow account and the monies lying in escrow account shall be utilised only for the purpose of acquiring the assets in the project. Hence, it could be safely concluded that the funds lying in the escrow account could not be utilised by the assessee for any other purpose other than for project and the same cannot be diverted for non-project expenditure. To prove this fact, the assessee drew our attention to Escrow Agreement dated 01/02/2008 entered into by the assessee with (i) IL & FS Trust Company Ltd., (ii) Oriental Bank of Commerce, the banking company who had acted as "Escrow Agent" ; (iii) Hyderabad Urban Development Authority (HUDA), a statutory body constituted under the provisions of Andhra Pradesh Urban Areas (Development) - 1975 and (iv) Hyderabad Growth Corridor Limited (HGCL). He drew our attention specifically to clause-3.2 of the said Escrow Agreement, wherein....
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....rpose other than for the project. Even the fixed deposits were invested with the same bank in order to derive some interest income and thereby reduce the project cost of the assessee. This crucial fact of distinction of assessee having no flexibility in the instant case makes it factually distinguishable with that of the case of Tuticorin Alkali Chemicals and Fertilizers Ltd., Hence, the decision relied upon by the ld. DR in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd., referred to supra does not advance the case of the Revenue. We find that the case of the assessee squarely falls within the ratio laid down by the Hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd., vs. ITO reported in 315 ITR 255(Del) wherein it was held as under:- "5. In our opinion the Tribunal has misconstrued the ratio of the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals (supra) and that of Bokaro Steel Ltd. (supra). The test which permeates through the judgment of the Supreme Court in Tuticorin Alkali Chemicals (supra) is that if funds have been borrowed for setting up of a plant and if the funds are "surplus‟ and then by vir....
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....interest earned from the bank would have a hue different than that of business and be brought to tax under the head "income from other sources". It is well-settled that an income received by the assessee can be taxed under the head "income from other sources" only if it does not fall under any other head of income as provided in Section 14 of the Act. The head "income from other sources" is a residuary head of income. See S.G. Mercantile Corporation P. Ltd vs CIT, Calcutta; (1972) 83 ITR 700 (SC) and CIT vs Govinda Choudhury & Sons.; (1993) 203 ITR 881 (SC). 5.2 It is clear upon a perusal of the facts as found by the authorities below that the funds in the form of share capital were infused for a specific purpose of acquiring land and the development of infrastructure. Therefore, the interest earned on funds primarily brought for infusion in the business could not have been classified as income from other sources. Since the income was earned in a period prior to commencement of business it was in the nature of capital receipt and hence was required to be set off against pre-operative expenses. In the case of Tuticorin Alkali Chemicals (supra) it was found by the authoritie....
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....ing the above expenses." 6.1 In our view the situation in the instant case is quite similar except here instead of paying interest on funds brought in for specific purpose interest is earned on funds brought in by way of share capital for a specific purpose. Could it be said that in the former situation interest could have been capitalized and in the later situation it cannot be capitalized. To test the principle we could extend the example, that is, would our answer be any different had assessee passed on the interest to the respective shareholders. If not, then in our view the only conclusion possible is that interest earned in the present circumstances ought to be capitalized. 7. In view of the discussion above, in our opinion the Tribunal misdirected itself in applying the decision of the Supreme Court in Tuticorin Alkali Chemicals (supra) in the facts of the present case. In our opinion on account of the finding of fact returned by the CIT(A) that the funds infused in the assessee by the joint venture partner were inextricably linked with the setting up of the plant, the interest earned by the assessee could not be treated as income from other sources. In the....
