Advocate Akhilesh Kumar Sah
Section 32(1) of the Income Tax Act, 1961 (for short ‘the Act’) takes into ambit the intangible assets as know-how, patents, copyrights, trademarks, 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. Recently, in Mumbai International Airport P Ltd. vs. DCIT & vice-versa [ITA No.4382/Mum/2015 and ITA No.4838/Mum/2015, A.Y.: 2012-13, decided on 27.11.2017], an issue of payment of upfront fees came before Mumbai, ITAT which held the same as an intangible asset and entitled to depreciation @ 25%.
In the above-mentioned appeal, one of the question raised was whether on the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of 25% depreciation on upfront fees of Rs.150 crore without considering the fact that the assessee had not acquired any absolute rights on the Airport, so as to equate it with a license, but instead the AAI had granted the assessee the right to perform certain functions during the contract period of 30 years and hence the assessee was entitled for deduction only the proportionate amount i.e. l/30th of Rs.150 crore.
After hearing the rival submissions, observing the facts and circumstances of the case, the learned Members of the Mumbai, ITAT observed that that the issue is covered in favour of the assessee by Mumbai Tribunal, vide its order dated 14.02.2014, for A.Y. 2007-08 in ITA No. 7507/Mum/2011 & 7111/Mum/2011, which decision was followed for A.Y. 2008-09. The Tribunal for A.Y. 2007-08 has observed as under:
“10.2 That the AO has stated that the assessee has got lease hold rights for a period of 30 years and whereas the assessee has contended that the assessee has got a license for a period of 30 years and as such it is an “intangible assets”. Thus, the assessee is entitled for depreciation as per section 32(1)(ii) of the Act. We observe that the said amount of Rs.150 crores paid by assessee is non-refundable. The assessee has got the privilege under “OMDA” to collect charges of the nature as mentioned in the agreement entered into i.e. “OMDA” from the users of Airport premises. We observe that it is not a case where the assessee has got the transfer of a right to enjoy the Airport premises. The assessee only got a license or right to do something at the Airport premises. The Hon’ble Apex Court has held in the case of B. M. Lal (supra) that the transaction is a lease, if it grants the interest in the land and whereas it is a license if it gives a personal privilege with no interest in the land. We are of the considered view that the assessee has got the economic /commercial right under the said agreement to collect charges from the users of the Airport premises which is similar to grant of a license to the assessee. This case is similar to the case of Technoshares and Stocks Ltd and others (supra), wherein the Hon’ble Apex Court has held that a right given to member of Stock-Exchange to carry on the business at the premises of the Stock-Exchange is a business or commercial right which is akin to license in terms of section 32(1)(ii) of the Act, therefore, eligible for depreciation. Their Lordships have held that right to participate in the market is an economic and money value, itself satisfies the test of being a license. There is no dispute to the fact that the said payment of Rs.150 crores paid to “AAI” has not resulted to the assessee in the acquisition of any “tangible assets” like building, machinery, plants or furniture. Therefore the said payment of Rs.150 crores has not resulted into acquisition of “tangible assets”. Thus, the assessee has only acquired right to collect charges from the users of the Airport preemies, which is a business or commercial right in the form of license and therefore it is an “intangible assets” as per section 32(1)(ii)of the Act. The Hon’ble Delhi High Court in the case of Hindustan Coca Cola Beverages Pvt Ltd (supra) has also held that the assets which are included in the definition of “intangible assets” include, along with other things, any other business or commercial rights of similar nature. In this regard, it is relevant to state that the decision of Delhi High Court in the case of ONGC Videsh Ltd (supra) has held that the assessee who was assigned the rights to participate in oil exploration in Russia through a consortium for a period of 25 years and paid the total consideration for obtaining 20% membership in the consortium, amounting to Rs. 155.9 crores, was treated to acquire a license, being intangible assets, and thus assessee was entitled to claim depreciation u/s. 32(1)(ii) of the Act. Pune Bench of the Tribunal in the case of Ashoka Info (P) Ltd (supra) has also held that the expenditure incurred on construction of highway is eligible for depreciation @25%, as this expenditure has given rise to an ‘intangible assets’ in the hands of the assessee. In view of above decisions and the facts of the case, we hold that the ld. CIT(A) has rightly held that the payment of upfront fee of Rs.150 crores paid by assessee to “AAI” has created capital assets in the form of license to develop and modernize the Airport and collect charges as per terms and conditions as prescribed under the agreement entered into which is an “intangible assets” to the assessee. Thus assessee is entitled for depreciation.
10.3 Hence, the disallowance of Rs.22.50 crores made by AO has rightly been deleted by ld. CIT(A) by directing the AO to allow depreciation at the rate of 25% on the said payment of upfront fee of Rs.150 crores. Thus, Ground No.1 taken by department is rejected.”
Respectfully following the order of the Tribunal in the assessee’s own case, the learned Members of the Mumbai, ITAT confirmed the order of the CIT(A) deleting the disallowance for the year under consideration.