Income Tax Appellate Tribunal - Panji
M/S Godavari Toll Bridge Pvt. Ltd., ... vs The Acit, Circle3(1), Visakhapatnam., ... on 8 December, 2017
ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
आयकर अपील य अ धकरण, वशाखापटणम पीठ, वशाखापटणम
IN THE INCOME TAX APPELLATE TRIBUNAL,
VISAKHAPATNAM BENCH, VISAKHAPATNAM
ी ड. मनमोहन, उपा य एवं
ी ड.एस. सु#दर %संह, लेखा सद'य के सम
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT &
SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A.Nos.337, 338 & 339/Vizag/2012
( नधारण वष / Assessment Years: 2007-08 to 2009-10)
DCIT, Circle-3(1), Godavari Toll Bridge Pvt. Ltd.,
Visakhapatnam Visakhapatnam
[PAN No.AACCG7208D]
(अपीलाथ) / Appellant) (*+याथ) / Respondent)
C.O. Nos.37, 38 & 39/Vizag/2016
(Arising out of I.T.A.Nos.337, 338 & 339/Vizag/2012)
( नधारण वष / Assessment Years: 2007-08 to 2009-10)
Godavari Toll Bridge Pvt. Ltd., ACIT, Circle-3(1),
Visakhapatnam Visakhapatnam
(अपीलाथ) / Appellant) (*+याथ) / Respondent)
अपीलाथ क ओर से / Appellant by : Shri B.C.S. Naik, DR &
Shri K.C. Das, DR
याथ क ओर से / Respondent by : Shri C.V.S. Murthy, AR
सुनवाई क तार ख / Date of hearing : 04.12.2017
घोषणा क तार ख / Date of Pronouncement : 08.12.2017
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
आदे श / O R D E R
PER D. MANMOHAN, Vice President:
These cross appeals pertain to the assessment years 2007-08 to
2009-10 and they are directed against the common order passed by the
CIT(A), Visakhapatnam. Since the issue involved in all these appeals is
identical, we proceed to dispose of these appeals by a combined order,
for the sake of convenience.
2. Assessee company is being run in the name and style of "Godavari
Toll Bridge Private Limited" and it was incorporated in the year 2006 as
a wholly owned subsidiary of Navayuga Engineering Company Limited
(NECL). A bridge was constructed across the Gautami branch of the
river Godavari between Yanam and Yedurlanka on BOT contract basis by
NECL, the holding company of the assessee. NECL completed the
construction during the year 2002-03 and started collecting toll fee. It
has shown it as a capital asset in its balance sheet and it was claiming
depreciation from year to year, which was allowed by the department.
3. Since the assessee company is a wholly owned subsidiary of NECL
and it was incorporated as a special purpose vehicle for the purpose of
effective administration and management of the said bridge, NECL
decided to transfer the right over BOT asset to the assessee and
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
permitted them to operate, maintain and collect toll, vide a resolution
passed in the meeting of its Board of Directors held on 31.3.2006. The
Directors of assessee company also have accepted the resolution passed
by NECL.
4. Since the assessee company owns a right over BOT asset during
the previous year relevant to the assessment year 2007-08, it claimed
depreciation on the toll bridge, u/s 32(1) of the Income Tax Act, 1961
(hereinafter called as 'the Act'). Since the assessee company is not the
owner of the asset (toll bridge) but claimed depreciation on it, the A.O.
was of the opinion that the income chargeable to tax escaped
assessment and accordingly issued notices u/s 148 of the Act for the
years under consideration and thereafter the matter was taken up for
scrutiny. On perusing the details and the written submissions furnished
by the assessee, during the course of hearing, and upon discussing the
case with the assessee and it's A.R., the A.O. was of the view that the
assessee company is not entitled to claim depreciation on an asset,
which is not owned by the company. In this regard, it observed that the
bridge was built by NECL under Build, Operate and Transfer (BOT)
scheme of Government of Andhra Pradesh under Public Private
Participation (PPP) Mode with 80% of Government subsidy on the total
cost of ` 86 crores, and an agreement dated 6.10.1999 with
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
Government of Andhra Pradesh. The bridge was accordingly
constructed during the year 2002-03 and it was opened to public w.e.f.
