CIT Vs GVK Jaipur Kishangarh Expressway Ltd. (Rajasthan High Court)
Conclusion: Depreciation was allowable @10% on public highway road treating the same as building.
Held: Assessee-company was engaged in construction, operations and maintenance of highways. It entered into a concession agreement with the National Highways Authority of India (NHAI) for widening of two lane road to six lane roads on Build operate Transfer (BOT) basis. The work of the widening of the Highway was completed by assessee and the road was opened to the public on 9-4-2005 and since then the assessee was maintaining the said road on toll basis. In the computation of income, assessee had claimed depreciation of Rs. 29,71,10,536/@10% on account of road, treating the same as building. During the course of the assessment proceeding, AO asked assessee as to why the depreciation claimed at road should not be disallowed by the following decision of the Apex Court in the case Indore Municipal Corporation (2001) 247 ITR 803 (SC). It was held assessee was granted license for construction against which it had right to use and collect license fee to use of the land. It had right to restrict the people without non payment of toll tax. It was not only road, they had to construct toll booth and provide facilities for the staff for the purpose of their accommodation. Thus, Supreme Court judgment which was sought to be relied upon by department would not apply and Tribunal had rightly interpreted the change in law and more particularly under the law which had been inducted after year 1983.
FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT
In all these appeals common questions of law and facts are involved hence they are decided by this common judgment.
2. By way of these appeals, the appellant has assailed the judgment and order of the tribunal whereby the tribunal has dismissed the appeal of the department and allowed the appeal preferred by the assessee.
3. This court while admitting the appeals framed following substantial questions of law :-
1. Appeal No. 142/2017 Admitted on 9-5-2017
“1. Whether in the facts and circumstances of the case the Tribunal was justified in allowing the claim of depreciation on public roads treating the same as building which is not permissible in law?
2. Whether on the facts circumstances of the case the Tribunal was justified in allowing the claim of depreciation @ 60% on EDP Equipments treating the same as the computer equipments though depreciation is permissible only @ 15% because EDP equipments are physical structures not computers.
3. Whether in the facts and in circumstance of the case the Tribunal was justified in law in deleting specific disallowances under section 43B(f) being provision for leave encashment?
4. Whether on facts and circumstance of the case Tribunal was justified in law in deleting the disallowance of Rs. 1,45,25,700 under section 14A read with rule 8D through the assessee failed to prove that the investment in Mutual Fund was not having any nexus with the funds on which interest was paid by the assessee?”
2. Appeal No. 124/2010 Admitted on 10-8-2011
“(i) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in allowing the claim of respondents for capitalising the expenditure incurred for the period of prior to incorporation and existence of business?
(ii) Whether in the facts and circumstances of the case Hon’ble ITAT was right in law in allowing the claim for capitalising the expenditure towards tree cutting, trampling removal of deberies etc. inspite of the fact that the assessee failed to prove the justification of the payment made to the related concern?
(iii) Whether on the facts and circumstances of the case the Hon’ble ITAT was justified in allowing the claim of depreciation @ 60% on EDP Equipments treating the same as the computer equipments which was classifiable under the Head Plant and Machinery wherein depreciation is @ 15%?
(iv) Whether in the facts and circumstances of the case Hon’ble ITAT was justified in allowing the claim of depreciation on public roads treating the same as building which is not permissible in law?”
3. Appeal No. 187/2017 Admitted on 16-8-2017
“Whether on the facts and in the circumstances of the case the Tribunal was justified in law deleting penalty of Rs. 24,87,400 imposed under section 271(1)(c) for furnishing inaccurate particulars of income ignoring that the assessee filed return claiming exempt dividend income, but revised it to short term capital gain on being detected during the scrutiny proceedings of the wrong claim?”
4. Appeal No. 232/2016 Admitted on 30-11-2016
“(i) Whether in the facts and circumstances of the case, Hon’ble ITAT was justified in allowing the claim of depreciation on public roads treating the same as building which is not permissible in law?”
(ii) Whether on the facts and circumstances of the case the Tribunal was justified in allowing the claim of depreciation @ 60% on EDP Equipments treating the same as depreciation is permissible at the rate of 15%?”
5. Appeal No. 5/2015 Admitted on 18-4-2016
“1. Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal was justified in allowing claim of depreciation @ 60% on EDP equipments treating the same as the computer equipments which were classifiable under the head ‘Plant and Machinery’, wherein, depreciation is @ 15%?
2. Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in allowing claim of depreciation on public roads treating it to be a building?”
6. Appeal No. 626/2011 Admitted on 4-3-2012
“1. Whether the Tribunal was right in law in deleting penalty under section 271(1)(c), when the same was imposed by the assessing officer for taking higher depreciation in the revised return with the intention to evade payment of duty deliberately?
2. Whether the order passed by learned Tribunal can be said to be sustainable as due to the fact of paraphrasing of the order passed by the Commissioner (Appeals) and it does not show that the Tribunal has applied its mind?”
7. Appeal No. 17/2011 Admitted on 10-8-2011
“(i) Whether on the facts and circumstances of the case the Hon’ble ITAT was justified in allowing the claim of depreciation of public roads, treating the same as building?
(ii) Whether Hon’ble ITAT was justified in allowing the claim of depreciation at the higher rate of 60% classifying the plant and machinery as EDP Equipment as computer equipment instead of plant and machinery entitle for 15% rate?”
4. The facts of the case are that case of the assessee was picked up for scrutiny assessment and the assessment under section 143(3) of the Income Tax Act, 1961 was framed vide Order, dt. 29-3-2013. While framing the assessment, the assessing officer made various disallowances and additions on account of depreciation of Rs. 29,71,10,536 claimed on road and depreciation of Rs. 15,08,068 claimed on EDP Equipments, disallowance of provision for leave encashment of Rs. 19,33,345/disallowance under section 14A of Rs. 1,45,25,700 disallowance of income not to be considered for the purpose of claim of deduction under section 80IB of Rs. 9,06,889, interest income of Rs. 2,40,27,526, hence the assessing officer computed the total income at Rs. 2,99,49,355 against the loss of Rs. 4,58,05,585 and book profit as computed under section 115JB at Rs. 58,84,34,128 for MAT purposes.
4.1 The assessee aggrieved by this order, preferred an appeal before learned Commissioner (Appeals), who after considering the submissions partly allowed the appeal. While partly allowing the appeal, the learned Commissioner (Appeals) deleted the disallowance made on account of depreciation. The learned Commissioner (Appeals) confirmed the disallowance made on account of provision for Leave Encashment, disallowance made under section 14A of Rs. 1,45,25,700. In respect of claim under section 80IB, the learned Commissioner (Appeals) partly allowed the ground of the assessee and in respect of interest income from other sources, the assessee’s appeal was dismissed by the learned Commissioner (Appeals) and confirmed the addition.
5. Counsel for the appellant Mr. Jain, for Department has mainly taken us to record of ITA No. 142/2010 wherein the assessing officer observed as under :–
“2. The assessee company is engaged in construction, operations and maintenance of highways. The assessee, vide agreement dated 8-5-2002 with the National Highways Authority of India (NHAI), entered into a concession agreement for widening of 90.358 Km stretch on NH-8 between Jaipur & Kishangarh, from two lane road to six lane road on Build operate Transfer (BOT) basis. The work of the widening of the Highway was completed by the assessee and the road was opened to the public on 9-4-2005. since then the assessee is maintaining the said road on toll basis. The relevant previous year was the fourth year of operation of the toll road.
3. The assessee has shown income from toll operations at Rs. 1,70,75,30,832 during the year and has shown book profit at Rs. 57,39,08,428 for the MAT purpose.
During the course of assessment proceeding, various detail were called for and various points were examined and discussed. Following issues emerged for consideration and have been dealt with as per forthcoming paras.
4. Depreciation on road :–
4.1 In the computation of income the assessee has claimed the total depreciation of Rs. 31,41,09,640. From examination of depreciation chart it is noted that assessee has claimed depreciation of Rs. 29,71,10,536/@10% on account of road, treating the same as building. During the course of the assessment proceeding, it was asked to the assessee as to why the depreciation claimed at road should not be disallowed by the following decision of the Apex Court in the case Indore Municipal Corporation (2001) 247 ITR 803 (SC).
5. Depreciation on tolling & HTMS Machines (EDP Equipments) :–
The assessee has claimed depreciation of Rs. 15,08,068 on the W.D.V of certain equipments shown as EDP e1uipments (Electronic data processing equipments). The rate of depreciation has been applied at 60%, by treating these equipments equivalent to Computer and Software.
It is pertinent to mention here that in the original return file for the assessment year 2006-07 these machinery had been shown under normal Plant & Machinery block. However, in the revised return filed for assessment year 2006-07, equipments amounting to Rs. 9,54,15,351 out of the same was placed under the 60% depreciation block by showing these as EDP equipments.
5.1 He contended that the view taken by the assessing officer is required to be upheld and both the authorities namely Commissioner (Appeals) and Tribunal have committed serious error in holding against the department.
5.2 To substantiate his arguments, Mr. Jain has referred the following provisions of the National Highway Act, 1956 which reads as under :–
Section 2–
2. Declaration of certain highways to be national highways.
1. Each of the highways specified in the Schedule is hereby declared to be a national highway.
2. The Central Government may, by notification in the Official Gazette, declare any other highway to be a national highway and on the publication of such notification such highway shall be deemed to be specified in the Schedule.
3. The Central Government may, by like notification, omit any highway from the Schedule and, on the publication of such notification, the highway so omitted shall cease to be a national highway.
Section 4–
4. National highways to vest in the Union.–All national highways shall vest in the Union, and for the purposes of this Act “highways” include–
(i) all lands appurtenant thereto, whether demarcated or not;
(ii) all bridges, culverts, tunnels, causeways, carriageways and other structures constructed on or across such highways; and
(iii) all fences, trees, posts and boundary, furlong and mile stones of such highways or any land appurtenant to such highways.
Section 5–
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 the 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.
Section 8A sub-section (2)
8A. Power of Central Government to enter into agreements for development and maintenance of national highways :–
(2) Notwithstanding anything contained in section 7, the person referred to in sub-section (1) is entitled to collect and retain fees at such rate, for services or benefits rendered by him as the Central Government may, by notification in the Official Gazette, specify having regard to the expenditure involved in building, maintenance, management and operation of the whole or part of such national highway, interest on the capital invested, reasonable return, the volume of traffic and the period of such agreement.
5.3 He contended that the interpretation which has been put forth by the tribunal is contrary to the Act and the same is required to be quashed and set aside.
5.4 He has further taken rescue to section 32 and explanation 1 of section 32 of the Income Tax Act as well as definition of section 2 sub-section (2) which reads as under :-
32. (1) In respect of depreciation of–
(i) buildings, machinery, plant or furniture, being tangible assets;
(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 1-4-1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed–
(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;
(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed :–
Provided that no deduction shall be allowed under this clause in respect of–
(a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28-2-1975 but before the 1-4-2001, unless it is used–
(i) in a business of running it on hire for tourists; or
(ii) outside India in his business or profession in another country; and
(b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42 :–
Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia) (or the first proviso to clause (iia)), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) or clause (iia), as the case may be :–
(Provided also that where an asset referred to in clause (iia)or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than one hundred and eighty days in that previous year, and the deduction under this sub-section in respect of such asset is restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (iia)for that previous year, then, the deduction for the balance fifty per cent of the amount calculated at the percentage prescribed for such asset under clause (iia)shall be allowed under this sub-section in the immediately succeeding previous year in respect of such asset:)
Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1-10-1998 but before the 1-4-1999 and is put to use before the 1-4-1999 for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed.
Explanation.–For the purposes of this proviso,–
(a) the expression “commercial vehicle” means” heavy goods vehicle”, “heavy passenger motor vehicle”, “light motor vehicle”, “medium goods vehicle” and “medium passenger motor vehicle” but does not include “maxi-cab”, “motor-cab”, “tractor” and “road-roller”;
(b) the expressions “heavy goods vehicle”, “heavy passenger motor vehicle”, “light motor vehicle”, “medium goods vehicle”, “medium passenger motor vehicle”, “maxi-cab”, “motor cab”, “tractor” and “road roller” shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988) :–
Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1-4-1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991 :–
Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv)of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them.
Explanation 1.–Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee.
Section 2 Sub-section (2) :–
“annual value” in relation to any property means its annual value as determined under section 23.
5.5 He also referred to the Income Tax Rules framed under rule 5 which reads as under :-
(Effective from assessment year 2006-07 onwards)
(See rule 5)
TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE
Block of assets
Depreciation allowance as percentage of written down value
1
2
PART A
TANGIBLE ASSETS
I. Building (See Notes 1 to 4 below this Table)
(1) Buildings which are used mainly for residential purposes except hotels and boarding houses
(2) Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below
(3) Buildings acquired on or after the 1-9-2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infrastructure facilities under clause (i) of sub-section (4) of section 80-IA
(4) Purely temporary erections such as wooden structures
III. Machinery and Plant
(6) Machinery and plant, used in weaving, processing and garment sector of textile industry, which is purchased under TUFS on or after the 1-4-2001 but before the 1-4-2004 and is put to use before the 1-4-2004 (See Note 8 below this Table)
5.6 He has also taken us to the note which is appended thereto which reads as under :–
