APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,
ISLAMABAD
ITA No.598/IB/2023
ITA No.599/IB/2023
ITA No.600/IB/2023
(Tax Years 2018 to 2021)
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Punjab Ring Road Infrastructure Management &
Engineering (Pvt) Limited. Gate No.13, National Hockey Stadium, Gulberg-III,
Lahore, Gulberg Town. |
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Appellant
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VS |
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Commissioner Inland Revenue Zone, LTO, Islamabad. |
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Respondent |
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Appellant by: |
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Barrister Dr. Mazhar Ilahi assisted by Mr.
Muzzamil Rasheed, Advocate |
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Respondent by: |
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Ms. Sobia
Mazhar, DR |
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Date of Hearing: |
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21.06.2023 |
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Date of order: |
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17.07.2023 |
ORDER
M. M. AKRAM (JUDICIAL MEMBER): The titled appeals have been filed by the appellant taxpayer against the Appellate Orders Nos.323, 324, 327 & 328/2023 all dated 01.02.2023 passed by the learned Commissioner Inland Revenue (Appeals-I), Islamabad for the tax years 2018 to 2021 respectively on the grounds as set forth in the memo of appeals. The facts of the case and the issues involved in all these appeals are similar, therefore, these appeals are being decided through this common order.
2. The
brief facts culled out from the record are that the
returns of income for tax years 2018 to 2021 were e-filed by declaring the
following results;
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Amounts in Rs |
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2018 |
2019 |
2020 |
2021 |
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Taxable Income/(Loss) |
(5,424,006,766) |
(2,186,728,053) |
(2,337,417,078) |
(1,398,027,884) |
The
case of the appellant taxpayer was selected for audit under section 177 of the
Income Tax Ordinance, 2001 (“the Ordinance”) for the tax year 2018. The
audit proceedings culminated in the issuance of a show cause notice dated
02.04.2021 under section 122(1) read with section 122(9) of the Ordinance. In compliance,
the appellant submitted its reply. In respect of tax years 2019, 2020, and
2021, notices dated 15.03.2022, 11.05.2022, and 11.05.2022 respectively under
section 122(5A) were issued by the Additional Commissioner Inland Revenue (Add
CIR). The order under section 122(1)/(9) for tax year 2018 was issued on
27.05.2021 by the DCIR, whereas Orders under section 122(5A) for tax years
2019, 2020, and 2021 were issued on 25.04.2022, 01.05.2022 and 01.05.2022
respectively (collectively referred to as the “impugned Orders”). According to
these orders, an addition was made to total income on account of Tax
Depreciation on concession assets for tax years 2018 to 2021. Addition on
account of Operation & Maintenance cost and Management Fee was made only in
the total income for tax year, 2018. A summary of these additions is tabulated
below:-
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2018 |
2019 |
2020 |
2021 |
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Additions |
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Tax Depreciation |
5,144,728,033 |
1,703,169,881 |
1,566,439,226 |
1,419,680,457 |
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Operation & Maintenance Cost
& Management Fee |
319,003,093 |
- |
- |
- |
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Total Income/(Loss) assessed. |
41,007,480 |
(481,097,657) |
(831,123,777) |
1,652,574 |
Feeling aggrieved, the appellant taxpayer filed appeals before the learned Commissioner Inland Revenue (Appeals-I), Islamabad who vide Appellate Orders Nos.323, 324, 327 & 328/2023 all dated 01.02.2023 upheld the addition on account of disallowance of Tax Depreciation in respect of Road, whereas addition in respect of Operation & Maintenance Cost and Management Fee was remanded back to assessing officer with certain directions. Still feeling aggrieved with these orders, the taxpayer has preferred appeals before this forum and assailed the impugned order on a number of grounds.
3. This case came up for a final hearing on 21.06.2023.
The only pivotal issue involved in the instant appeal is the disallowance of
depreciation on concession assets claimed by the appellant under section 22 of
the Ordinance. This issue is not a straightforward point; hence, we shall deal
with the submission made by both sides by following a staggered approach, that
is, we shall address each of the points of submissions, while giving our
findings on the same, before moving on to the next submission on the point.
INTRODUCTION
& BACKGROUND OF THE CASE
3.1 The
appellant taxpayer M/s Punjab Ring Road Infrastructure Management Engineering
(Private) Limited ("PRIME") was incorporated on June 16, 2016,
with the Securities & Exchange Commission of Pakistan (SECP). The main
objective of the Company was to construct the Lahore Ring-Road Southern Loop
(SL I & II) on Build, Operate, and Transfer (BOT) Mode
for a period of 25 years. The formal Concession Agreement (CA) in this regard
was signed by and between Lahore Ring Road Authority (LRRA) and PRIME on
June 22, 2016. The worthy Chief Minister of Punjab inaugurated the Project on
December 22, 2017.
Background of the Lahore Ring Road
Project
3.2. In
March 2016, the Lahore Ring Road Authority ("LRRA") published a
request for proposal for the construction of Lahore Ring Road (Southern Loop),
a 6- Lane Road of 22.4 KM. The project was based on Build-Operate-Transfer
(BOT) model and as per Punjab Public Private Partnership Act, 2014
("Punjab PPP Act"). The estimated cost as per Engineer was Rs. 25,000
Mn.