5.10.2002 and NECL started collecting the toll fees. Later on, the
holding company transferred the right over the bridge to the assessee
company (in the month of March, 2006) for a consideration ` 125
crores, though the written down value of the bridge as on the date of
transfer is ` 13.46 crores only. The case of the assessee was that the
value of the bridge has been fixed on the basis of future earnings in the
form of toll collections. During the remaining concession period, the
assessee company paid the consideration in the form of admission of the
outstanding loan of ` 10.30 crores, which was subsequently converted
into share application money as the loan was repaid by NECL and the
balance of ` 114.70 crores paid was adjusted by way of allotment of
fully paid equity shares of ` 10/- each at a premium of ` 990/-.
5. Though the value of the bridge is taken at ` 125 crores in the
books of the assessee company, for the purpose of claiming depreciation
under the Income Tax Act, the value of the bridge is taken at ` 13.46
crores only, which is the WDV as on the date of transfer of the bridge to
the assessee company. According to the assessing officer, the
ownership of the bridge and approaches continue to vest with the
Government since no enterprise can impose any restrictions whatsoever
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
in this regard. Under these circumstances, the A.O. concluded that the
ownership of the bridge lies with the Government of Andhra Pradesh in
which event, assessee company cannot be treated as owner of the
bridge so as to claim depreciation u/s 32 of the Act.
6. The claim of depreciation was based upon a decision of the ITAT,
Hyderabad bench, wherein, under identical circumstances, the ITAT,
Hyderabad bench declared that depreciation is allowable to the
assessee, which is now managing the toll bridge.
7. The A.O. had taken into consideration the clauses of BOT
agreement entered into with the owner of asset to highlight that the
ownership of the land together with the bridge shall vest with the
Government and the enterprise cannot impose any restrictions
whatsoever in this regard. Assessee can only collect toll fee for a period
of 15 years from the date of its operation and there after, it has to hand
over the asset to the Government of Andhra Pradesh free of cost.
Therefore, depreciation claimed u/s 32 of the Act was not accepted by
the A.O. Though the Ld. Counsel relied upon the decision in the case of
NECL (ITA No.1050 to 1053/Hyd/2009), the A.O. distinguished the
decision on the ground that the department has not accepted the
decision of ITAT and filed a reference appeal before the Hon'ble High
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
Court of Andhra Pradesh and till reaches finality and the matter needs to
be kept alive. Accordingly, the claim of depreciation by the assessee
company was rejected.
8. Aggrieved, assessee preferred appeals before the Ld. CIT(A)
contending, inter-alia, that the sum and substance of the clauses of the
concessional agreement between Government of Andhra Pradesh and
NECL ought to have been taken into consideration by the assessing
officer to appreciate that the assessee can be considered as a owner of
the asset in which event, claim of depreciation ought to have been
accepted by the A.O.
9. Ld. CIT(A) was of the opinion that in the case of NECL,
depreciation on the same bridge was allowed in the hands of NECL
though the department has taken a stand that it is not the owner of the
bridge. Based on the same logic, the rights over the said bridge having
been transferred to the assessee company, depreciation is allowable to
the assessee company on the said bridge. Accordingly, the A.O. was
directed to allow depreciation on the bridge, in the hands of the
assessee company.
10. Aggrieved, revenue preferred appeals before the Tribunal. Since
the claim of depreciation was allowed, the assessee did not chose to
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
prefer appeals against the orders passed by the CIT(A) but by taking
advantage of the appeals filed by the revenue, it chose to file cross
objections to support the claim of deduction by raising the following
ground:
"Alternatively, the respondent - assessee (assessee) is eligible for
amortization of the expenditure incurred as reduced by the depreciation
allowed in the earlier years in terms of Para 7 of the Circular of CBDT No.9
of 2014 dated 23.4.2014."
11. Ld. D.R. strongly relied upon the judgement of the Hon'ble
Bombay High Court to submit that this issue was considered thread bear
by the Hon'ble Bombay High Court in the case of North Karnataka
Expressway Limited Vs. CIT 51 Taxmann.com 214, wherein the court
was of the opinion that the assessee can never be considered to be
owner of the roads either under general law or under the Income Tax
Act. The Hon'ble Court also referred to various judgements to hold that
even Municipal Corporation, by laying roads, would not become owner
of the land as their role is limited to laying down roads and not to have
control over the public pathways. Thus, the court held that the claim of
ownership of the assessee cannot be, by any stretch of imagination,
better than the Municipal Corporation; in fact under the National
Highways Act, 1956, the Central Government can issue a notification
from time to time to entrust the National Highway Authority, the job of
laying down the roads either on their own or through any agency.
