BSC C&C Kurali Toll Road Ltd. Vs DCIT (ITAT Delhi)
The issue under dispute is with regard to availability of depreciation to the assessee whether it is to be allowed keeping the right to collect toll fee as intangible assets or it to be treated as building or plant & machinery as held in the decision relied by the Ld.CIT(A) rendered in the case of CIT vs Noida Toll Bridge Co. Ltd. (supra). We find that there were conflicting decisions rendered by the Hon’ble High Court and Co-ordinate Benches of the Tribunal.
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.”
Therefore, respectfully following the view expressed by the Hon’ble Bombay High Court and the Special Bench of this Tribunal, we hold that the assessee is eligible for depreciation @ 25% as claimed by the assessee. Thus, Ground of appeal No.1 raised by the assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
Both appeals filed by the assessee for the assessment years 201213 & 2013-14 are directed against the order of learned CIT(A)-35, New Delhi both dated 02.02.2017.
2. Both appeals were taken up together and being disposed of by way of a consolidated order. First we take up ITA No.1592/Del/2017 relating to Assessment Year 2012-13 wherein the assessee has raised following grounds of appeal:-
1. “That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while confirming the reduction of depreciation on Toll Road developed by the appellant company from 25% to 10% and confirming addition of Rs.70,58,54,074/- (including addition made as Ground of Appeal No.-2) on the ground that the roads are included in the definition of Building without accepting appellant’s contention that the appellant company has Rights in the developed Toll Road and the appellant is eligible for depreciation @ 25% under the head Intangible Assets.
2. That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while confirming deduction of Grant of Rs.43.92 Crores received from NHAI out of the total cost of project of Rs.441,27,05,614/- on the ground that the grant given by NHAI is to meet part of the cost of the project and is not a contribution towards the Equity Support.
3. That on the facts and circumstances of the case and in law, the Learned CIT (Appeals) has erred while confirming disallowance of provision made for major maintenance expenses amounting to Rs.3,00,00,000/- on the ground that the said provision is contingent in nature and the assessee has not made any expenditure on that count during the year under consideration and such a maintenance envisaged in the Common Rupee Loan Agreement at best is merely an estimate, indefinite, likely to take place at some future date and the same has not taken place at all.
3. Facts in brief are that the case of the assessee company was taken up for scrutiny assessment and the assessment u/s 143(3) of the Income tax Act, 1961 (in short “the Act”) was framed vide order dated 27.02.2015. Thereby, the claim of the assessee regarding depreciation @ 25% and provision for maintenance of Road was disallowed. However, the Assessing Officer allowed depreciation @ 10% instead 25% as claimed by the assessee.
4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A) who sustained both the disallowances.
5. Now, the assessee is in further appeal before this Tribunal.
6. Ground of appeal No.1 raised by the assessee is against adopting the depreciation @10% as against 25% claimed by the assessee.
7. Ld. Counsel for the assessee submitted that the issue is no more res integra. Under the identical facts, the issue is already decided in favour of the assessee vide various judicial pronouncements. Ld. Counsel for the assessee submitted that the assessee had developed Toll Road on Kurali-Kiratpur section in Punjab on BOOT basis. The contract was awarded by National Highway Authority of India (“NHAI”). The entire cost of construction was Rs.4,41,27,05,614/- including grant from NHAI amounting to Rs.43.92 crores. The assessee had claimed depreciation on the same @ 25% under the head intangible assets. He further submitted before the Assessing Officer it was claimed that the assessee is entitled for depreciation @ 25%. However, the Assessing Officer restricted it to 10% following the judgement of Hon’ble Allahabad High Court rendered in the case of CIT vs Noida Toll Bridge Co. Ltd. 213 Taxman 333. He contended that the authority below erred in holding that the assessee owned the road, which exfacie is incorrect. He submitted that the assessee is given right to collect the toll fee, such right cannot be equated with ownership. He drew our attention to clause 3.2 of Chapter II of contract to buttress the contention that the assessee is entitled to enjoy levy and appropriate the fee from vehicles and persons liable to payment of fee for using the highway or any part thereof. Hence, the assessee got right only to collect fee from the vehicles entering the road. He submitted that the Assessing Officer has failed to take note of the judgement of the Hon’ble Bombay High Court and the decision of Special Bench of this Tribunal. The Hon’ble Bombay High Court in North Karnataka Expressway Ltd. vs CIT in Appeal No.499 of 2012 and also the Mumbai Bench of this Tribunal referred in the case of ACIT vs M/s. West Gujarat Expressway Ltd. in ITA Nos. 5904 & 6244/M/2012 vide order dated 15.04.2015 have ruled in favour of the assessee. He also relied on the decision of the Co-ordinate Bench of this Tribunal in the case of DCIT vs M/s. Progressive Construction Ltd. in ITA No.214/Hyd/2014 dated 07.11.2014 and also on the decision of the Indore Bench of this Tribunal in the case of M/s. Kalyan Toll Infrastructure Ltd. vs ACIT in ITA Nos. 201 & 247/Ind/2008 vide order dated 14.12.2010.