3.3. LRRA
is an autonomous body under the Communications and Works Department of the Government
of Punjab. The Authority was established in 2011 under the Lahore Ring Road
Authority Act, 2011, to overview the construction, operation, and maintenance
of the Ring Road.
3.4. In
response to RFP issued by LRRA, Frontier Works Organization submitted the
lowest bid for the construction of the road at 23.476 Mn and was declared the successful
bidder. Accordingly, FWO incorporated a special purpose vehicle i.e., the
taxpayer company namely PRIME, as required by the project model adopted by
LRRA. The SPV/PRIME is owned by both the LRRA and FWO. A formal Concession
Agreement was signed between LRRA and PRIME on June 22, 2016. It is pertinent
to note that the taxpayer is not a construction contractor rather it only
collects toll revenue to recover its construction and operations costs. The
Toll rate structure is derived from the financial model based on the bid Cost
and is determined in accordance with the terms and conditions of LRRA.
3.5. The
construction of the road was completed in 2017. Since the completion of road
construction, the taxpayer company continues to operate and maintain the road
and derives revenue from Tolls paid by road users.
SUBMISSIONS
OF PARTIES
4. The Appellant claimed that it was the owner of the
“concession assets” and the entire cost incurred for
construction thereof was capitalized by the Appellant in its books during which
the construction of the toll road was completed. As the tax year 2018 under
consideration was the first year when the road became operational, the
Appellant claimed depreciation in the tax years under consideration on the
capitalized cost of the concession assets under section 23 of the Ordinance.
The Appellant also filed necessary details of the claim of depreciation and a
note was appended to the depreciation schedule stating that though the
Appellant was entitled to a claim of depreciation on concession assets but the
right to claim depreciation is reserved by the revenue department. The
Appellant relied upon the standard concession agreement and Clause 14.10.2 therein
reads that 'subject to section 14.10.1, the Concessionaire shall retain all
legal and beneficial rights and ownership on the Concession Assets
(including the Construction Works) as and when the same are performed and/or
completed until the transfer Date.' (Emphasis is supplied by us).
However, the department has disallowed the said deduction on the single ground
that the said “concession assets” do not fall within the definition of the
eligible “depreciable assets” as defined in subsection (15) of Section 22 of
the Ordinance. In this respect, the sole premise of the department is that the
said “concession assets” are not “owned by” the appellant, which
admittedly is an essential feature of the term “depreciable assets”. It is
admitted position that there is no further impediment in granting the allowance
on account of the above-said depreciation if the Appellant is declared as
“owner” of the concession assets.
It is admitted that the terms “owned”, “owner”
or “ownership” are not defined in the Ordinance. We, therefore, shall have to
have recourse to external aid for the purposes of interpretation of the term
“owner”. In this respect, the learned DR relies on definitions from different
dictionaries to conclude that the Appellant cannot be termed as the “owner” of
the “concession assets”.
I.
Websters New World
Dictionary, 2006 Edition
Ownership. The total body of rights to use and enjoy
property, to pass it onto someone else as an inheritance, or to convey it by
sale. Ownership implies the right to possess property, regardless of whether or
not the owner personally makes constructive use of it.
II.
Oxford Dictionary of Law, 5th
Edition
Ownership. The exclusive right to
use, possess and dispose of property.
III.
Black’s Law Dictionary, 8th
Edition
Ownership. The
bundle of rights allows one to use, manage and enjoy the property, including
the right to convey it to others. Ownership implies the right to possess a
thing, regardless of any actual or constructive control. Ownership rights are
general, permanent and heritable.
IV. Sweet
and Maxwell’s A Concise Law Dictionary for Students and Practitioners, 1927
Edition
Ownership. The right to the exclusive enjoyment and possession of a thing; a right in rem. It involves the right of the user, of taking produce, and of destruction. Ownership is absolute or restricted, i.e., it may be limited to a lesser or greater extent, either voluntarily or under compulsion of law, as, for example, where there are several joint owners, or where payment of a sum of money is charged on the land, or an easement is held to exist over it.
Based
on the above definitions, she submitted that the Appellant does not have the
following permanent and heritable ownership rights: -
(a)
To pass the concession
assets/ancillary facilities onto someone else as an inheritance or to convey it
by sales.
(b)
To dispose of the property.
(c)
To convey property to others.
(d)
To destroy owned assets.
In
expanding on her submissions, the learned DR has made the following
submissions:-
(a)
The concession assets could
not have been passed on in inheritance by the appellant and/or even
sold/disposed of, which is a key component to claim “ownership” of the
concession assets.
(b)
Under clause 24.5 of the
agreement the “concession assets” shall be transferred to the Lahore Ring Road
Authority on the transfer date for a sum of Pakistani Rupees one only. Hence,
the Appellant does not have any “permanent right” over the concession assets as
the same have to be handed over to the Employer, the Lahore Ring Road Authority
upon the conclusion of the concession period of 25 years along with all rights
and amenities.
