Deputy Commissioner of Income-Tax, Central Circle -1, Nashik V. Mahakaleshwar Tollways Private Limited, Ujjain

ITA 123/Ind/2021

AI Insights

The case revolves around the dispute concerning the eligibility of the 'Right to Collect Toll' as an intangible asset for depreciation purposes under the Income Tax Act. Mahakaleshwar Tollways Private Ltd., engaged in a Build Operate and Transfer (BOT) project, claimed depreciation on the costs incurred for developing and constructing the toll facility, which was disallowed by the Assessing Officer (AO). The CIT(A) reversed the AO's decision, allowing the depreciation claim, which was contested by the Revenue in the Tribunal. The Tribunal upheld the CIT(A)'s decision, referencing various precedents and the specific provisions of the Income Tax Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301050 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 08-11-2022
• Assessment Year: 2017-2018
• Appeal Filed On: 17-06-2021
• Other Referred Cases: ITO Vs. Ashoka Highways (Durg) Ltd., Progressive Constructions Ltd, Ashoka Infrastructure Ltd, Mokama Munger Highway Ltd. Vs.ACIT, ACIT vs. Ashok Buildcon Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Set aside
• Section: 191; 113; 43

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI C.M. GARG, JUDICIAL MEMEBR AND SHRI BHAGIRATH MAL BIYANI, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A. No. 123/Ind/2021 (िनधा रणवष / Assessment Year : 2017-18) The Dy. Commissioner of Income-Tax, Central Circle-1, Nashik. बनाम/ Vs. MahakaleshwarTollways Private Ltd., Ninora Toll Plaza, Ujjain 456001, Madhya Pradesh. थायीलेखासं./जीआइआरसं./PAN/GIR No. : AAFCM7676Q (अपीलाथ /Appellant) .. ( थ / Respondent) अपीलाथ ओरसे/Appellant by : Shri P.K. Mishra, CIT-D.R. थ कीओरसे / Respondent by: None सुनवाईकीतारीख/Date of Hearing 09.11.2022 घोषणाकीतारीख /Date of Pronouncement 30/01/2023 ORDER PER C.M. GARG, JM: The instant appeal filed by the Revenue is directed against the order dated 19.03.2021 passed by the CIT(A)-II, Pune,-12, for A.Y. 2017-18. 2. The grounds of appeal read as under:- “1. The Ld. CIT(A) was justified in law in allowing depreciation of Rs.4,05,75,163/- claimed in respect of the expenditure incurred by the assesse company in the “Build Operate and Transfer” project (i.e. cost of project) by considering such expenditure as an intangible asset within the meaning of section 32(1)(ii) of the Income Tax Act? ITA No.123/Ind/20212 2 2. The ld.CIT(A) was not justified in law holding that the assesse is eligible for depreciation on the “Right to Collect”?” 3. When the case was called for hearing, neither the assessee nor his representative appeared despite the fact that notice has been sent to the assesse. The assesse has not filed any application for adjournment of the case also. However, on perusal of the appeal record, we find that this appeal can be decided even in the absence of the assessee. Therefore, we proceed to dispose of this appeal after hearing the ld. CIT-DR. 4. Vide this ground, the Revenue has challenged allowance of claim of depreciation by the ld. CIT(A) on the intangible assets being "Right to Collect the Toll". Briefly stated, the facts are that the assessee is a company engaged in the business of operation and maintenance of infrastructure facility (Indore- Ujjan Highway) on ‘Build Operate& Transfer’ (BOT) basis awarded by the State of Madhya Pradesh. In terms of agreements with the Government of Madhya Pradesh, the assessee was required to develop, construct and maintain the road at its own cost for a specified period. On expiry of the specified period, the infrastructural facility was to be transferred to the Government of Madhya Pradesh free of charge. In consideration of the expenditure incurred on construction, operation and maintenance of the road and handing it over to the Government of Madhya Pradesh free of charge, the assessee was bestowed a right to collect Toll from the motorists using the road during the "specified period", The assessee capitalised the costs incurred on the project as intangible asset - "License to collect Toll" for the reason that by incurring the expenditure on development and construction of infrastructure facility the assessee got an enduring benefit in form of a right to collect Toll from the motorists using the road for a specified period, In this background, the assessee claimed that the "Right to collect Toll" obtained by it was akin to a license, being an 'intangible asset' within the meaning of section 32(1)(ii) of the Act and claimed depreciation @ 25%, In the Income Tax assessments completed U/s 143(3). The AO held that the" Right to collect Toll" was neither a license nor a valuable commercial or business right covered in the expression 'intangible asset' for the ITA No.123/Ind/20213 3 purpose of section 32(1)(ii) of the Act. Accordingly, he disallowed the claim of depreciation of Rs.4,05,75,163/- and allowed deduction of Rs.11,72,96,523/- by