Pr. Commissioner Of Income Tax, Jaipur-3, Statue Circle, C-Scheme,Jaipur v. M/S Gvk Jaipur Expressway Ltd

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR 1. D.B. Income Tax Appeal No. 232 / 2016 Pr. Commissioner of Income Tax, Jaipur-3, Statue Circle, C-scheme,Jaipur ----Appellant Versus M/s GVK Jaipur Expressway Ltd., 286, KM, Toll Plaza, Ajmer Road,NH-8, Village, Thikaria, Jaipur, AY: 2009-10 ----Respondent 2. D.B. Income Tax Appeal No. 626 / 2011 COMMISSIONER OF INCOME TAX, JAIPUR-III, JAIPUR ----Appellant Versus M/S G.V.K. JAIPUR KISHANGARH EXPRESS LTD., 286 KMS, TOLLPLAZA, AJMER ROAD, NH-08, VILLAGE THIKARIYA, JAIPUR ----Respondent 3. D.B. Income Tax Appeal No. 124 / 2010 Commissioner of Income Tax, Jaipur-III, Jaipur. ----Appellant Versus M/s. GVK Jaipur Kishangarh Expressway Ltd. Jaipur. ----Respondent 4. D.B. Income Tax Appeal No. 5 / 2015 Commissioner of Income Tax, Jaipur -III, Statute Circle, C-Scheme, Jaipur ----Appellant Versus M/s GVK Jaipur Kishangarh Expressway Pvt. Ltd., 286 K.M. Toli Plaza, Ajmer Road, N. H.-8 Village Thikaria Jaipur Raj ----Respondent 5. D.B. Income Tax Appeal No. 142 / 2017 Pr. Commissioner of Income Tax, Jaipur-3, Statute Circle, C-Scheme, Jaipur ----Appellant Versus M/s GVK Jaipur Expressway Ltd., 286, KM, Tolla Plaza, Ajmer Road, NH-8, Village, Thikaria, Jaipur, AY: 2010-11 6. D.B. Income Tax Appeal No. 187 / 2017 Pr. Commissioner of Income Tax, Jaipur-3, Statute Circle, C-Scheme, Jaipur ----Appellant Versus M/s GVK Jaipur Expressway Ltd., 286, KM, Toll Plaza, Ajmer Road, NH-8, Village Thikaria, Jaipur AY: 2007-08 ----Respondent 7. D.B. Income Tax Appeal No. 17/2011 Commissioner of Income Tax, Jaipur-III, Jaipur-I ----Appellant Versus M/s GVK Jaipur Expressway Ltd., 286, KM, Toll Plaza, Ajmer Road, Jaipur ---Respondent _______________________________________________ For Appellant(s) : Mr. Sameer Jain For Respondent(s) : Mr. N.M. Ranka, Sr. Advocate with Mr. N.K. Jain _______________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE DINESH CHANDRA SOMANI Judgment 10/10/2017 1. In all these appeals common questions of law and facts areinvolved hence they are decided by this common judgment. 2. By way of these appeals, the appellant has assailed the judgmentand order of the tribunal whereby the tribunal has dismissed theappeal of the department and allowed the appeal preferred by theassessee. 3. This court while admitting the appeals framed following substantial questions of law:- 1. Appeal No. 142/2017 Admitted on09.05.2017 “1. Whether in the facts andcircumstances of the case the Tribunalwas justified in allowing the claim ofdepreciation on public roads treating thesame as building which is not permissiblein law? 2. Whether on the facts circumstances ofthe case the Tribunal was justified inallowing the claim of depreciation @ 60%on EDP Equipments treating the same asthe computer equipments thoughdepreciation is permissible only @ 15%because EDP equipments are physicalstructures not computers. 3. Whether in the facts and incircumstance of the case the Tribunalwas justified in law in deleting specificdisallowances under section 43B(f) beingprovision for leave encashment? 4. Whether on facts and circumstance ofthe case Tribunal was justified in law indeletingthedisallowanceofRs.1,45,25,700/- u/s 14A read with Rule8D through the assessee failed to provethat the investment in Mutual Fund wasnot having any nexus with the funds onwhich interest was paid by theassessee?” 2. Appeal No. 124/2010 Admitted on10.08.2011 “(i) Whether on the facts and in thecircumstances of the case, the learnedITAT was right in law in allowing theclaim of respondents for capitalising theexpenditure incurred for the period ofprior to incorporation and existence ofbusiness? 4. Whether on facts and circumstance ofthe case Tribunal was justified in law indeletingthedisallowanceofRs.1,45,25,700/- u/s 14A read with Rule8D through the assessee failed to provethat the investment in Mutual Fund wasnot having any nexus with the funds onwhich interest was paid by theassessee?” 2. Appeal No. 124/2010 Admitted on10.08.2011 “(i) Whether on the facts and in thecircumstances of the case, the learnedITAT was right in law in allowing theclaim of respondents for capitalising theexpenditure incurred for the period ofprior to incorporation and existence ofbusiness? (ii) Whether in the facts andcircumstances of the case Hon’ble ITATwas right in law in allowing the claim forcapitalising the expenditure towards treecutting, tampling removal of deberiesetc. inspite of the fact that the assessee failed to prove the justification of thepayment made to the related concern? (iii) Whether on the facts andcircumstances of the case the Hon’bleITAT was justified in allowing the claim ofdepreciation @ 60% on EDP Equipmentstreating the same as the computerequipments which was classifiable underthe Head Plant and Machinery whereindepreciation is @ 15%? (iv) Whether in the facts andcircumstances of the case Hon’ble ITATwas justified in allowing the claim ofdepreciation on public roads treating thesame as building which is not permissiblein law?” 3. Appeal No. 187/2017 Admitted on16.08.2017 “Whether on the facts and in thecircumstances of the case the Tribunalwas justified in law deleting penalty ofRs.24,87,400/- imposed u/s 271(1)(c)for furnishing inaccurate particulars ofincome ignoring that the assessee filedreturn claiming exempt dividend income,but revised it to short term capital gainon being detected during the scrutinyproceedings of the wrong claim?” 