Company entitled for depreciation on the project's cost: ITAT

Company entitled for depreciation on the project's cost: ITAT

Removes a ban on devaluation on the right to collect annuity on toll roads

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has deleted the disallowance made on account of depreciation on the right to collect annuity on toll roads.

The assessee, Gorakhpur Infrastructure Company (GIC), is engaged in the business of executing the project for design, construction, finance and maintenance of the Gorakhpur By-Pass on National Highway-28 in the state of Uttar Pradesh. The project is on a Build, Operate and Transfer (BOT) basis under the annuity scheme.

The assessee entered into a concession agreement with the National Highway Authority of India (NHAI). And it was granted exclusive rights, license and authority during the subsistence of the agreement to implement the project and the concession for a period of 20 years.

GIC incurred a total cost amounting to Rs.721,28,78,487 on the construction and development of the project. Pursuant to this, the assessee was able to receive an annuity from NHAI under the concession agreement. The assessee classified the cost incurred and the right to receive annuity on the toll road, as an intangible asset, eligible for depreciation under the Income Tax Act.

However, the depreciation was denied by the assessing officer, who held that the assessee was not entitled to depreciation on the cost incurred on the project. But, the Commissioner of Income Tax (Appeals) granted the depreciation.

The Coram of the judicial member Amarjit Singh and accountant member, M Balaganesh held that the assessee was awarded the work of constructing a part of the National Highway on a BOT basis. Therefore, the entire investment/finance for developing the infrastructure facility had to be borne by the assessee.

What the assessee received in return was a right to collect annuity over the period of concession. Thus, the investment made by the assessee for acquiring such a right certainly was an intangible asset, which came within the purview of the IT Act. Therefore, the assessee would be eligible to claim depreciation.