TMI Blog2014 (11) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... umbai, dated 30th August, 2011 in Income Tax Appeal No.3978/Mum/2010. The assessment year in question is 200506. 2] An order of the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 (for short 'the Act') dated 17th March, 2010 was under challenge before the Tribunal and at the instance of the Appellant Assessee. The Commissioner had exercised his powers under the above provision and held that the assessment made by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. 3] The Appeal raises substantial question of law and which is formulated as under: ( i) Whether, on the facts and in the circumstances of the case, and in law, the Tribunal was justified in confirming the order passed by the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 directing the Assessing Officer to examine the allowability of depreciation on toll road? 4] Mr. Pinto, learned counsel, waives service on behalf of the Revenue. 5] By consent of both parties, the Appeal is taken up for final hearing. 6] The Assessee is a company incorporated under the Indian Companies Act, 1956 having its registered office at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act and the Respondent proposed to revise the assessment order passed by the Assessing Officer as in his opinion the Assessing Officer had erred in allowing depreciation on the toll road constructed on Build, Operate and Transfer basis. According to him, that resulted in under assessment of income. Annexure D and E are copies of the assessment order and show cause notice. The Assessee furnished a reply to the same and submitted that the Assessing Officer has applied his mind on the particular issue and his view is a possibe one. Therefore, jurisdiction under section 263 of the Income Tax Act cannot be exercised. Further, the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. A copy of this reply is at Annexure F. There was a second show cause notice, copy of which is at Annexure G dated 2nd December, 2009 and that was in relation to further items of income and expediture. Even in that regard, the Assesssee showed cause and appeared before the Commissioner. However, the Commissioner, Respondent before us, set aside the assessment and directed, inter alia, that the allowability of depreciation on toll road should be examined again. 11] Agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew taken by him is a possible and plausible view. Therefore, the Commissioner should not have set aside his order. The Tribunal erred in not setting aside the order of the Commissioner. For these reasons, he submits that this Court be pleased to quash and set aside the impugned orders and allow the Appeal. 14] On the other hand, Mr. Pinto, learned counsel, appearing for the Revenue submits that the Tribunal as also the Commissioner has not concluded the issue of depreciation against the Assessee. All that they have done is to direct the Assessing Officer to reconsider and reexamine it in accordance with law. Alternatively, and without prejudice Mr. Pinto submits that there is no finding or opinion rendered by the Assessing Officer. Hence, this is not a case of two opinions or any possible opinion being rendered. Mr. Pinto in that regard relies upon para 4.3 of the order of the Tribunal at page 81 and 82 of the paper book. Mr. Pinto submits that the land belongs to the sovereign. The Assessee is merely permitted to enter upon it for the purpose of construction and laying of a road. At best, the Assessee could be said to be an agent and for a limited purpose, namely, to build, op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this subsection in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescibed for an asset under clause (i) or clause (ii) or clause (iia) as the case may be; Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998, but before the 1st day of April, 1999, and is put to use before the 1st day of April, 1999, for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed. Explanation For the purposes of this proviso, ( a) the expression commercial vehicle means heavy goods vehicle , heavy passenger motor vehicle , light motor vehicle , medium goods vehicle and medium passenger motor vehicle but does not include maxi cab , motorcab , tractor and roadroller shall have the meanings respectively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 43. Explanation 3 For the purposes of this subsection, the expression assets shall mean ( a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being knowhow, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. 17] A bare perusal thereof indicates that in repsect of the depreciation of buildings, machinery, plant or furniture being tangible assets and with which we concerned, the deductions in subsection( 1) of section 32 shall be allowed provided these assets are owned wholly or partly by the Assessee and used for the purpose of his business or profession. Then, there are provisos below clause (ii) of subsection (1) and it is not necessary to refer to the same and except explanation (3) which is an explanation for the purposes of subsection (1). 18] The term depreciation as is ordinarily understood and in the context of the Income Tax Act, 1961 has been considered by the Hon'ble Supeme Court. 19] In judgment of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd. v/s. Commissioner of Income Tax, Mysore Anr. reported in AIR 2013 (SC) 3037, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w advert to the first requirement i.e. the issue of ownership. No depreciation allowance is granted in respect of any capital expenditure which the Assessee may be obliged to incur on the property of others. Therefore, the entire case hinges on the question of ownership; if the Assessee is the owner of the vehicles, then, he will be entitled to the claim on depreciation, otherwise, not. 20. In Mysore Minerals Ltd., M.G. Road, Bangalore V/s. Commissioners of Income Tax, Karnataka, Bangalore, this Court said thus: .....authorities show that the very concept the depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time. 21. Black's Law Dictionary (6th Edn.) defines 'owner' as under: Owner. The person in which is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or personal, corporeal or incorporeal, which he has a right of enjoy and do with as he pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion was posed before the authorities, what they have held is that the Assessing Officer in allowing such a claim has not even considered the basic facts rather there is no consideration of the claim at all and before granting it. The Commissioner came to the conclusion that the