TMI Blog2017 (6) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... e purview of section 32(1) (ii) of the Act. Assessment of notional interest on the delayed payment of grants - Held that:- Hon’ble Delhi High Court in the case of CIT vs. Asian Hotels Ltd. (2007 (12) TMI 274 - DELHI HIGH COURT) has held considering the provisions of section 28 (iv) the question of any notional interest on an interest free deposits being added to the interest of the assessee on the basis that it may have earned by assessee if placed in a fixed deposit, does not arise. The provisions of section 23(1)(a) of the Act, which is for determining the income from house property and concerns determination of annual letting value of such property. This contemplates the possible rent that the property might fetch but certainly not the interest in the fixed deposit that may be placed by the tenant with the landlord in connection with the letting out of such property. The notional interest was not assessable either as business income or as income from house property. Thus the lower authorities in the present case erred in assessing the notional interest on the delayed payment of O&M grants received by assessee. We delete the addition and allow this issue of assessee’s appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia, 6. United Bank of India, 7. Indian Bank and 8. Uco bank, vide which the above stated banks have agreed to provide loan to the assessee to part finance the said Project. As per clause 7.13 of the said loan agreement, it has been agreed that out of the net revenue generations of the said project, the borrower (assessee) would open with the Lead bank a Debit Service Reserve Account equivalent to 12 months of Debt Service or ₹ 1800 lakh. The Ld. AR of the assessee has further relied upon the copy of the letter dated 31.12.2011 of the Relationship Manager of the Punjab National Bank certifying that all the original FD receipts were physically lying with the said Bank (PNB) and there was lien on the same under the Debt Service Reserve Account . The ld. AR has further submitted that interest income from the FDRs kept with the bank as required under the Common Loan Agreement upon which the bank has lien has been accepted as business income in the earlier assessment years 2007-08 2008-09 by the Ld. CIT(A) which findings have been further upheld by the Tribunal vide orders dated 27.2.2013 for A.Y. 2007-08(supra) and order dated 5.4.2013 for A.Y. 2008-09. From the above sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITA No. 664/Mum/2015 for AY 2010-11 on the very same issue that the Project road is not treated as Tangible assets under the category of Building or Plant and Machinery for the purpose of granting depreciation then the depreciation may be granted treating the right to set up infrastructure facility being license/business of copmercia1 rights, as an intangible asset in terms of the provisions of Section 32(1)(ii) of the Act. For this assessee has raised following additional grounds: - 1. On the facts and circumstances of the case and in law, in additions to Grounds No. 1 and 4 of the appeal filed on 13/09/2016, the appellant prays that if the Project road is not treated as Tangible assets under the category of Building or Plant and Machinery for the purpose of granting depreciation then the depreciation may be granted treating the right to set up infrastructure facility being license/business of copmercia1 rights, as an intangible asset in terms of the provisions of Section 32(1)(ii) and the appellant may be granted the depreciation treating the said right as intangible right at the applicable rate. The appellant prays that the depreciation may be allowed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of National Highway Act, 1956 and National Highway Authorities of India Act, 1988 and various case laws including that are strongly relied upon by the Ld. A.R. e.g. Mysore Minerals Ltd. vs. CIT reported in (1999) 239 ITR 775 SC, CIT vs Podar Cement Pvt. Ltd. others reported in (1997) 226 ITR 625 SC and CIT vs. Noida Toll Bridge Company Ltd. (Allahabad HC) (supra), has held that the national highways vest in the Union of India and if the government for the purpose of development and maintenance of the whole or any part of the national highways enters into an agreement with private parties or that merely because the national highway is built, maintained, managed and operated by private entities, in no way affects the vesting of the national highway in the Union and that does not dilute or take away the ownership of the highway or its vesting in the Union. After discussing the various decisions of the Hon ble Supreme Court and of the Hon ble High Courts, the contention of the assessee in that case that it was the owner of the toll road has been rejected by the Hon ble Supreme Court. Hence, the clause 38.4 relied upon by the assessee in the present case will not be of any hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... projects of construction development and maintenance of the National Highways and such of the assets in the form of building, plant machinery etc. The claim for depreciation can be validly raised and granted. That the Hon ble High Court in the said case was only concerned with the claim on the land or a road itself. Further, in concluding para 52 of the order, the Hon ble Bombay High Court has categorically clarified that the assessee s claim for depreciation in respect of the building, plant machinery and falling within the purview of sub section (1) of section 32 of the Income Tax Act, 1961, if considered and granted, shall not be affected by the decision of the Hon ble Bombay High Court. 