Gujarat H.C : The I.T.A.T erred in directing the A.O. to allow deduction u/s. 80IA(4) of the I.T Act even though the assessee was not carrying out the business of development, operation and maintenance of the infrastructure facilities and had transferred the operation and maintenance of the facilities in violation of the agreement with the Government/Statutory body

High Court Of Gujarat

Pr.CIT. Vadodara-2 vs. Nila Baurat Engineering Ltd.

Section : 80-IA

Assessment year 2003-04

Akil Kureshi And Biren Vaishnav, JJ.

Tax Appeal No. 807 Of 2017

October 11, 2017

ORDER

Akil Kureshi, J. – This tax appeal is filed by the Revenue challenging the judgement of the Income Tax Appellate Tribunal dated 13.04.2017 raising following questions for our consideration:

“(1) Whether on the facts and circumstances of the case, the I.T.A.T erred in directing the A.O. to allow deduction u/s. 80IA(4) of the I.T Act even though the assessee was not carrying out the business of development, operation and maintenance of the infrastructure facilities and had transferred the operation and maintenance of the facilities in violation of the agreement with the Government/Statutory body?

(2) Whether on the facts and circumstances of the case, the I.T.A.T erred in directing the A.O. to allow deduction u/s. 80IA(4) of the I.T. Act even though the assessee transferred rights of operation and maintenance of infrastructure facility to M/s. Rameshwarma Toll Pvt. Ltd (RTPL) with effect from 18/11/2001 on lump sum payment of Rs.328 lakhs p.a., and therefore the deduction u/s. 80IA(4) would be available to such transferee enterprise (RTPL) for the unexpired period (with effect from 18/11/2001) as per proviso to section 80IA(4)(i) of the I.T. Act read with circular no. 779 dated 14/09/1999?

(3) Whether on the facts and circumstances of the case, the I.T.A.T erred in directing the A.O. to allow deduction u/s. 80IA(4) of the I.T. Act even though the deduction u/s. 80IA(4) of the I.T. Act for the year under consideration has been claimed by the transferee enterprise (RTPL) for the same year without appreciating that the deduction u/s. 80IA(4) is available to either the developer or operator of the infrastructure facility?”

2. Though three separate questions are framed, issue is single and arises in following factual background:

2.1 The respondent – assessee is a limited Company engaged in the business of civil construction and installation of various infrastructure projects. For the assessment year 2003-04, the assessee had filed the return of income declaring total income of Rs.20.92 lakhs. The return was scrutinized and an assessment order was passed on 27.03.2006 determining the total income at Rs.78.10 lakhs. Subsequently, the Assessing Officer issued notice for reopening of this assessment. During such reassessment proceedings, one of the questions considered by the Assessing Officer was the assessee’s claim of deduction under section 80IA(4) of the Act. The assessee’s claim arose this wise:

(i) The assessee was entrusted the project of construction of part of Sirohi road project on build, operate and transfer basis at its own cost by the State of Rajasthan. The assessee had to raise its own funds and would be entitled to recover the investment along with profit through toll collection for a period of five years as authorised by the Rajasthan Government under the agreement. One of the clauses of the agreement provided that the assessee will not assign the property or transfer the benefit of the lease to any third party nor shall create any mortgage in favour of any financial institution or individual.

(ii) After completion of the construction work, the assessee assigned the task of maintenance and toll collection of the road for a period of one year to one RTIL under an agreement dated 10.11.201. In lieu thereof, RTIL would pay a lumpsum sum of Rs. 328 lakhs to the assessee irrespective of actual toll collection. The period of agreement was later on extended by mutual consent between the assessee and RTIL.

(iii) It appears that RTIL claimed deduction on its profits arising out of toll collection activity under the provisions of sub-section (4) of Section 80IA of the Act which was allowed by the Income Tax Appellate Tribunal, Jaipur. The Tribunal was of the opinion that as per the terms of the agreement between RTIL and the present assessee, RTIL was appointed for operating and maintaining including collection of toll. The Assessing Officer had, therefore, wrongly presumed that the agreement was merely for execution of work of collection of toll. The Tribunal was of the opinion that this agreement nowhere offended the terms of the agreement between the present assessee and the Rajasthan Government which prohibited any transfer of the property since this was not a case of the transfer of property but transfer of right of operation and maintenance of the facility.

