Case Law Details
Jorabat Shillong Expressway Vs DCIT (ITAT Mumbai)
Mumbai ITAT held that concessionaire rights under a BOT/DBFOT agreement (right to operate and receive annuity) constitute an intangible asset eligible for depreciation u/s 32(1)(ii).
The assessee had constructed a highway project at its own cost under an NHAI concession and claimed depreciation @25% on the capitalized cost treated as intangible asset (right to receive annuity). The AO denied depreciation, treating the road as not owned by the assessee, and instead allowed amortization as per CBDT Circular 9/2014.
The Tribunal found that the department misunderstood the claim—the assessee was not claiming depreciation on the road, but on the license/right to operate and earn annuity, which is a “business or commercial right” akin to license. Such rights clearly fall within intangible assets under Section 32(1)(ii).
Relying on the Special Bench ruling in Progressive Construction Ltd. and multiple precedents, the ITAT held that investment in BOT projects creates an enduring intangible asset, i.e., the right to operate and earn revenue, and hence depreciation is allowable.
Accordingly, the assessee’s claim of depreciation was upheld, settling the issue in its favour.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Captioned appeals by the same assessee arise out of separate orders of learned first appellate authority, pertaining to the assessment years (‘A.Y.’ for short) 2017-18, 2018-19, 2020-21 and 2022-23. Since, the appeals involve common issues, they have been clubbed together and disposed of in a common order, for the sake of convenience.
2. At the outset, Shri J. D. Mistry, learned Sr. Counsel appearing for the assessee submitted that the core issue arising in all the appeals relates to disallowance of assessee’s claim of deprecation on the intangible asset acquired by the assessee while executing the contract of 4 laning of Jorabat-Shillong (Barapani) Section of National Highway – 40 in the States of Assam and Meghalay on Design, Build, Finance, Operate and Transfer (‘DBFOT’) basis. He submitted, if this issue gets decided in favour of the assessee, the other issues would more or less become academic. Hence, may be kept open.
3. Learned Departmental Representative (‘ld. DR’ for short) agreed with the aforesaid submissions of ld. Counsel for the assessee. Keeping in view the aforesaid submissions of the parties, we propose to deal with the issue of claim of depreciation at the very outset and, thereafter, if warranted, will take up the other issues arising in the appeals.
4. In this context, we propose to take up ITA No. 1204/Mum/2026, pertaining to A.Y. 2017-18 as the lead appeal.
ITA No. 1204/Mum/2026 (A.Y. 2017-18)
5. Ground no. 1 is a general ground, hence, no separate adjudication is required.
6. The issue relating to claim of depreciation is contained in ground no. 2 of the appeal. Before we proceed with the issue, it is necessary to briefly recapitulate the relevant facts. The assessee is a resident corporate entity stated to be engaged in the business of development of infrastructure projects. On 16.07.2010, the assessee entered into a concession agreement with the National Highway Authority of India (‘NHAI’ for short) for construction of four laning of Jorabat-Shillong (Barapani) Section of National Highway – 40 in the States of Assam and Meghalay for an approximate stretch of 61.92 kms on DBFOT basis. As per the terms of the concession agreement, the assessee was required to execute the entire project independently infusing its own funds and operating the toll road for a period of 20 years (concession period) and receive annuity at the specified rate. In terms with the agreement, the assessee executed the project employing its own funds and as on 31.03.2016, the total cost of the project was to the tune of Rs.966,64,10,079/-, which was capitalized in the books of accounts, by treating it as ‘fixed asset’. In the return of income filed for the A.Y. 2016-17, the assessee, for the first time, claimed depreciation on the capitalized cost. In the impugned assessment year, the assessee filed its return of income on 31.10.2017, declaring net loss of Rs.205,14,15,414/-. Subsequently, the assessee filed a revised return of income declaring loss of Rs.193,05,85,288/-. In the return of income, the assessee claimed depreciation of Rs.202,58,49,703/- on the opening written down value (‘WDV’ for short) of the intangible asset, being the capitalized cost of construction of toll road, by applying the rate of 25%.
7. In course of assessment proceeding, the Assessing Officer (‘A.O.’ for short), while examining assessee’s claim, was of the view that the toll road was neither owned by the assessee nor used for assessee’s business. Therefore, the claim of depreciation cannot be accepted. Accordingly, he issued a show cause notice to the assessee to justify the claim. In response to the show cause notice issued by the A.O., the assessee furnished a detailed submission stating that though the assessee is not owner of the toll road, however, he has acquired an intangible asset through concession rights to operate the toll road and receive annuity for a period of 20 years. It was submitted by the assessee that the depreciation is not claimed on toll road, but on intangible asset. The A.O., however, was not convinced with the submissions of the assessee and ultimately, disallowed assessee’s claim of depreciation. However, relying upon Circular No. 9/2014 issued by Central Board of Direct Taxes (CBDT) on 23.04.2014, the A.O. held that the assessee is eligible to amortize the expenditure incurred towards construction of the toll road over the period of concession agreement, i.e., 20 years. Accordingly, while disallowing assessee’s claim of depreciation, he allowed amortization of cost incurred by the assessee in the construction of the project for an amount of Rs.58,05,03,505/-.
8. The assessee contested the disallowance made by the A.O. by filing an appeal before ld. First appellate authority. However, at the first appellate stage, the decision of the A.O. was upheld.
9. Before us, ld. Sr. Counsel appearing for the assessee took us through the concession agreement dated 16.07.2010 with NHAI and submitted that the assessee was given the contract of Four-Laning of particular stretch of Jorabat Shillong (Barapani) Section of National Highway on DBFOT basis. He submitted, as per the terms of the agreement, the assessee was to construct the highway all by itself. He submitted, the scope of work included investigation, design, developing, engineering, procurement, delivery, transportation, installation, processing, fabrication, testing, commencing and other activities incidental to the construction. He submitted, the project has to be constructed strictly in conformity with the specification and standards provided in the concession agreement. He submitted, the scope of work further provides that the operation and maintenance of the highway will be in terms with the concession agreement.
10. He further submitted, as per clause 3.1.1 of the Agreement, the Authority, i.e., NHAI would grant concession to the assessee. The concession including exclusive right, license and authority during the subsistence of the agreement to construct, operate and maintain the Project for a period of 20 years will commence from the appointed date.
Drawing our attention to clause 5.1.1, he submitted, as per the terms of the agreement, the Concessionaire was required not only to construct the highway project, but also to operate and maintain it over the concession period. He submitted, clause 6.1 obligates the authority to provide support to the Concessionaire in executing the project.
Drawing our attention to clause 10.1 of the agreement, he submitted, the authority would provide the Concessionaire a Right of Way over the site of construction as a licensee.
Drawing our attention to clause 10.2.2, he submitted, the authority will not only grant the concessionaire access to the site for carrying out survey, investigations and tests, but will also grant the concessionaire leave and license rights in respect of all the land along with the buildings, constructions or immovable assets, if any, thereon for executing the project. He submitted, the agreement further provides that the license granted under the agreement shall terminate automatically upon termination of the concession agreement.
Drawing our attention to Article 12, ld. Counsel submitted, under the Agreement, the assessee is not only supposed to construct the highway, but also maintain and operate the highway over the concession period.
Drawing our attention to Article 14, he submitted, upon completion of construction work and successful testing, being certified by the Independent Engineer, the Authority shall issue a Completion Certificate. He submitted, after issuance of Completion Certificate, the commercial operation of the project shall commence.
Drawing our attention to Article 17 of the Agreement, he submitted, as per the terms of the agreement, the Concessionaire is obliged to operate and maintain the highway project during the concession period.
Drawing our attention to Article 27 of the Agreement, he submitted, upon successful completion of the project and commencement of operation, the Authority would pay the Concessionaire annuity at a particular amount as set out in the agreement.
Drawing our attention to Article 40 of the Agreement, ld. Counsel submitted, the Concessionaire cannot assign its rights to any other person, save and except with the prior approval of the authority.
