CASE LAWS DETAILS
DECIDED BY: HIGH COURT OF BOMBAY,
IN THE CASE OF : CIT Vs ABG Heavy Industries Ltd., APPEAL NO: ITA No. 1687, 2121, 2291, 2663 of 2009 and 416 of 2010, DECIDED ON: February 15, 2010
11. The object of Section 80IA was to provide an impetus to the growth of infrastructure in the nation. A sound infrastructure is a sine qua non for economic development. Absence of infrastructure poses significant barriers to growth and development. A model which relied exclusively on the provision of basic infrastructure by the State was found to be deficient. Section 80IA was an instrument of legislative policy, conceived with a view to provide an impetus to private sector participation in infrastructural projects. Consistent with the legislative object of encouraging private sector participation in the development of infrastructure, Section 80IA was enacted. Contemporaneously, with the provisions which were made by Parliament in Section 80IA of the Act, explanatory circulars issued in an administrative capacity by the CBDT held the field. These circulars gave expression to the scope and ambit of the concession that was provided by Section 80IA of the Act. On 14th August 1995, Circular 717 was issued by the Central Board of Direct Taxes. The circular, insofar as is material provided thus :
“Five year tax holiday for infrastructure development :
34.2 Industrial modernisation requires a massive expansion of, and qualitative improvement is infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfil the requirements of the country within a reasonable time frame. In many countries the BOT (build operate transfer) or the BOOT (build operate transfer) concepts have been utilised for developing new infrastructure.
34.3 Applying commercial principles in the operation of infrastructure facilities can provide both managerial and financial efficiency. In view of this, a ten year concession including a five year tax holiday has been allowed for any enterprise which develops, maintains and operates any new infrastructure facility such as roads, highways, expressways, bridges, airports, ports and rail systems or any other public facility of similar nature as may be notified by the Board on BOT or BOOT or similar other basis (where there is an ultimate transfer of the facility to a Government or public authority). The enterprise has to enter into an agreement with the Central or State Government or a local authority or any other statutory authority for this purpose. The period within which the infrastructure facility has to be transferred needs to be stipulated in the agreement between the undertaking and the Government concerned. The enterprise has to be owned by a company registered in India or a consortium of such companies. The tax holiday will be in respect of income derived from the use of the infrastructure facilities developed by them.
34.4 It will apply in respect of infrastructure facilities becoming operational on or after 141995.” The circular thus amplified both the rationale for the introduction of Section 80IA of the Act and the nature and ambit of the concession that was provided by the provision. At this stage, it would be necessary to note that the circular clarified that the benefit of a deduction was available to an enterprise, which developed, maintained and operated any new infrastructure facility, such as inter alia a Port on a Build, Operate and Transfer (BOT) basis, or a Build, Own, Operate and Transfer (BOOT) `or similar other basis’, where there was an ultimate transfer of the facility to a Government or a Public Authority. The circular also clarified the view of the CBDT that the tax holiday would be in respect of the income derived from the use of the infrastructure facilities developed by such enterprise. The infrastructure facility had to become operational on or after 1st April 1995.
16. Now, it is in the background of the evolution of the law that the controversy in the present case would have to be considered. The contention of the Revenue is that the assessee was not engaged in developing the facility at all and that under the Contract that was entered into between the assessee and JNPT all that the assessee was required to carry out was to supply and install cranes at the Port. The submission cannot be accepted. The expression `development’ has not been artificially defined for the purposes of Section 80IA of the Act and must, therefore, receive its ordinary and natural meaning. Under the terms of the contract between the assessee and JNPT, the assessee undertook an obligation for supplying, installing, testing, commissioning and maintenance of Container Handling equipment namely, the cranes in question. JNPT has a dedicated Container Handling Terminal. The case of the assessee is that the only activity at the Terminal consists of the loading, unloading and storage of containers. Under the contract, the assessee was obligated to provide the equipment in question in an operable condition. The contract envisaged two different options; the first being one under which the assessee would carry out operation and maintenance of the equipment while the second consisted of an option to JNPT to carry out operations. The terms of the contract however made it clear that it was the obligation of the assessee to make the equipment available for operation for a stipulated minimum number of days during the year and made the assessee liable to liquidated damages in the event that this was not possible. JNPT by its letter dated 27th March 2000 clarified that the difference between the two options that had been given to the assessee consisted of a payment of Rs.40,00,000/ which was to be retained by JNPT in the event that the operators were provided by the Port for operating the cranes. At the same time, JNPT clarified that it was the responsibility of the assessee to guarantee the availability of the equipment; to ensure that the equipment is in operation on a round the clock basis; to provide for repairs and to ensure the operation and availability of the equipment in accordance with the terms of the contract.