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....ve the right to earn revenue in the form of annuity from the use of such intangible Asset being license or business or commercial right contemplated under the provisions of the Act. The Assessee has raised this additional ground of appeal for the first time before the Hon'ble Tribunal and the Ld. DR accepted the fact and made the submissions. The Ld.AR submitted that the assessee company has constructed a road on "Builtoperate-Transfer(B.O.T) basis on the land owned by the central government and thereby, it got vested with the right to earn revenue in the form of annuity income which is an "intangible Asset" in accordance with the explanation 3(b) of section 32(1)(ii) of the Act. We find the similar issue in respect of claim of depreciation on road on (B.O.T) basis in the assessee own case for the A.Y.2005-06 & 2006-07 was considered in the recent decision of the Hon'ble Tribunal ITA No. 6694/Mum/2017 & 3670/Mum/2016 in a group company case of M/s East Hyderabad Expressways Ltd in ITA No. 6694/Mum/2017 & 3670,3503/Mum/2016 dated 30-08- 2021 has dealt on facts and judicial decisions and observed at Para 3.3 to 3.5 of the order ,which is read as under: 3.3. During the course....
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....A.R that as the issue as to whether an Infrastructure Development Company which had constructed a "toll road" on BOT basis on land owned by the Central Government would be entitled towards claim of depreciation under Sec. 32(1)(ii) in respect of its intangible rights i.e. "right to collect toll" was neither raised before or adjudicated upon by the Hon'ble High Court in either of the aforesaid cases, therefore, the reliance placed by the revenue on the said judicial pronouncements would not assist its case. 3. We have given a thoughtful consideration to the issue before us in the backdrop of the material available on record and the contentions advanced by the ld. authorized representatives for both the parties. Admittedly, as the assessee which being an Infrastructure Development Company had constructed the "toll road" on build, operate and transfer (BOT) basis on the land owned by the Central Government, not being the owner of the said road would not be eligible for claim of depreciation on the same. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the assessee's own case for the year in question, viz. North Karnataka Expressway Ltd. V....
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....al High Court were rendered in context of the issue that as to whether or not an Infrastructure Development Company which had constructed a "toll road‟ on BOT basis on the land owned by Central Government would be entitled for depreciation on such "toll road". We find that the Hon'ble High Court had observed that in the absence of ownership of the "toll road‟ which belonged to the Central Government, the assessee would not be entitled to claim depreciation on the same. The issue as to whether or not an Infrastructure Development Company that had constructed a "toll road‟ on BOT basis on the land owned by Central Government would be entitled to claim depreciation under Sec.32(1)(ii) in respect of its "right to collect toll" i.e an intangible asset was however not raised in both of the aforesaid cases. Our aforesaid view stands fortified from a perusal of the order of the Hon'ble High Court in the case of North Karnataka Expressway Ltd. Vs. CIT-10 (2015) 272 ITR 145 (Bom), wherein at Para 20 the Hon'ble High Court had observed that the question before them was as to when a person who is in the business of Infrastructure Development constructs a road on build, operat....
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....d in the circumstances of the case and in law, the Tribunal was right in its decision of treating toll roads as plant and machinery, when this is not as per rule 5 of New Appendix of the I.T Rules?. As such, we find that the revenue had only sought the adjudication of the issue as to whether the Tribunal was right in allowing depreciation to the assessee on "toll roads" by treating the same as plant and machinery. It is in the backdrop of the aforesaid issues which were raised by the revenue that the Hon'ble High Court by relying on its earlier order in the case of North Karnataka Expressway Ltd. Vs. CIT-10 (2015) 372 ITR 145 (Bom), had concluded, that the issue therein involved was squarely covered by the said decision. Accordingly, the Hon'ble High Court by drawing support from the observations recorded in its earlier order in the case of North Karnataka Expressway Ltd. (supra) had therein answered the aforesaid two substantial questions of law in the negative i.e in favour of the appellant revenue and against the respondent assessee. In our considered view, the Hon‟ble High Court in its aforesaid order i.e CIT-10, Mumbai Vs. M/s West Gujarat Expressway Ltd., ITA No. 2357 o....
