TMI Blog2018 (8) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... COUNTANT MEMBER For The Revenue : Shri Sunku Srinivas For The Assessee : Smt. Geetha Chellappa ORDER PER S. RIFAUR RAHMAN, A.M.: This appeal filed by the revenue is directed against the order dated 13/11/2017 of CIT(A) 4, Hyderabad for AY 2014-15. 2. Brief facts of the case are, the assessee company, engaged in the civil contract works, filed its return of income for the AY 2014-15 declaring total income at Rs. Nil after setting off of the carried forward losses ₹ 48,72,67,996/-. The case was selected for scrutiny and accordingly notices were issued by the AO. In response to the notices, the AR of the assessee filed the information. After going through the information filed, the AO completed the assessment by making the following additions: 1. ₹ 78,01,926/- towards disallowance of depreciation 2. ₹ 28,31,250/- towards disallowance of expenditure u/s 14A 3. ₹ 21,027/- towards disallowance of employee s contribution towards PF u/s 36(1)(v) 3. On appeal, the CIT(A) deleted the disallowance of ₹ 78,01,926/- and confirmed the disallowance of ₹ 28,31,250/- u/s 14A. As regards disallowance towards PF, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is in appeal before us contending that the CIT(A) erred in allowing depreciation on BOT project instead of amortization of expenditure over the period of concessionaire agreement. 9. Considered the rival submissions and perused the material on record. The special bench in assessee s own case for AY 2011-12 (supra) held as under: 8. We have patiently and carefully considered the rival submissions, perused the materials on record as well as the decision cited at the Bar. 9. The core issue arising for consideration in this appeal is in relation to assessee s claim of depreciation on the asset created by investing an amount of ₹ 214 crore in construction of Pune Hyderabad section of National Highway no.9, on build, operate and transfer (BOT) basis with a right to collect toll charges from the user of road by vehicles over the concession period of 11 years and 7 month. It is a fact on record that the assessee completed the construction of the project in the financial year 2008 09 and had started operating the same. It is also evident, in the assessment year 2009 10, the assessee had claimed depreciation @ 10% by treating the asset as building. However, from 11 M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before dealing with the issue, it is necessary to reiterate that the Government of India being desirous of implementing a project involving, construction, operation and maintenance of four lane Pune Hyderabad section of N.H. no.9, with private sector participation of BOT invited tender from interested parties. The assessee being successful in the tender, the Government of India entered into a Concession Agreement (C.A) with the assessee on 22nd December 2005. At this stage, it is necessary to look into some of the relevant clauses of C.A., which in our 13 M/s. Progressive Constructions Ltd. opinion, will have a crucial bearing in deciding the issue. As per clause 2.1 of the C.A., the Government of India grants and authorises the concessionaire i.e., the assessee to investigate, study, design, engineer, procure, finance, construct, operate and maintain the project and to exercise and/or enjoy the rights, powers, privileges, authorizations and entitlements in terms of the agreement including the right to levy demand, collect and appropriate fee from vehicle and persons for using the project / project facilities or any part thereof. As per clause 2.2 of the C.A., the assessee is grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the agreement. Clause 4.1 of the C.A. entitles the concessionaire to levy, demand and collect fee for user of the roads by vehicles and persons in accordance with the fee notification to be issued by the Government of India. However, concessionaire cannot levy and 15 M/s. Progressive Constructions Ltd. collect any fee until it has received completion certificate. Clause 5.1 and 5.2 of the C.A. lays down the obligation of the concessionaire for execution and implementation of the project / project facility during the concession period. From the reading of the aforesaid clauses of the contract, following facts emerge: i) The right, title and ownership of the project site vests absolutely with the Government of India and it has full powers to hold, dispose off and deal with the same; ii) The Government of India has handed over physical possession of the project site to the concessionaire for executing / implementing the project and operating the same during the concession period; iii) Concessionaire shall have exclusive right to use the project site for executing / implementing the project in terms of C.A; iv) Concessionaire shall, at its own costs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be reimbursed by the Government of India. This fact was known to both the parties before the execution of the agreement as the tender itself has made it clear that the project is to be executed with private sector participation on BOT basis. Thus, from the very inception of the project, assessee was aware of the fact, it has to recoup the cost incurred in implementing the project along with the profit from operating the road and collecting toll charges during the concession period. Therefore, assessee has capitalized the cost incurred on the BOT project on which it has claimed depreciation. Thus, in our view, the expenditure incurred by the assessee of ₹ 214 crore for creating the project or project facilities has created an intangible asset in the form of right to operate the project facility and collect toll charges. Further, it is the contention of the learned Senior Standing Counsel that if at all any right is created under the C.A. for collecting toll, such right accrued to the assessee on the date of execution of agreement i.e., 22nd December 2005, therefore, the expenditure incurred by such date should be the value of intangible asset which can alone be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets ] shall mean- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature . 13. A plain reading of the aforesaid provisions would indicate that certain kind of assets being knowhow, patents, copyrights, trademarks, license, franchise, or any other businesses or commercial rights of similar nature are to be treated as intangible asset and would be eligible for depreciation at the specified rate. It is the claim of the assessee that the right acquired under C.A. to operate the project facility and collect toll charges is in the nature of license. However, the learned Senior Standing Counsel has strongly countered the aforesaid claim of the assessee by referring to the definition of license as provided under the Indian Easements Act, 1882. For better appreciation, we intend to reproduce herein below the definition of license as provided under section 52 of the Indian Easements Act, 1882: License defined: Where on person grants to another, or to a definite number of other persons, a rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation under section 32(1)(ii) of the Act. 15. Even assuming that the right granted under the C.A. is not a license or akin to license, it requires examination whether it can still be considered as an intangible asset as described under section 32(1)(ii) of the Act. In this context, it has been the contention of the learned Senior Standing Counsel that the intangible asset mentioned under section 32(1)(ii) of the Act are specifically identified assets, except, the assets termed as any other business or commercial rights of similar nature . He had submitted, applying the principle of ejusdem generis the rights referred to in the expression any other business or commercial rights of similar nature , should be similar to one or more of the specifically identified assets preceding such expression. The aforesaid contention of the learned Departmental Representative is unacceptable for the reasons enumerated hereinafter. 16. We have already held earlier in the order that by incurring the expenditure of ₹ 214 crore assessee has acquired the right to operate the project and collect toll charges. Therefore, such right acquired by the assessee is a valuable business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in case of Areva T and D India Ltd. (supra), while interpreting the aforesaid expression by applying the principles of ejusdem generis observed, the right as finds place in the expression business or commercial rights of similar nature need not answer the description of knowhow, patents, trademarks, license or franchises, but must be of similar nature as the specified asset. The Court observed, looking at the meaning of categories of specified intangible assets referred to in section 32(1)(ii) of the Act preceding the term business or commercial right of similar nature , it could be seen that the said intangible assets are not of the same line and are clearly distinct from one another. The Court observed, the use of words business or commercial rights of similar nature , after the specified intangible assets clearly demonstrates that the legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets which were neither visible nor possible to exhaustively enumerate. The Hon'ble Court, therefore observed, in the circumstances the nature of business or commercial right cannot be restri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute in the present appeal, as the expenditure incurred has already been considered as capital expenditure in the preceding assessment years and assessee s claim of depreciation have been allowed. Therefore, in the impugned assessment year, the claim is limited to depreciation on the WDV on block of assets only. The issue whether the expenditure incurred is a deferred revenue expenses or not was not the subject matter of consideration either by the Assessing Officer or by the learned Commissioner (Appeals). Taking into consideration the aforesaid fact, the Tribunal had re framed the question by limiting the issue only to the determination of nature of asset, whether tangible or intangible. In fact, the learned Departmental Representative has also accepted the aforesaid factual position. In any case of the matter, the assessee neither in the preceding assessment years nor in the impugned assessment year has claimed it as deferred revenue expenditure, hence, there is no scope to examine whether the expenditure could have been amortized over the concession period in terms of CBDT circular no.9. Moreover, the aforesaid CBDT circular is for the benefit of the assessee. Therefore, the be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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