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TMI Blog2018 (8) TMI 595X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 29/04/2016 for the A. Y. 2012-13, in the matter of order passed u/s. 143(3) of the Income Tax Act, 1961. 2. The following grounds have been taken by the Revenue:- i) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in facts and in law in accepting the version of the assessee that the subsidy I grant received from M/s, National Highway Authority of India is a capital receipt? ii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in wrongly appreciating the decision of Hon'ble Supreme Court in the case of Sahney Steel Press Works Ltd CIT (1977) (228 ITR 253) which clearly lays down the law that subsidy received by the assessee for meeting the operational expenses are of the revenue in nature? iii) Whether on the facts and in the circumstances of the case, the CIT(A) has erred in relying on the version of the assessee that the subsidy received from NHAI is towards Equity Contribution when this is not factually supported by the accounts of the assessee, as the assessee has not credited this amount to its paid up share capital, rather the same has been credited directly to Capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. However, the CIT(A) directed the AO to consider entire cost of BOT project of ₹ 380, 11, 68, 820/- without reducing grant received of ₹ 53, 68, 00, 000/- for the purpose of amortisation. However, the CIT(A) allowed amortization of the expenditure on the basis of Circular No. 9/14. The CIT(A) also deleted addition made u/s. 14A and restricted the same to ₹ 16, 000/- after observing as under:- 3.7 The appellant has invested in its subsidiary companies with an intention to increase its business and not for earning any dividend. Moreover, the total exempt income claimed during the year was only ₹ 60, 000/- as dividend from the co-operative banks which was otherwise not exempt u/s. 10 of the I. T. Act and appellant had offered it for taxation Respectfully following the judgment of Hon'ble Delhi High Court in the case of Joint' Investments Pvt. Ltd. vs. CIT (supra), Hon'ble IT AT in the cases of Daga Global Chemicals Ltd. vs. Assessee (supra) and Pinnacle Brocom Pvt. Ltd. vs. ACIT 10(3) (supra), we disallowance U/S. 14A is restricted upto ₹ 60, 000/- which was the exempt income claimed by the appellant. In view of it out of the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facilities during the construction period as per the rates specified in Government notification. The agreement further provided that after the end of concession period which was initially for a period of 25 years and subsequently reduced to 15 years, the assessee has to transfer the facility to the Government at zero cost. During the construction period, the assessee capitalized the entire cost for the construction of the facility by transferring to capital work-in-progress. After construction of the facility and during the concession period, the entire cost of construction was amortized and charge to Profit Loss account as per AS-26 in a manner so as to reduce the value of the project in the books of account of the assessee to zero at the end of concession period. It was submitted by the assessee that the expenditure incurred for constructing Mumbra bypass road on BOT basis was on the understanding that by incurring such expenditure, the assessee will acquire the commercial rights to collect the toll from the user of the facility over the concession period. Thus, it was submitted by the assessee that such commercial rights acquired by the assessee is an intangible asset under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the learned Commissioner (Appeals) in accepting assessee's revised claim of deferred revenue expenditure of ₹ 21, 18, 70, 983, the assessee is aggrieved with the decision of the learned Commissioner (Appeals) in not allowing assessee's claim of depreciation on BOT rights. 8. Learned Departmental Representative submitted that as per the agreement entered with the Government of Maharashtra, the concession period for the BOT facility was for a period of 15 years. Therefore, the expenditure incurred by the assessee in construction of the BOT road was to be amortized and treated as deferred revenue expenditure and allowed over the entire concession period. He submitted, before the first appellate authority, the assessee submitted a revised claim by reducing the concession period of 15 years and considering such revised claim learned Commissioner (Appeals) has allowed the claim of the assessee without giving any opportunity to the Assessing Officer to examine assessee's claim. Learned Departmental Representative submitted, the first appellate authority while accepting the revised claim of the assessee has not followed the spirit of CBDT circular refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset. He submitted, on the contrary, the issue is squarely covered by the Special Bench decision of the Tribunal, Hyderabad Bench, in ACIT v/s Progressive Construction Ltd. , ITA no. 1845/Hyd. /2014 dated 14th February 2017. He also relied upon the decision of the Tribunal, Mumbai Bench, in ACIT v/s West Gujarat Express Way Ltd. , ITA no. 5904/Mum. /2012 dated 15th April 2015. Thus, he submitted that assessee's claim of depreciation has to be allowed. 