In a recent case, the Income Tax Appellate Tribunal (ITAT) of Delhi upheld the depreciation claim made by the assessee/ appellant , Delhi Airport Metro Express Private Limited on self-funded assets. The ruling arose from the between the assessee and the tax authorities concerning the eligibility for depreciation on assets developed under the Build-Operate-Transfer (BOT) scheme.
The premise of the case centers around the Airport Metro Express Project in Delhi, which was undertaken by the assessee-company under a concession agreement with the Delhi Metro Rail Corporation (DMRC) in 2008. As per the agreement, the company was granted rights to develop, operate, and maintain the Metro Express line for a period of 30 years. During this period, the company invested in and acquired assets such as plant and machinery, buildings, and computers for the project, all of which were funded from its own resources.
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The bone of contention arose during the assessment years 2012-13 and 2013-14 when the assessee-company claimed a depreciation of Rs. 297.86 crore on its capital expenditure, as per section 32 of the Income Tax Act, 1961 (ITA). However, the Assessing Officer (AO) disputed this claim, arguing that the assessee was not the legal owner of the assets under the BOT scheme and thus not entitled to claim depreciation. Instead, the AO allowed only the amortization of Rs. 75.93 crore, leading to a disallowance of Rs. 221.93 crore. The AO based this disallowance on a 2014 circular issued by the Central Board of Direct Taxes (CBDT), which stated that assets developed under the BOT scheme are not eligible for depreciation as they are not owned by the concessionaire.
Aggrieved, the assessee challenged this decision before the Commissioner of Income Tax (Appeals), who ruled in favor of the assessee-company, stating that the assets were indeed owned and maintained by the company during the concession period, thereby qualifying for depreciation. The Commissioner’s ruling was subsequently challenged by the Revenue before the ITAT.
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After reviewing the facts of the case, the bench of Mr Saktijit Dey and Mr Brajesh Kumar Singh upheld the Commissioner’s decision, allowing the assessee-company’s claim for depreciation. The Tribunal noted that while the assets would revert to DMRC at the end of the concession period, during the tenure of the agreement, the assessee had legal ownership and control over the assets. This ownership conferred upon the company the right to claim depreciation, as these assets were used for business purposes and provided enduring benefits over the concession period.
The ITAT also referred to various judicial precedents, including cases involving similar BOT projects, where the courts had allowed depreciation claims on assets owned and operated by concessionaires during concession periods. The Tribunal stressed that the nature of the assets—whether tangible or intangible—was irrelevant as long as they were used for business purposes and provided enduring benefits, making them eligible for depreciation under section 32 of the tax legislature.
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Furthermore, the Tribunal dismissed the argument presented by the Revenue, which was heavily reliant on the CBDT circular. The ITAT clarified that the circular was not applicable in this case, as it pertain specifically to infrastructure projects like roads and highways and did not extend to metro projects. It reaffirmed that depreciation could be claimed on assets as long as they were owned by the company during the period of use, even if they were to be transferred back to the DMRC at the end of the concession period.
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