2021 (11) TMI 1088 - AT - Income Tax

Depreciation claimed on the asset Right to Collect Toll - commercial right or intangible asset - true nature of the rights acquired in terms of the contract awarded by the NHAI - Whether the asset on which depreciation has been claimed, does not form part of intangible asset defined u/s 32(1)(ii) - whether or not the cost of Right to Collect Toll qualifies as intangible asset as defined under clause (ii) of sub-section (1) of section 32? - HELD THAT - There can be no doubt that as result of developing this project, the respondent-assessee had acquired a commercial right to collect the toll in terms of the contract awarded by NHAI. This right definitely falls within the meaning of commercial right or intangible asset . This definitely would qualify for depreciation @ 25%. To the same effect is the decisions of the Hon ble Rajasthan High Court in the case of GVK Jaipur Expressway Ltd. 2017 (10) TMI 1380 - RAJASTHAN HIGH COURT the High Court has taken into consideration all the decisions and more particularly the decisions of (i) Hon ble Delhi High Court in the case of Moradabad Toll Road Co. Ltd. 2014 (11) TMI 354 - DELHI HIGH COURT (ii) Hon ble Allahabad High Court in the case of CIT v. Noida Toll Bridge Co. Ltd. 2012 (11) TMI 556 - ALLAHABAD HIGH COURT ; (iii) Hon ble Madras High Court in the case of CIT v. VGP Housing (P.) Ltd. 2014 (8) TMI 423 - MADRAS HIGH COURT ; (iv) Hon ble Rajasthan High Court in the case of CIT v. Jawahar Kala Kendra 2014 (6) TMI 292 - RAJASTHAN HIGH COURT (v) Hon ble Rajasthan High Court in the case of CIT v. Mohd. Bux Shokat Ali 2001 (2) TMI 26 - RAJASTHAN HIGH COURT (vi) decisions of the Hon ble Jurisdictional High Court in the case of North Karnataka Expressway Ltd. 2014 (11) TMI 351 - BOMBAY HIGH COURT ; (vii) CIT vs. West Gujarat Expressway Ltd. (No.1) 2016 (4) TMI 1184 - BOMBAY HIGH COURT and (viii) CIT vs. West Gujarat Expressway Ltd . 2016 (4) TMI 1220 - BOMBAY HIGH COURT have no application to the facts of the present case, inasmuch as, the decision in the said two cases relates to the allowability of depreciation on roads treating as building. In the circumstances, we do not find any illegality in the order of the ld. CIT(A). Accordingly, we do not find any merit in the appeal filed by the Revenue. Hence, the grounds of appeal raised by the Revenue are dismissed.

Summary

Issues:
- Whether depreciation claimed on the asset "Right to Collect Toll" qualifies as an intangible asset under section 32(1)(ii) of the Income Tax Act, 1961?
- Whether the respondent-assessee is eligible for depreciation on the asset "Right to Collect Toll" when not the owner of the underlying asset, i.e., road used for business purposes?

Analysis:
1. Issue 1 - Qualification of "Right to Collect Toll" as an Intangible Asset:
The appellant, a company undertaking an infrastructure project, claimed depreciation on the "Licence to Collect Toll" treated as an intangible asset. The Assessing Officer disallowed the claim due to the appellant not being the owner of any asset. However, the ld. CIT(A) allowed the claim based on precedents, considering "Right to Collect Toll" as an intangible asset eligible for depreciation at 25%. The Tribunal upheld this decision, emphasizing that the right acquired falls under the definition of commercial right or intangible asset as per section 32(1)(ii) of the Act. Various court decisions were cited to support this interpretation, concluding that the appellant's claim was valid.

2. Issue 2 - Eligibility for Depreciation Without Ownership of Underlying Asset:
The key contention was whether the appellant, not owning the road but having the right to collect toll, could claim depreciation on the associated asset. The Tribunal determined that the right to collect toll acquired through the NHAI contract constitutes a commercial right or intangible asset, qualifying for depreciation. Citing relevant court judgments, including the Hon'ble Rajasthan High Court's decision, the Tribunal established that the appellant's claim was in line with the provisions of the Act. The Tribunal dismissed the Revenue's appeal, affirming the eligibility of the respondent-assessee for depreciation on the "Right to Collect Toll" asset.

3. Conclusion:
The Tribunal's decision favored the respondent-assessee, allowing depreciation on the "Right to Collect Toll" asset despite not owning the road. The judgment upheld the classification of this right as an intangible asset, eligible for depreciation under section 32(1)(ii) of the Act. The Tribunal's analysis, supported by legal precedents, concluded that the appellant met the criteria for claiming depreciation on the commercial right acquired through the NHAI contract.