DCIT Vs Gorakhpur Infrastructure Co. Ltd. (ITAT Mumbai)
Assessee is engaged in the business of executing the project for design, construction, finance and maintenance of Gorakhpur By-pass on NH-28(Project Highway) in the state of Uttar Pradesh on Build, Operate and Transfer (BOT) basis under the annuity scheme. The assessee entered into concession agreement with National Highway Authority of India (NHAI) and as per concession agreement, NHAI had granted exclusive right, license and authority during the subsistence of the concession agreement to implement the project and the concession in respect of the Project Highway for a period of 20 years. The assessee had incurred total cost amounting to Rs.721,28,78,487/- on construction and development of the Project Highway, pursuant to which the assessee was able to receive annuity from NHAI under the concession agreement. The assessee classified such cost incurred and right to receive annuity on the toll road as an intangible asset eligible for depreciation u/s.32(1)(ii) of the Act. This depreciation was denied by the ld. AO. The ld. AO held that assessee is not entitled for depreciation at all on the cost incurred on the project. The ld. CIT(A) however, granted depreciation.
The facts stated hereinabove remain undisputed and hence, the same are not reiterated herein for the sake of brevity. We find that the ld. CIT(A) had placed reliance on the Special Bench decision of Hyderabad Tribunal in the case of Progressive Construction reported in 92 Taxmann.com 104 and had granted relief to the assessee. We also find that the similar issue had come up before this Tribunal in the case of DCIT.Cent.Cir-7(2), Mumbai vs. Rajahmundry Expressway Ltd., in ITA No.6518/Mum/2017 for A.Y.2008-09 dated 04/03/2020 wherein it was held as under:-
“We have considered rival submissions in the light of the decisions relied upon and perused the material on record. The issue raised before us is now fairly well settled in view of the Special Bench decision of the Tribunal, Hyderabad Bench, referred to above. Undisputedly, the assessee was awarded the work of constructing a part of the National Highway no.5, under BOT basis. Therefore, entire investment/finance for developing the infrastructure facility was borne by the assessee. By making such investment what the assessee received in return was a right to collect annuity over the period of concession. Thus, the investment made by the assessee for acquiring such right certainly is an intangible asset coming within the purview of section 32(1)(ii) of the Act. Therefore, the assessee would be eligible to claim depreciation. The decision of the learned Commissioner (Appeals) on the issue is hereby reversed.”
Respectfully following the aforesaid judicial precedents, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee. Accordingly, the ground No.1 raised by the Revenue for all the years is dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These appeals in ITA No.574/Mum/2020, 846/Mum/2020 & 847/Mum2020 for A.Yrs.2013-14, 2014-15 & 2015-16 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-49, Mumbai in appeal No.CIT(A)-49/IT-175/2016-17, CIT(A)-49/IT-179/2016-17 & CIT(A)-49/IT-109/2017-18 dated 06/11/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 21/03/2016, 08/11/2017 respectively by the ld. Dy. Commissioner of Income Tax, Central Circle-7(2), Mumbai (hereinafter referred to as ld. AO).
Identical issues are involved in all these appeals, hence, they are taken up together and disposed of by this common order for the sake of convenience.
2. The first identical issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance made on account of depreciation on the right to collect annuity on toll roads.
2.1. We have heard rival submissions and perused the materials available on record. We find that the assessee is engaged in the business of executing the project for design, construction, finance and maintenance of Gorakhpur By-pass on NH-28(Project Highway) in the state of Uttar Pradesh on Build, Operate and Transfer (BOT) basis under the annuity scheme. The assessee entered into concession agreement with National Highway Authority of India (NHAI) and as per concession agreement, NHAI had granted exclusive right, license and authority during the subsistence of the concession agreement to implement the project and the concession in respect of the Project Highway for a period of 20 years. The assessee had incurred total cost amounting to Rs.721,28,78,487/- on construction and development of the Project Highway, pursuant to which the assessee was able to receive annuity from NHAI under the concession agreement. The assessee classified such cost incurred and right to receive annuity on the toll road as an intangible asset eligible for depreciation u/s.32(1)(ii) of the Act. This depreciation was denied by the ld. AO. The ld. AO held that assessee is not entitled for depreciation at all on the cost incurred on the project. The ld. CIT(A) however, granted depreciation by observing as under:
6.2 I have carefully considered the facts of the case, the assessment order and the written submission of the assessee. The assessee company is engaged in the construction and maintenance of bridges on a contractual arrangement for the NHAI. The AO had made the disallowance of the depreciation claimed by the assessee on the ground that the assessee does not hold any rights in the project and assessee company cannot be treated as the “Owner” of the property and can not be allowed depreciation u/s 32(1)(ii) of the Act. During the course of the appellate proceedings, the assessee submitted that it had entered into an agreement with the NHAI to construct the bridge on Build Operate and Transfer the annuity scheme. The appellant submitted that as per the concessionaire agreement it was to receive annuity for a fixed period of time in order to recoup the end of the project. Thus, the annuity being an intangible commercial right, falls within the purview of section 32(1 )(ii) of the Act. Further, the said right has been given to the appellant for a specified period with enduring benefit. It is also not expiry of the time period of the agreement, the said right of the assessee will come to have effect which means it slowly will depreciate to the nil value. As per the provisions of the Income Tax Act, especially under section 32(1)(ii), tie assessee is entitled to claim of depreciation on such type of rights.
