TMI Blog2008 (12) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of BOT scheme an entrepreneur is required to build an infrastructure facility by arranging its own finances. Thereupon the operation and maintenance is also the responsibility of the entrepreneur. In consideration thereof the entrepreneur is given the right to collect the toll. In this case under Motor Vehicle Act vide a notification levied a toll on the vehicles passing through the infrastructure. Ld AR has clarified that originally the right to collect the toll was from 29th Feb., 2000 to 3rd Feb., 2005. then extended for few more months upto 17th May, 2005 and further extended upto 19th Aug., 2005. At the end of the specified period, the period so settled was from 24th Aug., 1999 to 4th Nov., 2015; the infrastructure facility i.e., road as constructed by the entrepreneurs is required to be handed over to the Government free of cost. Authorities below have duly examined and reproduced the relevant clauses of the tender document, agreement and lease term etc. which are not in dispute. On the basis of the discussion and on due consideration of the facts of the case we can now conclude that the same are pari materia with the decision of respected Co-ordinate Bench in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the condition was that the said infrastructure shall be transferred to the State Government within a prescribed period i.e., 16 years and 9 months. The prescribed period was stated to be ending on 4th Nov., 2015. 3. Further it was observed by the AO and that was the issue which was placed for our consideration, that the assessee has claimed a depreciation of Rs. 4,54,60,616 @ 25 per cent on an asset termed as license to collect toll. The explanation of the assessee was that as per the agreement executed with the Government of Maharashtra, the assessee was granted license to collect toll and the said license was claimed to be in the nature of "intangible asset" as defined in s. 32(1)(ii) of IT Act. The AO has produced a written submission through which the assessee has placed on record the factual matrix of the case. Mainly on three reasons, the AO has not accepted the claim i.e., first, the impugned agreement was not a licensing agreement but it was in the form of repayment agreement. Second, the so-called license was not depreciated over a period of time as it happens in the case of a tangible asset, hence in the absence of the element of depreciation, the claim was not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 'licence' means an authority to do something which would otherwise be inoperative, wrongful or illegal or a formal permission from a constitutional authority to do something. Therefore, in view of the provisions under s. 20 of the Bombay Motor Vehicles Tax Act [dealt with at (iv) below-the said notification issued by the State Government (a constitutional authority), formally permitting the appellant to collect and retain toll is nothing but a 'licence']. This contention of appellant also finds support in the provisions under s. 206C(1C) of the IT Act. Therefore, the permission to collect and retain toll is a licence, as envisaged under Part B-Intangible assets-of the table of depreciation, eligible for depreciation @ 25 per cent. Thus, the AO erred in treating the BOT agreement as repayment agreement instead of licence agreement and is disallowing the depreciation as claimed by the appellant. In any case and without prejudice to the appellant's claim that the BOT agreement resulted into right/licence in favour of appellant, for collection and retention of toll, if at all the BOT agreement is held as repayment/recovery agreement, then it is alternatively prayed that, the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government can authorize the BOT operator to collect the toll and retain it. Thus, no unauthorized person can collect toll from the motorist, merely by constructing road at one's own cost. Unless such permission is granted by the State Government by issue of notification collection of toll is not legally permitted. Therefore, the permission to collect toll is a right bestowed on BOT investor, which permits hint to collect and retain toll. Such 'Rights' are held as capital assets in the decisions Addl. CIT vs. Ganapathi Raju Jegi, Sanyasi Raju (1979) 119 ITR 715 (AP) (route permits), Miss Dhun Dadabhoy Kapadia vs. CIT (1967) 63 ITR 651 (SC) (right to subscribe the rights issue of shares). Further in view of the provisions under s. 206C(1C), the nature of such permission is recognized as a right/licence, under the IT Act itself. Thus, no one can deny that the authority or permission to collect toll is a 'licence/right'. Now the question is whether these rights can be called as business or commercial rights. The relevant dictionary meaning of the term 'business' (as per the Oxford English Reference Dictionary) is 'one's regular occupation, profession, or trade' and of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved in this appeal is whether the learned CIT(A) was justified in rejecting the claim of the assessee of depreciation on an intangible asset in the form of license to collect the toll from the vehicles running on the Ahmednagar-Karmala Road, which the assessee had constructed on BOT basis. The essential facts have been brought out in the written submissions before CIT(A) given on pp. 1 and 2 of the paper book and hence they are not repeated here. 2. Before going into the question involved, it may be necessary to highlight some points of the bidding documents which was required to be accepted by Ashoka Buildcon (P) Ltd. as' successful bidder. The relevant extracts of the same are given on pp. 14 to 19 of the paper book 1. In this document, the Ashoka Buildcon (P) Ltd is named Entrepreneur (shortly referred here as E). As per clause No. 3.7.9, E was entitled to collect and retain the toll amount as per Motor Vehicles Act and as per the rates prescribed. As per cl. 3.7.5 the E had to make arrangements for financing the project from his own resources or from open market borrowings such as from bank or any other financial institution. The security of his right to collect the