2022 (8) TMI 561 - AT - Income Tax

Depreciation on Right to Collect Toll - true nature of the rights acquired in terms of the contract awarded by the NHAI - 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? - whether the Right to Collect Toll falls within the definition of commercial right or intangible asset ? - 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 . Decisions of the Hon ble Jurisdictional High Court in the case of North Karnataka Expressway Ltd. 2014 (11) TMI 351 - BOMBAY HIGH COURT AND CIT vs. West Gujarat Expressway Ltd. (No.1) 2016 (4) TMI 1184 - BOMBAY HIGH COURT and 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:
- Disallowance of depreciation claim on intangible asset license to collect toll
- Whether the right to collect toll qualifies as an intangible asset for depreciation

Analysis:
1. The appeals were filed by the Revenue against orders of the Commissioner of Income Tax for different assessment years. The case involved the disallowance of a depreciation claim on an intangible asset license to collect toll.

2. The respondent-assessee, a company formed for an infrastructure project under the BOT scheme, claimed depreciation on the license to collect toll. The Assessing Officer disallowed the claim, stating the road facility was not owned by the assessee. The CIT(A) allowed the claim, considering the toll right as an intangible asset.

3. The main issue was whether the cost of the "Right to Collect Toll" qualified as an "intangible asset" under section 32(1)(ii) of the Income Tax Act. The Tribunal analyzed the nature of the rights acquired and relevant legal provisions.

4. The Tribunal held that the right to collect toll fell within the definition of a commercial right or intangible asset. It referenced judicial precedents and High Court decisions supporting the classification of toll rights as depreciable intangible assets.

5. The Tribunal distinguished the case from precedents related to depreciation on roads as buildings, finding no illegality in the CIT(A)'s order. Consequently, the appeal by the Revenue was dismissed, upholding the allowance of depreciation on the intangible asset license to collect toll.

6. The decision in ITA No.157/PUN/2019 was applied to appeals in ITA Nos.187 & 188/PUN/2019, leading to the dismissal of all Revenue appeals. The Tribunal pronounced the order on 19th July 2022, affirming the allowance of depreciation on the intangible asset license to collect toll.

7. In conclusion, the Tribunal upheld the assessee's claim for depreciation on the intangible asset license to collect toll, dismissing the Revenue's appeals based on the nature of the acquired rights and legal precedents supporting the classification of toll rights as depreciable assets.