Depreciation on Road constructed on BOT basis allowed as Intangible asset : ITAT

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(Last Updated On: April 18, 2018)

IN THE ITAT HYDERABAD BENCH (SPECIAL BENCH)

Assistant Commissioner of Income-tax, Circle-16(2), Hyderabad

v.

Progressive Constructions Ltd.

D. MANMOHAN, VICE-PRESIDENT
J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
SAKTIJIT DEY, JUDICIAL MEMBER

IT APPEAL NO. 1845 (HYD.) OF 2014
C.O. NO. 36 (HYD.) OF 2015
[ASSESSMENT YEAR 2011-12]

FEBRUARY  14, 2017

J.V. Prasad, Sr. Standing Counsel for the Appellant. V. Raghavendra Rao, A.R. for the Respondent.

ORDER

Saktijit Dey, Judicial Member – This Special Bench is constituted by the Hon’ble President to dispose of the appeal filed by the Department assailing the order passed by the learned Commissioner (Appeals)-V, Hyderabad, and to decide the following important questions involved therein:—

“Whether on the facts and in the circumstances of the case, expenditure incurred by the assessee on construction of road on BOT basis is Capital or Revenue? If it is capital expenditure, whether the same is eligible for depreciation at the rate applicable to building or to an intangible asset as per section 32(1)(ii)? And, if not, whether the same being Revenue expenditure is liable to be amortized over the period of concession?”

2. The special bench finding that the aforesaid question does not arise out of the facts involved in the impugned assessment year proposed to reframe the question in consonance with the facts obtaining in the impugned assessment year, heard both the parties at length and after addressing the objections of the Department (discussed in detail in the order dated 4th April 2016, in M.A. no.96/Hyd./2015, and the interim order, hence, we do not consider it necessary to reiterate them again in this order) reframed the question as under:—

“Whether on the facts and in the circumstances of the case, the expenditure incurred by the assessee for construction of a road under BOT contract with GOI gives rise to an asset and if so, whether it is an intangible asset or tangible asset? In case it is held to be tangible asset, whether it is building or plant or machinery?”

3. Facts necessary for deciding the issue as culled out from record are stated hereinafter briefly, assessee a company is engaged in executing civil contract work. For the assessment year in dispute, assessee filed its return of income on 30th September 2011, declaring income at nil under normal provisions of the act. Subsequently assessee on 26th March 2012, filed a revised return of income declaring total income of Rs. 19,74,02,080 under the normal provisions and book profit of Rs. 25,24,58,222, under section 115JB of the Act. In course of the assessment proceedings, the assessing officer noticing that assessee has claimed depreciation of Rs. 40,07,94,526 at the rate of 25% on the opening written down value (WDV) of built, operate and transfer (BOT) bridge at Rs. 160,31,78,103 examined the matter further. He found that on 22nd December 2005, assessee had entered into a Concession Agreement (hereinafter called “C.A”) with the Government of India for four laning of National Highway no.9 between KM 493/1000 to KM 524/1000 in Pune-Hyderabad section in the State of Andhra Pradesh on BOT basis. The assessee completed the construction of the road and commenced operation of the road from 28th December 2008. The assessing officer on verifying the concession agreement found that as per the terms of the agreement, assessee was to complete the work at its own cost and maintain the same for a period of 11 years and after conclusion of the said period the road was to be handed over on “as is where is” basis to NHAI. As per the terms of agreement assessee is entitled to collect toll from vehicles using the road as mentioned in National Highways (Rate of Fee) Rules, 1997, during the concession period. Referring to different clauses of the concession agreement the assessing officer formed an opinion that as the assessee has no right on the road, except, for maintaining the road and receiving toll collections during the concession period as per the rates specified by the Government and entire rights over the road are with National Highway Authority of India, including collection of toll, the asset on which the assessee had claimed depreciation is neither a building nor a plant and machinery. He, therefore, called upon the assessee to justify the claim of depreciation. In response to the query raised by the assessing officer, assessee submitted, investment made by the assessee in constructing the road and acquiring the right to operate the road and receive toll charges is a valuable commercial or business right in the nature of intangible asset, hence, is eligible for depreciation under section 32(1)(ii) of the Act. The assessing officer, however, rejected assessee’s claim on the reasoning that assessee is not the owner of the asset and secondly, only roads within a factory premises linking various buildings and approach roads is eligible for depreciation. While coming to such a conclusion the assessing officer also noted, assessee has no consistency in its claim as in assessment year 2010-2011 assessee had claimed depreciation on the BOT-bridge by treating it as intangible asset. Accordingly, assessing officer disallowed assessee’s claim of depreciation. Being aggrieved of disallowance of depreciation assessee preferred appeal before the learned Commissioner (Appeals).

4. Learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and materials on record having noted that in assessment year 2010-2011 assessee’s claim of depreciation by treating the asset as an intangible asset was allowed by him and the said decision was confirmed by the tribunal, followed the same and allowed assessee’s claim of depreciation. Being aggrieved of the aforesaid decision of the learned Commissioner (Appeals), the Department is before us.

5. Shri J.V. Prasad, learned Senior Standing Counsel appearing for the Department apart from making his submissions orally at the time of hearing had also filed a written submission on 21st July 2016. At the outset he submitted, assessee is not consistent as far as its claim of depreciation on BOT-bridge is concerned. He submitted, in assessment year 2009-10 assessee had claimed depreciation by treating it as building. Whereas, in assessment year 2010-11 and 2011-12 assessee had claimed depreciation on BOT-bridge at a higher rate by treating it as intangible asset. He submitted, assessee had incurred expenditure of Rs. 214 crore over a period in pursuance to the concession agreement which has brought into existence a tangible asset in the form of widened roads, widened bridges, toll plaza etc. However, as per the terms of concession agreement such tangible assets are not only owned but are also used by the government of India. Therefore, assessee not being the owner of the tangible asset created, is not entitled to claim depreciation under section 32 of the Act.

6. The learned Senior Standing Counsel submitted, what the assessee has done is to make an investment for creation of an asset for the government of India, while, simultaneously acquiring certain rights in the property enabling it to earn income by way of collection of toll fee for a certain period. Thus, in the process recovering its cost of investment with certain amount of profit. In a way, for the assessee BOT roads, bridges et cetera are stock in trade being equipment or tools in its trade. He submitted, undoubtedly Government of India is the owner and user of the tangible asset created with the expenditure of Rs. 214 crore. Whereas, the assessee is claiming depreciation on the very same asset created with the very same expenditure by treating it as intangible asset. He submitted, right to claim depreciation by two different persons on an asset created out of the very same expenditure is incomprehensible land incongruous in law. The learned Senior Standing Counsel submitted, for an asset to be considered as an intangible asset under section 32(1)(ii) of the Act, it should be know how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature. He submitted, while six items of intangible assets are specifically identified, the unidentified ones are “any other business or commercial rights of similar nature”. Therefore, applying the principle of ejusdem generis, any other intangible asset to come within the expression “other business or commercial rights” should be similar to any one of the six identified items. He submitted, assessee’s claim that C.A. is akin to a license is not acceptable as neither C.A. is an intangible asset nor it is similar to license. He submitted, as license is not defined under the Income Tax Act, meaning of license is to be looked into under the Indian Easements Acts, 1882. Referring to the definition of license under section 52 of the Indian easements act 1882, learned Departmental Representative submitted, as per the said definition in a license the right given should not amount to an easement or an interest in the property. He submitted, the terms of the concession agreement would clearly establish that the rights given thereunder are neither a license nor akin to the same. Therefore, C.A. has not given rise to any intangible asset for the assessee. Learned Departmental Representative submitted, even assuming that C.A. is a license or akin to license, the question still remains as to what intangible asset has been created for the assessee and what is the expenditure incurred by the assessee for creating such intangible asset. He submitted, Government of India had initiated a process for construction of a four lane highway. The assessee being the successful bidder was awarded the contract which gave rise to execution of C.A. on 22nd December 2005. He submitted, the right created under the C.A. for the assessee is a right to collect toll. Such right arose to the assessee on the date of execution of the agreement on 22nd December 2005. He submitted, as per the terms of the C.A. assessee was given right to collect toll fees for a period of 11 years seven months from commencement date i.e., the date on which the physical possession of the project site is delivered to the assessee. Therefore, he submitted, the intangible asset, if at all has been acquired by the assessee is the C.A. dated 22nd December 2005. Thus, any expenditure which might have been incurred by the assessee by that date for acquisition of such intangible asset can alone be considered for depreciation under section 32(1)(ii) of the act. Therefore, the claim of the assessee that investment of Rs. 214 crore made by it has created an intangible asset for them is untenable. The learned Senior Standing Counsel submitted, at best, the assessee could have made a claim in terms of CBDT circular no.9 of 2014, for consideration by the assessing officer. In support of his contention, though, the learned Departmental Representative has relied upon a number of decisions, as referred to in Page-18 of the written submissions, however, at the time of hearing he had specifically relied upon the following decisions:—