toll fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 36 months and the maintenance period was 13 years and 9 months. The expenditure incurred was to be recovered by way of toll during the concession period. The land was given on lease on nominal rent of Rs. 12,000 per year. The lease was to come to an end on handing over the project to the Government. As per cl. 6 the rights of toll collection for completion of construction of the road upto required level for the whole concession period and ownership of road superstructure and road furniture built on the land was to vest with the assessee till the concession period. (A copy of the said unregistered lease is given on pp. 5 to 7 of paper book II). It may be mentioned that in view of the overriding provision of bid document contained in cl. 3.7.25 providing that the ownership of the project was to vest in the Government, above clause in the said lease giving ownership of only superstructure of the road (and not the road itself) seems to be nominal as the assessee is not able to exercise any rights as an owner on the said project except to collect toll. This clause must have been inserted so as to protect the assessee from hostile claims during the subsistence of the concession period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreover in such projects the Government was not required to spend money on the projects which in case of contracts they would be required to do.......... 12. fn view of what has been stated above it is submitted that the right of the assessee to collect the toll is in the nature of 'license' or 'any other commercial right of similar nature' and the same is intangible asset within the meaning of s. 32(1)(ii), and depreciation may be allowed. It may be stated that the learned AO while refusing depreciation, has spread over the expenditure incurred on the construction of road project over the period of concession. One may consider that in view of making principle, this treatment appears justified. It may be stated that in the present case the expenditure involved is not revenue in nature, under income-tax, the depreciation rates are not based on expected life of the asset as is done in commercial accounting. The rates of depreciation vary from 100 per cent to 15 per cent and they do not have any significance with reference to the life of the asset. In the present case, if the concerned right satisfies the test of intangible asset, the depreciation at prescribed rate will be allowabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of "actual cost" as defined in s. 43(1) of IT Act and argued that the cost relates to acquisition of assets therefore the amount of expenditure as made by the assessee was not the actual cost of assets. In the opinion of the learned Departmental Representative, neither a tangible nor intangible asset was acquired by the assessee. Taking shelter from an order of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 802 (SC) the learned Departmental Representative has stated that the expenditure denotes the idea of spending or buying out. it may. in given circumstances. also cover an amount of loss which has not gone out of the assessee's pocket but which is all the same, an amount which the assessee has had to give up. It also covers a liability which the assessee has incurred in praesenti although it is payable in future. A contingent liability that may arise in future is; however, not "expenditure". It would also cover not just a one-time payment but a liability spread out over a number of years. 7. Further referring the cited decision he has argued that in a case where the company has is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he end of the financial year. As a consequence of this amendment, it is proposed to provide that any expenditure of a capital nature incurred before the 1st April, 1998 on the acquisition of patent rights or copyrights used for the purposes of business shall not qualify for deduction under the said s. 35A. It is also proposed to amend sub-s. (1) of s. 35AB accordingly so as to restrict the provisions of that section to lump sum payments by the assessee in any previous year relevant to asst. yr. 1998-99. These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the asst. yr. 1999-2000 and subsequent years." 10. The purpose of this introduction was to widen scope of this section so as to provide depreciation to certain intangible assets. If we apply the doctrine of "ejusdem generis" for the purpose of interpretation of the statute, reproduced supra then the word "license" can be read along with the words connected therein such as "commercial rights of similar nature", to be treated as intangible asset. The result of the application of this doctrine is that the commercial rights may be in the nature of license; are therefore to be held in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3rd Feb., 2005. then extended for few more months upto 17th May, 2005 and further extended upto 19th Aug., 2005. At the end of the specified period, the period so settled was from 24th Aug., 1999 to 4th Nov., 2015; the infrastructure facility i.e., road as constructed by the entrepreneurs is required to be handed over to the Government free of cost. Authorities below have duly examined and reproduced the relevant clauses of the tender document, agreement and lease term etc. which are not in dispute. 14. On the basis of the above discussion and on due consideration of the facts of the case we can now conclude that the same are pari materia with the decision of respected Co-ordinate Bench in the case of Reliance Ports Terminals Ltd. wherein the respected Bench has held that in a case where the assessee has a right to use the jetty and a concession was availed then such commercial right is an intangible asset on which depreciation @ 25 per cent is admissible. The finding of the respected Tribunal is worth reproduction: "22. The aforesaid clauses makes it very clear the ownership of the structure to be constructed vests with GMB and the licensee shall have no right, title or inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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