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TMI Blog2014 (11) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under: "(i) Whether, on the facts and in the circumstances of the case, and in law, the Tribunal was justified in confirming the order passed by the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 directing the Assessing Officer to examine the allowability of depreciation on toll road?" 4. Mr. Pinto, learned counsel, waives service on behalf of the Revenue. 5. By consent of both parties, the Appeal is taken up for final hearing. 6. The Assessee is a company incorporated under the Indian Companies Act, 1956 having its registered office at the address mentioned in the cause title. 7. It is engaged in the business of infrastracture development. It is common ground that the Assessee executed a Concession Agreement on 20th November, 2001 with the National Highway Authority of India (NHAI) to construct a road styled as toll road from km 515 to km 592 in Dharwad Maharashtra border section of National Highway No.4 in the State of Karnataka. That was to be constructed and maintained on Build, Operate and Transfer (BOT) basis on the land owned by the Government. In terms of this agreement, the Appellant had to construct the toll road and thereafter maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. A copy of this reply is at Annexure F. There was a second show cause notice, copy of which is at Annexure G dated 2nd December, 2009 and that was in relation to further items of income and expediture. Even in that regard, the Assesssee showed cause and appeared before the Commissioner. However, the Commissioner, Respondent before us, set aside the assessment and directed, inter alia, that the allowability of depreciation on toll road should be examined again. 11. Aggrieved and dissatisfied with this order of the Respondent dated 17th March, 2010, an Appeal was filed before the Tribunal. By the impugned order, the Tribunal has held that the Assessing Officer has passed an order without any examination of the issue and in a mechanical manner. His order was, therefore, erroneous and prejudicial to the interest of the Revenue on the allowability of depreciation on road. Hence, the Commissioner's order was upheld and the Appeal of the Assessee was dismissed. 12. Before us, Mr. Irani submitted that the Appeal raises a substantial question of law at least to the extent of the depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without prejudice Mr. Pinto submits that there is no finding or opinion rendered by the Assessing Officer. Hence, this is not a case of two opinions or any possible opinion being rendered. Mr. Pinto in that regard relies upon para 4.3 of the order of the Tribunal at page 81 and 82 of the paper book. Mr. Pinto submits that the land belongs to the sovereign. The Assessee is merely permitted to enter upon it for the purpose of construction and laying of a road. At best, the Assessee could be said to be an agent and for a limited purpose, namely, to build, operate and later on transfer the road. There is no question of the Assessee claiming any ownership rights. Once, this is the settled position in law, then, the Commissioner and Tribunal did not commit any error in holding that the Assessing Officer' s claim for depreciation is not tenable in law. For all these reasons, the Appeal be dismissed. 15. With the assistance of both sides, we have perused the memo of Appeal and all Annexures thereto. We have also perused the relevant statutory provisions. In all fairness, Mr. Irani submits that the Appeal be decided on the reframed question of law. That is with regard to the merits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st day of April, 1999, for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed. Explanation - For the purposes of this proviso, (a) the expression "commercial vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi cab", "motorcab", "tractor" and "roadroller" shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988): Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventyfive per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment)Act, 1991 (2 of 1991): Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness or profession. Then, there are provisos below clause (ii) of subsection (1) and it is not necessary to refer to the same and except explanation (3) which is an explanation for the purposes of subsection (1). 18. The term depreciation as is ordinarily understood and in the context of the Income Tax Act, 1961 has been considered by the Hon'ble Supeme Court. 19. In judgment of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd. v/s. Commissioner of Income Tax, Mysore & Anr. reported in AIR 2013 (SC) 3037, the Hon'ble Supreme Court was concerned with the interpretation of section 32 of the Income Tax Act, 1961. The Hon'ble Supreme Court held as under: "10. Depreciation is the monetary equivalent of the wear and tear suffered by a capital asset that is set aside to facilitate its replacement when the asset becomes dysfunctional. In P.K. Badiani v. Commissioner of Income tax, Bombay, this Court has observed that allowance for depreciation is to replace the value of an asset to the extent it has depreciated during the period of accounting relevant to the assessment year and as the value has, to that extent, been lost, the corresponding allowance for deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vested in the capital asset is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time. 21. Black's Law Dictionary (6th Edn.) defines 'owner' as under: " Owner. The person in which is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or personal, corporeal or incorporeal, which he has a right of enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right. The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject matter to which it is applied. The primary meaning of the word as applied to land is one who owns the fee and who has right to dispose of the property, but the terms also dispose of the property, but the terms also included one having a possessory right to land or the person occupying or cultivating it. The term "owner" is used to indicate a person in which one or more interests are vested h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or contradiction as complained by Shri Irani. We do not find any basis for the complaint that the notice and the order passed by the Commissioner of Income Tax are at variance or that the order travels beyond the notice. The essential foundation for the notice is as noted above. The Commissioner issued another show cause notice on 2nd December, 2009 and in which also he alleged that the claim of depreciation has been erroneously granted and the order of the Assessing Officer to that extent is erroneous and prejudicial to the interest of the Revenue. The Assessee replied to the show cause notice and gave detailed explanation on how the claim arises. Hence, there was no prejudice nor can it be said that the Assessee was in any manner handicapped in dealing with the show cause notice. 23. The order of the Commissioner deals with the stand of the Assessee and in detail. The Commissioner held that the Assessing Officer had not discussed this claim at all. He has granted it without any application of mind and mechanically. There is justification for such a conclusion by the Commissioner. 24. Then, the Commissioner discussed the claim on merits. He found that the ownership of the road c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been on the case of Malabar Industrial Co. (supra) in which it has been held that in case Assessing Officer has taken one of the possible views, assessment cannot be said to be erroneous and prejudicial to the interest of the revenue. But the question of taking one of the two possible views arises only when the Assessing Officer has taken a view after necessary examination of the issue. In case Assessing Officer has allowed the claim mechanically without any examination, it cannot be said that he has taken one of the two possible views. It will be a case of passing order without any examination which will be obviously erroneous and prejudicial to the interest of the revenue. In our view, claim had been allowed by Assessing Officer in a very mechanical manner without any examination of the issue, and therefore, the order was erroneous and prejudicial to the interest of the revenue on the issue of allowability of depreciation on road." 26. We are in agreement with these findings and conclusions of the Tribunal. 27. We called upon Mr. Irani to place before us a copy of the National Highways Act and National Highways Authority of India Act, 1988. Mr. Irani has been kind enough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sector as an industry and infrastructure facility and certain other concessions. A number of private investors including foreign investors have shown interest in the proposal to open the road sector for private investment. However, in the absence of an enabling provision in the National Highways Act, 1956, it is not possible to enter into agreements with private investors for the development of roads." 30. A bare perusal thereof, would indicate that after the policy of globalization, liberalization and privatization, the Act has been amended so as to provide for participation of private entities so as to develop and maintain whole or part of the National Highways. Naturally, these private entities would have to be involved by enabling the authorities to execute an agreement with them and which agreement will contains stipulations so as to bind them. The development and maintenance will have to be undertaken and in order to allow the private entities to be reimbursed the costs and expenses incurred by them that the Act enables levy of fees and authorises the person who has undertaken to develop the whole or part of a national highways to collect such fees. Further, a person who i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt may, by notification in the Official Gazette, specify having regard to the expenditure involved in building, maintenance, management and operation of the whole or part of such national highway, interest on the capital invested, reasonable return, the volume of traffic and the period of such agreement. (3) A person referred to in subsection (1) shall have powers to regulate and control the traffic in accordance with the provisions contained in Chapter VIII of the Motor Vehicles Act, 1988 (59 of 1988) on the national highway forming subject matter of such agreement, for proper management thereof." It is this section which has been inserted by Act 26 of 1995. 