The Delhi bench of ITAT in an appeal filed by the assessee against the order of Ld.CIT (A) which confirmed the order of A.O regarding the depreciation claim made by the appellant , held that intangible asset is eligible for depreciation under Section 32(1)(ii) of the Income Tax Act,1961.
In the instant case, the assessee is a Government of India undertaking working under the administrative control of ministry of railways engaged in handling and transportation of containerized cargo. The assessee had claimed depreciation on intangible assets for the years under consideration i.e., 2007-08 and 2008-09 for running container trains on Indian Railways Network for twenty years. The assessee corporation had made a payment of Rs. 50 crores to the Ministry of Railways, Government of India as a non-refundable registration fee for twenty years towards licence for running container trains on Indian railways network. The assessee claimed for depreciation @25% according to Part B of new Appendix 1 to the Income Tax Rules, 1962 which was allowed in the original assessment according to Section 143(3) of the Income Tax Act, 1961. The Ld.CIT(A) also held that assessee cannot be denied depreciation holding that the license in question is owned by the assessee and it is used for the purpose of it’s business and it does fulfill requirements of Section 32 (1) (ii) of the act. In the rectification proceedings under Section 154 of the act, the A.O observed that it was deferred revenue expenditure and the claim of depreciation was not allowed in entirety. Aggrieved by the order of Ld.CIT(A), the assessee approached the ITAT.
The ITAT applying the principle of ejusdem generis, interpreted the expression “business or commercial rights of similar nature” specified in Section 32(1)(ii) of the act and it came to the conclusion that assets which are invaluable and which result in carrying on the transmission and distribution business by the assessee comes under the purview of the section. It relied on the ratio of decision of Hon’ble Supreme Court in Techno Shares and Stocks Ltd. [2010] 327 ITR 323 SC wherein it was held that intangible assets used for business purpose which enables the assessee to access the market and has economic and money value is licence which does fall under Section 32(1)(ii) of the act. The ITAT held that “ we are of the view that specified intangible assets acquired under slump sale agreement were in the nature of business or commercial rights of similar nature specified in Section 32(1)(ii) and were accordingly eligible for depreciation under that section”. Allowing the appeal, ITAT added that it doesn’t have any hesitation to hold that the assessee’s is a capital asset in the form of right to operate and the intangible asset acquired by assessee is eligible for depreciation @25% under Section 32(1)(ii) of the IT Act,1961.
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