2021 (12) TMI 444 - AT - Income Tax

Depreciation u/s 32 on toll road(carriage way) - real ownership - AO disallowed the depreciation claimed by the assessee on the toll road under the block Buildings or Plant Machinery as the assessee is not the owner of the project - AO held that the assessee is not entitled to claim depreciation on the roll road as intangible asset due to the fact that the right to collect toll does not fall under any of the categories of intangible assets specified in section 32(1)(ii) - HELD THAT - As relying on NORTH KARNATAKA EXPRESSWAY LTD. THE IL FS FINANCIAL CENTER 2014 (11) TMI 351 - BOMBAY HIGH COURT assessee is the owner of the toll road and consequently entitled to claim depreciation on toll road under the provisions of section 32 of the Act. The grounds raised by the assessee are accordingly allowed.

Summary

Issues Involved:
1. Disallowance of depreciation on toll road.
2. Classification of toll road as 'Plant & Machinery' or 'Building'.
3. Ownership of the toll road and entitlement to depreciation.
4. Consideration of toll road as an 'Intangible Asset' for depreciation purposes.
5. Application of CBDT Circular No. 9/2014 for amortization of expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Toll Road:
The Assessing Officer (AO) disallowed the depreciation claimed by the assessee on the toll road, asserting that the assessee is not the owner of the project. The AO referenced CBDT Circular No. 9/2014, which mandates that expenditure on development of toll roads under BOT arrangements should be amortized over the concession period rather than allowing depreciation. The CIT(A) upheld this view, emphasizing that the toll road should be amortized as per the circular and not depreciated.

2. Classification of Toll Road as 'Plant & Machinery' or 'Building':
The AO questioned the classification of the toll road as 'Plant & Machinery' for depreciation purposes. The assessee had claimed depreciation under this category, but the AO contended that the toll road should be classified under 'Buildings'. The CIT(A) supported the AO’s stance, stating that the toll road does not qualify as 'Plant & Machinery'.

3. Ownership of the Toll Road and Entitlement to Depreciation:
The AO argued that the assessee is not the actual owner of the toll road, having only limited rights of use. Consequently, the AO disallowed the depreciation on the basis that ownership is a prerequisite for claiming depreciation under section 32 of the Income-tax Act. The CIT(A) concurred, noting that the concession agreement only grants the right to collect toll, not ownership of the road itself.

4. Consideration of Toll Road as an 'Intangible Asset' for Depreciation Purposes:
The assessee contended that the right to collect toll should be considered an 'intangible asset' under section 32(1)(ii) of the Act, thus eligible for depreciation. The AO rejected this argument, stating that the right to collect toll does not fall under the specified categories of 'intangible assets'. The CIT(A) upheld this view, asserting that the right to collect toll should be amortized as per the CBDT circular, not depreciated.

5. Application of CBDT Circular No. 9/2014 for Amortization of Expenditure:
The AO applied CBDT Circular No. 9/2014 retrospectively, requiring the assessee to amortize the expenditure on the toll road over the concession period. The CIT(A) supported this retrospective application, noting that the circular provides a clear framework for handling such expenditures and that the assessee’s activities fall within its scope.

Tribunal's Decision:
The Tribunal considered various precedents and found that the right to collect toll constitutes an 'intangible asset' eligible for depreciation under section 32(1)(ii). The Tribunal referenced several cases, including decisions from the Hyderabad and Mumbai Benches, which supported the assessee's claim for depreciation on intangible rights. The Tribunal concluded that the assessee is entitled to claim depreciation on the toll road as an intangible asset, rejecting the AO's and CIT(A)'s reliance on the CBDT circular for amortization.

Conclusion:
The appeal filed by the assessee was allowed, with the Tribunal recognizing the right to collect toll as an intangible asset eligible for depreciation under section 32(1)(ii) of the Income-tax Act. The Tribunal's decision emphasized the precedence of judicial interpretations over the CBDT circular in this context.