4. Appeal No. 232/2016 Admitted on30.11.2016 “(i) Whether in the facts andcircumstances of the case, Hon’ble ITATwas justified in allowing the claim ofdepreciation on public roads treating thesame as building which is not permissiblein law?” (ii) Whether on the facts andcircumstances of the case the Tribunalwas justified in allowing the claim ofdepreciation @ 60% on EDP Equipmentstreating the same as depreciation ispermissible at the rate of 15%?” 5. Appeal No. 5/2015 Admitted on18.04.2016 “1. Whether in the facts andcircumstances of the case the IncomeTax Appellate Tribunal was justified inallowing claim of depreciation @ 60% onEDP equipments treating the same as thecomputer equipments which were classifiable under the head ‘Plant andMachinery’, wherein, depreciation is @15%? 2. Whether in the facts andcircumstances of the case, the IncomeTax Appellate Tribunal was justified inallowing claim of depreciation on publicroads treating it to be a building?” 6. Appeal No. 626/2011 Admitted on04.03.2012 “1. Whether the Tribunal was right in lawin deleting penalty under section 271(1)(c), when the same was imposed by theassessing officer for taking higherdepreciation in the revised return withthe intention to evade payment of dutydeliberately? 2. Whether the order passed by learnedTribunal can be said to be sustainable asdue to the fact of para-phrasing of theorder passed by the CIT(A) and it doesnot show that the Tribunal has applied itsmind?” 7. Appeal No. 17/2011 Admitted on10.08.2011 “(i) Whether on the facts andcircumstances of the case the Hon’bleITAT was justified in allowing the claim ofdepreciation of public roads, treating thesame as building? (ii) Whether Hon’ble ITAT was justified inallowing the claim of depreciation at thehigher rate of 60% classifying the plantand machinery as EDP Equipment ascomputer equipment instead of plant andmachinery entitle for 15% rate?” 2. Whether the order passed by learnedTribunal can be said to be sustainable asdue to the fact of para-phrasing of theorder passed by the CIT(A) and it doesnot show that the Tribunal has applied itsmind?” 7. Appeal No. 17/2011 Admitted on10.08.2011 “(i) Whether on the facts andcircumstances of the case the Hon’bleITAT was justified in allowing the claim ofdepreciation of public roads, treating thesame as building? (ii) Whether Hon’ble ITAT was justified inallowing the claim of depreciation at thehigher rate of 60% classifying the plantand machinery as EDP Equipment ascomputer equipment instead of plant andmachinery entitle for 15% rate?” 4. The facts of the case are that case of the assessee was pickedup for scrutiny assessment and the assessment under section143(3) of the Income-tax Act, 1961 was framed vide order dated29[th] March, 2013. While framing the assessment, the AssessingOfficer made various disallowances and additions on account ofdepreciation of Rs.29,71,10,536/- claimed on road anddepreciation of Rs.15,08,068/- claimed on EDP Equipments, disallowance of provision for leave encashment of Rs.19,33,345/-disallowance under section 14A of Rs.1,45,25,700/- disallowanceof income not to be considered for the purpose of claim ofdeduction under section 80IB of Rs.9,06,889/-, interest income ofRs.2,40,27,526/-, hence the AO computed the total income atRs.2,99,49,355/- against the loss of Rs.4,58,05,585/- and bookprofit as computed under section 115JB at Rs.58,84,34,128/- forMAT purposes. 4.1The assessee aggrieved by this order, preferred an appealbefore ld. CIT(A), who after considering the submissions partlyallowed the appeal. While partly allowing the appeal, the ld.CIT(A) deleted the disallowance made on account of depreciation.The ld. CIT(A) confirmed the disallowance made on account ofprovision for Leave Encashment, disallowance made under section14A of Rs. 1,45,25,700/-. In respect of claim under section 80IB,the ld. CIT(A) partly allowed the ground of the assessee and inrespect of interest income from other sources, the assessee’sappeal was dismissed by the ld. CIT(A) and confirmed theaddition. 5. Counsel for the appellant Mr. Jain, for Department has mainlytaken us to record of ITA No. 142/2010 wherein the AO observedas under:- “2. The assesee company is engaged inconstruction, operations and maintenance ofhighways. The assessee, vide agreement dated8.05.2002 with the National Highways Authorityof India (NHAI), entered into a concessionagreement for widening of 90.358 Km stretch onNH-8 between Jaipur & Kishangarh, from twoconstruction, operations and maintenance ofhighways. The assessee, vide agreement dated8.05.2002 with the National Highways Authorityof India (NHAI), entered into a concessionagreement for widening of 90.358 Km stretch onNH-8 between Jaipur & Kishangarh, from two lane road to six lane road on Build operateTransfer (BOT) basis. The work of the widening ofthe Highway was completed by the assessee andthe road was opened to the public on09.04.2005. since then the assessee ismaintaining the said road on toll basis. Therelevant previous year was the fourth year ofoperation of the toll road. 3. The assessee has shown income from toll operations at Rs. 1,70,75,30,832/- during theyear and has shown book profit at Rs.57,39,08,428/- for the MAT purpose. During the course of assessment procedding,various detail were called for and various pointswere examined and discussed. Following issuesemerged for consideration and have been dealtwith as per forthcoming paras. 