TaxTMI 
TaxTMI 
2023 (8) TMI 1473
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....unds of appeal of the assessee are as under: - "2.1 That on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in considering rights in relation to right under service concessionaire arrangement as building and allowing depreciation @ 10 percent where the rights are eligible for depreciation @ 25 percent being intangible asset. 2.2 That on the facts and circumstances of the case as well as in law, Ld. CIT(A) has erred in not following order passed by Hon'ble ITAT in Appellant's own case for AY. 2010-11 stating that appeal has been filed before jurisdictional High Court by department against said order. 2.3 Without prejudice to ground no. 2.1 and 2.2, the appellant should be allowed depreciation @ 15 percent on toll road (as is also claimed in the return of income) treating the asset as Plant and Machinery." 3. The grounds of appeal of the revenue are as under: - "Whether on the facts and in the circumstances of the case and in law, including the judgment of Hon'ble Bombay High Court in the case of M/s. North Karnataka Expressway Limited ITA. No.499 of 2012 dated 14th October, 2014 read with CBDT Circular No.09/2014 dated 23.04.2013 and Hon'ble Supr....
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....the action of Ld. CIT(A) allowing 10% depreciation instead of amortization of expenditure (supra) as done by AO. 7. Assailing the action of the Ld. CIT(A), Sr. Counsel appearing for assessee, Shri Ajay Vohra submitted that the issue involved i.e. assessee's claim of depreciation @ 25% for the intangible asset on its right for annuity is allowable as per law. According to him, the assessee's right to collect "annuity" is a valuable right stemming from the concessionaire arrangement between assessee and NHAI for the toll road constructed by it ought to have been granted by the Ld. CIT(A) @ 25% because this Tribunal in assessee's own case for AY. 2010-11 [ITA No.655/Mum/2015 and Cross Objection (CO)/Mum/2016 dated 28.02.2018] was pleased to allow the depreciation on road constructed by it under BOT basis as an "intangible asset", since its claim falls within the scope of section 32(1)(ii) of the Act, and consequently held the revenue's cross objection regarding amortization of the cost as academic. According to Ld. Sr. Counsel, despite the Tribunal order in assessee's own case (supra), the Ld. CIT(A) did not allow the claim of depreciation @ 25% on intangible asset and instead allowe....
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....Commissioners action u/s. 263 of the Act and the claim of depreciation u/s. 32(1)(i) of the Act and the Hon'ble High Court has not dealt with the claim of depreciation on intangible asset u/s. 32(1)(ii) of the Act. Thus according to Ld. Sr. Counsel, the Ld. CIT(A) erred in properly understanding the Hon'ble High Court order in North Karnataka Expressway (supra). And according to Ld. Sr. Counsel, in the case of West Gujarat Expressway, the Hon'ble High Court followed the ratio laid in North Karnataka Expressway (supra). In this context, he drew our attention to the observation made by Hon'ble Supreme Court in the case of Sun Engineering reported in 198 ITR 297 (SC) wherein their Lordship reiterated the observation made in the case of Madhav Rao Jivaji Rao Scindia Bahadur Vs. Union of India (1971) (3 SCR 9; AIR 1971 SC 530) " It is not proper to regard a word, a clause or a sentence occur-ring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment." In the light of the aforesaid observation of the Hon'ble Supreme Court, the Ld. Sr. Counsel submitted tha....
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....t since the AO did not conduct any kind of enquiry before allowing depreciation on toll-road and this action of the Tribunal was upheld by the Hon'ble High Court. According to Shri Vohra, in that case the claim of assessee (North Karnataka Expressway) was regarding depreciation of toll roads as plant/machinery as a tangible asset, and not in respect of depreciation on the intangible asset i.e. right to collect toll / annuity on the toll road which it constructed under sub-clause (ii) of sub-section (1) of section 32 of the Act. According to Sr. Counsel the observation of their Lordship at para no. 47 of the Hon'ble High Court order (North Karnataka Expressway) need to be noted, wherein it was held "The assessee can definitely claim depreciation on the investment. He has definitely invested in the project of construction development and maintenance of the National Highway and such of the assets in the form of building and plant and machinery etc. The claim for depreciation can be validly raised and granted. We are here concerned with the claim on the hand or a road itself. Merely, because the road is laid out does not mean that the assessee is the owner thereof. He has lid it out fo....
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.... assessee for construction of a road under BOT contract with GOI gives rise to an asset and if so, whether it is an intangible asset or tangible asset? In case it is held to be tangible asset, whether it is building or plant or machinery?" 11. In that case (Progressive Construction Ltd.) supra, the Ld. Special Bench was also adjudicating similar claim, and in that case the assessee had claimed depreciation u/s 32(1)(ii) of the Act, since it had made investment in constructing the road and thus acquired the right to operate the road and receive toll charged as per the Concession Agreement (hereinafter CA), which right was claimed as valuable commercial or business right in the nature of intangible assets and hence assessee claimed that it was eligible for depreciation u/s 32(1)(ii) of the Act which was also disallowed by the AO on the ground that the assessee was not the owner of the asset [as in the present case and in that case the only difference was that assessee-company after constructing the road as per concessionaire agreement was collecting toll from users of the road whereas in the present case the only difference was that assessee has right to collect "annuity" for constr....
