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The Income Tax Officer, Ward 1 (1) , Nashik Versus M/s. Ashoka Highways (Bhandara) Ltd.

2017 (10) TMI 579 - ITAT PUNE

Depreciation claim on the asset “Right to collect Toll” - Depreciation on intangible asset - Held that:- The issue raised in the present appeal is squarely covered by the order of Tribunal in sister concern’s case i.e. Ashoka Infrastructure Ltd. Vs. ACIT [2013 (8) TMI 588 - ITAT PUNE] the 'Right to collect the Toll' is emerging as a result of the costs incurred by the assessee on development, construction and maintenance of the infrastructure facility. Such a right has been adjudicated by the Tr .....

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32(1)(ii) of the Act. The second part of the order of Assessing Officer in amortizing the expenditure over the period of facility and allowing the same stands reversed. The Assessing Officer is thus, directed to allow the claim of assessee vis-à-vis depreciation on intangible asset under section 32(1)(ii) of the Act. - Decided in favour of assessee. - ITA No.1299/PUN/2015 - Dated:- 30-8-2017 - MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM For The Appellant : Shri Rajeev Kumar, CIT For The R .....

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05,34,911/- claimed on the asset Right to collect Toll . 2. Whether on the facts and in the circumstances of the case, and in law, the Ld. CIT(A)-I, Nashik was justified in holding that the assessee is eligible for depreciation on asset Right to Collect Toll . 3. The appellant prays the order of the Assessing Officer may be restored. 4. The appellant prays to adduce such further evidence to substantiate his case. 3. The learned Authorized Representative for the assessee at the outset pointed out .....

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he business of development operations and maintenance of infrastructure facilities. For the year under consideration, the assessee had filed the return of income declaring total income at Nil. The case of assessee was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noted that the assessee had claimed depreciation on Right to Collect Toll at ₹ 63,09,15,059/-. The Assessing Officer held that the said depreciation was not allowable to the assessee .....

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re not satisfied i.e. in the case of assessee, road is neither owned wholly or partly by the assessee nor its business. On the other hand, the assessee was claiming depreciation on the cost incurred for construction of road, which was not allowable in the hands of assessee. 8. We find that the issue raised in the present appeal is squarely covered by the subsequent order of the Tribunal in Ashoka Infrastructure Ltd. Vs. ACIT (supra), wherein it was held as under:- 17. We have heard the rival con .....

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crores and had claimed depreciation to the extent of ₹ 10,61,88,185/-. The said claim of depreciation on license to collect toll being an intangible asset, in view of Government notification granting such rights was claimed in the original return of income by the assessee. The assessment in the case of assessee for assessment year 2006-07 was completed under section 143(3) of the Act and the said claim was allowed. Further, in assessment year 2007-08, similar claim of depreciation on inta .....

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ration holding that the assessee was not the owner of road attached to the said right and the asset road was not used in the business of assessee. The Assessing Officer also held that the right to collect toll was not a license. The CIT(A) on the other hand, relied on the circular issued by the CBDT giving clarification on treatment of expenditure incurred for development of roads / highways in Built-Operate-Transfer agreement. The CBDT vide circular No.9/2014, dated 23.04.2014 gave clarificatio .....

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on of infrastructure facility of roads / highways over the period of concessional agreement (AIR) after excluding the time taken for creation of such facilities. In view of the said clarification of the CBDT, the assessee‟s claim for depreciation on right / license to collect toll under section 32(1)(ii) of the Act, treating the same as intangible asset, was rejected and the order of Assessing Officer in amortizing the expenditure incurred on development of roads/highways on BOT basis, ove .....

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issue relating to the allowability of depreciation on toll road, had left open, the issue of allowing depreciation on intangible asset being license granted to the assessee to collect toll over the road for particular period and it was held as under:- 17. We have considered the rival contentions. So far as the reliance of the Ld. A.R. on the article/clause 38.4 of the concession agreement between the assessee and the NHAI is concerned, we find that the identical clause was also there and relied .....