(c)
In the case of a “complete
ownership” of assets, there is no requirement/compulsion to hand over physical
possession along with all rights and liabilities of an asset to another
entity/party after the conclusion of a certain period.
(d)
The appellant does not have
the mandate to sell or otherwise dispose of the concession assets as it is
obliged to hand over the same to the Lahore Ring Road Authority after 25 years.
(e) The appellant does not have the right to destroy such property therefore, the Appellant is not the owner of the concession assets.
5. In response to the above submissions of
the learned DR, the Appellant representative Dr. Ilahi submitted that the
Appellant meets the requirements of each of the individual definitions as set
out by the department in their distinct capacities. However, the department has
followed an unfair approach by joining all the definitions and devising its own
combined legal test. He further submitted that he said definitions are
borrowed from English Legal System, whereas in applying the said definitions,
to jurisdiction in Pakistan, that has to be seen through the prism of our local
legislation and precedents in Pakistan.
6. In
response to the submissions made by Dr. Ilahi, she submitted that firstly, the
Appellant could have been considered as owner, but for, the right to sell the
property to any other person except the “Lahore Ring Road Authority”. Secondly,
the Appellant does not have the authority to “destroy” the “concession assets”.
Thirdly, the Appellant cannot devolve the said assets to another person by way
of inheritance. Fourthly, the right to transfer assets to the “Lahore Ring Road
Authority” is bad in law, for the price of Rupees One is malafide and
aimed at defeating the provisions of the law relating to stamp duty. We are
grateful to the learned DR who helped us to narrow down the point of dispute
with regards to the main issue of the Appellant meeting the requirement of the
definition of “ownership” by the Appellant but for the above-quoted submissions
of the learned DR. In response, Dr. Ilahi reiterated that the definition base
submissions of the learned DR are to be looked at, through the lens of the
statutory regime in Pakistan. In this respect, he candidly relied upon section
10 of the Transfer of Property Act, 1882. To quote: -
“10. Condition restraining
alienation. Where property is transferred subject to a condition or
limitation absolutely restraining the transferee or any person
claiming under him from parting with or disposing of his interest in the
property, the condition or limitation is void, except in the case of a lease
where the condition is for the benefit of the lessor or those claiming under
him:
Provided that property may be
transferred to or for the benefit of a woman (not being a Hindu, Muslim or
Buddhist) so that she shall not have power during her marriage to transfer or
change the same or her beneficial interest therein.” [emphasis added by the
learned AR]
7. In reading the above definition, Dr. Ilahi
followed an “unless approach” and emphasized that a restriction on alienation
“unless is absolute” is permissible under the legislative regime in Pakistan. Whereas,
in the instant case, the restriction on alienation is not absolute, rather,
under clause 24.5 of the concession agreement, the Appellant is allowed to
transfer concession assets to the Lahore Ring Road Authority. Hence, it is
unlawful and against Section 10 of the Transfer of Property Act to exclude the
Appellant to be termed as “owner” of the “concession assets” for the reason
that there is a restriction on the Appellant to sell the said “concession
assets” to others except the Lahore Ring Road Authority. He further submitted
that the definition from Websters New World Dictionary, 2006 Edition as relied
upon by the learned DR, also defines the ownership as: -
“The total body of rights to
use and enjoy a property, to pass it onto someone else as
an inheritance or to convey it by sale.”
[emphasis
added by the learned AR]
In
reading the above definition, the learned AR for the Appellant emphasized that
the transferor has to have a right to transfer the property/assets to, at the
very least, to only “someone”
apart from itself. He further submitted that the above definition is squarely
in line with the spirit of the above-quoted Section 10 of the Transfer of
Property Act, 1882. On the same parlance, he also read from the above-quoted
definition of “ownership” from Sweet and Maxwell: A Concise Law Dictionary for
Students and Practitioners, 1927 Edition, as relied upon by the learned DR. He
submitted that the:
“Ownership is absolute or restricted,
i.e., it may be limited to a lesser or greater extent, either voluntarily or
under compulsion of law, as, for example, where there are several joint owners,
or where payment of a sum of money is charged on the land, or an easement is
held to exist over it.”
The AR submitted that any restriction in relation to a property (or “concession assets” as set out in clause 24.5 of the concession agreement) does not disqualify the Appellant to be the “owner” of the property/concession assets. He further submitted that in Punjab, there is a statutory prohibition on the transfer of immovable property as defined in section 2(a) of the Punjab Pre-emption Act, 1991 to a person other than pre-emptor as defined under section 2(b) unless certain conditions as set out in the said law are not met with. Hence, the conditions or restrictions on the right of the transferor to transfer the said property to a buyer is not a concept alien to the legis-prudence of Pakistan in both, the secular (TPA, 1882) as well as the Islamic regimes (PPA, 1990). He, therefore, submitted that the argument put forward by the learned DR that a transferor cannot be held to be an owner of an immovable property unless the said transferor has the unrestricted and absolute right to transfer the said property to everybody does not fit in the statutory regime of Pakistan. Hence, he submitted, the submission made by the learned DR that the Appellant cannot be termed as the “owner” of the “concession assets” because there is only some restriction of further alienation is unlawful being violative of Section 10 of the Transfer of Property Act, 1882.
