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TMI Blog2014 (2) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that:- CIT(A) after considering the said details has stated that over all expenditures were reimbursed to GVK and/or the assessee filed the copies of invoices and the details of the transactions with sister concern of the payment made by assessee to substantiate the expenditure – the contention of the assessee is allowed that the disallowance have been made by AO merely on assumptions and without controverting the facts furnished by assessee before the authorities – thus, there is no reason to interfere in the findings of the CIT(A) – Decided against Revenue. Nature of expenses – Disallowance on expenses incurred on resurfacing of runway, replacement of floors tiles and regularizing storm water drains – Held that:- the assessee is to redesign, upgrade, modernize and also to operate and maintain Airport but the expenditure under consideration has been incurred only to ensure that the existing assets continued to be used for use safely and as per norms to enable assessee to run its activity - the expenditure is incurred to facilitate of carrying on by the assessee its main business for which the assessee has been engaged and pending the expansion of the Airport etc. – thus, exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of ld. CIT(A) dated 10.08.2011 for assessment year 2007-08. 2. Relevant facts are that the assessee-company was incorporated on 27.2.2006. It is a joint venture company in which the Air Port Authority of India (hereinafter to be referred to as AAI ) holds 26% stake. The main objects of the assessee company are as under : a) To takeover the existing Chhatrapati Shivaji International Airport (Domestic, International and Cargo Terminal) b) To Operate, Maintain, Develop, Design, Construct, Develop, Modernize and Maintain the Airport. c) To renovate, expand, and manage all assets and infrastructure such as runways, taxiways, aprons, terminals and provide cargo amenities ancillary buildings etc., d) To provide for repairing, servicing, engine overhauling, and create necessary infrastructure such as hangers, and maintenance bays, etc., e) To promote, operate, maintain, develope, design, construct, renovate, expand all infrastructure facilities, within and outside the Airport. f) To determine appropriate rate of charges, fees levies and collect the same from users of the Airport and Infrastructure facilities thereof. 2.1 On 4.4.2006, the assessee company entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .150 crores paid to AAI in terms of provisions of OMDA as an Intangible Assets and claimed depreciation of Rs.37.50 crores thereon for the assessment year under consideration. AO has stated that the assessee has paid Upfront Fees of Rs.150 crores to AAI in terms of Chapter XI of the OMDA , which is non-refundable, as part of consideration of the grant of Operation and Maintenance rights of Mumbai Airport. The assessee stated that the said payment of Upfront Fees is considered as a License Fee for Right to conduct Airport Operation business granted to it by the AAI . Assessee claimed that it is a depreciable assets in the hands of assessee and the terms of license is covered under the provisions of section 32(1)(ii) of the Act. Therefore, the assessee is entitled to claim depreciation. 6.1 However, the AO stated that AAI , in terms of OMDA has parted with some of its functions and entrusted to the assessee company with those functions under OMDA which has a life term of 30 years and at the expiry of the term; the AAI has all the rights to take over all rights, title and interest in all the assets of the Airport. AO has stated that the assessee company does not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usive right and authority to the assessee (Chapter-II of OMDA) to determine the payment, collect etc., proper charges from the user of the Airport premises. Besides, payment of upfront fee, the assessee is also required to pay to AAI the Annual Fees for each year during the terms of Agreement at the rate of 38.7% of the projected revenue for the said year. (Article 11.1.2 of OMDA ). Though the assessee is required to modernize Airport as per understanding between the parties and strictly as per terms and conditions stipulated in OMDA , the assessee by making payment of upfront fees of Rs.150 crores to AAI to get only license to carry on its activities and to collect tariff from the end users. The assessee has referred the decision of the Hon ble Apex Court in the case of Sohan Lal Naraindas v. Laxmidas Raghunath Gadit (1971) 1 SCC 276, 279-280 wherein the difference between the lease and license was considered by their Lordships as under : The crucial test in each case is whether the instrument is intended to create or not to create an instrument in the property the subject- matter of the agreement. If it is in fact intended to create an interest in the property it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hussein Samasbhai Saranqpuiwala (AIR 1988 SC 184, 190) wherein it was held : To put precisely if an interest in immovable property entitling the transferee to enjoyment was created, it was a lease; if permission to use land without exclusive possession was alone granted, a license was the legal result. We are of the opinion that this was a license and not a lease as we discover the intent. (d) Qudrat Ullah v. Municipla Board, Bareilly (AIR 1974 SC 396): wherein it was held: .... If an interest in immovable property, entitling the transferors to enjoyment is created, it is a lease; if permission to use land