Income Tax Appellate Tribunal - Ahmedabad
Gujarat Road & Infrastructure Co. Ltd, ... vs Assessee on 6 August, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH - AHMEDABAD
(BEFORE SHRI G. C. GUPTA, VP AND SHRI A. MOHAN ALANKAMONY, AM)
ITA No.1169 & 1730/Ahd/2010 and 892/Ahd/2012
A. Y.: 2002-03 and 2005-06
The D. C. I. T., Gandhinagar Circle Vs Gujarat Road & Infrastructure
th
Block No.14, 4 Floor, Udhyog Co. Ltd. (Successor of Vadodara
Bhavan, Sector - 11, Gandhinagar Halol Toll Road Co.), Road &
Building Department, Block
No.14, Sachivalaya,
Gandhinagar,
P. A. No. AABCG 2093 H
Gujarat Road & Infrastructure Co. Ltd. The A. C. I. T.,
(Formerly known as Gujarat Toll Road Gandhinagar Circle ,
Investment Co. Ltd.) Successor of Gandhinagar
Vadodara Halol Toll Road Co., Road &
301, Shapath - 1, Opp. Rajpath Club,
Sharkhej - Gandhinagar Highway,
Bodakdev, Ahmedabad 380 015
P. A. No. AABCG 2093 H
The A. C. I. T., Gandhinagar Circle, Gujarat Road & Infrastructure
Block No.14, 4th Floor, Co. Ltd. (Gujarat Toll Road
Ydhyog Bhavan, Sector - 11, Investment Co. Ltd.),
Gandhinagar 382 011 301, Shapath - 1, Opp. Rajpath
Club, Sharkhej - Gandhinagar
Highway, Bodakdev,
Ahmedabad 380 015
P. A. No. AABCG 9747 N
(Appellant) (Respondent)
C.O. No.105/Ahd/2012
(In ITA No.892/Ahd/2012)
Gujarat Road & Infrastructure Vs The A. C. I. T., Gandhinagar
Co. Ltd. (Formerly Gujarat Toll Circle, Block No.14, 4th Floor,
Road Investment Co. Ltd.), 301, Ydhyog Bhavan, Sector - 11,
Shapath - 1, Opp. Rajpath Club, Gandhinagar 382 011
ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 2
06)
Gujarat Roads & Infrastructure Co. Ltd.
Sharkhej - Gandhinagar
Highway, Bodakdev,
Ahmedabad 380 015
P. A. No. AABCG 9747 N
(Cross Objector) (Respondent)
Department by Shri B. K. SPandya, CIT DR
Assessee/Cross Objector by Shri Dilip V. Lakhani, AR
Date of hearing: 06-08-2012
Date of pronouncement: 24-09-2012
ORDER
PER A. MOHAN ALANKAMONY: These cross appeals and the Cross Objection are filed by the revenue and the assessee aggrieved by different orders of the learned CIT(A), Gandhinagar in appeal No. CIT(A)GNR/260/2008-09 dated 12-01-2010 for AY 2002- 03 and No CIT(A)/GNR/203/2010-11 dated 09-01-2012 for AY 2005- 06 and passed u/s 250 and 143(3) read with section 147 of the IT Act. All these cross appeals along with the cross objections were heard together and the same are being disposed of by this common order for the sake of convenience:-
ITA No.1169/Ahd/2010(Revenue's appeal for AY 2002-03)
2. The revenue has raised two effective grounds of appeal which are reproduced herein below:
ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 3
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"1. The learned CIT (Appeals) has erred in law and on facts in deleting the addition of Rs.5,26,43,488/- made on account of interest on Deep discount Bond.
2. The learned CIT (Appeals) has erred in law and on facts in deleting the addition of Rs.14,67,03,030/- made on account of Depreciation."