8. Ld. Counsel for the assessee also relied on the decision of Hyderabad Bench of this Tribunal in the case of M/s. Mokama Munger Highway Ltd. vs ACIT in ITA Nos. 1729, 2145 & 2146/Hyd/2018 order dated 03.07.2019. Ld. Counsel for the assessee submitted that the Assessing Officer and Ld.CIT(A) have relied upon the decision of CIT vs Noida Toll Bridge Co. Ltd. 213 Taxman 333. He submitted that in the light of judgement of Hon’ble Bombay High Court in the case of North Karnataka Expressway Ltd. vs CIT in Appeal No.499 of 2012 (supra) which the assessee had relied, the assessee is entitled for depreciation @ 25%. He therefore, contended that the judgement of the Hon’ble Allahabad High Court is not to be followed. As it is settled law in, if there are two possible views which is supporting the assessee should be adopted. In support of this contention, re relied upon the judgement of Hon’ble Apex Court rendered in the case of CIT vs M/s Vegetable Products Ltd. 88 ITR 192 (SC).
9. On the contrary, Ld. CIT DR opposed these submissions and supported the orders of the authorities below.
10. We have heard the rival submissions and perused the material available on record. The issue under dispute is with regard to availability of depreciation to the assessee whether it is to be allowed keeping the right to collect toll fee as intangible assets or it to be treated as building or plant & machinery as held in the decision relied by the Ld.CIT(A) rendered in the case of CIT vs Noida Toll Bridge Co. Ltd. (supra). We find that there were conflicting decisions rendered by the Hon’ble High Court and Co-ordinate Benches of the Tribunal. However, the Tribunal in the case of ACIT vs M/s. West Gujarat Expressway Ltd. (supra) after considering the conflicting views held as under:-
28. “In view of the express provisions of the Act, we have no doubt to hold that the assessee is entitled to collect tax being an intangible commercial right under section 32(1)(ii) at the rate as has been prescribed under the relevant rules. Our above view is further supported by the decision of the co-ordinate Pune bench of the Tribunal in the case of M/s. Ashoka Infrastructure Ltd. Vs. ITO in ITA No.989/PN/2010 & ITA No.1105/PN/2010,wherein, the Tribunal while further relying upon another decision of the Coordinate Bench of the Tribunal in the case of ‘Ashoka Infraways Pvt. Ltd. Vs. ACIT’ in ITA No.185 & 186/PN/2012 dated 29.04.2013, 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. vs. 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 was justified. The following discussion in the order of the Tribunal dated 29.04.2013 (supra) is relevant :-
“7. Before us, it was a common point between the parties that the impugned issue has been adjudicated in favour of the assessee in the following decisions of the Tribunal:-
i) Ashoka Buildcon in ITA.No.1302/PN/09 dated 20.03.2012.
ii) M/s. Kalyan Toll Infrastructure Ltd. in ITA.Nos.201 & 247/Ind/2008 dated 14.12.2010.
iii) Dimension Construction Pvt. Ltd. in 1TA.No.222, 223, 233 & 857/PN/2009 dated 18.03.2011.
iv) Ashoka Info (P) Ltd. (supra)
v) Reliance Ports and Terminals Ltd. (supra).
8. The Ld. CIT(DR) appearing for the Revenue, has submitted that the ‘intangible assets’ eligible for depreciation in section 32(1)(ii) of the Act, are only those which are owned by the assessee and have been acquired after spending money. In the case of the assessee, by way of an agreement, assessee was awarded a work to construct a road by using own funds and the expenditure incurred was allowed to be reimbursed by permitting the assessee a concession to collect toll/fees from the motorists using the road. Therefore, it could not be said that such a right was within the purview of section 32(1)(ii) of the Act. However, the Ld. CIT(DR) has not contested the factual matrix that identical issue has been considered by our coordinate Benches in the case of Ashoka Buildcon Ltd. (supra), Kalyan Toll Infrastructure Ltd. (supra), Dimension Construction Pvt. Ltd. (supra) and Ashoka Info (P) Ltd. (supra).
9. On the other hand, the Ld. Representative for the respondent assessee pointed out that the aforesaid argument set up by the Revenue has also been considered in the aforesaid precedents before concluding that the impugned ‘Right to collect Toll’ was an ‘intangible asset’ eligible for claim of depreciation @ 25% as per sec. 32(1)01) of the Act.