depreciation is allowable on specific assets owned by the Assessee and used for the above purpose. The toll road belongs to the Government and the Assessee is not the owner of the said road. Therefore, the depreciation is not allowable on toll road. 22] We do not find that when this notice was issued by the Commissioner to the Assessee under section 263 of the Income Tax Act, there has been any divergence or contradiction as complained by Shri Irani. We do not find any basis for the complaint that the notice and the order passed by the Commissioner of Income Tax are at variance or that the order travels beyond the notice. The essential foundation for the notice is as noted above. The Commissioner issued another show cause notice on 2nd December, 2009 and in which also he alleged that the claim of depreciation has been erroneously granted and the order of the Assessing Officer to that extent is erroneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial to the interest of the revenue following the judgments cited above. It is not a case that the Assessing Officer had examined the issue by calling for necessary details and by raising relevant queries but failed to discuss the issue elaborately in the assessment order. The judgment of High Court of Bombay in case of Gabriel India (supra), is therefore, not applicable on the facts of the present case. The learned AR for the Assessee has argued that depreciation was allowable based on some decisions of the Tribunal and therefore, Assessing Officer had taken one of the possible views and in such cases order cannot be said to be erroneous and prejudical to the interest of the revenue. Reliance has been on the case of Malabar Industrial Co. (supra) in which it has been held that in case Assessing Officer has taken one of the possible views, assessment cannot be said to be erroneous and prejudicial to the interest of the revenue. But the question of taking one of the two possible views arises only when the Assessing Officer has taken a view after necessary examination ofo the issue. In case Assessing Officer has allowed the claim mechanically without any examination, it cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement with any person in relation to the development and maintenance of the whole or part of a National Highways. The statement of facts and reasons to Amendment Act 26 of 1995 reads as under: Amendment Act 26 of 1995Statement of objects and Reasons. Proper development of road infrastructure is essential for economic development of the country. However, due to constrain of resources, it has not been possible to allocate sufficient funds for the development of road sector in the country. Therefore, a need has been felt to tap private entrepreneurship and private resources in the development of road sector. With this in view, the Government has taken a number of measures like the declaration of road sector as an industry and infrastructure facility and certain other concessions. A number of private investors including foreign investors have shown interest in the proposal to open the road sector for private investment. However, in the absence of an enabling provision in the National Highways Act, 1956, it is not possible to enter into agreements with private investors for the development of roads. 30] A bare perusal thereof, would indicate that after the policy of globaliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. 31] By section 8A, the Central Government has been empowered to enter into agreements for development and maintenance of National Highway and that section reads as under: 8A. Power of Central Government to enter into agreements for development and maintenance of national highways (1) Notwithstanding anything contained in this Act, the Central Government may enter into an agreement with any person in relation to the development and maintenance of the whole or any part of a national highway. (2) Notwithstanding anything contained in section 7, the person referred to in subsection (1) is entitled to collect and retain fees at such rate, for services or benefits rendered by him as the Central Government may, by notification in the Official Gazette, specify having regard to the expenditure involved in building, maintenance, management and operation of the whole or part of such national highway, interest on the capital invested, reasonable return, the volume of traffic and the period of such agreement. (3) A person referred to in subsection (1) shall have powers to regulate and control the traffic in accordance with the provisions contained in Chapter VIII of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government may direct that any function in relation to the development or maintenance of national highways shall also be exercisable, among others, by any officer or authority subordinate to the Central Government. Under this provision, the function of execution of the field activities including survey, investigations and preparation of projects on national highways have been delegated to the respective State Governments, the Central Government retaining the activities pertaining to planning, approval of design and estimates, monitoring, etc. This system if commonly known as the Agency System since the State Governments are paid Agency Charges incurred by them on works executed on the national highway system. 2. Though the Agency System of execution of national highway works by the State Public Works Department has been functioning for a period of about 40 years, difficulties have been experienced from time to time. 3. Since the Central Government have no direct administrative control over the executing agency, there have been instances when the Central Government had to remain helpless in case a State Government overlooked the acts of omission or commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys which are vested in it by the Central Government; (g) the Authority will construct offices, workshops and residential buildings for its employees and construct wayside amenities near the national highways vested in it; (h) the Authority will, on behlaf of the Government, be empowered to collect fees for services or benefits rendered by it under section 7 of the National Highways Act, 1956; (i) for the proper management of highways, the Authority will regulate and control the plying of vehicles on the highways vested in it; (j) with the approval of the Central Government, the Authority will raise funds through the floating of bonds, issue of debentures etc. 34] By section 3 under Chapter II, the National Highways Authority of India has been constituted and by further sections its constitution and composition has been set out. Chapter