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included collecting toll and transfer it back. On a perusal of the details filed in the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed depreciation of Rs.7,72,50,294/- i.e @ 25% on "Concession Rights Toll 1" by treating the same as an intangible asset. The A.O was not persuaded to subscribe to the aforesaid claim of depreciation raised by the assessee, and called upon it to put forth an explanation in support of the same. In reply, it was submitted by the assessee that as per the terms of the concessionaire agreement, it had acquired the rights in respect of constructing the aforesaid project, along with the right to collect toll, and thereafter transfer the said asset after the aforesaid period of concession was over. Accordingly, it was the claim of the assessee that as the aforesaid commercial/business rights being in the nature of an intangible asset were entitled for depreciation @ 25% of its written down value under Sec.32(1)(ii) of the Act, therefore, its claim of depreciation on the same was well in conformity with the mandate of law. In sum and substance, it was the claim of the assessee that as its "right to collect toll" were in the nature of business or commercial rights as envisaged in clause (ii) to sub-section (1) of Sec. 32 of the Act, therefore, it was duly entitled to claim depreciation in respect of the same. However, the A.O did not find favour with the aforesaid claim of the assessee. In fact, the A.O was of the view that the cost of any infrastructure facility undertaken on BOT basis, especially a highway project, would not qualify as an intangible asset. Accordingly, the A.O held a conviction that as the assessee did not „own‟ the assets, therefore, the primary condition for claim of depreciation having not been satisfied, the assessee would not be eligible for claim of depreciation under Sec.32 of the Act. At the same time, the A.O was of the view that the huge expenditure of Rs.61,80,02,353/- incurred by the assessee on building the aforesaid entire facility was to be amortized over a period of 12 years i.e the period for which the assessee had under taken the infrastructure facility on BOT basis. While concluding as hereinabove, the A.O had fortified his aforesaid view by drawing support from the CBDT Circular No. 9 of 2014, dated 23.04.2014. On the basis of his aforesaid observations, the A.O considering the fact that the concessionaire period of the assessee was spread over 05.12.2011 to 23.02.2022, therefore, worked out the allowable amortization for the period of 117 days i.e 05.11.2011 to 31.03.2012 pertaining to the year under consideration i.e F.Y. 2011-12 at Rs.1,93,85,060/-. Accordingly, the P a g e |4 C.O. No.84/Mum/2018 A.Y. 2011-12 (Arising out of ITA No.7114/Mu/2016) Asstt. Commissioner of Income Tax, Circle 6(2)(2) Vs. M/s EsselSagarDamoh Toll Roads ltd.

the assessee was an "intangible asset" within the meaning of Sec.32(1)(ii) of the Act, therefore, the claim of deprecation raised by the assessee was in conformity with the mandate of law. Insofar the reliance placed by the ld. D.R on the judgments of the Hon‟ble High Court of Bombay in the case of North Karnataka Expressway Ltd. Vs. CIT-10, Mumbai (2015) 372 ITR 145 (Bom) and CIT-10, Mumbai Vs. M/s West Gujarat Expressway Ltd (ITA No.2357 of 2013, dated 05.04.2016) was concerned, it was submitted by the ld. A.R, that the limited issue before the Hon‟ble High Court was as to whether the assessee which was an infrastructure development company that had constructed a road on build, operate and transfer (BOT) basis would be entitled to claim depreciation on the "toll road". It was submitted by the ld. A.R, that the Hon‟ble High Court had only in context of the said limited issue before them, had concluded that the assessee could not be granted depreciation on the toll roads, as the same were not owned by it. It was submitted by the ld. A.R, that as to whether the assessee would be entitled to claim depreciation under Sec.32(1)(ii) in respect of its "right to collect toll" during the period of the concessionaire agreement was never the issue in the aforesaid matters before the Hon‟ble High Court of Bombay. In sum and substance, it was the claim of the ld. A.R that as the issue involved in the aforesaid orders of the Hon‟ble High Court was distinguishable on facts, therefore, the same would not assist the case of the revenue. It was submitted by the ld. A.R, that as the right to collect the toll, which was vested with the assessee for a specified period, was in the nature of an intangible right, which fell within the realm of Sec. 32(1)(ii), therefore, the claim of the assessee for depreciation was in order and had rightly been allowed by the CIT(A). In order to fortify his aforesaid contention, the ld. A.R relied on the order of the „Special bench‟ of the ITAT, Hyderabad, i.e ACIT Vs. Progressive Construction Ltd. (2018) 63 ITR(T) 516 (Hyd.)(SB). It was submitted by the ld. A.R, that the Tribunal in its aforesaid order had clearly held that as the expenditure incurred by an assessee for construction of road under BOT basis had given rise to an intangible asset defined under Explanation 3(b) r.w. Sec. 32(1)(ii), therefore, the assessee would be eligible to claim depreciation on the said asset as per rate therein specified. Also, the ld. A.R in order to fortify his contention that the assesses claim for depreciation was well in order, relied on the order of the ITAT, Mumbai, in the case of DCIT Vs. M/s Atlanta Ltd. (ITA No.3415/Mum/2015/ dated 24.09.2018). It was submitted by the ld. A.R, that the Tribunal following the view taken by the „Special Bench‟ of the Tribunal in the case of P a g e |6 C.O. No.84/Mum/2018 A.Y. 2011-12 (Arising out of ITA No.7114/Mu/2016) Asstt. Commissioner of Income Tax, Circle 6(2)(2) Vs. M/s EsselSagarDamoh Toll Roads ltd.