8. In respect of the second submission of the
learned DR that the Appellant is not considered the owner of the “concession
assets” because the Appellant does not have the right to “destroy” the
“concession assets”. In response, the learned AR for the Appellant, Dr. Ilahi
submitted that there is no prohibition under the “concession contract” implying
such a restriction. However, had there been any such a clause in express terms,
it would have been considered as an “objective against public policy” as
envisaged under Section 23 of the Contract Act, 1872. He submitted invited us
to consider the “public nature” of the “concession assets”, the destruction of
which involves serious criminal consequences. He submitted that the submission
of the learned DR that the Appellant is not considered an “owner” of the
“concession assets” which in their very nature are “public assets” because it
does not have the right to destroy them, is wholly insane. Dr. Ilahi further
argues that this submission is regardless of the fact that though there is no
prohibition in the concession agreement restraining the Appellant to demolish
and rebuild the concession assets for the benefit of the project. Hence, he
submitted that the submission made by the DR that the Appellant cannot be
termed as “owner” of the “concession assets” because he does not have the authority
to destroy them is unreasonable as well as irrational.
9. In respect of the third submission of the learned DR regarding the fact that the Appellant cannot devolve the said assets to another person by way of inheritance, Dr. Ilahi referred to page 1 of the concession agreement, where the Appellant is defined to include its “successor in interest”. In this respect, he further submitted that, unlike the inheritance by a person having flesh and blood, whose inheritance is governed under Muslim Personal Law, the inheritance of a corporate entity such as the Appellant is regulated by the provisions of the legislation governing the dissolution of corporate entities in Pakistan. Hence, he submitted that the submission made by the DR that the Appellant cannot be termed as “owner” of the “concession assets” because it cannot inherit the “concession assets” is against the facts and the law.
10. In respect of the fourth submission of the
learned DR regarding the inadequacy of consideration for the transfer of the
“concession assets”, the AR submitted that it is an established principle of
the law that the inadequacy of the consideration does not, by itself render a
sale or transfer invalid. He further submitted that such a transaction is
regarded as one in which the doctrine of "lucky purchasers" squarely
applies. Dr. Ilahi relied on the case titled Official Receiver of
Salem v Chinna Goundan and Another reported in AIR 1957 Madras 630.
Hence, he submitted that the submission made by the DR that the Appellant
cannot be termed as “owner” of the “concession assets” because the
consideration for its further transfer is inadequate and unlawful.
ISSUES/QUESTIONS
11. Based on the grounds of appeal, the following
questions emerge from the record and the arguments advanced by the parties for
our determination: -
I.
Whether the Appellant
is the owner of the “concession assets” within the meaning of sub-section (15)
of Section 22 of the Income Tax Ordinance, 2001 and it is entitled to claim
depreciation thereon?
II.
If the answer to the
above question is in the negative, against the appellant then whether the
Appellant was entitled to amortize the expenses incurred for the “concession
assets” within the meaning of section 21(n) read with section 24 of the Income
Tax Ordinance, 2001?
III. Whether
a plea not taken below by the appellant can be raised before this Tribunal?
OUR
FINDINGS
12. We have heard the arguments of both sides, perused
the record, and framed the issues involved in this case. Our issue-wise
findings are as follows:-
Question
No. 1
13. The principal controversy revolves around
the eligibility of the Taxpayer to claim depreciation under section 22(15) of
the Ordinance, reproduced below for ready reference:
22. Depreciation.— (1) Subject to this section, a person shall be
allowed a deduction for the depreciation of the person’s depreciable assets
used in the person’s business in the tax year.
….
(15) In this section, —
“depreciable asset” means any
tangible movable property, immovable property (other than unimproved land), or
structural improvement to immovable property, owned by a person that —
(a) has a normal useful life
exceeding one year;
(b) is likely to lose value
as a result of normal wear and tear, or obsolescence; and 70
(c) is used wholly or partly
by the person in deriving income from business chargeable to tax,
but shall not include any
tangible movable property, immovable property, or structural improvement to
immovable property in relation to which a deduction has been allowed under
another section of this Ordinance for the entire cost of the property or
improvement in the tax year in which the property is acquired or improvement
made by the person; and
“structural improvement” in
relation to immovable property, includes any building, road, driveway, car
park, railway line, pipeline, bridge, tunnel, airport runway, canal, dock,
wharf, retaining wall, fence, power lines, water or sewerage pipes, drainage, landscaping
or dam:
Provided that where a depreciable asset is jointly owned by a taxpayer and an Islamic financial institution licensed by the State Bank of Pakistan or Securities and Exchange Commission of Pakistan, as the case may be, pursuant to an arrangement of Musharika financing or diminishing Musharika financing, the depreciable asset shall be treated to be wholly owned by the taxpayer. [Bold and underlined for emphasis]
It can be seen from the underlined term “owned” that for a claim of depreciation to be valid, the pre-condition is that the Taxpayer must own a depreciable asset.
14. To answer the above question, we must peruse
the terms of the Concession Agreement.
