TMI Blog2018 (2) TMI 1514X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure again in the impugned assessment year. The Assessing Officer having allowed assessee’s claim of depreciation on the BOT facility by treating it as an intangible asset in the preceding assessment years, it cannot be denied in the impugned assessment year. Therefore, allowing assessee’s claim we direct the Assessing Officer to allow depreciation as claimed by the assessee. Allowing foreign exchange loss - Held that:- In order to hedge the financial exposure of high debt and high interest outcome the assessee entered into currency swap derivative option agreement with ICICI Bank on 11th April 2007 to hedge the high interest outcome relating to Mumbra project debt of ₹ 75 crore by swapping debt of ₹ 35 crore into Japanese Yen for a period of five years. As per the swap arrangement, the assessee receives 9.50% interest per annum and pays interest @ 7.50% per annum on the Yen amount. Thus, from the aforesaid facts, it is clear that the hedging transaction with ICICI Bank was for the purpose of reducing the high interest outcome on the debt incurred for the Mumbra project. The aforesaid facts indicate not only that the hedging transaction is for the business re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned that there is a delay of 85 days in filing the cross objection. The assessee has filed an application seeking condonation of delay explaining the cause of delay, the learned Authorised Representative submitted that, though, before the Assessing Officer as well as before the learned Commissioner (Appeals), the assessee raised an issue relating to claim of depreciation on Built, Operate, Transfer (BOT) rights for Mumbra Bypass Road, however, due to mistake of the Counsel, the assessee could not challenge the decision of the learned Commissioner (Appeals) on the issue either by way of an appeal or cross objection within the stipulated dates. He submitted, the mistake being a bonafide one, the assessee should not be debarred from raising the issue before the Tribunal by way of Cross Objection. He submitted that the assessee should not suffer due to mistake of the Counsel. In this context, he relied upon the decision of the Hon'ble Jurisdictional High Court in Vijay Vishin Meghani v/s DCIT, [2017] 86 taxmann.com 98 (Bom.). He, therefore, submitted that the delay in filing the cross objection may be condoned. 3. Learned Departmental Representative strongly opposing the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be restricted to 10% or 15%. In response to the query raised by the Assessing Officer it was submitted by the assessee that it has entered into a contract with the Government of Maharashtra on 12th July 2000, to construct a project involving the work of construction of Mumbra bypass of Mumbai Pune Road of National Highway 4 from kilometer 133.800 in Taluka Thane, on BOT basis. As per the terms of the agreement, assessee has to bear the entire cost of construction of project with a right conferred on it to collect revenue (Toll) from the users of the facilities during the construction period as per the rates specified in Government notification. The agreement further provided that after the end of concession period which was initially for a period of 25 years and subsequently reduced to 15 years, the assessee has to transfer the facility to the Government at zero cost. During the construction period, the assessee capitalized the entire cost for the construction of the facility by transferring to capital work in progress. After construction of the facility and during the concession period, the entire cost of construction was amortized and charge to Profit Loss account as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by it cannot claim depreciation on the BOT rights. However, he allowed assessee s revised claim of deferred revenue expenditure amounting to ₹ 21,18,70,983, relying upon the CBDT circular no.9 of 2014 and the decision of the Hon'ble Jurisdictional High Court in North Karnataka Express Way Ltd. v/s CIT, ITA no.499 of 2012, vide judgment dated 14th October 2014. Being aggrieved of the aforesaid decision of the first appellate authority both the Revenue and the assessee are before us. While the Revenue has challenged the decision of the learned Commissioner (Appeals) in accepting assessee s revised claim of deferred revenue expenditure of ₹ 21,18,70,983, the assessee is aggrieved with the decision of the learned Commissioner (Appeals) in not allowing assessee s claim of depreciation on BOT rights. 