11. Thus, he submitted, in terms with the concession agreement, the assessee not only constructed the highway project infusing its own funds, but is also required to operate and maintain for a period of 20 years. In return, the assessee was only to receive annuity at a specific rate. Thus, he submitted, by investing the funds, the assessee acquired the license to maintain and operate the toll road and also the right to receive annuity over the concession period. He submitted, the right acquired by the assessee to receive annuity over the concession period is definitely an ‘intangible asset’ as defined u/s. 32(1)(ii) of the Act. Drawing our attention to the said provision, he submitted, license is recognized as an intangible asset under the said provision. He submitted, while the assessee has claimed depreciation on the license granted to it by NHAI, the departmental authorities have misdirected themselves while holding that assessee’s claim of depreciation on toll road cannot be allowed as the assessee is neither the owner of the asset nor it is used for assessee’s business. He submitted, the assessee has never claimed either ownership over the toll road nor has claimed depreciation by treating the toll road as its asset. He submitted, as per the terms of the agreement, the assessee was given a license not only to construct the highway project but to operate and maintain it. Therefore, the license so given falls within the ambit of intangible asset as defined u/s. 32(1)(ii) of the Act.
12. He submitted, even Article 46.4 of the Concessionaire agreement recognizes the assessee to be the deemed owner of the intangible asset acquired by the assessee investing its funds. Ld. Counsel submitted, the issue is no more res integra in view of various decisions of Income Tax Appellate Tribunal (ITAT), including the decision of Special Bench in case of ACIT vs. Progressive Construction Ltd. (2018) 92 taxmann.com 104 (Hyderabad Trib.) SB. He also relied upon the following decisions:
| Sr. No. |
Decision | Citation |
| 1 | DCIT vs. Rajahmundry Expressway Ltd. | ITA No.6518/Mum/2017 |
| 2 | DCIT vs. Atlanta Limited | ITA No.3415/Mum/2015 |
| 3 | ITO vs. Andhra Pradesh Expressway Limited | ITA No.1522 and 1528/Mum/2023 |
| 4 | North Karnataka Expressway Ltd. vs. ACIT | ITA No.4372 and 4373/Mum/2012 |
| 5 | Kurukshetra Expressway Pvt. Ltd. vs. DCIT | ITA No.9544/Del/2019 |
| 6 | JCIT vs. ACP Tollways Private Limited | [2025] 179 taxmann.com 660 (Lucknow-Trib.) |
| 7 | DCIT vs. Gorakhpur Infrastruture Co. Ltd. | ITA No. 574/Mum/2020 |
| 8 | Gwalior Bypass Project Ltd. vs. ACIT | ITA No. 1297/Del/2019 |
| 9 | DCIT vs. Kosi Bridge Infraswtructure Co. Ltd. | ITA NO. 582/Mum/2020 |
| 10 | ACIT vs. West Gujarat Expressway | [2015] 57 taxmann.com 384 (Mumbai-Trib.) |
13. Further, ld. Counsel drew our attention to a decision of Hon’ble Madras High Court in case of M/s. Narmada Infraswtructure Construction Enterprises Limited vs. ACIT (in T.C.A No. 868 of 2009 and others vide judgment dated 29.12.2022). Taking us through the aforesaid judgement, ld. Counsel submitted that on a reading of judgement it appears that the issue has been decided against the assessee. However, the decision is clearly distinguishable. He submitted, the question posed to the Hon’ble High Court was ‘whether the assessee was entitled to treat the toll road and toll bridge as intangible asset and can claim depreciation thereon?’. He submitted, while specifically answering this question, Hon’ble High Court followed the decision of Hon’ble Bombay High Court in case of North Karnataka Expressway Ltd. vs. CIT [2015] 372 ITR 145 and held that neither toll bridge nor the toll road are tangible assets of the assessee in terms with section 32 of the Act. Hence, depreciation would not be available to the assessee.
14. He submitted, the present assessee’s claim of depreciation is not founded on the toll road as its asset. Rather, he submitted, the assessee is claiming depreciation on the concessionaire rights acquired by it under the Concession Agreement which is an intangible asset acquired by the assessee against the investment made in executing the highway project. He submitted, in fact, in case of North Karnataka Expressway Ltd. (supra), Hon’ble Bombay High Court has left the issue relating to claim of depreciation by treating the concessionaire right as intangible asset open upon considering the fact that assessee’s claim in that case was based on treating the toll road as an asset. He submitted, in case of Andhra Pradesh Expressway Limited (supra), the co-ordinate bench after taking note of the decision of Hon’ble Bombay High Court in case of North Karnataka Expressway Ltd. (supra) held that assessee’s claim of depreciation on right to collect annuity is allowable, as the assessee has not claimed deprecation on the toll road per se but has claimed on an intangible asset acquired in the form of right to collect annuity/toll. He submitted, while considering the claim of depreciation on right to collect annuity under an identical nature of contract executed with an NHAI, the co-ordinate bench in case of JCIT vs. ACP Tollways Private Limited (supra) had allowed the claim of deprecation by holding that the right to collect annuity is an intangible asset in terms with section 32(1)(ii) of the Act. Thus, he submitted, the right acquired by the assessee to collect/receive annuity over the concession period as against the investments made by it to design, build, operate and maintain the toll road is an intangible asset and the assessee is entitled to claim deprecation on it. Without prejudice, he submitted, in terms with CBDT Circular No. 9/2014 (supra), the assessee is otherwise entitled to amortize the cost incurred over the concession period. Thus, he submitted, the assessee is entitled to recover the expenditure incurred by it in the project either by way of depreciation or by way of amortization.
15. Thus, he submitted, there is only a timing difference, otherwise the issue is revenue neutral. He submitted, department’s approach on the issue is thoroughly inconsistent as it has taken varied stand in different assessment years. He submitted, in A.Y. 2016-17, neither depreciation nor amortization was allowed by the A.O. In A.Y. 2017-18, depreciation was disallowed, but amortization was allowed. In A.Y. 2018-19, depreciation was disallowed, whereas, amortization was allowed at the first appellate stage. He submitted in A.Y. 2019-20, assessee’s claim of depreciation was not disturbed as the case was not selected for scrutiny. He submitted, in A.Y. 2020-21, the A.O. himself allowed claim of depreciation on a part of the capitalized expenditure and no amortization was allowed. In A.Y. 2021-22, assessee’s claim of depreciation was not disturbed in absence of any scrutiny assessment. Whereas, in A.Y. 2022-23, claim of depreciation was disallowed, but amortization was allowed at the first appellate stage. He submitted in A.Y. 2023-24, assessee’s claim of deprecation remained undisturbed in absence of scrutiny assessment. Thus, he submitted, the inconsistent approach of the departmental authorities has put the assessee in lot of difficulties in absence of clarity on the issue. Thus, he submitted, the issue needs to be settled once for all at this stage.
16. Ld. DR submitted, the assessee was given the contract of executing the highway project. He submitted, the highway project undisputedly belongs to NHAI. Therefore, the assessee cannot claim depreciation on the highway (toll road) as it is neither the owner of the asset nor used it for its business. He submitted, assessee’s claim of depreciation by treating the right to receive annuity as an intangible asset is unacceptable as there is no certainty at what point such right accrued to the assessee. He submitted, if at all, the assessee acquired the right in terms with the agreement, such right accrued to the assessee on the date of concession agreement itself. He submitted, on the contrary, as per the CBDT Circlar referred to by the A.O., the cost incurred by the assessee has to be amortized over the concession period.
17. We have considered rival submissions in light of the judicial precedents cited before us and perused the materials on record. Insofar as, the primary facts are concerned, there is no dispute that the assessee has entered into a concession agreement with NHAI for construction of the designated highway project on DBFOT or Build–Operate–Transfer (BOT) basis. In other words, the assessee was required to undertake the entire gamut of the process involved in executing the project including design, building, finance, operation, maintenance, etc. The expression ‘construction’ has been defined in the Agreement to mean ‘all work including investigation, designing, developing, engineering, procurement, delivery, transportation, installation, processing, fabrication, testing, commencing and other activities incidental to the construction’. In other words, the assessee was required to undertake the project end to end till completion. Article 2 of Scope of the Project reads as under:
ARTICLE 2
SCOPE OF THE PROJECT
2.1 Scope of the Project
The scope of the Project (the “Scope of the Project”) shall mean and include, during the Concession Period:
(a) construction of the Project Highway on the Site set forth in Schedule-A and as specified in Schedule-B together with provision of Project Facilities as specified in Schedule-C, and in conformity with the Specifications and Standards set forth in Schedule-D;
(b) operation and maintenance of the Project Highway in accordance with the provisions of this Agreement; and
(c) performance and fulfilment of all other obligations of the Concessionaire in accordance with the provisions of this Agreement and matters incidental thereto or necessary for the performance of any or all of the obligations of the Concessionaire under this Agreement.