14.10
TITLE TO PROJECT SITE, CONSTRUCTION WORKS AND CONCESSION ASSETS
14.10.2
Subject to Section 14.10.1, the Concessionaire shall retain all legal and
beneficial rights and ownership on the Concession Assets
(including the Construction Works) as and when the same are performed and/or
completed until the Transfer Date.
14.10.3
On the Transfer Date, the Concessionaire shall transfer the ownership rights
to the Concession Assets to the LRRA and transfer the Class B Shares (if
any) to the LRRA in accordance with the terms of this Agreement.
15. Having perused the terms of the Concession
Agreement, it becomes clear that the ownership of concession assets vests with
the Appellant. However, we cannot stop here. It is necessary to see if the
statutory test of ownership applied by courts is satisfied or not. To begin with,
Revenue’s reliance on the dictionary meaning of ownership is misplaced. There is a liberal test in place for the determination
of ownership for the purposes of a valid depreciation claim under the Income
Tax Laws. It requires, the fulfillment of 3 conditions:
i.
holding the property to the
exclusion of others;
ii.
exercising dominion over the
property; and
iii. having the right to use and occupy the property.
16. This test was developed by Indian Supreme
Court in the cases of CIT v. Podar
Cement, (1997) 226 ITR 625 (SC); and Mysore Mineral v. CIT, (1999) 239 ITR 775 (SC).
16.1 In Podar
Cement (Supra), it was held:-
"64. We are conscious of the settled
position that under the common law owner means a person who has no valid title
legally conveyed to him after complying with the requirements of law such as the
Transfer of Property Act, Registration Act, etc. But in the context of Section
22 of the Income-tax Act having regard to the ground realities and further
having regard to the object of the Income-tax Act, namely, 'to tax the income',
we are of the view, the ‘owner' is a person who is entitled to receive income
from the property in his own right."
16.2 In Mysore
Mineral (Supra), it was held:-
“14. In our opinion, the term owned as
occurring in Section 32(1) of the Income-tax Act, 1961 must be assigned a wider
meaning. Anyone in possession of the property in his own title exercising such
dominion over the property as would enable others being excluded therefrom and
having the right to use and occupy the property and/or to enjoy its usufruct in
his own right would be the owner of the buildings though a formal deed of title
may not have been executed and registered as contemplated by Transfer of Property
Act, Registration Act, etc. 'Building owned by the assessee' the expression as
occurring in Section 32(1) of the Income-tax Act means the person who having
acquired possession over the building in his own right uses the same for the
purposes of the business or profession though a legal title has not been
conveyed to him consistently with the requirements of laws such as Transfer of
Property Act., and Registration Act, etc. but nevertheless is entitled to hold
the property to the exclusion of all others.”
16.3.
This test was applied and relied upon by this Tribunal in the case of, Saudi Pak v. CIR, 2016
PTD 1519 (Trib). A leasehold owner was allowed to claim depreciation under the
Ordinance, even if its ownership was only symbolic.
“11.19 The corollary which follows on
consideration of the (1997) 226 ITR 625 (SC) along with (1999) 239 ITR 775
(SC), is that for the purposes of section 32(1) the word "owner" is
to be assigned a wider meaning so that anyone in possession of such property in
his own title exercising such dominion over the property as would enable others
as being excluded therefrom and having a right in his own right would be the
owner of building for the purpose of section 32(1) notwithstanding the fact
that a formal deed of title may not have been executed and registered in his
name.”
17 Recently, in the case of Principal Commissioner of Income Tax v.
GVK Jaipur Expressway Ltd, [2018]
100 Taxmann.com 96 (SC), the Indian Supreme Court upheld the decision of the
Rajasthan High Court in favour of the taxpayer. The claim of depreciation on
public roads was allowed. The test of ownership developed by the Indian Supreme
Court in Podar Cement (Supra) and Mysore
Minerals (Supra) in the above-quoted paras was applied. It was also held as
follows: -
“19. It is well-settled that there cannot
be two owners of the property simultaneously and in the same sense of the term.
The intention of the Legislature in enacting Section 32 of the Act would
be best fulfilled by allowing deduction in respect of depreciation to the
person in whom for the time-being vests the dominion over the building and who
is entitled to use it in his own right and is using the same for the purposes
of his business or profession. Assigning any different meaning would
not subserve the legislative intent. To take the case at hand it is the
appellant-assessee who having paid part of the price, has been placed in
possession of the houses as an owner and is using the buildings for the purpose
of its business in its own right. Still, the assessee has been denied the
benefit of Section 32. On the other hand, the Housing Board would be denied the
benefit of Section 32 because, in spite of its being the legal owner, it was
not using the building for its business or profession. We do not think such a
benefit-to-none situation could have been intended by the Legislature. The
finding of fact arrived at in the case at hand is that though a document of
title was not executed by Housing Board in favour of the assessee, but the
houses were allotted to the assessee by the Housing Board, the part payment
received and possession delivered so as to confer dominion over the property on
the assessee whereafter the assessee had in its own right allotted the quarters
to the staff and they were being actually used by the staff of the assessee. It
is common knowledge, under the various scheme floated by bodies like housing
boards, houses are constructed on a large scale and allotted on part payment to
those who have booked. Possession is also delivered to the allottee so as to
enable enjoyment of the property. Execution of the document transferring title
necessarily follows if the schedule of payment is observed by the allottee. If
only the allottee may default the property may revert back to the Board. That
is a matter only between the Housing Board and the allottee. No third person
intervenes. the part payment made by the allottee is with the intention of
acquiring the title. the delivery of possession by the Housing Board to the allottee
is also a step towards conferring ownership. Documentation is delayed only with
the idea of compelling the allottee to observe the schedule of payment.”