4. Depreciation on road:- lane road to six lane road on Build operateTransfer (BOT) basis. The work of the widening ofthe Highway was completed by the assessee andthe road was opened to the public on09.04.2005. since then the assessee ismaintaining the said road on toll basis. Therelevant previous year was the fourth year ofoperation of the toll road. 3. The assessee has shown income from toll operations at Rs. 1,70,75,30,832/- during theyear and has shown book profit at Rs.57,39,08,428/- for the MAT purpose. During the course of assessment procedding,various detail were called for and various pointswere examined and discussed. Following issuesemerged for consideration and have been dealtwith as per forthcoming paras. 4. Depreciation on road:- 4.1 In the computation of income the assesseehas claimed the total depreciation of Rs.31,41,09,640/-.Fromexaminationofdepreciation chart it is noted that assessee hasclaimed depreciation of Rs. 29,71,10,536/-@10% on account of road, treating the same asbuilding. During the course of the assessementproceeding, it was asked to the assessee as towhy the depreciation claimed at road should notbe disallowed by the following decision of theApex Court in the case Indore MunicipalCorporation (2001) (247ITR803). 5. Depreciation on tolling & HTMS Machines (EDPEquipments) :- The assessee has claimed depreciation of Rs.15,08,068/- on the W.D.V of certain equipmentsshown as EDP euipments (Electronic dataprocessing equipments). The rate of depreciationhas been applied at 60%, by treating theseequipments equivalent to Computer andSoftware. It is pertinent to mention here that in the originalreturn file for the assessment year 2006-07these machinery had been shown under normalPlant & Machinery block. However, in the revisedreturn filed for A.Y. 2006-07, equipmentsamounting to Rs. 9,54,15,351/- out of the samewas placed under the 60% depreciation block byshowing these as EDP equipments. upheld and both the authorities namely CIT(A) and Tribunal havecommitted serious error in holding against the department. 5.2 To substantiate his arguments, Mr. Jain has referred the followingprovisions of the National Highway Act, 1956 which reads as under:- -Section 2 2. Declaration of certain highways to be nationalhighways. 1. Each of the highways specified in the Scheduleis hereby declared to be a national highway. 2. The Central Government may, by notification in the Official Gazette, declare any other highwayto be a national highway and on the publicationof such notification such highway shall bedeemed to be specified in the Schedule. 3. The Central Government may, by likenotification, omit any highway from the Scheduleand, on the publication of such notification, thehighway so omitted shall cease to be a nationalhighway. -Section 4 4. National highways to vest in the Union.- Allnational highways shall vest in the Union, and forthe purposes of this Act "highways" include-(i)all lands appurtenant thereto, whetherdemarcated or not; (ii) all bridges, culverts, tunnels, causeways,carriageways and other structures constructed onor across such highways; and (iii)all fences, trees, posts and boundary,furlong and mile stones of such highways or anyland appurtenant to such highways. -Section 5 5. Responsibility for development andmaintenance of national highways.- It shall bethe responsibility of the Central Government todevelop and maintain in proper repair all nationalhighways; but the Central Government may, bynotification in the Official Gazette, direct that anyfunction in relation to the development ormaintenance of any national highway shall,subject to such conditions, if any, as may bespecified in the notification, also be exercisableby the Government of the State within which thenational highway is situated or by any officer orauthority subordinate to the Central Government or to the State Government. Section 8A subsection (2) -Section 5 5. Responsibility for development andmaintenance of national highways.- It shall bethe responsibility of the Central Government todevelop and maintain in proper repair all nationalhighways; but the Central Government may, bynotification in the Official Gazette, direct that anyfunction in relation to the development ormaintenance of any national highway shall,subject to such conditions, if any, as may bespecified in the notification, also be exercisableby the Government of the State within which thenational highway is situated or by any officer orauthority subordinate to the Central Government or to the State Government. Section 8A subsection (2) 8A. Power of Central Government to enter intoagreements for development and maintenance ofnational highways:- (2) Notwithstanding anything contained insection 7, the person referred to in subsection(1) is entitled to collect and retain fees at suchrate, for services or benefits rendered by him asthe Central Government may, by notification inthe Official Gazette, specify having regard to theexpenditure involved in building, maintenance,management and operation of the whole or partof such national highway, interest on the capitalinvested, reasonable return, the volume of trafficand the period of such agreement. 