III of the Act is entitled property and contracts . Section 11 thereof reads as under: 11. Power of the Central Government to vest or entrust any national highway in the Authority The Central Government may, from time to time, by notification in the Official Gazette, vest in, or entrust to, the Authority, such national highway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulate and control the plying of vehicles on the highways vested in, or entrusted to, it for the proper management thereof; (e) develop and provide consultancy and construction services in India and abroad and carry on research activities in relation to the development, maintenance and management of highways or any facilities thereat; (f) provide such facilities and amenities for the users of the highways vested in, or entrusted to, it as are, in the opinion of the Authority, necessary for the smooth flow of traffic on such highways; (g) from one or more companies under the Companies Act, 1956 (1 of 1956), to further the efficient discharge of the functions imposed on it by this Act; [(h) engage, or entrust any of its functions to, any person on such terms and conditions as may be prescribed;] (i) advise the Central Government on matters relating to highways; (j) assist, on such terms and conditions as may be mutually agreed upon, any State Government in the formulation and implementation of schemes for highway development; (k) collect fees on behalf of the Central Government for services or benefits rendered under section 7 of the National Highways Act, 1956 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tute. The National Highways Act and the National Highways Authority of India Act are, therefore, special statutes and when the concept of ownership and vesting therein is of absolute nature that cannot be said to be in any manner restricted or curtailed by a general definition or understanding of the term owner as appearing in the Income Tax Act, 1961. The term is defined widely and broadly in the Income Tax Act, 1961 so as not to allow anybody to escape the provisions thereof by urging that he has a limited right or which is not akin to ownership. Therefore, his income should not be brought to tax. Similarly, if he can claim any deductions from his income which is comprising of profits and gain from his business, then, that deduction can be availed by him. It is for that limited purpose that the term 'owner' is defined in this manner Income Tax Act, 1961. However, as held above, that cannot control leave alone overreach The National Highways Act, 1956 or the National Highways Authority of India Act, 1988. 40] Mr. Irani has fairly brought to our notice a notification issued by the Central Government entrusting the stretches as specified in column (3) of the table annexed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by States and other agencies. 30. Carriage of passengers and goods by railway, sea or air, or by national waterways in mechanically propelled vessels. 89. Terminal taxes on goods or passengers, carried by railway, sea or air, taxes on railway fares and freights. Entry 13, Entry 56 and Entry 57 of List II are as follows : 13. Communications, that is to say, roads, bridges, ferries, and other means of communication not specified in List I; municipal tramways; ropeways; inland waterways and traffic thereon subject to the provisions of List I and List III with regard to such waterways; vehicles other than mechanically propelled vehicles. 56. Taxes on goods and passengers carried by road or on inland waterways. 57. Taxes on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List III. 4. The National Highways Act 1956 provides for the declaration of certain highways to be National Highways. Sec. 2(1) of the Act declares the Highways specified in the Schedule 'except such parts thereof as are situated within any municipal area' to be National Highways. Sec. 3 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pears to us to make it clear that taxes on passengers and goods carried on National Highways also fall directly and squarely within and are included in entry 56 of List II. 9. We proceed to the next submission of the learned counsel for the appellants that the legislative power to impose taxes under entry 56 of List II was of a regulatory and compensatory nature and consequently the taxing power of the State Legislature could only be exercised with respect to goods and passengers carried on roads, maintained by the State Government and not on National Highways which were maintained by the Union Government. In the counter affidavit filed by Shri Rajender Singh, Taxation Commissioner, on behalf of the State of Haryana, it was claimed that the tax was not of a regulatory and compensatory nature but that it was a general revenue measure. This position was abandoned during the course of argument and Shri Bhagat learned counsel for the State of Haryana conceded that the tax was of a regulatory and compensatory nature. Nor, of course, is the Court bound by any statement made by or on behalf of the Executive Government on a question of the legislative intent or nature of an enactment, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Act and Sec. 8 authorises the Central Government to enter into an agreement with the State Government in relation to the development and maintenance of the whole or part of a National Highway situated within the State including a provision for the sharing of expenditure. Therefore, the State Government is not altogether devoid of responsibility in the matter of development and maintenance of a national highway, though the primary responsibility is that of the Union Government. It is under a statutory obligation to obey the directions given by the Central Government with respect to the development and maintenance of national highways and may enter into an agreement to share the expenditure. That part of the highway which is within a municipal area is excluded from the definition of a national highway and therefore, the responsibility for the development and maintenance of that part of the highway is certainly on the State Government and the Municipal Committee concerned. Since the development and maintenance of that part of the highway which is within a municipal area is equally important for the smooth flow of passengers and goods along the national highway it has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is favourable to the Assessee should be preferred. He also relies upon the observations in that behalf in the above judgment of the Hon ble Supreme Court and which are to the following effect: What is ownership? The terms own , ownership , owned