Income Tax Case

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 499 OF 2012 North Karnataka Expressway Ltd., The IL & FS Financial Center, 8[th] Floor, Plot No.C-22,G-Block Bandra Kurla Complex, Bandra, Mumbai-400 051. PAN No. ..Appellant -Versus- The Commissioner of Income Tax-10,Aayakar Bhavan, M.K. Road,Mumbai-400 0020. ..Respondent ........... Mr. F. V. Irani i/b. Mr. S. G. Dalal for the Appellant.Mr. Arvind Pinto for the Respondent. ........... CORAM: S.C. DHARMADHIKARI AND A. K. MENON, JJ. RESERVED ON : 18[th] SEPTERMBER, 2014 PRONOUNCED ON : 14[th] OCTOBER,2014 1/ 61 J U D G M E N T (PER S.C.DHARMADHIKARI,J.) This is Appeal by the Assessee challenging the order passed by the Income Tax Appellate Tribunal, Bench at Mumbai, dated 30th August, 2011 in Income Tax Appeal No.3978/Mum/2010. The assessment year in question is 2005-06. 2]An order of the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 (for short 'the Act') dated 17th March, 2010 was under challenge before the Tribunal and at the instance of the Appellant-Assessee. The Commissioner had exercised his powers under the above provision and held that the assessment made by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. 3]The Appeal raises substantial question of law and which is formulated as under:- "(i) Whether, on the facts and in the circumstances of the case, and in law, the Tribunal was justified in confirming the order passed by the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 directing the Assessing Officer to examine the allowability of depreciation on toll road?” 3 4]Mr. Pinto, learned counsel, waives service on behalf of the Revenue. 5]By consent of both parties, the Appeal is taken up for final hearing. 6]The Assessee is a company incorporated under the Indian Companies Act, 1956 having its registered office at the address mentioned in the cause title. 7]It is engaged in the business of infrastracture development. It is common ground that the Assessee executed a Concession Agreement on 20th November, 2001 with the National Highway Authority of India (NHAI) to construct a road styled as toll road from km 515 to km 592 in Dharwad-Maharashtra border section of National Highway No.4 in the State of Karnataka. That was to be constructed and maintained on Build, Operate and Transfer (BOT) basis on the land owned by the Government. In terms of this agreement, the Appellant had to construct the toll road and thereafter maintain and operate it for a period of 17 years and 6 months which is known as the concession period. At the end of this period, the toll road is required to be handed over to the NHAI free of cost. 8]The Appellant claimed that it was the owner of the toll road and the entire cost incurred for construction thereof was capitalized by the Appellant in its books in the assessment year 2005-06 during which the construction of the toll road was completed. As the assessment year under consideration was the first year when the road became operational, the Appellant claimed Depreciation of Rs.59.92 crores at the rate of 10% on the capitalized cost of the toll road. The Appellant also filed necessary details of the claim of depreciation and a note was appended to the depreciation schedule stating that though the Appellant was entitled to higher claim of depreciation on toll road, the claim is made at the rate of 10%. The right to claim higher depreciation is reserved. The Appellant relied upon the standard concession document of the National Highway Authority of India and the clause therein that 'for the purpose of claiming tax depreciation, the property representing the capital investment made by the concessionaire shall be deemed to be acquired and owned by the concessionaire.' 9]The case of the Appellant was selected for scrutiny and the Assessing Officer examined the details of income and expenditure of the Appellant. He sought certain clarifications and after detailed correspondence and examination of the information provided by the Appellant, he passed an order on 28th December, 2007. 10]On 26th February, 2009, a notice of show cause notice was received by the Appellant from the Respondent. The notice was under section 263 of the Income Tax Act and the Respondent proposed to revise the assessment order passed by the Assessing Officer as in his opinion the Assessing Officer had erred in allowing depreciation on the toll road constructed on Build, Operate and Transfer basis. According to him, that resulted in under assessment of income. Annexure D and E are copies of the assessment order and show cause notice. The Assessee furnished a reply to the same and submitted that the Assessing Officer has applied his mind on the particular issue and his view is a possibe one. Therefore, jurisdiction under section 263 of the Income Tax Act cannot be exercised. Further, the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. A copy of this reply is at Annexure-F. There was a second show cause notice, copy of which is at Annexure G dated 2nd December, 2009 5/ 61 and that was in relation to further items of income and expediture. Even in that regard, the Assesssee showed cause and appeared before the Commissioner. However, the Commissioner, Respondent before us, set aside the assessment and directed, inter alia, that the allowability of depreciation on toll road should be examined again. 