2023 (2) TMI 32 - HC - Income Tax

Revision u/s 263 by CIT - Depreciation on road and toll bridge constructed by the assessee - contention of the Income Tax Department that they are not entitled to claim deprecation at all as roads and bridges are neither plant nor buildings - When the assessee had only undertaken the construction of bridges for the Government and the Government is the owner of the land and the bridges, whether the Tribunal was right in setting aside the order of revision passed under Section 263 ? - HELD THAT - Assessing Officer had accepted the contention of the assessee that the assessee was entitled to depreciation at 25% by treating the Toll Road as a Plant even though, neither the Toll Road belongs to assessee nor it is a Plant . Tribunal allowed the assessees appeals for the Assessment Years 2004-2005 by holding that the issue as to whether the Toll Road were a Building or a Plant was a debatable issue and Assessing Officer having taken one of the plausible view, such view cannot be disturbed under Section 263 of the Income Tax Act, 1961 and therefore set aside the order of the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961. The Commissioner instead of giving final finding remitted back to the Assessing Officer to pass a fresh order. The issue was left open to be decided by the Assessing Officer vide order of the Commissioner while exercising power under Section 263 of the Income Tax Act 1961. It was open order of remand. Admittedly the Commissioner has refrained from passing any order on merits. Tribunal has erred in concluding that the Assessing Officer has taken one of the plausible view before for the benefit of depreciation at 25% on Toll Road as Plant . In our view, such view was not plausible as Toll Roads under the concessionaire agreement neither conferred upon the said assessee any Tangible Assets nor Intangible Assets in the light of answers given to the substantial question Nos.1 and 2 above. Decided in favor of Revenue.

Summary

Issues Involved:
1. Classification of "Toll Bridge" and "Toll Roads" as "Plant" or "Building" for depreciation purposes.
2. Entitlement to depreciation on "Toll Bridge" and "Toll Roads" under the Income Tax Act, 1961.
3. Invocation of Section 263 of the Income Tax Act, 1961.
4. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.

Detailed Analysis:

1. Classification of "Toll Bridge" and "Toll Roads" as "Plant" or "Building" for Depreciation Purposes:
The primary issue was whether the "Toll Bridge" and "Toll Roads" constructed by the assessees could be classified as "Plant" or "Building" for the purpose of claiming depreciation under the Income Tax Act, 1961. The Tribunal had allowed depreciation on "Toll Roads" and "Toll Bridges" as "Buildings" at 10%, following earlier decisions in similar cases. However, the High Court held that neither "Toll Roads" nor "Toll Bridges" could be classified as "Plant" or "Building" under the definitions provided in the Income Tax Act. The Court emphasized that these infrastructures are public properties and cannot be owned by private entities. Therefore, the claim for depreciation as "Plant" or "Building" was misplaced.

2. Entitlement to Depreciation on "Toll Bridge" and "Toll Roads":
The Court examined whether the assessees were entitled to claim depreciation on "Toll Bridge" and "Toll Roads" under Section 32 of the Income Tax Act, 1961. It was concluded that the assessees did not own these assets, as they were public properties. The Court also referred to Circular No. 9/2014, which clarified that in BOT arrangements, the assessee does not hold any rights in the project except for toll collection, and thus cannot claim depreciation. The Court held that the rights conferred under the concessionaire agreements were not "intangible assets" within the meaning of Explanation 3(b) to Section 32 of the Income Tax Act, 1961. Therefore, the assessees were not entitled to claim depreciation on these assets.

3. Invocation of Section 263 of the Income Tax Act, 1961:
The Court addressed the invocation of Section 263, which allows the Commissioner to revise an order if it is erroneous and prejudicial to the interests of the revenue. The Tribunal had set aside the Commissioner's order under Section 263, stating that the Assessing Officer had taken a plausible view. However, the High Court found that the view taken by the Assessing Officer was not plausible, as the "Toll Roads" and "Toll Bridges" were neither "Tangible Assets" nor "Intangible Assets." Therefore, the Tribunal's orders setting aside the Commissioner's invocation of Section 263 were erroneous and were to be interfered with.

4. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act, 1961:
The Court also examined the validity of reassessment proceedings initiated under Section 147. It was argued that there was no new tangible material for the Assessing Officer to form a "reason to believe" that income had escaped assessment. The Court held that the reassessment proceedings were not justified, as the agreements were already on record, and no fresh material was found to reopen the assessment.

Conclusion:
The Court concluded that the "Toll Bridge" and "Toll Roads" could not be classified as "Plant" or "Building" for depreciation purposes. The assessees were not entitled to claim depreciation on these assets under Section 32 of the Income Tax Act, 1961. The invocation of Section 263 by the Commissioner was justified, and the reassessment proceedings under Section 147 were invalid. Consequently, the appeals filed by the assessees were dismissed, and the appeals filed by the Revenue were allowed.