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TMI Blog2019 (4) TMI 2011X X X X Extracts X X X X X X X X Extracts X X X X ..... IT erred in revising the assessment order passed by the Learned Assessing Officer ('ld. AO') under Section 263 of the Act. The appellant prays that the order passed under section 263 of the Act is bad in law, and ought to be quashed. Ground No.2 On the facts and in the circumstances of the case and in law, the ld. Pr. CIT has erred in initiating the revisionary proceedings without appreciating that the ld. AO had allowed the depreciation claimed by the appellant of Ps. 1,82,79,39,159 @ 25% on the appellant's 'right to collect toll' after proper appreciation of facts and hence the said order is not erroneous and prejudicial to the interest of the revenue." 3. Briefly stated facts are that the assessment in this case was completed by the AO under section 143(3) of the Act dated 30.03.2015. The PCIT while going through the assessment records noticed that the AO has passed the assessment order without taking note of CBDT Circular No 9 of 2014 and wrongly allowed the claim of depreciation at the rate of 25% on the cost of infrastructure facility being toll road Built Owned and Transfer treating it as an asset in the nature of intangible right. Accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessionaire agreement after excluding the time taken for creation of such facility. The total deduction claimed for the assessment years prior to the assessment year under consideration is to be deducted from the initial cost of infrastructure facility of roads/highways and the cost 'so reduced' is to be amortized equally over the remaining period of toll concessionaire agreement. 1.4] A perusal of the records and the assessment order shows that the AO has not made the disallowance in respect of the wrong claim of depreciation Ca', 25%. Under such circumstances, the order passed by the A.O. is found to be erroneous and prejudicial to the interest of revenue, as there has been an under assessment to the extent of the excess claim of depreciation allowed. 1.5] In view of the above, it is clear that there is a failure on the part of the assessing officer to examine the issue of claim of depreciation in terms of circular No.9 of 2014 issued by the CBDT, which has rendered the impugned assessment order passed u/s. 143(3) of the I.T. Act erroneous, in so far as it is prejudicial to the interests of revenue, in terms of explanation 2 to section 263 of the I.T. Act. 1.6] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said explanation, it is, inter-alia, provided that if the order is passed without making inquiries or verifications by AO which, should have been made or the order is passed allowing any relief without inquiring into the claim, or the order has not been made in accordance with any order, direction, circular or instruction issued by the Board, then the order shall be deemed to be erroneous and prejudicial to the interest of Revenue. Thus the scope of revisionary power of the Commissioner! Principal Commissioner is widened. For ready reference, this explanation (i.e explanation 2 to section 2631 is reproduced here under: "(Explanation 2 -For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should hove been made; (b) the order is passed ohIow!rlg any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or Instruction issued by the Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel that disallowing the claim of the assessee Company for depreciation on Intangible Assets under section 32(2) of the Act is without any basis because the cost incurred by the Company on construction and development of the project has been classified by the Auditors under the head "Intangible Assets' in the financial statements. The assessee has incurred huge expenditure on this project with an intention of availing an enduring benefit for its business. The agreement bestows upon the assessee an exclusive right, license and authority during the subsistence of the Concession Agreement to implement the project. The learned Counsel drew our attention to Section 32(1)(ii) of the Act, which defines the term 'Intangible Asset' to include any (1) know -how (ii) patents, (iii) copyrights, (iv) trademarks, (v) licences, (vi) franchises or any other business or commercial rights of similar nature. The right to collect toll is a valuable right which has a huge commercial value and is akin to a licence. Hence, it falls within the purview of 'Intangible Assets' under section 32(1)(ii) of the Act. Accordingly, the Company has claimed depreciation at the rate of 25% amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee of Hon'ble Supreme Court in the case of Mysore Minerals Ltd. v. CIT (239 ITR 775), wherein it is held as under: - "In our opinion, the term owned" as occurring in section 32(1) of the Income-tax Act, 1961, must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a for-ma) deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. "Building owned by the assessee" the expression asocurring in section 32(1) of the income-tax Act means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc., but nevertheless is entitled to hold the property to the exclusion of all others." 9. Similarly, basing the above decision, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is entitled to collect tax being an intangible commercial right under section 32(1)(ii) at the rate as has been prescribed under the relevant rules." 10. Further, we noted that the Circular states that the assessee does not hold any right in the project except the recovery of toll fee to recoup the expense incurred. This view was also adopted by the Revenue in the aforesaid case wherein it stated that the assessee has not acquired any right of the nature referred to in section 32(1)(ii) of the Act and only allows the assessee to recover the costs incurred for the construction of road facility. The Tribunal has observed this to be factually and legally misplaced. The relevant extract of the decision is reproduced below: "So however, the plea of the Ld. DR before us is to the effect that the impugned right is not of the nature referred to in section 32(1)(ii) of the Act for the reason that the agreement with the Government of Madhya Pradesh only allowed the assessee to recover the costs incurred for constructing the road facility whereas section 32(1)(ii) of the Act required that the assets mentioned therein should be acquired by the assessee after spending money. The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of "license" extracted herein above. A plain reading of section 52 of the Act makes it clear, a right granted to a person to do or continue to do something in the immovable property of the grantor, which, in the absence of such right would be unlawful and such right does not amount to an easement 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , specifically identified items like knowhow, patents, copyrights, trademarks, licenses, franchises are not of the same category, but, distinct from each other. However, one thing common amongst these assets is, they all are part of the tool of the trade 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 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a member to participate in a trading session on the floor of the exchange, such membership is a business or commercial right, hence, similar to license 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." 12. As the issue is highly debatable in the given facts of the case, revision under section 263 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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