The Tax Publishers2022 TaxPub(DT) 4497 (Bang-Trib) INCOME TAX ACT, 1961
Section 32(1)(ii)
Most of the expenditure was towards availing of professional and legal services during pre-operative period i.e. before commencement of commercial operation. This expenditure qualified for capitalization among various fixed assets. As a result of this expenditure, it could not be said that assessee had acquired any commercial rights. Furthermore, some of the expenditure also related to leasehold rights in land which partook the character of land which did not qualify for depreciation. Therefore, disallowance was justified.
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Depreciation - Under section 32(1)(ii) - Expenditure towards availing of professional and legal services during pre-operative period -
Assessee was engaged in the business of designing, financing, construction, operation and maintenance of Bengaluru International Airport. Claimed depreciation of Rs.2,25,00,657 on intangible assets @ 25%. Before AO, it was submitted that :- assessee had spent time and other cost prior to the commencement of business for obtaining rights under various agreements, viz., concession agreement, communication, navigation and surveillance management agreement, State support agreement and land lease agreement. The above agreements gave exclusive right to assessee company to operate the airport infrastructure, to establish a proper ATM system for proper governance of airport, to receive such services as required to discharge the assessee's obligations under the project and financing agreements, to take financial support from the State and sub-lease land to concessionaries for the purpose of airport & non-airport activities. The above mentioned agreements provide an enabling business or commercial right to the assessee which was owned and used by assessee for the purpose of its business, the costs identified and allocated to such rights would qualify for capitalization as intangible assets under section 32 of the Act, & The relevant intangible assets are eligible for depreciation @ 25% on WDV. AO rejected assessed's claim. Held: Expenditure was incurred wholly in connection with entering into various agreements. Most of the expenditure was towards availing of professional and legal services during pre-operative period i.e. before commencement of commercial operation. This expenditure was revenue in nature incurred during pre-operative period which qualified for capitalization among various fixed assets. As a result of this expenditure, it could not be said that assessee had acquired any commercial rights. Furthermore, some of the expenditure also related to leasehold rights in land which partook the character of land which did not qualify for depreciation. Therefore, disallowance was justified.
REFERRED :
FAVOUR : Against the assessee.
A.Y. : 2012-13
INCOME TAX ACT, 1961
Section 254(1)
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