Bombay H.C : the Tribunal was justified in confirming the order passed by the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 directing the Assessing Officer to examine the allowability of depreciation on toll road

High Court Of Bombay

North Karnataka Expressway Ltd. vs. CIT -10

Section 32, 263

Assessment year 2005-06

S.C. Dharmadhikari And A.K. Menon JJ.

IT Appeal No. 499 Of 2012

October 14, 2014

JUDGMENT

S.C. Dharmadhikari, J. – This is Appeal by the Assessee challenging the order passed by the Income Tax Appellate Tribunal, Bench at Mumbai, dated 30th August, 2011 in Income Tax Appeal No.3978/Mum/2010. The assessment year in question is 2005-06.

2. An order of the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 (for short ‘the Act’) dated 17th March, 2010 was under challenge before the Tribunal and at the instance of the Appellant-Assessee. The Commissioner had exercised his powers under the above provision and held that the assessment made by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue.

3. The Appeal raises substantial question of law and which is formulated as under:—

“(i) Whether, on the facts and in the circumstances of the case, and in law, the Tribunal was justified in confirming the order passed by the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 directing the Assessing Officer to examine the allowability of depreciation on toll road?”

4. Mr. Pinto, learned counsel, waives service on behalf of the Revenue.

5. By consent of both parties, the Appeal is taken up for final hearing.

6. The Assessee is a company incorporated under the Indian Companies Act, 1956 having its registered office at the address mentioned in the cause title.

7. It is engaged in the business of infrastracture development. It is common ground that the Assessee executed a Concession Agreement on 20th November, 2001 with the National Highway Authority of India (NHAI) to construct a road styled as toll road from km 515 to km 592 in Dharwad-Maharashtra border section of National Highway No.4 in the State of Karnataka. That was to be constructed and maintained on Build, Operate and Transfer (BOT) basis on the land owned by the Government. In terms of this agreement, the Appellant had to construct the toll road and thereafter maintain and operate it for a period of 17 years and 6 months which is known as the concession period. At the end of this period, the toll road is required to be handed over to the NHAI free of cost.

8. The Appellant claimed that it was the owner of the toll road and the entire cost incurred for construction thereof was capitalized by the Appellant in its books in the assessment year 2005-06 during which the construction of the toll road was completed. As the assessment year under consideration was the first year when the road became operational, the Appellant claimed Depreciation of Rs.59.92 crores at the rate of 10% on the capitalized cost of the toll road. 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 higher claim of depreciation on toll road, the claim is made at the rate of 10%. The right to claim higher depreciation is reserved. The Appellant relied upon the standard concession document of the National Highway Authority of India and the clause therein that ‘for the purpose of claiming tax depreciation, the property representing the capital investment made by the concessionaire shall be deemed to be acquired and owned by the concessionaire.’

9. The case of the Appellant was selected for scrutiny and the Assessing Officer examined the details of income and expenditure of the Appellant. He sought certain clarifications and after detailed correspondence and examination of the information provided by the Appellant, he passed an order on 28th December, 2007.

10. On 26th February, 2009, a notice of show cause notice was received by the Appellant from the Respondent. The notice was under section 263 of the Income Tax Act and the Respondent proposed to revise the assessment order passed by the Assessing Officer as in his opinion the Assessing Officer had erred in allowing depreciation on the toll road constructed on Build, Operate and Transfer basis. According to him, that resulted in under assessment of income. Annexure D and E are copies of the assessment order and show cause notice. The Assessee furnished a reply to the same and submitted that the Assessing Officer has applied his mind on the particular issue and his view is a possibe one. Therefore, jurisdiction under section 263 of the Income Tax Act cannot be exercised. Further, the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. A copy of this reply is at Annexure-F. There was a second show cause notice, copy of which is at Annexure G dated 2nd December, 2009 and that was in relation to further items of income and expenditure. Even in that regard, the Assessee showed cause and appeared before the Commissioner. However, the Commissioner, Respondent before us, set aside the assessment and directed, inter alia, that the allowability of depreciation on toll road should be examined again.

11. Aggrieved and dissatisfied with this order of the Respondent dated 17th March, 2010, an Appeal was filed before the Tribunal. By the impugned order, the Tribunal has held that the Assessing Officer has passed an order without any examination of the issue and in a mechanical manner. His order was, therefore, erroneous and prejudicial to the interest of the Revenue on the allowability of depreciation on road. Hence, the Commissioner’s order was upheld and the Appeal of the Assessee was dismissed.

12. Before us, Mr. Irani submitted that the Appeal raises a substantial question of law at least to the extent of the depreciation on toll roads. He submitted that pages 48 to 52 of the paper book would indicate that entire material was before the Assessing Officer. This was not a case where section 263 of the Income Tax Act was applicable and attracted. Apart from the same, there is variance between the contents of the show cause notice and the order of the Commissioner of Income Tax. In that regard, he invites our attention to page 55 of the paper book and pages 66 and 67 thereof. He submits that if the conclusion of the Commissioner is contrary to and not based on the contents of the show cause notice, then, the Tribunal should have quashed his order. Mr. Irani submits that there is no question of the Assessing Officer not applying his mind to the claim of depreciation. That is not subject matter of the notice either. Thus, there is a application of mind by the Assessing Officer and merely because his order is brief does not mean that it is erroneous and prejudicial to the interest of the Revenue.

13. Mr. Irani submits that the diversion or difference between the allegations in the show cause notice and the conclusions reached in the order of the Commissioner vitiates it completely in law. Mr. Irani also submits that the order under section 263 and equally the order of the Tribunal are factually erroneous. There is application of mind by the Assessing Officer and just because there is no detailed discussion therein, does not mean that it should be set aside or that it is necessarily erroneous and prejudicial to the interest of the Revenue. In that regard, our attention is invited to the discussion in the Tribunal’s order from page 79 to 82 of the paper book. Alternatively, Mr. Irani submits that the Assessing Officer’s order is correct on merits. A view taken by him is a possible and plausible view. Therefore, the Commissioner should not have set aside his order. The Tribunal erred in not setting aside the order of the Commissioner. For these reasons, he submits that this Court be pleased to quash and set aside the impugned orders and allow the Appeal.

14. On the other hand, Mr. Pinto, learned counsel, appearing for the Revenue submits that the Tribunal as also the Commissioner has not concluded the issue of depreciation against the Assessee. All that they have done is to direct the Assessing Officer to reconsider and re-examine it in accordance with law. Alternatively, and without prejudice Mr. Pinto submits that there is no finding or opinion rendered by the Assessing Officer. Hence, this is not a case of two opinions or any possible opinion being rendered. Mr. Pinto in that regard relies upon para 4.3 of the order of the Tribunal at page 81 and 82 of the paper book. Mr. Pinto submits that the land belongs to the sovereign. The Assessee is merely permitted to enter upon it for the purpose of construction and laying of a road. At best, the Assessee could be said to be an agent and for a limited purpose, namely, to build, operate and later on transfer the road. There is no question of the Assessee claiming any ownership rights. Once, this is the settled position in law, then, the Commissioner and Tribunal did not commit any error in holding that the Assessing Officer’ s claim for depreciation is not tenable in law. For all these reasons, the Appeal be dismissed.

