The assessee Corporation made a payment of RS.50 crore to Ministry of Railways, Government of India in FY 2005-06 as non-refundable registration fee for 20 years towards license for running container trains on Indian Railways Network. According to part B of New Appendix 1 to Income Tax Rules, 1962, the Licenses or any other business or commercial rights of similar nature are grouped under intangible assets and the depreciation at the rate of 25% is allowable on cost of the same. As the registration fees paid for licence for running the container trains is covered under definition of intangible assets, the depreciation is allowable at the rate of 25%.
FULL TEXT OF THE ITAT JUDGMENT
The present appeals have been filed by assessee against the order dated 21.07.2014 of the Ld. Commissioner of Income Tax (Appeals)-VI, New Delhi pertaining to the Assessment Years (A.Y.) 2007-08 and 2008-09 on the following common grounds.
ITA No. 5098/Del/2014
“1. On the facts and in law, the Ld.CIT(A) erred in confirming the order of Ld. AO passed u/s 154/147/143(3) of the Act in the case.
2. On the facts and in law, appellant is entitled to depreciation at 25% on intangible asset of licence for running container trains on Indian Railways Net work as per Part-B of New Appendix-1 to Income Tax Rules, 1962.
3. On the facts and in law, the said licence is capital asset of the appellant and it is even transferable as per the agreement and as such depreciation of 25% is admissible.”
2. Today before us assessee preferred appeal for AYs 2007-08 and 2008-09 on identical grounds of appeal. For the sake of convenience, grounds of appeal for A.Y. 2007-08 are reproduced hereinabove and facts relating to A.Y. 2007-08 are being dealt with as under.
3. Return declaring income of Rs.4,92,63,05,249/- was filed on 30.10.2007. The original assessment was completed u/s 143 (3) of the Act on income of Rs.8,38,00,90,942/-on 16.12.2009. The Assessee is a Government of India Undertaking working under the administrative control of Ministry of Railways. It is engaged in the business of handling and transportation of containerized cargo. Its operating activities are mainly carried out at its Inland Container Depots (ICDs), Container Freight Stations (CFS) and Port Side Container Terminals (PSCTS) spread all over the country. Its wagons are running on Indian Railways System for carriage of container traffic.
3.1. Assessee had claimed depreciation on intangible assets of licence for the years under consideration which was granted to assessee for running container trains on Indian Railways Network for twenty years. The claim was allowed in original assessment u/s 143 (3) but disallowed in the rectification proceedings u/s 154/147/143 (3) of the Act by the A.O., the facts are as under:
The assessee Corporation made a payment of RS.50 crore to Ministry of Railways, Government of India in FY 2005-06 as non-refundable registration fee for 20 years towards license for running container trains on Indian Railways Network. According to part B of New Appendix 1 to Income Tax Rules, 1962, the Licenses or any other business or commercial rights of similar nature are grouped under intangible assets and the depreciation at the rate of 25% is allowable on cost of the same. As the registration fees paid for licence for running the container trains is covered under definition of intangible assets, the depreciation is allowable at the rate of 25%. The same was accordingly allowed in the original assessment u/s 143 (3) of the Act.
The assessee is entitled to depreciation as claimed and allowed in the original assessment. In the first appeal against the reassessment, the Ld. CIT (A) who confirmed the addition and observed that licence was not owned by the Assessee as the ownership of the licence was with the Ministry of Railways and not with the Assessee company and as such the requirement of Section 32 (1 ) (ii) of the IT. Act was not fulfilled is wrong and against facts and law. It is universally and undisputedly recognized that licence is owned by the licence holder and the licence is not owned by the person who issued the licence. The licence in question is owned by the Assessee and it is used for the purpose of its business and as such it fulfills the requirement of Sec.32 (1) (ii) of the Act. Hence, the denial of depreciation is wrong.
3.2. In rectification proceedings u/s 154 of the Act Ld.AO observed that it was deferred revenue expenditure, which was to be amortized over a period of 20 years. The AO observed that registration fee paid for running containers cannot be considered as an intangible asset. Hence the claim of depreciation amounting to Rs. 8,43,75,000/- was not allowed in entirety.
However, the amortization amount of Rs.2,50,00,000/-was allowed. Therefore, an addition of Rs.5,93,75,000/- (Rs.8,43,75,000 – Rs.2,50,00,000/-) was made to the income of the assessee in the re-assessment.
4. Aggrieved by the order of Ld.CIT(A) assessee is in appeal before us. It was submitted that an identical issue arose for A.Y. 2008-09 in ITA No.1876/2012 wherein the issue was decided as under.
“14. We have carefully considered the rival contentions. In the present case undisputedly the assessee has paid Rs. 50 crores to the Ministry of Railway as non refundable registration fee for 20 years towards license for running container trains on Indian Railways facilities in terms of policy statement dated 09.01.2006. According to that policy it was permitted to move various operators container trains on Indian Railways. The registration fee of applicants who are not eligible would be refundable without interest. No such refund has been received by the assessee and therefore, it is apparent that appellant has been granted that new license. According to that license , it is flexible permission to run trains between any pairs of trains to any points in the entire country and there will be no limit on number of trains on any of the routes. The above permission was valid for a period of 20 years and further extendable by 10 years. Such permission is transferable from one operator to another operator subject to rules and conditions. On reading of the above policy documents it is apparent that assessee has acquired a commercial right to operate trains on the Indian Railway Track for 20 years by payment of Rs. 50 crores and which is transferable. The Hon’ble Delhi High Court in case of Areva T&D India Ltd Vs. DCIT 345 ITR 421 has held that intangible assets includes business claims, business information, business records and assets which are invaluable for carrying on the business of the assessee. It was further held that the intangible assets were comparable to a license to carry on the existing business and in Page 12 of 21 absence of such intangible assets it would have been difficult for the assessee to carry on its business. Therefore, it was held that such intangible assets are eligible for depreciation in terms of section 32(1)(ii) of the Act as under:-
“12. In the present case, it is seen that the assessee, vide slump sale agreement dated June 30, 2004, acquired, as a going concern, the transmission and distribution business of the transferor company with effect from April 1, 2004. As a result thereof, the running business of transmission and distribution was acquired by the transferee lock, stock and barrel minus the trade mark of the transferor which was retained by the transferor, for lump sum consideration of Rs. 44.7 crores. It is further seen that the book value of the net tangible assets (assets minus liabilities) acquired was recorded in the balance-sheet of the transferor as on the date of transfer as Rs. 28.11 crores. The said assets and liabilities were recorded in the books of transferee at the same value as appeared in the books of the transferor. The balance payment of Rs. 16,58,76,000 over and above the book value of net tangible assets, was allocated by the transferee towards acquisition of bundle of business and commercial rights, clearly defined in the slump sale agreement, compendiously termed as “goodwill” in the books of account, which comprised, inter alia, the following : (i) business claims, (ii) business information, (iii) business records, (iv) contracts, (v) skilled employees, (vi) know-how. It is also observed that the Assessing Officer accepted the allocation of the slump consideration of Rs. 44.7 crores paid by the transferee, between tangible assets and intangible assets (described as goodwill) acquired as part of the running business. The Assessing Officer, however, held that depreciation in terms of section 32(1)(ii) of the Act was not, in law, available on goodwill. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal approved the reasoning of the Assessing Officer thereby holding disallowance of depreciation on the amount described as goodwill. It was thus argued on behalf of the assessee-company that section 32(1)(ii) would mean rights similar in nature as the specified assets, viz., intangible, valuable and capable of being transferred and that such assets were eligible for depreciation. On behalf of the respondent it was argued that applying the doctrine of noscitur sociis the expression “any other business or commercial rights of similar nature” used in Explanation 3(b) to section 32(1) has to take colour from the preceding words “know-how, patents, copyrights, trade marks, licences, franchises”. It was urged that the Supreme Court had clearly held in Techno Shares and Stocks Ltd.  327 ITR 323 (SC) that “Our judgment should not be understood to mean that every business or commercial right would constitute a “licence” or a “franchise” in terms of section 32(1)(ii) of the 1961 Act”.
