The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) vitiated the claim of depreciation by an Assessee on a Toll Road constructed by them under Build,Operate and Transfer ( BOT ) basis, claiming the inability to consider such toll Roads as Intangible Assets for the purpose of claiming depreciation
The order was passed by the ITAT while disposing of two appeals with the same subject matter filed by Hazaribagh Ranchi Expressway Ltd., an enterprise commissioned by the National Highway Authority of India (NHAI) for the four-laning of the Hazaribagh-Ranchi section on NH-33 in Jharkhand.
The Appellant, having constructed the Expressway toll road on a Build,Operate and Transfer agreement model sought to capitalize the cost of the project during the year and maintained an escrow account for depositing the receipts.
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During conduct of Assessment proceedings, the Appellant submitted that the road may be classified as “plant and machinery” and claimed depreciation of 15% on the total cost of the project; alternatively, the Assessee submitted that if the revenue shall deem the road to be an intangible asset, a depreciation of 25% may be allowed.
The claim of depreciation put forward by the Assessee were refuted by the Assessing Officer (AO) while holding that the BOT model vests lease rights on the Assessee for a period of 18 years following which the cost of the asset will stand recovered by the Assessee and the asset shall stand transferred the State Government.
The issue was appealed before the Commissioner of Income Taxes (Appeals) who followed the decision of the Bombay High Court in North Karnataka Expressway Ltd v/s CIT (2014) to substantiate that construction of a toll road on BOT basis does not vest ownership rights on the constructor, thus making them ineligible to claim depreciation on the same.
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The two-member Bench of ITAT of Amarjit Singh, Accountant Member and Sandeep Singh Karhail, Judicial Member after taking the submissions on record, laid reference to the decision of the Madras High Court in L & T Infrastructure Development Projects Limited v/s ACIT (2009) as referred by the Revenue.
The Madras High Court held in L & T that “the toll bridge and the toll roads are not tangible assets of the taxpayer in terms of Explanation-3(a) to section 32(1)(ii) of the Act”. The Madras High Court further rejected the plea that the taxpayer acquired intangible assets under the Concessionaire Agreement within the meaning of Explanation-3(b) to section 32(1)(ii) of the Act.
It was observed by ITAT that the decision in L & T, being the sole authoritative ruling pertaining to the present subject matter, requires the Bench to pass a similar order in the present matter owing to the binding nature of the Madras High Court’s decision over that of ITAT.
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The Bench concluded that CIT(A) rightly denied the claim of depreciation purported by the Assessee while permitting the benefit of amortisation in light of the Concession Agreement between the Appellant and NHAI.
In light of the findings made, ITAT disposed of both appeals affirming that the instant decision shall apply mutatis mutandis to both matters.
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