15. With the assistance of both sides, we have perused the memo of Appeal and all Annexures thereto. We have also perused the relevant statutory provisions. In all fairness, Mr. Irani submits that the Appeal be decided on the re-framed question of law. That is with regard to the merits of the claim of depreciation which was raised by the Appellant-Assessee. In such circumstances, we would be deciding the matter on a wider question and as formulated above.

16. In that regard, it is necessary to refer to section 32 of the Income Tax Act, 1961. That section reads as under:—

‘Section 32.(1) – Depreciation

In respect of depreciation of – (i) buildings, machinery, plant or furniture, being tangible assets;

(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998.

owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed —

(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage, on the actual cost thereof to the assessee as may be prescribed;

(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed;

Provided that no deduction shall be allowed under this clause in respect of —

(a) any motor-car manufactured outside India, where such motor-car is acquired by the assessee after the 28th day of February, 1975, but before the 1st day of April, 2011, unless it is used —

(i) in a business of running it on hire for tourists; or

(ii) outside India in his business or profession in another country; and

(b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42:

Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescibed for an asset under clause (i) or clause (ii) or clause (iia) as the case may be;

Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998, but before the 1st day of April, 1999, and is put to use before the 1st day of April, 1999, for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed.

Explanation – For the purposes of this proviso, —

(a) the expression “commercial vehicle” means “heavy goods vehicle”, “heavy passenger motor vehicle”, “light motor vehicle”, “medium goods vehicle” and “medium passenger motor vehicle” but does not include “maxi cab”, “motor-cab”, “tractor” and “road-roller” shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988):

Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment)Act, 1991 (2 of 1991):

Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation of the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of day for which the assets were used by them.

Explanation 1 – Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension or, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee.

Explanation 2 – For the purposes of this sub-section “written down value of the block of assets” shall have the same meaning as in clause ( c) of sub-section (6) of section 43.

Explanation 3 – For the purposes of this sub-section, the expression “assets” shall mean —

(a) tangible assets, being buildings, machinery, plant or furniture;

(b) intangible assets, being know-how, patents, copy-rights, trade marks, licences, franchises or any other business or commercial rights of similar nature.’

17. A bare perusal thereof indicates that in repsect of the depreciation of buildings, machinery, plant or furniture being tangible assets and with which we concerned, the deductions in sub-section(1) of section 32 shall be allowed provided these assets are owned wholly or partly by the Assessee and used for the purpose of his business or profession. Then, there are provisos below clause (ii) of sub-section (1) and it is not necessary to refer to the same and except explanation (3) which is an explanation for the purposes of sub-section (1).

18. The term depreciation as is ordinarily understood and in the context of the Income Tax Act, 1961 has been considered by the Hon’ble Supeme Court.

19. In judgment of the Hon’ble Supreme Court in the case of I.C.D.S. Ltd. v. CIT [2013] 350 ITR 527/212 Taxman 550/29 taxmann.com 129, the Hon’ble Supreme Court was concerned with the interpretation of section 32 of the Income Tax Act, 1961. The Hon’ble Supreme Court held as under:—

’10. Depreciation is the monetary equivalent of the wear and tear suffered by a capital asset that is set aside to facilitate its replacement when the asset becomes dys-functional. In P.K. Badiani v. Commissioner of Income tax, Bombay, this Court has observed that allowance for depreciation is to replace the value of an asset to the extent it has depreciated during the period of accounting relevant to the assessment year and as the value has, to that extent, been lost, the corresponding allowance for depreciation takes place.

11. Black’s Law Dictionary (5th Edn.) defines ‘depreciation’ to mean, inter alia:

“A fall in value; reduction of worth. The deteriotation or the loss or lessening in value, arising from age, use, and improvements, due to better methods. A decline in value of property caused by wear or obsolescence and is usually measured by a set formula which reflects these elements over a given period of useful life of property…. Consistent gradual process of estimating and allocating cost of capital investments over estimated useful life of asset in order to match cost against earnings….”

The 6th Edition defines it, inter alia, in the following ways:

“In accounting, spreading out the cost of a capital asset over its estimated useful life.

A decline in the value of property caused by wear or obsolescence and is usually measured by a set formula which reflects these elements over a given period of useful life of property.

12. Parks in Principles & Practice of Valuation(Fifth Edn., at page 323) states: As for building, depreciation is the measurement of wearing out through consumption, or use, or effluxion of time. Paton has in his Account’s Handbook (3rd Edn.) observed that depreciation is an out-of-pocket cost as any other costs. He has further observed-the depreciation charge is merely the periodic operating aspect of fixed asset costs.

13. The provision on depreciation in the Act reads that the asset must be “owned, wholly or partly, by the Assessee and used for the purposes of the business.” Therefore, it imposes a twin requirement of ‘ownership’ and ‘usage for business’ for a successful claim under section 32 of the Act.

19. We may now advert to the first requirement i.e. the issue of ownership. No depreciation allowance is granted in respect of any capital expenditure which the Assessee may be obliged to incur on the property of others. Therefore, the entire case hinges on the question of ownership; if the Assessee is the owner of the vehicles, then, he will be entitled to the claim on depreciation, otherwise, not.

20. In Mysore Minerals Ltd., M.G. Road, Bangalore v. Commissioners of Income Tax, Karnataka, Bangalore, this Court said thus:

“……authorities show that the very concept the depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.

21. Black’s Law Dictionary (6th Edn.) defines ‘owner’ as under:—

“Owner. The person in which is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or personal, corporeal or incorporeal, which he has a right of enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right.

The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied. The primary meaning of the word as applied to land is one who owns the fee and who has right to dispose of the property, but the terms also dispose of the property, but the terms also included one having a possessory right to land or the person occupying or cultivating it.

The term “owner” is used to indicate a person in which one or more interests are vested his own benefit. The person in whom the interests are vested has ‘title’ to the interests whether he holds them for his own benefit or the benefit of another. Thus the term “title” unlike “owner” ..”

It defines the term ‘ownership’ as —

“Collection of right to use and enjoy property, including right to transmit it to others… The right of one or more persons to possess or use a thing to the exclusion of others. The right by which a thing belongs to some one in particular, to the exclusion of all other persons. The exclusive right of possession, enjoyment or disposal; involving as an essential attribute the right to control, handle, and dispose.”

The same dictionary defines the term “own” as ‘to have a good legal title’.

These definitions essentially make ownership a function of legal right or title against the rest of the world. However, as seen above, it is “nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied.’

20. It is in this backdrop that we have to notice the facts and circumstances in which the claim was raised. Admittedly, the Assessee is in the business of infrastracture development and in the course of which it had constructed the above referred toll road. There is a Concession Agreement with the National Highway Authority of India. The question, therefore, is that when a person like the Assessee who is in the business of infrastructure development in execution of such agreement constructs a road and on Build, Operate and Transfer (BOT) basis on the land owned by the Government, can it claim depreciation on the toll road.

21. When this larger question was posed before the authorities, what they have held is that the Assessing Officer in allowing such a claim has not even considered the basic facts rather there is no consideration of the claim at all and before granting it. The Commissioner came to the conclusion that the depreciation is allowable on specific assets owned by the Assessee and used for the above purpose. The toll road belongs to the Government and the Assessee is not the owner of the said road. Therefore, the depreciation is not allowable on toll road.

