Case Law Details
ACIT Vs Delhi Airport Metro Express Private Limited (ITAT Delhi)
ITAT Delhi held that even though assessee is not the owner of the Airport Metro Express Line Project it has right to collect fare from commercial operations. Thus, depreciation is eligible on such intangible assets as per provisions of section 32(1)(ii).
Facts- The assessee was a concessionaire for the Airport Metro Express Project of Delhi Metro Rail Corporation (DMRC) and had, pursuant to Concession Agreement dated 25.08.2008, developed the Airport Metro Express Project under Build-Operate-Transfer (BOT) scheme.
The assessee company in its profit and loss account had debited amortization/depreciation of the cost of development incurred in Airport Metro Express Project at Rs.4,45,51,048/- whereas in the computation of income claimed depreciation at Rs. 297,86,65,783/-as per section 32 of Income Tax Act and declared loss of Rs.573,72,02,672/-in its return of income as against the loss of Rs.325,65,17,845/- as per its Profit and Loss Account.
According to the AO, the assessee being a concessionaire cannot claim depreciation on the assets developed by it under BOT scheme since the infrastructure developed by the concessionaire was not owned by it and, therefore, depreciation on such assets was not admissible to it. AO disallowed the claim of depreciation amounting to Rs.297,86,65,783/- and instead allowed the amortization of Rs.75,93,00,658/- for this year of entire expenditure over the period of concession agreement of 30 years and thereby made a net disallowance of Rs.221,93,65,125/- on account of depreciation claimed by the assessee company.
CIT(A) allowed the appeal of the assessee and deleted the disallowance of Rs. 2,21,93,65,125/ – on account of depreciation. Being aggrieved, revenue has preferred the present appeal.
Conclusion-
Held the assessee even though is not the owner of the Airport Metro Express Line Project, but it has a right to collect fare from the commercial operations of the metro project and has shown an amount of Rs.25.78 Crores under the head ‘Revenue from Fare Collection’. Further, in this case also, it is not disputed that on the expiry of the time period of the agreement, the said right of the assessee will cease to have effect which means it slowly will depreciate to the nil value. Therefore, as held in the cited case, as per the provisions of section 32(1)(ii), the assessee was entitled to claim of depreciation on such type of rights being categorized as intangible assets. Further, the Ld. CIT(A) also gave a finding that the assessee has claimed depreciation only on those assets which were purchased out of its own funds and no depreciation was claimed on the assets which were handed over by DMRC. Therefore, in the given facts of the case, the order of the Ld. CIT(A) in deleting the disallowance of depreciation of Rs.22 1,93,65,221/- after allowing amortization of Rs.75,93,00,658/- is justified and same is upheld.
FULL TEXT OF THE ORDER OF ITAT DELHI
These appeals by the Revenue are directed against the order of the Ld. CIT(A)-34, New Delhi, both dated 22.01.2019 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’) pertaining to Assessment Years 2012-13 & 2013-14 respectively.
2. Since, the issues are common and connected, hence, the appeals were heard together and are being consolidated and disposed of by this common order.
3. For the sake of reference, we are referring to grounds of appeal raised in ITA No.4102/Del/2019, for Assessment Year 2012-13, which reads as under:-
“1. Whether on facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.221,93,65,125/- made by the AO on account of depreciation claimed, after allowing the benefit of amortization of Rs. 75,93,00,658/- to the assessee, ignoring the vital facts that the assessee was not the owner of the assets on which depreciation was claimed.”
4. Brief facts of the case: During the relevant year under consideration, the assessee was engaged in the business of Metro Rail The assessee was a concessionaire for the Airport Metro Express Project of Delhi Metro Rail Corporation (DMRC) and had, pursuant to Concession Agreement dated 25.08.2008, developed the Airport Metro Express Project under Build-Operate-Transfer (BOT) scheme. The assessee had been granted commercial right/concession to operate the project for a period 30 years. During the year, the assessee company had claimed depreciation of Rs.297,86,65,783/- on capital expenditure incurred for various assets for the project. The assessee company in its profit and loss account had debited amortization/depreciation of the cost of development incurred in Airport Metro Express Project at Rs.4,45,51,048/- whereas in the computation of income claimed depreciation at Rs. 297,86,65,783/-as per section 32 of Income Tax Act and declared loss of Rs.573,72,02,672/-in its return of income as against the loss of Rs.325,65,17,845/- as per its Profit and Loss Account. According to the AO, the assessee being a concessionaire cannot claim depreciation on the assets developed by it under BOT scheme since the infrastructure developed by the concessionaire was not owned by it and, therefore, depreciation on such assets was not admissible to it. The AO placed reliance on the circular no.9 issued by CBDT dated 23.04.2014, in which according to the AO the CBDT clarified that the cost of construction on development of infrastructure facility of roads/highways under BOT project may be amortized and claimed as allowable business expenditure under the Act. The Assessing Officer held that the said circular would be applicable to a case like that of an assessee company. The AO also received direction of Addl. CIT, Range-7, New Delhi vide letter dated 24.02.20 15 u/s 144A of the Income Tax Act, 1961. On the basis of the direction and relying on CBDT’s circular no.09/20 14 dated April 23, 2014, the Assessing Officer disallowed the claim of depreciation amounting to Rs.297,86,65,783/- and instead allowed the amortization of Rs.75,93,00,658/- for this year of entire expenditure over the period of concession agreement of 30 years and thereby made a net disallowance of Rs.221,93,65,125/- on account of depreciation claimed by the assessee company.