18. As could be seen from the reading of the said Article, the assessee was entrusted to execute the entire project on its own. The Concession as per Article 3.1 means as under:
ARTICLE 3
GRANT OF CONCESSION
3.1 The Concession
3.1.1 Subject to and in accordance with the provisions of this Agreement, the Applicable Laws and the Applicable Permits, the Authority hereby grants to the Concessionaire the concession set forth herein including the exclusive right, licence and authority during the subsistence of this Agreement to constrict,. operate and maintain the Project (the “Concession”) for a period of 20 (twenty) years commencing from the Appointed Date, and the Concessionaire hereby accepts the Concession and agrees to implement the Project subject to and in accordance with the terms and conditions set forth herein:
3.1.2 Subject to and in accordance with the provisions of this Agreement, the Concession hereby granted shall oblige or entitle (as the case may be) the Concessionaire to:
(a) Right of Way, access and licence to the Site for the purpose of and to the extent conferred by the provisions of this Agreement;
(b) construct the Project Highway;
(c) Subject to Clause 3.1.2(d), manage, operate and maintain the Project Highway and regulate the use thereof by third parties;
(d) allow and assist the Authority or Authority’s Contractor(s) in demanding. collecting and appropriating Fee from vehicles and persons liable for payment of Fee for using the Project Highway or any part thereof and refusing entry of any vehicle if the Fee due is not paid;
(e) perform and fulfil all of the Concessionaire’s obligations under and in accordance with this Agreement;
(f) bear and pay all costs, expenses and charges in connection with or incidental to the performance of the obligations of the. Concessionaire under this Agreement; and
(g) not assign, transfer or sublet or create any lien or Encumbrance on this Agreement, or the Concession hereby granted or on the whole or any part of the Project Highway nor transfer, lease or part possession thereof, save and except as expressly permitted by this Agreement or the Substitution Agreement.
19. A reading of the clause reveals that the assessee was granted the concessionaire right including the exclusive right, license and authority over the concession period not only to construct the project but to operate and maintain it.
20. As per Article 5.1 of the Agreement, the concessionaire is obliged to implement the project at its cost and expenses by procuring finance and undertaking the design, construction, operation and maintenance of the project as per the terms of the agreement. Article 10 of the Agreement provides that NHAI has to provide Right of Way to the concessionaire as a licensee not only to execute the project but to operate and maintain over the concession period. In this context, it is necessary to look into the following clauses of the agreement:
ARTICLE 10
RIGHT OF WAY
10.1 The Site granted by the Authority to the Concessionaire as a licensee under and in Schedule-A and in respect of which the Right of Way shall be provided and The site of the Project Highway shall comprise of the real estate described in accordance with this Agreement (the “Site”). For the avoidance of doubt, it is hereby acknowledged and agreed that references to the Site shall be construed as references to the real estate required for Four-Laning of the Project Highway as set forth in Schedule-A,.
10.2 Licence, Access and Right of Way
10.2.1 The Authority hereby grants to the Concessionaire access to the Site for carrying necessary during the Development Period. it being expressly agreed and out any surveys, investigations and spil tests that the Concessionaire may deem understood that the Authority shall have no liability whatsoever in respect of survey, investigations and tests carried out or work undertaken by the Concessionaire on or about the Site pursuant hereto in the event of Termination or otherwise.
10.2.2 In consideration of the Concession Fee, this Agreement and the covenants and warranties on the part of the Concessionaire herein contained, the Authority, in accordance with the terms and conditions set forth herein, hereby grants to the Concessionaire, commencing from the Appointed Date, leave and licence rights in respect of all the land (along with any buildings, constructions or immovable assets, if any, thereon) comprising the Site which is described, delineated and shown in Schedule-A hereto (the “Licensed Premises”), on an “as is where is” basis, free of any Encumbrances, to operate and maintain the said Licensed Premises, together with all and singular rights, liberties, privileges, easements and appurtenances whatsoever to the said Licensed Premises, hereditaments or premises or any part thereof belonging to or in anyway appurtenant thereto or enjoyed therewith, for the duration of the Concession Period and, for the purposes permitted under this Agreement, and for no other purpose whatsoever.
10.2.3 The licence, access and right of way granted by this Agreement to the Concessionaire shall always be subject to existing rights of way and the Concessionaire shall perform its obligations in a manner that two existing lanes of the Project Highway or an alternative thereof are open to traffic at all times during the Construction Period.
………..
21. Article 14.2 of the Agreement provides that upon completion of construction work and subject to successful testing and certification by an Independent Engineer, the Authority shall issue a Completion Certificate for commercial operation of the highway. Article 27 provides that for undertaking and successful completion of the project, the assessee would have right to receive the annuity at a specifically calculated sum.
22. Thus, reading of the Concession Agreement as a whole, leaves no room for doubt that the entire highway project was executed by the assessee independently at its own cost without receiving even a single penny from the Authority. What the assessee received against such investment is the right to operate the toll road for a period of 20 years and to receive annuity. Admittedly, the assessee has started claiming depreciation on the capitalized cost of the project in A.Y. 2016-17. In the subsequent years, the assessee has claimed deprecation on the opening WDV. The department has rejected assessee’s claim of depreciation assuming that the assessee has claimed depreciation on the toll road and the assessee neither being the owner of the toll road nor having used it for its business cannot claim depreciation. This, in our view, is the fundamental mistake committed by the department. The Concession Agreement itself demonstrates that the assessee was given a license not only to execute the project, but to operate and maintain it over the concession period upon receipt of annuity. It is a fact on record that the assessee has treated the right to receive annuity over the concession period as an intangible asset acquired by it by investing in the project. Section 32(1)(ii) reads as under:
Section 32(1)(ii)
(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, [not being goodwill of a business or profession]
23. Thus, as could be seen from the above extracted provision, license is one of the intangible assets. Undoubtedly, the assessee was given a license to execute the project and right to receive annuity. Therefore, the license given is an intangible asset coming within the ambit of section 32(1)(ii) of the Act. In case of ACIT vs. Progressive Construction Ltd. (supra), while dealing with more or less identical issue the Special Bench of ITAT has held as under:
8. We have patiently and carefully considered the rival submissions, perused the materials on record as well as the decision cited at the Bar.
9. The core issue arising for consideration in this appeal is in relation to assessee’s claim of depreciation on the asset created by investing an amount of Rs.214 crore in construction of Pune Hyderabad section of National Highway no.9, on build, operate and transfer (BOT) basis with a right to collect toll charges from the user of road by vehicles over the concession period of 11 years and 7 month. It is a fact on record that the assessee completed the construction of the project in the financial year 2008–09 and had started operating the same. It is also evident, in the assessment year 2009–10, the assessee had claimed depreciation @ 10% by treating the asset as building. However, from the assessment year 2010–11, the assessee had started claiming depreciation by treating the asset created as an intangible asset in terms of section 32(1)(ii) of the Act. We have also been informed that assessee’s claim of depreciation in assessment year 2009–10 and 2010– 11, were disallowed by the Assessing Officer. However, the learned Commissioner (Appeals) allowed assessee’s claim of depreciation as building in assessment year 2009–10 and as intangible asset in assessment year 2010–11. The aforesaid orders of the learned Commissioner (Appeals) were also upheld by the Tribunal while dismissing Department’s appeals on the issue. It is stated that the Department has challenged the decisions of the Tribunal in assessment year 2009–10 and 2010–11 in further appeal before the High Court of Andhra Pradesh and Telangana and the matters are still pending. Be that as it may, the aforesaid facts clearly indicate that the impugned assessment year is not the first year of claim of depreciation on the BOT road / bridge. Rather, in the impugned assessment year, depreciation has been claimed on the opening WDV which has also been accepted by the learned Departmental Representative in the written submissions filed by him. Therefore, the nature of expenditure, whether capital or revenue, is not a subject matter of dispute arising in the present appeal. Bearing this in mind, we have to examine the validity of assessee’s claim of depreciation qua the asset created. The learned Departmental Representative has opposed assessee’s claim of depreciation on the following propositions:–
i) Whether the expenditure claim of the assessee brings into being an asset which is owned and used by the assessee in its business;
ii) What is the nature of the asset that has come into being on account of the expenditure incurred by the assessee and what is the nature of such expenditure;
iii) If an asset is created, whether it is a tangible asset or an intangible asset;
iv) Whether the Concessionaire Agreement (C.A) held by the assessee can be regarded as a commercial or business right akin to a license;
v) If such C.A. is akin to a license, what intangible asset has been created for the assessee and what is the expenditure incurred by the assessee for acquiring such intangible asset.