22. We do not find that when this notice was issued by the Commissioner to the Assessee under section 263 of the Income Tax Act, there has been any divergence or contradiction as complained by Shri Irani. We do not find any basis for the complaint that the notice and the order passed by the Commissioner of Income Tax are at variance or that the order travels beyond the notice. The essential foundation for the notice is as noted above. The Commissioner issued another show cause notice on 2nd December, 2009 and in which also he alleged that the claim of depreciation has been erroneously granted and the order of the Assessing Officer to that extent is erroneous and prejudicial to the interest of the Revenue. The Assessee replied to the show cause notice and gave detailed explanation on how the claim arises. Hence, there was no prejudice nor can it be said that the Assessee was in any manner handicapped in dealing with the show cause notice.

23. The order of the Commissioner deals with the stand of the Assessee and in detail. The Commissioner held that the Assessing Officer had not discussed this claim at all. He has granted it without any application of mind and mechanically. There is justification for such a conclusion by the Commissioner.

24. Then, the Commissioner discussed the claim on merits. He found that the ownership of the road cannot be claimed by the Assessee. The claim of depreciation is not based on treating it as an intangible asset with a right to use the asset without being actual owner thereof. In that regard, the Commissioner referred to the orders passed by the Bombay Bench of the Income Tax Appellate Tribunal in the case of Reliance Port and Terminals Ltd. and that of the Delhi Bench of the Tribunal dated 19th December, 2008 in the case of Noida Toll Bridge Company and held that firstly, the Assessing Officer did not apply his mind at all and secondly, the toll roads are not owned by the Assessee and he cannot claim any depreciation thereon.

25. This finding of the Commissioner has been confirmed by the Income Tax Appellate Tribunal in the impugned order and in that behalf the Tribunal has held as under:—

“In this case, the Assessee who was in the business of infrastructure development had constructed a road on the land taken on lease from government. Depreciation is allowable only in respect of assets owned by Assessee. The Assessee had claimed depreciation of Rs.59.92 crores on the road which had been allowed by the Assessing Officer without any examination. Though the Assessing Officer raised queries on many issues vide letter dated 16th October, 2006 placed at page 39 of the paper book but there was no query raised on allowability of depreciation. Nor there was any query on this issue in the order sheet or by way of any correspondence. Considering that huge depreciation had been claimed on the road constructed on the land not owned by the Assessee, the issue was required to be examined by the Assessing Officer which was not done. The order is therefore, erroneous and prejudicial to the interest of the revenue following the judgments cited above. It is not a case that the Assessing Officer had examined the issue by calling for necessary details and by raising relevant queries but failed to discuss the issue elaborately in the assessment order. The judgment of High Court of Bombay in case of Gabriel India (supra), is therefore, not applicable on the facts of the present case.

The learned AR for the Assessee has argued that depreciation was allowable based on some decisions of the Tribunal and therefore, Assessing Officer had taken one of the possible views and in such cases order cannot be said to be erroneous and prejudical to the interest of the revenue. Reliance has been on the case of Malabar Industrial Co. (supra) in which it has been held that in case Assessing Officer has taken one of the possible views, assessment cannot be said to be erroneous and prejudicial to the interest of the revenue. But the question of taking one of the two possible views arises only when the Assessing Officer has taken a view after necessary examination ofo the issue. In case Assessing Officer has allowed the claim mechanically without any examination, it cannot be said that he has taken one of the two possible views. It will be a case of passing order without any examination which will be obviously erroneous and prejudicial to the interest of the revenue.

In our view, claim had been allowed by Assessing Officer in a very mechanical manner without any examination of the issue, and therefore, the order was erroneous and prejudicial to the interest of the revenue on the issue of allowability of depreciation on road.”

26. We are in agreement with these findings and conclusions of the Tribunal.

27. We called upon Mr. Irani to place before us a copy of the National Highways Act and National Highways Authority of India Act, 1988. Mr. Irani has been kind enough to place them.

28. The National Highways Act, 1956 is an Act to provide for declaration of certain highways to be National Highways and for matters connected therewith. In the present case, we are concerned with a National Highway. Admittedly, it is a Dharwad-Maharashtra border section from km.515 to km.592 of National Highway No.4 in the State of Karnataka which has been constructed by the Appellant-Assessee. The statement of objects and reasons to the National Highway Act, 1956 and to the extent relevant for our purpose reads as under:—

“Under Entry 23 of the Union List, Parliament has exclusive power of legislation with respect to highways which are declared to be national highways by or under law made by Parliament. It is, therefore, proposed that the highways comprised in the Schedule annexed to this Bill should be declared to be national highways. Such a declaration would help the Central Government in exercising its powers with respect to the development and maintenance of these highways more effectively. Power is also sought to be vested in the Central Government to declare, by notification, other highways to be national highways. Power should also be given to the Central Government to enter into agreements with the State Governments or municipal authorities with respect to the development or maintenance of any portion of any national highway and fees may have to be levied in respect of certain types of services rendered on national highways.”

29. There has been amendment to the National Highway Act, 1956 and by the Amendment Act 26 of 1995 several provisions have been inserted in the Act and for enabling the Central Government to enter into a agreement with any person in relation to the development and maintenance of the whole or part of a National Highways. The statement of facts and reasons to Amendment Act 26 of 1995 reads as under:—

” Amendment Act 26 of 1995- Statement of objects and Reasons. – Proper development of road infrastructure is essential for economic development of the country.

However, due to constrain of resources, it has not been possible to allocate sufficient funds for the development of road sector in the country. Therefore, a need has been felt to tap private entrepreneurship and private resources in the development of road sector. With this in view, the Government has taken a number of measures like the declaration of road sector as an industry and infrastructure facility and certain other concessions. A number of private investors including foreign investors have shown interest in the proposal to open the road sector for private investment. However, in the absence of an enabling provision in the National Highways Act, 1956, it is not possible to enter into agreements with private investors for the development of roads.”

30. A bare perusal thereof, would indicate that after the policy of globalization, liberalization and privatization, the Act has been amended so as to provide for participation of private entities so as to develop and maintain whole or part of the National Highways. Naturally, these private entities would have to be involved by enabling the authorities to execute an agreement with them and which agreement will contains stipulations so as to bind them. The development and maintenance will have to be undertaken and in order to allow the private entities to be reimbursed the costs and expenses incurred by them that the Act enables levy of fees and authorises the person who has undertaken to develop the whole or part of a national highways to collect such fees. Further, a person who is undertaking such an exercise would also be in a position to regulate the traffic on the National Highway. With these broad objects, the Act has been amended. By section 2 of the Act, the Central Government can declare each of the Highways specified in the schedule to be a National Highway. Then, such Highway is deemed to be as such and so as to develop and maintain it and other land for such purpose, the Act enables the acquisition of private lands and these provisions are inserted from section 3-A to section 3-J. Section 4 and section 5 of this Act reads as under:—

“4. National Highways to vest in the Union – All national highways shall vest in the Union, and for the purposes of this act “highways” include —

(i) all lands appurtenant thereto, whether demarcated or not;

(ii) all bridges, culverts, tunnels, causeways, carriageways and other structures constructed on or across such highways; and

(iii) all fences, trees, posts and boundary, furlong and mile stones of such highways or any land appurtenant to such highways.

5. Responsibility for development and maintenance of national highways —

It shall be the responsibility of the Central Government to develop and maintain in proper repair all national highways; but the Central Government may, by notification in the Official Gazette, direct that any function in relation to the development or maintenance of any national highway shall, subject to such conditions, if any, as may be specified in the notification, also be exercisable by the Government of the State within which the national highway is situated or by any officer or authority subordinate to the Central Government or to the State Government.”