3. The assessee is a Limited Company engaged in the business of development, operation and maintenance of toll roads filed its return of income on 31-10-2002 declaring total loss at Rs.29,52,46,692/-. The case was initially processed u/s 143(1) of the Act and subsequently assessment u/s 143(3) was completed on 23-12-2008. It was observed by the learned AO that the assessee had claimed depreciation on road @ 10% as applicable to non residential building amounting to Rs.14,67,03,030/- which appeared to be against the decision of the Hon'ble Supreme Court in the case of Indore Municipal Corporation Vs CIT reported in (2001) 247 ITR
403. Further, the assessee claimed deduction for accrued interest payable of Rs.5,26,43,488/- for issue of debentures named "Deep Discount Bond". These debentures were redeemable with interest over a period of sixteen years according to the terms of agreement. The learned AO after recording the reasons and obtaining approval from the Addl. CIT issued notice u/s 148 on 01-02-2008 requiring the assessee to explain as to why depreciation claimed on road @ 10% should not be disallowed. After considering the explanations of the assessee, the learned AO held that the toll road can not be considered as an asset as specified in Appendix - I to the Income Tax Rules, 1962 and thereby rejected the claim of depreciation to the ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 4
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assessee. The learned AO also relied on the decision of the Hon'ble Supreme Court in the case of Indore Municipal Corporation Vs CIT reported in (2001) 247 ITR 403 wherein it has been held that road cannot be said to constitute as a building. Accordingly, the learned AO disallowed the assessee's claim of depreciation for Rs.14,67,03,030/- and added the same to the income of the assessee. With regard to the assessee's claim of Rs.5,26,43,488/- being interest payable on Deep Discount Bond, the learned AO observed that as per the scheme of Deep Discount Bonds, interest was due and payable only on maturity. Since the liability was not accrued and the amount was not paid, the learned AO disallowed the claim of the assessee u/s 43B of the Act and added the sum of Rs.5,26,43,488/- to the income of the assessee. The assessee carried the matter before the learned CIT(A) on both these issues. The learned CIT(A) considering the facts of the case and the submissions of the assessee allowed both the issues in favour of the assessee by observing as under in Para 3.2 , 4.4 and 4.5 of his order:
Deleting the addition of Rs.5,26,43,488/- made on account of interest on Deep discount Bond.
"3.2 This issue has come up in other years as well, when the additions made by the Assessing Officer has been confirmed by CIT(A). However, ITAT Ahmedabad has meanwhile delivered its decision for assessment year 2003-04. The appellant has filed a copy of the decision dated 15/05/2009 in ITA No.2901/Ahd/2006, wherein it has been held that the disallowance is not correct. Since the facts of the case are ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 5
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exactly similar, therefore, the disallowance of Rs.5,26,43,488/- made by the assessing officer is deleted."
Deleting the addition of Rs.14,67,03,030/- made on account of Depreciation.
"4.4 The matter has been considered. The ITAT's decision in the case of M/s. NOIDA Toll Bridge Company Ltd. (supra) (copy of which has been filed in the paper book), has been pursued. The facts of the case are identical. In that case also the concerned Assessing Officer had relied on the Hon'ble Supreme Court's decision in the case of Indore Municipal Corporation (supra), rejecting the claim of roads being buildings. The Tribunal, however, held that Assessing Officer's action in following the depreciation was not justified. The operative portion of the decision reads as follows:
"7. We have duly considered the rival contentions and gone through the records carefully. The only objection of the Assessing Officer for denying the depreciation to the assessee is that road in isolation does not constitute building. This road is not within the factory premises which can be considered as a part of the plant or of building. We find that expression "building" has been given an extended meaning in the Appendix -I of IT Rules. Now the building includes roads, bridges, culverts, well and tube wells. Thus, the judgment relied upon by the Assessing Officer is not applicable on the facts of the present case. There is a change in the position of law. The learned 1st Appellate Authority has considered this issue elaborately in the findings extracted supra, and we do not find any error in this finding. Therefore, both the appeals are dismissed."
4.5 Following the same, for the appellant also it is held that the Toll road is entitled to deduction at the rates applicable to Building. The appellant's this ground of appeal is accepted." ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 6
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4. The learned DR supported the order of the learned AO and prayed that the same may be confirmed. On the other hand, the learned AR supported the order of the learned CIT(A).
