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TMI Blog2019 (8) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the assessee was selected for scrutiny. After considering the details furnished by the assessee against statutory notices, the Assessing Officer completed assessment under section 143(3) of the Act determining the assessed total loss at Rs.. 146,44,84,647/- after making various disallowance/addition. On appeal, after considering the submissions of the assessee and facts of the case and by following the decision of the Tribunal in assessee's own case for the assessment year 2013-14, the ld. CIT(A) deleted the addition of Rs..150,81,78,012/- and allowed the appeal of the assessee. 3. Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR has submitted that the assessee was not the owner of the impugned asset to allow depreciation on the same at applicable rates and that the asset has to be transferred back to the National Highways Authority of India after the end of the concession period as per the agreement entered into. It was the further submission that the vide Circular No. 9/2014 dated 23.04.2014, the CBDT has clarified that the cost of construction on development of infrastructure facilities of roads/highways under BOT projects may be amortised and claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 and then computed the amortization of the said cost for the rest of 17½ years of the agreement, as a result of which the expenditure to be amortized for the assessment year under consideration is computed at Rs..100,14,78,267/-. The difference of Rs..150,81,78,012/- between the depreciation claimed by the assessee at Rs..250,96,56,279/- and the amortization allowed by the Assessing Officer at Rs..100,14,78,267/- was disallowed and added back to the loss returned. On appeal, by following the decision of the Tribunal in assessee's own case for the assessment year 2013-14 in I.T.A. No. 3233/Chny/2017 dated 10.05.2018, the ld. CIT(A) directed the Assessing Officer to allow the assessee's claim of depreciation at the rate of 25% treating the toll way rights as an intangible asset under section 32(1)(ii) of the Act and deleted the addition of Rs..150,81,78,012/-. We have perused the order passed in assessee's own case for the assessment year 2013-14 wherein, similar issue was subject matter in appeal, wherein, by following the Special Bench decision of Hyderabad Benches of the Tribunal in the case of M/s. Progressive Constructions Limited in I.T.A. No. 1845/Hyd/2014 dated 14.02. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 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 Representative has opposed assessee's claim of depreciation on the following propositions:- i) Whether the expenditure claim of the assessee brings into being an asset which is owned and used by the assessee in its business; ii) What is the nature of the asset that has come into being on account of the expenditure incurred by the assessee and what is the nature of such expenditure; iii) If an asset is created, whether it is a tangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, appointment of receiver or liquidator being initiated by any person claiming interest over the project sites. Government of India not only will defend such claims or proceedings but also keep the concessionaire indemnified against any direct or consequential loss or damage which it may suffer on account of any such right, title, interest or charge. As per clause 2.8 of the C.A., though, the concessionaire shall have exclusive right to use of the project site ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 Rs. 214 crore. The contention of the learned Senior Standing Counsel that expenditure of Rs. 214 crore has brought into existence a tangible asset in the form of roads and bridges of which the assessee is not the owner but it is the Government of India is nobody's case. Further, the learned Senior Standing Counsel's apprehension that it will lead to a situation where both Government of India and the concessionaire will claim depreciation on the asset created with the very same expenditure, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said 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 Rs. 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 32(1)(ii) of the Act. For this purpose, it is necessary to look into the said provision which is reproduced hereunder for the sake of convenience. Depreciation. 32(1)(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 deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 have been unlawful on the part of the concessionaire to do or continue to do anything on such property. However, the right granted to the concessionaire has not created any right, title or interest over the property. The right granted by the Government of India to the assessee under the C.A. has a license permitting the assessee to do certain acts and deeds which otherwise would have been unlawful or not possible to do in the absence of the C.A. Thus, in our view, the right granted to the assessee u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 identifiable assets preceding the expressing "any other business or commercial rights of similar nature", however, the Hon'ble Supreme Court held that 'goodwill' will come within the expression "any other business or commercial rights of similar nature". Therefore, the contention of the learned Senior Standing Counsel that to come within the expression "any other business or commercial rights of similar nature" the intangible asset should be akin to any one of the specifically identifiable assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 specified rate." Accordingly, it was pleaded by ld.A.R that the assessee may be granted the claim of depreciation as an intangible asset, which may be eligible for depreciation at the rate of 25%". 6. In reply, ld. D.R vehemently supported the orders of ld. Assessing Officer and the Ld. CIT(A). It was a submission that the assessee was not the owner of the road and consequently the assessee was entitled to only amortization of the expenses in relation of construction of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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