2018 (5) TMI 2064 - AT - Income Tax

Depreciation treating the road under the category allowed as intangible asset - HELD THAT - We are in agreement with the contention of the CIT-DR/DR to the effect that the assessee is not the owner of the asset/road.The assessee made a huge investment for creation of the asset for Govt. Of India and simultaneously acquired certain rights in the property enabling it to earn income by way of collection of toll fee for a specified period thus in the process recovering of its cost of investment with certain amount of profit. In any way for the assessee BOT road bridges etc. as intangible asset and the assessee is claiming depreciation on the very same asset created with its own expenditure. Thus such an intangible asset comes within the expression other business or commercial rights . Thus in our view it falls within the category of any other business or commercial rights of similar nature as provided u/s 32(1)(ii). In the present appeal the assessee claimed depreciation on road as plant and machinery which was disallowed by the Ld. AO on the plea that the assessee is not the owner of the toll road hence not eligible for depreciation. To this extent that the assessee is not the owner of the asset/road we agree with the contention of the AO as well as the ld. CIT-DR/DR. The issue before us falls within the category of intangible asset. Commissioner of Income Tax (Appeal) allowed depreciation as a building instead of plant and machinery. We feel this is neither building nor a plant and machinery rather the claim of depreciation to the assessee is allowable in the category of commercial rights of similar nature being intangible asset as provided u/s 32 (1)(ii) of the Act. To this extent only the additional ground raised by the assessee is allowed at applicable rate of deprecation i.e. @ 25%. As further noted the present road is since 2008-09 and license was granted to the assessee in terms of collecting tax/tolls and the Tribunal for Assessment Year 2008-09 decided the issue in favour of the assessee.

Issues Involved:
1. Granting depreciation on the toll road as an intangible asset.
2. Taxability of interest income under 'business income' or 'income from other sources.'
3. Liability of interest under section 234D of the Income Tax Act.
4. Ownership of the toll road and its implications on depreciation claims.

Issue-wise Detailed Analysis:

1. Granting Depreciation on the Toll Road as an Intangible Asset:
The primary issue was whether the toll road should be treated as an intangible asset for the purpose of granting depreciation. The assessee argued for depreciation by treating the toll road under the category of 'intangible asset,' citing various tribunal decisions. The Revenue opposed, stating that the assessee was not the owner of the asset, hence depreciation should be denied. The Tribunal referred to several cases, including M/s Andhra Pradesh Expressway Ltd., which supported the assessee's claim. The Tribunal concluded that the assessee, although not the owner of the toll road, had commercial rights to collect tolls, which qualified as an intangible asset under section 32(1)(ii) of the Act. Therefore, depreciation was allowed at the applicable rate of 25%.

2. Taxability of Interest Income:
The Revenue contended that the interest income of Rs. 36,25,280 should be taxed under 'income from other sources.' However, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals), who had classified it under 'business income,' following the precedent set by the Hon'ble Bombay High Court in CIT vs Lok Holding. Thus, this ground of the Revenue was dismissed.

3. Liability of Interest Under Section 234D:
The Tribunal noted that the liability of interest under section 234D of the Act is consequential in nature. Therefore, no specific ruling was provided on this issue, as it would follow the outcomes of the other decisions.

4. Ownership of the Toll Road and Its Implications on Depreciation Claims:
The Tribunal acknowledged that the ownership of the toll road vested with the government, and the assessee was merely granted the right to collect tolls. This right was deemed an intangible asset, allowing the assessee to claim depreciation. The Tribunal referenced the decision of the Hon'ble Bombay High Court in CIT vs West Gujarat Expressway Ltd., which clarified that while the ownership of the toll road remained with the government, the commercial rights granted to the assessee could be treated as intangible assets eligible for depreciation.

Additional Observations:
The Tribunal also addressed the cross-objections and appeals for subsequent assessment years, reiterating that the assessee's claim for depreciation as an intangible asset was valid. The Tribunal dismissed the cross-objection regarding the classification of the toll road as 'plant and machinery' or 'building,' as it had already allowed depreciation under the category of 'intangible asset.'

Conclusion:
The appeals of both the assessee and the Revenue were disposed of, with the Tribunal granting depreciation on the toll road as an intangible asset and affirming the tax treatment of interest income as business income. The issue of interest under section 234D was deemed consequential, and the ownership of the toll road was clarified to be with the government, with the assessee holding commercial rights eligible for depreciation.

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