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
Therefore, at best, the National High way vesting in the Union may vest
any such authority in terms of notification u/s 11 of the National
Highways Act but merely because the Central Government or an
authority causes development and maintenance of the National Highway
by involving a private entity or private party does not mean that the said
private party can enjoy or claim the rights of the Central Government.
The Court also observed that the Hon'ble Allahabad High Court in the
case of Noida Toll Bridge Company 213 Taxmann 333 has not properly
appreciated the matter and thus, the Hon'ble Bombay High Court did not
follow the said judgement. In this regard, the Hon'ble Bombay High
Court observed as under:
"50. None of the above material was placed before the Division
Bench of Allahabad High Court which decided CIT v. Noida Toll Bridge Co.
Ltd. [2013] 213 Taxman 333/30 taxmann.com207. With greatest respect,
the conclusion of the Division Bench rests only on section 32 of the
Income Tax Act, 1961. It followed the Hon'ble Supreme Court's
judgement in Mysore Mineral Ltd. (supra) but with great respect, failed to
refer to the provisions of the National Highways Act, 1956 or the National
Highways Authority of India Act, 1988. Apart there from the claim of
depreciation on toll roads/bridge was allowed by the Commissioner of
Income Tax (Appeals) and Revenue's Appeal before the Division Bench
met with similar fate. We are unable to agree with the observations and
conclusions of the Division Bench in para 25 of the judgement in Income
Tax Appeal No.316 of 2011."
12. The Ld. D.R. vehemently argued that the earlier decision of the
Hon'ble Allahabad High Court cannot be treated as precedent on
account of the fact that the provisions under the National Highways
Authority Act were not at all considered by the Hon'ble High Court and
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
thus the latest statement of the Hon'ble Bombay High Court, which is a
well reasoned judgement and the only judgement on this issue,
deserves to be followed.
13. On the other hand, the Ld. Counsel for the assessee submitted
that the assessee is a wholly owned subsidiary of M/s. Navayuga
Engineering Company, which has originally incurred the expenditure for
laying down the bridge on BOT basis. In fact, NECL claimed
depreciation on the toll bridge in the earlier years, which was rejected
by the A.O. but ultimately accepted by the ITAT. Since the same asset
has been transferred to the present assessee, the decision of the
Hyderabad bench of ITAT is binding and needs to be followed. It was
further contended that the A.O. is duty bound to follow the decision of
superior authority and cannot ignore the said judgement merely
because it is not accepting the view taken by the ITAT. It was also
contended that identical issue had come up before the ITAT special
bench, Hyderabad in the case of Progressive Constructions Limited in
ITA No.1845/Hyd/2014 dated 14.2.2017. The decision of the special
bench was rendered on 14.2.2017 and therefore, it deserves to be
followed, particularly when there are two views possible in the matter,
having regard to the decision of the Hon'ble Allahabad High Court in
favour of the assessee.
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
14. Ld. Counsel also submitted that though the assessee cannot be
treated as owner in strict technical sense, it can always claim
depreciation u/s 32 of the Act even on an intangible asset; since the
right is vested in the assessee to build, operate and maintain assessee is
entitled to claim depreciation. Though he sought to distinguish the
decision of the Hon'ble Bombay High Court on the ground that the issue
was limited to the applicability of section 32 of the Act, nothing specific
was pointed out as to how the judgement is distinguishable. The Ld.