5. Against the said order, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) allowed the appeal of the assessee and deleted the disallowance of Rs. 2,21,93,65,125/ – on account of depreciation.
6. Against the said order, the Revenue is in appeal before us.
7. At the outset, the ld. AR submitted that this is a recurring issue and is covered in assessee’s favour by the decision of the Co-ordinate Bench of the Tribunal in the case of assessee itself for AY 2014-15 in ITA No.5660/Del/2019. The Ld. AR further relied upon the order of the Ld. CIT(A) and the written submission filed.
8. The ld. DR, however submitted that the Ld. CIT(A) in the case of the assessee company for AY 20 14-15 erred in allowing relief to the assessee by following the order of his predecessor for AYs 2012-13 and 2013-14. He submitted that the Ld. CIT(A) for AY 20 14-15 wrongly observed that on similar issue, appeal has been allowed in favour of the assessee by the ld. CIT(A) in Assessment Years 2012-13 and 2013-14 after following the decision of the Hon’ble ITAT Delhi in the case of the assessee in Assessment Year 2011-12 which was upheld by the Hon’ble Delhi High Court. He submitted that the decision of the Hon’ble Tribunal in the case of the assessee for AY 2011-12 in respect of an appeal filed by the assessee company against an order u/s 263 of the Act dated 30.03.20 16 passed by the then PCIT and confirmed by the Hon’ble Delhi High Court was not on the merits or the eligibility regarding the claim of the depreciation made by the assessee which is the subject matter of dispute in these appeals. Further, it was submitted that in this case, the Tribunal quashed the order u/s 263 on the ground that in the facts of the present case, the learned Principal Commissioner of Income-tax was not able to successfully establish through his enquiry that the order passed by learned Assessing Officer was unsustainable in law. Further, the Tribunal held that moreover the view taken by the learned Assessing Officer was a plausible view, which was supported by various judicial precedents. The same was upheld by the Hon’ble Delhi High Court in the case of the assessee in [2018] 99 taxmann.com 382 (Del.) by endorsing the above findings of the Tribunal. In view of the facts, it was submitted that the above decisions did not adjudicate the merits or the eligibility regarding the claim of the depreciation made by the assessee and the same may be decided afresh without placing reliance on the order of the Hon’ble Tribunal in the case of the assessee for AY 2014-15. On merits, the Ld. DR relied and supported the order of the Assessing Officer.
9. We have considered the rival submissions and perused the material available on the record. To appreciate the facts, the order of the Tribunal in the case of the assessee (supra) for AY 2014-15 is reproduced as under:-
“2. The solitary grievance of the Revenue is that the ld. CIT(A) erred in deleting the disallowance of Rs. 135,85,30,780/- made by the Assessing Officer on account of depreciation claimed.
3. None appeared on behalf of the assessee and the ld. DR moved an application seeking adjournment intending to file paper book and placing reliance on 51 com 214 [Bom] in the case of North Karnataka Expressway Ltd.
4. We do not find any reason to adjourn the appeal qua the findings of the ld. CIT(A) which read as under:
“4.2 I have considered the facts of the case and the submissions made by the ld. counsel for the assessee. It is observed that on similar issue, appeal has been allowed in favour of the appellant by the ld. CIT(A) in Assessment Years 2012-13 and 2013-14 after following the decision of the Hon’ble ITAT Delhi in the case of the appellant itself in Assessment Year 2011-12 which was upheld by the Hon’ble Delhi High Court. Respectfully following these orders in earlier years and keeping in view the principle of consistency and the fact that there is no change in facts, the addition made by the Assessing Officer is deleted and the grounds of appeal are allowed.”
5. As can be seen from the above, this is not the first year of claim of depreciation and in the earlier years, the depreciation has been allowed as mentioned in the findings of the ld. CIT(A). We, therefore, do not find any reason to interfere with the findings of the ld. CIT(A). Ground raised by the Revenue stands dismissed.”
9.1 The AO disallowed the depreciation following the directions of his Addl. CIT, Range-7, New Delhi on the ground that since the assessee had constructed the airport metro express project under the BOT Scheme, to which circular no.9/2014 was squarely applicable and as per the Circular since the assessee was not the owner of the assets, on which the depreciation was claimed, the assessee was not eligible for depreciation and the entire expenditure incurred by the assessee on acquisition of the assets has to be amortized evenly over the period of 30 years. The directions of the Addl. CIT, Range-7, vide letter dated 24.02.20 15 as discussed in para no.3.5 of the assessment order for AY 2012-13 is reproduced as under:-
3.5. Directions of Additional CIT, Range – 7, New Delhi vide letter dt. 24.02.2015 were received in the present case. The relevant extract of the same is reiterated herein below: —
“A reference u/s 1 44A has been made by the assessee on 02- 02-2015 in the above case for issuing directions to the DCIT, Circle 7(1), before whom assessment proceedings of the above named proceedings are pending for the A.Y. 2012-13. A letter was issued to the assessee on 04-02-2015 to attend this office and present its case before the undersigned. Shri Ajay Kumar Agarwal, CA attended on behalf of the assessee on 17- 02-2015 and furnished the requisite details and the case was discussed with him. On his request the case was further adjourned to 23-02-2015, when the case was again discussed with him thoroughly.