(iv) On its profit derived from the payment by RTIL, the assessee claimed deduction under Section 80AI(4) of the Act. The Tribunal by the impugned judgement allowed the claim.

3. The case of the Revenue is that in terms of the proviso to sub-section (4) of Section 80IA of the Act, once the assessee had transferred the infrastructure facility for maintenance and operation, the assessee could not claim any deduction under sub-section (4). The agency – RTIL which was maintaining and operating the infrastructure facility could alone claim the deduction failing which there would be double deduction.

4. Sub-section (1) of Section 80IA provides that where the gross total income of an assessee includes any profit and gain derived by an undertaking or an enterprise from any business referred to in sub-section (4) called as the eligible business, subject to the provisions of this section there shall, in accordance with and subject to the provisions of this section, be 100% deduction of the profits and gains derived from such business for consecutive ten assessment years while computing the total income of the assessee. Sub-section (4) of Section 80IA in turn lays down the conditions upon fulfillment of which the said section would apply. Essentially, the deduction is allowed to any enterprise carrying on any business of developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility fulfilling the conditions specified therein. Since it is not in dispute that the assessee fulfills these conditions, we may not take note of such conditions in detail. What is relevant for our purpose is the proviso to sub-section (4) which reads as under:

“Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place.”

5. As per the proviso, thus, where any infrastructure facility is transferred to another enterprise for the purpose of operating and maintaining such facility in accordance with the agreement of the Central or State Government or the local or statutory authority, the section would apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would be entitled to the deduction, had the transfer not taken place.

6. The proviso to sub-section (4) thus makes an enabling provision providing a deeming fiction whereby upon transfer of any infrastructure facility for the purpose of operating and maintaining, the transferee could claim the deduction for the remainder of the period. The crucial words here are “the transfer of infrastructure for the purpose of operating and maintaining’ and thus the transferee who would now step in the shoes of the transferor for the limited purpose of operation and maintenance, could claim deduction on the profit element arising out of such activity. We may recall, under sub-section (4) of Section 80IA of the Act, an enterprise carrying on the business of developing, or operating and maintaining, or developing, operating and maintaining infrastructure facility would be eligible for deduction. Thus this provision itself envisages that in a given project the developer and person who maintains and operates may be different. Merely because the person maintaining and operating the infrastructure facility is different from the one who developed it, would not deprive the developer the deduction under the said section on the income arising out of such development. By virtue of the operation of the proviso, the developer would not be deprived of the benefit of deduction under sub-section (1) of Section 80IA on the profit earned by it from its activity of developing the infrastructure facility. The proviso does not operate as to depriving the developer of the benefit of the deduction even after the facility is transferred for the purpose of maintenance and operation but would split the profit element into one derived from the development of the infrastructure and that derived from the activity of maintenance and operation thereof.

7. This is precisely what has happened in the present case. The assessee having transferred the facility for the limited purpose of maintenance and operation to RTIL, would receive a fixed payment of Rs.328 lakhs per annum irrespective of the toll collection by RTIL. This profit element therefore would be relatable to the infrastructure development activity of the assessee and would qualify for deduction under Section 80IA of the Act. The RTIL would have a claim or deduction on its profit arising out of maintenance and operation of infrastructure facility which apparently would exclude the pay out of Rs.328 lakhs to the assessee. Learned counsel for the Revenue submitted that this last element is, however, not clearly emerging from the record. Firstly, no such case is made out by the Revenue before the Tribunal. Secondly, if at all, the RTIL has claimed deduction on an amount larger than what it was entitled to, it would be a claim which should be disallowed in the hands of the RTIL and not in the hands of the present assessee.

8. For such reasons, tax appeal is dismissed.

[Citation : 399 ITR 242]