without right to exclusive possession is alone granted licence (e) Board of Revenue V/s A.M.Ansari (AIR 1976 SC 1813, 1816) where in it was held: .it is the creation of an interest in immovable property or right to possess it that distinguishes a lease from license. A license does not create an interest in the property to which it relates while a lease does. There is in other words transfer of a right to enjoy the property in case a lease 7.2 On behalf of assessee it was further stated that the grant of right for a period of 30 years cannot act against the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbling to in many aspects. The ld. CIT(A) also considered the decision of Delhi High Court in the case of ONGC Videsh Ltd V/s DCIT, 37 SOP 97(Del) wherein it is held that the assessee was engaged in exploration, development and production of hydro carbons. The assessee was assigned rights to participate in oil exploration in Russia through a consortium. The said right was for a period of 25 years. The total consideration paid by the assessee for obtaining 20% membership in the consortium, amounting to Rs. 155.9 crores, was treated by the assessee as a license, being intangible assets, and entitled to depreciation @ 25%, u/s. 32. The AO disallowed the depreciation on the grounds that the right acquired was not of the similar nature as those specified in section 32(1)(ii). The Tribunal, after considering the facts, held that the right acquired by the assessee was similar in nature to a license , and was therefore eligible for depreciation u/s. 32(1)(ii). 8.1. Ld. CIT(A) has stated that the definition of intangible asset has to be given wider meaning to include business and commercial rights of similar nature . He has stated that the agreement between AAI and JVC (OMDA) opens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal. 9. That Ld. DR submitted that the said upfront fee of Rs.150 crores was paid to acquire leasehold right for 30 years. He referred para 7 of the assessment order and submitted that the assessing officer has rightly said that the assessee is entitled to proportionate deduction from year to year in 30 years. The ld. DR referred the decision in the case of Madras Industrial Investment Corporation Ltd.(supra) and submitted that the total expenditure is to be spread proportionately over a period of 30 years in an equitable manner. Ld. DR also referred the decision of the Mumbai Tribunal in the case of ITO V/s M/s Navi Mumbai SEZ Pvt.Ltd. in I.T.A. Nos.738 to 741/Mum/2012 (2006-07 to 2009-10) , order dated 16.8.2013 and submitted that the payment of Rs.150 crores as upfront fee to AAI could not be said to acquire a license by the assessee. Therefore, AO has rightly disallowed the claim of depreciation of Rs.37.50 crores and allowed the proportionate deduction considering the total contract period of 30 years because the assessee has got right under OMDA to collect revenue on account of lease hold rights given to the assessee. 9.2 It is relevant to state that the AO allowed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by ld. DR, supports the case of assessee as in that case, it was held that the expenditure incurred towards cost of construction of jetty under an agreement with Gujarat Maritime Board , it was to remain in force for a period of 25 years or till such time the aggregate of rebate (under wharfage charge) availed off by the assessee equals to the amount of cost of construction of jetty whichever is earlier; was held capital in nature and was incurred wholly and exclusively for the purpose of business under the terms of agreement. It was held that assessee had acquired some business or commercial rights by incurring expenditure. That the expenditure had not resulted in the acquisition of any tangible assets like building, machinery, plant or furniture. The Tribunal held that the assessee company acquired the right to claim rebate on the wharfage charges payable or to guard against the possible increase in the wharfage charges that might be necessitated by efflux of time or economic inflation considering all points together. It was held that the said expenditure gave rise to acquisition of license or other business or commercial rights which are really in the nature of intangible asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AAI as upfront fee. 10.2 That the AO has stated that the assessee has got lease hold rights for a period of 30 years and whereas the assessee has contended that the assessee has got a license for a period of 30 years and as such it is an intangible assets . Thus, the assessee is entitled for depreciation as per section 32(1)(ii) of the Act. We observe that the said amount of Rs.150 crores paid by assessee is non-refundable. The assessee has got the privilege under OMDA to collect charges of the nature as mentioned in the agreement entered into i.e. OMDA from the users of Airport premises. We observe that it is not a case where the assessee has got the transfer of a right to enjoy the Airport premises. The assessee only got a license or right to do something at the Airport premises. The Hon ble Apex Court has held in the case of B. M. Lal (supra) that the transaction is a lease, if it grants the interest in the land and whereas it is a license if it gives a personal privilege with no interest in the land. We are of the considered view that the assessee has got the economic /commercial right under the said agreement to collect charges from the users of the Airport premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse to develop and modernize the Airport and collect charges as per terms and conditions as prescribed under the agreement entered into which is an intangible assets to the assessee. Thus assessee is entitled for depreciation. 