4. The assessee is Concessionaire of the Airport Metro Express Project of Delhi Metro Rail Corporation Ltd. (DMRC), which has been developed under Build – Operate – Transfer Scheme (BOT Scheme). The assessee has accepted the Concession for a period of 30 years and the Concession Period shall commence on the Available Date and shall end on the Termination Date. The assessee has claimed depreciation on various assets acquired by it in connection with development and operating the project. The DCIT, Circle 7(1). has required the assessee to explain as to why depreciation claimed by it be not disallowed, as under BOT Scheme, it is not owner of the assets acquired by it for the project. It is further enquired of the assessee as to why the cost of the assets be not amortized and allowed as expenditure over the period of concession agreement. The DCIT, Circle 7(1) has also referred to Circular No.09/2014 dated 23-04-2014 of the C.B.D.T. and placed reliance on this Circular. The assessee has made a submission on 30-01-2015 before the A.O., a copy of which has also been filed with the present reference u/s 144A made before the undersigned. The Issue was discussed with the A.R. of the assessee in the light of the above-mentioned submission.
5. The first objection of the assessee that the issue under consideration is not covered by the above mentioned Circular of C.B.D.T. In the interest of adjudication of the issue under consideration, it would be appropriate to reproduce the above Circular. The portions of this Circular either quoted by the assessee or otherwise considered relevant have been underlined. The Circular is reproduced as under:
“GOVERNMENT OF INDIA MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
CENTRAL BOARD OF DIRECT TAXES
NORTH BLOCK, NEW DELHI
CIRCULAR No. 9/2014, Dated: April 23, 2014
Subject:- Clarification regarding treatment of expenditure incurred for development of roads/highways in BOT agreements under Income-tax Act, 1961 – regarding.
It has come to the notice of the Board that disputes have arisen as to whether the expenditure incurred on development and construction of infrastructural facilities like roads/highways on Build-Operate-Transfer (‘BOT’) basis with right to collect toll is entitled for depreciation under section 32(1)(ii) of the Act or the same can be amortized by treating it as an allowable business expenditure under the relevant provisions of the Income-tax Act, 1961 (‘Act’).2.
2.In such projects, the developer (hereinafter referred to as ‘assessee’), in terms of concessionaire agreement with Government or its agencies is required to construct, develop and maintain the infrastructural facility of roads/highways which, inter-alia, includes laying of roads, bridges, highways, approach roads, culverts, public amenities etc. at its own cost and its utilization thereof for a specified period. In lieu of consideration of the expenditure incurred on construction, operation and maintenance of the infrastructure facility covered by the period of the agreement, the assessee is accorded a right to collect toll from users of such facility. The expenditure incurred by such assessee on development and construction of such infrastructural facility are capitalized in the accounts. It is seen that in returns-of-income; assessees are generally claiming depreciation on such capitalized expenditure treating it as an ‘intangible asset’ in terms of section 32(1) (ii) of the Act while in assessments, such claims are being disallowed by the Assessing Officer on the grounds that such Infrastructural facility is not owned, wholly or partly, by the taxpayer which is an essential condition for claiming depreciation and further right to collect toll does not fall in any of the categories of ‘Intangible assets’ specified in sub-clause(i) of sub-section (1) of section 32 of the Act.
3. In BOT arrangements for development of roads/highways, as a matter of general practice, possession of land is. handed over to the assessee by the Government/notified authority for the purposes of Construction of the project without any actual transfer of ownership and such assessee has only a right to develop and maintain such asset. It also enjoys, the benefits arising from use of asset through collection of Toll for a specified period without having actual ownership over such Therefore, the rights in the land remain vested with the Government or its agencies. Thus, as assessee does not hold any rights in the project except recovery of toll fee to recoup the expenditure incurred, it cannot therefore be treated as an owner of the property, either wholly or partly, for purposes of allowability of depreciation under section 32(1)(ii) of the Act. Thus, present provisions of the Act do not allow claim of depreciation on Toll ways due to non fulfilment of ownership criteria in such cases.
4. There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative expenses) during the construction Further, expenditure incurred by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the toll during the period of the agreement. Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT in 225 ITR 802 = 2002- TIOL-290-SC-IT-LB allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the company over a period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for the purposes of business or profession of the assessee and same may be allowed to be spread during the tenure of concessionaire agreement.5.
5. In view of above, Central Board of Direct Taxes, in exercise of the powers conferred under section 119 of the Act hereby clarifies that the cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under the Act.
6. The amortization allowable may be computed at the rate which ensures that the whole of the cost incurred in creation of infrastructural facility of road/highway is amortized evenly over the period of concessionaire agreement after excluding the time take for creation of such facility.
7. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility,of roads/highways under BOT projects in earlier year, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration may be deducted from the initial cost of infrastructure facility of roads/highways and the cost ‘so reduced’ shall be amortized equally over the remaining period of toll concessionaire agreement.
8.It is hereby clarifled that this Circular is applicable only to those Infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement.
9. This may be brought to the notice of all concerned.
Hindi version to follow.”
The assessee has with reference to para 8 the above Circular submitted that it is specifically applicable to infrastructure facilities of roads/ highways under BOT Scheme and not to any other BOT scheme. It seems that it was missed out on the assessee that the emphasis of this para is not as much on the words “infrastructure projects for development of road/highways” but as much on such projects “on BOT basis where ownership is not vested with the assessee under the concessionaire agreement.” First let us examine as to what issue is being addressed in this Circular and para 1 sets out the issue as “expenditure incurred on development and construction of infrastructural facilities like roads/highways on Build-Operate-Transfer (‘BOT’) basis”: In para 2 it is further specifically mentioned that infrastructural facility of roads/highways inter-alia, includes laying of roads, bridges, highways, approach roads, culverts, public amenities etc. If running of Metro is not a public amenity, then what can it be termed as. Therefore, the Circular is equally applicable to a Metro project on BOT basis where ownership is not vested with the concessionaire under the agreement and it is allowed to recoup expenditure incurred by it by allowing a portion of the proceeds from running of the Metro. The C.B.D.T. is trying to harmonize and standardize treatment of expenditure incurred by assessees under concessionaire agreement, where they don’t enjoy ownership right over such expenditure and are thus liable to be deprived of depreciation on assets acquired out of such expenditure. In order to safeguard the interests of such assessees, the field authorities are instructed to amortize such expenditure evenly over the period of concessionaire agreement after excluding the time taken for creation of such facility. Therefore, the contention of the assessee on the non-applicability of Circular No.9/2014 to its case is not tenable. The C.B.D.T. has relied upon the decision of Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs CIT in 225 ITR 802 for allowing spreading over of liability of a number of years on the ground that there was continuing benefit to the company over a period. Although, not admitted but even if it is presumed that the above Circular is not meant for a case like that of assessee even then harmonious construction of the facts of assessee’s case would lead to its being eligible for the same treatment as laid down by the Hon’ble Supreme Court and C.B.D.T. as discussed above. The assessee is not the owner of the assets acquired by it for development of the Metro Project under the BOT Scheme and thus not eligible for depreciation on such assets. In such a case only safeguard available to protect the interest of the assessee is to amortize the value of such assets evenly / over the period of concessionaire agreement,
5. The assessee has further submitted that as per para 3 of the above Circular, it debars depreciation only in respect of Toll ways and in this connection has quoted extracts from this para, which reads as ” Thus, present provisions of the Act do not allow claim of depreciation on Toll ways due to non fulfillment of ownership criteria in such cases.” The assessee is again resorting to selective reading and has again missed out on the fact that in para 2 the C.B.D. T. has also included that such toll ways inter-alia includes laying of roads, bridges, highways, approach roads, culverts, public amenities etc. The assessee has very conveniently ignored almost the entire contents of para 3 and highlighted the last sentence of this para. Para 3 highlights peculiar facts relating to the duties and rights of a concessionaire under the BOT Scheme. Although, in such cases the assessee is handed over possession of the land by the Government/notified authority for the purpose of development of infrastructure, but actual ownership of the land is not transferred to it. The assessee has only right to develop, maintain and operate such asset and it also enjoys the benefits arising from use of asset through collection of Toll for a specified period without having actual ownership over such asset. Since, the assessee does not enjoy the ownership of such assets acquired by it for implementation of the project, it is not entitled to depreciation under the Income Tax Act, 1961. Thereafter, the para 3 is concluded with the sentence cited by the assessee that thus depreciation is not admissible on Toll ways. Therefore, when the matter is considered in totality after taking into consideration the contents of para 1-3 as also other paras of the Circular No.9/2014, it is clear that this Circular is absolutely applicable to assessee’s case and also to other cases covered by BOT
6. The assessee has further submitted that it has incurred expenditure on furniture & fixtures, tickets, booths etc. and it is claiming depreciation as owner of all such assets ownership of such assets remains with it. The claim of the ownership of assets acquired by it for the purpose of development of the said Airport Metro Express project is not correct in the light of the facts of this case. Clause E. of the Concession Contract dated 25-08-2008 reads as ” MRC has accepted the request of the Consortium and has accordingly agreed to enter into the Concession Agreement with the concessionaire for execution of the Project on BOT basis, subject to and on terms and conditions set forth hereinafter.” Thus under the BOT scheme, the assessee is required to build the infrastructure, operate it during the period of concession agreement and on termination of the agreement transfer all such assets to DMRC. Article 7 of the Concession Agreement (Vol.II) provides that, “Upon Termination of this Agreement for any reason whatsoever, DMRC shall : (a) take possession and control of Airport Metro Express line forthwith.” Article 30.2(d) of the Concession Agreement (Vol.II) further provides that, “the Concessionaire executes such deeds of conveyance, documents and ‘other writings as the DMRC may reasonably require to convey, divest, and assign all rights, title and interest of the Concessionaire in the Airport Metro Express Line from all Encumbrances absolutely and free of any charge or tax unto the DMRC or its Nominee; and”. Therefore, the contention of the assessee that it is the owner of the assets acquired by it for the purpose of development of the project is not correct.