31. By section 8-A, the Central Government has been empowered to enter into agreements for development and maintenance of National Highway and that section reads as under:—

“8-A. Power of Central Government to enter into agreements for development and maintenance of national highways – (1) Notwithstanding anything contained in this Act, the Central Government may enter into an agreement with any person in relation to the development and maintenance of the whole or any part of a national highway.

(2) Notwithstanding anything contained in section 7, the person referred to in sub-section (1) is entitled to collect and retain fees at such rate, for services or benefits rendered by him as the Central Government may, by notification in the Official Gazette, specify having regard to the expenditure involved in building, maintenance, management and operation of the whole or part of such national highway, interest on the capital invested, reasonable return, the volume of traffic and the period of such agreement.

(3) A person referred to in sub-section (1) shall have powers to regulate and control the traffic in accordance with the provisions contained in Chapter VIII of the Motor Vehicles Act, 1988 (59 of 1988) on the national highway forming subject matter of such agreement, for proper management thereof.”

It is this section which has been inserted by Act 26 of 1995.

32. To our mind, a reading of these sections together and harmoniously so also the Act as a whole, the National Highways vest in the union and for the purposes of the Act, they include all appurtenant lands whether demarcated or not, all bridges, culverts, tunnels, causeways, carriageways and other structures constructed on or across such highways and all fences, trees, posts and boundary, furlong and mile stones appurtenant to such Highways are included in the term Highways. There is a exclusive responsibility of development and maintenance of National Highway and which is of the Central Government. It is in these circumstances that we find that by section 8-A the Central Government is empowered to enter into an agreement with any person in relation to the development and maintenance of the whole or any part of a National Highway, but that in no way affects the vesting of the National Highways in the Union. Section 8-A cannot be said to be overriding section 4 and section 5. It is only for purposes of development and maintenance of the whole or any part of the National Highway through private parties or by involving them that this provision has been inserted. Merely because the National Highway is built, maintained, managed and operated by private entities does not mean that the vesting of the National Highway in the Union is effected. That does not dilute the right conferred by section 4 or take away the ownership of this Highway, meaning thereby, its vesting in the union. It is thus, the union in which the National Highway vests and that is all pervasive.

33. The National Highways Authority of India Act, 1988 is a Act to provide of a constitution of authority for the development, maintenance and management of National Highway’s and for matters connected therewith or incidental thereto. The statement of objects and reasons to this Act reads as under:—

‘Statement of Objects and Reasons – The development and maintenance of national highways is fully financed by the Central Government as this function comes within Entry 23 of the Union List of the Seventh Schedule to the Constitution. Further, section 5 of the National Highways Act, 1956 provides that the Central Government may direct that any function in relation to the development or maintenance of national highways shall also be exercisable, among others, by any officer or authority subordinate to the Central Government. Under this provision, the function of execution of the field activities including survey, investigations and preparation of projects on national highways have been delegated to the respective State Governments, the Central Government retaining the activities pertaining to planning, approval of design and estimates, monitoring, etc. This system if commonly known as the “Agency System” since the State Governments are paid “Agency Charges” incurred by them on works executed on the national highway system.

2. Though the “Agency System” of execution of national highway works by the State Public Works Department has been functioning for a period of about 40 years, difficulties have been experienced from time to time.

3. Since the Central Government have no direct administrative control over the executing agency, there have been instances when the Central Government had to remain helpless in case a State Government overlooked the acts of omission or commission on the part of its staff engaged in the construction and maintenance of national highways. This has part of its staff engaged in the construction and maintenance of national highways. This has resulted in anomalous situations where the Central Government, being constitutionally responsible for the development and maintenance of national highways, had to defend actions of State Governments in various forums, including Parliament. Similarly the Centre generally has no rule in fixation and operation of even major contracts arbitration cases, payment of compensation to contractors, etc. over and above the original contract amounts and other items resulting in direct financial commitment of Central funds.

4. Under the circumstances, the only alternative is for the Centre to take over development and maintenance of the national highway system through the creation of an autonomous National Highways Authority. It is proposed that this Authority should take over, in a phased manner the functions presently being performed by the State Public Works Department.

5. The main functions of the Authority would be to develop and maintain national highways whose management and operation is vested in the Central Government.

Some of the salient features of the Bill are:—

(a) the Authority, which will be a functional body, will consist of a Chairman and not more than five full time members to be appointed by the Central Government. The Central Government may also appoint not more than four part-time members;

(b) the Central Government is being empowered to vest in, or entrust to, the Authority such national highways or any stretch thereof, as are vested at present in that Government under section 4 of the National Highways Act, 1956;

(c) any land required by the Authority for discharging its functions will be deemed to be land needed for a public purpose and such land may be acquired for the Authority under the provisions of the Land Acquisition Act, 1894 or any corresponding law for the time being in force;

(d) the authority will have powers to enter into and perform any contract up to a certain value which will be prescribed by the Central Government.

(e) the Central Government will provide funds to the Authority for the discharge of its functions;

(f) the Authority will be responsible for the development, maintenance and management of the national highways which are vested in it by the Central Government;

(g) the Authority will construct offices, workshops and residential buildings for its employees and construct wayside amenities near the national highways vested in it;

(h) the Authority will, on behalf of the Government, be empowered to collect fees for services or benefits rendered by it under section 7 of the National Highways Act, 1956;

(i) for the proper management of highways, the Authority will regulate and control the plying of vehicles on the highways vested in it;

(j) with the approval of the Central Government, the Authority will raise funds through the floating of bonds, issue of debentures etc.’

34. By section 3 under Chapter II, the National Highways Authority of India has been constituted and by further sections its constitution and composition has been set out. Chapter III of the Act is entitled “property and contracts”. Section 11 thereof reads as under:—

“11. Power of the Central Government to vest or entrust any national highway in the Authority – The Central Government may, from time to time, by notification in the Official Gazette, vest in, or entrust to, the Authority, such national highway or any stretch thereof as may be specified in such notification.”

35. A perusal of the same would indicate as to how in furtherance of the National Highways Act, 1956 and the vesting of the National Highways in the Union, that the Central Government can issue a notification from time to time in the official Gazette so as to vest in, or entrust to the National Highway Authority of India, such National Highway or any stretch thereof as may be specified in such notification. It is, therefore, apparent that the superior or higher right of the union is, then, capable of being further entrusted or vested in such authority and which is a creation of the Central Government itself. Therefore, at best, a National Highway vesting in the Union may vest in such authority in terms of a notification under section 11 but merely because the Central Government or a authority causes development and maintenance of the National Highway by involving a private entity or private party does not mean that the said private party can enjoy or claim the rights of the Central Government or this authority in the National Highway. This is apparent from a plain reading of these relevant statutory provisions. It is well settled that when the language of the statute is plain and clear, then, there is no scope for interpretation. The Court must apply such language and which is clear. That is what is called the rule of literal interpretation, Then, there is no scope for interpretation.

36. Chapter IV of the National Highways Authority of India Act (for short NHAI Act), 1988 deals with functions of the authority. Section 16 thereunder reads as under:—

“16. Functions of the Authority – (1) Subject to the rules made by the Central Government in this behalf, it shall be the function of the Authority to develop, maintain and manage the national highways and any other highways vested in, or entrusted to, it by the Government.