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....d. (2012) 24 taxmann.com 222 and the Hon'ble Supreme Court decision in the case of Techno Shares & Stock Ltd. Vs. CIT (2010) 193 Taxman 248, held as under: - "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." 14. And thereafter, Shri Vohra drew our attention to plethora of decisions especially to the decision of the Tribunal in the case DCIT Vs. Ra....
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.... is the status of these circulars? Section 119(1) of the Income- tax Act, 1961, provides that, "the Central Board of Direct Taxes may, from time to time, issue such orders, instructions and directions to other incomes, authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and direction, of the Board. Provided that no such orders, instructions or directions shall be issued (a) so as to require any income-tax authority to make a particularly assessment or to dispose of a particular case in a particular manner; (b) so as to interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions". Under sub-section (of section 119, without prejudice to the generality of the Board's power set out in sub-section (1), a specific power is given to the Board for the purpose of proper and efficient management of the work of assessment and collection of revenue to issue from time to time general or special order in respect of any class of incomes or class of cases, setting forth directions or instructio....
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....t the Hon'ble Supreme Court decision (Madras Industrial Investment Corporation Ltd. (supra) was in the context of discount written off proportionately each year over period of redemption of debenture; and the Hon'ble Supreme Court held that the liability to pay the discounted amount over and above the amount received for the debentures was a liability incurred by the assessee company for the purpose of its business in order to generate funds for its business activities and it was therefore, expenditure and the Hon'ble Supreme Court upheld the assessee's claim of deduction only the proportionate part of discount over the relevant accounting period and noted that such a claim was inconformity with the accounting practice of showing the discount in the "discount on debentures account" which was written off over the period of the debentures. According to the Ld. Sr. Counsel thus it can be noted that decision in Madras Industrial Investment Corporation Ltd. (supra) was in the context of expenditure/discount on debentures and not in respect of claim of depreciation which is an allowance and not per-se expenditure/loss. Thus according to Shri Vohras CBDT erred in applying the ratio of the....
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....ity" on the roads it built (i.e. 25% on opening WDV) and the revenue has filed cross-appeal against the impugned action of Ld. CIT(A) allowing depreciation @ 10% instead of AO's action allowing amortization of expenses. It was brought to our notice, that even though assessee brought to the notice of the Ld. CIT(A) that Tribunal in assessee's own case for AY 2010-11 (supra) had allowed the claim of depreciation @ 25% on the right to collect annuity on the road built and maintained by it as per concessionaire agreement between the NHAI and assessee, but the Ld. CIT(A) has declined to follow the Tribunal's order by taking note of the decision of the Hon'ble Bombay High Court in the case of CIT Vs. West Gujarat Expressway Ltd. (supra) and North Karnataka Expressway Ltd. (supra) wherein the Hon'ble High Court, had held that an Infrastructure Development Company that had constructed a 'toll road' on build, operate and transfer (BOT) basis on the land owned by the Government/UOI, not being the owner of the said road would not be entitled for depreciation on the same. Thereafter the Ld. CIT(A) acknowledged that the Tribunal while upholding the claim of 25% depreciation on intangible asset ....
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....see would not be entitled to claim depreciation on the same. However, 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 annuity/toll "i.e. an intangible asset" was not raised in both of the aforesaid cases. Our aforesaid view stands fortified from perusal of the order of the Hon'ble High Court in the case of North Karnataka Expressway Ltd. (supra) wherein the Hon'ble High Court had observed that the question before their Lordship was as to when a person who is in the business of Infrastructure Development constructs a road on build, operate and transfer (BOT) basis on the land owned by the Government, then, can it claim depreciation on such 'toll road'. We find that the Hon'ble High Court had observed that though an Infrastructure Development company that had constructed a road on BOT basis on the land owned by the Central Government was not entitled to claim depreciation on the ‟toll roads" as it was not owner of the same, however, it could definitely claim depreciation on it....
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....ng on its earlier order in the case of North Karnataka Expressway (supra) 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. Thus in our considered view, the Hon'ble High Court in its aforesaid order M/s West Gujarat Expressway Ltd. (supra) had confined its adjudication to the aforesaid two substantial questions of law which were raised by the revenue before it. 21. Thus, we find that the Hon'ble High Court's decision in North Karnataka Expressway Ltd. as well as West Gujarat Expressway Ltd. (supra) does not put any fetter on the claim made by the assessee regarding its claim of depreciation on the right to collect "annuity" on the road constructed by it u/s. 32(1)(ii) of the Act. This view has been reiterated by the Tribunal in assessee's own case for AY 2010-11 decided on 28.02.2018. Further, we find that the Special Bench ....