10. Before dealing with the issue, it is necessary to reiterate that the Government of India being desirous of implementing a project involving, construction, operation and maintenance of four lane Pune Hyderabad section of N.H. no.9, with private sector participation of BOT invited tender from interested parties. The assessee being successful in the tender, the Government of India entered into a Concession Agreement (C.A) with the assessee on 22nd December 2005. At this stage, it is necessary to look into some of the relevant clauses of C.A., which in our opinion, will have a crucial bearing in deciding the issue. As per clause 2.1 of the C.A., the Government of India grants and authorises the concessionaire i.e., the assessee to investigate, study, design, engineer, procure, finance, construct, operate and maintain the project and to exercise and/or enjoy the rights, powers, privileges, authorizations and entitlements in terms of the agreement including the right to levy demand, collect and appropriate fee from vehicle and persons for using the project / project facilities or any part thereof. As per clause 2.2 of the C.A., the assessee is granted concession for a period of 11 years 7 months from the commencement date. As per clause 2.4, the Government of India was obliged to hand over to the assessee physical possession of the project site free from encumbrances within 30 days from the date of the agreement. It further provides, once the project site is handed over to the concessionaire, it shall have exclusive right to enter upon, occupy and use the project site and to make at its costs, charges and expenses such development and improvement in the project site as may be necessary or appropriate to implement the project and to provide project facility in terms of the agreement. Clause– 2.5 of the agreement provides that the concessionaire without prior written consent or approval of the Government of India cannot use the project site for any purpose, other than, for the purpose of the project / project facilities as permitted under the C.A. Clause 2.7 of the C.A. makes it clear that the project site belongs to and has vested in Government of India and the Government of India has full power to hold, dispose off and deal with the same consistent with the provisions of the C.A. However, it also makes it clear that the concessionaire, subject to complying with the terms / conditions of the agreement remains in peaceful possession and enjoyment of the project site during the concession period. It further provides, in the event the concessionaire is obstructed by any person claiming any right, title or interest over the project site or any part thereof or in the event of any enforceable action including any attachment, distraint, appointment of receiver or liquidator being initiated by any person claiming interest over the project sites. Government of India not only will defend such claims or proceedings but also keep the concessionaire indemnified against any direct or consequential loss or damage which it may suffer on account of any such right, title, interest or charge. As per clause 2.8 of the C.A., though, the concessionaire shall have exclusive right to use of the project site in accordance with the provisions of the agreement and for this purpose, it may regulate the entry and use of the same by the third parties, however, it shall not part with or create any encumbrance on the whole or any part of the project site save and except, as set forth and permitted under the agreement. Clause 4.1 of the C.A. entitles the concessionaire to levy, demand and collect fee for user of the roads by vehicles and persons in accordance with the fee notification to be issued by the Government of India. However, concessionaire cannot levy and collect any fee until it has received completion certificate. Clause 5.1 and 5.2 of the C.A. lays down the obligation of the concessionaire for execution and implementation of the project / project facility during the concession period. From the reading of the aforesaid clauses of the contract, following facts emerge:–
- The right, title and ownership of the project site vests absolutely with the Government of India and it has full powers to hold, dispose off and deal with the same;
The Government of India has handed over physical possession of the project site to the concessionaire for executing / implementing the project and operating the same during the concession period;
Concessionaire shall have exclusive right to use the project site for executing / implementing the project in terms of C.A;
Concessionaire shall, at its own costs and expenses, execute / implement the entire project and operate and maintain the same during the concession period; and
The concessionaire shall have the right to levy / demand and collect fee as approved by the Government of India towards user of the project facilities by vehicles and persons.
11. Undisputedly, for executing the project, assessee has incurred expenses of Rs.214 crore. It is also not disputed that as per the terms of the C.A., the Government of India is not obliged / required to reimburse the cost incurred by the assessee to execute / implement the project facilities. The only right / benefit allowed to the assessee by the Government of India is to operate the project / project facilities during the concession period of 11 years 7 months and to collect toll charges from vehicles / persons using the project / project facilities. Thus, as could be seen, the only manner in which the assessee can recoup the cost incurred by it in implementing the project / project facility is to operate the road during the concession period and collect the toll charges from user of the project facility by third parties. Admittedly, the assessee has taken up the project as a business venture with a profit motive and certainly not as a work of charity. Further, by investing huge some of Rs.214 crore, the assessee has obtained a valuable business / commercial right to operate the project facility and collect toll charges. Therefore, in our considered opinion, right acquired by the assessee for operating the project facility and collecting toll charges is an intangible asset created by the assessee by incurring the expenses of Rs.214 crore. The contention of the learned Senior Standing Counsel that expenditure of Rs.214 crore has brought into existence a tangible asset in the 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, the expenditure incurred by the assessee of Rs.214 crore for creating the project or project facilities has created an intangible asset in the form of right to operate the project facility and collect toll charges. Further, it is the contention of the learned Senior Standing Counsel that if at all any right is created under the C.A. for collecting toll, such right accrued to the assessee on the date of execution of agreement i.e., 22nd December 2005, therefore, the expenditure incurred by such date should be the value of intangible asset which can alone be considered for depreciation under section 32(1)(ii) of the Act. We are afraid, we cannot accept the above argument of the learned Senior Standing Counsel. When the C.A. confers a right on the assessee to operate the project facility and collect toll charges over the concession period of 11 years and 7 months, the assessee can start operating and collecting toll charges only when the project facility is ready for use. Therefore, until the project is completed and ready for use by vehicles or persons assessee cannot collect toll charges for user of the project facilities. Thus, the right to operate the project facility and collect toll charges is integrally connected to the completion of the project facility which cannot be done unless the assessee invests its fund for completing the project. Therefore, keeping in view the aforesaid fact, it cannot be said that the right to collect toll has accrued to the assessee on the date of execution of the agreement. If we accept the aforesaid argument of the learned Senior Standing Counsel, in other words, it would mean that without even executing and completing the project facility, assessee would be collecting toll charges. Therefore, the contention of the learned Senior Standing Counsel that the expenditure incurred by the assessee till execution of the agreement can only be considered as an intangible asset, in our view, is illogical, hence, cannot be accepted. Thus, having held that the expenditure of Rs.214 crore incurred by the assessee has resulted in creation of an intangible asset of enduring nature for the assessee, it is necessary now to examine whether such intangible asset comes within the scope and ambit of section 32(1)(ii) of the Act. For this purpose, it is necessary to look into the said provision which is reproduced hereunder for the sake of convenience.
Depreciation.
32(1)(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature67, being intangible assets acquired on or after the 1st day of April, 1998, owned67, wholly or partly, by the assessee67 and used for the purposes of the business67 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 facility and collect toll charges is in the nature of license. However, the learned Senior Standing Counsel has strongly countered the aforesaid claim of the assessee by referring to the definition of license as provided under the Indian Easements Act, 1882. For better appreciation, we intend to reproduce herein below the definition of “license” as provided under section 52 of the Indian Easements Act, 1882:–
“License” defined:– Where on person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a license.”
14. It has been the contention of the learned Senior Standing Counsel that as the term “license” has not been defined under the Income Tax Act, 1961, the definition of “license” under the Indian Easements Act, 1882, has to be looked into. Accepting the aforesaid contention of the learned Senior Standing Counsel, let us examine the definition of “license” extracted herein above. A plain reading of section 52 of the Act makes it clear, a right granted to a person to do or continue to do something in the immovable property of the grantor, which, in the absence of such right would be unlawful and such right does not amount to an easement or interest in the property, then such right is called a license. If we examine the facts of the present case, vis–a–vis, the definition of license under the Indian Easements Act, 1882, it would be clear that immovable property on which the project / project facility is executed / implemented is owned by the Government of India and it has full power to hold, dispose off and deal with the immovable property. By virtue of the C.A., assessee has only been granted a limited right to execute the project and operate the project facility during the concession period, on expiry of which the project / project facility will revert back to the Government of India. What the Government of India has granted to the assessee is the right to use the project site during the concession period and in the absence of such right, it would have been unlawful on the part of the concessionaire to do or continue to do anything on such property. However, the right granted to the concessionaire has 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 rights of similar nature”, should be similar to one or more of the specifically identified assets preceding such expression. The aforesaid contention of the learned Departmental Representative is unacceptable for the reasons enumerated hereinafter.
