Pr. Commissioner of Income-tax, Panchkula v. Himalayan Expressway Ltd
[Citation -2019-LL-0723-66]

Citation 2019-LL-0723-66
Appellant Name Pr. Commissioner of Income-tax, Panchkula
Respondent Name Himalayan Expressway Ltd.
Court HIGH COURT OF PUNJAB & HARYANA
Relevant Act Income-tax
Date of Order 23/07/2019
Judgment View Judgment
Keyword Tags infrastructural facility • infrastructure project • transfer of ownership • possession of land • cost incurred • wrong claim • penalty • depreciation claim
Bot Summary: The Assessing Officer held that since the road was not 'owned by the 1 of 8 ::: Downloaded on - 13-08-2019 15:11:46 ::: ITA No.19 of 2019 2 Assessee' he could not claim depreciation. In BOT arrangements for development of roads/ highways, as a matter of general practice, possession of land is handed over to the assessee by the Government/notified authority for the purposes of Construction of the project without any actual transfer of ownership and such assessee has only a right to develop and maintain such asset. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier year, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration maybe deducted from the initial cost of infrastructure facility of roads/highways and the cost 'so reduced' shall be amortized equally over the remaining period of toll concessionaire agreement. The Board clarified that in such cases the Assessee would be entitled to amortization under the relevant provisions of the Act. Interestingly, in para 7 of the circular the Board noticed that there may have been cases in the past where Assessees had obtained the depreciation and held that in those cases the depreciation claimed would be reduced and the amortization would be given only on the reduced amount. Ultimately, as mentioned above the claim of the Assessee was upheld. The sole contention of the learned counsel for the appellant is that once the Assessee accepted the assessment order disallowing the depreciation, it is clear that it was attempted to avoid tax and that the claim of depreciation was wrongly made.


IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.19 of 2019 (O&M) Date of decision : 23.07.2019 Pr. Commissioner of Income Tax, Panchkula Appellant versus M/s Himalayan Expressway Ltd., Kalka Sadan, Shimla Road, Pinjore. Respondent CORAM : HON'BLE MR.JUSTICE AJAY TEWARI HON'BLE MR.JUSTICE HARNARESH SINGH GILL Present : Mr. Yogesh Putney, Advocate and Mr. Ajiteshwar Singh, Advocate for appellant. AJAY TEWARI, J. (Oral) 1. This appeal has been filed under Section 260A of Income Tax Act, 1961 (for short 'the Act') against concurrent orders of Commissioner of Income Tax, Panchkula, Haryana and Income Tax Appellate Tribunal Chandigarh setting aside penalty proceedings. 2. brief facts of case are that Assessee was awarded contract for broadening of Zirakpur-Parwanoo Section of National Highway-22 including Pinjore-Kalka Parwanoo Bypass on Build- Operate-Transfer (BOT) basis. He filed return claiming that he had spent sum of Rs.723.00 crores odd on construction and claiming depreciation of Rs.72.00 crores odd under Section 32 of Act. Assessing Officer held that since road was not 'owned by 1 of 8 ::: Downloaded on - 13-08-2019 15:11:46 ::: ITA No.19 of 2019 (O&M) 2 Assessee' he could not claim depreciation. Assessee accepted this finding and did not challenge same in appeal. Thereafter penalty proceedings were initiated against Assessee, which have been set aside as mentioned above. It is contention of Revenue that intention of Assessee is reflected from fact that it made this wrong claim and, but for fact that case was picked up for scrutiny it would have succeeded in its various design. 3. In this connection, both Commissioner, Income Tax and Tribunal have noticed Circular No.9 of 2014 dated 23.04.2014 which is quoted herein below :- Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi Circular No.9/2014 Dated : April 23, 2014 Subject : Clarification regarding treatment of expenditure incurred for development of roads/highways in BOT agreements under Income-tax Act, 1961 regarding. It has come to notice of Board that disputes have arisen as to whether expenditure incurred on development and construction of infrastructural facilities like roads/highways on Build-Operate-Transfer ('BOT') basis with right to collect toll is entitled for depreciation under section 32(1) (ii) of Act or same can be amortized by treating it as allowable business expenditure under relevant provisions of Income-tax Act, 1961 ('Act'). 2. In such projects, developer (hereinafter referred to as 'assessee'), in terms of concessionaire agreement with Government or its agencies is required to construct, develop and maintain infrastructural facility 2 of 8 ::: Downloaded on - 13-08-2019 15:11:46 ::: ITA No.19 of 2019 (O&M) 3 of roads/highways which, inter-alia, includes laying of roads, bridges, highways, approach roads, culverts, public amenities etc. at its own cost and its utilization thereof for specified period. In lieu of consideration of expenditure incurred on construction, operation and maintenance of infrastructure facility covered by period of agreement, assessee is accorded right to collect toll from users of such facility. expenditure incurred by such assessee on development and construction of such infrastructural facility are capitalized in accounts. It is seen that in returns-of-income, assessees are generally claiming depreciation on such capitalized expenditure treating it as 'intangible asset' in terms of section 32(1) (ii) of Act while in assessments, such claims are being disallowed by Assessing Officer on grounds that such infrastructural facility is not owned, wholly or partly, by taxpayer which is essential condition for claiming depreciation and further right to collect toll does not fall in any of categories of 'intangible assets' specified in sub- clause (ii) of sub-section (1) of section 32 of Act. 3. In BOT arrangements for development of roads/ highways, as matter of general practice, possession of land is handed over to assessee by Government/notified authority for purposes of Construction of project without any actual transfer of ownership and such assessee has only right to develop and maintain such asset. It also enjoys benefits arising from use of asset through collection of Toll for specified period without having actual ownership over such asset. Therefore, rights in land remain vested with Government or its agencies. Thus, as assessee does not hold any rights in project except recovery of toll fee to recoup expenditure incurred, it cannot therefore be treated as owner of property, either wholly or partly, for purposes of 3 of 8 ::: Downloaded on - 13-08-2019 15:11:46 ::: ITA No.19 of 2019 (O&M) 4 allowability of depreciation under section 32(1) (ii) of Act. Thus, present provisions of Act do no allow claim of depreciation on Toll ways due to non-fulfillment of ownership criteria in such cases. 4. There is no doubt that where assessee incurs expenditure on project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative expenses) during construction period. Further, expenditure incurred by assessee on such BOT projects brings to it enduring benefit in form of right to collect toll during period of agreement. Hon'ble Supreme Court in case of Madras Industrial Investment Corp Ltd. 225 ITR 802 (SC) allowed spreading over of liability over number of years on ground that there was continuing benefit to company over period. Therefore, analogously, expenditure incurred on infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for purposes of business or profession of assessee and same may be allowed to be spread during tenure of concessionaire agreement. 5. In view of above, Central Board of Direct Taxes, in exercise of powers conferred under section 119 of Act hereby clarifies that cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under Act. 6. amortization allowable may be computed at rate which ensures that whole of cost incurred in creation of infrastructural facility of road/highway is amortized evenly over period of concessionaire agreement after excluding time take for creation of such facility. 4 of 8 ::: Downloaded on - 13-08-2019 15:11:46 ::: ITA No.19 of 2019 (O&M) 5 7. In case where assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier year, total deduction so claimed for Assessment Years prior to Assessment Year under consideration maybe deducted from initial cost of infrastructure facility of roads/highways and cost 'so reduced' shall be amortized equally over remaining period of toll concessionaire agreement. 8. It is hereby clarified that this Circular is applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with assessee under concessionaire agreement. 9. This may be brought to notice of all concerned. 