2012 (11) TMI 556 - HC - Income Tax

Depreciation on toll road/bridge - assessee establish, finance, design, construct, operate and maintains a NOIDA-Bridge across the river Yamuna under the BOOT basis - Held that - As decided in Mysore Mineral Limited v. CIT 1999 (9) TMI 1 - SUPREME COURT that any one in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings, though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act etc. The person, who having acquired possession over the building in his own right, uses the same for the purposes of the business or profession though a legal title has not been conveyed to him, but nevertheless is entitled to hold the property to the exclusion of all others. With the insertion of the Explanation-I to Section 32 w.e.f. 1.4.1998 there is no doubt that where the assessee is the lessee of the building in which he carries on business which is not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee of any structure or doing of any work in or in relation to by way of renovation, extension or for improvement to the building, then the provisions of the Income Tax Act, will apply as if the said structure or work is a building owned by the assessee. Explanation-I may apply to renovation or extension or improvement to the building to extend the application of depreciation, if such buildings which are not owned by the assessee but in which the assessee holds a lease or other right of occupancy. The present case stands on a better footing, in which the land is held on lease and the road as capital asset has been built on it with exclusive ownership of the road, and the bridge in the assessee-company for the concession period, and which also includes the right to collect tolls and to regulate use of the bridge. Section 32 would, therefore, apply for the purpose of providing depreciation to be worked out in accordance with the law - in favour of assessee. The payment in connection of take out assistance fee for redemption of Deep Discount Bonds this Court has already decided the question between the same parties relating to the assessment year 2002- 03 in favour of the assessee.

Issues Involved:
1. Depreciation on Toll Road/Bridge as "Building"
2. Applicability of Appendix-I of the I.T. Rules, 1962 for AY 2005-06
3. Ownership of the Toll Road/Bridge
4. Treatment of Take Out Assistance Fee

Detailed Analysis:

1. Depreciation on Toll Road/Bridge as "Building"
The primary issue was whether the toll road/bridge constructed by the assessee could be considered as a "building" for the purpose of granting depreciation. The assessee argued that under the Build-Own-Operate-Transfer (BOOT) basis, the road and bridge should be treated as buildings, thus eligible for depreciation. The Income Tax Department contended that roads and bridges do not fall within the definition of "building" unless they are within factory premises. The court referred to various precedents, including CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd., which held that roads within factory premises are considered buildings. The court concluded that the road and bridge constructed by the assessee under the concession agreement are integral parts of the infrastructure project and qualify as buildings for depreciation purposes.

2. Applicability of Appendix-I of the I.T. Rules, 1962 for AY 2005-06
The second issue was whether the provisions of Appendix-I of the I.T. Rules, 1962, which include roads and bridges within the definition of buildings, were applicable for the assessment year 2005-06. The Income Tax Department argued that Appendix-I was effective from AY 2006-07 onwards and not applicable for AY 2005-06. The court, however, noted that the note defining buildings to include roads and bridges has been unchanged since its addition in Appendix-I w.e.f. 2.4.1997. Therefore, the court held that the provisions were applicable for the assessment year 2005-06.

3. Ownership of the Toll Road/Bridge
The third issue was whether the assessee could claim depreciation on the toll road/bridge given that the land was leased by the NOIDA authority and not owned by the assessee. The Income Tax Department argued that the ownership of the asset was not established. The court examined the Concession Agreement, which granted the assessee exclusive rights to develop, establish, finance, design, construct, own, operate, and maintain the Noida Bridge for 30 years. The court referred to Mysore Mineral Ltd vs. CIT and CIT v. Podar Cement Pvt. Ltd, which held that ownership for depreciation purposes includes possession and control of the asset. The court concluded that the assessee had sufficient ownership rights over the toll road/bridge to claim depreciation.

4. Treatment of Take Out Assistance Fee
The fourth issue was whether the payment made in connection with the redemption of deep discount bonds could be claimed as revenue expenditure. The assessee argued that the take out assistance fee should be treated as revenue expenditure. The court referred to its previous decision in Income Tax Appeal No. 44 of 2010, where it was held that such payments are revenue expenditures. Therefore, the court upheld the assessee's claim to treat the take out assistance fee as revenue expenditure.

Conclusion:
The court dismissed the appeal filed by the Income Tax Department, confirming the orders of the CIT (A) and ITAT. It held that the toll road/bridge qualifies as a building for depreciation purposes, the provisions of Appendix-I are applicable for AY 2005-06, the assessee had sufficient ownership rights over the toll road/bridge, and the take out assistance fee is a revenue expenditure. All four questions were decided in favor of the respondent-assessee and against the revenue.

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