Indian Kanoon - Search engine for Indian Law

This Special Bench is constituted by the Hon'ble President to dispose of the appeal filed by the Department assailing the order passed by the learned Commissioner (Appeals)-V, Hyderabad, and to decide the following important questions involved therein:-

"Whether on the facts and in the circumstances of the case, expenditure incurred by the assessee on construction of road on BOT basis is Capital or Revenue? If it is capital expenditure, whether the same is eligible for depreciation at the rate applicable to building or to an intangible asset as per section 32(1(ii)? And, if not, whether the same being Revenue expenditure is liable to be amortized over the period of concession?

executing civil contract work. For the assessment year in dispute, assessee filed its return of income on 30th September 2011, declaring income at nil under normal provisions of the act. Subsequently assessee on 26th March 2012, filed a revised return of income declaring total income of Rs.19,74,02,080 under the normal provisions and book profit of Rs.25,24,58,222, under section 115JB of the Act. In course of the assessment proceedings, the assessing officer noticing that assessee has claimed depreciation of Rs.40,07,94,526 at the rate of 25% on the opening written down value (WDV) of built, operate and transfer (BOT) bridge at Rs.160,31,78,103 examined the matter further. He found that on 22nd December 2005, assessee had entered into a Concession Agreement (hereinafter called "C.A") with the Government of India for four laning of National Highway no.9 between KM 493/1000 to KM 524/1000 in Pune-Hyderabad section in the State of Andhra Pradesh on BOT basis. The assessee completed the construction of the road and commenced operation of the road from 28th December 2008. The assessing officer on verifying the concession agreement found that as per the terms of the agreement, assessee was to complete the work at its own cost and maintain the same for a period of 11 years and after conclusion of the said period the road was to be handed over on "as is where is" basis to NHAI. As per the terms of agreement assessee is entitled to collect toll from vehicles using the road as mentioned in M/s. Progressive Constructions Ltd.

5. Shri J.V. Prasad, learned Senior Standing Counsel appearing for the Department apart from making his submissions orally at the time of hearing had also filed a written submission on 21st July 2016. At the outset he submitted, assessee is not consistent as far as its claim of depreciation on BOT-bridge is concerned. He submitted, in assessment year 2009-10 assessee had claimed depreciation by treating it as building. Whereas, in assessment year 2010-11 and 2011-12 assessee had claimed depreciation on BOT-bridge at a higher rate by treating it as intangible asset. He submitted, assessee had incurred expenditure of Rs.214 crore over a period in pursuance to the concession agreement which has brought into existence a tangible asset in the form of widened M/s. Progressive Constructions Ltd.

both Government of India and the concessionaire will claim depreciation on the asset created with the very same expenditure, in our view, is not borne out from facts on record. At the cost of repetition we must observe, as per the terms of agreement the expenses incurred by the assessee towards construction of the roads, bridges, etc., were not going to be reimbursed by the Government of India. This fact was known to both the parties before the execution of the agreement as the tender itself has made it clear that the project is to be executed with private sector participation on BOT basis. Thus, from the very inception of the project, assessee was aware of the fact, it has to recoup the cost incurred in implementing the project along with the profit from operating the road and collecting toll charges during the concession period. Therefore, assessee has capitalized the cost incurred on the BOT project on which it has claimed depreciation. Thus, in our view, the expenditure incurred by the assessee of Rs.214 crore for creating the project or project facilities has created an intangible asset in the form of right to operate the project facility and collect toll charges. Further, it is the contention of the learned Senior Standing Counsel that if at all any right is created under the C.A. for collecting toll, such right accrued to the assessee on the date of execution of agreement i.e., 22nd December 2005, therefore, the expenditure incurred by such date should be the value of intangible asset which can alone be considered for depreciation under section 32(1)(ii) of the Act. We are afraid, we cannot accept the M/s. Progressive Constructions Ltd.