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. As the assessment year under consideration was the first year when the road became operational, the Appellant claimed Depreciation of ₹ 59.92 crores at the rate of 10% on the capitalized cost of the toll road. The Appellant also filed necessary details of the claim of depreciation and a note was appended to the depreciation schedule stating that though the Appellant was entitled to higher claim of depreciation on toll road, the claim is made at the rate of 10%. The right to claim higher .....

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y 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 hig .....

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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 help to the assessee in this regard. 19. However, so far as the alternative claim of the assessee that if the assessee is not found as owner of the toll road, his claim of depreciation be considered in relation to investments made as falling under the other categories of assets, is concerned, we would like to revert to the decision of t .....

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eciation thereupon. Hence, the Hon‟ble Bombay High Court has not discussed the issue relating to the claim of depreciation on the license for right to collect the toll as intangible asset. Further, the Hon‟ble Bombay High Court in para 39 of the decision (supra) has observed that as per the provisions of National Highway Act, 1956 and National Highway Authorities of India Act, 1988, the ownership of the toll road vests in Union, however, the term owner as appearing in the Income Tax .....

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23; is defined in this manner in Income Tax Act, 1961. The above observations of the Hon‟ble Bombay High Court reveal that for the purpose of claiming deduction under Income Tax Act, the term owner‟ as defined under the Income Tax Act can be looked into. However, that cannot control, leave alone or overreach the National Highway Act, 1956 or the National Highway Authorities of India Act, 1988. The Hon‟ble Bombay High Court further, in para 47 of the said order, has observed tha .....

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ay 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 ab .....

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arties and such private parties cannot claim themselves to be the owner of the toll road. However, the Hon‟ble Bombay High Court has left upon the issue relating to the claim of depreciation, if otherwise eligible under the other provisions of the Income Tax Act. 21. The Ld. A.R., before us, has put the alternative claim that in view of the observations of the Hon‟ble Bombay High Court either the investments made by the assessee be treated under the asset building, plant & machin .....

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n‟ble Bombay High Court in the case of Pruthvi Brokers & Shareholders Pvt. Ltd.‟ (supra), while relying upon the various decisions of the Hon‟ble Supreme Court and other Hon‟ble High Courts, has held that even if a claim is not made before the AO it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon‟ble Bombay High Court while relying upon the decision of the Hon‟ble .....

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isions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. An assessee is entitled to raise not merely additional legal submissions before the appellate authorities but is also entitled to 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 jurisdicti .....

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imed 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 p .....

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r of the toll road. Such a claim of the assessee has been allowed in the previous assessment years. The assessee was under bonafide belief that he has correctly claimed the deduction of depreciation on the toll road in view of the consistent findings of the Tribunal on this issue. However, due to the change of legal position in view of the law laid down by the Hon‟ble Bombay High Court (supra), the assessee cannot be treated as the owner of the toll road. But it is not disputed that the as .....

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diture on the said project which cannot be treated as revenue expenditure allowable in one year as the same has resulted into providing enduring benefit to the assessee company, hence, the said amount would be eligible for amortization for the period of the concession agreement as it was allowed in the A.Y. 2007-08 and 2008-09. It is also a fact that the said amortization of the expenses has not been accepted by the Tribunal and the assessee in the earlier assessment years has been granted deduc .....

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s 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 (Gu .....

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under the head Plant & machinery or treating it as a right/license to collect the toll tax as intangible asset. 20. The Mumbai Bench of Tribunal then, referred to the circular issued by CBDT vide No.9/2014, dated 23.04.2014 and observed as under:- 24. Having held that the assessee is entitled to the deduction on the investments made by him, we now have to discuss as to under what head the said deductions can be claimed by the assessee. It is undisputed that in view of the agreement with the .....

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of convenience, is reproduced as under: There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative expenses) during the construction period. Further, expenditure incurred by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the toll during the period of the ag .....

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e may be allowed to be spread during the tenure of concessionaire agreement. 25. Having discussed the above stated factual position, the CBDT has directed to treat the above expenditure as revenue expenditure and to amortize the same over the period of the agreement as allowable business expenditure. The assessee, however, has claimed that the same is a capital expenditure and it is entitled to deductions over the investments made as depreciation. A perusal of the above reproduced para 4 of the .....

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ction 32(1)(ii) of the Act i.e. depreciation on intangible assets holding as under:- 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 .....

