2018 (6) TMI 157 - AT - Income Tax

Rate of depreciation on intangible asset of licence for running container trains - commercial rights for 20 years - depreciation claim was allowed in original assessment u/s 143(3) but disallowed in the rectification proceedings u/s 154/147/143 (3) - Held that - Commercial right acquired by assessee by way of this license for earning enduring benefit for a period of 20 years would amount to capital asset - following the decision of Hon ble Delhi High Court in the case of Areva T&D India Ltd. vs. DCIT 2012 (4) TMI 79 - DELHI HIGH COURT assessee is eligible for depreciation @ 25% u/s 32(1)(ii) - Decided in favor of assessee.

Summary

Issues Involved:
1. Confirmation of the order passed under sections 154/147/143(3) of the Income Tax Act.
2. Entitlement to depreciation at 25% on the intangible asset of the license for running container trains.
3. Classification of the license as a capital asset and its eligibility for depreciation.

Detailed Analysis:

Issue 1: Confirmation of the Order Passed Under Sections 154/147/143(3) of the Income Tax Act

The Assessee appealed against the order confirming the rectification proceedings under sections 154/147/143(3). The original assessment allowed the depreciation claim on the intangible asset (license) under section 143(3), but it was disallowed in the rectification proceedings. The Tribunal noted that the original assessment had allowed the depreciation, and the reassessment was based on the Ld. A.O.'s opinion that the Assessee claimed excess expenses/deductions. The Tribunal concluded that the reassessment was not justified, as the issue had already been settled in the original assessment.

Issue 2: Entitlement to Depreciation at 25% on the Intangible Asset of the License for Running Container Trains

The Assessee claimed depreciation on the license fee paid to the Ministry of Railways, arguing that it qualified as an intangible asset under Part-B of New Appendix-1 to Income Tax Rules, 1962. The Tribunal referred to the policy document and previous judgments, concluding that the license fee paid for running container trains on Indian Railways Network was indeed an intangible asset. The Tribunal relied on the Delhi High Court’s decision in Areva T&D India Ltd. vs. DCIT, which held that intangible assets like business claims and commercial rights are eligible for depreciation under section 32(1)(ii) of the Act. Consequently, the Tribunal upheld that the Assessee is entitled to a 25% depreciation on the intangible asset.

Issue 3: Classification of the License as a Capital Asset and Its Eligibility for Depreciation

The Tribunal examined whether the license fee paid constituted a capital asset. It was noted that the license granted the Assessee a commercial right to operate trains for 20 years, which was transferable and provided an enduring benefit. The Tribunal referred to its own decision in the Assessee's case for A.Y. 2008-09, where it was held that such a license is a capital asset eligible for depreciation. The Tribunal reaffirmed this view, emphasizing that the license is a valuable commercial right essential for the Assessee’s business operations. The Tribunal concluded that the license fee paid by the Assessee is a capital asset, and the Assessee is entitled to depreciation at the rate of 25% under section 32(1)(ii) of the Income Tax Act.

Conclusion:

The Tribunal allowed the appeals filed by the Assessee for both Assessment Years (2007-08 and 2008-09), holding that the intangible asset (license) acquired by the Assessee is eligible for depreciation at 25% under section 32(1)(ii) of the Income Tax Act. The Tribunal's decision was based on the enduring nature of the commercial right acquired and its significance to the Assessee's business operations.

Order pronounced in the Open Court on 31st May, 2018.