CIRCULAR NO. 9/2014 [F.NO.225/182/2013/ITA.II],
DATED 23-4-2014
It
has come to the notice of the Board that disputes have arisen as to
whether the 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 the Act or the same can be amortized by
treating it as an allowable business expenditure under the relevant
provisions of the Income-tax Act, 1961 ('Act').
2. In such projects, the developer (hereinafter referred to
as 'assessee'), in terms of concessionaire agreement with Government or
its agencies is required to construct, develop and maintain the
infrastructural facility of roads/highways which, inter-alia,
includes laying of road, bridges, highways, approach roads, culverts,
public amenities etc. at its own cost and its utilization thereof for a
specified period. In lieu of consideration of the expenditure incurred
on construction, operation and maintenance of the infrastructure
facility covered by the period of the agreement, the assessee is
accorded a right to collect toll from users of such facility. The
expenditure incurred by such assessee on development and construction of
such infrastructural facility are capitalized in the accounts. It is
seen that in returns-of-income, assessees are generally claiming
depreciation on such capitalized expenditure treating it as an
'intangible asset' in terms of section 32(1)(ii) of the Act while in
assessments, such claims are being disallowed by the Assessing Officer
on the grounds that such infrastructural facility is not owned wholly or
partly, by the taxpayer which is an 'essential condition for claiming
depreciation and further right to collect toll does not fall in any of
the categories of intangible assets' specified in sub-clause(ii) of
sub-section (1) of section 32 of the Act.
3. 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 owrership and
such assessee has only a right to develop and maintain such asset. It
also enjoys the benefits arising from use of asset through collection of
Toll for a specified period without having actual ownership over such
asset. Therefore, the rights in the land remain vested with the
Government or its agencies. Thus, as assessee does not hold any rights
in the project except recovery of toll fee to recoup the expenditure
incurred, it cannot therefore be treated as an owner of the property,
either wholly or partly, for purposes of allowability of depreciation
under section 32(1)(ii) of the Act. Thus, present provisions of the Act
do not allow claim of depreciation on Toll ways due to non-fulfilment of
ownership criteria in such cases.
4. There is no doubt that where the assessee incurs
expenditure on a 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 the construction period. Further, expenditure incurred
by the assessee on such BOT projects brings to it an enduring benefit in
the form of right to collect the toll during the period of the
agreement Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT
225 ITR 802 allowed spreading over of liability over a number of years
on the ground that there was continuing benefit to the company over a
period. Therefore, analogously, expenditure incurred on an
infrastructure project for development of roads/highways under BOT
agreement may be treated as having been made/incurred for the purposes
of business or profession of the assessee and same may be allowed to be
spread during the tenure of concessionaire agreement.
5. In view of above, Central Board of Direct Taxes, in
exercise of the powers conferred under section 119 of the Act hereby
clarifies that the cost of construction on development of infrastructure
facility of roads/highways under BOT projects may be amortized and
claimed as allowable business expenditure under the Act.
6. The amortization allowable may be computed at the rate
which ensures that the whole of the cost incurred in creation of
infrastructural facility of road/highway is amonized evenly over the
period of concessionaire agreement after excluding the time taken for
creation of such facility.
7. 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 may be 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.
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 the assessee under the
concessionaire agreement
9. This may be brought to the notice of all concerned.
Posts
0 comments :
Post a Comment