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2013 (9) TMI 397 - AT - Income TaxNature of receipt - whether transfer of right or transfer of asset - Capital gain on transfer of bridge named Yanam Project to subsidiary company - Ownership - bridge was created under PPP mode under BOT scheme - Whether there is transfer of asset in the transaction of transfer of BOT from the Assessee to its 100% subsidiary Held that - BOT asset is figuring in the Balance Sheet at net cost price and the depreciation was being allowed to the assessee consequent to the orders of the CIT(A) and ITAT. Therefore, the issue that there is no capital asset in the books of the assessee cannot be accepted, as the very same Assessing Officer, who has completed the assessment under S.153A has considered the issue and rejected claim of depreciation in all these years on the very same asset, which is purportedly under the ownership of the Government of Andhra Pradesh. Therefore, consequent to the orders of the CIT(A) and ITAT, the assessee was allowed depreciation on the very same BOT asset. Therefore, the finding of the Commissioner of Income-tax that there is no capital asset to be transferred cannot be accepted Decided in favor of Assessee. Since, we have already considered the ownership of the asset and arrived at the conclusion that there is a capital asst, which is validly transferred to a 100% subsidiary company, there is no need to discuss the provisions of S.23 to 25 and S.65 of the Indian Contracts Act, to consider whether the agreement is void or not. In any case, an agreement does not become void only because one of the parties assigned part of the rights to its 100% subsidiary, since this is authorized by the agreement itself, Applicability of provisions of section 47(iv) of the Income Tax Act Held that - Assessee has right to collect toll and other fee and to develop way side facilities like advertisements, hoardings, etc. to generate revenue and also entitled to create additional structural facility to cater for the pipelines for oil, gas and water and at that time, they were envisaging establishing a pipeline for ONGC for transportation of gas by utilsiing this facility - Amount of toll collection is being assessed in the hands of GTBPL and the Commissioner has not considered the agreement as void and the toll collected thereon was not assessed in the hands of the assessee at all - There is a valid transfer to the 100% subsidiary company and since the provisions of S.47(iv) are directly applicable, this assignment can not be considered as transfer for the purpose of capital gains Decided in favor of Assessee.
Issues Involved:
1. Legality and validity of the order passed under Section 263 of the Income-tax Act. 2. Determination of whether the order passed by the Assessing Officer (AO) under Section 143(3) read with Section 153A was erroneous and prejudicial to the interests of the Revenue. 3. Ownership and transferability of the BOT asset under the agreement with the Government of Andhra Pradesh. 4. Taxability of the amount of Rs. 125 crores received by the assessee. 5. Applicability of exemption under Section 47(iv) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Legality and Validity of the Order Passed Under Section 263: The assessee contested the legality of the order passed by the Commissioner of Income-tax (CIT) under Section 263, arguing that the order was illegal, invalid, and bad in law. The tribunal examined the procedural and substantive aspects of the order and concluded that the CIT's order was not validly passed as it did not consider the entirety of the agreement and the legal provisions correctly. 2. Determination of Erroneous and Prejudicial Order: The CIT held that the AO's order was erroneous and prejudicial to the interests of the Revenue. The CIT argued that the AO failed to properly examine the transfer of the BOT asset and its tax implications. However, the tribunal found that the AO had indeed examined the issue, and the CIT's view was not sustainable. The tribunal noted that the AO had allowed depreciation on the BOT asset based on earlier orders from the CIT(A) and ITAT, which had already crystallized the issue in favor of the assessee. 3. Ownership and Transferability of the BOT Asset: The tribunal analyzed the agreement between the assessee and the Government of Andhra Pradesh. It was established that the assessee had the right to collect tolls and was entitled to ownership of the BOT asset during the concession period. The tribunal found that the transfer of the right to collect tolls to the wholly-owned subsidiary was valid and did not violate the agreement. The definition of "enterprise" in the agreement included successors, administrators, and assignees, thus allowing the transfer to the subsidiary. 4. Taxability of Rs. 125 Crores Received: The CIT had directed that the amount of Rs. 125 crores received by the assessee be taxed as income from other sources, arguing that there was no asset to transfer. The tribunal disagreed, stating that the assessee had a valid capital asset in the form of the right to collect tolls, which was transferred to the subsidiary. Consequently, the amount received could not be taxed as income from other sources but was part of a valid transfer under Section 47(iv). 5. Applicability of Exemption Under Section 47(iv): The tribunal held that the transfer of the BOT asset to the wholly-owned subsidiary qualified for exemption under Section 47(iv) of the Income-tax Act. The transfer was not considered a "transfer" for the purpose of capital gains, as per the provisions of the Act. The tribunal concluded that the AO's order allowing the exemption was correct and not erroneous. Conclusion: The tribunal set aside the order of the CIT, holding that the AO's order was neither erroneous nor prejudicial to the interests of the Revenue. The tribunal upheld the validity of the transfer of the BOT asset and the applicability of the exemption under Section 47(iv). The appeal of the assessee was allowed, and the tribunal directed that the amount of Rs. 125 crores should not be taxed as income from other sources. Order Pronounced: The order was pronounced in the court on 16.1.2013.
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