(2) Without prejudice to the generality of the provisions contained in sub-section (1), the Authority may, for the discharge of its functions —

(a) survey, develop, maintain and manage highways vested in, or entrusted to, it;

(b) construct offices of workshops and establish and maintain hotels, motels, restaurants and rest-rooms at or near the highways vested in, or entrusted to, it;

(c) construct residential buildings and townships for its employees;

(d) regulate and control the plying of vehicles on the highways vested in, or entrusted to, it for the proper management thereof;

(e) develop and provide consultancy and construction services in India and abroad and carry on research activities in relation to the development, maintenance and management of highways or any facilities thereat;

(f) provide such facilities and amenities for the users of the highways vested in, or entrusted to, it as are, in the opinion of the Authority, necessary for the smooth flow of traffic on such highways;

(g) from one or more companies under the Companies Act, 1956 (1 of 1956), to further the efficient discharge of the functions imposed on it by this Act;

(h) engage, or entrust any of its functions to, any person on such terms and conditions as may be prescribed;.

(i) advise the Central Government on matters relating to highways;

(j) assist, on such terms and conditions as may be mutually agreed upon, any State Government in the formulation and implementation of schemes for highway development;

(k) collect fees on behalf of the Central Government for services or benefits rendered under section 7 of the National Highways Act, 1956 (48 of 1956), as amended from time to time, and such other fees on behalf of the State Governments on such terms and conditions as may be specified by such State Governments; and

(l) take all such steps as may be necessary or convenient for, or may be incidental to, the exercise of any power or the discharge of any function conferred or imposed on it by this Act.

(3) Nothing contained in this section shall be construed as—

(a) authorising the disregard by the Authority of any law for the time being in force; or

(b) authorising any person to institute any proceeding in respect of a duty or liability to which the Authority or its officers or other employees would not otherwise be subject under this Act.”

37. Section 16 has been amended by inserting clause (h) in sub section (2) thereof and which would indicate as to how any person can be engaged or entrusted with any of the functions of the authority and on such terms and conditions as may be prescribed. The term “prescribed” is defined to mean prescribed by the Rules.

38. The functions that are to be discharged by the authority are enlisted from clause (a) to (f) and (i) to (l). However, that does not in any manner mean that this person who is engaged or entrusted with any of the functions by the authority can be said to be the owner of the National Highway. The ownership being that of the Union, it can never be said to be divested of that absolute right by engagement of any person or by entrusting any of the functions of the authority to him.

39. It would not be proper, therefore, to read into section 32 of the Income Tax Act, 1961 something which is defeating and frustrating the mandate of these laws. It can never be intended by the legislature that the broad and wide definition of the term “owner” as appearing in the Income Tax Act, 1961 would interfere with or take away the absolute rights of the above nature conferred in the union of the National Highways. This is too well settled and to require a reference to any judgment. That a provision in one statute or a definition in one statute cannot be interpreted so as to defeat and frustrate another law or statute or any definition therein and when that another statute is a special legislation. The words and definitions in a general enactment can never be held to be contradicting, overriding the stipulations and provisions in a special statute. The National Highways Act and the National Highways Authority of India Act are, therefore, special statutes and when the concept of ownership and vesting therein is of absolute nature that cannot be said to be in any manner restricted or curtailed by a general definition or understanding of the term owner as appearing in the Income Tax Act, 1961. The term is defined widely and broadly in the Income Tax Act, 1961 so as not to allow anybody to escape the provisions thereof by urging that he has a limited right or which is not akin to ownership. Therefore, his income should not be brought to tax. Similarly, if he can claim any deductions from his income which is comprising of profits and gain from his business, then, that deduction can be availed by him. It is for that limited purpose that the term ‘owner’ is defined in this manner Income Tax Act, 1961. However, as held above, that cannot control leave alone overreach The National Highways Act, 1956 or the National Highways Authority of India Act, 1988.

40. Mr. Irani has fairly brought to our notice a notification issued by the Central Government entrusting the stretches as specified in column (3) of the table annexed to this notification of the corresponding section as mentioned against them in column (2) of the table of the National Highway as described in column (1) of the same, to the National Highways Authority of India. A bare reading of this notification would reveal that the bridge or the road which has been constructed and developed as a National Highway and which is from Banglore, now Bengaluru, to Karnataka Maharashtra border that is entrusted to the National Highways Authority of India.

41. We have invited Mr. Irani’s attention to the judgment of the Hon’ble Supreme Court in the case of International Tourist Corpn. v. State of Haryana AIR 1981 SC 74.

42. There, the Hon’ble Supreme Court was concerned with the constitutional validity and vires of section 3(3) of the Haryana Passengers and Goods Taxation Act. The Writ Petitions filed by the Appellant before the Supreme Court came to be dismissed by the High Court of Punjab and Haryana. They upheld the vires of section 3(3) hence, the Appeals to the Hon’ble Supreme Court. The Hon’ble Supreme Court referred to the constitutional and statutory provisions and thereafter held as under:—

‘The constitutional and statutory provisions which require to be considered may now be set out. Entry 23 and Entry 97 of List I of the Seventh Schedule to the Constitution are as follows :

“23. Highways declared by or under law made by Parliament to be national highways.”

“97 Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.”

Entries 22, 24, 25, 29, 30 and 89 of List I also throw light, as we will presently show and they are as follows :

“22. Railways.”

“24. Shipping and navigation on inland waterways, declared by Parliament by law to be national waterways, as regards mechanically propelled vessels; the rule of the road on such waterways.”

“25. Maritime shipping and navigation, including shipping and navigation on tidal waters; provision of education and training for the mercantile marine and regulation of such education and training provided by State and other agencies.”

“29. Airways; aircraft and air navigation; provision of aerodromes; regulation and organisation of air traffic and of aerodromes; provision for aeronautical education and training and regulation of such education and training provided by States and other agencies.”

“30. Carriage of passengers and goods by railway, sea or air, or by national waterways in mechanically propelled vessels.”

“89. Terminal taxes on goods or passengers, carried by railway, sea or air, taxes on railway fares and freights.”

Entry 13, Entry 56 and Entry 57 of List II are as follows :

“13. Communications, that is to say, roads, bridges, ferries, and other means of communication not specified in List I; municipal tramways; ropeways; inland waterways and traffic thereon subject to the provisions of List I and List III with regard to such waterways; vehicles other than mechanically propelled vehicles.”

“56. Taxes on goods and passengers carried by road or on inland waterways.”

“57. Taxes on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List III.”

4. The National Highways Act 1956 provides for the declaration of certain highways to be National Highways. Sec. 2(1) of the Act declares the Highways specified in the Schedule ‘except such parts thereof as are situated within any municipal area’ to be National Highways. Sec. 3 defines ‘municipal area’ as meaning “any municipal area with a population of 20,000 or more, the control or management of which is entrusted to a Municipal Committee, a Town Area Committee, a Town Committee or any other authority”. Sec. 4 vests all National 371 Highways in the Union. Sec. 5 makes it the responsibility of the Central Government “to develop and maintain in proper repair all National Highways”, but empowers the Central Government to direct that any function in relation to the development or maintenance of any national highway shall, subject to such conditions as may be specified, also be exercisable by the concerned State Government. Section 6 further empowers the Central Government to give directions to the Government of any State as to the carrying out in the State of any of the provisions of the Act or of any rule, notification or order made thereunder. Sec. 8 authorises the Central Government to enter into an agreement with the Government of any State or with any municipal authority in relation to the development or maintenance of the whole or any part of a National Highway situated within the State or within a municipal area, and any such agreement it is said, may provide for the sharing of expenditure by the respective parties thereto.

