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TMI Blog2019 (8) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground raised by the Revenue stands dismissed. - I.T.A. No. 238/Chny/2019 - - - Dated:- 26-7-2019 - Shri Duvvuru RL Reddy, Judicial Member And Shri S. Jayaraman, Accountant Member For The Appellant : Shri S. Bharath, CIT For The Respondent : Shri N. V. Balaji, Advocate ORDER PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 3, Chennai dated 12.11.2018 relevant to the assessment year 2014-15. The Revenue has challenged the order of the ld. CIT(A) in deleting the addition made of ₹.150,81,78,012/- being the difference between the assessee s claim of depreciation and the amortization of expenses allowable for the year under consideration by treating the toll way rights as an intangible asset under section 32(1)(ii) of the Income Tax Act, 1961 [ Act in short]. 2. Brief facts of the case are that the assessee filed return of income for the assessment year 2014-15 on 30.11.2014 admitting a loss of ₹.297,26,62,659/-. The return filed by the assessee was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction period of 30 months and the concession period ends in the year 2029. During the financial year 2012-13, the partial commercial operation achieved from 01.10.2012. For this purpose, the assessee has entered into a concession agreement with NHAI on Build, Operate and Transfer (BOT) basis. The assessee has capitalized the total collection right as an intangible asset and claimed depreciation on the same at the rate applicable to intangibles. The Assessing Officer has not accepted the above claim of the assessee in view of the CBDT Circular No. 9 of 2014 dated 23.04.2014, instead, allowed amortization of the total cost of construction incurred on development of infrastructure facility by the assessee under BOT over a period of 20 years which is equivalent to the concession period granted by BHAI for collection of toll. Since the construction period was of 30 months, the balance operational period is of 17 years. As per the assessment order, the operational period start from the financial year 2012-13 and the first year of operational period was ended on 31.03.2013. The Assessing Officer has adopted the base value of intangible asset (toll way) at ₹.637,69,26,090/- as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 214 crore in construction of Pune Hyderabad section of National Highway no.9, on build, operate and transfer (BOT) basis with a right to collect toll charges from the user of road by vehicles over the concession period of 11 years and 7 month. It is a fact on record that the assessee completed the construction of the project in the financial year 2008- 09 and had started operating the same. It is also evident, in the assessment year 2009-10, the assessee had claimed depreciation @ 10% by treating the asset as building. However, from the assessment year 2010-11, the assessee had started claiming depreciation by treating the asset created as an intangible asset in terms of section 32(1)(ii) of the Act. We have also been informed that assessee's claim of depreciation in assessment year 2009-10 and 2010-11, were disallowed by the Assessing Officer. However, the learned Commissioner (Appeals) allowed assessee's claim of depreciation as building in assessment year 2009-10 and as intangible asset in assessment year 2010- 11. The aforesaid orders of the learned Commissioner (Appeals) were also upheld by the Tribunal while dismissing Department's appeals on the issue. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1 of the C.A., the Government of India grants and authorises the concessionaire i.e., the assessee to investigate, study, design, engineer, procure, finance, construct, operate and maintain the project and to exercise and/or enjoy the rights, powers, privileges, authorizations and entitlements in terms of the agreement including the right to levy demand, collect and appropriate fee from vehicle and persons for using the project / project facilities or any part thereof. As per clause 2.2 of the C.A., the assessee is granted concession for a period of 11 years 7 months from the commencement date. As per clause 2.4, the Government of India was obliged to hand over to the assessee physical possession of the project site free from encumbrances within 30 days from the date of the agreement. It further provides, once the project site is handed over to the concessionaire, it shall have exclusive right to enter upon, occupy and use the project site and to make at its costs, charges and expenses such development and improvement in the project site as may be necessary or appropriate to implement the project and to provide project facility in terms of the agreement. Clause-2.5 of the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it has full powers to hold, dispose off and deal with the same; ii) The Government of India has handed over physical possession of the project site to the concessionaire for executing / implementing the project and operating the same during the concession period; iii) Concessionaire shall have exclusive right to use the project site for executing / implementing the project in terms of C.A; iv) Concessionaire shall, at its own costs and expenses, execute / implement the entire project and operate and maintain the same during the concession period; and v) The concessionaire shall have the right to levy / demand and collect fee as approved by the Government of India towards user of the project facilities by vehicles and persons. 