In DBFOT contract assessee entitled to depreciation on “Right to Collect Toll” as intangible asset

Under DBFOT contract “Right to Collect Toll”, is an intangible asset and assessee is entitled to claim depreciation on it.

In a recent judgment, ITAT Lucknow has held that under DBFOT contract “Right to Collect Toll”, is an intangible asset and assessee is entitled to claim depreciation on it. It is not impossible for intangible asset to be “physically owned” in the sense in which the Assessing Officer expected.

ABCAUS Case Law Citation:
4792 (2025) (10) abcaus.in ITAT

In the instant case, the Revenue had challenged the order passed by the CIT(A) in deleting the addition made by the Assessing Officer (AO) towards depreciation claimed on intangible asset “Right to Collect Toll”.

The respondent assessee company was a Special Purpose Vehicle (SPV) for the purpose of development of a portion of four lanes of a road for which the assessee had entered into contract with State Govt. on Design, Build, Finance, Operate and Transfer (DBFOT) basis. Under the agreement, the assessee had been given the right to develop and maintain the toll road and also the right to collect toll for a specified period.

In the return of income filed by the assessee, the assessee claimed that “Right to Collect” toll was an intangible asset which qualified for claim of depreciation u/s 32 of the Act. The assessee opted to claim depreciation and opted out of claiming amortization of the capital expenditure. 

However, the Assessing Officer (AO) took the view that deemed ownership, in the absence of physical ownership of asset, does not qualify the assessee to claim depreciation. The AO took the view that CBDT Circular No. 9/2014 dated 23/04/2014, which had provision for amortization of expenses in BOT contracts (Build, Operate, Transfer) was applicable in the case of the assessee also and the assessee was not entitled to depreciation. 

Assessing Officer disallowed the assessee’s claim for depreciation and instead allowed amortization of expenses. 

The assessee filed appeal before CIT(A) who vide impugned order partly allowed the assessee’s appeal.  The CIT(A) took the view that Right to Collect Toll was an intangible asset and the assessee was entitled to claim depreciation on the same.

The Tribunal observed that the CBDT Circular relied upon by the Revenue was relevant for such cases in which the assessee was in BOT agreement for development of road public highways. 

The Tribunal further noted that in the instant case, the assessee was in DBFOT contract and not BOT contract.  A BOT contract encompasses Build, Operate and Transfer.  However, the DBFOT contract is of a much wider scope as it also covers Design and Finance in addition to Build, Operate and Transfer.  Since the assessee took up additional responsibility towards design and finance in DBFOT contract, the aforesaid CBDT circular which was issued for BOT contract was not applicable to the case. Even otherwise, it is well settled and CBDT Circulars and Instructions are binding only to the extent they are beneficial for the assessee.  If and when a CBDT Circular/Instruction is adverse to the assessee, it is not binding.

The Tribunal further observed that it was not in dispute that under DBFOT contract, the assessee entered into contract with Govt., the assessee was the deemed to have acquired and owned the project.  Therefore, deemed ownership and acquisition of the project by the assessee was not in dispute.  Moreover, the assessee was also in possession for the purpose of developing and maintaining the project and for exercising the right to collect toll.  Therefore, the possession of the project by the assessee was also established.  Given these facts and circumstances, the eligibility of the assessee for claiming depreciation u/s 32 of the Act was fully justified. 

The Tribunal opined that the view taken by the Assessing Officer that physical ownership of the asset was mandatory and that the assessee was not eligible for depreciation is without any basis under the provisions of law as per section 32 of the Act, which deals with depreciation.  In any case, deemed ownership and acquisition coupled with physical possession meets the requirement of physical ownership.

The Tribunal also observed that Assessing Officer failed to appreciate, is that the asset on which the assessee had claimed depreciation, was “Right to Collect Toll”, which is an intangible asset.  By necessary implication, it is impossible for intangible asset to be “physically owned” in the sense in which the Assessing Officer expected.  When the assessee had deemed ownership of physical assets corresponding to the ‘intangible asset’ as is the case here; it meets the requirement for eligibility for depreciation, as far as requirement of ownership is concerned.

Accordingly, the Tribunal upheld the claim of the assessee for depreciation and the grounds taken by Revenue were dismissed.  In effect, appeal filed by Revenue was dismissed.

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