TMI Blog2019 (4) TMI 2011X X X X Extracts X X X X X X X X Extracts X X X X ..... n enduring benefit in the form of right to collect toll during the period of the agreement. In the present case as mentioned earlier, and at the cost of repetition we reiterate that the Company has incurred huge costs with an intention to avail an enduring benefit for the purposes of its business which is to collect toll as per the facts stated above. Separately, we would like to refer a recent decision of ACIT v. West Gujarat Expressway Ltd. [ 2015 (5) TMI 305 - ITAT MUMBAI] wherein after considering the Circular has held that the expense incurred by the assessee for availing an enduring benefit is nothing but an intangible asset and that the assessee is entitled to depreciation on the same under section 32(1)(ii) We noted that this issue is again decided in the case of ACIT vs. Progressive Construction Ltd. [ 2017 (3) TMI 1167 - ITAT HYDERABAD] wherein it is held that the expenditure incurred by the assessee for construction of road under BOT contract by Govt. of India have given rise to an intangible asset as defined under explanation 3(b) read with section 32(1)(iii) of the Act, assessee would be eligible to claim depreciation on such asset at specified rates. The Specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not erroneous and prejudicial to the interest of the revenue. 3. Briefly stated facts are that the assessment in this case was completed by the AO under section 143(3) of the Act dated 30.03.2015. The PCIT while going through the assessment records noticed that the AO has passed the assessment order without taking note of CBDT Circular No 9 of 2014 and wrongly allowed the claim of depreciation at the rate of 25% on the cost of infrastructure facility being toll road Built Owned and Transfer treating it as an asset in the nature of intangible right. Accordingly, the PCIT noted that the assessment order being erroneous and prejudicial to the interest of the Revenue in term of explanation to section 263 of the Act. The PCIT accordingly issued show cause notice under section 263 of the Act dated 24.02.2016 and the relevant show cause notice has been reproduced in the revision order is being again reproduced for the sake of clarity:- 1.1] On examination of the records for A.Y. 2012-13, it is noticed that the assesse filed its original return of income for A.Y. 2012-13 an 27.09.2012 declaring total loss of ₹ 153,87.93,284/- and computed book profit at ₹ 7,56,60,340 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the A.O. is found to be erroneous and prejudicial to the interest of revenue, as there has been an under assessment to the extent of the excess claim of depreciation allowed. 1.5] In view of the above, it is clear that there is a failure on the part of the assessing officer to examine the issue of claim of depreciation in terms of circular No.9 of 2014 issued by the CBDT, which has rendered the impugned assessment order passed u/s. 143(3) of the I.T. Act erroneous, in so far as it is prejudicial to the interests of revenue, in terms of explanation 2 to section 263 of the I.T. Act. 1.6] In view of the above, you are requested to show cause as to why the said assessment order should not be revised u/s.263 of the I.T. Act, 1961. Your objections, if any, to the proposed revision of the assessment order may be filed before the undersigned on or before 02.03.2017. 4. The assessee explained the entire fact but PCIT after considering the CBDT Circular No. 9 of 2014 and the amendment to section 263 of the Act brought out by Finance Act, 2015 with effect from 01.06.2015 by insertion of an explanation 2. According to PCIT which is declaratory and clarificatory in nature an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2 to section 2631 is reproduced here under: (Explanation 2 -For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should hove been made; (b) the order is passed ohIow!rlg any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or Instruction issued by the Board under sectionJ12; or d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional high Court or Supreme Court in the case of the assessee or any other person.) The clause (c) to the said explanation makes it very clear that if the order passed by the AO has not been made in accordance with an order, direction or instruction issue by the CBDT, then the order would he deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, in view of the said explanation 2 to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistence of the Concession Agreement to implement the project. The learned Counsel drew our attention to Section 32(1)(ii) of the Act, which defines the term 'Intangible Asset' to include any (1) know -how (ii) patents, (iii) copyrights, (iv) trademarks, (v) licences, (vi) franchises or any other business or commercial rights of similar nature. The right to collect toll is a valuable right which has a huge commercial value and is akin to a licence. Hence, it falls within the purview of 'Intangible Assets' under section 32(1)(ii) of the Act. Accordingly, the Company has claimed depreciation at the rate of 25% amounting to INR 282,79,39,359 on such intangible asset for the AY 2012-13 under section 32(1)(ii)of the Act. 6. It was explained by the learned counsel that having established that the expense incurred by the assessee has to be categorized as an Intangible asset in accordance with the companies Act and under the Act as well, the assessee now come to discuss the various aspects of the Circular. At para 3 of the Circular, the CBDT has pointed out that in such BOT arrangements, the assessee does not become the owner of the land but only has a right to develop a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. Building owned by the assessee the expression asocurring in section 32(1) of the income-tax Act means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc., but nevertheless is entitled to hold the property to the exclusion of all others. 9. Similarly, basing the above decision, it is very clear that an assessee need not be a legal owner of an asset to claim depreciation. In case where an assessee is entitled to hold the property to the exclusion of all others and exercise dominion over the property and have the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner. All of these conditions in our view is satisfied in the present case and thus the assessee is entitled to depreciation under section 32(1)(ii) of the Act on such intangible assets. We also noted that the Circular al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the costs incurred for the construction of road facility. The Tribunal has observed this to be factually and legally misplaced. The relevant extract of the decision is reproduced below: So however, the plea of the Ld. DR before us is to the effect that the impugned right is not of the nature referred to in section 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)(ii) 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 who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct/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 under the C.A. to operate the project/project facility and collect toll charges is a license or akin to license, hence, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in 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 is not a correct interpretation of the statutory provisions. Had it been the case, then 'goodwill' would not have been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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