5. We have heard the rival submissions and carefully perused the materials on record. On both these issues, the learned CIT(A) has followed the decision of ITAT based on which he deleted the addition made by the learned AO and thereby allowed the assessee's appeal. In ITA No.2901/Ahd/2006 in the case Gujarat Toll Road Investment Co. Ltd. V/s the ACIT for assessment year 2003-04 the Tribunal vide its order dated 15-05-2009 had examined the matter with regard to Deep Discount Bonds and arrived at the following conclusion in page 16 of the order.
"In the instant case, the interest is payable in respect of amounts deposited by financial institutions with the assessee by subscribing to the bonds issued by the assessee. The interest is payable in respect of certain deposits received by the assessee and not in respect of any loans, advances or borrowings made by the assessee. For the same reason, clause (e) of section 43B relating to loans and advances from a scheduled bank is also not applicable in the instance case. In the above circumstances, in our considered view, neither the Assessing Officer was justified in disallowing the deduction claimed for provision made in respect of interest accrued, but not due on the Deep Discount Bonds issued by the assessee nor the ld. CIT(Appeals) was justified in confirming such disallowance. It is observed that the amount of provision made by the assessee in respect of interest accrued on Bonds is not in dispute as excessive or not relating to the year under consideration. We, therefore, delete the disallowance of Rs.6,08,03,230/- in respect of provisions made for interest in ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 7
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respect of Deep Discount Bonds. Hence, these grounds of appeal of the assessee are allowed."
6. On the issue with regard to allowability of depreciation on toll roads, the Tribunal in assessee's own case in ITA No.1453/Ahd/2008 for assessment year 2004-05 vide order dated 12-02-2010 held as under on page 13 Para 11 of the order:
"11. We find that the assessee is engaged in the business of setting up of infrastructure facility by way of construction of Toll- Roads and particularly this road known as "Vadodara - Halol Toll - Road", as per the policy of the Govt. of India in a Public Private Partnership. The Govt. of Gujarat has formed a SPV in joint venture with the assessee i.e. between Gujarat Govt. and IL & FS Group. As per the changed business scenario after economic liberalization as per the policy of the Govt. of India, the assessee has constructed this Toll-Road on BOOT Basis. The assessee raised funds for the construction, maintain and to operate this Toll-Road and is entitled to collect toll from the vehicles passing through this Road. This road is constructed by the assessee in the course of carrying out its business activity and therefore the Toll-Road is an asset owned by the assessee on BOOT basis, with which business is carried on and exploited this asset for generating income, which is offered as revenue receipt for the purpose of taxation. The Assessing Officer during the course of assessment proceedings allowed the claim of depreciation after considering the revised return filed by the assessee. The AO has allowed the claim of depreciation in the computation of income after considering that the assessee has constructed the Toll-Road and it is operated and managed by the assessee. We find the Toll-Road is an integral part of the business activity of the assessee and without which the assessee could not carry on its business activity. We further find that the assessee is owned a capital asset and the same is used for the purposes of business. It is also a fact that in the course of construction of Toll-Road, the assessee has constructed buildings, which are administrative building. Toll ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 8
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Plazas on both ends of road, from whereby the toll is collected by the staff from the passing vehicles. We further find from the facts that the road constructed by the assessee forms most important source of its revenue and the basic objective is to construct the Toll-Road under BOOT Scheme. Thus, the assessee has fulfilled the basic criteria for claiming depreciation i.e. existence of a capital assets, ownership of such asset and most important that the assessee were put to use for its business purpose. We find that the Ld. Counsel for the assessee has made a fine distinction in the facts of the present case with that of Indore Municipal Corporation (supra) by stating the fact that IMC was a local body which derived income from sale of manure prepared out of waste and night oil dumped in the trenching grounds outside the municipal limits and it constructed a metal road over the trenching ground and claimed that the said expenditure should be treated as road and claimed depreciation. The Hon'ble Madhya Pradesh High Court held that the metal road for hauling composed could not be considered as expenditure and the assessee was not entitled to depreciation. The Hon'ble Supreme Court also held that the said metal roads cannot be treated as building as there was no other construction on the open ground except roads and roads by themselves cannot constitute building. We find that the facts before us, the toll road is constructed and there are toll plazas and administrative buildings and the roads are connected to these buildings on the both ends having toll plazas as well as buildings.
