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TMI Blog2017 (3) TMI 1167X X X X Extracts X X X X X X X X Extracts X X X X ..... able to be amortized over the period of concession? 2. The special bench finding that the aforesaid question does not arise out of the facts involved in the impugned assessment year proposed to reframe the question in consonance with the facts obtaining in the impugned assessment year, heard both the parties at length and after addressing the objections of the Department (discussed in detail in the order dated 4th April 2016, in M.A. no.96/Hyd./2015, and the interim order, hence, we do not consider it necessary to reiterate them again in this order) reframed the question as under:- "Whether on the facts and in the circumstances of the case, the expenditure incurred by the assessee for construction of a road under BOT contract with GOI gives rise to an asset and if so, whether it is an intangible asset or tangible asset? In case it is held to be tangible asset, whether it is building or plant or machinery?" 3. Facts necessary for deciding the issue as culled out from record are stated hereinafter briefly, assessee a company is engaged in executing civil contract work. For the assessment year in dispute, assessee filed its return of income on 30th September 2011, declaring incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, rejected assessee's claim on the reasoning that assessee is not the owner of the asset and secondly, only roads within a factory premises linking various buildings and approach roads is eligible for depreciation. While coming to such a conclusion the assessing officer also noted, assessee has no consistency in its claim as in assessment year 2010-2011 assessee had claimed depreciation on the BOT-bridge by treating it as intangible asset. Accordingly, assessing officer disallowed assessee's claim of depreciation. Being aggrieved of disallowance of depreciation assessee preferred appeal before the learned Commissioner (Appeals). 4. Learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and materials on record having noted that in assessment year 2010-2011 assessee's claim of depreciation by treating the asset as an intangible asset was allowed by him and the said decision was confirmed by the tribunal, followed the same and allowed assessee's claim of depreciation. Being aggrieved of the aforesaid decision of the learned Commissioner (Appeals), the Department is before us. 5. Shri J.V. Prasad, learned Senior Standing Counsel app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar nature". Therefore, applying the principle of ejusdem generis, any other intangible asset to come within the expression "other business or commercial rights" should be similar to any one of the six identified items. He submitted, assessee's claim that C.A. is akin to a license is not acceptable as neither C.A. is an intangible asset nor it is similar to license. He submitted, as license is not defined under the Income Tax Act, meaning of license is to be looked into under the Indian Easements Acts, 1882. Referring to the definition of license under section 52 of the Indian easements act 1882, learned Departmental Representative submitted, as per the said definition in a license the right given should not amount to an easement or an interest in the property. He submitted, the terms of the concession agreement would clearly establish that the rights given thereunder are neither a license nor akin to the same. Therefore, C.A. has not given rise to any intangible asset for the assessee. Learned Departmental Representative submitted, even assuming that C.A. is a license or akin to license, the question still remains as to what intangible asset has been created for the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. And under the terms of C.A. assessee was not going to be reimbursed the cost of construction. The only way the assessee can recover the cost of investment along with profit is by way of operating the bridge and collecting toll charges for user of the bridge by vehicles during the concession period of 11 years and seven months. Accepting the fact that assessee is not the owner of the road and bridge learned Authorised Representative submitted, the investment made by the assessee in constructing the road and bridge had created an intangible asset in the form of right to operate the road and collect toll charges. The learned Authorised Representative taking us through different clauses of the C.A. submitted, the concession granted by the Government of India in allowing the assessee to operate the road and collect toll charges during the concession period amounts to grant of license, hence is an intangible asset. He submitted, even assuming that the right acquired by the assessee to operate the road and collect toll charges is not in the nature of license, however, it certainly falls within the category of any other business or commercial right of similar nature as provided under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation on the BOT road / bridge. Rather, in the impugned assessment year, depreciation has been claimed on the opening WDV which has also been accepted by the learned Departmental Representative in the written submissions filed by him. Therefore, the nature of expenditure, whether capital or revenue, is not a subject matter of dispute arising in the present appeal. Bearing this in mind, we have to examine the validity of assessee's claim of depreciation qua the asset created. The learned Departmental Representative has opposed assessee's claim of depreciation on the following propositions:- i) Whether the expenditure claim of the assessee brings into being an asset which is owned and used by the assessee in its business; ii) What is the nature of the asset that has come into being on account of the expenditure incurred by the assessee and what is the nature of such expenditure; iii) If an asset is created, whether it is a tangible asset or an intangible asset; iv) Whether the Concessionaire Agreement (C.A) held by the assessee can be regarded as a commercial or business right akin to a license; v) If such C.A. is akin to a license, what intangible asset has been cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the provisions of the C.A. However, it also makes it clear that the concessionaire, subject to complying with the terms / conditions of the agreement remains in peaceful possession and enjoyment of the project site during the concession period. It further provides, in the event the concessionaire is obstructed by any person claiming any right, title or interest over the project site or any part thereof or in the event of any enforceable action including any attachment, distraint, appointment of receiver or liquidator being initiated by any person claiming interest over the project sites. Government of India not only will defend such claims or proceedings but also keep the concessionaire indemnified against any direct or consequential loss or damage which it may suffer on account of any such right, title, interest or charge. As per clause 2.8 of the C.A., though, the concessionaire shall have exclusive right to use of the project site in accordance with the provisions of the agreement and for this purpose, it may regulate the entry and use of the same by the third parties, however, it shall not part with or create any encumbrance on the