17. The obligations which have been assumed by the assessee under the terms of the contract are obligations involving the development of an infrastructure facility. Section 80IA of the Act essentially contemplated a deduction in a situation where an enterprise carried on the business of developing, maintaining and operating an infrastructure facility. A Port was defined to be included within the purview of the expression infrastructure facility. The obligations which the assessee assumed under the terms of the contract were not merely for supply and installation of the cranes, but involved a continuous obligation right from the supply of the cranes to the installation, testing, commissioning, operation and maintenance of the cranes for a term of ten years after which the cranes were to vest in JNPT free of cost. An assessee did not have to develop the entire port in order to qualify for a deduction under Section 80IA. Parliament did not legislate a condition impossible of compliance. A port is defined to be an infrastructure facility and the circular of the Board clarified that a structure for loading, unloading, storage etc. at a port would qualify for deduction under Section 80IA. The condition of a certificate from the Port Authority was fulfilled and JNPT certified that the facility provided by the assessee was an integral part of the port. The assessee developed the facility on a BOLT basis under the contract with JNPT. On the fulfilment of the lease of ten years, there was a vesting in the JNPT free of cost.
18. Before the Tribunal, material was placed on record by the assessee to indicate the nature and extent of the activities undertaken by it in ensuring that the equipment which was supplied was fully operational. The assessee had in its employment diverse employees, including a Senior Manager, a Manager, Assistant Manager and five Deputy Managers (Operations) in addition to Assistant Engineers, Technical Officers and Operators cum Technicians. On considering the material on record including letters of the Port Authority, the Tribunal came to the conclusion that as a matter of fact the assessee was also engaged in activities of operating the equipment. The finding that the assessee had developed the infrastructure facility and that it was engaged in operating the cranes is, therefore, based on the material on record. The fact that the assessee was also maintaining the cranes is not disputed. There is also no merit in the submission that what the assessee constructed was not a structure for loading, unloading, storage etc. at the port. Plainly, the assessee did so.
19. On behalf of the Revenue it was sought to be urged that at the material time for A.Y. 1997- 98 and 1998- 99, it was necessary for the assessee to cumulatively fulfil the requirement of developing, operating and maintaining the infrastructure facility. It was urged that the assessee, even if it be held to have developed the facility, cannot be regarded as operating the facility. For the reasons already indicated, it is not possible to accept the submission. As we have already noted the assessee had as a matter of fact developed the facility. The Tribunal has also arrived at a finding of fact that the assessee was under the contract required to operate the facility. Merely because the operators of the cranes were provided by
the Port Authority did not absolve the assessee of the overall responsibility of operating the cranes, under the terms of the contract.
22. Another submission which was urged on behalf of the Revenue is that under clause (iii) of subsection (4A) of Section 80IA, one of the conditions imposed was that the enterprise must start operating and maintaining the infrastructure facility on or after 1st April 1995. The same requirement is embodied in sub clause (c) of clause (i) of subsection (4) of the amended provisions of Section 80IA. On this basis, it was urged that since the assessee was not operating and maintaining the facility, he did not fulfil the condition. This submission is fallacious both in fact and in law. As a matter of fact, the Tribunal has entered a finding that the assessee was operating the facility and this finding has been confirmed earlier in this judgement. That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1st April 1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1st April 1995. After Section 80IA was amended by the Finance Act of 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility which fulfils certain conditions. Those conditions are : (i) Ownership of the enterprise by a Company registered in India or by a consortium; (ii) An agreement with the Central or State Government, local authority or statutory body; and (iii) 2 (1997) 224 ITR 677 (S.C.) The start of operation and maintenance of the infrastructure facility on or after 1st April 1995. The requirement that the operation and maintenance of the infrastructure facility should commence after 1st April 1995 has to be harmoniously construed with the main provision under which a deduction is available to an assessee who develops; or operates and maintains; or develops, operates and maintains an infrastructure facility. Unless both the provisions are harmoniously construed, the object and intent underlying the amendment of the provision by the Finance Act of 2001 would be defeated. A harmonious reading of the provision in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops; or (ii) operates and maintains; or (iii) develops, maintains and operates that infrastructure facility. However, the commencement of the operation and maintenance of the infrastructure facility should be after 1st April 1995. In the present case, the assessee clearly fulfilled this condition.