2024 (6) TMI 333 - AT - Income Tax

Depreciation on intangible assets - right to collect toll' @ 25% - right to collect toll granted to the appellant due to its capital investment in the BOT project-by treating the right to collect toll as intangible assets - HELD THAT - The rights under BOT projects have been considered to be intangible assets in judgment of M/s. Progressive Construction Limited, Hyderabad 2014 (11) TMI 401 - ITAT HYDERABAD wherein held undisputedly by virtue of C.A. the assessee has acquired the right to operate the toll road/bridge and collect toll charges in lieu of investment made by it in implementing the project. Therefore, the right to operate the toll road/bridge and collect toll charges is a business or commercial right as envisaged under section 32(1)(ii) r/w Explanation 3(b) of the said provisions. Therefore, In our considered opinion, the assessee is eligible to claim depreciation on WDV as an intangible asset. Thus expenditure incurred by the assessee for construction of road under BOT contract by the Government of India has given rise to an intangible asset as defined under Explanation 3(b) r/w section 32(1)(ii) of the Act. Hence, assessee is eligible to claim depreciation on such asset at the specified rate - Assessee is entitled to claim depreciation @25% on road construction as admissible on intangible assets. Assessee appeal allowed.

Summary

Issues involved:
The judgment deals with the claim of depreciation on intangible assets, specifically the "right to collect toll," under section 32(1)(ii) of the Income Tax Act, 1961.

Summary:

Issue 1: Claim of amortization and depreciation
The appellant, a Special Purpose Vehicle for a highway project, filed a return of income claiming amortization of expenditure on the project. During assessment, the claim was revised to depreciation on the right to collect toll. The Assessing Officer disallowed the claim, leading to an appeal.

Issue 2: Disallowance of depreciation
The Commissioner of Income Tax (Appeals) denied the claim of depreciation on the 'right to collect toll,' citing lack of jurisdictional decisions supporting the allowance. The appellant argued that the right qualifies as an intangible asset eligible for depreciation under section 32(1)(ii) of the Act.

Issue 3: Interpretation of Concession Agreement
The appellant contended that the Concession Agreement with NHAI granted a license to collect toll, which should be considered an intangible asset for depreciation purposes. The appellant relied on various judicial precedents supporting the depreciation claim on similar business/commercial rights.

Separate Judgment:
The appellate tribunal allowed the appeal, setting aside the orders disallowing the depreciation claim. The tribunal held that the appellant is entitled to claim depreciation at 25% on the road construction project as admissible on intangible assets, based on established legal principles and precedents.

This comprehensive summary outlines the key issues, arguments, and the final decision of the appellate tribunal in favor of the appellant's claim for depreciation on the 'right to collect toll' as an intangible asset.