7. The assessee has also made a reference to Explanation 1 to Section 32(1)(ii), which reads as under:
“Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee.”
This Explanation is. applicable to capital investment Incurred by the assessee on renovation or extension work in a building not owned by it, but in respect of which it holds a lease or other right of occupancy. The expenditure incurred by the assessee on acquisition of assets for development of Airport Metro Express Project owned by DMRC cannot be equated with the expenditure as mentioned in Explanation 1. Moreover, it has already been discussed in para 6 above that inspite of incurring expenditure on assets under BOT Scheme, the concessionaire does not become owner of such assets unlike in the case of an assessee as mentioned in Explanation 1. Thus this claim of the assessee is also not tenable.
8. The assessee has also referred to Article 24 of the Concession Agreement, which is regarding insurance of the assets of the Metro Project in the joint names of MRC and the assessee, in support of its claim for depreciation on such assets on the ground that it is co-owner of such assets. The Article-24 reads as under:
“Article 24 – Insurance
24.1 Insurance during the Construction period:
Throughout the Construction Period the Concessionaire shall effect and maintain, or cause to be effected and maintained, in the joint names of DMRC and the Concessionaire and at no cost to DMRC, such insurances, including but not limited to insurance of the Concessionaire’s works and such sections of the DMRC works as has been given use of and liability to third parties, up to maximum sums as may be required under and in accordance with the Financing Documents, Applicable laws and such insurance as the Concessionaire may reasonable consider necessary or desirable ……
What is clear from the above Article is that DMRC wants to secure not only the civil work developed by it but also the assets acquired by the assessee, but the cost of insurance of all such assets is to be borne by the assessee. The reason for roping in assessee as co-insurer is that since the cost of insurance is to be borne by the assessee, it has also to be one of the insurers. Therefore, mere presence of this arrangement does not; confer any ownership of such assets on the assessee.
9. Finally, the assessee has also referred to Article 35 of the Concession Agreement, which is regarding rights and title of the assets of the project for the purpose of claiming of depreciation on such assets. The Article-35 reads as under:
35.3 For the purposes of the Concessionaire claiming tax deprecation, the property representing the capital investment made by DMRC shall be deemed to be acquired and owned by DMRC and not by the Concessionaire.”
The assessee is relying on this Article on the ground that inverse of this provision means that the assessee is deemed to be owner of the assets acquired by it as the DMRC is deemed to be owner of the assets acquired by the latter. First, the Article 35 does not say what the assessee is trying to convey. Second, who is the owner of assets has to be examined on the basis of facts and law. Under BOT Scheme, although, the Concessionaire incurs expenditure to acquire assets but it does not become the owner of such assets. Therefore, mutual agreement between the principal and the concessionaire to treat the latter as deemed owner of assets for the purpose of depreciation does not confer ownership on the assessee and makes it eligible for claiming depreciation. Any such mutual arrangement cannot get precedence over the facts of the case and provisions of the Income Tax Act.10.
10. In view of the above discussion, any of the contentions raised by the assessee in support of its claim for deprecation on assets acquired for implementation of Airport Metro Express Project. Since the said project has been completed under BOT Scheme, C.B.D.T. Circular No.09/2014 is squarely applicable to assessee’s case. Otherwise also under BOT Scheme, the assessee cannot be considered owner of assets acquired by it for implementation of the said project. In the light of the decision of the Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs CIT in 225 ITR 802, the expenditure incurred by the assessee on acquisition of such assets shall be amortized evenly over the Concession Period. Therefore, the A.O. must disallow depreciation claimed by the assessee on assets acquired by it in connection of implementation of Airport Metro Express Project. Instead, the entire expenditure incurred by the assessee on acquisition of such assets has to be amortized evenly over the period of concession agreement. Value of assets acquired before the commencement of the Concession Period shall be amortized evenly over the period of 30 years. Value of assets acquired in the subsequent year shall be amortized evenly over the remaining Concession Period. These directions are being issued in terms of section 1 44A of the Income Tax Act, 1961 for the guidance of the A.O. on a reference made by the assessee.”
9.2 The AO after considering the above directions of the Addl. CIT, Range-7, New Delhi, made a net disallowance of Rs.221,93,65,125/- of depreciation as per the following discussion in para no.3.4 of his order.
In view of the above directions of the Addl. CIT, Range-7, New Delhi and after considering the facts of the case and reply of the assessee, the claim of depreciation amounting to Rs. 297,86,65,783/- is being disallowed and instead the entire expenditure incurred by the assessee on acquisition of such assets is being amortized evenly over the period of 30 years commencing from the available date. Available date as per concession agreement dated 25.08.2008 means the date upon which DMRC formerly grants access to the concessionaire of the first section for the purpose of carrying out the concessionaire’s works. The available date as per letter dt. 09.07.2008 from DMRC is 25.06.2008. Thus, the date of termination of concession agreement is 24.08.2038. The value of assets is to be amortized in balance 327 months from 01.04.2011 to 24.06.2038 and the amount to be amortized during the A.Y. 2012-13 comes to Rs. 75,93,00,658/-. Therefore, net disallowance of Rs. 2,21,93,65,125/- is being made on account of depreciation claimed and the same is added back to the income of the assessee.”