6.3 Further, the aforementioned issue is now squarely covered by the decision of the Special Bench of Hyderabad Tribunal in the case of ACIT v. Progressive Constructions Ltd [2018] 92 taxmann.com 104 (Hyderabad – Trib.) wherein the Tribunal held that the only manner in which the assessee could recoup the cost incurred by it in implementing the project/project facility was to operate the road during the concession period, and collect the toll charges from user of the project facility. By investing huge cost, the assessee had obtained a valuable business/commercial right to operate the project facility and collect toll charges. Therefore, right required by the assessee for operating the project facility and collecting toll charges was an intangible asset created by the assessee by incurring the expenses. The Special Bench of the Hyderabad Tribunal accepted the fact that huge costs were incurred by the assessee in constructing, implementing and maintaining such projects. Considering that these costs do not get reimbursed, and the fact that the assessee was allowed to recover such costs by way of collecting toll charges is nothing but a valuable right for an assessee.
6.4 Further, similar view has been taken by the Hon’ble Mumbai Tribunal in the case of DCIT (9(1)(2), Mumbai vs. Atlanta Ltd., Mumbai (ITA No.3415/M/2015). Since, the facts of the appellant’s case are similar to the aforesaid case laws, I am of the considered opinion that the disallowance made u/s.32(1)(ii) of the Act amounting to Rs.1,80,32,19,622/- is liable to be deleted. In view of the aforesaid facts, this ground of appeal is Allowed.
2.2. The facts stated hereinabove remain undisputed and hence, the same are not reiterated herein for the sake of brevity. We find that the ld. CIT(A) had placed reliance on the Special Bench decision of Hyderabad Tribunal in the case of Progressive Construction reported in 92 Taxmann.com 104 and had granted relief to the assessee. We also find that the similar issue had come up before this Tribunal in the case of DCIT.Cent.Cir-7(2), Mumbai vs. Rajahmundry Expressway Ltd., in ITA No.6518/Mum/2017 for A.Y.2008-09 dated 04/03/2020 wherein it was held as under:-
“We have considered rival submissions in the light of the decisions relied upon and perused the material on record. The issue raised before us is now fairly well settled in view of the Special Bench decision of the Tribunal, Hyderabad Bench, referred to above. Undisputedly, the assessee was awarded the work of constructing a part of the National Highway no.5, under BOT basis. Therefore, entire investment/finance for developing the infrastructure facility was borne by the assessee. By making such investment what the assessee received in return was a right to collect annuity over the period of concession. Thus, the investment made by the assessee for acquiring such right certainly is an intangible asset coming within the purview of section 32(1)(ii) of the Act. Therefore, the assessee would be eligible to claim depreciation. The decision of the learned Commissioner (Appeals) on the issue is hereby reversed.”
2.3. Respectfully following the aforesaid judicial precedents, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee. Accordingly, the ground No.1 raised by the Revenue for all the years is dismissed.
3. The ground Nos. 2 & 3 raised by the assessee are challenging the action of the ld. CIT(A) in deleting the disallowance made on account of provision for periodic maintenance charges both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act.
3.1. We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the business of executing the project for design, construction, finance and maintenance of Project Highway in the State of Uttar Pradesh on BOT basis under the annuity scheme. The operations and maintenance of the Project Highway is a key obligation of the assessee throughout the period of 20 years as per the concession agreement. The assessee is thus obliged to incur maintenance expenses on a periodic basis. The assessee’s obligation for operations and maintenance are specified in Article XVIII of the concession agreement which are reproduced hereinabove:-