11]Aggrieved and dissatisfied with this order of the Respondent dated 17th March, 2010, an Appeal was filed before the Tribunal. By the impugned order, the Tribunal has held that the Assessing Officer has passed an order without any examination of the issue and in a mechanical manner. His order was, therefore, erroneous and prejudicial to the interest of the Revenue on the allowability of depreciation on road. Hence, the Commissioner's order was upheld and the Appeal of the Assessee was dismissed. 12]Before us, Mr. Irani submitted that the Appeal raises a substantial question of law at least to the extent of the depreciation on toll roads. He submitted that pages 48 to 52 of the paper book would indicate that entire 6/ 61 material was before the Assessing Officer. This was not a case where section 263 of the Income Tax Act was applicable and attracted. Apart from the same, there is variance between the contents of the show cause notice and the order of the Commissioner of Income Tax. In that regard, he invites our attention to page 55 of the paper book and pages 66 and 67 thereof. He submits that if the conclusion of the Commissioner is contrary to and not based on the contents of the show cause notice, then, the Tribunal should have quashed his order. Mr. Irani submits that there is no question of the Assessing Officer not applying his mind to the claim of depreciation. That is not subject matter of the notice either. Thus, there is a application of mind by the Assessing Officer and merely because his order is brief does not mean that it is erroneous and prejudicial to the interest of the Revenue. 13]Mr. Irani submits that the diversion or difference between the allegations in the show cause notice and the conclusions reached in the order of the Commissioner vitiates it completely in law. Mr. Irani also submits that the order under section 263 and equally the order of the Tribunal are factually erroneous. There is application of mind by the 7/ 61 13]Mr. Irani submits that the diversion or difference between the allegations in the show cause notice and the conclusions reached in the order of the Commissioner vitiates it completely in law. Mr. Irani also submits that the order under section 263 and equally the order of the Tribunal are factually erroneous. There is application of mind by the 7/ 61 Assessing Officer and just because there is no detailed discussion therein, does not mean that it should be set aside or that it is necessarily erroneous and prejudicial to the interest of the Revenue. In that regard, our attention is invited to the discussion in the Tribunal's order from page 79 to 82 of the paper book. Alternatively, Mr. Irani submits that the Assessing Officer's order is correct on merits. A view taken by him is a possible and plausible view. Therefore, the Commissioner should not have set aside his order. The Tribunal erred in not setting aside the order of the Commissioner. For these reasons, he submits that this Court be pleased to quash and set aside the impugned orders and allow the Appeal. 14]On the other hand, Mr. Pinto, learned counsel, appearing for the Revenue submits that the Tribunal as also the Commissioner has not concluded the issue of depreciation against the Assessee. All that they have done is to direct the Assessing Officer to reconsider and re-examine it in accordance with law. Alternatively, and without prejudice Mr. Pinto submits that there is no finding or opinion rendered by the Assessing Officer. Hence, this is not a case of two opinions or any possible opinion being rendered. Mr. Pinto in that regard relies upon para 4.3 of the order of the Tribunal at page 81 and 82 of the paper book. Mr. Pinto submits that the land belongs to the sovereign. The Assessee is merely permitted to enter upon it for the purpose of construction and laying of a road. At best, the Assessee could be said to be an agent and for a limited purpose, namely, to build, operate and later on transfer the road. There is no question of the Assessee claiming any ownership rights. Once, this is the settled position in law, then, the Commissioner and Tribunal did not commit any error in holding that the Assessing Officer' s claim for depreciation is not tenable in law. For all these reasons, the Appeal be dismissed. 15]With the assistance of both sides, we have perused the memo of Appeal and all Annexures thereto. We have also perused the relevant statutory provisions. In all fairness, Mr. Irani submits that the Appeal be decided on the re-framed question of law. That is with regard to the merits of the claim of depreciation which was raised by the Appellant-Assessee. In such circumstances, we would be deciding the matter on a wider question and as formulated above. 16]In that regard, it is necessary to refer to section 32 of the Income Tax Act, 1961. That section reads as under:- “Section 32.(1) – Depreciation In respect of depreciation of – (i) buildings, machinery, plant or furniture, being tangible assets; ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1[st] day of April, 1998.franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1[st] day of April, 1998. owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed - purposes of the business or profession, the following deductions shall be allowed - (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage, on the actual cost thereof to the assessee as may be prescribed;generation or generation and distribution of power, such percentage, on the actual cost thereof to the assessee as may be prescribed; owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed - purposes of the business or profession, the following deductions shall be allowed - (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage, on the actual cost thereof to the assessee as may be prescribed;generation or generation and distribution of power, such percentage, on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed;written down value thereof as may be prescribed; Provided that no deduction shall be allowed under this clause in resepect of - (a) any motor-car manufactured outside India, where such motor-car is acquired by the assessee after the 28[th] day of February, 1975, but before the 1[st] day of April, 2011, unless it is used -unless it is used - (i) in a business of running it on hire for tourists; or (ii) outside India in his business or profession in another country; and another country; and (b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42:is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42: Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescibed for an asset under clause (i) or clause (ii) or clause (iia) as the case may be; Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1[st] day of October, 1998, but before the 1[st] day of April, 1999, and is put to use before the 1[st] day of April, 1999, for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed. Explanation – For the purposes of this proviso, - (a) the expression “commercial vehicle” means “heavy goods vehicle”, “heavy passenger motor vehicle”, “light motor vehicle”, “medium goods vehicle” and “medium passenger motor vehicle” but does not include “maxi cab”, “motor-cab”, “tractor” and “road-roller” shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988): Provided also that, in respect of the previous year relevant to the assessment year commencingon the 1[st] day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment)Act, 1991 (2 of 1991): Provided also that, in respect of the previous year relevant to the assessment year commencingon the 1[st] day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment)Act, 1991 (2 of 1991): Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation of the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between thepredecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of day for which the assets were used by them. Explanation 1 – Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other rightof occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension or, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explanation 2 – For the purposes of this sub-section “written down value of the block of assets” shall have the same meaning as in clause ( c) of sub-section (6) of section 43.down value of the block of assets” shall have the same meaning as in clause ( c) of sub-section (6) of section 43. Explanation 3 – For the purposes of this sub-section, the expression “assets” shall mean - expression “assets” shall mean - (a) tangible assets, being buildings, machinery, plant or furniture;furniture; (b) intangible assets, being know-how, patents, copy- rights, trade marks, licences, franchises or any rights, trade marks, licences, franchises or any other business or commercial rights of similar nature.”nature.” 17]A bare perusal thereof indicates that in repsect of the depreciation of buildings, machinery, plant or furniture being tangible assets and with which we concerned, the deductions in sub-section(1) of section 32 shall be allowed provided these assets are owned wholly or partly by the Assessee and used for the purpose of his business or profession. Then, there are provisos below clause (ii) of sub-section (1) and it is not necessary to refer to the same and except explanation (3) which is an explanation for the purposes of sub-section (1). 18]The term depreciation as is ordinarily understood and in the context of the Income Tax Act, 1961 has been considered by the Hon'ble Supeme Court. 19]In judgment of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd. v/s. Commissioner of Income Tax, Mysore & Anr. reported in AIR 2013 (SC) 3037, the Hon'ble Supreme Court was concerned with the interpretation of section 32 of the Income Tax Act, 1961. The Hon'ble Supreme Court held as under:- allowed provided these assets are owned wholly or partly by the Assessee and used for the purpose of his business or profession. Then, there are provisos below clause (ii) of sub-section (1) and it is not necessary to refer to the same and except explanation (3) which is an explanation for the purposes of sub-section (1). 18]The term depreciation as is ordinarily understood and in the context of the Income Tax Act, 1961 has been considered by the Hon'ble Supeme Court. 19]In judgment of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd. v/s. Commissioner of Income Tax, Mysore & Anr. reported in AIR 2013 (SC) 3037, the Hon'ble Supreme Court was concerned with the interpretation of section 32 of the Income Tax Act, 1961. The Hon'ble Supreme Court held as under:- “10. Depreciation is the monetary equivalent of the wear and tear suffered by a capital asset that is set aside to facilitate its replacement when the asset becomes dys-functional. In P.K. Badiani v. Commissioner of Income tax, Bombay, this Court has observed that allowance for depreciation is to replace the value of an asset to the extent it has depreciated during the period of accounting relevant to the assessment year and as the value has, to that extent, been lost, the corresponding allowance for depreciation takes place. 11.Black's Law Dictionary (5[th] Edn.) defines 'depreciation' to mean, inter alia: “A fall in value; reduction of worth. The deteriotation or the loss or lessening in value, arising from age, use, and improvements, due to better methods. A decline in value of property caused by wear or obsolescence and is usually measured by a set formula which reflects these elements over a given period of useful life of property.... Consistent gradual process of estimating and allocating cost of capital investments over estimated useful life of asset in order to match cost against earnings....” ways: The 6[th] Edition defines it, inter alia, in the following “In accounting, spreading out the cost of a capital asset over its estimated useful life. A decline in the value of property caused by wear or obsolescence and is usually measured by a set formula which reflects these elements over a given period of useful life of property. 12.Parks in Principles & Practice of Valuation(Fifth Edn., at page 323) states: As for building, depreciation is the measurement of wearing out through consumption, or use, or effluxion of time. Paton has in his Account's Handbook (3rd Edn.) observed that depreciation is an out-of-pocket cost as any other costs. He has further observed-the depreciation charge is merely the periodic operating aspect of fixed asset costs.states: As for building, depreciation is the measurement of wearing out through consumption, or use, or effluxion of time. Paton has in his Account's Handbook (3rd Edn.) observed that depreciation is an out-of-pocket cost as any other costs. He has further observed-the depreciation charge is merely the periodic operating aspect of fixed asset costs. 13. The provision on depreciation in the Act reads that the asset must be “owned, wholly or partly, by the Assessee and used for the purposes of the business.” Therefore, it imposes a twin requirement of 'ownership' and 'usage for business' for a successful claim under section 32 of the Act.be “owned, wholly or partly, by the Assessee and used for the purposes of the business.” Therefore, it imposes a twin requirement of 'ownership' and 'usage for business' for a successful claim under section 32 of the Act. 19.We may now advert to the first requirement i.e. the issue of ownership. No depreciation allowance is granted in respect of any capital expenditure which the Assessee may be obliged to incur on the property of others. Therefore, the entire case hinges on the question of ownership; if the Assessee is the owner of the vehicles, then, he will be entitled to the claim on depreciation, otherwise, not. 19.We may now advert to the first requirement i.e. the issue of ownership. No depreciation allowance is granted in respect of any capital expenditure which the Assessee may be obliged to incur on the property of others. Therefore, the entire case hinges on the question of ownership; if the Assessee is the owner of the vehicles, then, he will be entitled to the claim on depreciation, otherwise, not. 20.In Mysore Minerals Ltd., M.G. Road, Bangalore V/s. Commissioners of Income Tax, Karnataka, Bangalore, this Court said thus: “.....authorities show that the very concept the depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time. 21.Black's Law Dictionary (6[th] Edn.) defines 'owner' as under:- “Owner. The person in which is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or personal, corporeal or incorporeal, which he has a right of enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right. The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied. The primary meaning of the word as applied to land is one who owns the fee and who has right to dispose of the property, but the terms also dispose of the property, but the terms also included one having a possessory right to land or the person occupying or cultivating it. The term “owner” is used to indicate a person in which one or more interests are vested his own benefit. The person in whom the interests are vested has 'title' to the interests whether he holds them for his own benefit or the benefit of another. Thus the term “title” unlike “owner” ..” It defines the term 'ownership' as -- “Collection of right to use and enjoy property, including right to transmit it to others... The right of one or more persons to possess or use a thing to the exclusion of others. The right by which a thing belongs to some one in particular, to the exclusion of all other persons. The exclusive right of possession, enjoyment or disposal; involving as an essential attribute the right to control, handle, and dispose.” The same dictionary defines the term “own” as 'to have a good legal title'. These definitions essentially make ownership a function of legal right or title against the rest of the world. However, as seen above, it is “nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied.” 20]It is in this backdrop that we have to notice the facts and circumstances in which the claim was raised. Admittedly, the Assessee is in the business of infrastracture development and in the course of which it had constructed the above referred toll road. There is a Concession Agreement with the National Highway Authority of India. The question, therefore, is that when a person like the Assessee who is in the business of infrastructure development in execution of such agreement constructs a road and on Build, Operate and Transfer (BOT) basis on the land owned by the Government, can it claim depreciation on the toll road. 20]It is in this backdrop that we have to notice the facts and circumstances in which the claim was raised. Admittedly, the Assessee is in the business of infrastracture development and in the course of which it had constructed the above referred toll road. There is a Concession Agreement with the National Highway Authority of India. The question, therefore, is that when a person like the Assessee who is in the business of infrastructure development in execution of such agreement constructs a road and on Build, Operate and Transfer (BOT) basis on the land owned by the Government, can it claim depreciation on the toll road. 21]When this larger question was posed before the authorities, what they have held is that the Assessing Officer in allowing such a claim has not even considered the basic facts rather there is no consideration of the claim at all and before granting it. The Commissioner came to the conclusion that the depreciation is allowable on specific assets owned by the Assessee and used for the above purpose. The toll road belongs to the Government and the Assessee is not the owner of the said road. Therefore, the depreciation is not allowable on toll road. 22]We do not find that when this notice was issued by the Commissioner to the Assessee under section 263 of the Income Tax Act, there has been any divergence or contradiction as complained by Shri Irani. We do not 18/ 61 find any basis for the complaint that the notice and the order passed by the Commissioner of Income Tax are at variance or that the order travels beyond the notice. The essential foundation for the notice is as noted above. The Commissioner issued another show cause notice on 2[nd ]December, 2009 and in which also he alleged that the claim of depreciation has been erroneously granted and the order of the Assessing Officer to that extent is erroneous and prejudicial to the interest of the Revenue. The Assessee replied to the show cause notice and gave detailed explanation on how the claim arises. Hence, there was no prejudice nor can it be said that the Assessee was in any manner handicapped in dealing with the show cause notice. 23]The order of the Commissioner deals with the stand of the Assessee and in detail. The Commissioner held that the Assessing Officer had not discussed this claim at all. He has granted it without any application of mind and mechanically. There is justification for such a conclusion by the Commissioner. 24]Then, the Commissioner discussed the claim on merits. He found that the ownership of the road cannot be claimed by the Assessee. The claim of depreciation is not based on treating it as an intangible asset with a right to use the asset without being actual owner thereof. In that regard, the Commissioner referred to the orders passed by the Bombay Bench of the Income Tax Appellate Tribunal in the case of Reliance Port and Terminals Ltd. and that of the Delhi Bench of the Tribunal dated 19[th] December, 2008 in the case of Noida Toll Bridge Company and held that firstly, the Assessing Officer did not apply his mind at all and secondly, the toll roads are not owned by the Assessee and he cannot claim any depreciation thereon. 25]This finding of the Commissioner has been confirmed by the Income Tax Appellate Tribunal in the impugned order and in that behalf the Tribunal has held as under:- “ In this case, the Assessee who was in the business of infrastructure development had constructed a road on the land taken on lease from government. Depreciation is allowable only in respect of assets owned by Assessee. The Assessee had claimed depreciation of Rs.59.92 crores on the road which had been allowed by the Assessing Officer without any examination. Though the Assessing Officer raised queries 25]This finding of the Commissioner has been confirmed by the Income Tax Appellate Tribunal in the impugned order and in that behalf the Tribunal has held as under:- “ In this case, the Assessee who was in the business of infrastructure development had constructed a road on the land taken on lease from government. Depreciation is allowable only in respect of assets owned by Assessee. The Assessee had claimed depreciation of Rs.59.92 crores on the road which had been allowed by the Assessing Officer without any examination. Though the Assessing Officer raised queries on many issues vide letter dated 16[th] October, 2006 placed at page 39 of the paper book but there was no query raised on allowability of depreciation. Nor there was any query on this issue in the order sheet or by way of any correspondence. Considering that huge depreciation had been claimed on the road constructed on the land not owned by the Assessee, the issue was required to be examined by the Assessing Officer which was not done. The order is therefore, erroneous and prejudicial to the interest of the revenue following the judgments cited above. It is not a case that the Assessing Officer had examined the issue by calling for necessary details and by raising relevant queries but failed to discuss the issue elaborately in the assessment order. The judgment of High Court of Bombay in case of Gabriel India (supra), is therefore, not applicable on the facts of the present case. The learned AR for the Assessee has argued that depreciation was allowable based on some decisions of the Tribunal and therefore, Assessing Officer had taken one of the possible views and in such cases order cannot be said to be erroneous and prejudical to the interest of the revenue. Reliance has been on the case of Malabar Industrial Co. (supra) in which it has been held that in case Assessing Officer has taken one of the possible views, assessment cannot be said to be erroneous and prejudicial to the interest of the revenue. But the question of taking one of the two possible views arises only when the Assessing Officer has taken a view after necessary examination ofo the issue. In case Assessing Officer has allowed the claim mechanically without any examination, it cannot be sid that he has taken one of the two possible views. It will be a case of passing order without any examination which will be obviously erroneous and prejudicial to the interest of the revenue. In our view, claim had been allowed by Assessing Officer in a very mechanical manner without any examination of the issue, and therefore, the order was erroneous and prejudicial to the interest of the revenue on the issue of allowability of depreciation on road.” 26]We are in agreement with these findings and conclusions of the Tribunal. 27]We called upon Mr. Irani to place before us a copy of the National Highways Act and National Highways Authority of India Act, 1988. Mr. Irani has been kind enough to place them. 28]The National Highways Act, 1956 is an Act to provide for declaration of certain highways to be National Highways and for matters connected therewith. In the present case, we are concerned with a National Highway. Admittedly, it is a Dharwad-Maharashtra border section from km.515 to km.592 of National Highway No.4 in the State of Karnataka which has been constructed by the Appellant-Assessee. The statement of objects and reasons to the National Highway Act, 1956 and to the extent relevant for our purpose reads as under:- “ Under Entry 23 of the Union List, Parliament has exclusive power of legislation with respect to highways which are declared to be national highways by or under law made by Parliament. It is, therefore, proposed that the highways comprised in the Schedule annexed to this Bill should be declared to be national highways. Such a declaration would help the Central Government in “ Under Entry 23 of the Union List, Parliament has exclusive power of legislation with respect to highways which are declared to be national highways by or under law made by Parliament. It is, therefore, proposed that the highways comprised in the Schedule annexed to this Bill should be declared to be national highways. Such a declaration would help the Central Government in exercising its powers with respect to the development and maintenance of these highways more effectively. Power is also sought to be vested in the Central Government to declare, by notification, other highways to be national highways. Power should also be given to the Central Government to enter into agreements with the State Governments or municipal authorities with respect to the development or maintenance of any portion of any national highway and fees may have to be levied in respect of certain types of services rendered on national highways.” 