9.3 The Ld. CIT(A) after considering the findings of the AO based upon the above directions of the Addl. CIT, Range-7 and the provisions contained in Circular No.9 dated 23.04.20 14 did not agree with the AO and deleted the said disallowance of depreciation. The findings of the Ld. CIT(A) is reproduced hereunder:-
“5.3 During the course of appellate proceedings, appellant has submitted that the appellant has entered into a concession agreement with M/s Delhi Metro Rail Corporation Ltd. on 25.08.2008 the tenure of which was for a period of 30 years for implementing the Airport Metro Express Line Project. The company received provisional certificate for commencement of commercial operation on 23.02.2011. In pursuance of the agreement, appellant had purchased assets from independent vendors, out of its own funds for setting up the project. Title to such assets vested solely with the company. Even the said assets during the subsistence of the agreement was undertaken by the company. At the end of the concession period, the assets would based in DMRC without any further act or deed on the part of the parties. During the tenure of concession agreement, the appellant is both the defacto and dejure owner of the assets installed is a part of the project. The company has acquired various assets for undertaking the metro project out of its own funds which primarily included plant and machinery, building, computers etc. The appellant has submitted that in the books of accounts, the company has amortized the cost of the assets over the concession period treating the same as in the nature of ‘intangible assets’ being business or commercial rights. However, the return of the income, the company had claimed depreciation with respect to such cost in terms of section 32(1)(ii) of the Act. The appellant has placed reliance on the various decisions of the judicial authorities in support of its contention.
5.4 I have considered the facts of the case, finding of the AO and submissions of the appellant. On the facts of the case, appellant has claimed depreciation amounting to Rs.297,86,65, 783/- on acquisition of assets of Airport Metro Express Project instead of amortizing the entire expenditure evenly over the period of concessionaire agreement of 30 years. The Assessing Officer has disallowed the appellant’s claim for depreciation and instead allowed amortization of the cost over the concession period stating the appellant was not the owner of the aforesaid assets. The Assessing Officer in doing so placed reliance on the CBDT Circular 09/2014 dated 23.04.2014. The AO has allowed the amount of amortization value of assets at Rs. 75,93,00,658/- and net disallowance was made at Rs. 221,93,65,125/-. As regards the disallowance, AR submitted that during the subsistence of the agreement, appellant was the owner of the assets and the legal title of such assets vested solely with the appellant. Further, the appellant was also responsible for the maintenance of such assets during the subsistence of the said Agreement. The appellant has acquired various assets for undertaking the metro project, which primarily included plant & machinery, building, computers, etc. The assets installed were under the legal ownership of the appellant and also the assets were used for purpose of business.
5.5 The AO held that the appellant was operating in the capacity of a Concessionaire to DMRC and was not the legal owner of the land on which such assets were constructed, the appellant could not be regarded as owner thereof, so as to be entitled to claim depreciation. This issue is further clarified by CBDT by circular no. 9 of 23.04.2014 on the subject clarification regarding treatment of expenditure incurred for development of roads/highways in BOT agreements under Income Tax Act 1961 regarding by stating that the cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under the Act.
The concessionaire cannot claim depreciation on the assets developed under BOT scheme as infrastructure developed by the concessionaire is not owned by the concessionaire. On the other hand, appellant has contended that circular is not applicable in its case and it is applicable on toll ways due to non-fulfilment of ownership criteria in such basis. It has incurred an expenditure on furniture and fixtures, tickets, booths etc. and is claiming depreciation as owner of all such assets. The appellant has made reference to explanation 1 to section 32(1)(il) which reads as under: –
[Explanation 1.-Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee.
The appellant owns the entire infrastructure during the concession period, although at the end of the concession period assets would vest in DMRC without any further act or deed on the part of the appellant. It has claimed depreciation in respect of eligible assets in the nature of super structure related to project constructed on the land, building, plant and machinery, computers which are owned by the appellant during the tenure of the agreement. The entire bills for purchase of assets are in the name of the company, the entire expenditure is incurred by the company out of its own sources. Hence, appellant is entitled to claim depreciation on the assets as they are for enduring benefit of 30 years as per the concessionaire agreement.