20. A careful reading of the entire decision of the Hon ble Bombay High Court and in the light of the various observations made in judgment as discussed above, it is very clear that the Hon ble Bombay High Court was concerned about the issue as to whether the assessee can claim itself as the owner of the toll road and the Hon ble Bombay High Court has held that in view of the express provisions of the National Highway Act, 1956 and National Highway Authorities of India Act, 1988 the Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. The appellate authorities have jurisdiction to deal not merely with additional grounds which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed but could not have been raised at that stage. The words could not have been raised must be construed liberally and not strictly. It is open to the assessee to claim a deduction before the appellate authority which could not have been claimed before the AO. The Hon ble Bombay High Court has further observed that the decision of Hon ble Supreme Court in the case of Goetze (India) Limited v. CIT (2006) 157 Taxman 1, regarding the restriction of making the claim through a revised return was limited to the powers of the Assessing Authority and the said judgment does not impinge on the power or negate the powers of the appellate authorities to entertain such claim by way of additional ground. Reliance can also be placed in this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CTR 440 (Bom.) has held that the Hon ble Apex Court and the various High Courts have ruled that the authorities under the Act are under obligation to act in accordance with law. Tax can be collected only as provided under the Act. If the assessee, under a mistake, misconception or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes dues are collected. While holding so, the Hon ble Bombay High Court has relied upon the various decisions e.g. Koshti vs. CIT (2005) 193 CTR (Guj) 518 : (2005) 276 ITR 165 (Guj), C.P.A. Yoosuf vs. ITO (1970) 77 ITR 237 (Ker.), CIT vs. Bharat General Reinsurance Co. Ltd. (1971) 81 ITR 303 (Del), CIT vs. Archana R. Dhanwatey (1981) 24 CTR (Bom) 142 : (1982) 136 ITR 355 (Bom). In view of the above discussed factual and legal position, we have no hesitation to hold that the assessee is entitled to put his alternate claim that the deduction allowable to him may be considered as allowable as depreciation treating the project/investments made under the head Plant machinery or treating it as a right/license to collect the toll tax as intangible asset. 24. Havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n right/license to collect the toll. It has also been specifically mentioned that it brings an enduring benefit in the form of right to the assessee. Having admitted the above position by the Revenue, now the question to be considered is whether any depreciation is allowable on such a right? 26. As per section 32(1)(ii) depreciation is allowable on intangible assets like licenses, franchises or any other business or similar commercial rights of similar nature. The relevant part of the section for the sake of convenience is reproduced as under: Depreciation. 32. (1) [In respect of depreciation of (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets 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 or profession, the following deductions shall be allowed] . (emphasis supplied by us) 27. It is not disputed that the assessee has been given license/commercial right over the project to receive the toll. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n adjudicated in favour of the assessee in the following decisions of the Tribunal:- i) Ashoka Buildcon Ltd. in ITA.No.1302/PN/09 dated 20.03.2012. ii) M/s. Kalyan Toll Infrastructure Ltd. in ITA.Nos.201 247/Ind/2008 dated 14.12.2010. iii)Dimension Construction Pvt. Ltd. in 1TA.No.222, 223, 233 857/PN/2009 dated 18.03.2011. iv)Ashoka Info (P) Ltd. (supra) v) Reliance Ports and Terminals Ltd. (supra). 8. The Ld. CIT(DR) appearing for the Revenue, has submitted that the 'intangible assets' eligible for depreciation in section 32(1)(ii) of the Act, are only those which are owned by the assessee and have been acquired after spending money. In the case of the assessee, by way of an agreement, assessee was awarded a work to construct a road by using own funds and the expenditure incurred was allowed to be reimbursed by permitting the assessee a concession to collect toll/fees from the motorists using the road. Therefore, it could not be said that such a right was within the purview of section 32(1)(ii) of the Act. However, the Ld. CIT(DR) has not contested the factual matrix that identical issue has been considered by our coordinate Benches ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)(i1) of the Act required that the assets mentioned therein should be acquired by the assessee after spending money. The said argument in our view is factually and legally misplaced. Factually speaking, it is wrong to say that impugned right acquired by the assessee was without incurrence of any cost. In fact, it is quite evident that assessee got the right to collect toll for the specified period only after incurring expenditure through its own resources on development, construction and maintenance of the infrastructure facility. Secondly, section 32(1)(i1) permits allowance of depreciation on assets specified therein being 'intangible assets' which are wholly or partly owned by the assessee and used for the purposes of its business. The aforesaid condition is fully satisfied by the assessee and therefore considered in the aforesaid perspective we find no justification for the plea raised by the Revenue before us. 12. In the result, we affirm the order of the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit. The investments made under such circumstances cannot be said to be of revenue in nature but, as discussed above, are of capital in nature. The assessee, thus, is entitled to claim depreciation on such type of capital asset. 32. In view of our above findings, this ground of the Revenue is hereby dismissed but on a different footing as discussed above and in terms of our observations made above 8. When a query was put to the Ld. CIT DR, she has not argued anything on the issue and fairly admitted that Yes this Tribunal has decided this issue in the immediately earlier assessment year. 9. We find that the facts and circumstances are exactly identical in this year also and there is no change in facts. Hence, taking a consistent view and respectively following the Tribunal s decision of immediately preceding assessment year, we allow the claim of the assessee and also allow additional grounds of appeal raised by assessee. Accordingly, this issue is allowed in favour of assessee. 