Facts of the Case

The Appellant, Moradabad Toll Road Co. Ltd., is a 100% subsidiary of the National Highways Authority of India (NHAI). It was established specifically to construct a 18.2 km highway and bypass at Moradabad on a Build, Operate, and Transfer (BOT) basis. For the Assessment Years 2003-04, 2004-05, and 2007-08, the Appellant claimed depreciation on the toll road at the rate of 25%, classifying it as a "Plant". The Assessing Officer (AO) disallowed this higher rate, contending that the road qualifies as a "Building" and is therefore eligible for only 10% depreciation.

Issues Involved The substantial question of law was whether the Moradabad Bypass Toll Road (Highway) should be classified as a "Building" or a "Plant" for the purpose of claiming depreciation under the Income Tax Act, 1961.

Petitioner’s Arguments

  • The Appellant argued that the toll road is not a "Building" in the traditional sense, nor is it an approach road within a factory's confines.
  • It was contended that the road constitutes an "apparatus" or "tool" essential for the Appellant’s business of toll collection, thus meeting the functional test for a "Plant".
  • The Petitioner relied on various precedents, including Indore Municipal Corporation vs. CIT and Scientific Engineering House Pvt. Ltd. vs. CIT, to support the classification of the structure as a plant.

Respondent’s Arguments

  • The Revenue argued that Note 1 of Appendix I to the Income Tax Rules explicitly states that the term "Buildings" includes roads, bridges, culverts, wells, and tube-wells.
  • They further pointed out that the definition of "Plant" under Section 43(3) of the Act (as amended w.e.f. 01.04.2004) specifically excludes "buildings".
  • Therefore, since roads are explicitly included under the category of "buildings" in the Rules, they cannot be simultaneously classified as a "plant".

Court Order / Findings

  • The High Court observed that the legislative intent in Note 1 of Appendix I is to include "roads" under the head of "buildings" without any qualification (i.e., whether they are inside a factory or independent toll roads).
  • The Court noted that while the Supreme Court in Gwalior Rayon Silk Manufacturing Co. Ltd. dealt with roads within factory premises, the principle that "buildings" include "roads" remains applicable to toll roads used for business.
  • The Court concluded that under Section 43(3), "plant" does not include "buildings," and since "buildings" include "roads," a road cannot be treated as a "plant".
  • The Court upheld the Tribunal's decision, confirming that the toll road is a "Building" and eligible for 10% depreciation rather than 25%.

Important Clarification

The Court clarified that for a toll road operator, the road is indeed an asset used for business purposes; however, its classification for depreciation is strictly governed by the statutory definitions in the Income Tax Rules, which treat roads as part of the "Building" block of assets.

Sections Involved

  • Section 32: Depreciation of assets.
  • Section 43(3): Definition of "Plant".
  • Appendix I, Rule 5 of Income Tax Rules, 1962: Table of depreciation rates and Note 1 defining "Buildings".

Link to download the order https://delhihighcourt.nic.in/app/case_number_pdf/2014:DHC:5730-DB/VKR05112014ITA512013.pdf

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