Counsel has mainly focused on the point that it is an intangible asset in
the form of toll bridge project and it would come within the expression
"any other business or commercial right of similar nature". He also
pointed out that the claim of the assessee is also supported by the
circular issued by CBDT (Circular No.9/2014 dated 23.4.2014), wherein
the Central Board virtually accepted that it is a capital expenditure on
which the assessee is entitled to the claim of amortisation. In the said
circular, it was mentioned that in a case where an assessee claimed any
deduction out of initial cost of development of infrastructure facility in
the earlier years, the total deductions claimed in the assessment years
under consideration may be deducted from the initial cost of the project
and the cost so reduced shall be amortised equally over the remaining
period of toll concessionaire agreement. Ld. Counsel submits that the
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
spirit of the circular is that the right to operate the toll bridge gives the
assessee a right to claim amortisation by treating the expenditure as
capital expenditure. In other words, it is an intangible asset on which
assessee is entitled to claim deduction. It was also contended that even
in the assessee's own case for the assessment year 2011-12, the A.O.
accepted the claim of depreciation in the order passed u/s 143(3).
From assessment year 2014-15 onwards, assessee amortised the
expenditure, as per the Board's circular and the claim was accepted by
the tax authorities. It was thus contended that when there is no
decision of the jurisdictional High Court and when there are two views
possible on the issue, the one which is in favour of the assessee should
be adopted.
15. We have carefully considered the rival submissions and perused
the record. We have also carefully perused the judgement of the
Hon'ble Bombay High Court as well as the Allahabad High Court referred
to therein. It is no doubt true that the Hon'ble Bombay High Court has
considered the issue elaborately by referring to the provisions under the
National Highway Act but the fact remains that under similar
circumstances not only the Hon'ble Allahabad High Court had taken a
view in favour of the assessee but even the special bench of the ITAT
had taken a view that assessee is entitled to claim depreciation and the
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
assessing officer for the assessment year 2011-12 had accepted the
claim of the assessee. In fact circular no.9 of 2014 issued by the Board
permitting the assessee to claim amortisation of the expenditure also
shows that the expenditure incurred by the assessee has to be treated
as a capital expenditure and by treating it as intangible asset the
expenditure has to be allowed as deduction in each year, so as to arrive
at real profit. The provisions of depreciation or amortisation are only
aimed at arriving at the true profit, though the methodology is different.
Since the tax authorities have accepted the claim of amortisation from
2014 onwards and even in 2011-12, it has allowed depreciation, under
proceedings u/s 143(3) of the Act, apart from the fact that in the case
of the holding company, the claim of depreciation was consistently
being allowed, in which event, it may not be proper, for the interregnum
period to disallow the claim of depreciation. Since there are two
judgements of two different High Courts, we adopt the view, which is in
favour of the assessee, in the backdrop of the facts and circumstances
of the case and hold that the assessee is entitled to depreciation in the
years under consideration.
16. Since the order of the Ld. CIT(A) is upheld by dismissing the
appeals of the revenue, it is not necessary for us to go into the merits of
the claim of the assessee, urged by way of cross objections.
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ITA Nos.337, 338 & 339/Vizag/2012 & CO Nos.37, 38 & 39/Vizag/2016
Godavari Toll Bridge Pvt. Ltd., VSKP
17. In the result, the appeals filed by the revenue are dismissed and
the cross objections filed by the assessee are also dismissed.
The above order was pronounced in the open court on 8th Dec'17.
Sd/- Sd/-
( ड.एस. सु#दर %संह) ( ड. मनमोहन)
(D.S. SUNDER SINGH) (D. MANMOHAN)
लेखा सद'य /ACCOUNTANT MEMBER उपा य /VICE PRESIDENT
$वशाखापटणम /Visakhapatnam:
(दनांक /Dated : 08.12.2017
VG/SPS
आदे श क त*ल$प अ+े$षत/Copy of the order forwarded to:-
1. अपीलाथ / The Appellant - The DCIT, Circle-3(1), Visakhapatnam
2. याथ / The Respondents - (1) M/s. Godavari Toll Bridge Pvt. Ltd., 48-9-17,
Dwarakanagar, Visakhapatnam (2) The ACIT, Circle-3(1), Visakhapatnam
3. आयकर आयु,त / The CIT-1, Visakhapatnam
4. आयकर आय,
ु त (अपील) / The CIT (A), Visakhapatnam
5. $वभागीय त न/ध, आय कर अपील य अ/धकरण, $वशाखापटणम /
DR, ITAT, Visakhapatnam
6. गाड फ़ाईल / Guard file
आदे शानुसार / BY ORDER
// True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM 13