10. The next issue in assessee s appeal is as regards to the order of CIT(A) confirming the action of AO in assessing notional interest as income from other sources. For this assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31-03-2009 was ₹ 16 crores and the said amount was actually received in FY 2009-10, the AO calculated interest from 01-04-2009 to the date of receipt of grants and the details are as under: - O M grant receivable As on 01/04/2009 Rate of Interest Date of Receipt Interest for the period Interest Amount ₹ 12,00,00,000/- 15% 09/04/2009 9 days ₹ 4,44,836/- ₹ 4,00,00,000/- 15% 13/08/2009 135 days Rs.22,19,178/- Rs.26,64,014/- The AO also computed the disallowance in respect to the amount due on 30-06-2009 and actually received on 10-12-2009 at ₹ 1.50 crores and similarly, the due date for instalment was on 30-09-2009 and actual date of receipt was on 10-12-2009 for a sum of ₹ 1.50 crores again. Thereby the AO disallowed a sum of ₹ 19,97,260/- plus ₹ 26,64,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 19,97,260/- of FY 2010-11 in page 56 of the paper book. The A.O. is directed to verify the correct interest income which is accrued to the appellant and add the same to the total income of the appellant. In view of the above discussion A.Os view is upheld. However, A,O. is directed to verify the amount to be added. This ground of appeal is partly a11owed. Aggrieved, assessee preferred the appeal before Tribunal. 12. Before us, the learned Counsel for the assessee first of all drew our attention to grants of concession chapter 2 includes at pages 50 to 61 of the assessee s paper book and he particularly drew our attention to clause 23.8 and 28.9 which reads as under: - 23.8 The O M Support' quoted by the Concessionaire for each year during the Operations period shall be disbursed by NHAI to the Concessionaire by credit to the Escrow Account in quarterly installments and the first such installments shall be paid by NHAI until the grant is fully disbursed to the concessionaire. 23.9 If NHAI shall fail to disburse any tranche of the O L Support within the periods set forth for the payment thereof to the Concessionaire, NHAI shall pay interest on such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pense account pertaining to doubtful loans would not be included in the income of the assessee, if for three years such interest is not actually received. The very fact that the assessee, although generally using a mercantile system of accounting, keeps such interest amounts in a suspense account and does not bring these amounts to the profit and loss account, goes to show that the assessee is following a mixed system of accounting by which such interest is included in its income only when it is actually received. Looking to the method of accounting so adopted by the assessee in such cases, the circulars which have been issued are consistent with the provisions of section 145 and are meant to ensure that assessees of the kind specified who have to account for all such amounts of interest on doubtful loans are uniformly given the benefit under the circular and such interest amounts are not included in the income of the assessee until actually received if the conditions of the circular are satisfied. The circular of 9-10-1984 also serves another practical purpose of laying down a uniform test for the assessing authority to decide whether the interest income which is transferred to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also clarified by the assessee s Counsel during the course of hearing that there is no claim pending against NHAI as the income has not accrued to the assessee and do not have a right to receive this notional interest. 15. In this similar circumstances the Hon ble Delhi High Court in the case of CIT vs. Asian Hotels Ltd. (2010) 323 ITR 490 (Del) has held considering the provisions of section 28 (iv) of the Act that the question of any notional interest on an interest free deposits being added to the interest of the assessee on the basis that it may have earned by assessee if placed in a fixed deposit, does not arise. Further, the Delhi High Court also considered the provisions of section 23(1)(a) of the Act, which is for determining the income from house property and concerns determination of annual letting value of such property. This contemplates the possible rent that the property might fetch but certainly not the interest in the fixed deposit that may be placed by the tenant with the landlord in connection with the letting out of such property. The notional interest was not assessable either as business income or as income from house property. Similarly, Hon ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nction to the provision for doubtful debt . Applicability of section 145 39. At the outset, we may state that in essence RBI Directions, 1998 are Prudential/Provisioning Norms issued by RBI under Chapter III-B of the RBI Act, 1934. These Norms deal essentially with Income Recognition. They force the NBFCs to disclose the amount of NPA in their financial accounts. They force the NBFCs to reflect true and correct profits. By virtue of section 45Q, an overriding effect is given to the Directions, 1998 vis- -vis. income recognition principles in the Companies Act, 1956. These Directions constitute a code by itself. However, these Directions, 1998 and the Income-tax Act operate in different areas. These Directions, 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the permissible deductions or their exclusion under the Income-tax Act. The inconsistency between these Directions and Companies Act is only in the matter of Income Recognition and presentation of Financial Statements. The Accounting Policies adopted by an NBFC cannot determine the taxable income. It is well settled that the Accounting Policies followed by a company can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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