More recently, the Madras High Court also followed this well-settled dominion test in the case of Commissioner of Income Tax-I v. L & T Transportation infrastructure, 2021 SCC On Line Mad 2309, and by relying on the above precedent allowed the claim of depreciation on public roads.
18. Keeping in view the terms of the Concession
Agreement and the judicial treatment of the term owned for the purposes of
claiming depreciation, we find that the Appellant is the “owner” of the
“concession assets” within the meaning of sub-section (15) of Section 22 of the
Income Tax Ordinance, 2001, and hence, entitled to an allowance of
depreciation as claimed. We appreciate that the learned DR has relied upon the
definition of “owner” from various definitions from English Jurisdiction. We
note that one of the points made by the learned DR is with respect to the fact
that the Appellant does not have the authority to “destroy” the “concession
assets”. In this respect, besides appreciating and accepting all the
submissions of Barrister Dr. Ilahi, the learned AR for the appellant as noted
above, we find that in making her the above-said submission the learned DR has
relied upon the definition of “Ownership” as quoted from Sweet and Maxwell’s
dictionary of the year 1927. However, in contrast to the said dictionary, we
have the latest version of a dictionary available to us, which is published in
June 2023, by the same publisher (Stroud’s Judicial Dictionary of Words and
Phrases 11th Edition, Sweet & Maxwell). We specifically note
that the said dictionary in its definition of the term “owner”, does not refer
to any such right to destroy its property as an essential ingredient to
establish “ownership” of a property. This dictionary has defined the term
“Owner” as under: -
Stroud’s Judicial Dictionary 11th Edition Revision Date:
26 June 2023
“The
"owner" or "proprietor" of a property is the person in whom
(with his or her assent) it is for the time being beneficially vested, and who
has the occupation, or control, or usufruct, of it; e.g. a lessee is, during
the term, the owner of the property demised (see judgment of Bramwell LJ,
Eglinton v Norman, 46 L.J.Q.B. 559;”
In
view of the above definition, it is clear that a “lessee” is also considered an
“owner” of a property. In this respect, it is important to point out that it
was observed by the Hon’ble Supreme Court of Pakistan in the case titled Abdullah
Bhai and Others v Ahmad Din, (PLD 1964 SC 106) that: -
“……. Ownership of physical property consists of a number of rights and the owner of such property when he creates a lease, transfers to the lessee a part of the rights of ownership, i.e., the right of enjoyment of the property, for a period, for consideration. During the continuance of the lease, the right of enjoyment of the property belongs to the tenant and not to the landlord. The right of ownership, as well as the rights of which it is composed, are rights in rem and not in personem, and by the lease, a right in rem is transferred to the lessee.” (Emphasis supplied)
The above-quoted excerpt from the decision of the August Supreme Court is exactly in line with the definition of the owner as described in Stroud’s Judicial Dictionary 11th Edition, that is, having the right to use and enjoy the property as against the whole world through the transfer of the right of occupation, control or usufruct it is not for an indefinite time. In this case, it is undisputed that the Appellant does have a right to occupy, control, and usufruct for a period of 25 years, hence, in the above parlance the Appellant can be termed as “owner” of the “concession assets” for the term of the contract. For the foregoing reasons as well as for the submissions made by Barrister Dr. Ilahi, the learned AR for the appellant as discussed in the above paragraphs, we reject the submissions made by the learned DR appearing on behalf of the revenue department.
19. We have already pointed out in earlier
paragraphs that it is admitted position that the only issue, in this case, is
the question of declaration of the Appellant as the owner of the “concession
assets” within the meaning of section 22(15) of the Ordinance. It is admitted
position that if the Appellant is declared “owner”, as such, then there is no
impediment in allowing the depreciation allowance with regards to the
“concession assets” as being the “depreciable assets.” We have found that the
Appellant comes within the definition of the “owner” of the “concession assets”
within the meaning of section 22(15) of the Ordinance, hence, following the
above-quoted precedents and based on submissions of the learned AR for the
Appellant, we allow the depreciation allowance to the Appellant on the
“concession assets” in computing its taxable income.
Question
No. 2
20. Notwithstanding the aforesaid and even
otherwise looking at the matter from another angle. If it is considered that (though
we have found it otherwise) since the appellant is not the owner of the land,
therefore, the superstructure built/improvements thereon does not belong to the
appellant taxpayer. Thus, it is not entitled to claim depreciation on
concession assets.