5.6 The similar issue is considered by the Hon’ble Mumbai ITAT in the case of ACIT vs. M/s West Gujarat Expressway Ltd. ITA No.5904/M/2012, wherein the assessee had entered into agreement with National Highways Authority of India (NHAI) vide which the assessee had been granted right/license to collect toll for the period of 20 years for upgradation, operation, maintenance and implementation of Jetpur-Rajkot Road Project. The said project had been assigned to the assessee as a concessionaire on ‘Built-Operate-Transfer’ (BOT) basis. The assessing officer denied the depreciation claimed by the assessee on toll roads amounting to Rs.40, 12,50,880, on the grounds that (i)’ownership’ of the road had been vested with the Government of India/NHAI and (ii) the same was never transferred to the assessee. The assessing officer, however, observed that since the assessee company had incurred huge expenditure on the said road which could not be otherwise treated as Revenue expenditure as the same had resulted into providing enduring benefit to the assessee company, the said amount would be eligible for amortization for the period of the concession agreement. On appeal against the aforesaid order, the CIT(A) deleted the disallowance made by the assessing officer in respect of claim of depreciation. On further appeal preferred by the Revenue, the Tribunal confirmed the order of the CIT(A) after specifically considering the aforesaid CBDT Circular No. 9 of 2014 held as under:-
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27. It is not disputed that the assessee has been given license/commercial right over the project to receive the toll. The assessee may not be the owner of the toll road, but he, certainly, is owner in possession of the right to collect the toll. The said right has been given to the assessee for a specified period with enduring benefit. It is also not disputed that on the expiry of the time period of the agreement, the said right of the assessee will cease to have effect which means it slowly will depreciate to the nil value. As per the provisions of the Income Tax Act, especially under section 32(1)(1), the assessee is entitled to claim of depreciation on such type of rights. Such rights have been described as intangible assets under the Act and are eligible for claim of depreciation.
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.
31. So far as the contention of the Revenue that the investment made by the assessee be treated as a revenue expenditure and be amortized for the period of the agreement, is concerned, we do not find any force in the same on the ground that not only the AO but also the CBDT in the circular (supra) as discussed above has admitted that the license of right to collect toll free has been given to the assessee in lieu of the investments made and that such a right brings to the assessee an enduring benefit. The investments made under such circumstances cannot be said to be of revenue in nature but, as discussed above, are of capital in nature. The assessee, thus, is entitled to claim depreciation on such type of capital asset.
32. In view of our above findings, this ground of the Revenue is hereby dismissed but on a different footing as discussed above and in terms of our observations made above.”
5.7 Hon’ble Allahabad High Court in the case of CIT vs. Noida Toll Bridge Co. Ltd: 213 Taxman 333, wherein the assessee company engaged in the business of constructing roads and bridges, entered into concession agreement with New Okhla Industrial Development Authority and under terms of agreement had constructed a road and bridge [Noida Bridge] connecting Delhi and Noida. The said bridge comprised and included adjoining roads and other related facilities. Under the concession agreement, land had been provided on lease by Government of U.P. to the assessee initially for a period of 30 years. Control of land identified as constituting bridge site was in complete and uninterrupted possession and use of assessee, which had powers to demand appropriate fees/toll from users of bridge and also had powers to restrict use of bridge to motorized vehicles, bicycles and pedestrians, etc. The assessee claimed depreciation on the toll road/bridge. The Revenue contended that the assessee was not the ‘owner’ of the road/bridge and thereby not entitled to claim depreciation under section 32 of the Act. On appeal, the CIT(A) as well as the Tribunal held in favour of the assessee. On further appeal preferred by the Department, the Hon’ble High Court affirmed the order of the Tribunal by making the following pertinent observations:
“22. The depreciation represents the diminution in value of a capital asset when applied to the parties of making profit or gain. The object is to get the true picture of the real income of the business. The respondent-assessee is engaged in the business of constructing roads and bridges. Under the concession-agreement the land is provided on lease initially for a period of 30 years which can be extended. The respondent-assessee company is a special purpose vehicle, engaged in the business of building, infrastructure/roads to generate revenues by collecting tolls to meet the cost of constructions and to earn profits. The construction of road on the leased land is the capital asset of the company, which remains under its ownership for the concession period. The respondent-assessee exercises its full ownership rights on the road which include charging of tolls which is ordinarily a sovereign function. The operation, maintenance and use of the road during the concession period is with the respondent-assessee. It has been given exclusive rights to regulate the use of the Noida-Bridge. The road is not simply a road laid out on the land. It includes all allied constructions, which includes the bridge site. The control of the land identified as constituting the bridge site is in complete and uninterrupted possession and use of the respondent-company. It has powers to determine, demand, collect, retain and appropriate fees from the users of the bridge and also has the power to restrict the use of the bridge to motorized vehicles, bicycle and pedestrians, and to debar animal driven vehicles, cycle rickshaw and cattle.
5.8 Hon’ble Hyderabad Bench of the Tribunal in the case of DCIT VS. Swarna Tollway (P.) Ltd: 150 ITD 26, where the assessee, a Special Purpose Vehicle (SPV) awarded contract by NHAI for widening, rehabilitation and maintenance of existing two lane highway into a four lane one on BOT basis, incurred entire cost of construction. After completion of construction, the highway was opened to traffic for use and the assessee started claiming depreciation in terms of section 32 of the Act. The assessing officer, however, disallowed depreciation holding that no ownership, leasehold or tenancy rights were ever vested with assessee in respect of the roads, for which it had claimed depreciation. On appeal, the CIT(A), however, reversed the order of assessing officer, holding that the assessee was entitled for depreciation as the assessee had been granted not merely possession but also right to enjoyment of site; NHAI was obliged to defend this right and the assessee had power to exclude others, notwithstanding that NHAI remained legal owner of site with full powers to hold, dispose of and deal with the same. On further appeal preferred by the Revenue, the Tribunal, relying on the order of the Allahabad High Court in the case of Noida Toll (supra), confirmed the order of the CIT(A) by holding that the term ‘owner’ used in section 32 of the Act meant a person entitled to receive income from property in his own right, though a formal deed of title may not have been executed.
