2018 (6) TMI 1759 - AT - Income Tax

Depreciation on the asset Right to collect Toll - Intangible asset eligible for depreciation u/s.32(1)(ii) - HELD THAT - In consideration of developing constructing maintaining the facility for a specified period and thereafter transferring it to the Government of Madhya Pradesh free of charge assessee was granted a Right to collect Toll from the motorists using the said infrastructure facility during the specified period. The said Right to collect the Toll is emerging as a result of the costs incurred by the assessee on development construction and maintenance of the infrastructure facility. Such a right has been adjudicated by the Tribunal in the aforesaid precedents to be in the nature of intangible asset falling within the purview of section 32(1)(i/) of the Act and has been found eligible for claim of depreciation. It is wrong to say that impugned right acquired by the assessee was without incurrence of any cost. In fact it is quite evident that assessee got the right to collect toll for the specified period only after incurring expenditure through its own resources on development construction and maintenance of the infrastructure facility. Secondly section 32(1)(ii) permits allowance of depreciation on assets specified therein being intangible assets which are wholly or partly owned by the assessee and used for the purposes of its business. The aforesaid condition is fully satisfied by the assessee and therefore considered in the aforesaid perspective we find no justification for the plea raised by the Revenue before us. We hold that the assessee is entitled to claim the depreciation on intangible assets as provided under section 32(1)(ii) of the Act. The second part of the order of Assessing Officer in amortizing the expenditure over the period of facility and allowing the same stands reversed. The Assessing Officer is thus directed to allow the claim of assessee vis- -vis depreciation on intangible asset under section 32(1)(ii) of the Act. Thus we hold that the assessee is entitled to depreciation @25% on the Right to Collect Toll being an intangible asset. - Appeal of the Revenue is dismissed.

Summary

Issues involved:
1. Allowability of depreciation on the "Right to Collect Toll."

Detailed Analysis:

1. Allowability of Depreciation on the "Right to Collect Toll":

The Revenue filed two appeals against the orders of CIT(A)-1, Nashik, which allowed depreciation on the "Right to Collect Toll" for the Assessment Year 2012-13. The assessees engaged in collecting toll at Durg and Bhadara claimed depreciation on this intangible asset. The Assessing Officer (AO) disallowed the depreciation claim, arguing that it was not tenable and instead allowed proportional expenses based on amortization.

The AO's decision was based on CBDT Circular No. 09/2014, which suggested amortizing the expenses over the toll collection period rather than allowing depreciation. The AO calculated the proportional expenses and disallowed the remaining depreciation amount, initiating penalty proceedings under Section 271(1)(c) for concealing income and filing inaccurate particulars.

In the First Appellate proceedings, the CIT(A) allowed the assessees' claim, referencing favorable decisions from the Tribunal in similar cases, including M/s. Ashoka Info Pvt. Ltd. and M/s. Ashoka Bridgeways. The CIT(A) held that the "Right to Collect Toll" is an intangible asset eligible for depreciation at 25%.

During the Tribunal proceedings, the assessees submitted written submissions citing recent decisions supporting their claim. These included ITAT decisions in the cases of Ashoka Highways (Bhandara) Ltd. and Ashoka Infraways Ltd., which considered the CBDT Circular and upheld the claim of depreciation on the "Right to Collect Toll" as an intangible asset under Section 32(1)(ii).

The Tribunal reviewed the written submissions and the binding precedents, particularly the case of Ashoka Highways (Bhandara) Ltd., where it was held that the "Right to Collect Toll" is an intangible asset eligible for depreciation. The Tribunal extracted relevant paragraphs from previous orders, emphasizing that the right to collect toll, granted in exchange for developing and maintaining infrastructure, qualifies as an intangible asset under Section 32(1)(ii).

The Tribunal cited several decisions, including those of the Mumbai Bench and the Hon'ble Bombay High Court, which supported the view that the right to collect toll is an intangible asset eligible for depreciation. The Tribunal noted that the expenditure incurred for developing infrastructure, leading to the right to collect toll, brings enduring benefits and qualifies for depreciation under Section 32(1)(ii).

The Tribunal concluded that the assessees are entitled to claim depreciation on the "Right to Collect Toll" as an intangible asset. The AO's method of amortizing the expenses over the period of the toll collection facility was reversed. The Tribunal directed the AO to allow the depreciation claim under Section 32(1)(ii).

Conclusion:

The Tribunal upheld the CIT(A)'s decision, affirming that the "Right to Collect Toll" is an intangible asset eligible for depreciation at 25%. The appeals filed by the Revenue were dismissed, and the AO was directed to allow the depreciation claim as per Section 32(1)(ii) of the Income Tax Act.