16. We have already held earlier in the order that by incurring the expenditure of `Rs.214 crore assessee has acquired the right to operate the project and collect toll charges. Therefore, such right acquired by the assessee is a valuable business or commercial right because through such means, the assessee is going to recoup not only the cost incurred in executing the project but also with some amount of profit. Therefore, there cannot be any dispute that the right to operate the project facility and collect toll charges therefrom in lieu of the expenditure incurred in executing the project is an intangible asset created for the enduring benefit of the assessee. Now, it has to be seen whether such intangible asset comes within the expression “any other business or commercial rights of similar nature”. As could be seen from the definition of intangible asset, specifically identified items like knowhow, patents, copyrights, trademarks, licenses, franchises are not of the same category, but, distinct from each other. However, one thing common amongst these assets is, they all are part of the tool of the trade and facilitate smooth carrying on of business. Therefore, any other intangible asset which may not be identifiable with the specified items, but, is of similar nature would come within the expression “any other business or commercial rights of similar nature”. The Hon’ble Supreme Court in CIT v/s Smifs Securities (supra) after interpreting the definition of intangible asset as provided in Explanation 3 to section 32(1), while opining that principle of ejusdem generis would strictly apply in interpreting the definition of intangible asset as provided by Explanation 3(b) of section 32, at the same time, held that even applying the said principle ‘goodwill’ would fall under the expression “any other business or commercial rights of similar nature”. Thus, as could be seen, even though, ‘goodwill’ is not one of the specifically identifiable assets preceding the expressing “any other business or commercial rights of similar nature”, however, the Hon’ble Supreme Court held that ‘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 line and are clearly distinct from one another. The Court observed, the use of words “business or commercial rights of similar nature”, after the specified intangible assets 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 which were neither visible nor possible to exhaustively enumerate. The Hon’ble Court, therefore observed, in the circumstances the nature of business or commercial right cannot be restricted only to knowhow, patents, trademarks, copyrights, licence or franchise. The Court observed, any intangible assets which are invaluable and result in smoothly carrying on the business as part of the tool of the trade of the assessee would come within the expression “any other business or commercial right of similar nature”.
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.
24. The only distinguishing features between assessee’s case and the case of Progressive Construction Ltd. (supra) is in case before the Hon’ble Special Bench, the assessee received right to collect toll over the concession period in contrast to the present assessee receiving annuity. In case of ITO vs. Andhra Pradesh Expressway Limited (supra), the co-ordinate bench while dealing with identical issue of depreciation on intangible asset, being right to collect annuity, has held as under:
“18. Having heard both the parties and after perusal of the records, we note that assessee had constructed the road/Project Highway [as stated at Page 12 of Concession Agreement (CA) for Design, Construction, Development, Finance, Operation & Maintenance of KM 135, 469 (End of proposed Kolkata Bypass) to KM 211 (Kurnool) on NH-7 in the State of Andhra Pradesh under North-South Corridor (NHDP Phase II) on BOT (Annuity) basis] as per the terms of CA dated 20.03.2006 signed between NHAI and assessee-company. The assessee had filed its return of income on 26.09.2011 declaring loss of Rs. 88,91,21,522/- and the assessee initially claimed depreciation @ 15% on opening WDV on toll roads and thereafter revised the claim of depreciation @ 25% on the right to collect “annuity” on the toll road constructed as an intangible asset u/s. 32(1)(ii) of the Act. But the AO rejected the claim of depreciation but allowed amortization of the expenditure incurred on the construction of the road amounting to Rs. 43,66,99,212/- which action of AO is as per the CBDT Circular No. 09/2014. On appeal, the Ld. CIT(A) took note of the decision of the Hon’ble Rajasthan High Court in the case of Pr.CIT v. GVK Jaipur Expressway Ltd. (supra) wherein their Lordships held that the developer of roadways was entitled to claim depreciation [this decision of Hon’ble Rajasthan High Court was challenged by the revenue before Hon’ble Supreme Court by preferring SLP which was dismissed (supra)]. The Ld. CIT(A) also noted that the Hon’ble Madras High Court has followed the ratio of the decision of Hon’ble Rajasthan High Court in the case of Jaipur Expressway (supra) in the case of CIT Vs. Tamil Nadu Road Development Ltd. (supra) and allowed the claim of depreciation at the rate of 10% on the roadways built and maintained by the assessee on BOT basis. Still not satisfied the assessee has filed the appeal claiming 25% depreciation on the right to claim “annuity” 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 has distinguished the decision of the Hon’ble Bombay High Court which action of Tribunal according to him, is not supported by the decision of any High Courts. Thereafter, he took note of the decision of Hon’ble Rajasthan High Court in the case of Jaipur Expressway Ltd. (supra) and Hon’ble Madras High Court decision in the case Tamil Nadu Road Development Ltd. (supra) and allowed the claim of depreciation partly by allowing 10% of the depreciation instead of the 25% depreciation on the opening WDV.
19. We do not countenance the action of Ld CIT(A) of not appreciating/understanding the Tribunal order in assessee’s own case for AY 2010-11 wherein the Tribunal has clearly distinguished the ratio of the Hon’ble Jurisdictional High Court in the case of North Karnataka Expressway Ltd. (supra) & West Gujarat Expressway Ltd. (supra) and in these two cases, the Hon’ble High Court did not dealt with assessee’s claim of depreciation on right to annuity [Intangible Asset u/s 32(1)(ii) of the Act]. It is further noted that Hon’ble High Court while deciding the case of North Karnataka Expressway Ltd. (supra) has observed that as the assessee had invested in the project of construction, development and maintenance of the National Highway, therefore, claim for depreciation on the assets in the form of building and plant & machinery etc. can be validly raised and granted. Also, their Lordship had referred to the observation recorded by the CIT in his order passed under Sec.263 of the Act, wherein he had while declining the assesses claim for depreciation on ‘toll road’ had categorically stated that it was not the case of the assessee that the claim of depreciation was being raised in respect of its intangible rights i.e. right to use the asset without being the actual owner of the same.