11. Undisputedly, for executing the project, assessee has incurred expenses of ₹ 214 crore. It is also not disputed that as per the terms of the C.A., the Government of India is not obliged / required to reimburse the cost incurred by the assessee to execute / implement the project facilities. The only right / benefit allowed to the assessee by the Government of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee of ₹ 214 crore for creating the project or project facilities has created an intangible asset in the form of right to operate the project facility and collect toll charges. Further, it is the contention of the learned Senior Standing Counsel that if at all any right is created under the C.A. for collecting toll, such right accrued to the assessee on the date of execution of agreement i.e., 22nd December 2005, therefore, the expenditure incurred by such date should be the value of intangible asset which can alone be considered for depreciation under section 32(1)(ii) of the Act. We are afraid, we cannot accept the above argument of the learned Senior Standing Counsel. When the C.A. confers a right on the assessee to operate the project facility and collect toll charges over the concession period of 11 years and 7 months, the assessee can start operating and collecting toll charges only when the project facility is ready for use. Therefore, until the project is completed and ready for use by vehicles or persons assessee cannot collect toll charges for user of the project facilities. Thus, the right to operate the project facility and collect toll charges is integrally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified rate. It is the claim of the assessee that the right acquired under C.A. to operate the project facility and collect toll charges is in the nature of license. However, the learned Senior Standing Counsel has strongly countered the aforesaid claim of the assessee by referring to the definition of license as provided under the Indian Easements Act, 1882. For better appreciation, we intend to reproduce herein below the definition of license as provided under section 52 of the Indian Easements Act, 1882:- License defined:- Where on person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a license. 14. It has been the contention of the learned Senior Standing Counsel that as the term license has not been defined under the Income Tax Act, 1961, the definition of license under the Indian Easements Act, 1882, has to be looked into. Accepting the aforesaid contention of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts of similar nature . He had submitted, applying the principle of ejusdem generis the rights referred to in the expression any other business or commercial rights of similar nature , should be similar to one or more of the specifically identified assets preceding such expression. The aforesaid contention of the learned Departmental Representative is unacceptable for the reasons enumerated hereinafter. 16. We have already held earlier in the order that by incurring the expenditure of ₹ 214 crore assessee has acquired the right to operate the project and collect toll charges. Therefore, such right acquired by the assessee is a valuable business or commercial right because through such means, the assessee is going to recoup not only the cost incurred in executing the project but also with some amount of profit. Therefore, there cannot be any dispute that the right to operate the project facility and collect toll charges therefrom in lieu of the expenditure incurred in executing the project is an intangible asset created for the enduring benefit of the assessee. Now, it has to be seen whether such intangible asset comes within the expression any other busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 32(1)(ii) of the Act preceding the term business or commercial right of similar nature , it could be seen that the said intangible assets are not of the same line and are clearly distinct from one another. The Court observed, the use of words business or commercial rights of similar nature , after the specified intangible assets clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets which were neither visible nor possible to exhaustively enumerate. The Hon'ble Court, therefore observed, in the circumstances the nature of business or commercial right cannot be restricted only to knowhow, patents, trademarks, copyrights, licence or franchise. The Court observed, any intangible assets which are invaluable and result in smoothly carrying on the business as part of the tool of the trade of the assessee would come within the expression any other business or commercial right of similar M/s. Progressive Constructions Ltd. 17. In the case of Techno Shares and Stocks Ltd. v/s CIT, [2010] 327 ITR 323 (SC), the Hon'ble Supreme Court ..... 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