8. Learned Departmental Representative submitted that as per the agreement entered with the Government of Maharashtra, the concession period for the BOT facility was for a period of 15 years. Therefore, the expenditure incurred by the assessee in construction of the BOT road was to be amortized and treated as deferred revenue expenditure and allowed over the entire con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of denying assessee s claim of depreciation as such claim has already been allowed by the Department in the preceding assessment years. Learned Authorised Representative submitted, in case of North Karnataka Express Way Ltd. (supra), the Hon'ble Jurisdictional High Court never decided the issue whether the assessee can claim depreciation on the right to collect toll on the BOT road as in that case, the assessee has claimed depreciation at the normal rate by treating the road as its own asset. He submitted, on the contrary, the issue is squarely covered by the Special Bench decision of the Tribunal, Hyderabad Bench, in ACIT v/s Progressive Construction Ltd., ITA no.1845/Hyd./2014 dated 14th February 2017. He also relied upon the decision of the Tribunal, Mumbai Bench, in ACIT v/s West Gujarat Express Way Ltd., ITA no.5904/Mum./2012 dated 15th April 2015. Thus, he submitted that assessee s claim of depreciation has to be allowed. 10. We have patiently and carefully considered the rival submissions, perused the material on record and have also applied our mind to the decisions relied upon. Undisputed facts are, the assessee entered into an agreement with Maharashtra Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer. However, the learned Commissioner (Appeals) allowed assessee s claim of depreciation as building in assessment year 2009 10 and as intangible asset in assessment year 2010 11. The aforesaid orders of the learned Commissioner (Appeals) were also upheld by the Tribunal while dismissing Department s appeals on the issue. It is stated that the Department has challenged the decisions of the Tribunal in assessment year 2009 10 and 2010 11 in further appeal before the High Court of Andhra Pradesh and Telangana and the matters are still pending. Be that as it may, the aforesaid facts clearly indicate that the impugned assessment year is not the first year of claim of depreciation on the BOT road / bridge. Rather, in the impugned assessment year, depreciation has been claimed on the opening WDV which has also been accepted by the learned Departmental Representative in the written submissions filed by him. Therefore, the nature of expenditure, whether capital or revenue, is not a subject matter of dispute arising in the present appeal. Bearing this in mind, we have to examine the validity of assessee s claim of depreciation qua the asset created. The learned Departmental Repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e project site and to make at its costs, charges and expenses such development and improvement in the project site as may be necessary or appropriate to implement the project and to provide project facility in terms of the agreement. Clause 2.5 of the agreement provides that the concessionaire without prior written consent or approval of the Government of India cannot use the project site for any purpose, other than, for the purpose of the project / project facilities as permitted under the C.A. Clause 2.7 of the C.A. makes it clear that the project site belongs to and has vested in Government of India and the Government of India has full power to hold, dispose off and deal with the same consistent with the provisions of the C.A. However, it also makes it clear that the concessionaire, subject to complying with the terms / conditions of the agreement remains in peaceful possession and enjoyment of the project site during the concession period. It further provides, in the event the concessionaire is obstructed by any person claiming any right, title or interest over the project site or any part thereof or in the event of any enforceable action including any attachment, distraint, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not obliged / required to reimburse the cost incurred by the assessee to execute / implement the project facilities. The only right / benefit allowed to the assessee by the Government of India is to operate the project / project facilities during the concession period of 11 years 7 months and to collect toll charges from vehicles / persons using the project / project facilities. Thus, as could be seen, the only manner in which the assessee can recoup the cost incurred by it in implementing the project / project facility is to operate the road during the concession period and collect the toll charges from user of the project facility by third parties. Admittedly, the assessee has taken up the project as a business venture with a profit motive and certainly not as a work of charity. Further, by investing huge some of ₹ 214 crore, the assessee has obtained a valuable business / commercial right to operate the project facility and collect toll charges. Therefore, in our considered opinion, right acquired by the assessee for operating the project facility and collecting toll charges is an intangible asset created by the assessee by incurring the expenses of ₹ 214 crore. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s assessee cannot collect toll charges for user of the project facilities. Thus, the right to operate the project facility and collect toll charges is integrally connected to the completion of the project facility which cannot be done unless the assessee invests its fund for completing the project. Therefore, keeping in view the aforesaid fact, it cannot be said that the right to collect toll has accrued to the assessee on the date of execution of the agreement. If we accept the aforesaid argument of the learned Senior Standing Counsel, in other words, it would mean that without even executing and completing the project facility, assessee would be collecting toll charges. Therefore, the contention of the learned Senior Standing Counsel that the expenditure incurred by the assessee till execution of the agreement can only be considered as an intangible asset, in our view, is illogical, hence, cannot be accepted. Thus, having held that the expenditure of ₹ 214 crore incurred by the assessee has resulted in creation of an intangible asset of enduring nature for the assessee, it is necessary now to examine whether such intangible asset comes within the scope and ambit of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the learned Senior Standing Counsel, let us examine the definition of license extracted herein above. A plain reading of section 52 of the Act makes it clear, a right granted to a person to do or continue to do something in the immovable property of the grantor, which, in the absence of such right would be unlawful and such right does not amount to an easement or interest in the property, then such right is called a license. If we examine the facts of the present case, vis a vis, the definition of license under the Indian Easements Act, 1882, it would be clear that 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial rights of similar nature . As could be seen from the definition of intangible asset, specifically identified items like knowhow, patents, copyrights, trademarks, licenses, franchises are not of the same category, but, distinct from each other. However, one thing common amongst these assets is, they all are part of the tool of the trade and facilitate smooth carrying on of business. Therefore, any other intangible asset which may not be identifiable with the specified items, but, is of similar nature would come within the expression any other business or commercial rights of similar nature . The Hon'ble Supreme Court in CIT v/s Smifs Securities (supra) after interpreting the definition of intangible asset as provided in Explanation 3 to section 32(1), while opining that principle of ejusdem generis would strictly apply in interpreting the definition of intangible asset as provided by Explanation 3(b) of section 32, at the same time, held that even applying the said principle ‗goodwill would fall under the expression any other business or commercial rights of similar nature . Thus, as could be seen, even though, ‗goodwill is not one of the specifically identif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Membership Card, after interpreting the provisions of section 32(1)(ii), held that as the membership card allows a member to participate in a trading session on the floor of the exchange, such membership is a business or commercial right, hence, similar to license or franchise, therefore, an intangible asset. In the present case, undisputedly by virtue of C.A. the assessee has acquired the right to operate the toll road / bridge and collect toll charges in lieu of investment made by it in implementing the project. Therefore, the right to operate the toll road / bridge and collect toll charges is a business or commercial right as envisaged under section 32(1)(ii) r/w Explanation 3(b) of the said provisions. Therefore, in our considered opinion, the assessee is eligible to claim depreciation on WDV as an intangible asset. Thus, we answer the question framed by the Special Bench as under: The expenditure incurred by the assessee for construction of road under BOT contract by the Government of India has given rise to an intangible asset as defined under Explanation 3(b) r/w section 32(1)(ii) of the Act. Hence, assessee is eligible to claim depreciation on such asset at the speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee. The decision of the first appellate authority on this issue is reversed. Since, we have allowed assessee s claim of depreciation, the issue raised by the Department relating to allowance of deduction by learned Commissioner (Appeals) as revenue expenditure has become redundant, hence, no adjudication is required. The grounds raised by the assessee in the cross objection are allowed. Grounds raised by the Department are dismissed. 13. In grounds no.(iv) to (vi), the Department has challenged the decision of the learned Commissioner (Appeals) in allowing foreign exchange loss of ₹ 2,79,66,192. 14. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that an amount of ₹ 2,79,66,192 was debited by the assessee to the Profit Loss account on account of loss on foreign exchange difference called upon the assessee to furnish necessary details and explain why such loss should not be treated as speculative. In response to the query raised by the Assessing Officer, the assessee furnished necessary details and submitted that it has entered into an ISDI Master Agreement on 11th April 2007 with ICICI Bank Ltd. for entering into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panese Yen was a notional amount and never intended to be disbursed to the assessee. He submitted, there is no restriction on the assessee to hedge against interest liability and hedging can take place in several ways. Learned Authorised Representative submitted, even otherwise also, the loss cannot be treated as speculative loss under section 43(5) of the Act as the said provision pre supposes purchase and sale of commodity which requires delivery. He submitted that neither the transaction entered into by the assessee involved any purchase and sale of commodities as nothing has been contracted to be delivered. He submitted that the assessee has interest liability connected to the loan taken for the BOT facility, therefore, the assessee can hedge interest liability by choosing any currency. He submitted, it is simply a hedging of interest of one currency against another currency, therefore, the provisions of section 43(5) of the Act would not apply. Finally, the learned Authorised Representative submitted that the assessee has followed the aforesaid method of accounting consistently and in assessment year 2008 09 it has offered gain from such transaction whereas, in assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Commissioner (Appeals) on this issue. These grounds are dismissed. 18. Grounds no.(viii) to (x), the Department has challenged deletion of addition made on account of disallowance under section 14A. 19. Brief facts are, during the assessment proceeding, the Assessing Officer on examining the Balance Sheet of the assessee found that the assessee has made investment of ₹ 125.41 crore in equity shares, share application money, capital account with partnership firm residential flat, government securities, etc. He further found that the assessee has debited interest expenditure of ₹ 2,68,95,525 to its Profit Loss account. Since, the investments made by the assessee yielded exempt income, the Assessing Officer called upon the assessee explain why disallowance under section 14A r/w rule 8D should not be made. In response, the assessee submitted that since the investments made were out of its own earning and that too were made in partnership firm and with associates and joint venture only for business purpose, no disallowance should be made. The Assessing Officer, however, did not find merit in the submissions of the assessee and proceeded to disallow an amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 8D(2)(iii) is concerned, we do not find any infirmity in the order of the learned Commissioner (Appeals) in directing the Assessing Officer to exclude the strategic investment and investment which have not resulted in any exempt income during the year for computing disallowance under the said provisions, as such the findings of the learned Commissioner (Appeals) are in conformity with well settled principles of law. Grounds raised are, therefore, dismissed. 22. In the result, Revenue s appeal is dismissed and assessee s cross objection is allowed. ITA no.4075/Mum./2015 Assessee s Appeal A.Y. 2011 12 23. In grounds no.1 and 2 of the main ground, the assessee has challenged the decision of the learned Commissioner (Appeals) with regard to confirmation of disallowance made under section 14A r/w rule 8D. 24. In ground no.2, the assessee has challenged the applicability of section 14A to the computation of book profit under section 115JB of the Act. 25. Brief facts are, during the assessment proceeding, the Assessing Officer noticing that in the relevant previous year, the assessee has earned substantial exempt income called upon the assessee to expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A for making adjustment to book profit under section 115JB of the Act also requires consideration in view of the Special Bench decision of the Tribunal, Delhi Bench, in ACIT v/s Vireet Investment, 162 ITD 25. In view of the aforesaid, we restore these issues to the file of the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee. The assessee has also raised the following additional grounds: 1. Disallowance of Depreciation on BOT Rights as intangible assets u/s 32. 1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in not appreciating that BOT rights for Mumbra By pass Road is an asset within the ambit of section 32. 1.2 Accordingly, on the facts and circumstances of the case and in law, the learned CIT(A) erred in not appreciating that depreciation on the BOT Rights for Mumbra By pass Road of ₹ 19,39,30,422 claimed by eth appellant is allowable u/s 32. 28. Since the additional grounds raised by the assessee are on legal issues and can be decided on the basis of facts already available on record, we admit the additional ground for adjudication on merit. As far as the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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