(i)Techno Shares & Stocks Ltd. v. CIT [2010] 327 ITR 323 (SC);
(ii)CIT v. Smifs Securities Ltd. [2012] 348 ITR 302 (SC), and
(iii)Areva T. & D India Ltd. v. Dy. CIT [2012] 345 ITR 421 (Delhi)

7. Shri V. Raghavendra Rao, learned Authorised Representative, appearing for the assessee submitted, though, in the first year of claim of depreciation in assessment year 2009-10 the assessee had treated it as building, however, in assessment year 2010-11 as well as 2011-12, assessee had claimed depreciation by treating the right acquired for operating the BOT-bridge and collecting toll for user of such bridge by vehicles as intangible asset. He submitted, the assessee for constructing the road and bridge has invested huge amount of Rs. 214 crore. And under the terms of C.A. assessee was not going to be reimbursed the cost of construction. The only way the assessee can recover the cost of investment along with profit is by way of operating the bridge and collecting toll charges for user of the bridge by vehicles during the concession period of 11 years and seven months. Accepting the fact that assessee is not the owner of the road and bridge learned Authorised Representative submitted, the investment made by the assessee in constructing the road and bridge had created an intangible asset in the form of right to operate the road and collect toll charges. The learned Authorised Representative taking us through different clauses of the C.A. submitted, the concession granted by the Government of India in allowing the assessee to operate the road and collect toll charges during the concession period amounts to grant of license, hence is an intangible asset. He submitted, even assuming that the right acquired by the assessee to operate the road and collect toll charges is not in the nature of license, however, it certainly falls within the category of any other business or commercial right of similar nature as provided under section 32(1)(ii) of the act. He submitted, apart from the right to operate the road and collect toll charges the assessee was not given any other benefit under the C.A. Therefore, the right given for operating BOT- bridge and collecting toll charges for user of the road and bridge is a valuable commercial right acquired by the assessee by investing in the construction of the road and bridge. In support of his contention learned Authorised Representative relied upon the decision of the Tribunal, Pune Bench, in Ashoka Info (P.) Ltd. v. Asstt. CIT [2010] 35 SOT 50 (URO) (Pune).

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 Rs. 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 the assessment year 2010-11, the assessee had started claiming depreciation by treating the asset created as an intangible asset in terms of section 32(1)(ii) of the Act. We have also been informed that assessee’s claim of depreciation in assessment year 2009-10 and 2010- 11, were disallowed by the Assessing Officer. However, the learned Commissioner (Appeals) allowed assessee’s claim of depreciation as building in assessment year 2009-10 and as intangible asset in assessment year 2010-11. The aforesaid orders of the learned Commissioner (Appeals) were also upheld by the Tribunal while dismissing Department’s appeals on the issue. It is stated that the Department has challenged the decisions of the Tribunal in assessment year 2009-10 and 2010-11 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 asset or an intangible asset;
(iv)Whether the Concessionaire Agreement (C.A) held by the assessee can be regarded as a commercial or business right akin to a license;
(v)If such C.A. is akin to a license, what intangible asset has been created for the assessee and what is the expenditure incurred by the assessee for acquiring such intangible asset.

10. 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 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 granted concession for a period of 11 years 7 months from the commencement date. As per clause 2.4, the Government of India was obliged to hand over to the assessee 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 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 in accordance with the provisions of the agreement and for this purpose, it may regulate the entry and use of the same by the third parties, however, it shall not part with or create any encumbrance on the whole or any part of the project site save and except, as set forth and permitted 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 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 expenses, execute/implement the entire project and operate and maintain the same during the concession period; and
(v)The concessionaire shall have the right to levy/demand and collect fee as approved by the Government of India towards user 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. 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 our view, is not borne out from facts on record. At the cost of repetition we must observe, as per the terms of agreement the expenses incurred by the assessee towards construction of the roads, bridges, etc., were not going 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 Rs. 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 for depreciation under section 32(1)(ii) of the Act. We are afraid, we cannot accept the above argument of the learned Senior Standing Counsel. When the C.A. confers a right on the assessee to operate the project facility and collect toll charges over the concession period of 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 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, trade marks, 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 deductions shall be allowed—

12. Explanation 3 to section 32(1) defines intangible asset as under:—

Explanation 3.—For the purposes of this sub-section, the expression “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 right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a license.”