20. We further note that in both the cases i.e. of North Karnataka Expressway Ltd. as well as of West Gujarat Expressway Ltd., (supra) the decision was rendered by the Hon’ble Jurisdictional High Court order in the context of the issue that as to whether or not an Infrastructure Development Company which had constructed a “toll road” on BOT basis on the land owned by Central Government would be entitled for depreciation on such ‘toll road’. We find that the Hon‟ble High Court had observed that in the absence of ownership of the ‘toll road’ which belonged to the Central Government, the assessee 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 its investments made in the project and such other assets. Accordingly, it was observed by the Hon’ble High Court of its order that the claim for depreciation could be validly raised and granted to the extent stated hereinabove. Also, it was clarified by the Hon‟ble High Court that their Lordships was concerned only with the claim of the assessee as regards depreciation on the road itself. It is noted that the Hon’ble High Court in its aforesaid judgments had confined its adjudication to the issue that as to whether or not an Infrastructure Development Company that had constructed a road on BOT basis on land owned by the Central Government would be eligible to claim depreciation on such ‘toll road’ so constructed and operated by it. Accordingly, we are of the considered view, that the issue as to whether an Infrastructure Development company that had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government would be entitled to claim depreciation under Sec. 32(1)(ii) in respect of its intangible rights i.e. “right to collect annuity / toll” had not been adjudicated by the Hon’ble High Court in its aforesaid order in the case of North Karnataka Expressway Ltd. (supra). We further find that the Hon’ble Jurisdictional High Court had thereafter once again reiterated its aforesaid view while disposing off the appeal of the revenue in the case of M/s West Gujarat Expressway Ltd. (supra). As is discernible from the order, the only two issues which were raised by the revenue in its aforesaid appeal before the High Court were, viz. (i). Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in directing the A.O to grant depreciation on assets not owned by the Respondent that goes against provisions of Section 32 of the I.T Act?; and (ii). Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in its decision of treating toll roads as plant and machinery, when this is not as per rule 5 of New Appendix of the I.T Rules?. As such, we find that the revenue had only sought the adjudication of the issue as to whether the Tribunal was right in allowing depreciation to the assessee on “toll roads” by treating the same as plant and machinery. It is in the backdrop of the aforesaid issues which were raised by the revenue that the Hon‟ble High Court by relying 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 of the Tribunal in the case of Progressive Construction Ltd. (supra) had concluded, that where an Infrastructure Development company that had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government gets vested with a right to an intangible asset under Explanation 3(b) r.w. Sec.32(1)(ii) of the Act, and the assessee would be eligible to claim depreciation on such asset as per the specified rate. Apart from that, it was observed by the Special Bench, that where the assessee had never claimed expenditure incurred for construction of the road on build, operate and transfer (BOT) basis, as a deferred revenue expenditure, the same could not have been amortized in terms of CBDT Circular No. 9 of 2014, dated, 23.04.2014. The observations of the Ld. “Special bench” of the Tribunal which on the issue under consideration before us are as under:
“11. Undisputedly, for executing the project, assessee has incurred expenses of Rs.214 crore. It is also not disputed that as per the terms of the C.A., the Government of India is not obliged / required to reimburse the cost incurred by the assessee to execute / implement the project facilities. The only right / benefit allowed to the assessee by the Government of India is to operate the project / project facilities during the concession period of 11 years 7 months and to collect toll charges from vehicles / persons using the project / project facilities. Thus, as could be seen, the only manner in which the assessee can recoup the cost incurred by it in implementing the project / project facility is to operate the road during the concession period and collect the toll charges from user of the project facility by third parties. Admittedly, the assessee has taken up the project as a business venture with a profit motive and certainly not as a work of charity. Further, by investing huge some of Rs.214 crore, the assessee has obtained a valuable business / commercial right to operate the project facility and collect toll charges. Therefore, in our considered opinion, right acquired by the assessee for operating the project facility and collecting toll charges is an intangible asset created by the assessee by incurring the expenses of Rs.214 crore. The contention of the learned Senior Standing Counsel that expenditure of Rs.214 crore has brought into existence a tangible asset in the 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, the expenditure incurred by the assessee of Rs.214 crore for creating the project or project facilities has created an intangible asset in the form of right to operate the project facility and collect toll charges. Further, it is the contention of the learned Senior Standing Counsel that if at all any right is created under the C.A. for collecting toll, such right accrued to the assessee on the date of execution of agreement i.e., 22nd December 2005, therefore, the expenditure incurred by such date should be the value of intangible asset which can alone be considered for depreciation under section 32(1)(ii) of the Act. We are afraid, we cannot accept the above argument of the learned Senior Standing Counsel. When the C.A. confers a right on the assessee to operate the project facility and collect toll charges over the concession period of 11 years and 7 months, the assessee can start operating and collecting toll charges only when the project facility is ready for use. Therefore, until the project is completed and ready for use by vehicles or persons assessee cannot collect toll charges for user of the project facilities. Thus, the right to operate the project facility and collect toll charges is integrally connected to the completion of the project facility which cannot be done unless the assessee invests its fund for completing the project. Therefore, keeping in view the aforesaid fact, it cannot be said that the right to collect toll has accrued to the assessee on the date of execution of the agreement. If we accept the aforesaid argument of the learned Senior Standing Counsel, in other words, it would mean that without even executing and completing the project facility, assessee would be collecting toll charges. Therefore, the contention of the learned Senior Standing Counsel that the expenditure incurred by the assessee till execution of the agreement can only be considered as an intangible asset, in our view, is illogical, hence, cannot be accepted. Thus, having held that the expenditure of Rs.214 crore incurred by the assessee has resulted in creation of an intangible asset of enduring nature for the assessee, it is necessary now to examine whether such intangible asset comes within the scope and ambit of section 32(1)(ii) of the Act. For this purpose, it is necessary to look into the said provision which is reproduced hereunder for the sake of convenience.
Depreciation.
32(1)(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature67, being intangible assets acquired on or after the 1st day of April, 1998, owned67, wholly or partly, by the assessee67 and used for the purposes of the business67 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 facility and collect toll charges is in the nature of license. However, the learned Senior Standing Counsel has strongly countered the aforesaid claim of the assessee by referring to the definition of license as provided under the Indian Easements Act, 1882. For better appreciation, we intend to reproduce herein below the definition of “license” as provided under section 52 of the Indian Easements Act, 1882: –
“License” defined:- Where on person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a license.”
14. It has been the contention of the learned Senior Standing Counsel that as the term “license” has not been defined under the Income Tax Act, 1961, the definition of “license” under the Indian Easements Act, 1882, has to be looked into.
Accepting the aforesaid contention of the learned Senior Standing Counsel, let us examine the definition of “license” extracted herein above. A plain reading of section 52 of the Act makes it clear, a right granted to a person to do or continue to do something in the immovable property of the grantor, which, in the absence of such right would be unlawful and such right does not amount to an easement or interest in the property, then such right is called a license. If we examine the facts of the present case, vis-a-vis, the definition of license under the Indian Easements Act, 1882, it would be clear that immovable property on which the project / project facility is executed / implemented is owned by the Government of India and it has full power to hold, dispose off and deal with the immovable property. By virtue of the C.A., assessee has only been granted a limited right to execute the project and operate the project facility during the concession period, on expiry of which the project / project facility will revert back to the Government of India. What the Government of India has granted to the assessee is the right to use the project site during the concession period and in the absence of such right, it would have been unlawful on the part of the concessionaire to do or continue to do anything on such property. However, the right granted to the concessionaire has 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 rights of similar nature”, should be similar to one or more of the specifically identified assets preceding such expression. The aforesaid contention of the learned Departmental Representative is unacceptable for the reasons enumerated hereinafter.
16. We have already held earlier in the order that by incurring the expenditure of ‘Rs.214 crore assessee has acquired the right to operate the project and collect toll charges. Therefore, such right acquired by the assessee is a valuable business or commercial right because through such means, the assessee is going to recoup not only the cost incurred in executing the project but also with some amount of profit. Therefore, there cannot be any dispute that the right to operate the project facility and collect toll charges therefrom in lieu of the expenditure incurred in executing the project is an intangible asset created for the enduring benefit of the assessee. Now, it has to be seen whether such intangible asset comes within the expression “any other business or commercial rights of similar nature”. As could be seen from the definition of intangible asset, specifically identified items like knowhow, patents, copyrights, trademarks, licenses, franchises are not of the same category, but, distinct from each other. However, one thing common amongst these assets is, they all are part of the tool of the trade and facilitate smooth carrying on of business. Therefore, any other intangible asset which may not be identifiable with the specified items, but, is of similar nature would come within the expression “any other business or commercial rights of similar nature”. The Hon’ble Supreme Court in CIT v/s Smifs Securities (supra) after interpreting the definition of intangible asset as provided in Explanation 3 to section 32(1), while opining that principle of ejusdem generis would strictly apply in interpreting the definition of intangible asset as provided by Explanation 3(b) of section 32, at the same time, held that even applying the said principle „goodwill’ would fall under the expression “any other business or commercial rights of similar nature”. Thus, as could be seen, even though, „goodwill’ is not one of the specifically identifiable assets preceding the expressing “any other business or commercial rights of similar nature”, however, the Hon’ble Supreme Court held that „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 “businessor commercial right of similar nature”, it could be seen that the said intangible assets are not of the same line and are clearly distinct from one another. The Court observed, the use of words “business or commercial rights of similar nature”, after the specified intangible assets 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 which were neither visible nor possible to exhaustively enumerate. The Hon’ble Court, therefore observed, in the circumstances the nature of business or commercial right cannot be restricted only to knowhow, patents, trademarks, copyrights, licence or franchise. The Court observed, any intangible assets which are invaluable and result in smoothly carrying on the business as part of the tool of the trade of the assessee would come within the expression “any other business or commercial right of similar nature”.
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.
18. In view of our aforesaid conclusion, there is no need to answer the second part of the question framed. This disposes of grounds no.2, 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.”