10. We have patiently and carefully considered the rival submissions, perused the material on record and have also applied our mind to the decisions relied upon. Undisputed facts are, the assessee entered into an agreement with Maharashtra Government for construction of Mumbra Bypass road on BOT basis. As per the terms of the agreement, the assessee was required to incur the entire cost of construction without it being reimbursed by the Government. However, the Government under the agreement conferred the rights on the assessee to collect revenue (toll) from persons utilizing the BOT facility at the rate prescribed through notification issued by the Government. Thus, from the terms of the agreement, it is very much clear th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er appeal before the High Court of Andhra Pradesh and Telangana and the matters are still pending. Be that as it may, the aforesaid facts clearly indicate that the impugned assessment year is not the first year of claim of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the project / project facilities as permitted under the C. A. Clause 2. 7 of the C. A. makes it clear that the project site belongs to and has vested in Government of India and the Government of India has full power to hold, dispose off and deal with the same consistent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in which the assessee can recoup the cost incurred by it in implementing the project / project facility is to operate the road during the concession period and collect the toll charges from user of the project facility by third parties. Admittedly, the assessee has taken up the project as a business venture with a profit motive and certainly not as a work of charity. Further, by investing huge some of ₹ 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 ₹ 214 crore. The contention of the learned Senior Standing Counsel that expenditure of ₹ 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 cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee on the date of execution of the agreement. If we accept the aforesaid argument of the learned Senior Standing Counsel, in other words, it would mean that without even executing and completing the project facility, assessee would be collecting toll charges. Therefore, the contention of the learned Senior Standing Counsel that the expenditure 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or interest in the property, then such right is called a license. If we examine the facts of the present case, vis-a-vis, the definition of license under the Indian Easements Act, 1882, it would be clear that immovable property on which the project / project facility is executed / implemented is owned by the Government of India and it has full power to hold, dispose off and deal with the immovable property. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de and facilitate smooth carrying on of business. Therefore, any other intangible asset which may not be identifiable with the specified items, but, is of similar nature would come within the expression ―any other business or commercial rights of similar nature . The Hon'ble Supreme Court in CIT v/s Smifs Securities (supra) after interpreting the definition of intangible asset as provided in Explanation 3 to section 32(1), while opining that principle 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 Seni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or franchise, therefore, an intangible asset. In the present case, undisputedly by virtue of C. A. the assessee has acquired the right to operate the toll road / bridge and collect toll charges in lieu of investment made by it in implementing the project. Therefore, the right to operate the toll road / bridge and collect toll charges is a business or commercial right as envisaged under section 32(1)(ii) r/w Explanation 3(b) of the said provisions. Therefore, in our considered opinion, the assessee is eligible to claim depreciation on WDV as an intangible 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. 11. The ratio laid down in the aforesaid decision of the Special Bench squarely applies to the facts of the present case. Therefore, in our considered opinion, the assessee is entitled to claim depreciation on the cost incurred on construction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner (Appeals) as revenue expenditure has become redundant, hence, no adjudication is required. The grounds raised by the assessee in the cross objection are allowed. Grounds raised by the Department are dismissed. 11. Rival contentions have been heard and record perused. 12. AO has declined assessee s claim of depreciation and the CIT(A) has upheld the disallowance of depreciation by relying on the decision of the holding company in case of Atlanta Ltd. , We found that against the order of CIT(A), assessee approached to the Tribunal and the Tribunal vide its order dated 24/01/2018 in the case of Atlanta Ltd, held that assessee is eligible for claim of depreciation. Respectfully following the decision of the Co-ordinate Bench in case of holding company, we direct the AO to allow assessee s claim of depreciation as per law. 13. So far as reduction of subsidy from the cost of toll road is concerned, the CIT(A) has reduced the subsidy from the cost of the toll road and thereafter considered amortization. 14. By the impugned order, CIT(A) held that subsidy is capital receipt, therefore, not to be reduced from the cost of the toll road and assessee is eligible for am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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