Factually speaking, there is no dispute to the fact that the costs capitalized
by the taxpayer under the head 'License to collect Toll' have been incurred for
the development and construction of the infrastructure facility, i.e. Road. It
is also not in dispute that the taxpayer was to build, operate and transfer the
said infrastructure facility in terms of an agreement with the Government of
Punjab. The expenditure on development, construction, and maintenance of the
infrastructure facility for a specified period was to be incurred by the
taxpayer out of its own funds. Moreover, after the end of the specified period,
the taxpayer was to transfer the said infrastructure facility to the Government
of Punjab free of charge. In consideration of developing, constructing,
maintaining the facility for a specified period and thereafter transferring it
to the Government of Punjab free of charge, the taxpayer was granted a ‘Right
to collect Toll' from the motorists using the said infrastructure facility
during the specified period. The said “Right to collect the Toll” is emerging
as a result of the costs incurred by the taxpayer on the development,
construction, and maintenance of the infrastructure facility. Such a right granted
by the Govt of Punjab under the Concession Agreement (CA) has even otherwise a
license permitting the taxpayer to do certain acts and deeds which otherwise
would have been unlawful or not possible to do in the absence of CA. Thus, the
right granted by the appellant under CA to operate the project/ project
facility and right to collect toll charges is a license or akin to a license,
hence, being an intangible asset as defined in section 24(11) of the Ordinance eligible
for amortization under section 21(n) read with section 24 of the Ordinance as
the Company has incurred huge costs with an intention to avail an enduring
benefit for the purposes of its business which is to collect toll as per the
facts stated above. The term "license" has not been defined under the
Ordinance, the definition of "license" under the Easement Act, 1882,
has to be looked into. A plain reading of section 52 of the said Act makes it
clear, a right granted to a person to do or continue to do something in the
immovable property of the grantor, which, in the absence of such right would be
unlawful and such right does not amount to an easement or interest in the
property, then such right is called a license. If we examine the facts of the
present case, vis-a-vis, the definition of a license under the Easements Act,
1882, it would be clear that immovable property on which the project/project
facility is executed/implemented is owned by the Government of Punjab and it
has full power to hold, dispose of and deal with the immovable property. By
virtue of the C.A., the appellant taxpayer has only been granted a limited
right to execute the project and operate the project facility during the
concession period, on expiry of which the project/project facility will revert
to the Government of Punjab. What the Government of Punjab has granted to the taxpayer
is the right to use the project site during the concession period and in the
absence of such right, it would have been unlawful on the part of the
concessionaire to do or continue to do anything on such property. However, the
right granted to the concessionaire has not created any right, title, or
interest over the property. The right granted by the Government of Punjab to
the taxpayer under the C.A. has a license permitting the taxpayer to do certain
acts and deeds which otherwise would have been unlawful or not possible to do
in the absence of the C.A. Thus, in our view, the right granted to the taxpayer
under the C.A. to operate the project/project facility and collect toll charges
is a license or akin to license, hence, being an intangible asset is eligible
for amortization under section 21(n) read with section 24 of the Ordinance.
It is open to the taxpayer to claim
a deduction before the appellate authority which could not have been claimed
before the Assessing Officer. The
present case is not a case where the taxpayer had not claimed any deduction on
account of depreciation. The taxpayer has very much claimed (and rightly so) the
deduction of depreciation. However, he has claimed the same treating himself to
be the owner of the concession assets. The taxpayer was under the bonafide
belief (and rightly so) that he has correctly claimed the deduction of
depreciation. But it is not disputed that the taxpayer has made investments in
the project and he is entitled to claim deductions in this respect either by
claim for depreciation or by amortization. It may be said that the claim of
deduction has been very much put by the taxpayer in the return of income but
allegedly wrongly treating itself as the owner of the road. Nevertheless, it is
a fact that the taxpayer company has incurred huge expenditure on the said
project which cannot be treated as revenue expenditure allowable in one year as
the same has resulted in providing enduring benefit to the taxpayer company,
hence, the said amount would be eligible for amortization for the period
of ten years in accordance with the provision of subsection (4) of section 24
of the Ordinance applicable at the relevant time. It is pointed out that the
said subsection was substituted by the Finance Act, 2019 the cap of
amortization of ten years was extended to 25 years w.e.f tax year 2019 onwards.
21. It
is pertinent to point out here that the learned DR has made a submission that
in terms of definition of the intangible assets, the right granted to the
taxpayer under the C.A. to operate the project/project facility and collect
toll charges etc. neither amounts to a license nor a contractual rights which
are covered with the definition of the “intangible assets”. To quote from the
said definition: -
“intangible”
means any patent, invention, design or model, secret formula or process, copyright,
trademark, scientific or technical knowledge, computer software, motion picture
film, export quotas, franchise, licence, intellectual property, or other
like property or right, contractual rights and any expenditure
that provides an advantage or benefit for a period of more than one year (other
than expenditure incurred to acquire a depreciable asset or unimproved land,
but shall not include self-generated goodwill or any adjustment arising on
account of accounting treatment in the manner as may be prescribed.” [Emphasis supplied by us]
The learned DR relied on the
principle of ejusdem generis to submit that it is “only other like
contractual rights” which are in relation to “patent, invention, design or
model, secret formula or process, copyright, trademark, scientific or technical
knowledge, computer software, motion picture film, export quotas, franchise,
licence, intellectual property, or other like property or right”
which are covered as intangibles. Nevertheless, though she openly admitted that
the “to operate the project/project facility and collect toll charges etc.” are
indeed “contractual rights” under the CA.