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e the owner of the toll road, but he, certainly, is owner in possession of the right to collect the toll. The said right has been given to the assessee for a specified period with enduring benefit. It is also not disputed that on the expiry of the time period of the agreement, the said right of the assessee will cease to have effect which means it slowly will depreciate to the nil value. As per the provisions of the Income Tax Act, especially under section 32(1)(ii), the assessee is entitled to .....

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the case of M/s. Ashoka Infrastructure Ltd. Vs. ITO in ITA No.989/PN/2010 & ITA No.1105/PN/2010,wherein, the Tribunal while further relying upon another decision of the Co-ordinate Bench of the Tribunal in the case of Ashoka Infraways Pvt. Ltd. Vs. ACIT‟ in ITA No.185 & 186/PN/2012 dated 29.04.2013, has held in clear terms that the claim of the assessee for depreciation on licence to collect toll being an intangible asset‟ falling within the scope of section 32(1)(ii) of the .....

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erein, the claim of the assessee for treating the 'License to collect Toll' as an intangible asset eligible for the claim of depreciation @ 25% as per Section 32(1)(ii) of the Act was justified. The following discussion in the order of the Tribunal dated 29.04.2013 (supra) is relevant:- 7. Before us, it was a common point between the parties that the impugned issue has been adjudicated in favour of the assessee in the following decisions of the Tribunal:- i) Ashoka Buildcon Ltd. in ITA.N .....

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ee 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 ident .....

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et' eligible for claim of depreciation @ 25% as per sec. 32(1)01) of the Act. 10. We have carefully considered the rival submissions. Factually speaking, there is no dispute to the fact that the costs capitalised by the assessee under the head 'License to collect Toll' have been incurred for development and construction of the infrastructure facility, i.e., Dewas By-pass Road. It is also not in dispute that the assessee was to build, operate and transfer the said infrastructure facil .....

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reafter transferring it to the Government of Madhya Pradesh free of charge, assessee was granted a Right to collect Toll' from the motorists using the said infrastructure facility during the specified period. The said Right to collect the Toll' is emerging as a result of the costs incurred by the assessee on development, construction and maintenance of the infrastructure facility. Such a right has been adjudicated by the Tribunal in the aforesaid precedents to be in the nature of 'in .....

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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 r .....

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erspective 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) in holding that the assessee was eligible for depreciation on the Right to collect Toll', being an intangible asset' falling within the purview of section 32(1)(i1) of the Act following the aforesaid precedents. 13. In terms of the aforesaid precedent, the claim of the assessee in the present case for depreciation on 'License to collect Toll', bei .....

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hereby allow the Ground of Appeal No. 1.1 raised by the assessee. 29. In view of our observations made in the preceding paras and also agreeing with the above reproduced findings of the Tribunal, we hold that the assessee is entitled to the claim of depreciation on the road to collect toll being an intangible asset falling within the purview of section 32(1) (ii) of the Act. 22. The Tribunal in ACIT Vs. West Gujarat Expressway Ltd. (supra) further referring to the ratio laid down by the HonR .....

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considered the contention of Revenue that investment made by the assessee be treated as revenue expenditure and be amortized for the period of agreement, was rejected holding that the investment made under the circumstances could not be said to be revenue in nature but was capital in nature, on which the assessee was entitled to claim the depreciation. Para 31 of the order reads as under:- 31. So far as the contention of the Revenue that the investment made by the assessee be treated as a revenu .....

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ussed above, are of capital in nature. The assessee, thus, is entitled to claim depreciation on such type of capital asset. 23. In the totality of the above said facts and circumstances before us, where the claim of assessee was depreciation on the right to collect toll being infrastructure and not on the toll road, where the cost incurred for development and construction of infrastructure facility was a right in the nature of intangible asset falling within purview of section 32(1)(ii) of the A .....

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it to the State Government, the assessee was granted the right to collect toll from motorists whoever uses the said infrastructure facility during the specified period. The said right to collect toll was on account of assessee incurring the cost towards development, construction and maintenance of infrastructure facility, which was treated by the assessee as its intangible asset and on which, it claimed the depreciation under section 32(1)(ii) of the Act. Following the precedent referred to abo .....

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