We are pleased to
release a tax alert which summarizes a recent ruling of the Bombay High Court
(HC) in the case of North Karnataka Expressway Ltd. (Taxpayer) on the
eligibility of claiming tax depreciation on development of roads under a
Build-Operate-Transfer (BOT) arrangement under the Indian Tax Laws (ITL).
Considering the various provisions of the National Highways Act, 1956 (NHA)
which deal with development of roads, the HC ruled that the ownership in such
roads vests only with the Government of India (GOI). Merely because the road is
built, maintained, managed and operated by the Taxpayer would not vest the ownership
therein, and GOI would continue to be the owner thereof. Consequently, in the
absence of ownership, depreciation under the ITL is not admissible to the
Taxpayer.
Presently, there is no specific statutory treatment accorded to expenditure incurred for infrastructure development under a BOT arrangement under the ITL. There is however, a divergent view from the Indian judiciary on the tax treatment of such expenditure. In some cases, deduction in the form of tax depreciation has been permitted by treating right to collect toll as an intangible asset on the basis that the ownership of concessionaire right vests in the person. However, in certain cases, tax depreciation is granted by treating road to be a building. Furthermore, in certain other cases, amortization of such expenditure over the period of BOT arrangement has been granted.
The present ruling has considered the concept of ownership, not on the basis of the ITL, but on the basis of the NHA which govern such arrangement. The HC has come to a conclusion that the Taxpayer has no ownership interest in the road so constructed, and maintained. In such circumstances, the claim of tax depreciation has been disallowed. Though the HC did specifically note that the agreement provided that for tax depreciation, the property represented by the capital investment is owned by the Taxpayer, the HC has not commented on impact of this provision. The Taxpayer did not put forth the claim that tax depreciation is on account of treating the right to collect toll as an intangible asset, of which the Taxpayer is the owner, and thus, entitled to tax depreciation.
Incidentally, the CBDT in its Circular dated 23 April 2014 has clarified that while expenditure on development of infrastructure facility (including roads, highways) is not eligible for depreciation in absence of satisfaction of ownership condition but the expenditure is deductible over the tenure of the agreement. The Circular does not seem to have been brought to the notice of the HC.
Presently, there is no specific statutory treatment accorded to expenditure incurred for infrastructure development under a BOT arrangement under the ITL. There is however, a divergent view from the Indian judiciary on the tax treatment of such expenditure. In some cases, deduction in the form of tax depreciation has been permitted by treating right to collect toll as an intangible asset on the basis that the ownership of concessionaire right vests in the person. However, in certain cases, tax depreciation is granted by treating road to be a building. Furthermore, in certain other cases, amortization of such expenditure over the period of BOT arrangement has been granted.
The present ruling has considered the concept of ownership, not on the basis of the ITL, but on the basis of the NHA which govern such arrangement. The HC has come to a conclusion that the Taxpayer has no ownership interest in the road so constructed, and maintained. In such circumstances, the claim of tax depreciation has been disallowed. Though the HC did specifically note that the agreement provided that for tax depreciation, the property represented by the capital investment is owned by the Taxpayer, the HC has not commented on impact of this provision. The Taxpayer did not put forth the claim that tax depreciation is on account of treating the right to collect toll as an intangible asset, of which the Taxpayer is the owner, and thus, entitled to tax depreciation.
Incidentally, the CBDT in its Circular dated 23 April 2014 has clarified that while expenditure on development of infrastructure facility (including roads, highways) is not eligible for depreciation in absence of satisfaction of ownership condition but the expenditure is deductible over the tenure of the agreement. The Circular does not seem to have been brought to the notice of the HC.
No comments:
Post a Comment