10. We have carefully considered the rival submissions. Factually speaking, there is no dispute to the fact that the costs capitalised by the assessee under the head ‘License to collect Toll’ have been incurred for development and construction of the infrastructure facility, i.e., Dewas By- pass Road. It is also not in dispute that the assessee was to build, operate and transfer the said infrastructure facility in terms 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, therefore, we find no reasons to depart from the accepted position based on the aforesaid decisions.
11. So however, the plea of the Ld. DR before us is to the effect that the impugned right is not of the nature referred to in section 32(1)(ii) of the Act for the reason that the agreement with the Government of Madhya Pradesh only allowed the assessee to recover the costs incurred for constructing the road facility whereas section 32(1)(i1) of the Act required that the assets mentioned therein should be acquired by the assessee after spending money. The said argument in our view is factually and legally misplaced. Factually speaking, it is wrong to say that impugned right acquired by the assessee was without incurrence of any cost. In fact, it is quite evident that assessee got the right to collect toll for the specified period only after incurring expenditure through its own resources on development, construction and maintenance of the infrastructure facility. Secondly, section 32(1)(i1) permits allowance of depreciation on assets specified therein being ‘intangible assets’ which are wholly or partly owned by the assessee and used for the purposes of its business. The aforesaid condition is fully satisfied by the assessee and therefore considered in the aforesaid perspective we find no justification for the plea raised by the Revenue before us.
12. In the result, we affirm the order of the CIT(A) in holding that the assessee was eligible for depreciation on the ‘Right to collect Toll’, being an ‘intangible asset’ falling within the purview of section 32(1)(i1) of the Act following the aforesaid precedents.”
7. In terms of the aforesaid precedent, the claim of the assessee in the present case for depreciation on ‘License to collect Toll’, being an ‘intangible asset’ falling with the scope of Section 32(1)(ii) of the Act is liable to be upheld. We hold so.
8. In so far as the reliance placed by the CIT(A) on the judgement of the Hon’ble Bombay High Court in the case of Techno Shares And Stocks Ltd. (supra) is concerned it may only be noted that the said judgement has since been altered by the Hon’ble Supreme Court vide its order reported at (2010) 327 ITR 323 (SC). Accordingly, in view of the aforesaid discussion, we hereby allow the Ground of Appeal No. 1.1 raised by the assessee.”
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.”
11. The Special Bench of this Tribunal in ITA No.1845/Hyd/2014 in the case of ACIT vs Progressive Construction Ltd. order dated 14.02.2017 under the identical facts has held as under:-
17. “In the case of Techno Shares and Stocks Ltd. v/s CIT, [2010] 327 ITR 323 (SC), the Hon’ble Supreme Court while examining the assessee’s claim of depreciation on BSE Membership Card, after interpreting the provisions of section 32(1)(ii), held 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.”
12. Therefore, respectfully following the view expressed by the Hon’ble Bombay High Court and the Special Bench of this Tribunal, we hold that the assessee is eligible for depreciation @ 25% as claimed by the assessee. Thus, Ground of appeal No.1 raised by the assessee is allowed.
13. At the outset, Ld. Counsel for the assessee submitted that he does not wish to raise Ground No.2 of the appeal. Thus, Ground No.2 raised by the assessee is not pressed hence, the same is dismissed as not pressed.
14. Ground of appeal No.3 raised by the assessee is against the disallowance made by the Assessing Officer with regard to provision made for maintenance of the roads.
15. Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. For the sake of clarity, the submissions of the assessee are reproduced hereunder:-
“… That the appellant company has developed a Toll Plaza at Kurali Kiratpur Section on BOT Basis (Built, Operate and Transfer Basis). The company has to collect Toll from vehicles and as per the terms of the agreement with the employer (NHAI), Company has to execute the Major Maintenance Work of the total stretch once after every 5 years as provided in Clause No. 3.3.7 of Schedule L (Operation & Maintenance) of the Concession Agreement. Only relevant pages have been attached considering the same very voluminous.
That estimated cost of Major Maintenance is as detailed in the Common Rupee Loan Agreement entered into with the Financers (Banks & Financial Institutions) of the Project. Year-wise amount of Major Maintenance Expenditure is detailed in Schedule 5 – “MMR” of the Common Rupee Loan Agreement. Only relevant Schedule 5 has been attached considering the whole Agreement very voluminous. As per the said Schedule 5, Major Maintenance Expenditure to be incurred in the first 5 years is Rs.60.34 Crores (2.94 + 8.98 + 15.01 + 21.05 + 12.36).
Calculation of the Provision for Major Maintenance of Rs.3.00 Crores is as below:
