Case Law Details
BSC C and C Kurali Toll Road Ltd. Vs ACIT (ITAT Delhi)
BSC C and C Kurali Toll Road Ltd. (the appellant) contested a decision made by the Commissioner of Income-tax (Appeals) (CIT(A)) for the Assessment Year 2014-15. The dispute revolves around several issues concerning the treatment of toll collection rights and associated costs.
Key issue: Depreciation on Toll Collection Rights:
The appellant claimed depreciation on the toll collection rights at a rate of 25% under the category of intangible assets, as specified under Section 32(1)(ii) of the Income Tax Act. However, the CIT(A) allowed depreciation at a lower rate of 10%. The appellant argued that the toll collection rights should be categorized as intangible assets and thus eligible for a 25% depreciation rate, based on precedents set by previous tribunal decisions.
The ITAT Delhi upheld the appellant’s claim for depreciation at 25% on the toll collection rights, treating them as intangible assets. The tribunal referenced previous rulings, including those from its own benches and other judicial precedents. Notably, decisions from ITAT Pune and other cases involving toll collection rights confirmed that such rights qualify as intangible assets under Section 32(1)(ii) of the Income Tax Act, allowing for a depreciation rate of 25%. The tribunal rejected the CIT(A)’s reliance on conflicting judgments and supported the claim based on established judicial precedents.
Conclusion: The ITAT Delhi largely sided with the appellant, granting depreciation at 25% for the toll collection rights and acknowledging the provision for major maintenance. The tribunal followed precedents from earlier cases that recognized toll collection rights as intangible assets eligible for substantial depreciation. The case reinforced the principle that legitimate provisions for future liabilities, if properly accounted for, are valid and should not be disallowed simply on grounds of contingent nature.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the assessee is directed against the order dated 31.01.2019 of the Ld. CIT(A)-2, New Delhi relating to Assessment Year 2014-15.
2. The grounds of appeal raised by the assessee read as under:
1. That on the facts and circumstances of the case, Ld. Commissioner of Income-tax (Appeals) has erred while confirming non-acceptance of Revised Computation of Income submitted during assessment proceedings.
2. That on the facts and circumstances of the case, Ld. Commissioner of Income-tax (Appeals) has erred while confirming depreciation on Toll Road developed by the appellant @ 10% instead of the claim of the appellant of depreciation @ 25% under the head Intangible Assets.
3. That on the facts and circumstances of the case, Ld. Commissioner of Income (Appeals) has erred while not directing the Ld. AO to reduce the taxable income / increase the loss to the tune of Rs.15,33,92,8871- being difference between the proportionate write-off of cost incurred on Toll Road (as the appellant in the original return of income had changed from claim of depreciation to write off of balance cost over the remaining period claimed by the appellant in the original return of income at Rs.16,84,61,068/- and depreciation allowed in the assessment order @, 10% i.e. at Rs.32,18,53,955/-.
4. That on the facts and circumstances of the case, Ld. Commissioner of Income-tax (Appeals) has erred while confirming the reduction of grant received from NHAI of Rs.43.92 Crores from the total cost of Rs.441.27 Crores incurred on development of the Toll Road and did not treat the same as a part of the Equity Support as directed by NHAI.
5. That on the facts and circumstances of the case, Ld. Commissioner of Income-tax (Appeals) has erred while confirming disallowance of Provision made for Major Maintenance amounting to Rs.12,05,00,000/- on the ground that the said provision is contingent in nature and the assessee has not made any expenditure on that count during the year under consideration.
6. That on the facts and circumstances of the case, Ld. CIT(A) has erred while confirming the treatment of major maintenance expenditure which is around 15% of the total project cost as Capital Expenditure instead of Revenue Expenditure.
The learned counsel of the assessee first of all submitted that the assessee does not want to press ground no. 4 and 6 therefore the same are dismissed has not pressed. Ground no. 7 is of general in nature.
Ground no. 1, 2 and 3
4. Apropos these grounds the learned counsel submitted that the issue is covered by the conclusion drawn by coordinate Bench of ITAT Delhi in assessee’s own appeals for A.Y. 2012-13 & 2013-14 in ITA 1592 & 1593/Del/2017 dated 18.05.2021 para 10 to 12 of the order. The Ld. CIT(DR) strongly supported the orders of the authorities below however he did not controvert the fact that in assessee’s own appeal for A.Y. 2012-13 & 2013-14 the Tribunal has deciding the issue in favour of the assessee.
5. The relevant paras 10 to 12 of the Tribunal order (supra) read as follows:-
10. We have heard the rival submissions and perused the material available on record. The issue under dispute is with regard to availability of depreciation to the assessee whether it is to be allowed keeping the right to collect toll fee as intangible assets or it to be treated as building or plant & machinery as held in the decision relied by the Ld.CIT(A) rendered in the case of CIT vs Noida Toll Bridge Co. Ltd. (supra). We find that there were conflicting decisions rendered by the Hon’ble High Court and Co-ordinate Benches of the Tribunal. However, the Tribunal in the case of ACIT vs M/s. West Gujarat Expressway Ltd. (supra) after considering the conflicting views held as under:-
28. “In view of the express provisions of the Act, we have no doubt to hold that the assessee is entitled to collect tax being an intangible commercial right under section 32(1)(ii) at the rate as has been prescribed under the relevant rules. Our above view is further supported by the decision of the co-ordinate Pune bench of the Tribunal in the case of M/s. Ashoka Infrastructure Ltd. Vs. ITO in ITA No.989/PN/2010 & ITA No.1105/PN/2010,wherein, the Tribunal while further relying upon another decision of the Coordinate Bench of the Tribunal in the case of ‘Ashoka Infraways Pvt. Ltd. Vs. ACIT’ in ITA No.185 & 186/PN/2012 dated 29.04.2013, has held in clear terms that the claim of the assessee for depreciation on “licence to collect toll” being an ‘intangible asset’ falling within the scope of section 32(1)(ii) of the Act is liable to be upheld. The relevant part of findings of the Tribunal for the sake of convenience is reproduced as under:
6. At the time of hearing, it was a common point between the parties that an identical issue has been considered by the Pune Bench of the Tribunal in the case of Ashoka Infraways Pvt. Ltd. vs. ACIT vide ITA Nos. 185 & 186/PN/2012 dated 29.04.2013. As per the Tribunal following the precedents by way of various decisions of different Benches of the Tribunal mentioned therein, the claim of the assessee for treating the ‘License to collect Toll’ as an intangible asset eligible for the claim of depreciation @ 25% as per Section 32(1)(ii) of the Act was justified. The following discussion in the order of the Tribunal dated 29.04.2013 (supra) is relevant :-
“7. Before us, it was a common point between the parties that the impugned issue has been adjudicated in favour of the assessee in the following decisions of the Tribunal:-
i) Ashoka Buildcon Ltd. in ITA.No.1302/PN/09 dated 20.03.2012.
ii) M/s. Kalyan Toll Infrastructure Ltd. in ITA.Nos.201 & 247/Ind/2008 dated 14.12.2010.
iii) Dimension Construction Pvt. Ltd. in ITA.No.222, 223, 233 & 857/PN/2009 dated 18.03.2011.
iv) Ashoka Info (P) Ltd. (supra)
v) Reliance Ports and Terminals Ltd. (supra).
8. The Ld. CIT(DR) appearing for the Revenue, has submitted that the ‘intangible assets’ eligible for depreciation in section 32(1)(ii) of the Act, are only those which are owned by the assessee and have been acquired after spending money. In the case of the assessee, by way of an agreement, assessee was awarded a work to construct a road by using own funds and the expenditure incurred was allowed to be reimbursed by permitting the assessee a concession to collect toll/fees from the motorists using the road. Therefore, it could not be said that such a right was within the purview of section 32(1)(ii) of the Act. However, the Ld. CIT(DR) has not contested the factual matrix that identical issue has been considered by our coordinate Benches in the case of Ashoka Buildcon Ltd. (supra), Kalyan Toll Infrastructure Ltd. (supra), Dimension Construction Pvt. Ltd. (supra) and Ashoka Info (P) Ltd. (supra).
9. On the other hand, the Ld. Representative for the respondent assessee pointed out that the aforesaid argument set up by the Revenue has also been considered in the aforesaid precedents before concluding that the impugned ‘Right to collect Toll’ was an ‘intangible asset ‘ eligible for claim of depreciation @ 25% as per sec. 32(1)01) of the Act.
10. We have carefully considered the rival submissions. Factually speaking, there is no dispute to the fact that the costs capitalised by the assessee under the head ‘License to collect Toll’ have been incurred for development and construction of the infrastructure facility, i.e., Dewas Bypass Road. It is also not in dispute that the assessee was to build, operate and transfer the said infrastructure facility in terms of an agreement with the Government of Madhya Pradesh. The expenditure on development, construction and maintenance of the infrastructure facility for a specified period was to be incurred by the assessee out of its own funds. Moreover, after the end of the specified period, assessee was to transfer the said infrastructure facility to the Government of Madhya Pradesh free of charge. In consideration of developing, constructing, maintaining the facility for a specified period and thereafter transferring it to the Government of Madhya Pradesh free of charge, assessee was granted a Right to collect Toll’ from the motorists using the said infrastructure facility during the specified period. The said Right to collect the Toll’ is emerging as a result of the costs incurred by the assessee on development, construction and maintenance of the infrastructure facility. Such a right has been adjudicated by the Tribunal in the aforesaid precedents to be in the nature of ‘intangible asset’ falling within the purview of section 32(1)(i/) of the Act and has been found eligible for claim of depreciation. No decision to the contrary has been cited by the Ld. DR before us and, therefore, we find no reasons to depart from the accepted position based on the aforesaid decisions.
11. So however, the plea of the Ld. DR before us is to the effect that the impugned right is not of the nature referred to in section 32(1)(ii) of the Act for the reason that the agreement with the Government of Madhya Pradesh only allowed the assessee to recover the costs incurred for constructing the road facility whereas section 32(1)(i1) of the Act required that the assets mentioned therein should be acquired by the assessee after spending money. The said argument in our view is factually and legally misplaced. Factually speaking, it is wrong to say that impugned right acquired by the assessee was without incurrence of any cost. In fact, it is quite evident that assessee got the right to collect toll for the specified period only after incurring expenditure through its own resources on development, construction and maintenance of the infrastructure facility. Secondly, section 32(1)(ii) permits allowance of depreciation on assets specified therein being ‘intangible assets’ which are wholly or partly owned by the assessee and used for the purposes of its business. The aforesaid condition is fully satisfied by the assessee and therefore considered in the aforesaid perspective we find no justification for the plea raised by the Revenue before us.
12. In the result, we affirm the order of the CIT(A) in holding that the assessee was eligible for depreciation on the ‘Right to collect Toll’, being an ‘intangible asset’ falling within the purview of section 32(1)(i1) of the Act following the aforesaid precedents.”
7. In terms of the aforesaid precedent, the claim of the assessee in the present case for depreciation on ‘License to collect Toll’, being an ‘intangible asset’ falling with the scope of Section 32(1)(ii) of the Act is liable to be upheld. We hold so.
8. In so far as the reliance placed by the CIT(A) on the judgement of the Hon’ble Bombay High Court in the case of Techno Shares And Stocks Ltd. (supra) is concerned it may only be noted that the said judgement has since been altered by the Hon’ble Supreme Court vide its order reported at (2010) 327 ITR 323 (SC). Accordingly, in view of the aforesaid discussion, we hereby allow the Ground of Appeal No. 1.1 raised by the assessee.”
29. In view of our observations made in the preceding paras and also agreeing with the above reproduced findings of the Tribunal, we hold that the assessee is entitled to the claim of depreciation on the road to collect toll being an intangible asset falling within the purview of section 32(1) (ii) of the Act.
30. So far as the other alternative contention of the assessee that the project be treated as plant & machinery and the depreciation be accordingly allowed to it, we do not find that the said license of right to collect toll in any way falls in the definition of plant & machinery. As held by the Hon’ble Bombay High Court, even the assessee is not the owner of the toll road. The assessee has been given only the right to develop, maintain and operate the toll road and further to collect the toll for the specified period. This right as discussed above is an intangible asset falling under section 32(1)(ii) of the Act.”
11. The Special Bench of this Tribunal in ITA No.1845/Hyd/2014 in the case of ACIT vs Progressive Construction Ltd. order dated 14.02.2017 under the identical facts has held as under:-
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.”
12. Therefore, respectfully following the view expressed by the Hon’ble Bombay High Court and the Special Bench of this Tribunal, we hold that the assessee is eligible for depreciation @ 25% as claimed by the assessee. Thus, Ground of appeal No.1 raised by the assessee is allowed.
6. Respectfully following the view express by Tribunal for A.Y. 2012-13 & 2013-14, we hold that under identical facts and circumstances the assessee is also eligible for depreciation at the rate of 25% as claim by the for A.Y. 2014-15 also. Therefore ground no. 1, 2 & 3 of assessee are allowed.
Ground no. 5
7. Apropos this ground the learned counsel of assessee submitted that this issue has also covered by the said order of ITAT Delhi dated 18.05.2021 para 17 to 19. The Ld. CIT(DR) did not controvert that under identical facts and circumstances the coordinate bench of Tribunal in assessee’s own appeal for A.Y. 2012-13 & 2013-14 has allowed the claim of assessee for provision which was created for the provision made by the assessee in accordance with settled principle of law. The relevant para 17 to 19 of assessee in said appeals are as follows:-
17. We have heard the rival contentions and perused the material available on record. Ld.CIT(A) has decided the issue against the assessee upholding the action of the Assessing Officer. The relevant contents of Ld.CIT(A) is reproduced as under:-
“………. Thus, one of the prime conditions for any deduction on ac count of business expenditure is that that same should have been incurred during the previous year.’
In the present case, the Toll road became operational in August, 2011. No expenditure was actually incurred for any repair or maintenance in the given previous year. (The appellant has not filed any proof if any of the same.) The liability created by the agreement has not crystallized and the quantified in the previous year. A provision for a contingent liability is not allowable as a deduction (Indian Molasses Co. Pvt. Ltd. vs. CIT (1959) 37 ITR 66 (SC).
I find that the appellant has quoted the decision of Hon’ble SC in the case of M/s. Rotork Controls in support of its contention. However, the facts of the case is not similar to that of the appellant hence I find the reliance of the above decision as ill founded.
The appellant has tried to justify its argument by stating that it has obligation of maintenance for which it has made an estimate of expenses from current years income.
I observe that such a maintenance envisaged in the common Rupee Loan Agreement at best is merely an estimate, indefinite, likely to take place at some future date. In the present year, the same has not taken place at all.
In view of the above fact, I find that the arguments put forth by the AR, ha no force. I observe that the AO has formulated a very comprehensive analysis 01 the subject at para 5 of the assessment order as follows: “Any minor repair for maintenance of road during the year is always an allowable expenditure, but, after 5 years assessee would, if required, spend almost 15% of the cost of project in relaying of the road, which will be in the nature of Capital expenditure and should be added in the depreciated value of the cost of the project. Hence any repair i regular nature which is required for day to day running of business (i.e. Collection of Toll) only needs to be allowable. Hence, the provision for major maintenance allowed will not give true and fair profitability of the assessee. Hence, the provision for major maintenance being contingent nature is disallowed on the ground that assessee has not made any expenses on that count during the year und consideration.” In view of the same and discussion by me (supra) I uphold the order of the AO. Ground no. 3 is dismissed.”
18. During the course of hearing, Ld. Counsel for the assessee took us through the chart wherein it was mentioned that the maintenance expenditure to be incurred in five years was Rs.60.34 crore, project operations were started on 09.08.2011 and estimation of maintenance expenditure was estimated to Rs.12.07 crores and being not having full year operations of the project, provision was created for only one quarter i.e. Rs.12.07 crore/4 i.e. Rs.3 crore. Reliance is placed upon the judgement of Hon’ble Supreme Court in M/s. Rotork Controls India (P.) Ltd. vs CIT reported in 314 ITR 0062 [2009] [SC]. Further, reliance was placed upon the judgement of Hon’ble Supreme Court in the case of Bharat Earth Movers vs CIT reported in 245 ITR 428 [2000] [SC] and also the decision Hyderabad Bench of Tribunal in the case of M/s. Mokama Munger Highway Ltd. vs ACIT (supra).
19. In the light of the above case laws as relied upon by the Ld. Counsel for the assessee, we are of the considered view that the claim of provision as made by the assessee is in accordance with settled principal of law. Therefore, the authorities below were not justified in making the disallowance. Thus, Ground of appeal No.3 raised by the assessee is allowed.
8. Respectfully following the order of the Tribunal in assessee’s own appeals for A.Y. 2012-13 & 2013-14 the claim of assessee for provision made by the assessee is allowed.
9. Accordingly ground no. 5 of assessee is also allowed and AO is directed to delete the disallowance.
10. In the result appeal of the assessee is partly allowed.
Order pronounced in the open court on 13.02.2023.
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