whole or any part of the project site sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit motive and certainly not as a work of charity. Further, by investing huge some of Rs. 214 crore, the assessee has obtained a valuable business / commercial right to operate the project facility and collect toll charges. Therefore, in our considered opinion, right acquired by the assessee for operating the project facility and collecting toll charges is an intangible asset created by the assessee by incurring the expenses of Rs. 214 crore. The contention of the learned Senior Standing Counsel that expenditure of Rs. 214 crore has brought into existence a tangible asset in the form of roads and bridges of which the assessee is not the owner but it is the Government of India is nobody's case. Further, the learned Senior Standing Counsel's apprehension that it will lead to a situation where both Government of India and the concessionaire will claim depreciation on the asset created with the very same expenditure, in our view, is not borne out from facts on record. At the cost of repetition we must observe, as per the terms of agreement the expenses incurred by the assessee towards construction of the roads, bridges, etc., were not going to be reimbursed by the Government of India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure incurred by the assessee till execution of the agreement can only be considered as an intangible asset, in our view, is illogical, hence, cannot be accepted. Thus, having held that the expenditure of Rs. 214 crore incurred by the assessee has resulted in creation of an intangible asset of enduring nature for the assessee, it is necessary now to examine whether such intangible asset comes within the scope and ambit of section 32(1)(ii) of the Act. For this purpose, it is necessary to look into the said provision which is reproduced hereunder for the sake of convenience. Depreciation. 32(1)(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature67, being intangible assets acquired on or after the 1st day of April, 1998, owned67, wholly or partly, by the assessee67 and used for the purposes of the business67 or profession, the following deductions shall be allowed-] 12. Explanation 3 to section 32(1) defines intangible asset as under:- 85[Explanation 3.-For the purposes of this sub-section, 86[the expression "assets" ] shall mean- (a) tangible assets, being buildings, machinery, plant or furnitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. By virtue of the C.A., assessee has only been granted a limited right to execute the project and operate the project facility during the concession period, on expiry of which the project / project facility will revert back to the Government of India. What the Government of India has granted to the assessee is the right to use the project site during the concession period and in the absence of such right, it would have been unlawful on the part of the concessionaire to do or continue to do anything on such property. However, the right granted to the concessionaire has not created any right, title or interest over the property. The right granted by the Government of India to the assessee under the C.A. has a license permitting the assessee to do certain acts and deeds which otherwise would have been unlawful or not possible to do in the absence of the C.A. Thus, in our view, the right granted to the assessee under the C.A. to operate the project / project facility and collect toll charges is a license or akin to license, hence, being an intangible asset is eligible for depreciation under section 32(1)(ii) of the Act. 15. Even assuming that the right granted under the C.A. is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciple of ejusdem generis would strictly apply in interpreting the definition of intangible asset as provided by Explanation 3(b) of section 32, at the same time, held that even applying the said principle 'goodwill' would fall under the expression "any other business or commercial rights of similar nature". Thus, as could be seen, even though, 'goodwill' is not one of the specifically identifiable assets preceding the expressing "any other business or commercial rights of similar nature", however, the Hon'ble Supreme Court held that 'goodwill' will come within the expression "any other business or commercial rights of similar nature". Therefore, the contention of the learned Senior Standing Counsel that to come within the expression "any other business or commercial rights of similar nature" the intangible asset should be akin to any one of the specifically identifiable assets is not a correct interpretation of the statutory provisions. Had it been the case, then 'goodwill' would not have been treated as an intangible asset. The Hon'ble Delhi High Court in case of Areva T and D India Ltd. (supra), while interpreting the aforesaid expression by applying the principles of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible asset. Thus, we answer the question framed by the Special Bench as under:- The expenditure incurred by the assessee for construction of road under BOT contract by the Government of India has given rise to an intangible asset as defined under Explanation 3(b) r/w section 32(1)(ii) of the Act. Hence, assessee is eligible to claim depreciation on such asset at the specified rate. 18. In view of our aforesaid conclusion, there is no need to answer the second part of the question framed. This disposes of grounds no.2, 3, 5 and 6. 19. Insofar as ground no.4 is concerned, it is the contention of the Department that the learned Commissioner (Appeals) should have directed for amortization of the expenses incurred for construction of BOT road in terms of CBDT Circular no.9 of 2014 dated 23rd April 2014. 20. As already discussed in the earlier part of the order and dealt in detail in order dated 4th April 2016, in M.A. no.96/Hyd./2015, the nature of expenses whether capital or revenue is not the subject matter of dispute in the present appeal, as the expenditure incurred has already been considered as capital expenditure in the preceding assessment years and assessee's claim of depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 14A can be made. Accordingly, he deleted the addition. 24. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. The fact that in the relevant previous year, assessee has not earned any exempt income has not been controverted by the Department. Therefore, in the absence of any exempt income earned by the assessee no disallowance under section 14A can be made as held by the Hon'ble Allahabad High Court and Hon'ble Gujarat High Court as referred to by the learned Commissioner (Appeals). Moreover, the assessee's claim that it has sufficient surplus interest free funds to make investment in exempt income yielding assets has also not been controverted by the Department. Therefore, applying the ratio laid down by the Hon'ble Bombay High Court in Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom.), CIT v/s HDFC Bank Ltd. [2014] 366 ITR 505 (Bom.) and Hon'ble Delhi High Court in the case of Cheminvest Limited vs. CIT (2015) 378 ITR 33, we hold that no disallowance in terms of section 14A can be made. We, therefore, uphold the order of the learned Commissioner (Appeals) on this issue. These gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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