32. To our mind, a reading of these sections together and harmoniously so also the Act as a whole, the National Highways vest in the union and for the purposes of the Act, they include all appurtenant lands whether demarcated or not, all bridges, culverts, tunnels, causeways, carriageways and other structures constructed on or across such highways and all fences, trees, posts and boundary, furlong and mile stones appurtenant to such Highways are included in the term Highways. There is a exclusive responsibility of developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Though the "Agency System" of execution of national highway works by the State Public Works Department has been functioning for a period of about 40 years, difficulties have been experienced from time to time. 3. Since the Central Government have no direct administrative control over the executing agency, there have been instances when the Central Government had to remain helpless in case a State Government overlooked the acts of omission or commission on the part of its staff engaged in the construction and maintenance of national highways. This has part of its staff engaged in the construction and maintenance of national highways. This has resulted in anomalous situations where the Central Government, being constitutionally responsible for the development and maintenance of national highways, had to defend actions of State Governments in various forums, including Parliament. Similarly the Centre generally has no rule in fixation and operation of even major contracts arbitration cases, paymnt of compensation to contractors, etc. over and above the original contract amounts and other items resulting in direct financial commitment of Central funds. 4. Under the circumstances, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia has been constituted and by further sections its constitution and composition has been set out. Chapter III of the Act is entitled "property and contracts". Section 11 thereof reads as under: "11. Power of the Central Government to vest or entrust any national highway in the Authority - The Central Government may, from time to time, by notification in the Official Gazette, vest in, or entrust to, the Authority, such national highway or any stretch thereof as may be specified in such notification." 35. A perusal of the same would indicate as to how in furtherance of the National Highways Act, 1956 and the vesting of the National Highways in the Union, that the Central Government can issue a notification from time to time in the official Gazette so as to vest in, or entrust to the National Highway Authority of India, such National Highway or any stretch thereof as may be specified in such notification. It is, therefore, apparent that the superior or higher right of the union is, then, capable of being further entrusted or vested in such authority and which is a creation of the Central Government itself. Therefore, at best, a National Highway vesting in the Union may vest in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms and conditions as may be prescribed;] (i) advise the Central Government on matters relating to highways; (j) assist, on such terms and conditions as may be mutually agreed upon, any State Government in the formulation and implementation of schemes for highway development; (k) collect fees on behalf of the Central Government for services or benefits rendered under section 7 of the National Highways Act, 1956 (48 of 1956), as amended from time to time, and such other fees on behalf of the State Governments on such terms and conditions as may be specified by such State Governments; and (l) take all such steps as may be necessary or convenient for, or may be incidental to, the exercise of any power or the discharge of any function conferred or imposed on it by this Act. (3) Nothing contained in this section shall be construed As (a) authorising the disregard by the Authority of any law for the time being in force; or (b) authorising any person to institute any proceeding in respect of a duty or liability to which the Authority or its officers or other employees would not otherwise be subject under this Act." 37. Section 16 has been amended by inserting clause (h) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited purpose that the term 'owner' is defined in this manner Income Tax Act, 1961. However, as held above, that cannot control leave alone overreach The National Highways Act, 1956 or the National Highways Authority of India Act, 1988. 40. Mr. Irani has fairly brought to our notice a notification issued by the Central Government entrusting the stretches as specified in column (3) of the table annexed to this notification of the corresponding section as mentioned against them in column (2) of the table of the National Highway as described in column (1) of the same, to the National Highways Authority of India. A bare reading of this notification would reveal that the bridge or the road which has been constructed and developed as a National Highway and which is from Banglore, now Bengaluru, to Karnataka Maharashtra border that is entrusted to the National Highways Authority of India. 41. We have invited Mr. Irani's attention to the judgment of the Hon'ble Supreme Court in the case of M/s. International Tourist Corporation etc. V/s. State of Haryana and others reported in AIR 1981 Supreme Court 774. 