5. We have already extracted Sec. 3(3) of the Haryana Passengers and Goods Taxation Act 1952. It is not necessary to refer to the other provisions of the Act.

8. Entry 56 of List II refers to taxes and goods on passengers carried by road or on inland waterways. It does not except National Highways and National Waterways, so declared by law made pursuant to Entry 23 and Entry 24 of List I. While it is to be noticed that Entries 22, 23, 24, 25 and 29 specify Railways, National Highways, National Waterways and Maritime Shipping, Navigation and Airways respectively, Entry 30 which refers to carriage of passengers and goods specifies Railways, Sea, Air and National Waterways only but not National Highways. Again entry 89 which refers to Terminal Taxes on goods or passengers specifies Railways, Sea or Air but not National Highways. The omission of reference to National Highways in Entry 30 and entry 89 is of significance and indicates that the subject of ‘passengers and goods’ carried on National Highways is reserved for inclusion in the State List. A consideration of these several entries appears to us to make it clear that taxes on passengers and goods carried on National Highways also fall directly and squarely within and are included in entry 56 of List II.

9. We proceed to the next submission of the learned counsel for the appellants that the legislative power to impose taxes under entry 56 of List II was of a regulatory and compensatory nature and consequently the taxing power of the State Legislature could only be exercised with respect to goods and passengers carried on roads, maintained by the State Government and not on National Highways which were maintained by the Union Government. In the counter affidavit filed by Shri Rajender Singh, Taxation Commissioner, on behalf of the State of Haryana, it was claimed that the tax was not of a regulatory and compensatory nature but that it was a general revenue measure. This position was abandoned during the course of argument and Shri Bhagat learned counsel for the State of Haryana conceded that the tax was of a regulatory and compensatory nature. Nor, of course, is the Court bound by any statement made by or on behalf of the Executive Government on a question of the legislative intent or nature of an enactment, what the legislature intended an enactment to be need not necessarily be what the Government says it is. It is a matter of construction, in the light of several attendant circumstances including the source of the legislative power under the Constitution to make the particular law. We have held that the Haryana Passengers and Goods Taxation Act is a law made pursuant to the power given to the State Legislature by entry 56 of List II. Having regard to Atiabari Tea Co. Ltd., v. State of Assam [1961] 1 SCR 809 : (AIR 1961 SC 232), Automobile Transport ( Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491 : (AIR 1962 SC 1406) and Bolani Ores Ltd. etc. v. State of Orissa, [1975] 2 SCR 1 38 : (AIR 1975 SC 17) it has to be held that the power exercisable under entry 56 of List II is the power to impose taxes which are in the nature of regulatory and compensatory measures. In the last of the cases mentioned it was said by the Court, “Entry 57 of List II empowers legislation in respect of taxes on vehicles suitable for use on roads The power exercisable under Entry 57 is the power to impose taxes which are in the nature of compensatory and regulatory measures”. What was said about entry 57 is true of entry 56 too. But to say that the nature of a tax is of a compensatory and regulatory nature is not to say that the measure of the tax should be proportionate to the expenditure incurred on the regulation provided and the services rendered. If the tax were to be proportionate to the expenditure on regulation and service it would not be a tax but a fee.

10. There cannot be the slightest doubt that the State of Haryana incurs considerable expenditure for the maintenance of roads and providing facilities for the transport of goods and passengers within the State of Haryana. The maintenance of highways other than the National Highways is exclusively the responsibility of the State Government. While the maintenance of National Highways is the responsibility of the Union Government, under Sec. 5 of the National Highways Act, that very provision empowers the Central Government to direct that any function in relation to the development and maintenance of a National Highway shall also be exercisable by the concerned State Government. Sec. 6 further empowers the Central Government to give directions to the State Government as to the carrying out of the provisions of the Act and Sec. 8 authorises the Central Government to enter into an agreement with the State Government in relation to the development and maintenance of the whole or part of a National Highway situated within the State including a provision for the sharing of expenditure. Therefore, the State Government is not altogether devoid of responsibility in the matter of development and maintenance of a national highway, though the primary responsibility is that of the Union Government. It is under a statutory obligation to obey the directions given by the Central Government with respect to the development and maintenance of national highways and may enter into an agreement to share the expenditure. That part of the highway which is within a municipal area is excluded from the definition of a national highway and therefore, the responsibility for the development and maintenance of that part of the highway is certainly on the State Government and the Municipal Committee concerned. Since the development and maintenance of that part of the highway which is within a municipal area is equally important for the smooth flow of passengers and goods along the national highway it has to be said that in developing and maintaining the highway which is within a municipal area, the State Government is surely facilitating the flow of passengers and goods along the national highway. Apart from this, other facilities provided by the State Government along all highways including national highways, such as lighting, traffic control, amenities for passengers, halting places for buses and trucks are available for use by everyone including those travelling along the national highways. It cannot therefore, be said that the State Government confers no benefits and renders no service in connection with traffic moving along national highways and is, therefore, not entitled to levy a compensatory and regulatory tax on passengers and goods carried on national highways. We are satisfied that there is sufficient nexus between the tax and passengers and goods carried on national highways to justify the imposition.’

43. Mr. Irani would submit that this judgment is of no assistance to us in resolving the present controversy. Simply because there the State Government was levying a tax on passengers and goods carried on National Highways and the argument was that it cannot do so for want of competence in it. Hence, this judgment is not required to be referred.

44. We are not in agreement with Mr. Irani because the reference to this judgment is not in the context of what was the essential controversy before the Hon’ble Supreme Court but with regard to the position of the Central Government and the State Government qua the National Highway. That position has been reiterated and it is to that extent that we have referred to this judgment. Pertinently, this judgment is neither overruled or distinguished by any further judgment rendered by the Hon’ble Supreme Court.

45. The above material, therefore, is enough to conclude that both the Commissioner as also the Tribunal were right in holding that the claim of Depreciation on toll roads by the Assessee is untenable in law. No such claim could have been made by the Assessee.

46. However, Mr. Irani has led great emphasis on a judgment of the Hon’ble Supreme Court in the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166. He relied upon this judgment to urge that where a taxing provision is capable of two interpretations and both of which are possible, then, the one which is favourable to the Assessee should be preferred. He also relies upon the observations in that behalf in the above judgment of the Hon’ble Supreme Court and which are to the following effect:—

‘What is ownership? The terms “own”, “ownership”, “owned” are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used Black’s Law Dictionary (6th edition), defines “owner” as under:

“Owner. The person in whom is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or persoal, corporeal or incorporeal, which he has a right to enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right.

The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied. The primary meaning of the word as applied to land is one who owns the fee and who has the right to dispose of the property, but the term also includes one having a possessory right to land or the person occupying or cultivating it.

The term ‘owner’ is used to indicate a person in which one or more interests are vested for his own benefit. . . .”

In the same dictionary, the term “ownership” has been defined to mean, inter alia a “collection of rights to use and enjoy property, including right to transmit it to others . . . . The right of one or more persons to possess and use a thing to the exclusion of others. The right by which a thing belongs to some one in particular, to the exclusion of all other persons. The exclusive right of possession, enjoyment and disposal involving as an essential attribute the right to control, handle, and dispose.”

