2014 (11) TMI 354 - HC - Income Tax

Classification of Bypass Toll Road Building or Plant - Entitlement for higher rate of depreciation - Whether the Tribunal was correct in law in holding that Moradabad Bypass Toll Road (Highway) was a building and not a plant Held that - CIT(A) rightly was of the view that the road cannot be said to be plant and was a building for the purpose of allowing depreciation - in Commissioner of Income-Tax Versus Gwalior Rayon Silk Manufacturing Co. Limited 1992 (4) TMI 3 - SUPREME Court it has been held that the roads would be buildings within the meaning of Section 32 of the Act - the real test to construe a structure as a plant , it is to be seen that the structure is used as a tool or apparatus in the business of the assessee - the structure is so constructed so as to serve the assessee s special technical requirements which in normal parlance is called the functional test - the toll road has been executed by the assessee on built, operate and transfer basis (BOT) - BOT is a form of project financing wherein a private entity receives a concession from the public sector or for that matter private sector to finance, design, construct and operate a facility stated in the concession contract - This enables the project proponent to recover its investment, operating and maintenance expenses in the project. The facility shall be transferred to the public sector at the end of the concession period - The word build signifies construction of a road, whereby the tax payer brings into existence a structure/surface and nothing more - The word operate signifies the understanding between the assessee and the public authority to collect charges for the usage of the road - The road is a surface on which the vehicles ply - No special features have been pointed out which serves as tool or apparatus while operating the road - No doubt in some roads toll plazas are erected for collecting the usage charges - These are small booths which are manned at some places and unmanned at some, where the user deposits the money in a machine which opens the gate - To cut costs and minimize the time delay, the usage charges are collected by some form of automatic or electronic toll collection equipment - the manned toll booths/toll plazas are primarily a facility/convenience for collecting the usage charges of the road and nothing more - That would not change the characteristic of road . Plant as defined and understood for tax purposes means tool or equipment used for purposes of business or profession - Toll road would not be a plant in that sense, for, it is a capital asset which when used by any person, who makes payment for the said use, generates and results in accrual of income - It is a capital asset which is the very business of the assessee and not a implement or a tool used by the assessee for his business - the toll road would not qualify as a plant so as to entitle the assessee a higher rate of depreciation Decided against assessee.

Issues Involved:
- Whether the Income Tax Appellate Tribunal was correct in law in holding that Moradabad Bypass Toll Road (Highway) was a building and not a plant?

Detailed Analysis:

ITA No. 51/2013:
The appellant, a 100% subsidiary of the National Highways Authority of India (NHAI), constructed the Moradabad Bypass Toll Road on a Build, Operate, and Transfer (BOT) basis. The appellant declared a loss of Rs. 10,02,63,570/- for the assessment year 2007-08. The Assessing Officer allowed depreciation at 10% on roads, not the 25% claimed by the appellant. This decision was upheld by the Commissioner of Income Tax (Appeals) and the Tribunal.

ITA No. 65/2014:
The appellant declared a loss of Rs. 25,94,56,570/- for the assessment year 2003-04. The Assessing Officer allowed depreciation at 10% on the toll road, not the 25% claimed. The Commissioner of Income Tax (Appeals) and the Tribunal upheld this decision, stating that the road could not be classified as a 'plant' but as a 'building.'

ITA No. 81/2014:
The appellant declared a loss of Rs. 20,83,84,640/- for the assessment year 2004-05. The Assessing Officer allowed depreciation at 10%, not the 25% claimed by the appellant. The Commissioner of Income Tax (Appeals) and the Tribunal upheld this decision, classifying the road as a 'building' for depreciation purposes.

Appellant's Argument:
The appellant argued that the toll road should be classified as a 'plant' because it is an apparatus or tool used for business activities. They cited several judgments to support their claim, including Indore Municipal Corporation vs. CIT, Scientific Engineering House Pvt. Ltd. vs. CIT, and others.

Respondent's Argument:
The respondent argued that the toll road could not be classified as a 'plant' based on the definition provided in Section 43 of the Income Tax Act, which excludes buildings from the definition of 'plant.' They referred to the note under Appendix I of the Income Tax Rules, which includes roads under the definition of 'buildings.'

Court's Analysis:
The court analyzed the relevant provisions of the Income Tax Act and Rules, including Section 32 and Section 43. It noted that the legislative intent was to classify roads as 'buildings' and not as 'plants.' The court referred to several judgments, including Gwalior Rayon Silk Manufacturing Co. Ltd., Indore Municipal Corporation, and Noida Toll Bridge, to conclude that roads are classified as 'buildings' for depreciation purposes.

Conclusion:
The court held that the toll road could not be classified as a 'plant' and must be treated as a 'building' for the purpose of depreciation. The appeals were dismissed, and the court ruled in favor of the revenue, affirming that the toll road is entitled to depreciation at the rate applicable to buildings, not plants.

Judgment:
The appeals were dismissed, and no costs were awarded. The court concluded that the toll road is a 'building' and not a 'plant,' thereby entitling the appellant to a lower rate of depreciation.

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