We
find that the reliance of the learned DR on the principle of ejusdem generis is
misplaced. In this respect, it is very pertinent to point out that the word
“contractual rights” is independently used after a comma (‘). Hence, we cannot
lawfully restrict the meanings of the “contractual rights” by applying the rule
of ejusdem generis as put forward by the learned DR. We therefore, reject the
submission of the learned DR and find that the word “contractual rights” as
used in the definition of intelligible is “independent” of the “patent,
invention, design or model, secret formula or process, copyright, trade mark,
scientific or technical knowledge, computer software, motion picture film,
export quotas, franchise, licence, intellectual property, or other like
property or right” and its interpretation does not entail application
of the rule of ejusdem generis to limit the meaning of “contractual rights”.
Question
No. 3
22. Now
the question may arise as to whether the taxpayer at this stage can raise the
alternative contention for a claim of the expense/whole cost incurred on the
construction of concession assets. It is a
well-entrenched rule that there can be no estoppel against the law. Reliance
may be placed on the judgment titled Pir
Sabir Shah v. Shah Muhammad Khan, (PLD 1995 SC 66) and CIT
v. Ghazi Brotha Construction, (2004 PTD 1994). Further, it is the
duty of the court to apply the correct law. Reliance may be placed on the
judgment titled Chairman, NAB Vs Muhammad Usman & others,
(PLD 2018 SC 28). We
may further observe that the Bombay High Court in the case of CIT
vs. Pruthvi Brokers & Shareholders (Pvt) Ltd,
(349 ITR 336), while
relying upon the various decisions of the Indian Supreme Court and other High
Courts, has held that even if a claim is not made before the Assessing Officer
it can be made before the appellate authorities. The jurisdiction of the
appellate authorities to entertain such a claim is not barred. The Bombay High
Court while relying upon the decision of the Supreme Court in the case of Jute
Corporation of India Limited Vs CIT, (1991) 187 ITR 688 has
observed that the power of the Appellate Commissioner is coterminous with that
of the Income Tax Officer and an appellate authority while hearing an appeal
against the order of the subordinate authority, has all the powers which the
original authority may have in deciding the questions before it, subject to the
restrictions or limitations, if any, prescribed by statutory provisions. In the
absence of any statutory provision, the appellate authority is vested with all
the plenary powers which the subordinate authority may have in the matter. The
taxpayer is entitled to raise not merely additional legal submissions before
the appellate authorities but is also entitled to raise additional claims
before them. The appellate authorities have the discretion of whether or not to
permit such additional claims to be raised. It cannot, however, be said that
they have no jurisdiction to consider the same. The appellate authorities have
jurisdiction to deal not merely with additional grounds which became available
on account of change of circumstances or law, but with additional grounds which
were available when the return was filed but could not have been raised at that
stage. The words “could not have been‟ raised must be construed liberally and
not strictly. The Supreme Court of
Pakistan in the case of Squibb
Pakistan v. C.I.T., 2017
SCMR 1006 also held that in tax matters, a question not raised below could be
agitated before the appellate forum.
23. In
view of the above facts, it is not disputed or contested by the Revenue Department
that the taxpayer is not entitled to any deduction. The only issue in dispute
is under what head/provision the deduction is to be allowed to the taxpayer.
The Jurisdiction High Court of Bombay in the case of Balmukund Acharya
Vs DCIT, reported in (2009) 221 CTR 440 (Bom.) has held that the
Apex Court and the various High Courts have ruled that the authorities under
the Act are under obligation to act in accordance with law. Tax can be
collected only as provided under the Act. If the taxpayer, under a mistake,
misconception, or on not being properly instructed is over-assessed, the
authorities under the Act are required to assist him and ensure that only
legitimate tax dues are collected. While holding so, the Bombay High Court has
relied upon the various decisions e.g. Koshti Vs CIT, (2005)
193 CTR (Guj) 518 : (2005) 276 ITR 165 (Guj), C.P.A Yousuf Vs ITO, (1970)
77 ITR 237 (Ker.), CIT vs Bharat General Reinsurance Co. Ltd,
(1971) 81 ITR 303 (Del), CIT Vs Archana R. Dhanwatey, (1981)
24 CTR (Bom) 142 : (1982) 136 ITR 355 (Bom).
In
view of the above-discussed factual and legal position, we have no hesitation
to hold that the taxpayer is even otherwise entitled to put his alternate claim
that the cost incurred for the project may be considered as an allowable
expense under section 21(n) read with section 24 of the Ordinance treating it
as a right/license to collect the toll tax as an intangible asset. Hence, the plea of amortization and finding
thereon can be given by this forum, which as a statutory forum is under a duty
to pass the factually and legally correct orders.
CONCLUSION
24. For
what has been discussed above, the appeals of the appellant are accepted and
the orders passed by the lower authorities are annulled to the extent of
subject matter in appeals.
|
Sd/- |
Sd/- (M. M.
AKRAM) JUDICIAL MEMBER |
|
(MUHAMMAD
IMTIAZ) ACCOUNTANT
MEMBER |
|
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