Dias on Jurisprudence (4th edition, at page 400) states :

“The position, therefore, seems to be that the idea of ownership of land is essentially one of the ‘better right’ to be in possession and to obtain it, whereas, with chattels the concept is a more absolute one. Actual possession implies a right to retain it until the contrary is proved, and to that extent a possessor is presumed to be owner.”

Stroud’s Judicial Dictionary gives several definitions and illustrations of ownership. One such definition is that 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 usefruct of it; e.g. a lessee is, during the term, the owner of the property demised. Yet another definition that has been given by Stroud is:

” ‘Owner’ applies to every person in possession or receipt either of the whole, or of any part, of the rents or profits of any land or tenement, or in the occupation of such land or tenement, other than as a tenant from year to year or for any less term or as a tenant at will.”

In State of U.P. v. Renusagar Power Co. [1991] 70 Comp Cas 127 (SC) is, was held that “the word ‘own’ is a generic term, embracing within itself several gradations of title, dependent on the circumstances, and it does not necessarily mean ownership in fee simple, it means ‘to possess, to have or hold as property’.”

In CIT v. Podar Cement Pvt. Ltd. [1997] 226 ITR 625 (SC), the question which came up for consideration before this Court was whether the rental income from the house property which had come to vest in the Assessee, but as to which the Assessee was not legal owner for want of deed of title, was liable to be assessed as income from house property or as income from other sources. To be assessable as income from house property within the meaning of section 22 of the Act the property should be such “of which the Assessee is the owner.” This Court upon a juristic analysis of the underlying scheme of the Act and resorting to contextual and purposive interpretation, also having reviewed several conflicting decisions of different High Courts, held that the liability to be assessed was fixed on a person who receives or is entitled to receive the income from the property in his own right. Vide para 55, the Court has held (page 653):

“We are conscious of the settled position that under the common law ‘owner’ means a person who has got 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, ‘owner’ is a person who is entitled to receive income from the property in his own right.”

In R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC), it was held for the purpose of section 9 of the Indian Income Tax Act, 1922, that the owner must be the person who can exercise the rights of the owner, nor on behalf of the owner but in his own right.

We may usefully extract and reproduce the following classic statement of law from Perry v. Clissold [1907] AC 73 (PC) quoted with approval in Nair Service Society Ltd. v. K.C. Alexander, AIR 1968 SC 1165 (page 1174):

“It cannot be disputed that a person in possession of land in the assumed character of owner and exercising peaceably the ordinary rights of ownership has a perfectly good title against all the world but the rightful owner. And if the rightful owner does not come forward and assert his title by the process of law within the period prescribed by the provisions of the statute of limitation applicable to the case, his right is for ever extinguished and the possessory owner acquires an absolute title.”

Podar Cement’s case (1997) 226 ITR 625 (SC), is under the Income Tax Act and has to be taken as a trend-setter in the concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term “owned” as occurring in section 32(1) of the Act.

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 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 the Transfer of Property Act, the 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 the Transfer of Property Act and the Registration Act, etc. But nevertheless is entitled to hold the property to the exclusion of all others.’

47. Once again these observations must be seen in the backdrop of the facts where the Assessee had purchased for the use of its staff seven low income group houses from the Housing Board. The Assessee had made part payment and was in turn given allotment of the houses followed by delivery of possession by the Housing Board. The actual deed of conveyance is not executed by the Housing Board in favour of the Assessee. The claim for depreciation under section 32 of the Income Tax Act, 1961 in respect of buildings used for the purpose of the business of the Assessee, was rejected by the Assessing Officer and on the ground that the Assessee had not become owner as no conveyance deed was executed in its favour. The Assessee’s Appeal was allowed by the Commissioner of Income Tax but on Revenue’s Appeal, the Income Tax Appellate Tribunal set aside the judgment of the Commissioner of Income Tax. The Tribunal referred a question of law to the Hon’ble High Court and it answered the same against the Assessee and in favour of the Revenue. That is how the matter was carried to Hon’ble Supreme Court. It is in that context that the concept of ownership has been discussed and the Assessee’s claim was upheld by the Hon’ble Supreme Court. We are not concerned here with an ownership of a building or a land beneath which is not conveyed and sold or transferred by execution of a conveyance or a sale deed. There, in terms of the agreement between parties pending execution of such conveyance or sale deed, absolute rights in the property can be said to be transferred and in a given case. Therefore, depending upon the facts and circumstances in each case, the claim of ownership can be made. However, it is not that in every case the principles referred to by the Hon’ble Supreme Court would apply. Depending on the nature of the claim, the context and the circumstances in which it arises, these principles would have to be invoked and applied. There is no general rule which can be said to be laid down. Therefore, the observations at page 781 and which have been relied upon from this judgment by Mr. Irani would not carry the case of the Assessee further. The Assessee can definitely claim depreciation on the investments. He has definitely invested in the project of construction development and maintenance of the National Highway and such of the assets in the form of building and plant and machinery etc. The claim for depreciation can be validly raised and granted. We are here concerned with the claim on the land or a road itself. Merely, because the road is laid out does not mean that the Assessee is the owner thereof. He has laid it out for the purpose of the union and for its ultimate vesting in the public.

48. To the similar effect are the observations in CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625/92 Taxman 541 SC and for the above reasons that judgment is also distinguishable.

49. In this regard, one can also make a useful reference to the judgment of the Hon’ble Supreme Court in the case of State of U.P. v. Ata Mohd. AIR 1980 SC 1785. The Hon’ble Supreme Court in the backdrop of the nature of the right that vests in the municipalities regarding public streets held as under:—

‘It may be noted that the suit filed by the respondent against the Municipality for injunction restraining the Municipal Board from demolishing or interfering with the constructions made by him was decreed in O.S. No.86/1948 and that decee has become final. In the present suit, the municipality is not a party. Therefore, the contention that the Municipality had not leased the site to the respondent by a document as required by Municipal Act, would be of no avail. Equally, the plea that it acted beyond the scope of its authority, is not available to the Municipality. The plea of the State taken before the High Court, and before us, by Mr. Dixit, learned counsel for the appellant, is that the State is the owner of the property inspite of the fact it had vested in the Municipality as a “street” under section 116(g) of the Act. It was submitted that when the property is put to a different use, it is open to the Government to assert, its title and required anyone in illegal possession of the property to vacate. There is not much dispute that the property belonged to the State before the Municipal Act was passed. The High Court has found that the State was the owner of the property till the Municipal Act was passed and this finding was not challenged before us. The only point on which the State lost the suit before the High Court was that after the passing of the Uttar Pradesh Municipal Act, the property vested in the Municipality and the State ceased to be the owner and, therefore, cannot maintain the suit for evicting the respondent.

The Municipalities in various States were created under the respective Municipalities Acts, in order to facilitate the efficient administration of the Municipal areas and to provide lighting, watering and maintaining of public streets and places. The duties of the Municipal Boards are specified in section 7 of the U. P. Municipalities Act. Under section 118 of the Act, the Municipal Board is empowered to manage or control any property entrusted to its managment and control. The vesting of the property, in the Municipality is under section 116 of the Act. Section 116 provides that subject to any special reservation made by the State Government, all property of the nature specified in this section and situated within the Municipality shall vest in and belong to the Board, and shall, with all property which may become vested in the Board, be under its direction, management and control. Clause (g) relates to vesting of streets and is as follows:–

“All public streets and the pavements, stones and other materials thereof, and also all trees erections, materials, implements and things existing or on appertaining to such streets.”

