Income Tax Appellate Tribunal - Hyderabad
Acit., Circle-16(2), Hyderabad, ... vs Progressive Constructions Limited, ... on 14 February, 2017
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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 22 M/s. Progressive Constructions Ltd.
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 23 M/s. Progressive Constructions Ltd.
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 CIT v/s 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 24 M/s. Progressive Constructions Ltd.
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".
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17. In the case of Techno Shares and Stocks Ltd. v/s CIT, [2010] 327 ITR 323 (SC), 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.26
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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 27 M/s. Progressive Constructions Ltd.
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 28 M/s. Progressive Constructions Ltd.
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 Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom.), CIT v/s HDFC Bank Ltd. [2014] 366 ITR 505 (Bom.) and Hon'ble Delhi High Court in the case of Cheminvest Limited vs. CIT (2015) 378 ITR 33, we hold that no disallowance in terms of section 14A 29 M/s. Progressive Constructions Ltd.
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.
Order pronounced in the open Court on 14.02.2017.
Sd/-Sd/-d/- Sd/- Sd/--
D. MANMOHAN J. SUDHAKAR REDDY SAKTIJIT DEY
VICE PRESIDENT ACCOUNTNAT MEMBER JUDICIAL MEMBER
HYDERABAD, DATED: 14th February, 2017.
VBP/-
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Copy of the order forwarded to:
(1) M/s. Progressive Constructions Ltd., 7th Floor, Raghava North Block, Raghava Ratna Towers, Chirag Ali Lane, Hyderabad.
(2) The ACIT, Circle-16(2), Aayakar Bhavan, Basheerbagh, Hyderabad. (3) The CIT(A)-V, Hyderabad.
(4) The CIT-IV, Hyderabad.
(5) The DR, ITAT, "A" Bench, Hyderabad.
(6) Guard file.
True Copy By Order (Asstt. Registrar) ITAT,Hyderabad