5.3 He contended that the interpretation which has been put forth by the tribunal is contrary to the Act and the same is required to bequashed and set aside. 5.4 He has further taken rescue to Sec. 32 and explanation 1 of Section 32 of the IT Act as well as definition of Sec.2 Sub Section (2)which reads as under: 32. (1) In respect of depreciation of— (i) buildings, machinery, plant or furniture, beingtangible assets; (ii) know-how, patents, copyrights, trade marks,licences, franchises or any other business orcommercial rights of similar nature, beingintangible assets acquired on or after the 1st dayof April, 1998, owned, wholly or partly, by the assessee andused for the purposes of the business orprofession, the following deductions shall beallowed— (i) in the case of assets of an undertakingengaged in generation or generation anddistribution of power, such percentage on theactual cost thereof to the assessee as may beprescribed; (ii) in the case of any block of assets, suchpercentage on the written down value thereof asmay be prescribed: Provided that no deduction shall be allowedunder this clause in respect of— (a) any motor car manufactured outside India,where such motor car is acquired by theassessee after the 28th day of February, 1975but before the 1st day of April, 2001, unless it isused— (i) in a business of running it on hire for tourists;or (ii) outside India in his business or profession inanother country; and (b) any machinery or plant if the actual costthereof is allowed as a deduction in one or moreyears under an agreement entered into by theCentral Government under section 42 : Provided further that where an asset referred toin clause (i) or clause (ii) or clause (iia) [or thefirst proviso to clause (iia)], as the case may be,is acquired by the assessee during the previousyear and is put to use for the purposes ofbusiness or profession for a period of less thanone hundred and eighty days in that previousyear, the deduction under this sub-section inrespect of such asset shall be restricted to fiftyper cent of the amount calculated at thepercentage prescribed for an asset under clause(i) or clause (ii) or clause (iia), as the case maybe : (b) any machinery or plant if the actual costthereof is allowed as a deduction in one or moreyears under an agreement entered into by theCentral Government under section 42 : Provided further that where an asset referred toin clause (i) or clause (ii) or clause (iia) [or thefirst proviso to clause (iia)], as the case may be,is acquired by the assessee during the previousyear and is put to use for the purposes ofbusiness or profession for a period of less thanone hundred and eighty days in that previousyear, the deduction under this sub-section inrespect of such asset shall be restricted to fiftyper cent of the amount calculated at thepercentage prescribed for an asset under clause(i) or clause (ii) or clause (iia), as the case maybe : [Provided also that where an asset referred to inclause (iia)or the first proviso to clause (iia), asthe case may be, is acquired by the assesseeduring the previous year and is put to use for thepurposes of business for a period of less than onehundred and eighty days in that previous year,and the deduction under this sub-section inrespect of such asset is restricted to fifty per centof the amount calculated at the percentageprescribed for an asset under clause (iia)for thatprevious year, then, the deduction for thebalance fifty per cent of the amount calculated atthe percentage prescribed for such asset underclause (iia)shall be allowed under this sub-section in the immediately succeeding previousyear in respect of such asset:] Provided also that where an asset beingcommercial vehicle is acquired by the assesseeon or after the 1st day of October, 1998 butbefore the 1st day of April, 1999 and is put touse before the 1st day of April, 1999 for thepurposes of business or profession, the deductionin respect of such asset shall be allowed on suchpercentage on the written down value thereof asmay be prescribed. Explanation.—For the purposes of this proviso,— (a) the expression "commercial vehicle" means"heavy goods vehicle", "heavy passenger motorvehicle", "light motor vehicle", "medium goodsvehicle" and "medium passenger motor vehicle"but does not include "maxi-cab", "motor-cab","tractor" and "road-roller"; (b) the expressions "heavy goods vehicle","heavy passenger motor vehicle", "light motorvehicle", "medium goods vehicle", "mediumpassenger motor vehicle", "maxi-cab", "motor-cab", "tractor" and "road roller" shall have themeanings respectively as assigned to them insection 2 of the Motor Vehicles Act, 1988 (59 of1988): Provided also that, in respect of the previousyear relevant to the assessment yearcommencing on the 1st day of April, 1991, thededuction in relation to any block of assets underthis clause shall, in the case of a company, berestricted to seventy-five per cent of the amountcalculated at the percentage, on the writtendown value of such assets, prescribed under thisAct immediately before the commencement ofthe Taxation Laws (Amendment) Act, 1991: Provided also that the aggregate deduction, inrespect of depreciation of buildings, machinery,plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences,franchises