No Depreciation to development of roads/highways

As we all aware as per section 32(1) no assessee can claim depreciation on any asset until unless assessee owned such asset wholly or partly.

The problem is that whether the assessee developing roads and highway on BOT basis is eligible for depreciation ?

In simple words, A big No if assessee do not own such infrastructure facility.

No doubt assessee incurred the huge expenditure on developing such infrastructure facility and he has right to recover the cost by charging toll from the users of such infrastructure facility.

So can assessee claim depreciation u/s 32(1)(ii) on account of “right to collect toll” ??

Again a big no by AO.

This will create harassment to the infrastructure companies by disallowing the very genuine expenditure incurred by them on account of developing roads/highways.

Now CBDT clarify that the above assessee can claim a business expenditure by amortizing the development expenditure over the period of concessionaire agreement (Excluding the period taken for development of facility).

However the above benefit is only available to those assessee where ownership is not vested to them on account of development of roads/highways.

Refer circular


Circular no. 09/2014

Dated the 23rd of April 2014

Subject: – Clarification regarding treatment of expenditure incurred for development of roads/highways in BOT agreements under Income-tax Act, 1961regarding – 

             It has come to the notice of the Board that disputes have arisen as to whether the expenditure incurred on development and construction of infrastructural facilities like roads/highways on build-operate-transfer (BOT) basis with right to collect toll is entitled for depreciation under section 32(1) (ii) of the Act or same or same can be amortized by treating it as a allowable business expenditure under the relevant provision of the Income-tax Act, 1961(Act)

 2.     In such project the developer (hereinafter referred to as assessee) in terms of concessionaire agreement with government or its agencies is required to construct, develop and maintain the infrastructural facility of roads/highways which, inter-alia includes laying of roads, bridges, highways, approach roads, culverts , public amenities etc.at its own cost and utilization  thereof for a specified period. In lieu of consideration of expenditure incurred on construction, operation and maintenance of the infrastructure facility s covered by the period of agreement, the assessee is accorded a right to collect toll from users of such facility. The expenditure incurred by such assessee on development and construction of such infrastructural facility are capitalized in the accounts.  It is seen that in return -of- income, assessee generally claiming depreciation in such capital expenditure treating it as a ‘intangible asset’ in terms of section 32(2)(ii) of the Act while in assessment, such claims are being disallowed by the assessing officer on the grounds that such infrastructural are not owned , wholly or partly ,by the taxpayer which is an essential condition for claiming deprecation  and further right to collect toll does not fall in any of the categories of ‘intangible asset ‘specified in sub-clause(ii) of sub section (1) of section 32 of the Act.

3.         In BOT arrangements for development of roads/ highways , as a matter of a general practice , possession of land is handed over to the assessee by the government/notified authority for the purpose of construction of project without any actual transfer of ownership and such assessee has only a right to develop or maintain such asset. It also enjoys the benefit arising from use of asset through collection of toll for specified period without having actual ownership over such asset. Therefore, the rights in the land will remains with the government or its agencies. Thus, assessee does not hold any right in the project except recovery of toll fee to recoup the expenditure incurred, it can be therefore be treated as the owner of the  property, either wholly of partly , for the purpose of allowability of depreciation under section 32(2)(ii) of the Act. The present provisions of the act do not allow the claim of deprecation on toll ways due to non fulfillment of ownership criteria in such cases.

4.         There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre- operative expenses) during the construction period. Further expenditure    by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the toll during the period of agreement. Hon’ble Supreme Court in case of Madras Industrial Investment Corporation Ltd vs.CIT in 225 ITR 802 allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the Company over a period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made /incurred for the purpose of business or profession of the assessee and same may be allowed to be spread during the tenure of concessionaire agreement.

5.           In view of above, Central Board of Taxes, in exercise of powers conferred under section 119   of the Act hereby clarifies that the cost on construction development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under the Act.

6.          The amortization allowable may be computed at the rate which ensures that the whole of the cost incurred in creation of infrastructural facility of roads/highways is amortized evenly over a period of    concessionaire agreement after excluding the time taken for creation of such facility.

7.           In the case where assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT project in earlier years, the total deduction so claimed for assessment year under consideration may be deducted from the initial cost of infrastructural facility of roads/highways and the cost ‘’so reduced ‘shall be amortized equally over the remaining period of concessionaire agreement.

8.          It is hereby clarifies that this circular is applicable only to those infrastructure projects for developments of roads/highways on BOT basis were ownership is not vested with the assessee under the concessionaire agreement.

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