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2014 (11) TMI 351 - HC - Income TaxAllowability of depreciation on toll road - ownership - When a person like the Assessee who is in the business of infrastructure development in execution of such agreement constructs a road and on Build, Operate and Transfer (BOT) basis on the land owned by the Government, can it claim depreciation on the toll road - Held that - Merely, because the road is laid out does not mean that the Assessee is the owner thereof. He has laid it out for the purpose of the union and for its ultimate vesting in the public. Decision in the case of Noida Toll Bridge Co. Ltd. 2012 (11) TMI 556 - ALLAHABAD HIGH COURT distinguished - Decided against assessee.
Issues Involved:
1. Legality of the Tribunal's confirmation of the Commissioner of Income Tax's order under section 263 of the Income Tax Act, 1961. 2. Allowability of depreciation on toll roads constructed on a Build, Operate, and Transfer (BOT) basis. Detailed Analysis: 1. Legality of the Tribunal's Confirmation of the Commissioner's Order under Section 263 of the Income Tax Act, 1961: The Assessee challenged the order passed by the Income Tax Appellate Tribunal dated 30th August 2011, which upheld the Commissioner of Income Tax's order under section 263 of the Income Tax Act, 1961. The Commissioner had exercised his powers under this section, holding that the assessment made by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue. The Tribunal confirmed this order, stating that the AO had passed an order without any examination of the issue and in a mechanical manner, making it erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the AO did not raise any queries regarding the allowability of depreciation on the toll road, despite the significant amount involved, indicating a lack of examination and application of mind. 2. Allowability of Depreciation on Toll Roads Constructed on a Build, Operate, and Transfer (BOT) Basis: The Assessee, engaged in infrastructure development, had constructed a toll road under a Concession Agreement with the National Highway Authority of India (NHAI) on a BOT basis. The Assessee claimed depreciation on the toll road, treating it as an asset. The Commissioner of Income Tax and the Tribunal held that the toll road belonged to the government and not to the Assessee, making the claim for depreciation untenable. The Tribunal emphasized that the AO had allowed the claim without proper examination, which justified the Commissioner's intervention under section 263. The court referred to section 32 of the Income Tax Act, which allows depreciation on assets owned by the Assessee and used for business purposes. The court also examined the concept of ownership and the statutory provisions under the National Highways Act, 1956, and the National Highways Authority of India Act, 1988. It concluded that the National Highways vest in the Union, and private entities involved in their development and maintenance do not acquire ownership rights. Therefore, the Assessee could not claim depreciation on the toll road as it was not the owner. The court discussed the broader interpretation of "ownership" in the context of the Income Tax Act, citing relevant judgments, but concluded that these principles did not apply to the Assessee's claim for depreciation on the toll road. The court distinguished the present case from other cases where the Assessee had possession and control over the property, noting that the toll road ultimately vests in the public and the Union. The court also referred to the judgment of the Hon'ble Supreme Court in Mysore Minerals Ltd. v. Commissioner of Income Tax, which discussed the concept of ownership for tax purposes. However, it held that this judgment did not support the Assessee's claim, as the toll road was not an asset owned by the Assessee in the legal sense required for claiming depreciation under section 32. Conclusion: The court upheld the Tribunal's decision, agreeing that the AO's order was erroneous and prejudicial to the interest of the Revenue due to the lack of examination of the depreciation claim. It concluded that the Assessee could not claim depreciation on the toll road as it was not the owner, reaffirming the Commissioner's and Tribunal's findings. The court clarified that the Assessee's claim for depreciation on other assets like buildings and machinery, if valid, would not be affected by this judgment.
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