or any other business or commercialrights of similar nature, being intangible assetsallowable to the predecessor and the successor inthe case of succession referred to in clause (xiii),clause (xiiib) and clause (xiv)of section 47 orsection 170 or to the amalgamating company andthe amalgamated company in the case ofamalgamation, or to the demerged company andthe resulting company in the case of demerger,as the case may be, shall not exceed in anyprevious year the deduction calculated at theprescribed rates as if the succession or the Provided also that the aggregate deduction, inrespect of depreciation of buildings, machinery,plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences,franchises or any other business or commercialrights of similar nature, being intangible assetsallowable to the predecessor and the successor inthe case of succession referred to in clause (xiii),clause (xiiib) and clause (xiv)of section 47 orsection 170 or to the amalgamating company andthe amalgamated company in the case ofamalgamation, or to the demerged company andthe resulting company in the case of demerger,as the case may be, shall not exceed in anyprevious year the deduction calculated at theprescribed rates as if the succession or the amalgamation or the demerger, as the case maybe, had not taken place, and such deduction shallbe apportioned between the predecessor and thesuccessor, or the amalgamating company and theamalgamated company, or the demergedcompany and the resulting company, as the casemay be, in the ratio of the number of days forwhich the assets were used by them. Explanation 1.—Where the business or professionof the assessee is carried on in a building notowned by him but in respect of which theassessee holds a lease or other right ofoccupancy and any capital expenditure isincurred by the assessee for the purposes of thebusiness or profession on the construction of anystructure or doing of any work in or in relation to,and by way of renovation or extension of, orimprovement to, the building, then, theprovisions of this clause shall apply as if the saidstructure or work is a building owned by theassessee. Section 2 Subsection (2) :- “annual value” in relation to any property meansits annual value as determined under section 23. 5.5 He also referred to the Income Tax Rules framed under Rule 5 which reads as under: [Effective from assessment year 2006-07 onwards] [See rule 5] TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE Block of assetsDepreciationallowance aspercentage of written down value12 PART A TANGIBLE ASSETS I. Building [See Notes 1 to 4 below this Table] (1) Buildings which are used mainly for residential purposes except hotels and boarding houses(2) Buildings other than those used mainly for residential purposes 10and not covered by sub-items (1) above and (3) below(3) Buildings acquired on or after the 1st day of September, 2002 for [40]installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infrastructure facilities under clause (i) of sub- section (4) of section 80-IA (4) Purely temporary erections such as wooden structures [40]III. Machinery and Plant(6) Machinery and plant, used in weaving, processing and garment [40]sector of textile industry, which is purchased under TUFS on or after the 1st day of April, 2001 but before the 1st day of April, 2004 and is put to use before the 1st day of April, 2004 [See Note 8 below this Table] 5.6 He has also taken us to the note which is appended thereto which reads as under:- 8. "TUFS" means Technology Upgradation FundScheme announced by the Government of Indiain the form of a Resolution of the Ministry ofTextiles vide No. 28/1/99-CTI of 31-3-1999. 5.7 He has taken us to the Notification under the Old Act whichwas applicable for the A.Y. 2003-04 & 2005-06 and tried todistinguish the definition of building and contended that noteswhich are referred in Schedule reads as under :- OLD APPENDIX I [Applicable for assessment years 2003-04 to 2005-06] [See rule 5] TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE Block of assetsDepreciationallowance aspercentage of writtendown value12PART A TANGIBLE ASSETS I. BUILDING [See Notes 1 to 4 below the Table] which reads as under:- 8. "TUFS" means Technology Upgradation FundScheme announced by the Government of Indiain the form of a Resolution of the Ministry ofTextiles vide No. 28/1/99-CTI of 31-3-1999. 5.7 He has taken us to the Notification under the Old Act whichwas applicable for the A.Y. 2003-04 & 2005-06 and tried todistinguish the definition of building and contended that noteswhich are referred in Schedule reads as under :- OLD APPENDIX I [Applicable for assessment years 2003-04 to 2005-06] [See rule 5] TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE Block of assetsDepreciationallowance aspercentage of writtendown value12PART A TANGIBLE ASSETS I. BUILDING [See Notes 1 to 4 below the Table] (1) Buildings which are used mainly for residential purposes except hotels and boarding houses5(2) Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below10 (3) Buildings acquired on or after the 1st day of September, 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infrastructure facilities under clause (i) of sub-section (4) of section 80-IA100(4) Purely temporary erections such as wooden structures100 OLD APPENDIX I [Applicable