4. Both authorities held that Board had itself recognized that in many cases Assessees were claiming this depreciation while Assessing Officers were disallowing it. Board further noticed that in such projects land was temporarily transferred to Assessees who constructed highway at their own cost and, were in lieu thereof, given right to charge toll from users for fixed period. Board clarified that in such cases Assessee would be entitled to amortization under relevant provisions of Act. Interestingly, in para 7 of circular Board noticed that there may have been cases in past where Assessees had obtained depreciation and held that in those cases depreciation claimed would be reduced and amortization would be given only on reduced amount. Both Commissioner and Tribunal held that this circular indicated that there was genuine doubt not only in case of present Assessee but in case of many Assessees in general who undertook these kinds of 5 of 8 ::: Downloaded on - 13-08-2019 15:11:46 ::: ITA No.19 of 2019 (O&M) 6 projects. Ultimately, as mentioned above claim of Assessee was upheld. 5. sole contention of learned counsel for appellant is that once Assessee accepted assessment order disallowing depreciation, it is clear that it was attempted to avoid tax and that claim of depreciation was wrongly made. As per learned counsel for appellant, had it not been for scrutiny, Assessee would have gotten this benefit. He has relied upon judgment of Delhi High Court passed in ITA No.1855 of 2010 titled as Commissioner of Income Tax Vs. Morgan Finvest Pvt. Ltd., decided on 06.12.2012. In that case Assessee was company engaged mainly in business of investment and to undertake and transact financial services. It filed its return of income declaring nil income for assessment year 2005-2006 and same was processed under Section 143 (1). However later, on scrutiny it was found that Assessee had claimed depreciation of Rs.39,52,300/- in respect of property at No.3, Eastern Avenue, Maharani Bagh, New Delhi. property was purchased on 29.04.2004 for Rs.3.5 crores and Assessee had raised loan in order to acquire property. On 18.09.2004 i.e. after about 5 months property was sold to Company viz. Hindustan Udyog Limited for consideration of Rs.4.5 crores but only agreement of sale was executed, possession was not given nor was any sale deed executed. Assessing Officer found that property was residential in nature and had not been put to use for purpose of assessing business. From these facts Assessing Officer concluded that Assessee had kept property for four months or so and had entered into agreement to dispose of same which indicated 6 of 8 ::: Downloaded on - 13-08-2019 15:11:46 ::: ITA No.19 of 2019 (O&M) 7 motive to earn short term gain and not any intention to use property for purpose of business. He also noticed that building cost of which depreciation was claimed including cost of land on which no depreciation was allowed and it was in those circumstances that he did not allowed depreciation initiated penalty proceedings. Commissioner Income Tax appeals upheld penalty but Income Tax Appellate Tribunal allowed appeal of Assessee and that is how Revenue was before High Court. main ground taken by Tribunal was that since no sale deed was executed pursuant to subsequent agreement to sell property remained in ownership of Assessee. Division Bench of Delhi High Court accepted that property remained in ownership of Assessee for entire year but went on to hold that was not used for any business and was therefore exigible for penalty. It was during course of this that Court held as follows :- 12. This is not case where all correct particulars relating to claim were furnished and claim for relief or allowance was made on that basis, which was not accepted by assessing officer who did not question particulars relating to claim, but merely took different view on very same particulars. This is case where questionable details and particulars relating to claim were furnished by assessee and such details were so fundamental to genuineness and bona fide of claim that mere furnishing of those particulars made claim vulnerable. 6. In present case, we find that facts are starkly different. Revenue had itself accepted that there was doubt and that is why clarification of 2014 was issued. Had it been so cut and dried there 7 of 8 ::: Downloaded on - 13-08-2019 15:11:46 ::: ITA No.19 of 2019 (O&M) 8 was no occasion for Board to have issued clarification and infact, this is precisely what weighed with Commissioner, Income Tax, Panchkula and Income Tax Appellate Tribunal, Chandigarh. 7. In circumstances of case we are not able to find any fault with judgment and orders of Courts below. No other question of law arises. 8. Appeal stands dismissed. 9. Since main case has been decided, pending C.M. Application, if any, also stands disposed of. (AJAY TEWARI) JUDGE (HARNARESH SINGH GILL) JUDGE July 23, 2019 pooja sharma-I Whether speaking/reasoned Yes/No Whether Reportable : Yes/No 8 of 8 Pr. Commissioner of Income-tax, Panchkula v. Himalayan Expressway Ltd
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