10.3 Hence, the disallowance of Rs.22.50 crores made by AO has rightly been deleted by ld. CIT(A) by directing the AO to allow depreciation at the rate of 25% on the said payment of upfront fee of Rs.150 crores. Thus, Ground No.1 taken by department is rejected. 11. Ground No.2 taken by the department is as under : On the facts and in the circumstance of the case and in law, the learned CIT(A) erred in deleting the addition of Operating and Administrative expenses of Rs.64,77,39,527/- made by the AO by treating it as a capital expenditure and allowing depreciation at the rate of 10%, without considering the fact that this being the first year of operation, a major portion of the expenditure would be for modernization and expansion of the Airport, constituting capital expenditure. 12. AO has stated that the assessee incurred indirect expenses to the tune of Rs.225.22 crores. Out of the said expenditures, the assessee capitalized expenditures of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not possible to verify the authenticity of the expenditure incurred under 26 heads of indirect expenditures. AO stated that allocation chart of the assessee is nothing but the exercise in estimation with a view to claim excessive deduction in the profit and loss account. Therefore, the analysis and allocation made by AO be accepted. 13.1 Ld. CIT(A) forwarded the copy of the remand report to the assessee and the assessee vide letter dated 8.7.2011 furnished its rejoinder on the remand report . The ld. CIT(A) has sated extract of remand report and reply of assessee at pages 30 to 42 of the impugned order. It is relevant to state that in the rejoinder the assessee has stated that though there was some errors in the chart filed by assessee before AO in relation to apportionment of expenditure between project and operations but could not give some details due to paucity of time, during the assessment proceedings. That the additional evidence now furnished is required to be taken into consideration so that no prejudice is caused. The assessee also submitted that the ratio of decisions relied upon by the AO in the remand report are not applicable and they are distinguishable, which wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... my concluding remarks: - Actual as per ledger Particulars Gross amount (Rs.) Transferred to project (Rs.) Operation Concluding remarks Salaries and bonus 13,78,24,011 6,17,34,020 7,60,89,991 This is the same as the original chart. The AO had allocated a sum of Rs.10,33,68,008/- towards projects @ 75%. In annexure 3, of its letter, dtd.25.11.2009, the assessee has given list of employees and percentage allocation of salaries to CWIP. In the absence of any mistake in the said allocation no adhoc disallowance is called for The allocation has been made on the basis of actual manpower allotted. Hence, no disallowance is called for. Contribution to PF and other funds 8,73,986 - 8,73,986 The assessee has not made any allocation towards projects. It is difficult to understand why PF and other funds are not allocated towards projects when salary is being allocated. Hence, the AO is directed to allocate this expenditure in the ratio in which salary and bonus has been allocated by the assessee supra. Operation support cost 77,91,02,786 - 77,91,02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These are direct cost with regard to operations and hence nothing is allocable towards projects. Even the AO has not made any disallowance in this regard. Power and fuel 33,85,94,386 3,78,070 33,82,16,316 In the original chart the amount allocated had been shown at Rs. 33.82 crores. The AO has allocated Rs. 25.36 crores towards projects. In the revised chart the appellant has allocated only Rs. 3,78,070/- towards projects. It has been submitted that power and fuel expenses for project are to be met by the contractors as per the terms of the contract. In the circumstances, nothing is allocable towards projects out of the expenses. The AO is, therefore, directed to delete the addition of Rs. 25.36 crores in view of the explanation. Contract services 15,41,71,450 - 15,41,71,450 This is the same as the original chart. These are direct cost with regard to operations and hence nothing is allocable towards projects. Even the AO has not made any disallowance in this regard. Consumable stores 3,21,00,065 - 3,21,00,065 This is the same as the original chart. These are direct cost with regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in this regard. Miscellaneous expenses 3,05,39,645 4,495 3,05,35,150 The AO has allocated Rs. 3.04 crores towards project. Details of miscellaneous expenses have been provided in annexure A to letter dated 14.9.2009. As no discrepancy has been pointed out by the AO with regard to the same, no addition is called for. The same is, therefore, deleted. 2,25,22,88,897 21,43,62,450 2,03,79,26,447 13.4 Thus, the ld. CIT(A) allowed the said ground in part as indicated above. Hence, department is in appeal before the Tribunal. 14. At the outset, it may be stated that the ld. CIT(A) has not deleted the entire addition made by AO in respect of the above ground, as may be evident from the order of ld. CIT(A), which has been stated hereinabove . Be that as it may, the ld. DR relied on the order of AO and submitted that there was no actual bifurcation of the expenses as there was no scientific basis adopted by assessee. Ld. CIT(A) has allowed what was submitted by assessee. 