for assessment years 1988-89 to 2002-03] [See rule 5] TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE Block of assetsDepreciationallowance as percentage of written down (4) Purely temporary erections such as wooden structures100 5.8 He has also pointed out the Appendix applicable for the years 1984-85 to 1987-88 which reads as under :- OLD APPENDIX I [Applicable for assessment years 1984-85 to 1987-88] PART I[See rule 5] TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE 1 ocean-going ships; (ii) written down value in the case of any other asset 2 3 I. BUILDINGS— 510 1. General rate 2. Special rate in respect of factory buildings (excluding offices,100godowns, officers'—and employees' quarters, roads, bridges, culverts, wells and tube 100 "Buildings" include roads, bridges, culverts, wells and tubewells.] wells) 3.] Purely temporary erections such as wooden structures 4.] In respect of any structure or work in or in relation toa building referred to in subsection (1A) ofsection 32,— 5.9 He pointed out the depreciation rate which are applicable inthe different cases which is reproduced as under : APPENDIX IA TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE [See rule 5(1A)] Class of assets (a) Plant and Machinery in generating stations including plant foundations :— Depreciation allowance as percentage of actual cost 5.10 He has also taken us to the item no. 5 in Appendix-I for the year 2006-07 where the definition of Computer includes ComputerSoftware and clause 7 which reads as under :- 7. Computers including Computer Software. “Computer Software” means any computerprogram recorded on any disc, tape, perforatedmedia or other information storage device.” 5.11 To substantiate his arguments, he has also taken help of theRoad Traffic Act, 1930 (U.K.) where the Road means any main or parochial road and includes bridges over which a road passes, andany road-way to which the public are granted access and any roadway declared to be a road pursuant to the provisions of sub -section (2). 5.12 He has taken us to the judgment of the Supreme Court in IndoreMunicipal Corporation vs. Commissioner of Income Tax (2001) 247ITR 803 wherein it has held as under:- 2006-07 where the definition of Computer includes ComputerSoftware and clause 7 which reads as under :- 7. Computers including Computer Software. “Computer Software” means any computerprogram recorded on any disc, tape, perforatedmedia or other information storage device.” 5.11 To substantiate his arguments, he has also taken help of theRoad Traffic Act, 1930 (U.K.) where the Road means any main or parochial road and includes bridges over which a road passes, andany road-way to which the public are granted access and any roadway declared to be a road pursuant to the provisions of sub -section (2). 5.12 He has taken us to the judgment of the Supreme Court in IndoreMunicipal Corporation vs. Commissioner of Income Tax (2001) 247ITR 803 wherein it has held as under:- “High Court held that expenditure incurred byAssessee towards construction of metal roads ontrenching grounds was not an item of revenuededuction and Assessee was not entitled todepreciation on amount of cost of construction ofmetal roads on trenching grounds – Hence, thisAppeal – Whether, judgment of High Court wasliable to be set aside – Held, roads wereconstructed to approach about 500 trenches fordumping waste and night soil in trenches andtransporting processed manure – There was noother construction except roads- Therefore, itcould not be said that roads by themselves wouldconstitute buildings.”Assessee towards construction of metal roads ontrenching grounds was not an item of revenuededuction and Assessee was not entitled todepreciation on amount of cost of construction ofmetal roads on trenching grounds – Hence, thisAppeal – Whether, judgment of High Court wasliable to be set aside – Held, roads wereconstructed to approach about 500 trenches fordumping waste and night soil in trenches andtransporting processed manure – There was noother construction except roads- Therefore, itcould not be said that roads by themselves wouldconstitute buildings.” 5.13 He contended that the construction of road will not becompleted as envisaged by the Supreme Court while interpreting thejudgment referred above. 6. Mr. Ranka, Sr. Counsel for the respondent while reiterating thefacts has contended that regarding question no.1 for capitalizing theexpenditure incurred for the period prior to incorporation of Rs.5.15Crores, a consortium consisting of (i) GVK International NV, a limitedliability Company incorporated in Netherlands Antilles, having itsregistered office at Chughubiweg 17, Curacao, Netherlands, Antilles,and Indian Office at Kohinoor Road No.1, Bajara Hills, Hyderabad,India (hereinafter referred to as ‘GVK’) and (ii) M/s. Leighton of 5.13 He contended that the construction of road will not becompleted as envisaged by the Supreme Court while interpreting thejudgment referred above. 