2017 (12) TMI 578 - AT - Income Tax

Disallow the claim of depreciation being no ownership - claim of amortisation - effective administration and management of the said bridge - transfer the right over BOT asset to the assessee - Held that - Circular no.9 of 2014 issued by the Board permitting the assessee to claim amortisation of the expenditure also shows that the expenditure incurred by the assessee has to be treated as a capital expenditure and by treating it as intangible asset the expenditure has to be allowed as deduction in each year, so as to arrive at real profit. The provisions of depreciation or amortisation are only aimed at arriving at the true profit, though the methodology is different. Since the tax authorities have accepted the claim of amortisation from 2014 onwards and even in 2011-12, it has allowed depreciation, under proceedings u/s 143(3) of the Act, apart from the fact that in the case of the holding company, the claim of depreciation was consistently being allowed, in which event, it may not be proper, for the interregnum period to disallow the claim of depreciation. Since there are two judgements of two different High Courts, we adopt the view, which is in favour of the assessee, in the backdrop of the facts and circumstances of the case and hold that the assessee is entitled to depreciation in the years under consideration.

Summary

Issues Involved:
1. Entitlement of the assessee company to claim depreciation on the toll bridge.
2. Ownership of the toll bridge.
3. Applicability of previous judicial decisions and circulars on the matter.
4. Amortization of expenditure as an alternative claim.

Issue-wise Detailed Analysis:

1. Entitlement of the Assessee Company to Claim Depreciation on the Toll Bridge:
The core issue revolves around whether the assessee company, which is a wholly owned subsidiary of NECL, can claim depreciation on the toll bridge. The assessee claimed depreciation under Section 32(1) of the Income Tax Act, 1961, on the toll bridge transferred to it by NECL. The Assessing Officer (A.O.) rejected this claim, stating that the assessee company is not the owner of the asset, and hence, cannot claim depreciation. The A.O. emphasized that ownership of the bridge lies with the Government of Andhra Pradesh, as per the BOT agreement, and thus, the assessee cannot be treated as the owner for depreciation purposes.

2. Ownership of the Toll Bridge:
The A.O. argued that the bridge, constructed under the BOT scheme with 80% government subsidy, remains the property of the Government of Andhra Pradesh. The bridge was transferred to the assessee company for a consideration of ?125 crores, despite the written down value being ?13.46 crores. The A.O. concluded that since the ownership vests with the government, the assessee cannot claim depreciation. This was contested by the assessee, who argued that the right to operate and collect tolls effectively makes it the owner for the purpose of claiming depreciation.

3. Applicability of Previous Judicial Decisions and Circulars on the Matter:
The assessee relied on a decision by the ITAT Hyderabad bench, which allowed depreciation under similar circumstances. However, the A.O. distinguished this decision, noting that the department had appealed against it. The CIT(A) sided with the assessee, stating that since NECL was allowed depreciation on the same bridge, the assessee should also be allowed the same. The Revenue, in its appeal, cited a judgment by the Hon'ble Bombay High Court in North Karnataka Expressway Limited Vs. CIT, which held that the assessee cannot be considered the owner of the roads and thus cannot claim depreciation. The Tribunal, however, noted that there are conflicting judgments from different High Courts and chose to follow the one in favor of the assessee, citing the principle that in the absence of a jurisdictional High Court decision, the view favorable to the assessee should be adopted.

4. Amortization of Expenditure as an Alternative Claim:
The assessee, in its cross-objections, argued that if depreciation is not allowed, it should be eligible for amortization of the expenditure incurred, as per CBDT Circular No.9/2014. This circular allows for the amortization of capital expenditure incurred on infrastructure facilities. The Tribunal noted that the tax authorities had accepted the assessee's claim for amortization in subsequent years and even allowed depreciation for the assessment year 2011-12. Hence, it upheld the CIT(A)'s order allowing depreciation and did not delve into the merits of the alternative claim for amortization.

Conclusion:
The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s decision to allow depreciation to the assessee. It also dismissed the assessee's cross-objections, as the primary relief of depreciation was granted. The judgment was pronounced in open court on 8th December 2017.