15. On the other hand, ld. AR submitted that ld. CIT(A) considered the details of the expenses at length in the light of letters submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has stated that even the AO has not made any disallowance in this regard. 16.2 Since DR has not been able to point out any infirmity in the findings of ld CIT(A), we uphold his order and reject ground No.2 of the appeal taken by department. 17. Grounds of appeal Nos.3 and 4 taken by department are as under : 3. On the facts and in the circumstance of the case and in law, the learned CIT(A) erred in deleting the disallowance of payment of Rs.7,18,12,178/- to group concerns claimed by the assessee as revenue expenditure, without appreciating that the assessee had failed to justify and substantiate such payments/ reimbursement to the sister concerns. 4. On the facts and in the circumstance of the case and in law, the learned CIT(A) erred in directing the AO to treat the payments of Rs.6,25,47,024/- to assessee s sister concerns as capital work-in-progress as per assessee s claim, without appreciating that the assessee had failed to justify and substantiate these payments . 18. In respect of expenditure of Rs. 7,18,12,178/- , AO has stated that the assessee paid large sum of monies to different group concerns of GVK group including GVK Airport Holdings Pvt Ltd, which is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and claimed by raising debit notes with supporting vouchers. Since the amount was purely in the nature of reimbursement of expenses already incurred, there was no reason for making deduction of tax at source. It was contented that complete details of the expenditures backed by supporting vouchers were furnished with the AO vide letter dated 14.9.2009. The assessee also furnished copy of the said letter to the ld. CIT(A) along with the details filed before AO. The assessee further contended that for the amount of Rs.23,35,27,111/-, relevant details were furnished vide letter dated 20.11.2009 and there was no further query. Hence, relevant bills were not provided. Further, it was submitted that out of the aforesaid aggregate amount, amount of Rs.9,03,79,600/- and Rs.1,10,62,463/- were expenditure for obtaining professional services for which supporting bills etc were submitted before the AO on 25.11.2009 and the assessee furnished copy of the said letter together with its enclosures before ld.CIT(A). It was further contended that other amount of Rs.22,78,924/- relates to payment made to GVK Jaipur Kishangarh Expressway Ltd being cost of road sweeper machine i.e plant and machiner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half, duly supported by proper debit notes and proper invoices. This expenditure was purely reimbursement of expenses and therefore, no tax was deducted at source. Besides this, the appellant vide letter dated 20.11.2009 submitted the details of transactions with the sister concerns along with necessary evidences to substantiate the expenditure. The appellant further filed a letter dated 25.11.2009, wherein the invoice for payment of professional fees, details of service charges etc. have been filed. These evidences prove beyond doubt that the services have been rendered by the sister concerns to the appellant. Looking to these details, I find that the appellant has adduced sufficient evidences before the A.O. to justify the incurring of the expenditure in the nature of payment to its sister concerns during the conduct of its business. The contention of the A.O. that the amount of Rs.13,43,59,202/- remained unverified and unsubstantiated is incorrect and without any basis. 8.5 Thus, the facts in its entirety clearly reveal that there is no reason to say that the expenditure in question remained unverified and unjustified. Rather, I feel that the evidences filed before the A.O. w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts furnished by assessee before the authorities below. In the absence of any fact contrary to the findings mentioned in the orders of ld. CIT(A), we do not find any reason to interfere with the order of ld. CIT(A). Therefore, the ground Nos.3 and 4 of the appeal taken by department are rejected. 23. Now, we take up the appeal of the assessee being ITA No.7111/Mum/2011. 24. Ground No.1 of the appeal taken by assessee reads as under : 1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in disallowing the expenditure on resurfacing of runway, replacement of floors tiles and regularizing storm water drains incurred by the appellant, and instead treating the same as capital expenditure eligible for depreciation at the rate of 10%. 25. The assessing officer observed that the assessee claimed expenditure of Rs.10,38,17,645/- as revenue expenditure towards the purpose for which the assessee has been created as JVC and entered into an agreement (OMDA) on 4.4.2006 with AAI ; for the purpose of operating, maintaining, developing, designing, constructing and modernizing the Mumbai Airport. AO has stated that the notes to return of income, assessee qualifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of incurring any expenditure of enduring benefit does not arises. It was also contended that approximate expenditure on construction of runway is in between Rs.1100 crores to Rs.1300 crores and the expenditure of Rs.9.11 crores on part resurfacing of runway No.14/32 does not bring into existence any new asset. That the said expenditure was incurred by way of reimbursement of AAI . It was also contended that no new asset had been brought into existence and the work was akin to resurfacing of a road. It was also contended that the treatment given in the books of account does not effect the nature of the expenditure incurred and the taxability or otherwise has to be decided as per statute. The assessee also distinguished the cases relied upon by AO, details of which are given by ld. CIT(A) at pages 6 and 7 of the impugned order. 