It may be noted that while under cl. (f) of section 116 all lands and other property transferred to the board by the Government by gift, purchase or otherwise for local public purposes vest in the wise for local public purposes vest in the Municipality, under clause (g), the streets vest only qua streets and not as absolute property with the Municipality. The word ‘street’ is defined under section 2(23) as follows:–

“Street means any road, bridge, footway, lane, square, court, alley or passage which the public or any portion of the public, has right to pass along, and includes, on either side, the drains or gutters and the land up to the defined boundary of any abutting property notwithstanding the projection over such land of any verandah or other superstructure.”

It has been found that the property in dispute is Patri and is a land which is within the defined boundary of the property abutting into the road. Thus the property in question falls within the definition of the word ‘street’. The question as to the nature of the right that vest in the Municipality under section 116(g) of the Uttar Pradesh Municipalities Act will have to be considered. This Court in Municipal Board, Mangalur v. Mahadeoji Maharaj, [1965]2 SCR 242; (AIR 1965 SC 1147) had to consider the nature of the right that vested in the Municipality over the streets, Subba Rao, J. (as he then was) after considering the decisions of the English Courts and the High Court, summed up the law on this subject as follows:–

“The inference that the side lands are also included in the public way is drawn easily as the said lands are between the metal road and the drains admittedly maintained by the Municipal Board. Such a public pathway vests in the Municipality, but the Municipality does not own the soil. It has the exclusive right to manage and control the surface of the soil and ‘so much of the soil below and of the space above the surface as is necessary to enable it to adequately maintain the street as a street. It has also a certain property in the soil of the street which would enable it as owner to bring a possessory action against trespassers. Subject to the rights of the Municipality and the public to pass and repass on the highway, the owner of the soil in general remains the occupier of it and, therefore, he can maintain an action for trespass against any member of the public who acts in excess of his rights.”

After referring to section 116(g) of the Uttar Pradesh Municipalities Act, under which a public street vests in a Municipality, the learned Judge referred to a decision of a Division Bench of the Madras High Court in S. Sundaran Ayyar v. The Municipal Council of Madura and The Secretary of State for India in Council, [1902] ILR 25 Mad 635 where the scope of the vesting under the Madras District Municipalities Act was dealt with. The learned Judge extracted the head note from the Madras decision observing that it brought out the gist of the decision. The head note runs as follows:–

“When a street is vested in a Municipal Council, such vesting does not transfer to the Municipal authority the rights of the owner in the site or soil over which the street exists. It does not own the soil from the centre of the earth usque ad ceelum, but it has the exclusive right to manage and control the surface of the soil and so much of the soil below and of the space above, the surface as is necessary to enable it to adequately maintain the street as a street. It has also a certain property in the soil of the street which would enable it as owner to bring a possessory action against trespassers.”

The view taken by the Division Bench of the Madras High Court was that though the street vested in the Municipal Council, it does not transfer to the Municipality the rights of the owner in the site or soil over which the street exists. The question has been dealt with at some detail in the Madras decision and as it has been approved by this Court, it may be usefully referred to. The High Court while observing that if the land itself had been acquired by the Municipality, either by purchase or otherwise and roads and drains formed thereon, the Municipality would have been the owner of the land but if the street or highway over the land was dedicated to the public either by the State or by the owners of the land adjoining the highway will continue vested, subject only to the burden of the highway, in the State or the respective owners of the land on either side of the highway ad medium filum, or in any other person who may have dedicated the street to the public as the case may be. The Court after pointing out that the Madras Municipal Act was modelled after the English Metropolis Local Management Act, 1855, referred to the English cases which dealt with the vesting of the street in the Municipality and observed:

“The conclusion to be drawn from the English case law is that what is vested in urban authorities under statutes similar to the District Municipalities Act, is not the land over which the street is formed, but the street qua street and that the property in the street thus vested in a Municipal Council is not general property or a species of property known to the Common Law, but a special property created by statute and vested in a corporate body for public purposes, that such property as it has in the street continues only so long as the street is a highway by being excluded by notification IV of 1884 or by being legally stopped up or diverted, or by the operation of the law of limitation (assuming that by such operation the highway can be extinguished), the interest of the corporate body determines.”

It is, therefore, clear that when a street ceases to be a highway by its being diverted to some other use, the interest of the corporate body determines. After referring to the decisions of the High Courts in India, it expressed its concurrence with the decisions in Chairman of the Naihati Municipality v. Kishori Lal Goswami [1886] ILR 13 Cal 171, Madhu Sudan Kundu v. Pramoda Nath Roy [1893] ILR 20 Cal 733 and Nihal Chand v. Azmat Ali Khan, [1885] ILR 7 All 362 and concluded that the nature or the right that vested in the Municipality as regards public streets there is no disposal by the Indian Legislature of any land or hereditament vested in the Government. What is vested in the Municipality under section 116(g) is the street qua street and if the Municipality put the street to any other user than that for which it was intended, the State as its owner, is entitled to intervene and maintain an action and to get any person in illegal occupation evicted. We accept the contention of Mr. Dixit, learned counsel for the State of U.P. that the State is the owner and in the circumstances of the case entitled to maintain action for eviction of the respondent. The view taken by the High Court is erroneous. The result is that the appeal by the State is allowed with costs and there will be decree in favour of the plaintiff as prayed for.’

50. None of the above material was placed before the Division Bench of Allahabad High Court which decided CIT v. Noida Toll Bridge Co. Ltd. [2013] 213 Taxman 333/30 taxmann.com 207 With greatest respect, the conclusion of the Division Bench rests only on section 32 of the Income Tax Act, 1961. It followed the Hon’ble Supreme Court’s judgment in Mysore Mineral Ltd. (supra) but with great respect, failed to refer to the provisions of the National Highways Act, 1956 or the National Highways Authority of India Act, 1988. Apart there from, the claim of depreciation on toll roads/bridge was allowed by the Commissioner of Income Tax (Appeals) and Revenue’s Appeal before the Division Bench met with similar fate. We are unable to agree with the observations and conclusions of the Division Bench in para 25 of the judgment in Income Tax Appeal No.316 of 2011.

51. Therefore, the judgment of the Division Bench of the Allahabad High Court and that of the Tribunal taking the view in favour of the Assessee cannot be applied in the case before us. For identical reasons, we are unable to subscribe to the view taken in the case of Maharashtra Road Development Corporation Ltd. by the Income Tax Appellate Tribunal.

52. For the above reasons and which are in addition to those supplied by the Commissioner and the Tribunal, this Appeal fails. The reframed substantial question of law is answered in favour of the Revenue and against the Assessee, but by clarifying that the Assessee’s claim for depreciation in respect of the building, plant and machinery and falling within the purview of sub section (1) of section 32 of the Income Tax Act, 1961 if considered and granted shall not be affected by our judgment.

There would be no order as to costs.

53. In the view that we have taken, it is not necessary to refer to other judgments cited by Mr. Irani and which are on the ambit and scope of section 263 of the Income Tax Act, 1961.

[Citation : 372 ITR 145]

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