amortizing the cost incurred for developing the road over the period of 8445 days for which assessee was granted right to collect the toll. The AO has discussedthe issue in para 06 to 10 of the assessment order “1. As already explained, by incurring expenditure on the construction of the infrastructure facility, appellant in return got the right/license to collect toll. Such right/license to collect toll is clearly covered by the terms of 'licenses' & 'any other business or commercial rights of similar nature' used in the provisions of sec 32(1)(ii) r.w. the Explanation 3(b) below it. Therefore, in the commercial reality, by incurring the expenditure on construction of the infrastructure facility, the asset that came into existence for appellant is the right/license to collect toll, which being intangible in nature, is eligible for the depreciation u/s 32(1)(ii) at 25%. Appellant incurred, actual construction cost on creating the infrastructure facility at Rs. 322,42,99,754/- & started claiming depreciation on it u/s 32(1)(ii) at @ 25% from AY 2011-12. Accordingly, the WDV for AY. 2017-18 stood at Rs.16,23,00,651/- & the depreciation on it @ 25% is claimed in the return filed at Rs.4,05,75,163/-. The learned AO.has however disallowed appellant's claim for the depreciation on the 'Concessionaire's Toll Collection Rights' on the premise that the said right is not an intangible asset on which a claim for depreciation can be allowed. The learned AO has mistakenly concluded that the right given to the Appellant is in the nature of reimbursement of the cost incurred by the Appellant. In this context, kindly note that appellant's claim for the depreciation on the 'Concessionaire's Toll Collection Rights', as an intangible asset, is allowed in by the ITAT, Pune for AY. 2011-12 (Page Nos. 176 to 179) & CIT Appeal, Pune for AY. 2014- 15 (Page Nos. 180 to 191) and is also supported by the consistent numerous ITA T decisions including the following: 1. ITAT, Pune decision, in the case of ITO Vs. Ashoka Highways (Durg) Ltd. (55 CCH 113 - Page No. 194 to 196), 2. ITAT, Hyderabad Bench (Special Bench) decision in the case of Progressive Constructions Ltd (92 Taxman.com 104,191 TTJ 549 - Page Nos. 197 to 226), 3. ITAT, Pune Bench 'A' decision in the case of Ashoka Infrastructure Ltd, in ITA No. 1452 to 1457/PUN/2014 decided on 30.06.2017 (Page Nos. 227 to 266), wherein even the issue arising out of the CBDT Circular No.9/2014 dt. 23.04.2014 is decided. ITA No.123/Ind/20214 4 4. ITAT, Hyderabad Bench B, in the case of MokamaMunger Highway Ltd. Vs.ACIT (56 CCH 0472 - Page Nos.267 to 285) 5. ITAT, Pune Bench 'B' decision in the case of Ashoka Infrastructure Ltd, in ITA No. 989 & ITA No. 1105 decided on 18.07.2013 (Page Nos. 286 to 294) 6. ITAT, Pune Bench decision in the case of ACIT vs. Ashok Buildcon Ltd. (ITA No. 2317/PN/2012 - Page Nos 295 to 298). These decisions contain references to other numerous decisions, wherein the 'right/license to collect toll/Concessionaire's Toll Collection Rights' is consistently recognized as an intangible asset entitled to the depreciation u/s 32(1)(ii) @ 25%. Accordingly, the Appellant requests your Honour to direct the learned AO to treat the aforesaid right for collecting toll (exclusively granted to the Appellant pursuant to the Agreement) as an 'intangible assets' and allow depreciation at the rate of 25 percent as prescribed under the Act. 1. Non-applicability of CBDT circular no 9 of 2014 dated 23 April 2014: 1. The Central Board of Direct Taxes issued Circular No.9, dated 23 April 2014, clarifying that expenditure (comprising of construction cost and other pre-operative expenses) incurred for setting up infrastructure facility on BOT arrangement may be amortized evenly over the concessionaire period. 1. The aforesaid circular is silent on whether the right to collect toll satisfies the definition of intangible asset. The circular even provides that the assessee derives an enduring benefit in the form of right to collect the toll during the period of the agreement. 2. The issue of applicability of CBDT circular has been considered by ITAT, Pune in the case of Ashoka Infrastructure Ltd (supra), wherein following is held at para 23 of the decision (page No. 31): " Further, the CIT(A) has relied on the CBDT circular dated 23.04.2014, wherein the CBDT has laid down that instead of depreciation on the cost incurred by the assessee, the said cost should be amortized over a specified period and allowed in the hands of assessee. However, the expenditure incurred by the assessee is not revenue in nature and the same cannot be amortized over the period for which the assessee can collect the toll; the right to collect toll is capital expenditure incurred bythe assessee and consequently, the assessee is entitled to claim depreciation on such intangible assets as provided under section ITA No.123/Ind/20215 5 32 (1)(ii) of the Act. Accordingly, we hold s. The assessee is