42. There, the Hon'ble Supreme Court was concerned with the constitutional v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List III." 4. The National Highways Act 1956 provides for the declaration of certain highways to be National Highways. Sec. 2(1) of the Act declares the Highways specified in the Schedule 'except such parts thereof as are situated within any municipal area' to be National Highways. Sec. 3 defines 'municipal area' as meaning "any municipal area with a population of 20,000 or more, the control or management of which is entrusted to a Municipal Committee, a Town Area Committee, a Town Committee or any other authority". Sec. 4 vests all National 371 Highways in the Union. Sec. 5 makes it the responsibility of the Central Government "to develop and maintain in proper repair all National Highways", but empowers the Central Government to direct that any function in relation to the development or maintenance of any national highway shall, subject to such conditions as may be specified, also be exercisable by the concerned State Government. Section 6 further empowers the Central Government to give directions to the Government of any State as to the carrying out in the State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e but that it was a general revenue measure. This position was abandoned during the course of argument and Shri Bhagat learned counsel for the State of Haryana conceded that the tax was of a regulatory and compensatory nature. Nor, of course, is the Court bound by any statement made by or on behalf of the Executive Government on a question of the legislative intent or nature of an enactment, what the legislature intended an enactment to be need not necessarily be what the Government says it is. It is a matter of construction, in the light of several attendant circumstances including the source of the legislative power under the Constitution to make the particular law. We have held that the Haryana Passengers and Goods Taxation Act is a law made pursuant to the power given to the State Legislature by entry 56 of List II. Having regard to Atiabari Tea Co. Ltd., v. State of Assam (1961) 1 SCR 809 : (AIR 1961 SC 232), Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan (1963) 1 SCR 491 : (AIR 1962 SC 1406) and Bolani Ores Ltd. etc. v. State of Orissa, (1975) 2 SCR 138 : (AIR 1975 SC 17) it has to be held that the power exercisable under entry 56 of List II is the power to impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a national highway and therefore, the responsibility for the development and maintenance of that part of the highway is certainly on the State Government and the Municipal Committee concerned. Since the development and maintenance of that part of the highway which is within a municipal area is equally important for the smooth flow of passengers and goods along the national highway it has to be said that in developing and maintaining the highway which is within a municipal area, the State Government is surely facilitating the flow of passengers and goods along the national highway. Apart from this, other facilities provided by the State Government along all highways including national highways, such as lighting, traffic control, amenities for passengers, halting places for buses and trucks are available for use by everyone including those travelling along the national highways. It cannot therefore, be said that the State Government confers no benefits and renders no service in connection with traffic moving along national highways and is, therefore, not entitled to levy a compensatory and regulatory tax on passengers and goods carried on national highways. We are satisfied that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch restrains his right. The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject matter to which it is applied. The primary meaning of the word as applied to land is one who owns the fee and who has the right to dispose of the property, but the term also includes one having a possessory right to land or the person occupying or cultivating it. The term 'owner' is used to indicate a person in which one or more interests are vested for his own benefit. . . ." In the same dictionary, the term "ownership" has been defined to mean, inter alia a "collection of rights to use and enjoy property, including right to transmit it to others . . . . The right of one or more persons to possess and use a thing to the exclusion of others. The right by which a thing belongs to some one in particular, to the exclusion of all other persons. The exclusive right of possession, enjoyment and disposal involving as an essential attribute the right to control, handle, and dispose." Dias on Jurisprudence (4th edition, at page 400) states : "The position, therefore, seems to be that the idea of ownership of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section 22 of the Income Tax Act, having regard to the ground realities and further having regard to the object of the Income Tax Act, namely, 'to tax the income', we are of the view, 'owner' is a person who is entitled to receive income from the property in his own right." In R. B. Jodha Mal Kuthiala v/s. CIT (1971) 82 ITR 570(SC), it was held for the purpose of section 9 of the Indian Income Tax Act, 1922, that the owner must be the person who can exercise the rights of the owner, nor on behalf of the owner but in his own right. We may usefully extract and reproduce the following classic statement of law from Perry V/s. Clissold (1907) AC 73 (PC) quoted with approval in Nair Service Society Ltd. V/s. K.C. Alexander, AIR 1968 SC 1165 (page 1174): "It cannot be disputed that a person in possession of land in the assumed character of owner and exercising peaceably the ordinary rights of ownership has a perfectly good title against all the world but the rightful owner. And if the rightfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Appellate Tribunal set aside the judgment of the Commissioner of Income Tax. The Tribunal referred a question of law to the Hon'ble High Court and it answered the same against the Assessee and in favour of the Revenue. That is how the matter was carried to Hon'ble Supreme Court. It is in that context that the concept of ownership has been discussed and the Assessee's claim was upheld by the Hon'ble Supreme Court. We are not concerned here with an ownership of a building or a land beneath which is not conveyed and sold or transferred by execution of a conveyance or a sale deed. There, in terms of the agreement between parties pending execution of such conveyance or sale deed, absolute rights in the property can be said to be transferred and in a given case. Therefore, depending upon the facts and circumstances in each case, the claim of ownership can be made. However, it is not that in every case the principles referred to by the Hon'ble Supreme Court would apply. Depending on the nature of the claim, the context and the circumstances in which it arises, these principles would have to be invoked and applied. There is no general rule which can be said to be laid down. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court has found that the State was the owner of the property till the Municipal Act was passed and this finding was not challenged before us. The only point on which the State lost the suit before the High Court was that after the passing of the Uttar Pradesh Municipal Act, the property vested in the Municipality and the State ceased to be the owner and, therefore, cannot maintain the suit for evicting the respondent. The Municipalities in various States were created under the respective Municipalities Acts, in order to facilitate the efficient administration of the Municipal areas and to provide lighting, watering and maintaining of public streets and places. The duties of the Municipal Boards are specified in section 7 of the U. P. Municipalities Act. Under section 118 of the Act, the Municipal Board is empowered to manage or control any property entrusted to its managment and control. The vesting of the property, in the Municipality is under section 116 of the Act. Section 116 provides that subject to any special reservation made by the State Government, all property of the nature specified in this section and situated within the Municipality shall vest in and belong to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et. It has also a certain property in the soil of the street which would enable it as owner to bring a possessory action against trespassers. Subject to the rights of the Municipality and the public to pass and repass on the highway, the owner of the soil in general remains the occupier of it and, therefore, he can maintain an action for trespass against any member of the public who acts in excess of his rights." After referring to section 116(g) of the Uttar Pradesh Municipalities Act, under which a public street vests in a Municipality, the learned Judge referred to a decision of a Division Bench of the Madras High Court in S. Sundaran Ayyar V/s. The Municipal Council of Madura and The Secretary of State for India in Council, (1902) ILR 25 Mad 635 where the scope of the vesting under the Madras District Municipalities Act was dealt with. The learned Judge extracted the head note from the Madras decision observing that it brought out the gist of the decision. The head note runs as follows: "When a street is vested in a Municipal Council, such vesting does not transfer to the Municipal authority the rights of the owner in the site or soil over which the street exists. It does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be extinguished), the interest of the corporate body determines." It is, therefore, clear that when a street ceases to be a highway by its being diverted to some other use, the interest of the corporate body determines. After referring to the decisions of the High Courts in India, it expressed its concurrence with the decisions in Chairman of the Naihati Municipality V/s. Kishori Lal Goswami (1886) ILR 13 Cal 171, Madhu Sudan Kundu V/s. Pramoda Nath Roy (1893) ILR 20 Cal 733 and Nihal Chand V/s. Azmat Ali Khan, (1885) ILR 7 All 362 and concluded that the nature or the right that vested in the Municipality as regards public streets there is no disposal by the Indian Legislature of any land or hereditament vested in the Government. What is vested in the Municipality under section 116(g) is the street qua street and if the Municipality put the street to any other user than that for which it was intended, the State as its owner, is entitled to intervene and maintain an action and to get any person in illegal occupation evicted. We accept the contention of Mr. Dixit, learned counsel for the State of U.P. that the State is the owner and in the circumstances of the case entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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