In the case of BUILT OPERATE and TRANFER PROJECTS (‘BOT’), Under the concessionaire agreement between the Government and the developer, the developer is required to construct, develop and maintain the infrastructural facility of roads, highways etc. at its own cost and its utilization for a specified period. The developer collects toll from the user of such facility as consideration.
In such BOT arrangements, as a matter of general practice, possession of land is handed over to the developer by the Government/notified authority for project without any actual transfer of ownership and such taxpayer has only a right to develop and maintain such asset. At the end of the specified period, the developer may generally be required to hand over the infrastructure facility to the government at free of cost.
It is a matter of debate before courts/tribunals about the eligibility of depreciation on toll road. This issue has been dealt in number of Tribunal and courts. The CBDT vide its circular No. 9 Dated 23rd April, 2014 has clarified that the cost of construction on development of infrastructure facility of roads/highways under BOT basis may be amortized evenly over the period of the concessionaire agreement after excluding the time taken for creation of such facility. However, different decision has been taken in courts/Tribunal which can be elaborated as further:
Recently, in the case of North Karnataka Expressway Ltd. v. CIT (ITA No. 499 of 2012), the Bombay High Court has held that depreciation is not allowable on toll road constructed under the BOT basis since the toll road belongs to the Government and the assessee want not the owner of the said road. The ownership of the National Highway, being that of the Government, it can never be said to be divested of that absolute right by engagement of any person or by entrusting any of the functions of the authority to him.
However, the Bombay High Court in this case has not considered the ownership criteria on the basis of Income Tax Act, 1961 but on the basis of National Highways Act, 1956 or the National Highways Authority of India Act, 1988. The High Court has held that as per these Acts the assessee is not the owner of toll road which was constructed and maintained by it and therefore, depreciation cannot be allowed on the same. Further, it is to be mentioned that the CBDT circular as mentioned above has not been considered in this decision.
After going through the above decision, it can be opined that even Bombay High Court has held that depreciation is not allowable on toll road constructed under the BOT basis though after the clarification by the CBDT and the decision of other Courts and Tribunal the cost of construction on development should be amortized evenly over the period of the concessionaire agreement after excluding the time taken for creation of such facility.
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