2013 (8) TMI 588 - AT - Income Tax

Depreciation on intangible asset - CIT refused to grant depreciation - Held that - The Right to collect the Toll is emerging as a result of the costs incurred by the assessee on development, construction and maintenance of the infrastructure facility. Such a right has been adjudicated by the Tribunal in the aforesaid precedents to be in the nature of intangible asset falling within the purview of section 32(1)(ii) of the Act and has been found eligible for claim of depreciation - section 32(1)(ii) permits allowance of depreciation on assets specified therein being intangible assets which are wholly or partly owned by the assessee and used for the purposes of its business. The aforesaid condition is fully satisfied by the assessee - Decided in favour of assessee. Depreciation on the infrastructure facility - Held that - Once the assessee was found not eligible for the claim for depreciation @ 25% on License to collect Toll in terms of Section 32(1)(ii) of the Act, the CIT(A) proceeded to allow the depreciation on the road facility @ 10%, treating it to be in the nature of building - It was a common point between the parties that the aforesaid issue is rendered infructuous as assessee has succeeded in its substantive claim of depreciation on License to collect Toll @ 25% in terms of Section 32(1)(ii) - Decided in favour of assessee.

Issues Involved:
1. Eligibility of 'License/right to collect toll' for depreciation as an intangible asset under Section 32(1)(ii) of the Income Tax Act.
2. Alternative plea regarding the treatment of toll collection against the cost of construction.
3. Alternative plea regarding the classification of infrastructure facility as 'Plant' eligible for depreciation.
4. Deduction under Section 80-IA(4) of the Income Tax Act.
5. Allowance of unabsorbed depreciation from the previous year.
6. Depreciation rate applicable to the infrastructure facility.

Issue-wise Analysis:

1. Eligibility of 'License/right to collect toll' for depreciation as an intangible asset under Section 32(1)(ii) of the Income Tax Act:
The primary issue was whether the 'License/right to collect toll' qualifies as an intangible asset eligible for depreciation at 25% under Section 32(1)(ii) of the Income Tax Act. The assessee argued that the costs incurred for the development, operation, and maintenance of the Pune-Ahmednagar Road on a BOT basis should be capitalized under 'License to collect Toll' and treated as an intangible asset. The CIT(A) had rejected this claim, but the Tribunal referred to precedents, including Ashoka Infraways Pvt. Ltd. and Ashoka Buildcon Ltd., which had adjudicated similar claims in favor of the assessee. The Tribunal concluded that the 'Right to collect Toll' is an intangible asset eligible for depreciation at 25%, thereby allowing the assessee's appeal on this ground.

2. Alternative plea regarding the treatment of toll collection against the cost of construction:
The assessee's alternative plea was that the entire toll collection should first be credited against the cost of construction of the road and not treated as income until the entire cost is recouped. However, since the primary ground was allowed, this alternative plea was rendered infructuous and dismissed.

3. Alternative plea regarding the classification of infrastructure facility as 'Plant' eligible for depreciation:
The assessee also argued that the infrastructure facility should be classified as 'Plant' eligible for depreciation at 15%. This plea was also rendered infructuous due to the success of the primary ground and was dismissed accordingly.

4. Deduction under Section 80-IA(4) of the Income Tax Act:
The assessee claimed a deduction under Section 80-IA(4) for profits from the infrastructure facility. This claim was not made in the return of income due to a declared loss from depreciation on 'License to collect Toll'. Since the primary ground was allowed, resulting in a positive income, this issue was also rendered infructuous and dismissed.

5. Allowance of unabsorbed depreciation from the previous year:
The Revenue contested the CIT(A)'s decision to allow unabsorbed depreciation from the previous year (AY 2006-07). The Tribunal found no material to negate the CIT(A)'s factual appreciation and noted that the issue would be rendered infructuous due to the allowance of depreciation on 'License to collect Toll'. Thus, this ground of the Revenue's appeal was dismissed.

6. Depreciation rate applicable to the infrastructure facility:
The Revenue challenged the CIT(A)'s decision to allow depreciation at 10% on the infrastructure facility, treating it as 'building'. Since the assessee's primary claim for depreciation at 25% on 'License to collect Toll' was allowed, this issue was also rendered infructuous and dismissed.

Conclusion:
The appeal of the assessee was partly allowed, affirming the eligibility of depreciation on 'License to collect Toll' as an intangible asset. The Revenue's appeal was dismissed in its entirety. The order was pronounced in the open Court on 18th July 2013.

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