Expressway Ltd. (ITA No. 2357 of 2013, dated 05.04.2016). We find that both of the aforementioned judgements of the Hon‟ble jurisdictional High Court were rendered in context of the issue, as to whether an Infrastructure Development Company which had constructed a „toll road‟ on BOT basis on the land owned by Central Government would be entitled for depreciation on such "toll road", or not. We find that the Hon‟ble High Court had observed that in the absence of ownership of the „toll road‟, which belonged to the Central Government, the assessee would not be entitled to claim depreciation on the same. The issue as to whether an Infrastructure Development Company which had constructed a „toll road‟ on BOT basis on the land owned by Central Government would be entitled to claim depreciation under Sec.32(1)(ii) in respect of its "right to collect toll" i.e an intangible asset, was not raised in both of the aforesaid cases. Our aforesaid view stands fortified from a perusal of the order of the Hon‟ble High Court in the case of North Karnataka Expressway Ltd. Vs. CIT-10(2015) 272 ITR 145 (Bom), wherein at Para 20 the Hon‟ble High Court had observed, that the question before them was as to when a person who is in the business of Infrastructure Development constructs a road on build, operate and transfer (BOT) basis on the land owned by the Government, can it claim depreciation on such „toll road‟. We find that the Hon‟ble High Court had observed that though an Infrastructure Development company which had constructed a road on BOT basis on land owned by the Central Government, was not entitled to claim depreciation on the „‟toll roads" as it was not owner of the same, however, it could definitely claim depreciation on its investments made in the project and such other asset in the form of building and plant and machinery etc. Accordingly, it was observed by the Hon‟ble High Court at Para 47 of its order, that the claim for depreciation could be validly raised and granted to the extent stated hereinabove. Also, it was observed by the Hon‟ble High Court that it was concerned only with the claim of the assessee as regards depreciation on the road itself. To sum up, the Hon‟ble High Court in its aforesaid judgment, had confined its adjudication to the issue as to whether an Infrastructure Development Company which had constructed a road on BOT basis on land owned by the Central Government would be eligible to claim depreciation on such „toll road‟ so constructed and operated by it, or not. Accordingly, we are of the considered view, that the issue as to whether an Infrastructure Development company which had constructed a road on build, operate and transfer (BOT) basis on the land owned by the Central Government would be P a g e |9 C.O. No.84/Mum/2018 A.Y. 2011-12 (Arising out of ITA No.7114/Mu/2016) Asstt. Commissioner of Income Tax, Circle 6(2)(2) Vs. M/s EsselSagarDamoh Toll Roads ltd.

observed by the Tribunal, that where the assessee had never claimed expenditure incurred for construction of the road on build, operate and transfer (BOT) basis, as a deferred revenue expenditure, the same could not have been amortized in terms of CBDT Circular No. 9 of 2014, dated, 23.04.2014. The observations of the „Special bench‟ of the Tribunal, which seizes the issue under consideration before us, are as under:

11. Undisputedly, for executing the project, assessee has incurred expenses of Rs.214 crore. It is also not disputed that as per the terms of the C.A., the Government of India is not obliged / required to reimburse the cost incurred by the assessee to execute / implement the project facilities. The only right / benefit allowed to the assessee by the Government of India is to operate the project / project facilities during the concession period of 11 years 7 months and to collect toll charges from vehicles / persons using the project / project facilities. Thus, as could be seen, the only manner in which the assessee can recoup the cost incurred by it in implementing the project / project facility is to operate the road during the concession period and collect the toll charges from user of the project facility by third parties. Admittedly, the assessee has taken up the project as a business venture with a profit motive and certainly not as a work of charity. Further, by investing huge some of Rs.214 crore, the assessee has obtained a valuable business / commercial right to operate the project facility and collect toll charges. Therefore, in our considered opinion, right acquired by the assessee for operating the project facility and collecting toll charges is an intangible asset created by the assessee by incurring the expenses of Rs.214 crore. The contention of the learned Senior Standing Counsel that expenditure of Rs.214 crore has brought into existence a tangible asset in the form of roads and bridges of which the assessee is not the owner but it is the Government of India is nobody's case. Further, the learned Senior Standing Counsel's apprehension that it will lead to a situation where 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 above argument of the learned Senior Standing Counsel. When the C.A. confers a right on the assessee to operate the project facility and collect toll charges over the concession period of 11 years and 7 months, the assessee can start operating and collecting toll charges only when the project facility is ready for use. Therefore, until the project is completed and ready for use by vehicles or persons assessee P a g e | 12 C.O. No.84/Mum/2018 A.Y. 2011-12 (Arising out of ITA No.7114/Mu/2016) Asstt. Commissioner of Income Tax, Circle 6(2)(2) Vs. M/s EsselSagarDamoh Toll Roads ltd.