26.1 The ld. CIT(A) has stated that he has considered the submissions of the assessee and the assessment order and has also the cases cited by assessee. The ld.CIT(A) has stated that the expenditure incurred by assessee of Rs.10,38,17,646/- on resurfacing of runways and replacement of floor tiles and storm water drainage etc has been capitalized by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held the cost of repairs that have been incurred by a tenant in respect of such premises would have to be allowed under section 30(a)( i) of the Act. He submitted that assessee is not an owner of the runway/premises. It has been resurfaced/repaired to maintain and workable. Hence, expenditure incurred is revenue expenditure. 28. On the other hand, ld. DR supported the orders of authorities below. He submitted that the bills produced could not determine the nature of work. Ld. DR submitted that the order of ld. CIT(A) be confirmed. 29. We have carefully considered the orders of authorities below and the submission of ld. Representatives of the parties. We observe that the authorities below have considered the said expenditure as capital mainly for the reasons that the assessee itself has categorized that expenditure in its books of account as capital in nature. In determining whether the expenditure is a capital expenditure or revenue expenditure, one has to take into consideration the facts and nature of expenditure to decide whether it is made for the initiation of business or extension of business or substantially replacement of existing equipment and treatment given in boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afely and as per norms to enable assessee to run its activity. Hence, we are of the considered view that the said expenditure is incurred to facilitate of carrying on by the assessee its main business for which the assessee has been engaged and pending the expansion of the Airport etc. Hence, we hold that the said expenditure is a revenue in nature and cannot be said to be capital in nature irrespective of the fact that the assessee in its books of account has given treatment of it as capital in nature. We may state that the assessee will not be entitled for depreciation thereon as it is held to be revenue in nature. Hence, Ground No.1 of the appeal taken by assessee is allowed. 30. Ground No.2 of the appeal taken by assessee reads as under : 2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in restricting the depreciation allowance to 10% applicable to building instead of 15% applicable to plant and machinery, on the expenditure incurred by the appellant on taxiways and aprons, parking bays and bridges. 31. We observe that the assessee in the return filed has treated the asset as of part of building and claimed depreciation at the rate of 10%. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant and machinery. 34. On the other hand, ld. DR supported the orders of authorities below. He submitted that assessee itself has claimed depreciation at the rate of 10% in the return as applicable to building. 35. We have carefully considered the orders of authorities below and submissions of ld. Representatives of the parties. There is no dispute to the facts that runway, taxiway are necessary part of Airport operation and are specific part of infrastructure for use of aircrafts. These are not merely concrete structures. The Hon ble Bombay High Court in the case of CIT V/s Mazagaon Dock Ltd (1991) 191 ITR 460(Bom) has held that dry dock and wet dock created for ships are to be treated as plant and not building. The Hon ble Apex Court has held in the case of Karnataka Power Corpn.(supra) that power generating station building is not a simply concrete structure but a specially designed building and is to be treated as part of plant. Similarly, the Hon ble Apex Court has held in the case of Dr. B. Venkata Rao (supra) that the operation theater in an hospital building is not simply a concrete structure but necessarily a part for running of the hospital and the assessee is enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39. Since these were additional documents filed by assessee before ld. CIT(A), he called for remand from the AO which was submitted by him vide letter dated 10.5.2011. The ld. CIT(A) forwarded the copy of the said remand report to the assessee to seek his reply. The assessee filed rejoinder dated 8.7.2011. The relevant comments of the AO and reply of the assessee in respect of remand report are stated by ld CIT(A) in paras 7.4 and 7.5 (pages 67 to 69) of the impugned order. 40. Ld. CIT(A) has stated that AO named seven parties and during the course of assessment proceedings, the assessee vide letter date 30.11.2009 filed various details in respect of those parties including payment details in respect of viz M/s Leighton India Contractors Pvt. Ltd, M/s Roman Tarmat Ltd, M/s Kirby Building Systems India Ltd, M/s NACO Netherlands and M/s L T. He has further stated that details were also filed interalia in respect of L T. The said informations were in the nature of letters of awarding the work, running bills etc from M/s L T. Ld. CIT(A) has stated that during the appellate proceedings, the assessee also filed confirmation letter from L T. However, he has stated that in the remand re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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