TMI Blog2022 (7) TMI 1440X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing grounds of appeal:- 1. The Ld. CIT(A) has grossly erred on facts and in law in upholding the assessment order U/s 143(3) assessing the Loss of Rs. 19,43,57,120/- against the returned loss of Rs. 30,30,15,025/- and the disallowance sustained by the Ld. CIT(A) are illegal, bad in law and without jurisdiction. 2. That having regard to the facts and circumstances of the case, the CIT(A) has erred in law in upholding the assessment order U/s 143(3) disallowing depreciation of Rs. 49,32,87,659/- claimed by appellant on Highway Projects. The claim of depreciation @ 10% on highway project was in accordance with the provisions of the Act. The order so passed is erroneous, bad in law and must be quashed. 3. That the rejection of claim of depreciation on highway project amounting to Rs. 49,32,87,659/- on the basis of ownership issue and instead allowing deduction for amortization cost on highway project developed on BOT basis of Rs. 38,46,29,754/-, on the basis of CBDT circular is misconceived, erroneous and does not sustain in law. Hence, the disallowance sustained by the Ld. CIT(A) are illegal, bad in law and without jurisdiction. 4. The Ld. CIT(A) has grossly erred on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Counsel for the assessee drew our attention to para 20 of the order of the Tribunal to buttress the contention that CBDT Circular No.09/2014 dated 23.04.2014 as relied by Ld.CIT(A) is for the benefit of the assessee and it is upto the assessee whether to avail the benefit under Circular or not, such benefit cannot be thursted upon the assessee if it was not claimed. Ld. Counsel for the assessee further placed reliance in the following case laws:- [i]. DCIT, Mumbai v. M/s Mumbai Nasik Expressway (ITA No. 848/MUM/2020) A.Y 2012-13; [ii] BSC C C Kurali Toll Road Ltd. v. DCIT Circle-5(1), Delhi (ITA Nos. 1592 1593/Del/2017) A.Y 2012-13 A.Y 2013-14; [iii] Valecha Badwani Sendhwa Tollways v. PCIT-11, Mumbai (ITA No. 2848/MUM/2018) A.Y. 2013-14; [iv] ACIT-l0(l), Mumbai v. M/s West Gujarat Expressway Ltd. (ITA No. 5904/M/2012) A.Y 2009-10 and (ITA No. 6244/M/2012) A.Y. 200910; [v] M/s Mokama Munger Highway Ltd v. ACIT Hyderabad (ITA Nos. 1729, 2145 2146/Hyd/2018) A.Y. 2013-14 to 2015-16; [vi] DCIT Circle-16(2), Hyderabad v. M/s Madhurai Tuticorin Expressway Ltd., Hyderabad (ITA Nos. 2119, 2120 2121/HYD/2018) A.Y. 2012-13, 2013-14 2014-15; [vii] ACIT Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the order of the ACIT, Circle 10(2), New Delhi wherein, the AO has assessed the loss of the appellant at Rs.19,43,57,120/- after making the addition of depreciation claimed amounting to Rs. 49,32,87,659/- and allowing the amortization expense amounting to Rs. 38,46,29,754/-. 6.2 By way of background, the appellant company is a special purpose vehicle which is engaged in the business of execution/ construction of highway project. The company was awarded the highway project for development of four lane road project of Gwalior Bypass in the state of Madhya Pradesh under North-South Corridor (NHDP-11) on Design, Build, Operate and Transfer (BOT) basis from National Highway Authority of India (NHAI). 6.3 The company in the books of accounts treated the expenditure made on execution/ construction of such highway as fixed asset and amortized the said expenses incurred on the project over the life of the tender, i.e. over the period when the appellant company would be allowed to operate such highway and earn income from toll charges. The amortization expenses debited by the company in the books of accounts for the said project amounted to Rs.39,63,46,436/-. Further, while making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abad Tribunal in the case of ACIT vs. Progressive Construction Ltd. [2018] 92 taxmann.com 104 (Hyderabad Trib.). 6.7 I have considered the judgment passed by the Hon'ble Bench. However, I humbly disagree with the same because of the presence of the decision of the Higher judicial Authority against the assessee on the same facts, which has not been discussed by the Hon'ble Tribunal in its above mentioned order. Hon'ble High Court of Bombay in the case of North Karnataka Expressway Ltd. v. CIT [2014] 51 taxmann.com 214 (Bom), wherein, Hon'ble Court held that where assessee, an infrastructure development company, constructed a road on Build, Operate and Transfer (BOT) basis on land owned by Government, assessee could not claim depreciation on toll road so constructed and operated. 6.8 After considering the decision of the Hon'ble High Court, I am of the view that the AO was correct in making the adjustment and disallowing the depreciation and allowing the amortization expenses for the reasons discussed in the assessment order. 6.9 Furthermore, the amount of amortization allowed by the AO is different from the amortization amount claimed by the appellant co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee physical possession of the project site free from encumbrances within 30 days from the date of the agreement. It further provides, once the project site is handed over to the concessionaire, it shall have exclusive right to enter upon, occupy and use the 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ser of the project facilities by vehicles and persons. 11. Undisputedly, for executing the project, assessee has incurred expenses of Rs.214 crore. It is also not disputed that as per the terms of the C.A., the Government of India is 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 Rs.214 crore, the assessee has obtained a valuable business / commercial right to operate the project facility and collect toll charges. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 years and 7 months, the assessee can start operating and collecting toll charges only when the project facility is ready for use. Therefore, until the project is completed and ready for use by vehicles or persons 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 Rs.214 crore incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the term license has not been defined under the Income Tax Act, 1961, the definition of license under the Indian Easements Act, 1882, has to be looked into. Accepting the aforesaid contention 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is an intangible asset created for the enduring benefit of the assessee. Now, it has to be seen whether such intangible asset comes within the expression any other business or commercial 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Techno Shares and Stocks Ltd. v/s CIT, [2010] 327 ITR 323 (SC), the Hon'ble Supreme Court while examining the assessee s claim of depreciation on BSE 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 intan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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