Right to collect toll is an intangible asset within the purview of sec. 32(1)(ii) and is eligible for depreciation

Where Assessee in terms of agreement with Government of Madhya Pradesh was required to develop, construct and maintain a road on Build, operate and transfer (‘BOT’) basis at its own cost for a specified period, it was eligible for depreciation on amount capitalized under head 'License to collect Toll'

In the instant case, the assessee was awarded a project for development, operation and maintenance of a road in the State of Madhya Pradesh on BOT basis. It was required to develop, construct and maintain the road at its own cost for a specified period. On expiry of the specified period, the infrastructural facility was to be transferred to the State Government free of charge. In consideration of such expenditure, the assessee was bestowed with a right to collect toll during the specified period.

The costs incurred on development and construction of infrastructural facility was capitalized by assessee under the head 'License to collect Toll' and depreciation thereon was claimed by it. During assessment, the AO disallowed the depreciation claim of assessee. The CIT(A), however, allowed its claim by holding that the right to collect toll was a valuable right, having commercial value and it was an intangible asset covered by section 32(1)(ii).

The Tribunal held in favour of assessee as under:

1) The right to collect toll was a result of the costs incurred by the assessee on development, construction and maintenance of the infrastructure facility. Such a right had been adjudicated by the Tribunal in the various judicial precedents to be in the nature of 'intangible asset' falling within the purview of section 32(1)(ii) and found to be eligible for claim of depreciation;

2) The plea of the revenue, that the impugned right was not of the nature referred to in section 32(1)(ii), for the reason that the agreement with the State Government only allowed the assessee to recover the costs incurred for constructing the road facility, whereas section 32(1)(ii) required that the assets mentioned therein to be acquired by the assessee after spending money, was factually and legally misplaced;

3) It was incorrect to say that impugned right acquired by the assessee was without incurring any cost. In fact, it was quite evident that the assessee had got the right to collect toll for the specified period only after incurring expenditure through its own resources on development, construction and maintenance of the infrastructure facility;

4) Section 32(1)(ii) permits allowance of depreciation on assets specified therein being 'intangible assets' which are wholly or partly owned by the assessee and used for the purposes of its business. The aforesaid condition was fully satisfied by the assessee. Thus, the assessee was eligible for depreciation in as much as right to collect toll was an intangible asset falling within the purview of section 32(1)(ii) – ACIT V. ASHOKA INFRAWAYS (P.) LTD. [2013] 33 taxmann.com 499 (Pune - Trib.)

This Article has been written by Vinanti Zatakiya. You can reach her at vinanti2504@gmail.com

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