CASE LAWS

2017-TIOL-86-SC-IT

ADDL CIT Vs VIDARBH IRRIGATION DEPARTMENT CORPORATION: SUPREME COURT OF INDIA (Dated: February 16, 2017)

Income tax - Section 10(20A)

Keywords - local authority - total income

The assessee preferred the present appeal seeking exemption u/s 10(20A) on the ground of being a 'local authority'.

On appeal, the SC held that,

Whether an appeal against the judgment of High Court is maintenable before the Apex Court, where the High Court has only remanded the impugned issue to the ITAT for consideration afresh - NO: SC

++ the issue that arises for our consideration in this matter is as to whether Vidarbh Irrigation Department Corporation, is a local authority within the meaning of Section 10(20A) of Income Tax Act. Section 10(20A) of the Act stipulates certain kinds of income which are not to be included in total income. Though this provision stands omitted vide Section 4(m) with effect from 1st April,2003 by the Finance Act, 2002, the assessment period in question is much prior thereto and is, therefore, relevant. Section 10(20A) reads as: "Any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both." This provision came for interpretation before this Court in the case of Gujarat Industrial Development Corporation and others v. Commissioner of IncomeTax, wherein it was observed that if the authority is constituted for the purpose of planning or development or improvement of any city or town or village or a combination of them, the income of such authority is not exigible to income tax;

++ it is found that the High Court in the impugned judgment has observed that since the ITAT did not consider the issue in the light of the provisions of the Vidarbha Irrigation Development Corporation Act, 1997, under which the assessee has been constituted, as well as the provisions of Maharashtra Irrigation Act,1976 and Bombay Canal Rules,1934, the High Court has remanded the case back to the Tribunal for fresh consideration. It is difficult to understand as to why the Income Tax Department has preferred the instant appeal against the aforesaid judgment of the High Court where the issue has only been remanded to the Tribunal for fresh consideration.

Assessee's appeal dismissed

2017-TIOL-85-SC-IT

CIT Vs AL AHUJA: SUPREME COURT OF INDIA (Dated: February 16, 2017)

Income tax - Section158BC

Keywords - finding of fact - notice barred by limitation

The Revenue preferred the present SLP challenging the order, whereby the High Court had confirmed the finding of fact recorded by ITAT that the notice was issued u/s 158BC beyond the one year limitation period.

On appeal, the SC held that,

Whether a finding of fact recorded by ITAT as regards time barred assessment & notice, warrants writ interference - NO: SC

++ a finding of fact arrived at by the ITAT which has been accepted by the High Court in the impugned judgment, is that there was no satisfaction recorded and assessment is to be treated as complete u/s 158BC of Income Tax Act and also that the notice was issued under the said provision beyond the one year limitation period. On this finding of fact, the appeal warrants to be dismissed.

Revenue's SLP dismissed

2017-TIOL-168-ITAT-HYD-SB

ACIT Vs PROGRESSIVE CONSTRUCTIONS LTD: HYDERABAD ITAT (Dated: February 14, 2017)

Income Tax - Sections 14A, 32(1(ii), 115JB & CBDT circular no.9.

Keywords: depreciation - construction of road - intangible asset - amortization - nexus - business income & commercial or business right

The assessee is a construction company. It is engaged in executing civil contract work. AO noticed that assessee had claimed depreciation at the rate of 25% on the opening WDV of built, operate and transfer (BOT) bridge at Rs.160,31,78,103 examined the matter further. AO found that assessee had entered into a Concession Agreement with Government of India for four laning of National Highway on BOT basis. Assessee completed construction of road and commenced operation of the road from 28th December 2008. AO found that as per the terms of 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 was entitled to collect toll from vehicles using the road during the concession period. Referring to different clauses of concession agreement AO formed an opinion that as assessee had no right on the road, except, for maintaining the road and receiving toll collections during the concession period as per the rates specified by the Government and entire rights over the road were with NHAI, including collection of toll, the asset on which the assessee had claimed depreciation was neither a building nor a plant and machinery. AO, therefore, called upon the assessee to justify the claim of depreciation. In response to query raised by AO, assessee submitted, investment made by assessee in constructing the road and acquiring the right to operate the road and receive toll charges was a valuable commercial or business right in the nature of intangible asset, hence, was eligible for depreciation u/s 32(1)(ii). AO however, rejected assessee's claim on the reasoning that assessee was not the owner of the asset and secondly, only roads within a factory premises linking various buildings and approach roads was eligible for depreciation. While coming to such a conclusion AO also noted, assessee had no consistency in its claim as in AY 2010-2011 assessee had claimed depreciation on the BOT-bridge by treating it as intangible asset. Accordingly, AO disallowed assessee's claim of depreciation. On appeal, CIT(A) allowed assessee's claim of depreciation.

Having heard the matter, the ITAT Special Bench held that,

Whether a right granted to assessee under a concession agreement to operate project facility & collect toll charges is akin to license, being an intangible asset, the same is eligible for depreciation u/s 32(1)(ii) - YES: ITAT

++ a right granted to a person to do or continue to do something in the immovable property of the grantor, which, in the absence of such right would be unlawful and such right does not amount to an easement or interest in the property, then such right is called a license. If we examine the facts of the present case, vis-a-vis, the definition of license under the Indian Easements Act, 1882, it would be clear that immovable property on which the project / project facility is executed / implemented is owned by the Government of India and it has full power to hold, dispose off and deal with the immovable property. By virtue of the C.A., assessee has only been granted a limited right to execute the project and operate the project facility during the 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 u/s 32(1)(ii);

Whether expenditure incurred by assessee for construction of road under 'BOT' contract by Government, has given rise to an intangible asset, on which depreciation can be claimed - YES: ITAT

++ in the case of Techno Shares and Stocks Ltd. v/s CIT, 2010-TIOL-67-SC-IT, the SC 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 u/s 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 in the manner that 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;

Whether the benefit of a CBDT circular regarding amortisation of expense can be thrust upon an assessee, even if it has not been claimed by him - NO: ITAT

++ 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 AYs and assessee's claim of depreciation had been allowed. Therefore, in the impugned AY, 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 AO or by CIT(A). 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, DR has also accepted the aforesaid factual position. In any case of the matter, the assessee neither in the preceding AYs nor in the impugned AY 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. In the result, Department's appeal is dismissed.

Revenue's appeal dismissed