14. It has been the contention of the learned Senior Standing Counsel that as 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 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, being an intangible asset is eligible for depreciation 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 Rs. 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 commercial right because through such means, the assessee is going to recoup not only the cost incurred in executing the project but also with some amount of profit. Therefore, there cannot be any dispute that the right to operate the project facility and collect toll charges therefrom in lieu of the expenditure incurred in executing the project 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 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 treated as an intangible asset. The Hon’ble Delhi High Court 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 restricted only to knowhow, patents, trademarks, copyrights, licence or franchise. The Court observed, any intangible assets which are invaluable and result in smoothly carrying on the business as part of the tool of the trade of the assessee would come within the expression “any other business or commercial right of similar nature”.

17. In the case of Techno Shares and Stocks Ltd. (supra), 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 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.

18. In view of our aforesaid conclusion, there is no need to answer the second part of the question framed. This disposes of grounds no.2, 3, 5 and 6.

19. Insofar as ground no.4 is concerned, it is the contention of the Department that the learned Commissioner (Appeals) should have directed for amortization of the expenses incurred for construction of BOT road in terms of CBDT Circular no.9 of 2014 dated 23rd April 2014.

20. As already discussed in the earlier part of the order and dealt in detail in order dated 4th April 2016, in M.A. no.96/Hyd./2015, the nature of expenses whether capital or revenue is not the subject matter of dispute 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 benefit in terms of the circular can be granted, provided, assessee makes a claim in terms of it. The benefit of the circular cannot be thrust upon the assessee if it is not claimed. Therefore, since the issue, as raised in ground no.4, does not arise out of the orders of the Departmental Authorities, it cannot be the subject matter of adjudication in the present appeal. Accordingly, we dismiss ground no.4 raised by the Department.

21. In grounds no.7 and 8, the Revenue has challenged the deletion of addition made by the Assessing Officer under section 14A.

22. Brief facts are, in the course of assessment proceedings, the Assessing Officer noticing that the assessee had invested in shares which could result in earning of exempt income by way of dividend, proceeded to disallow expenditure incurred for earning exempt income by invoking provisions of section 14A and ultimately disallowed an amount of Rs. 17,56,850 towards interest attributable to utilization of loans for investing in shares. The assessee challenged the disallowance before the learned Commissioner (Appeals).

23. The learned Commissioner (Appeals), considering the fact that the assessee had not earned any exempt income in the relevant assessment year and further assessee had sufficient interest free funds available with him to make the investment held that no disallowance under section 14A can be made. Accordingly, he deleted the addition.

24. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. The fact that in the relevant previous year, assessee has not earned any exempt income has not been controverted by the Department. Therefore, in the absence of any exempt income earned by the assessee no disallowance under section 14A can be made as held by the Hon’ble Allahabad High Court and Hon’ble Gujarat High Court as referred to by the learned Commissioner (Appeals). Moreover, the assessee’s claim that it has sufficient surplus interest free funds to make investment in exempt income yielding assets has also not been controverted by the Department. Therefore, applying the ratio laid down by the Hon’ble Bombay High Court in CIT v. Reliance Utilities & Power Ltd. [2009] 313 ITR 340, CIT v. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom.) and Hon’ble Delhi High Court in the case of Cheminvest Ltd. v. CIT [2015] 378 ITR 33, we hold that no disallowance in terms of section 14A can be made. We, therefore, uphold the order of the learned Commissioner (Appeals) on this issue. These grounds are dismissed.

25. In the result, Department’s appeal is dismissed.

C.O. no.36/Hyd./2015 – By Assessee

26. There is a delay of 138 days in filing the cross objection. Explaining the reason for delay, assessee has stated that, due to oversight the assessee overlooked the CBDT circular on amortization. However, after due consideration of facts and materials on record, we are not convinced with the explanation of the assessee. As could be seen, in ground No.(iv) of its appeal, the department has specifically raised the plea of amortization as per the subject CBDT circular. Therefore, it cannot be said that assessee lost sight of the CBDT circular. In view of the aforesaid, the assessee having failed to explain the delay satisfactorily, we decline to condone the delay in filing the cross objection. The cross objection is, therefore, dismissed.

27. To sum up, Revenue’s appeal and assessee’s C.O. are dismissed

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