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....e 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 it has claimed depreciation. Thus, in our view, t....
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....ence. Depreciation. 32(1)(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature 67, being intangible assets acquired on or after the 1st day of April, 1998, owned 67, wholly or partly, by the assessee 67 and used for the purposes of the business 67 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, [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 assessee that the right acquired under C.A. to operate the project f....
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....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 principle of ejusdem generis the rights referred to in the expression "any other business or commercial ....
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....;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) 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 l....
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...., 3, 5 and 6." 22. In the light of the Ld. Special Bench decision, we are of the considered view that assessee an Infra Development Company that has constructed road on BOT basis on the land owned by the Central Government would be eligible for claim of depreciation in respect of its intangible right i.e. right to collect annuity u/s. 32(1)(ii) which is squarely covered by the Special Bench decision of the Tribunal in the case of Progressive Construction Ltd. (supra) and also the decision of the Tribunal in assessee's own case for AY 2010-11 wherein the Tribunal held that the assessee is eligible for depreciation on intangible assets which falls within the scope of section 32(1)(ii) of the Act and allowed ground no.2 of Cross Objection wherein assessee prayed for grant of depreciation of Rs. 215,72,80,138/- for AY 2010-11. In the light of the aforesaid discussion, we direct AO to grant the assessee claim of depreciation @ 25% on the opening WDV on toll roads constructed as per the agreement with NHAI commencing on 15.09.2006. 23. Thus, the ground no. 2.1 & 2.2 of the assessee are allowed, therefore ground no. 2.3 has become infructuous and consequently revenue's ground no. 1 & 2 ....
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....rch 2011 was to the tune of Rs. 461.34 Crores and the loan outstanding as on 31 March 2010 was of Rs. 503.29 Crores. According to him, the assessee was obliged to maintain Escrow account with Bank of India, New Delhi Branch; and all the funds which the assessee receives have to be routed through the Escrow account. It was pointed out by the Ld. Sr. Counsel that the investment in fixed deposit was also from this Escrow account and he referred to common loan agreement entered into with the lenders which is found placed at page 148 to 233 of PB. In this agreement, according to him, there is reference to Escrow account to be opened with Escrow agent being Bank of India and referred to page 178 of paper book. The Ld. Counsel pointed out from page 185 of PB that there is a clause for repayment of principal amount and specified dates are mentioned on which dates the principal amount needs to be repaid to banks. The Ld. Sr. Counsel referred to page 186 of paper book wherein clause 4.1.7.2 it is stated that the borrower will deposit all amount, instruments, proceeds, claims, monies and cash flow in the Escrow account. According to him, assessee is permitted to make investments only in "Perm....
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....sion". 29. The Ld. Sr. Counsel further pointed out that the investment in fixed deposit is not out of surplus funds available with the assessee and in fact assessee does not have any surplus funds, as the assessee has huge bank liability which is to be repaid as and when the assessee earn the income. According to assessee, instead of keeping the money in current account, the assessee as per the arrangement with the lenders, have deposited in Escrow account and from this account, the amount is invested in the fixed deposit; and relied on the Tribunal decision in assessee's own case for AY 2010-11 (ITA NO 663/Mum/2015); and also on the decision of Jaipur ITAT in the case of Road Infrastructure Development Company of Rajasthan Ltd Vs DCIT (ITA No 628/JP/2014). Further according to Ld. Sr. Counsel, the revenue's reliance made on the decision Hon'ble Bombay High Court in the case of M/s. Swami Spices Ltd. passed on 19th April, 2010 is distinguishable and in that case, the assessee company had deposited the surplus found in FD and therefore not applicable in the facts of the case. Therefore, he does not want us to disturb the impugned action of Ld CIT(A). 30. We have heard both the par....
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....ated out of business activity. And the Ld. CIT(A) also took note of the Tribunal order in assessee's own case on this issue for AY. 2010-11 (ITA. No.663/Mum/2015) wherein, it was held as under: - "5. Having heard rival submissions, we are of the view that there is merit in the later submissions made by Ld A.R. From the financial statements, we notice that the assessee has borrowed loans for executing the project and the amount of loan outstanding as on 31.3.2010 stand at Rs.824.73 crores. The loan taken from banks alone stands at Rs.503.29 crores. It is an admitted fact that the term loans have to be repaid in fixed installments and hence there is merit in the contentions of the assessee that it was constrained to keep the funds in fixed deposits to earn interest, which will meet a portion of interest burden of bank loans. Further, we find merit in the contentions of the assessee that it had to keep some surplus funds in hand in order to meet the maintenance requirements of the roads. In these set of facts, we are of the view that there were business exigencies in keeping the funds in fixed deposits and hence there is merit in the contentions of the assessee that interest income ....