2014 (11) TMI 351 - HC - Income Tax

Interpretation on word depreciation - Validity of CIT order passed under section 263 - erroneous and prejudicial to the interest of the Revenue - Claim for Depreciation at the rate of 10% on the capitalized cost of the toll road - intangible assets - term owner - business of infrastracture development - Concession Agreement with the National Highway Authority of India (NHAI) - deed of conveyance. HELD THAT - We do not find that when this notice was issued by the Commissioner to the Assessee under section 263 of the Income Tax Act there has been any divergence or contradiction as complained by Shri Irani. We do not find any basis for the complaint that the notice and the order passed by the Commissioner of Income Tax are at variance or that the order travels beyond the notice. The essential foundation for the notice is as noted above. The Commissioner issued another show cause notice on 2nd December 2009 and in which also he alleged that the claim of depreciation has been erroneously granted and the order of the Assessing Officer to that extent is erroneous and prejudicial to the interest of the Revenue. The Assessee replied to the show cause notice and gave detailed explanation on how the claim arises. Hence there was no prejudice nor can it be said that the Assessee was in any manner handicapped in dealing with the show cause notice. The order of the Commissioner deals with the stand of the Assessee and in detail. The Commissioner held that the Assessing Officer had not discussed this claim at all. He has granted it without any application of mind and mechanically. There is justification for such a conclusion by the Commissioner. It would not be proper therefore to read into section 32 of the Income Tax Act 1961 something which is defeating and frustrating the mandate of these laws. It can never be intended by the legislature that the broad and wide definition of the term owner as appearing in the Income Tax Act 1961 would interfere with or take away the absolute rights of the above nature conferred in the union of the National Highways. This is too well settled and to require a reference to any judgment. That a provision in one statute or a definition in one statute cannot be interpreted so as to defeat and frustrate another law or statute or any definition therein and when that another statute is a special legislation. The words and definitions in a general enactment can never be held to be contradicting overriding the stipulations and provisions in a special statute. The National Highways Act and the National Highways Authority of India Act are therefore special statutes and when the concept of ownership and vesting therein is of absolute nature that cannot be said to be in any manner restricted or curtailed by a general definition or understanding of the term owner as appearing in the Income Tax Act 1961. The term is defined widely and broadly in the Income Tax Act 1961 so as not to allow anybody to escape the provisions thereof by urging that he has a limited right or which is not akin to ownership. Therefore his income should not be brought to tax. Similarly if he can claim any deductions from his income which is comprising of profits and gain from his business then that deduction can be availed by him. It is for that limited purpose that the term owner is defined in this manner Income Tax Act 1961. However as held above that cannot control leave alone overreach The National Highways Act 1956 or the National Highways Authority of India Act 1988. From the record it is enough to conclude that both the Commissioner as also the Tribunal were right in holding that the claim of Depreciation on toll roads by the Assessee is untenable in law. No such claim could have been made by the Assessee. We are here concerned with the claim on the land or a road itself. Merely because the road is laid out does not mean that the Assessee is the owner thereof. He has laid it out for the purpose of the union and for its ultimate vesting in the public. For the above reasons and which are in addition to those supplied by the Commissioner and the Tribunal this Appeal fails. The reframed substantial question of law is answered in favour of the Revenue and against the Assessee but by clarifying that the Assessee s claim for depreciation in respect of the building plant and machinery and falling within the purview of sub section (1) of section 32 of the Income Tax Act 1961 if considered and granted shall not be affected by our judgment. There would be no order as to costs.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment was whether the Income Tax Appellate Tribunal was justified in confirming the order of the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961. This order directed the Assessing Officer to re-examine the allowability of depreciation on a toll road constructed by the Assessee on a Build, Operate and Transfer (BOT) basis.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The primary legal framework involved was Section 263 of the Income Tax Act, 1961, which allows the Commissioner to revise an assessment order if it is erroneous and prejudicial to the interest of the Revenue. Additionally, the case involved the interpretation of Section 32 of the Income Tax Act, which pertains to the allowance of depreciation on assets owned and used for business purposes. The case also involved the interpretation of the National Highways Act, 1956, and the National Highways Authority of India Act, 1988, concerning ownership and maintenance of national highways.

Court's Interpretation and Reasoning:

The Court examined whether the Assessee had ownership rights over the toll road to claim depreciation. The Court noted that the toll road, constructed on government land under a BOT agreement, ultimately vested in the Union of India. The Court emphasized that ownership under the Income Tax Act must be interpreted in the context of the relevant statutory provisions governing national highways, which vest ownership in the Union, not private entities.

Key Evidence and Findings:

The Assessee argued that it was entitled to claim depreciation based on the concession agreement with the National Highway Authority of India, which deemed the capital investment as owned by the concessionaire for tax purposes. However, the Court found that the Assessing Officer had not adequately examined this claim, and the Commissioner was justified in directing a re-examination under Section 263.

Application of Law to Facts:

The Court applied the legal principles of ownership and depreciation, emphasizing that depreciation is only allowable on assets owned by the Assessee. Since the toll road was not owned by the Assessee but vested in the Union, the claim for depreciation was not tenable under Section 32 of the Income Tax Act.

Treatment of Competing Arguments:

The Assessee's argument that the Assessing Officer had taken a possible view was rejected. The Court held that the Assessing Officer's order was mechanical and lacked examination, making it erroneous and prejudicial to the Revenue. The Court also distinguished the Assessee's reliance on precedents where ownership was interpreted broadly, noting that such interpretations were not applicable given the statutory context of national highways.

Conclusions:

The Court concluded that the Tribunal and the Commissioner were correct in their findings. The Assessee's claim for depreciation on the toll road was untenable because the road was not owned by the Assessee but vested in the Union. The Court upheld the Commissioner's order for re-examination by the Assessing Officer.

SIGNIFICANT HOLDINGS

The Court preserved the principle that depreciation under Section 32 of the Income Tax Act is only allowable on assets owned by the Assessee. It emphasized that ownership must be interpreted in the context of relevant statutes, such as the National Highways Act, which vest ownership of highways in the Union.

Core Principles Established:

The judgment reinforced the principle that statutory definitions and ownership concepts in special statutes like the National Highways Act take precedence over general interpretations in the Income Tax Act. It clarified that BOT agreements do not confer ownership rights necessary for depreciation claims.

Final Determinations on Each Issue:

The Court determined that the Tribunal's confirmation of the Commissioner's order under Section 263 was justified. The Assessee's claim for depreciation on the toll road was not supported by law, as the road was not owned by the Assessee. The Court's decision clarified the application of ownership and depreciation principles in the context of national highway projects under BOT agreements.