29]There has been amendment to the National Highway Act, 1956 and by the Amendment Act 26 of 1995 several provisions have been inserted in the Act and for enabling the Central Government to enter into a agreement with any person in relation to the development and maintenance of the whole or part of a National Highways. The statement of facts and reasons to Amendment Act 26 of 1995 reads as under:- “ Amendment Act 26 of 1995- Statement of objects and Reasons. - Proper development of road infrastructure is essential for economic development of the country. However, due to constrain of resources, it has not been possible to allocate sufficient funds for the development of road sector in the country. Therefore, a need has been felt to tap private entrepreneurship and private resources in the development of road sector. With this in view, the Government has taken a number of measures like the declaration of road sector as an industry and infrastructure facility and certain other concessions. A number of private investors including foreign investors have shown interest in the proposal to open the road sector for private investment. However, in the absence of an enabling provision in the National Highways Act, 1956, it is not possible to enter into agreements with private investors for the development of roads.” 30]A bare perusal thereof, would indicate that after the policy of globalization, liberalization and privatization, the Act has been amended so as to provide for participation of private entities so as to develop and maintain whole or part of the National Highways. Naturally, these private entities would have to be involved by enabling the authorities to execute an agreement with them and which agreement will contains stipulations so as to bind them. The development and maintenance will have to be undertaken and in order to allow the private entities to be reimbursed the costs and expenses incurred by them that the Act enables levy of fees and authorises the person who has undertaken to develop the whole or part of a national highways to collect such fees. Further, a person who is undertaking such an exercise would also be in a position to regulate the traffic on the National Highway. With these broad objects, the Act has been amended. By section 2 of the Act, the Central Government can declare each of the Highways specified in the schedule to be a National Highway. Then, such Highway is deemed to be as such and so as to develop and maintain it and other land for such purpose, the Act enables the acquisition of private lands and these provisions are inserted from section 3-A to section 3-J. Section 4 and section 5 of this Act reads as under:- “4. National Highways to vest in the Union – All national highways shall vest in the Union, and for the purposes of this act “highways” include - (i) all lands appurtenant thereto, whether demarcated or not; (ii) all bridges, culverts, tunnels, causeways, carriageways and other structures constructed on or across such “4. National Highways to vest in the Union – All national highways shall vest in the Union, and for the purposes of this act “highways” include - (i) all lands appurtenant thereto, whether demarcated or not; (ii) all bridges, culverts, tunnels, causeways, carriageways and other structures constructed on or across such highways; and (iii) all fences, trees, posts and boundary, furlong and mile stones of such highways or any land appurtenant to such highways. 5. Responsibility for development and maintenance of national highways - It shall be the responsibility of the Central Government to develop and maintain in proper repair all national highways; but the Central Government may, by notification in the Official Gazette, direct that any function in relation to the development or maintenance of any national highway shall, subject to such conditions, if any, as may be specified in the notification, also be exercisable by the Government of the State within which the national highway is situated or by any officer or authority subordinate to the Central Government or to the State Government.” 31]By section 8-A, the Central Government has been empowered to enter into agreements for development and maintenance of National Highway and that section reads as under:- “8-A. Power of Central Government to enter into agreements for development and maintenance of national highways – (1) Notwithstanding anything contained in this Act, the Central Government may enter into an agreement with any person in relation to the development and maintenance of the whole or any part of a national highway. (2) Notwithstanding anything contained in section 7, the person referred to in sub-section (1) is entitled to collect and retain fees at such rate, for services or benefits rendered by him as the Central Government may, by notification in the Official Gazette, specify having regard to the expenditure involved in building, maintenance, management and operation of the whole or part of such national highway, interest on the capital invested, reasonable return, the volume of traffic and the period of such agreement. (3) A person referred to in sub-section (1) shall have powers to regulate and control the traffic in accordance with the provisions contained in Chapter VIII of the Motor Vehicles Act, 1988 (59 of 1988) on the national highway forming subject matter of such agreement, for proper management thereof.” It is this section which has been inserted by Act 26 of 1995. 