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TMI Blog2023 (7) TMI 1417X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable to the relevant assessment year 2013-14. As decided in M/S. Gwalior Bypass Project Ltd. [ 2023 (7) TMI 971 - ITAT NEW DELHI] 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 otherwise would have been unlawful or not possible to do in the absence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in various fields of telecommunications, IT and civil construction in India as well as abroad. Return of income declaring income of Rs. nil was filed and Ld. AO had made various additions which were challenged by assessee before Ld. CIT(A) and appeal of assessee was partly allowed against which the Revenue is in appeal raising following grounds :- 1. The impugned order of the CIT(A) is bad in law as well as on facts of the case. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 5,11,37,177/- made on account of disallowance of Depreciation on rights to build and operate Toll Road by ignoring the fact that in this case, the rights in the land remain vested with the Government or its agencies. Thus, as assessee does not hold any rights in the project except recovery of toll fee to recoup the expenditure incurred cannot therefore be treated as an owner of the property, either wholly or partly, for purpose's of allowability of depreciation under section 32(l)(ii) of the Act. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,68,70,284/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) against which the assessee came in appeal before the Tribunal. The Tribunal vide its order in ITA No. 1297/Del/2019 dated 26.07.2022 held that the assessee is entitled for depreciation as admissible on intangible assets. In arriving at this conclusion the Tribunal followed the decision of Special Bench of the Tribunal in ACIT, Circle 16(2), Hyderabad vs. M/s. Progressive Constructions Ltd. in ITA No. 1845/Hyd./2014 pertaining to AY 2011-12 decided on 14.02.2017 wherein the Special Bench held in favour of the assessee by observing in para 10 to 20 as under:- 10. Before dealing with the issue, it is necessary to reiterate that the Government of India being desirous of implementing a project involving, construction, operation and maintenance of four lane Pune Hyderabad section of N.H. no.9, with private sector participation of BOT invited tender from interested parties. The assessee being successful in the tender, the Government of India entered into a Concession Agreement (C.A) with the assessee on 22nd December 2005. At this stage, it is necessary to look into some of the relevant clauses of C.A., which in our opinion, will have a crucial bearing in deciding the issue. As pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential 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 save and except, as set forth and permitted under the agreement. Clause 4.1 of the C.A. entitles the concessionaire to levy, demand and collect fee for user of the roads by vehicles and persons in accordance with the fee notification to be issued by the Government of India. However, concessionaire cannot levy and collect any fee until it has received completion certificate. Clause 5.1 and 5.2 of the C.A. lays down the obligation of the concessionaire for execution and implementation of the project / project facility during the concession period. From the reading of the aforesaid clauses of the contract, following facts emerge: i) The right, title and ownership of the project site vests absolutely with the Government of India and it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rehension 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. This fact was known to both the parties before the execution of the agreement as the tender itself has made it clear that the project is to be executed with private sector participation on BOT basis. Thus, from the very inception of the project, assessee was aware of the fact, it has to recoup the cost incurred in implementing the project along with the profit from operating the road and collecting toll charges during the concession period. Therefore, assessee has capitalized the cost incurred on the BOT project on which it has claimed depreciation. Thus, in our view, the expenditure incurred by the assessee of Rs.214 crore for creating the project or project facilities has created an intangible asset in the form of right to operate the projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business 67 or profession, the following deductions shall be allowed ] 12. Explanation 3 to section 32(1) defines intangible asset as under: [Explanation 3. For the purposes of this sub-section, [the expression assets ] shall mean (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. 13. A plain reading of the aforesaid provisions would indicate that certain kind of assets being knowhow, patents, copyrights, trademarks, license, franchise, or any other businesses or commercial rights of similar nature are to be treated as intangible asset and would be eligible for depreciation at the specified 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 lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 a license or akin to license, it requires examination whether it can still be considered as an intangible asset as described under section 32(1)(ii) of the Act. In this context, it has been the contention of the learned Senior Standing Counsel that the intangible asset mentioned under section 32(1)(ii) of the Act are specifically identified assets, except, the assets termed as any other business or commercial rights 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angible 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 ejusdem generis observed, the right as finds place in the expression business or commercial rights of similar nature need not answer the description of knowhow, patents, trademarks, license or franchises, but must be of similar nature as the specified asset. The Court observed, looking at the meaning of categories of specified intangible assets referred to in 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 inta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 depreciation have been allowed. Therefore, in the impugned assessment year, the claim is limited to depreciation on the WDV on block of assets only. The issue whether the expenditure incurred is a deferred revenue expenses or not was not the subject matter of consideration either by the Assessing Officer or by the learned Commissioner (Appeals). Taking into consideration the aforesaid fact, the Tribunal had re framed the question by limiting the issue only to the determination of nature of asset, whether tangible or intangible. In fact, the learned Departmental Representative has also accepted the aforesaid factual position. In any case of the matter, the assessee neither in the preceding assessment years nor in the impugned assessment year has claimed it as deferred revenue expenditure, hence, there is no scope to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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