6. Mr. Ranka, Sr. Counsel for the respondent while reiterating thefacts has contended that regarding question no.1 for capitalizing theexpenditure incurred for the period prior to incorporation of Rs.5.15Crores, a consortium consisting of (i) GVK International NV, a limitedliability Company incorporated in Netherlands Antilles, having itsregistered office at Chughubiweg 17, Curacao, Netherlands, Antilles,and Indian Office at Kohinoor Road No.1, Bajara Hills, Hyderabad,India (hereinafter referred to as ‘GVK’) and (ii) M/s. Leighton of Australia, through their Indian subsidiary Leinghton Contractors(India) Pvt. Ltd., Mumbai was formed. The said persons expressedinterest in bidding for the Global Tender floated by the NationalHighways Authority of India (NHAI), for the widening of the existing2-lane to 6-lanes dividend carriageway facility including therehabilitation of existing 2 lane from 273/500 to 363/885 on Jaipur –Kishangarh section of the 19 NH-8, in Rajasthan, India. NovapanIndustries Limited, a Company within the meaning of the IndianCompanies Act, 1956 having its registered office at ‘Suryodaya’,Begumpet, Hyderabad, India (hereinafter referred to as ‘NOVAPAN’, amarket leader engaged in manufacturing and marketing of pre-laminated particleboard having network of offices located atHyderabad, New Delhi, Jaipur, Mumbai, Bangalore and otherimportant cities in India offered to support the bidding and liaisoningon behalf of GVK, with the agencies involved in the selection processto ensure getting the bid through successfully. Consequently asuccess fee agreement dated 4 th November 1999 was entered intoby and between GVK and Novapan. The GVK agreed to pay NOVAPAN‘success fee’ (hereinafter referred to as ‘success fee’) equivalent toRs.20,000,000/- (Rupees Twenty million only) based on thesuccessful outcome of the bid in favor of the GVK lead consortium. 6.1. He contended that another agreement for reimbursement ofexpenses was entered into by and between the said parties on 4 thNovember, 1999. In terms of the said agreement, NOVAPAN agreedto carry on the job of review, preparation, compilation &submission of the bid documents for the said project with NHAI and for the purpose provide all necessary logistics and support for theproject including verification of the traffic data, tolling studies,topographic survey, Geo-technical surveys, assessment ofbridge/culvert strengthening, assessment of construction difficulties,quarries for construction material, verification of earthwork quantitiesetc. Novapan agreed to put together and submit the bid documentson behalf of GVK consortium and also undertook negotiations afterthe selection as preferred bidder up to the point of financial clause.Other assistance and facilities were to be provided and they have tocoordinate for finalizing the bid documents. All such expenditurehave to be incurred by Novapan and GVK agreed to reimbursesubject to a maximum limit of Rs.10 million payable within sixmonths after the date of signing of the Concession Agreement withNHAI or in any case before the final closure of the project. The saidamount was to be paid by GVK through Special Purpose Vehicle(SPV) to be formed by the Consortium for the implementation of theproject. 6.2. It is contended that the Government of India in the Ministry ofSurface Transport (hereinafter referred to as “MOST”) had authorizedNHAI for the strengthening of existing 2- Lanes from Km. 273/500 to363/885 on the Jaipur-Kishangarh Section of the National Highway No.8 (“NH-8”) in Rajasthan, India and construction and widening thereof tosix lanes and its operation and maintenance through a concession onBuild, Operate and Transfer (“BOT”) basis and has by its Notification No.RW/NH-37011/34/97- do-I DATED July 7, 1998 issued pursuant toSection 11 of the National Highways Authority of India Act, 1988 vested the said stretch of NH-8 in NHAI as set forth in the said Notificationdated July 7, 1998. NHAI had accordingly invited proposals for shortlisting of bidders for the aforesaid under its Notice inviting Proposals No.NHAI/12011/17/97-PI dated May 3, 2000 (“the Tender Notice”), interalia, for the design, engineering, financing, procurement, construction,operation and maintenance of the above section of NH-8 on BOT basissubject to and on the terms and conditions contained in the TenderNotice and had pursuant thereto short listed certain bidders including,inter alia, the consortium comprising GVK International NV and LeightonContractors (India) Private Limited with GVK International NV as itsLeader. Further to a request received from the above consortium, as per20 provisions of the Tender Notice, NHAI had agreed to permitreplacement of Leighton Contractors (India) Private Limited by M/s. B.Seenaiah & Company (Projects) Limited. Accordingly, M/s. GVKInternational NV and M/s. B. Seenaiah & Company (Projects)Limited constituted the new consortium (“the Consortium”). 