12. Another fact in the present case is that the definition of building as applicable to section 32 of the Act has been substituted in Rule -5 of I. T. Rules, 1962 by the I. T. (Third Amendment) Rules 1987, w. e. f. 1987, whereby Note 1 below the Table of rats at which depreciation is admissible, constitution part of Appendix I to I. T. Rules, 1962 operative for and from assessment year 1988-89, by virtue of which buildings includes roads, building culverts, wells and tube wells. We find that Note 1 in the Depreciation Schedule clarifies that 'buildings include roads, bridges, culverts, wells and tube wells. The Hon'ble Supreme Court in the case of Gwalior Rayaon Silk Mfg. ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 9
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Co. Ltd. (supra) has also held that roads laid within the factory premises as links or which provides approach to the buildings are necessary adjuncts to the factory buildings to carry on the business activities of the assessee, and would be 'building' within the meaning of section 32 of the Act. Similarly, Delhi Bench of this Tribunal in ITA No.3211 and 1983/Del/2006 in the case of DCIT v. M/s. Noida Toll Bridge Co. Ltd. has also allowed the claim of the assessee on Toll-Road.
13. Another argument made by Ld. CIT-DR was that the assessee is not the owner of the asset, i.e. Toll-Road. Now the question arises whether legal title is necessary or not, and this has been answered by the Hon'ble apex court in the case of Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775 (SC), wherein it was held that the term 'own', 'ownership', 'owned' are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used. The term 'owned' as occurring in section 32(1) must be assigned a wider meaning. Anyone in possession of property in his own title exercising such domination over the property as would enable others being excluded therefrom and having right to use and occupy the property and /or to enjoy its usufruct in his own right would be the owner of the building though a formal deduction of title may not have been executed and registered as contemplated to the Transfer of Property Act, 1882 Registration Act etc. In the present case neither the CIT in the revision order u/s 263 of the Act or by the Assessing Officer while framing original assessment has raised this issue, but the Ld. Counsel for the assessee categorically stated that this Toll-Road was constructed on BOOT basis, i.e. means 'Build, 'Own', 'Operate' and 'Transfer'. According to him, the entire responsibility for maintaining and operating this Roll-Road for 31 years is on assessee as he has to collect toll-fee. Once this concept of BOOT has been accepted by Govt. of India under infrastructure policy and the Govt. of Gujarat also entered in a joint venture with the assessee and formed an SVP the question of ownership rest with the assessee for the purposes of claim of ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 10
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depreciation. Accordingly, this issue on merits is allowed in favour of the assessee."
7. Considering the above decision of the Tribunal, the learned CIT(A) has allowed the appeal of the assessee in its favour. In these circumstances, we do not find it necessary to interfere with his order. Therefore, we confirm the order of the learned CIT(A) for both the issues i.e. (a) allowability of interest on Deep Discount Bonds as deduction and (b) allowability of depreciation on Toll Road. Accordingly, the appeal of the revenue on both these issues is dismissed.
ITA No.1730/Ahd/2010(Assessee's appeal for AY 2002-03)
8. The assessee has raised four grounds in its appeal wherein ground No.4 is general in nature and does not survive for adjudication. In grounds No.1 and 2 of the appeal, the assessee has challenged the validity of reassessment order passed by the learned AO and in ground No.3, the assessee states that the learned CIT(A) has erred in confirming the disallowance of Rs.1,61,37,960/- being the expenditure incurred in road over lay and renewal expenses.