are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used Black's Law Dictionary (6th edition), defines owner as under: Owner. The person in whom is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or persoal, corporeal or incorporeal, which he has a right to enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right. The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject matter to which it is applied. The primary meaning of the word as applied to land is one who owns the fee and who has the right to dispose of the property, but the term also includes one having a possessory right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut as to which the Assessee was not legal owner for want of deed of title, was liable to be assessed as income from house property or as income from other sources. To be assessable as income from house property within the meaning of section 22 of the Act the property should be such of which the Assessee is the owner. This Court upon a juristic analysis of the underlying scheme of the Act and resorting to contextual and purposive interpretation, also having reviewed several conflicting decisions of different High Courts, held that the liability to be assessed was fixed on a person who receives or is entitled to receive the income from the property in his own right. Vide para 55, the Court has held (page 653): We are conscious of the settled position that under the common law 'owner' means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section 22 of the Income Tax Act, having regard to the ground realities and further having regard to the object of the Income Tax Act, namely, 'to tax the income', we are of the view, 'owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of all others. 47] Once again these observations must be seen in the backdrop of the facts where the Assessee had purchased for the use of its staff seven low income group houses from the Housing Board. The Assessee had made part payment and was in turn given allotment of the houses followed by delivery of possession by the Housing Board. The actual deed of conveyance is not executed by the Housing Board in favour of the Assessee. The claim for depreciation under section 32 of the Income Tax Act, 1961 in respect of buildings used for the purpose of the business of the Assessee, was rejected by the Assessing Officer and on the ground that the Assessee had not become owner as no conveyance deed was executed in its favour. The Assessee s Appeal was allowed by the Commissioner of Income Tax but on Revenue s Appeal, the Income Tax Appellate Tribunal set aside the judgment of the Commissioner of Income Tax. The Tribunal referred a question of law to the Hon ble High Court and it answered the same against the Assessee and in favour of the Revenue. That is how the matter was carried to Hon ble Supreme Court. It is in that context that the concept of ownership has been discussed and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a party. Therefore, the contention that the Municipality had not leased the site to the respondent by a document as required by Municipal Act, would be of no avail. Equally, the plea that it acted beyond the scope of its authority, is not available to the Municipality. The plea of the State taken before the High Court, and before us, by Mr. Dixit, learned counsel for the appellant, is that the State is the owner of the property inspite of the fact it had vested in the Municipality as a street under section 116(g) of the Act. It was submitted that when the property is put to a different use, it is open to the Government to assert, its title and required anyone in illegal possession of the property to vacate. There is not much dispute that the property belonged to the State before the Municipal Act was passed. The High Court has found that the State was the owner of the property till the Municipal Act was passed and this finding was not challenged before us. The only point on which the State lost the suit before the High Court was that after the passing of the Uttar Pradesh Municipal Act, the property vested in the Municipality and the State ceased to be the owner and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Municipal Board, Mangalur V/s. Mahadeoji Maharaj, (1965) 2 SCR 242; (AIR 1965 SC 1147) had to consider the nature of the right that vested in the Municipality over the streets, Subba Rao, J. (as he then was) after considering the decisions of the English Courts and the High Court, summed up the law on this subject as follows: The inference that the side lands are also included in the public way is drawn easily as the said lands are between the metal road and the drains admittedly maintained by the Municipal Board. Such a public pathway vests in the Municipality, but the Municipality does not own the soil. It has the exclusive right to manage and control the surface of the soil and 'so much of the soil below and of the space above the surface as is necessary to enable it to adequately maintain the street as a street. It has also a certain property in the soil of the street which would enable it as owner to bring a possessory action against trespassers. Subject to the rights of the Municipality and the public to pass and repass on the highway, the owner of the soil in general remains the occupier of it and, therefore, he can maintain an action for trespass against any mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... glish cases which dealt with the vesting of the street in the Municipality and observed: The conclusion to be drawn from the English case law is that what is vested in urban authorities under statutes similar to the District Municipalities Act, is not the land over which the street is formed, but the street qua street and that the property in the street thus vested in a Municipal Council is not general property or a species of property known to the Common Law, but a special property created by statute and vested in a corporate body for public purposes, that such property as it has in the street continues only so long as the street is a highway by being excluded by notification IV of 1884 or by being legally stopped up or diverted, or by the operation of the law of limitation (assuming that by such operation the highway can be extinguished), the interest of the corporate body determines. It is, therefore, clear that when a street ceases to be a highway by its being diverted to some other use, the interest of the corporate body determines. After referring to the decisions of the High Courts in India, it expressed its concurrence with the decisions in Chairman of the Naihati M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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