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2019 (9) TMI 1545 - AT - Income TaxDepreciation u/s 32 on Concession Rights Toll by treating the same as intangible assets - whether the CIT(A) is right in concluding that the assesses claim for depreciation on license to collect toll being an intangible asset falling within the scope of Sec. 32(1)(ii)? - HELD THAT - We find that in case of Progressive Construction Ltd. 2017 (3) TMI 1167 - ITAT HYDERABAD had concluded that where an Infrastructure Development company which had constructed a road on build operate and transfer (BOT) basis on the land owned by the Central Government gets vested with a right to an intangible asset under Explanation 3(b) r.w. Sec.32(1)(ii) the assessee would be eligible to claim depreciation on such asset as per the specified rate. Apart there from it was observed by the Tribunal that where the assessee had never claimed expenditure incurred for construction of the road on build operate and transfer (BOT) basis as a deferred revenue expenditure the same could not have been amortized in terms of CBDT Circular No. 9 of 2014 dated 23.04.2014. Thus the issue as to whether an Infrastructure Development company which had constructed a road on build operate and transfer (BOT) basis on the land owned by the Central Government would be eligible for claim of depreciation in respect of its intangible rights i.e right to collect toll under Sec. 32(1)(ii) is squarely covered by the aforesaid order of the Special bench of the Tribunal in the case of ACIT Circle 10(2) Hyderabad Vs. Progressive Construction Ltd. 2017 (3) TMI 1167 - ITAT HYDERABAD and also the orders of the coordinate benches of the Tribunal viz. (i) DCIT Circle-9(1)(2), Mumbai Vs. M/s Atlanta Ltd. Mumbai 2018 (2) TMI 1514 - ITAT MUMBAI and (ii) ACIT Vs. M/s PNG Tata Ltd. 2019 (8) TMI 347 - ITAT CHENNAI - Decided in favour of assessee.
Issues Involved:
1. Eligibility of depreciation claim under Sec. 32 on Concession Rights Toll as intangible assets. 2. Reliance on previous judgments and their applicability. 3. Amortization of expenditure incurred on BOT projects. 4. Ownership and depreciation eligibility of toll roads constructed on BOT basis. 5. Nature and classification of the right to collect toll as an intangible asset. Detailed Analysis: 1. Eligibility of Depreciation Claim under Sec. 32 on Concession Rights Toll as Intangible Assets: The core issue revolves around whether the assessee's "right to collect toll" qualifies as an intangible asset eligible for depreciation under Sec. 32(1)(ii) of the Income Tax Act, 1961. The assessee argued that their right to collect toll, acquired through a Concessionaire Agreement with Madhya Pradesh Road Development Corporation, constitutes a commercial/business right. The CIT(A) supported this view, stating that while the assessee did not own the toll road, it possessed the right to collect toll, which is an intangible asset. This right was capitalized and thus eligible for depreciation. 2. Reliance on Previous Judgments and Their Applicability: The revenue contended that the issue was covered against the assessee by the judgments of the Hon'ble High Court of Bombay in the cases of North Karnataka Expressway Ltd. and M/s West Gujarat Expressway Ltd., where it was held that the assessee could not claim depreciation on toll roads as they were not owned by the assessee. However, the assessee argued that these cases were limited to the issue of depreciation on toll roads and did not address the right to collect toll as an intangible asset. The Tribunal agreed with the assessee, noting that the previous judgments did not adjudicate on the depreciation of the right to collect toll. 3. Amortization of Expenditure Incurred on BOT Projects: The A.O. had substituted the assessee's depreciation claim with amortization of the expenditure incurred on the BOT project over the concession period, as per CBDT Circular No. 9 of 2014. However, the Tribunal found that since the assessee had capitalized the cost incurred on the BOT project and did not claim it as deferred revenue expenditure, the amortization approach was not applicable. 4. Ownership and Depreciation Eligibility of Toll Roads Constructed on BOT Basis: The Tribunal reiterated that while the assessee did not own the toll roads constructed on BOT basis, this did not preclude the assessee from claiming depreciation on the right to collect toll. The Tribunal referenced the Special Bench decision in ACIT Vs. Progressive Construction Ltd., which held that expenditure incurred on BOT projects creates an intangible asset eligible for depreciation. 5. Nature and Classification of the Right to Collect Toll as an Intangible Asset: The Tribunal emphasized that the right to collect toll is a valuable business/commercial right, akin to a license, and falls within the definition of an intangible asset under Sec. 32(1)(ii). The Tribunal cited various precedents, including the Special Bench decision in Progressive Construction Ltd., which classified the right to collect toll as an intangible asset eligible for depreciation. The Tribunal also referenced the Hon'ble Supreme Court's judgment in CIT v/s Smifs Securities, which supported the inclusion of business/commercial rights within the scope of intangible assets. Conclusion: The Tribunal upheld the CIT(A)'s decision, allowing the assessee's claim for depreciation on the right to collect toll as an intangible asset under Sec. 32(1)(ii). The appeal filed by the revenue was dismissed, and the cross-objections filed by the assessee were rendered academic and dismissed accordingly. The judgment was pronounced in the open court on 20.09.2019.
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