25. In case of JCIT vs. ACP Tollways Private Limited (supra), the co-ordinate bench while considering an identically worded concession agreement of construction of highway project on DBFOT basis has held as under:
“However, in the present case before us, as discussed in foregoing paragraph (E.1) of this order, the deemed ownership and acquisition coupled with possession of the asset is with the assessee. Further in the case of North Karnataka Expressway Ltd. vs. CIT (supra) and in the case of L&T Infrastructure Development Projects Ltd. (supra), on which the learned D.R. has placed reliance, the project was of BOT nature whereas in the present case before us, the contract is of DBFOT nature having much wider scope than BOT. As noted in foregoing paragraph (E) of this order, the scope of DBFOT contract, in as much as it also includes Design and Finance, is much wider than BOT contract. Moreover, as noted in foregoing paragraph (B) of this order, the project is deemed to be acquired and owned by the assessee. Further, as noted in paragraph (E.1) of this order, possession of the project by the assessee is also established. In view of these distinguishable facts and circumstances, we are of the opinion that the precedents relied upon by the learned D.R. in his written submissions have no application or relevance for the case before us. What the Assessing Officer has failed to appreciate, is that the asset on which the assessee has claimed depreciation, is “Right to Collect Toll”, which is an intangible asset. By necessary implication, it is impossible for intangible asset to be “physically owned” in the sense in which the Assessing Officer expects. When the assessee has deemed ownership of physical assets corresponding to the ‘intangible asset’ as is the case here; it meets the requirement for eligibility for depreciation, as far as requirement of ownership is concerned. It is a settled position of law; that law does not require one to perform the impossible. In situations like this, which we faced with law is to be interpreted in a manner that reasonable compliance is to be treated as adequate. What strengthens the case of the assessee, is that in addition to deemed ownership, the assessee also has acquisition and physical possession of the physical assets corresponding to the intangible asset (Right to Collect Toll). Thus, the assessee meets the requirement of law for claim of depreciation. In view of the foregoing discussion, therefore, we hold that the claim of the assessee for depreciation, while foregoing amortization, is in accordance with law in the facts and circumstances of the present case before us. Therefore, we decline to interfere with the impugned order of learned CIT(A) on this issue and accordingly, the grounds taken in appeal filed by Revenue are hereby dismissed. In effect, appeal filed by Revenue is dismissed.”
26. There are plethora of other decisions cited by ld. Counsel for the assessee in support of his contentions. However, to avoid multiplicity, we refrain from discussing them in detail. Suffice to say, the decisions express similar view. At this stage, we deem it appropriate to refer to the decision of Hon’ble Madras High Court in case of M/s. Narmada Infrastructure Construction Enterprises Limited (supra). The questions of law arising for consideration before the Hon’ble High Court are as under:
83. In the light of the above discussion, we are of the view that the following question of law arise as substantial questions of law for our consideration and are required to be answered in these appeals:-
i. Whether in the facts of the case the respective assessees were entitled to treat the “Toll Roads” and “Toll Bridge” laid and built by them under the respective concessionair eagreements signed with the respective Governments under Build Operate & Transfer (BOT) Scheme as their “tangible asset” or “intangible assets”for the purpose of claiming depreciation under Section 32 of the Income Tax Act, 1961?
ii. If they are “tangible asset”, whether the “Toll Roads” and “Toll Bridges” laid and built by the respective assessees are to be treated as plant’ or “building” for the purpose granting depreciation under Section 32 of the Income Tax Act, 196?
iii. Whether in the facts and circumstances of the cases in TCA No. 756 of 2010 and TCANo.1201 of 2010, the order of the Tribunal interfering with the order of the Commissioner of Income Tax passed under Section 263 of Income Tax Act, 1961 are sustainable or not?
27. While answering these questions, the Hon’ble High Court held as under:
96. A reading of the above definition makes it clear that neither a “Toll Road” nor a “Toll Bridge” is neither a “Plant” or “Building”.
97. As such the claim for depreciation either as a “Plant” or “Building” ought not to have been claimed by the respective assessees as “Toll Road” and “Toll Bridge” do not come within the definition of “Tangible Assets” in Explanation 3 to Section 32 of the Income Tax Act, 1961. Ownership is a sine quo non for availing depreciation under Section 31 of the Income Tax Act, 1961. In our view, to claim depreciation, the respective assessees ought to have been the owners of the respective toll roads/ toll bridges.
98. The Honourable Supreme Court in CIT v.Podar Cement Private Limited [1997] 226 ITR 625, nterpreted the meaning of the word “owned” in section 32(1) of the Income Tax Act, 1961. The Court held that anyone in possession of the property in his own right other than the owner of a building, can still be said to be the owner, although, a formal deed may not have been executed and registered as contemplated under the Transfer of Property Act, 1882 and the Registration Act, 1908.
99. The Court observed that the expression “building owned by the assessee” occurring in section 32 (1) of the Income Tax Act, 1961 means a person having acquired possession over the building in his own right and uses the same for the purpose of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act etc. However, it should be borne in mind that the said decision was rendered in the context of allotment of houses by the Housing Boards. There the intention was to convey the property at a later point of time, once all the payment dues are paid to the Housing Board.
100. There the possession was transferred in presenti while the transfer of ownership was deferred to a future date after full payment of the installment was made. The reasoning and the ratio adopted by the Hon’ble Supreme Court in the context of housing sites and houses in CIT v.Podar Cement Private Limited [1997] 226 ITR 625 therefore cannot be imported to the facts of the present case.
101. Under the BOT arrangement/scheme, it can never be impugned and conceived that the respective assessee were the owners of the respective “Toll Roads” and “Toll Bridges” In fact, these infrastructures on the National Highway or State Highway or public road can never be treated as “Assets” of a private individual.
102. Public properties such as “Toll Roads” and “Toll Bridges” on the State/National Highways are never intended to be transferred at any point of time to the person with whom a concessionaire agreement is signed.
103. Neither, the “Toll road” nor the “Toll bridge” laid and constructed by the respective assessees are also owned by the respective assessees.
104. Neither the “Toll Road” nor the “Toll Bridge” belong to the respective assessees under the respective concessionaire agreements signed with the respective Governments.
105. The respective assessees as agreement holders were merely given a privilege/a right to collect tolls from vehicles passing through them as a consideration for having developed them. The right to collect toll from vehicles was merely a deferred consideration for putting up the Road and for maintaining them during the term under the respective concessionaire agreements. No separate consideration was paid to the respective assessees by the respective Governments.
106. The rights that were conferred under the respective concessionaire agreements signed between the respective government with the respective assessees was in lieu of the consideration for completing the aforesaid road infrastructure which would have otherwise not been made available to them.
107. It is a mechanism adopted to recuperate the expenses incurred by the respective assessees as contractee’s under the respective concessionaire agreement with a scope for making reasonable profit over a period of such agreement for having put up the aforesaid road infrastructure and for maintaining them during such period.
108. Therefore, even otherwise respective assessees are not eligible to claim depreciation under the provisions of section 32 of the Income Tax Act, 1961
109. Further, depreciation is given for an asset owned by an assessee to reduce the tax liability considering the expenses incurred on “such asset” and its effective life. It is the monetary equivalent towards wear and tear of one’s capital asset or building used in the business or profession. It is allowed to be set aside/saved to facilitate its replacement. This is the view taken by the Bombay High Court in Commissioner of Income-Tax v. P.K. Badiani, 1970 SCC OnLine Bom 188.
110. The expenditure incurred by the respective assessees for constructing the “Toll Bridge” and “Toll Road” were to be amortised and written-off in the books of account over a period of time in proportion with the period during which the concessionaire agreements were to be in force as per the relevant Accounting Standards.
111. The Delhi High Court in Moradabad Toll Road Co. Ltd.v. Assistant Commissiner of Income Tax ,2014 SCC OnLine Del 2286has concluded that Toll roads executed under Build, Operate and Transfer Basis (BOT) was a “capital asset” which when used by any person, who makes payment for the said use, generates and results in accrual of income and will be a part of the business of the assessee and not a implement or a tool used by an assessee for his business. However, it is hardly a criteria for granting depreciation.