13. In the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression “business or commercial rights of similar nature” specified in section 32(1)(ii) of the Act. It is seen that such rights need not answer the description of “know-how, patents, trade marks, licences or franchises” but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred to in section 32(1)(ii) of the Act preceding the term “business or commercial rights of similar nature”, it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words “business or commercial rights of similar nature” have been additionally used, 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, Page 13 of 21 which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of “business or commercial rights” cannot be restricted to only the aforesaid six categories of assets, viz., know-how, patents, trade marks, copyrights, licences or franchises. The nature of “business or commercial rights” can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the business. In the circumstances, it is observed that in the case of the assessee, intangible assets, viz., business claims ; business information ; business records ; contracts ; employees ; and know-how, are all assets, which are invaluable and result in carrying on the transmission and distribution business by the assessee, which was hitherto being carried out by the transferor, without any interruption. The aforesaid intangible assets are, therefore, comparable to a licence to carry out the existing transmission and distribution business of the transferor. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares and Stocks Ltd.  327 ITR 323 (SC) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a “licence” or “akin to a licence” which is one of the items falling in section 32(1)(ii) of the Act.
14. In view of the above discussion, we are of the view that the specified intangible assets acquired under slump sale agreement were in the nature of “business or commercial rights of similar nature” specified in section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that section.”
15. As Assessee has earned a benefit of enduring nature of plying on Indian Railway tracks for a period of 20 years , we do not have any hesitation to hold that it is a capital asset in the form of right to operate. It is a valuable commercial right available to the assessee for a considerable long period therefore, following the decision of the Hon’ble Delhi High Court we are of the view that the assessee has acquired a „commercial right‟ which is eligible for depreciation u/s 32(1)(ii) of the Income Tax Act. Therefore, ground No. 3 and 4 of the appeal of the assessee is allowed holding that the assessee has acquired intangible assets which is a valuable commercial right for Rs. 50 crores and same is eligible for depreciation u/s 32(1)(ii) of the Act. In view of this ground No. 3 and 4 of the appeal of the assessee are allowed with above direction.”
4.1. Ld.Counsel thus submitted that the issue is squarely covered in favour of assessee vide order dt. 18.01.2017.
5. On the contrary, Ld.CIT, D.R. (by way of written submissions) submitted that the A.O. rightly treated non-refundable registration fee of Rs.50 crores as deferred revenue expenditure whereas assessee has reflected it as an intangible asset, terming it as ‘License Fee ’ and has claimed depreciation under the Act.
6. We have perused the submissions advanced by both the sides in the light of the records placed before us.
7. It is observed that in the original assessment proceedings depreciation was allowed to assessee, subsequent to which assessment was reopened as Ld.A.O. was of the opinion that assessee claimed excess expenses/deduction. Thereafter Ld.AO passed order u/s 154 of the Act by disallowing excess claim of depreciation amounting to Rs.2,50,00,000/-. It is observed that this Tribunal while deciding identical issue on similar facts held that license fee paid by assessee was to acquire a commercial right to operate trains on Indian Railway track for 20 years which was transferable. It is also observed that such right is significant to the business of assessee and without the license assessee could not have run its container on railway track. This Tribunal for A.Y. 2008-09 in assessee’s own case vide order dated 18/01/2017 held that, commercial right acquired by assessee by way of this license for earning enduring benefit for a period of 20 years would amount to capital asset. It is also observed that this view of Tribunal derives support from decision of Hon’ble Delhi High Court in the case of Areva T&D India Ltd. vs. DCIT reported in 345 ITR 421. Under such circumstances respectfully following the same view, we hold that the intangible asset acquired by assessee is eligible for depreciation @ 25% u/s 32(1)(ii) of the Act. Accordingly ground raised by assessee stand allowed.
7.1. As assessee has raised similar issue for A.Y. 2008-09 we refer to and rely upon the discussions hereinabove for disposing of the grounds raised therein.
8. In the result appeals filed by the assessee for both the Assessment Years stand allowed.
Order pronounced in the Open Court on 31st May, 2018.