5.9 Hon’ble Hyderabad Bench of the Tribunal in the case of DCIT vs. M/s Progressive Constructions Ltd.: [2018] 92 taxmann.com 104 (Hyderabad – Trib.) (SB), where again after considering the CBDT Circular No.9/2014 dated 23.04.2014, the Tribunal held that depreciation under section 32(1)(ii) of the Act was allowable in respect of assets acquired under the BOT arrangement.
5.10 Considering the above facts and decisions of the judicial authorities, appellant is eligible for depreciation as claimed by it. Further the Hon’ble High Court in assessee’s own case for AY 2011-12 vide order dated 05.09.2017 has upheld the ITAT’s decision of setting aside the PCIT’s order u/s 263 with the observation that “it was incumbent upon the PCIT to undertake an enquiry as regards which of the assets were purchased and installed by the assessee out of its own funds during the FY in question and which were those assets that were handed over to it by DMRC. That basic exercise of determining to what extend the depreciation was claimed in excess has not been undertaken by PCIT.” In the case of the appellant, it has claimed depreciation only on those assets which were purchased out of its own funds and no depreciation was claimed on the assets which were handed over by DMRC. Hence, disallowance made by the AO at Rs. 221,93,65,521/- after allowing amortization of Rs. 75,93,00,658/- is not sustainable and it is hereby deleted.”
9.4 In this case, the Ld. CIT(A) in para no. 5.3 of his order stated that the assessee had entered into a concession agreement with M/s Delhi Metro Rail Corporation on 25.08.2008, the tenure of which was for a period of 30 years for implementing the Airport Metro Express Line Project. The Ld. CIT(A) also noted that at the end of concession period, the assets would be based in DMRC without any further act or deed on the part of both the parties. Further, he noted that the assessee company had received provisional certificate for commencement of commercial operation on 23.02.2011 and was to run the Metro for a period of 30 years i.e. upto 24.08.2038 before being handed over to Delhi Metro Rail Corporation. Further, from note no.17 of the P & L Account on page no.27 of the paper book, it is seen that the assessee has shown an amount of Rs.25.78 Crores under the head ‘Revenue from Fare Collection’. Further, the ld. CIT(A) gave a specific finding in para no.5.10 of his order that considering the facts and decisions of the judicial authorities as discussed in his order, the assessee was eligible for depreciation as claimed by it. The Ld. CIT(A) in arriving at the above conclusion also referred to the decision of the Mumbai Bench of the Tribunal in the case ACIT vs. M/s West Gujarat Expressway Ltd.(supra), wherein, the Tribunal specifically considered the Circular No.9 of 2014 and allowed depreciation on similar facts by observing in para no.27 of the order, which is reproduced again for ready reference:-
“27. It is not disputed that the assessee has been given license/commercial right over the project to receive the toll. The assessee may not be the owner of the toll road, but he, certainly, is owner in possession of the right to collect the toll. The said right has been given to the assessee for a specified period with enduring benefit.
It is also not disputed that on the expiry of the time period of the agreement, the said right of the assessee will cease to have effect which means it slowly will depreciate to the nil value. As per the provisions of the Income Tax Act, especially under section 32(1)(1), the assessee is entitled to claim of depreciation on such type of rights. Such rights have been described as intangible assets under the Act and are eligible for claim of depreciation.”
9.5 The facts in the present case are similar to the facts of the cited case in as much as the assessee even though is not the owner of the Airport Metro Express Line Project, but it has a right to collect fare from the commercial operations of the metro project and has shown an amount of Rs.25.78 Crores under the head ‘Revenue from Fare Collection’. Further, in this case also, it is not disputed that on the expiry of the time period of the agreement, the said right of the assessee will cease to have effect which means it slowly will depreciate to the nil value. Therefore, as held in the cited case, as per the provisions of section 32(1)(ii), the assessee was entitled to claim of depreciation on such type of rights being categorized as intangible assets. Further, the Ld. CIT(A) also gave a finding that the assessee has claimed depreciation only on those assets which were purchased out of its own funds and no depreciation was claimed on the assets which were handed over by DMRC. Therefore, in the given facts of the case, the order of the Ld. CIT(A) in deleting the disallowance of depreciation of Rs.22 1,93,65,221/- after allowing amortization of Rs.75,93,00,658/- is justified and same is upheld.
10. In the result, the appeal of the Revenue is dismissed.
11. Ground No. 1 raised in ITA No.4103 / Del/ 2019 is similar to ground 1 raised in ITA No.4102/Del/2019 decided by us in earlier part of this order. Therefore, our above decision would apply mutatis-mutandis to this ground of the appeal and the deletion of disallowance of depreciation of Rs.187,88,47,894/- after allowing amortization of Rs.94,05,60,259/- by the Ld. CIT(A) is upheld.
12. Finally, both appeals of the Revenue are dismissed.
Order pronounced in the open court on 24th September, 2024.
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