thus, erentitled to claim. Thus, the second part of the order of Assessing Officer in amortising the expenditure over the period of facility and allowing the same stands reversed. The Assessing Officer is directed to allow the claim of assessee of depreciation on such intangible asset under section 32(1)(ii) of the Act." 1. Relying on the well settled principle that a CBDT Circular has binding impact only to the extent it is beneficial to the taxpayer and it cannot bind the taxpayer who is not in agreement with the interpretation adopted in the Circular, the Appellant submits that the Circular is contrary to the statutory provisions of the Act and also against the principle laid down in the rulings of the Honourable Tribunal cited above. Accordingly, the same should not apply to the present facts of the Appellant and in this regard the Appellant places reliance on the following decisions: • Navnitlal C Jhaverivs CIT 56 ITR 198 [1965] (SC); • CIT vs. Puja Prints [2014] 43 taxmann.com 247 (Bombay); • ACIT vs. Norasia Lines (Malta) Ltd [2007] 107 ITO 301 (Cochin - Special Bench); • Kalyani Packaging Industry vs. UOI [2004] 96 ECC 442; and • COC vs. M/s Ratan Melting & Wire (Civil Appeal No. 4022 of 1999). 1. Prayer: 1. Considering the above, the Appellant requests your Honour to direct the learned AO to treat the right for collecting toll as an 'intangible assets' and allow depreciation at the rate of 25 percent as prescribed under the Act. “ 5. The assessee agitated the issue in appeal before the CIT(A). The ld. First appellate authority decided the issue in favour of the assessee with the following observations and findings:- “Findings: 2.3 I have considered the assessment order, statement of facts as well as the arguments made by the Appellate in its submission. In this case the company claimed depreciation on the "license to collect Toll" by treating it as intangible assets eligible for depreciation at 25% whereas the AO in the assessment has ITA No.123/Ind/20216 6 disallowed the claim of depreciation on the ground that, the right to collect toll is not a license and the asset - road- attached to the said right is not owned by theappellant. The appellant's role was limited to that of facilitator by including its own cost for the time being and getting the same reimbursed by acting in the capacity of an agent to collect tolls from the vehicles using the said facility. Hence it is not a case of a license or commercial right of intangible nature and hence depreciation on the same is not allowable. Identical issue was involved in the case of the appellant for AY 2011-12 which is cited by the appellant in its submissions. In that case, the appellant has claimed depreciation on the 'license to collect Toll' for the first time, which was disallowed by the AO, who granted amortisation of the cost incurred. Against that order, the appellant had filed appeal, which was allowed by the CIT(A) vide order dated 29.07.2016 relying on the order of Hon'ble IT AT, Pune in the case of M/s AshokaInfrasturcture Ltd in ITA No. 989/PUN/2010. Against that order of CIT(A), the Department filed appeal before the ITAT. The Hon'ble ITAT Pune Bench has decided that appeal in ITA No. 2641/IPUN/2016 for A.Y. 2011-12 vide order dated 11.02.2019 dismissing the appeal filed by the revenue and allowing the claim of depreciation on the intangible asset "Right to Collect Toll". The relevant para in the appellate order of the ITAT is reproduced as under: “2. The solitary issue in appeal is : Whether the assessee is eligible to claim depreciation on license to collect toll" considering it as an intangible asset in terms of section 32(1)(ii) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). 3. The brief facts of the case as emanating from records are : The assessee is engaged in development and construction of four laning of Indore-Ujjain Road on S.H. No. 27 from Chainage 5/2 at Indore to Chainage 53 at Ujjain on Build, Operate and Transfer (BOT) basis. The assessee claimed depreciation on “license to collect toll" in its return of income. The Assessing Officer disallowed assessee's claim holding that no intangible asset has been acquired by the assessee. In first appeal the Commissioner of Income Tax (Appeals) following the order of Tribunal in the case of M/s. Ashoka Infrastructure Limited Vs. ACIT in ITA No. 989/PUN/2010 allowed depreciation to the assessee, holding that the right to collect toll acquired by assessee is a depreciable intangible asset. Against the said findings of Commissioner of Income Tax (Appeals), the Revenue is in appeal. 4. Shri K. VenkataChalam appearing on behalf of the assessee vehemently defended the order of Commissioner of Income Tax (Appeals) and further draws strength by placing reliance on the following decisions of Tribunal: ITA No.123/Ind/20217 7 i. ACIT vs. AshokaInfraways (P) Ltd. 33 taxmann.com 499 (Pune Trib.); ii. ACIT vs. M/s Ashoka DSC Katni By-Pass Road Pvt. Ltd. in ITA No.1637/PUN/2016; iii. Income Tax Officer Vs. M/s. Ashoka Highways (Bhandara) Ltd. in ITA No. 1630/PUN/2016. 5. On the other hand Shri S.B. Prasad representing the Department supported the order of Assessing Officer. The Id. DR submitted that the Revenue has filed appeal against the order of Tribunal in the case of M/s. Ashoka Infrastructure Limited Vs. ACIT (supra). 6. Both sides heard. The issue raised in present appeal was considered by the Co-ordinate Bench of the Tribunal in the case of M/s. Ashoka Infrastructure Limited Vs. ACIT (supra). The Tribunal held that "right to collect toll" is an intangible asset and the assessee is entitled to claim depreciation on same. We find that consistent view has been taken by the Tribunal in various other cases where depreciation has been claimed on "right to collect toll", considering it to be an intangible asset. The Hyderabad Special Bench of the Tribunal in the case of ACIT Vs. M/s. Progressive Construction Limited reported as 191 TTJ 549 hasheld that National Highway constructed on BOT basis gives rise to an intangible asset in the form of right to collect toll charges u/s. 32(1 )(ii) and the assessee is eligible to claim depreciation on such asset. Thus, in view of the above decisions of, the Tribunal we find no infirmity in the impugned order. Accordingly, the same is upheld and the appeal of Revenue is dismissed being devoid of any merit.” 2.4 Further, this issue has been decided in favour of the group companies of the assessee, as submitted by the assessee in its reply cited above. In view of the consistent findings of the Hon’ble Tribunal (supra) on this issue in the cases of appellant as well as its group concerns, it is held that the “Right to collect Toll” is an intangible asset and the same is eligible for depreciation @ 25% as claimed by the appellant. The AO is accordingly directed to allow depreciation of the amount at 25% as claimed by the appellant and withdraw the deduction allowed on amortization of the cost. This ground raised by the appellant is allowed.” ITA No.123/Ind/20218 8 6. From the first appellate order, we observe that the main bone of contention of the assessee was that by incurring the expenditure on construction of infrastructure facility, the asset that came into existence for the assessee is the right/licence to collect the toll, which being intangible in nature the assessee incurred actual construction cost on creating infrastructure facility which was not owned by the assessee. Therefore, the right/licence to collect toll being intangible in nature is eligible for depreciation u/s 32(1)(ii) of the Act @ 25%. The AO, however, disallowed the claim by concluding that the said right is not an intangible asset on which a claim of depreciation can be allowed. 7. On these submissions, the ld. CIT-DR, supporting the assessment order, submitted that the AO was right in disallowing the claim of depreciation to the assessee. However, he was justified in allowing amortisation cost of 365 days for FY 2016-17 pertaining to AY 2017-18. Therefore, the AO was right in adjudicating the issue and making disallowance of depreciation. The ld. CIT-DR finally submitted that the impugned first appellate order may kindly be set aside and the order of the AO may be restored. 8. On careful consideration of the above submissions and relevant operative parts of assessment as well as first appellate order as has been reproduced hereinabove, we observe that the ld. CIT(A) relied on the order of the ITAT, Pune Bench in the case of Ashoka Infrastructure Ltd. (supra) wherein dismissing the appeal filed by the Department and allowing the claim of depreciation on intangible asset, i.e., right to collect the toll, the ITAT held that right to collect the toll is an intangible asset and the assessee is entitled to claim depreciation on the same u/s 32(1)(ii) of the Act. In view of the above, we are unable to see any valid reason to interfere with the findings made by the ld.CIT(A) and, thus, we uphold the same. Accordingly, the grounds of the Revenue are dismissed. ITA No.123/Ind/20219 9 9. In the result, the appeal of the Revenue is dismissed. Sd/- Sd/- (BHAGIRATH MAL BIYANI) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore: Dated, 30/01/2023 dk आदेशकी ितिलिपअ ेिषत / Copy of Order Forwarded to:- 1. राज / Revenue 2. आवेदक / Assessee 3. संबंिधतआयकरआयु$/ Concerned CIT 4.आयकरआयु$- अपील / CIT (A) 5. िवभागीय ितिनिध,आयकरअपीलीयअिधकरण, अहमदाबाद/ DR, ITAT, Ahmedabad 6. गाड*फाइल / Guard file. By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore Date 1. Draft dictated on 20.12.2022 2. Draft placed before the author 21.12.2022 3. Draft placed before the other Member 4. Approved Draft comes to the Sr.PS/PS 5. Order uploaded on 6. File sent to the Bench Clerk 7. Date on which file goes to the Head Clerk. 8. Date on which file goes to the AR 9. Date of dispatch of Order. Order pronounced u/r 34(4) of the Income-tax (Appellate Tribunal) Rules, 1963 on 30.01.2023