2018 (10) TMI 807 - HC - Income Tax

Nature of expenditure - revenue or capital - capital loss suffered by the assessee for failure to perform its part of the concessionaire agreement with the Delhi Transport Corporation - Held that - The respondent-assessee was to construct, operate and maintain bus shelters. The respondent-assessee was also under an obligation to pay ₹ 4.09 crores per month to the Delhi Transport Corporation. The shelters were not owned by the respondent-assessee. The Central Board of Direct Taxes vide Circular No. 9/2014 has inter alia observed that under the BOT schemes the assessees are not entitled to depreciation as they are not owners of the project, which is only constructed by them. Ownership is vested with the Government or its agencies. Therefore, the respondent-assessee was entitled to amortize the amounts spent on construction over the tenure of the agreement. In the present case as noticed there was failure on the part of respondent-assessee to perform its part of the agreement including operation and maintenance of bus shelters and pay concessionaire fee of ₹ 4.09 crores per month. Any expenditure or payment of the said nature would necessarily be revenue in character. Even construction cost of the shelters had to be amortized over a period of 10 years. These would, therefore, not be expenditure of capital nature. The Assessment Order does not refer to the enduring or permanent benefit acquired by the respondent-assessee and therefore on default and failure to abide by the terms, the expenditure or loss incurred by the respondent-assessee was capital expenditure/loss. Cost of construction as recorded and held above was not capital expenditure. Further, the respondent-assessee was liable to pay monthly fee of ₹ 4.09 crores to the Delhi Transport Corporation, which is certainly revenue expenditure. Additionally, the respondent-assessee was under obligation to maintain and operate shelters which again would be revenue expenditure. - Decided in favour of assessee

Summary

Issues:
1. Whether the disallowed expenditure was capital or revenue in nature for the Assessment Year 2009-10.

Detailed Analysis:
The case involved an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (Tribunal) regarding the disallowed expenditure of ?2,08,92,603 by the respondent-assessee, primarily engaged in developing and operating Bus-Q-Shelters. The Assessing Officer disallowed the expenditure as capital loss, but the Tribunal reversed the decision, stating it was revenue expenditure. The Revenue argued that the payment was capital expenditure based on a Supreme Court judgment and contended that even if it was revenue expenditure, it would not qualify for deduction in the said assessment year as the payment was made after 1st April, 2009.

The respondent-assessee had entered into a concessionaire agreement with the Delhi Transport Corporation for setting up bus shelters on a BOT basis. The respondent-assessee was required to pay a monthly fee to the Corporation and furnish bank guarantees as performance security. When the Corporation invoked the bank guarantee, the respondent-assessee obtained a stay order from the Delhi High Court, which was later vacated, allowing encashment. The respondent-assessee was directed to pay interest on the amount.

The High Court analyzed the nature of the expenditure, emphasizing that failure to perform the agreement's terms, including operation and maintenance of bus shelters and payment of the concessionaire fee, would result in revenue expenditure. It was noted that the respondent-assessee was not the owner of the shelters, and as per CBDT Circular No. 9/2014, under BOT schemes, depreciation is not allowed as the assessees are not project owners. The Court applied the Atherton test to determine capital or revenue expenditure, concluding that the expenditure was revenue in character.

The Court also addressed the second contention regarding the liability to pay interest on the bank guarantee amount, stating that the liability accrued when the High Court permitted encashment, regardless of the payment date. The Court rejected this contention and upheld the Tribunal's decision that the disallowed expenditure was revenue expenditure. The Tribunal's direction regarding taxation of any refunded amount in case of arbitration success by the respondent-assessee was also endorsed, concluding that the appeal lacked merit and was dismissed.