112. Though the Delhi High Court noted several decisions of various Courts including that of the Allahabad High Court in CIT v. Noida Toll Bridge Company [2013] 213 Taxman 333 and that of the decision of the Hon’ble Supreme Court in CIT v. Anand Theatres [2000] 244 ITR192, it has come to an erroneous conclusion by conferring the benefit of depreciation on “Toll Road” as “Building”. We are however unable to persuade ourselves to accept the views taken by the Delhi High Court in the above case.
113. In our view, the Delhi High Court erred when it concluded that the “Toll Road” was a “building” and not a plant while upholding 10% depreciation under similar circumstances. The Court wrongly interpreted Part A of Appendix I to conclude that “Toll Road” was a “Building” merely because “Building” includes roads, bridges, culverts, wells, and tubewells.
114. We are inclined to follow the views of the Bombay High Court in Commissioner of Income Tax v. West Gujarat Expressway Ltd[2017] 82 com224 following its earlier views in North Karnataka Expressway Ltd v. CIT [2015] 372 ITR 145. It appeals to our reasoning.
115. The Bombay High Court in North Karnataka Expressway Ltd v.CIT[2015] 372 ITR 145 has upheld the view of the Tribunal holding that the assessing officer there had allowed depreciation in a very mechanical manner to the assessee therein without examination of the issue.
116. The Bombay High Court also distinguished the views taken by the Allahabad High Court in CIT v. Noida Toll Bridge Company Limited [2013] 213 Taxman 333 by holding that the Allahabad High Court failed to take note of Section 5 of the National Highways Act, 1956, which reads as under:-
5. Responsibility for development and maintenance of national highways.—
It shall be the responsibility of the Central Government to develop and maintain in proper repair all national highways;but the Central Government may, by notification in official Gazette, direct that any function in relation to the development or maintenance of any National Highway shall, subject to such conditions, if any, as may be specified in the notification, also be exercisable by the Government of the State within which the national highway is situated or by any officer or authority subordinate to the Central Government or to the State government.”
117. The Court also took note of section 8-A of the National Highways Act, 1956, in terms of which power has been vested with the Government to enter into an agreement for development and maintenance of National Highways.
118. Though, the provisions of the respective State Highways in the respective states have been brought to our attention, it is clear that neitherthe National Highways nor the State Highways can ever be owned by a private entrepreneur like the respective assessees in the present case.
119. We are, therefore, inclined to hold that neither the “Toll Bridge” nor “Toll Roads” are “Tangible Assets” of the respective assessees in terms of Explanation 3(a) to Section 32 of the Income Tax Act, 1961. Accordingly, we answer the first part of the substantial question formulated by us in para 82 against the respective assessees.
120. We are of the view that the second part of the 1 st substantial question of law as to whether the respective assessees have any “Intangible Assets” under the respective Concessionaire Agreements as per the definition in Explanation 3(b) to Section 32 of the Income Tax Act, 1961 also requires to be answered against the assessee. The definition of the above expression has already been extracted above.
121. The expression used in the last part of the definition of “Intangible Asset” is licenses, franchises or any other business or commercial rights of similar nature”.
122. The meaning of the above expression “licenses” and the phrase” any other business or commercial rights of similar nature” has to be inferred from the meaning of the words along with which they have been used. Their meaning has to be inferred from the meaning of the expression “know-how”, “patents”, “copy rights”, “trademark”, “franchises” by applying the principle of nocitur a sociis.
123. In Maxwell’s Interpretation of Statutes (12 th Edition) at page 289, it has been stated as follows:—
“Where two or more words which are susceptible of analogous meaning are coupled together, nocitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general.”
124. As per the above principle the words must take colour from words with which they are associated.
125. In Skinner & Co.v.Shew and Co. (1893) 1 Ch 413 (D), it was observed:
“The rule of ejusdem generis is intended to be applied where general words have been used following particular and specific words of the same nature on the established rule of construction that the Legislature presumed to use the general words in a restricted sense, that is to say, asbelonging to the same genus as the particular and specific words. Such a restricted meaning has to be given to words of general import only where the context of the whole scheme of legislation requires it. But where the context and the object and mischief of the enactment do not require such restricted meaning to be attached to words of general import, it becomes the duty of the Courts to give these words their plain and ordinary meaning. In our opinion, in the context of the object and the-mischief of the enactment there is no room for the application of the rule of ejusdem generis. Hence it follows that the vacancy as declared by the order impugned in this case, even though it may not be covered by the specific words used, is certainly covered by the legal import of the words “or otherwise”.”
126. Therefore, it cannot be construed that the respective assessees had acquired “intangible assets” within the meaning of the definition in Explanation 3(b) to section 32 of the Income Tax Act, 1961 under the respective concessionaire agreement for the purpose of claiming depreciation.
127. By no stretch of imagination can it be construed that the respective assessees have been conferred upon any “intangible assets” under the concessionaire agreements for the purpose of the aforesaid provision.
128. In the light of the above discussion we are constrained to answer the second part of the first substantial question of law also against the assessee and in favour of the revenue.
129. In view of the above answer, the 2nd substantial question of law is also to be answered against the assessees and in favor of the revenue.
130. In our view, impugned orders of the Income Tax Appellate Tribunal upholding claim of the assessee for depreciation at 10% on the “Toll Bridges” and “Toll Roads” to the respective assessees were erroneous. Such findings were unwarranted under the scheme of the Income Tax Act, 1961.
28. As could be seen from the above, the question posed before the Hon’ble High Court was whether the toll bridge and toll road can be considered as ‘tangible’ or ‘intangible asset’ and whether the assessee can claim deprecation on such toll road and toll bridge. While deciding the issue, the Hon’ble Madras High Court followed the decision of Hon’ble Bombay High Court in case of North Karnataka Expressway Ltd. vs. ACIT (supra) and held that since, the assessee is not owner of the toll bridge/ toll road, it cannot claim depreciation. Thus, it is quite clear that the issue whether the concessionaire right which the assessee acquired as an intangible asset can be subject to deprecation over the concession period, was never a subject matter of consideration before the Hon’ble High Court. In fact, in case of North Karnataka Expressway Ltd. vs. ACIT (supra), the Hon’ble Bombay High Court has kept the issue of claim of deprecation on intangible asset open. Thus, in our view, the decision of Hon’ble Madras High Court discussed above is factually distinguishable, hence, not applicable to assessee’s case. Thus, on a conspectus of the judicial precedents cited before us, the sequitur is, the right granted to an assessee to collect toll/annuity during the concession period in respect of a toll road constructed on DBOFT or BOT basis is an intangible asset u/s.32(1)(ii) of the Act. Hence, depreciation is allowable on such asset at the specified rate. Even otherwise also, the CBDT through Circular No. 9/2014 has allowed amortization of the expenditure over the concession period. Therefore, in any case of the matter, the assessee will get the deduction either by way of deprecation or through amortization. Thus, there can only be a timing difference. Therefore, in our considered view, the issue is otherwise revenue neutral.
29. Moreover, on perusal of the facts on record, we are of the view that the department has taken inconsistent view on the issue in various assessment years as discussed elsewhere in the order. In some assessment years, claim of depreciation has been allowed either due to lack of scrutiny assessment or by the A.O. himself. Thus, to settle the controversy and put to rest all the inconsistencies, in our view, assessee’s claim of deprecation deserves to be allowed. Accordingly, A.O. is directed to allow assessee’s claim of deprecation.
30. In ground no. 3, the assessee has made a without prejudice claim of incorrect computation of quantum of amortization. In view of our decision qua ground no. 2, this ground has become infructuous. Insofar as, ground no.4 is concerned, in view of our decision in respect of ground no. 2, the issue has become academic, hence, kept open.
31. In the result, the appeal is partly allowed.
ITA Nos. 6010 to 6012/Mum/2025 (A.Ys. 2018-19, 2020-21 & 2022-23)
32. Ground no. 1 being a general ground does not require adjudication.
33. In ground no. 2, the assessee has raised the issue of disallowance of deprecation claimed on intangible asset. The issue raised in this ground is identical to issue raised in ground no. 2 of ITA No. 1204/Mum/2026 decided in the earlier part of the order. Facts being identical, the decision taken therein would apply mutatis mutandis to these appeals also.
34. In view of our decision in ground no. 2, the rest of the grounds being grounds having either become infructuous or academic do not require adjudication in the present appeals.
35. In the result, all the appeals are partly allowed.
Order pronounced in the open court on 23.04.2026
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