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.... the revenue." In the backdrop of the aforesaid facts, we are of the considered view that the reliance placed by the Ld. D.R on the aforesaid judgments of the Hon‟ble High Court of Bombay i.e North Karnataka Expressway Ltd. Vs. CIT-10 (2015) 372 ITR 145 (Bom) and CIT10, Vs. M/s West Gujarat Expressway Ltd. (ITA No. 2357 of 2013, dated 05.04.2016), would not assist the case of the revenue for rebutting the claim of the assessee towards deprecation u/s 32(1)(ii) in respect of its intangible rights i.e "right to collect toll" . 5. We find that the "Special bench‟ of the Tribunal in the case of ACIT, Circle 10(2), Hyderabad, Vs. Progressive Construction Ltd. (2018) 191 TTJ 549 (Hyd.) (SB), had concluded, that where an Infrastructure Development company that had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government gets vested with a right to an intangible asset under Explanation 3(b) r.w. Sec.32(1)(ii) of the Act, the assessee would be eligible to claim depreciation on such asset as per the specified rate. Apart from that, it was observed by the Tribunal, that where the assessee had never claimed expendit....
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....e 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 it has claimed depreciation. Thus, in our view, the expenditure incurred by the assessee of Rs.214 crore for creating the project or project facilities has created an intangible asset in the form of right to operate the project facility and collect toll charges. Further, it is the contention of the learned Senior Standing Counsel that if at all any right is created under the C.A. for collecting toll, such right accrued to the assessee on the date of execution of agreement i.e., 22nd December 2005, therefore, the expenditure incurred by such date should be the value of intangible ass....
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....e 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 assessee that the right acquired under C.A. to operate the project facility and collect toll charges is in the nature of license. However, the learned Senior Standing Counsel has strongly countered the aforesaid claim of the assessee by referring to the definition of license as provided under the Indian Easements Act, 1882. For better appreciation, we intend to reproduce herein below the definition of "license" as provided under section 52 of the Indian Easements Act, 1882: - "License" defined:- Where on person grants to another, or to a definite number....
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.... 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 principle of ejusdem generis the rights referred to in the expression "any other business or commercial rights of similar nature", should be similar to one or more of the specifically identified assets preceding such expression. The aforesaid contention of the learned Departmental Representative is unacceptable for the reasons enumerated hereinafter. 16. We have already held earlier in the order that by incurring the expenditure of 'Rs.214 crore assessee has acquired the right to operate the project and collect toll charges. Therefore, such right acquired by the as....
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....n 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) of the Act preceding the term "business or commercial right of similar nature", it could be seen that the said intangible assets are not of the same line and are clearly distinct from one another. The Court observed, the use of words "business or commercial rights of similar nature", after the specified intangible assets clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets which were neither visible nor possible to exhaustively enumerate. The Hon'ble Court, therefore observed, in the circumstances the nature....
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...., Mumbai in the case of ACIT (Cir). 6(2)(2), Mumbai Vs. M/s Essel Sagar Damoh Toll Roads Ltd, ITA No. 7114/Mum/2016 & C.O No. 84/Mum/2018; A.Y 2011-12, dated 20.09.2019. In the backdrop of the aforesaid judicial pronouncements, we are of the considered view that the issue as to whether an Infrastructure Development company that had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government would be eligible for claim of depreciation in respect of its intangible rights i.e "right to collect toll" under Sec. 32(1)(ii) is squarely covered by the aforesaid order of the "Special bench‟ of the Tribunal in the case of ACIT, Circle 10(2), Hyderabad, Vs. Progressive Construction Ltd. (2018) 191 TTJ 549 (Hyd.) (SB) and also the orders of the coordinate benches of the Tribunal viz. (i) DCIT, Circle-9(1)(2),Mumbai Vs. M/s Atlanta Ltd. Mumbai (ITA No. 3415/Mum/2015, dated 24.01.2018); (ii) ACIT Vs. M/s PNG Tata Ltd. (ITA No. 238/CHNNY/2019, dated 26.07.2019); AND (iii). ACIT (Cir). 6(2)(2), Mumbai Vs. M/s Essel Sagar Damoh Toll Roads Ltd, ITA No. 7114/Mum/2016 & C.O No. 84/Mum/2018; A.Y 2011-12, dated 20.09.2019. We, thus, finding ourselves t....