9. At the outset of the hearing the learned AR pointed out that with regard to grounds No.1 and 2 of the appeal the issue remains to be adjudicated by the learned CIT(A) and therefore the matter should be remitted back to the file of the learned CIT(A) for adjudication. The learned DR conceded that this matter with respect to reopening of the ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 11
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assessment u/s 147 of the IT Act was not adjudicated by the learned CIT(A) as he had opined, the issue to be academic. On perusing the facts of the case, we are of the considered view that this issue ought to have been considered by the learned CIT(A) and disposed off by passing a speaking order. Therefore, in the interest of justice we hereby remit the matter back to the file of the learned CIT(A) with direction to pass appropriate order as per merit and law after affording both the parties of being heard. Accordingly, grounds No.1 and 2 raised by the assessee are allowed for statistical purposes.
10. Ground No.3: Disallowance of Rs.1,61,37,960/- being expenditure on road overlay/renewal:- It was observed by the learned AO that a sum of Rs.1,61,37,960/- was debited to the profit & loss account. When the details were called for the assessee explained it to be provision made on a scientific basis for expenditure to be incurred in due course. Therefore, the learned AO disallowed this claim of provision for expenditure made by the assessee. The learned CIT(A) also arrived at fair conclusion that the entire expense of Rs.1,61,37,960/- claimed by the assessee is not an expenditure incurred by the assessee but a provision made in the books of account and accordingly confirmed the order of the learned AO. After hearing both the sides and perusing the materials on record, it is evident that the entire expenses of Rs.1,61,37,960/- claimed by the assessee is only a provision made in the books of account and do not pertain to actual expenses incurred by the assessee during the year. Therefore, we also do not have any hesitation to confirm the orders of ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 12
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the revenue authorities. This ground of appeal of the assessee is accordingly dismissed.
ITA No.892/Ahd/2012(Revenue's appeal for AY: 2005-06)
11. The only effective ground of appeal raised by the revenue in its appeal read as under:
"1. The learned CIT(Appeals) has erred in law and on facts in allowing the claim of depreciation amounting to Rs.37,36,34,380/- on toll roads even though toll road is not covered under 'assets', as enumerated in Appendix -I to I. T. Rules and also ownership of the same does not vest with the assessee, hence not eligible for depreciation."
12. We have decided this issue against the revenue and in favour of the assessee while disposing of ground No.2 raised by the revenue in its appeal in ITA No.1169/Ahd/2010 for AY 2002-03 supra. Following the same decision on the identical issue, we hereby dismiss ground No.1 of the appeal raised by the revenue in AY 2005-
06. C.O. No.105/Ahd/2012 (In ITA No.892/Ahd/2012) (Assessee's Cross Objection for AY: 2005-06)
13. In this cross objection the assessee has raised three grounds wherein grounds No.2 and 3 are general in nature and the only surviving ground is relating to challenging the initiation of proceedings ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 13
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u/s 147 and 148 of the IT Act. On perusing the appeal of the assessee before the learned CIT(A) in CIT(A)/GNR/203/2010-11 for the AY 2005-06, we find that the assessee has not challenged this issue before the learned CIT(A). However, in the interest of justice we remit this issue back to the learned CIT(A) to consider the same on merit. Accordingly, the cross objection filed by the assessee is allowed for statistical purpose.
14. In the result, both the revenue's appeal for the AY 2002-03 in ITA No.1169/Ahd/2010 and ITA No.892/Ahd/2012 for assessment year 2005-06 are dismissed. Assessee's appeal for AY 2002-03 in ITA No.1730/Ahd/2010 is partly allowed for statistical purpose and the assessee's C. O. for AY 2005-06 is allowed for statistical purposes.
Order pronounced in the open Court on 24-09-2012 Sd/- Sd/-
(G. C. GUPTA) (A. MOHAN ALANKAMONY)
VICE PRESIDENT ACCOUNTANT MEMBER
Deka/--
Lakshmikant Deka/
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad
ITA No.1169 & 1730/Ahd/2010, 892/Ahd/2012 & CO 105/Ahd/2012 (AY2002-03 & 2005- 14
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1. Date of dictation: 06-09-2012/19-09-2012
2. Date on which the typed draft is placed before the Dictating Member: 19-09-2012 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement:
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk:
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: