North Karnataka Expressway Ltd vs. CIT (Bombay High Court)

DATE: October 14, 2014 (Date of pronouncement)
DATE: November 12, 2014 (Date of publication)
AY: 2005-06
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The person who constructs a road on Build, Operate and Transfer (BOT) basis on land owned by the Government is not the "owner" of the road and cannot claim depreciation thereon

The High Court had to consider whether a person who is in the business of infrastructure development constructs a road on Build, Operate and Transfer (BOT) basis on land owned by the Government, can it claim depreciation on the toll road. HELD by the High Court:

(i) The functions that are to be discharged by the authority under the National Highway Authority Act does not in any manner mean that this person who is engaged or entrusted with any of the functions by the authority can be said to be the owner of the National Highway. The ownership being that of the Union, it can never be said to be divested of that absolute right by engagement of any person or by entrusting any of the functions of the authority to him.

(ii) It would not be proper, therefore, to read into section 32 of the Income-tax Act, 1961 something which is defeating and frustrating the mandate of these laws. It can never be intended by the legislature that the broad and wide definition of the term “owner” as appearing in the Income-tax Act, 1961 would interfere with or take away the absolute rights of the above nature conferred in the union of the National Highways. A provision in one statute or a definition in one statute cannot be interpreted so as to defeat and frustrate another law or statute or any definition therein and when that another statute is a special legislation. The National Highways Act and the National Highways Authority of India Act are, special statutes and when the concept of ownership and vesting therein is of absolute nature that cannot be said to be in any manner restricted or curtailed by a general definition or understanding of the term owner as appearing in the Income-tax Act, 1961. The term is defined widely and broadly in the Income-tax Act, 1961 so as not to allow anybody to escape the provisions thereof by urging that he has a limited right or which is not akin to ownership. Therefore, his income should not be brought to tax;

(iii) The observations in Mysore Minerals Ltd (1999) 239 ITR 775 (SC) and Podar Cement Pvt. Ltd. (1997) 226 ITR 625 (SC) must be seen in the backdrop of the facts. We are not concerned here with an ownership of a building or a land beneath which is not conveyed and sold or transferred by execution of a conveyance or a sale deed. Merely, because the road is laid out does not mean that the Assessee is the owner thereof. He has laid it out for the purpose of the union and for its ultimate vesting in the public.

(iv) None of the above material was placed before the Allahabad High Court in CIT vs. Noida Toll Bridge Co. Ltd 213 Taxman 333. With greatest respect, the conclusion of the Division Bench rests only on section 32 of the Income Tax Act, 1961. It followed the Hon’ble Supreme Court’s judgment in Mysore Mineral Limited (supra) but with great respect, failed to refer to the provisions of the National Highways Act, 1956 or the National Highways Authority of India Act, 1988. We are unable to agree with the observations and conclusions in CIT vs. Noida Toll Bridge Co. Ltd 213 Taxman 333.

Note: This affirms CBDT Circular No. 09/2014 dt. 23.04.2013 on depreciation/ amortisation of BOT projects. The CBDT has held that while depreciation is not permissible, the entire cost of construction and development of the infrastructure facility has to be amortized evenly over the period of the concessionaire agreement and allowed as business expenditure u/s 37(1) of the Act.

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