6.3. It is further contended that initial bid which was given andwithdrawn by the short listed bidders and, therefore, after mutualdiscussions with the prospective bidders, NHAI re-tendered the project.A supplemental success agreement was entered into on 15th day ofNovember 2001 by and between GVK and Novapan whereby anadditional supplemental success fee of Rs.1 crore was agreed to (copyenclosed). Similarly supplemental agreement for reimbursement ofexpenses was also entered into on 15 th day of November, 2001whereby reimbursement was increased to maximum limit of Rs.5 million (copy enclosed). Thus, in terms of these two agreements, the AssesseeCompany became liable for payment to Novapan as follows:- (i) Success fee Rs.3 crores (ii) Reimbursement of expenses Rs.1.5 crores -- -- -- -- -- -- -- -- Total Rs.4.5 crores 6.4He also stated that Bid success fee and reimbursement ofexpenditure was paid to Novapan Industries Limited in thefollowing manner:- Date ofChequeAmount Rs. Service TaxTotal AmountNatureofService.PaymentNo/BankRs.Rs.23.11.2002 334139/OB,30,000,000 -- 30,000,000 Bid SuccessSec’badFee paid toNovapanIndustriesLimited.09.07.2003 972018/IDBI- 1,500,000 1,500,000Service Taxon BidBank, Hyd.Success Feepaid toNovapanIndustriesLimited.23.11.2002334138/IOB 15,000,000 -- 15,000,000 Reimbursem ent of Bidrelatedexpensespaidto NovapanIndustriesLimited. PAYMENT OF BID SUCCESS FEE Rs.3 crores (ii) Reimbursement of expenses Rs.1.5 crores -- -- -- -- -- -- -- -- Total Rs.4.5 crores 6.4He also stated that Bid success fee and reimbursement ofexpenditure was paid to Novapan Industries Limited in thefollowing manner:- Date ofChequeAmount Rs. Service TaxTotal AmountNatureofService.PaymentNo/BankRs.Rs.23.11.2002 334139/OB,30,000,000 -- 30,000,000 Bid SuccessSec’badFee paid toNovapanIndustriesLimited.09.07.2003 972018/IDBI- 1,500,000 1,500,000Service Taxon BidBank, Hyd.Success Feepaid toNovapanIndustriesLimited.23.11.2002334138/IOB 15,000,000 -- 15,000,000 Reimbursem ent of Bidrelatedexpensespaidto NovapanIndustriesLimited. PAYMENT OF BID SUCCESS FEE 6.5. He contended that the consortium, based on the field work doneand preparation of tender forms and incidental ancillaryground/research work done by Novapan, submitted the tender. Afterevaluation of the bids so received NHAI accepted the bid of theconsortium and issued its letter of acceptance NO.NHAI/12011/17/97-PI/IX/495 dated March 1, 2002 (‘LOA’) to the consortium requiringinter alia, the execution of the Concession Agreement within 45 daysof the date thereof. The Concession Agreement could be entered intoonly on account of continuous output, assistance and efforts ofNovapan. It was a condition imposed by NHAI to promote andincorporate limited liability Company in the form of a Special PurposeVehicle (SPV) for executing the Concession Agreement. In theMemorandum and Articles of Association main object of this projecthas been specified and the Assessee Company has been constitutedfor the project. The consortium has promoted and incorporated theconcessionaire as a limited liability Company to enter into theConcession Agreement pursuant to the LOA for undertaking, inter-alia,the design, engineering, financing, procurement, construction, operation and maintenance of the project highway, as definedhereinafter on BOT basis as referred to in Recital ‘A’ to the ConcessionAgreement and to fulfill other obligations of the concessionairepursuant to the LOA. They requested NHAI to accept theconcessionaire as the entity which shall undertake and fulfill andperform the obligations and exercise the rights of the consortiumunder the LOA, including the obligation to enter into the ConcessionAgreement for the design, engineering, financing, procurement,construction, operation and maintenance of the project highway onBOT basis. NHAI agreed to the said request of the consortium and hasaccordingly entered into the Concession Agreement with theconcessionaire pursuant to the LOA for, inter alia, the design,engineering, financing, procurement, construction, operation andmaintenance of the said project highway on BOT basis on 8.5.2002. 6.6. It is further contended that the Assessee Company deducted taxdeduction at source on amount of Rs. 3 crores at Rs. 15,75,000/-.Certificate of TDS dated 10.12.2002 was provided to the payee. M/s.Novapan Industries Limited is an old existing Assessee with PAN N-2/ and have been assessed to income-tax for theassessment year 2003-04 on 17.3.2006 by Assistant Commissioner ofIncome-tax, Circle 16 (1), Hyderabad. The above stated amount sopaid by the Assessee Company was duly recorded in the books ofaccount of the said Company and has been assessed to tax afterscrutiny u/s.143(3) of the Act. 6.7. It is submitted that in respect of bid related financial services, theAssessee Company entered into an agreement dated 15.11.1999 with 6.6. It is further contended that the Assessee Company deducted taxdeduction at source on amount of Rs. 3 crores at Rs. 15,75,000/-.Certificate of TDS dated 10.12.2002 was provided to the payee. M/s.Novapan Industries Limited is an old existing Assessee with PAN N-2/ and have been assessed to income-tax for theassessment year 2003-04 on 17.3.2006 by Assistant Commissioner ofIncome-tax, Circle 16 (1), Hyderabad. The above stated amount sopaid by the Assessee Company was duly recorded in the books ofaccount of the said Company and has been assessed to tax afterscrutiny u/s.143(3) of the Act. 6.7. It is submitted that in respect of bid related financial services, theAssessee Company entered into an agreement dated 15.11.1999 with M/s. GVK Capital and Finance Limited, Suryodaya, 1-10-60/3,Begunpet, Hyderabad (A.P). The Assessee Company in terms of theagreement paid a sum of Rs.50 lacs by cheque on 23.11.2002. Servicetax of Rs.2,50,000/- was paid on 9.7.2003. Thus a total expenditureunder the said head was Rs.52,50,000/-. TDS of Rs.2,62,500/- wasdeducted and deposited. GVK capital and Finance Limited is an oldexisting Assessee and is assessed to income-tax at PAN AACG7624Dpresently with Assistant Commissioner of Income-tax, Circle 2(3),Hyderabad. Professional charges so paid to them