32]To our mind, a reading of these sections together and harmoniously so also the Act as a whole, the National Highways vest in the union and for the purposes of the Act, they include all appurtenant lands whether demarcated or not, all bridges, culverts, tunnels, causeways, carriageways and other structures constructed on or across such highways and all fences, trees, posts and boundary, furlong and mile stones appurtenant to such Highways are included in the term Highways. There is a exclusive responsibility of development and maintenance of National Highway and which is of the Central Government. It is in these circumstances that we find that by It is this section which has been inserted by Act 26 of 1995. 32]To our mind, a reading of these sections together and harmoniously so also the Act as a whole, the National Highways vest in the union and for the purposes of the Act, they include all appurtenant lands whether demarcated or not, all bridges, culverts, tunnels, causeways, carriageways and other structures constructed on or across such highways and all fences, trees, posts and boundary, furlong and mile stones appurtenant to such Highways are included in the term Highways. There is a exclusive responsibility of development and maintenance of National Highway and which is of the Central Government. It is in these circumstances that we find that by section 8-A the Central Government is empowered to enter into an agreement with any person in relation to the development and maintenance of the whole or any part of a National Highway, but that in no way affects the vesting of the National Highways in the Union. Section 8-A cannot be said to be overriding section 4 and section 5. It is only for purposes of development and maintenance of the whole or any part of the National Highway through private parties or by involving them that this provision has been inserted. Merely because the National Highway is built, maintained, managed and operated by private entities does not mean that the vesting of the National Highway in the Union is effected. That does not dilute the right conferred by section 4 or take away the ownership of this Highway, meaning thereby, its vesting in the union. It is thus, the union in which the National Highway vests and that is all pervasive. 33]The National Highways Authority of India Act, 1988 is a Act to provide of a constitution of authority for the development, maintenance and management of National Highway’s and for matters connected therewith or incidental thereto. The statement of objects and reasons to this Act reads as under:- “Statement of Objects and Reasons – The development and maintenance of national highways is fully financed by the Central Government as this function comes within Entry 23 of the Union List of the Seventh Schedule to the Constitution. Further, section 5 of the National Highways Act, 1956 provides that the Central Government may direct that any function in relation to the development or maintenance of national highways shall also be exercisable, among others, by any officer or authority subordinate to the Central Government. Under this provision, the function of execution of the field activities including survey, investigations and preparation of projects on national highways have been delegated to the respective State Governments, the Central Government retaining the activities pertaining to planning, approval of design and estimates, monitoring, etc. This system if commonly known as the “Agency System” since the State Governments are paid “Agency Charges” incurred by them on works executed on the national highway system. 2. Though the “Agency System” of execution of national highway works by the State Public Works Department has been functioning for a period of about 40 years, difficulties have been experienced from time to time. 3. Since the Central Government have no direct administrative control over the executing agency, there have been instances when the Central Government had to remain helpless in case a State Government overlooked the acts of omission or commission on the part of its staff engaged in the construction and maintenance of national highways. This has part of its staff engaged in the construction and maintenance of national highways. This has resulted in anomalous situations where the Central Government, being 2. Though the “Agency System” of execution of national highway works by the S