Case Law Details

Case Name : L&T Transportation Infrastructure Limited Vs Income Tax Officer (ITAT Chennai)
Appeal Number : ITA Nos. 1680/Mds./10
Date of Judgement/Order : 22/07/2011
Related Assessment Year : 2007- 08
Courts : All ITAT (4242) ITAT Chennai (212)

L&T Transportation Infrastructure Limited Vs ITO (ITAT Chennai)- Roadside amenities cannot be treated as ‘infrastructure facility’ for the purposes of claiming deduction under Section 80-IA of the Income Tax Act.

The business of developing, operating and maintaining roads would not include the activity of business of developing operating and maintaining way side amenities, though such activity may be incidental to or facilitate the business of developing and maintaining roads and are the part of same agreement. It was held that assessee is not eligible for deduction under section 80IA of the Act for income derived from road amenities.

In respect of the income arising from the sale of scrap, the same represents the sale of left over materials which were acquired for developing road. Further, the sale of scrap could be considered as intimately connected with the business of developing, operating and maintaining infrastructure facility and hence the income arising from the sale of scrap was eligible for deduction under section 80IA of the Act.

Regarding fee for lying optical fibre cable and film shooting, as the entire facts are not available, it is not clear whether these incomes relate to road or the same relates to road side facility. Accordingly the issue relating to fee from lying down optical fibre cable and film shooting was set aside with a direction to the AO for verification and allow the deduction as permissible under law.

L&T Transportation Infrastructure Limited Vs Income Tax Officer

ITA No. 1680/Mds./10 

Assessment year: 2007- 08

Income Tax Officer vs. L&T Transportation Infrastructure Limited.

ITA No. 1696/Mds./10 

Assessment year: 2007- 08

Decided by – ITAT Chennai

Decided on – 22nd July, 2011

O R D E R

Per N.S. SAINI, ACCOUNTANT MEMBER:

1. These are cross appeals filed by the assessee and the Revenue against the order of the Commissioner of Income Tax(A) dated 30.07.10.

2. In the assessee’s appeal, the sole issue involved is that the Commissioner of Income Tax(A) erred in stating that the license fee for wayside amenities and miscellaneous income do not have direct nexus with the profits and gains of the business eligible for deduction u/s.80-IA and is incidental thereto and thereby denying deduction u/s.80-IA in respect of income from license fee for wayside amenities and miscellaneous income earned by the assessee during the Assessment Year under consideration.
3. The brief facts of the case are that L&T Transportation Infrastructure Ltd. has been incorporated to undertake the construction of a bypass road near Coimbatore and a bridge on NH-47, across river Nayal pursuant of concession agreement entered into by L&T Transportation Infrastructure Ltd. ( L&T TIL) and Government of India & Government of Tamil Nadu to develop the project on “Build, Operate and Transfer “BOT” model. The operation and maintenance of the project is also undertaken by the company.

4. During the year under consideration, assessee had claimed deduction u/s.80-IA of the Act on the following income:-

Brief description of Income

Amount (in Rs.)
Income from use of way-side amenities (toilets, service stations etc) as per clause 7.4 of the concession agreement 298,476

Income from putting  up advertisements        on the road (Hoardings) as per clause 15.12 of the concession
agreement

1,902,523
Fee for laying optical fibre cable 500,000
Others (revenues from sale of scrap, film shooting etc.) 99,238

Assessing Officer denied the above said incomes as he treated the receipts as “Income from Other Sources”.

5. On appeal before the Commissioner of Income Tax(A), assessee argued that the way-side amenities and other ancillary facilities are a part of the projects set up by the appellant. Consequently, the revenues that the company derives from collection of user charges of the way-side amenities and other infrastructure facilities springs directly from the infrastructure facility that are set up and are derived from the business of setting up of the infrastructure facility. Hence, income from license fee for way-side amenities and miscellaneous income earned by L&T TIL during the year should be assessed as its business income eligible for deduction u/s.80-IA of the Act.

6. Ld. Commissioner of Income Tax(A) after considering the submissions of the assessee dismissed the appeal of the assessee observing as under:-

6.1. I have carefully considered the facts of the case and the submissions made by the Ld. AR. The Ld. AR has argued that the income from the wayside amenities and miscellaneous income of the appellant should be considered as business income of the appellant eligible for deduction u/s. 80-IA. The key words used in this section is ‘derived from’ . What the appellant is eligible for deduction is the profits and gains derived from the eligible business of infrastructural undertaking as specified in section 80 IA(4)(i). The deduction is allowed at the rate of 100% of the profits and gains derived from such business. The Courts have generally interpreted the words ‘derived from’ narrowly to mean – to trace from a source, arise from and originate in. The Apex Court in cam bay Electric supply Industrial Co. Ltd Vs. Commissioner of Income Tax [113 ITR 84 (SC)] held that the scope of the words ‘derived from’ is narrower than the words ‘attributable to’. The Apex Court in its subsequent decision in Commissioner of Income Tax v. Sterling Foods [237 ITR 579 (SC)] held that where the nexus between the profits and gains and the industrial undertaking is not direct, but incidental, such income cannot be regarded as having been derived from the industrial undertaking. Even interest earned from deposit made with the Electricity Board for obtaining electricity is not eligible for deduction as held by the Summit Court in Pandian Chemicals Ltd. [262 ITR 278 (SC)]. The Hon’ble Supreme Court in its recent decision in the case of Liberty Shoe v. Commissioner of Income Tax [317 ITR 218 (SC)] held that if the nature of income is such that it constitutes independent source of income beyond first degree nexus between profit and industrial undertaking, the same would not qualify for deduction. It is found that the appellant has included income byway of wayside amenities and miscellaneous income in the profit of eligible business and claimed deduction thereon. By their very nature, the sources of these income are a step removed from the eligible business. There is no direct nexus between other income and profits and gains of the eligible business. The connection between the two is beyond first degree and is only incidental and hence it is not entitled for deduction as claimed by the appellant. Accordingly this ground is dismissed.”

7. The Learned Authorised Representative of the assessee has filed written submission which is as follows:-

“In this appeal against the order of the Commissioner of Income Tax (Appeals) [‘CIT (A)’], L&T Transport Infrastructure Limited (‘L&T TIL’ or ‘the Appellant’ or ‘the Company’ or ‘the assessee’) wishes to submit as under:

1. Background about the company

L&T TIL has been incorporated to undertake the development of a bypass road near Coimbatore and a bridge on NH-47, across river Noyyal, pursuant to a concession.agreement entered into by L&T Limited and the Government of India (‘GOI’) and Government of Tamil Nadu (‘GOTN’) to develop the project on Build-Operate-Transfer (‘BOT’) model. The operation & maintenance of the project is also undertaken by the Company. The Appellant company was set-up significantly to carry on the development, operation and maintenance of the above project and this is the only business which is undertaken by the Appellant and all its operating revenues spring directly from the project.

2. Facts of the case

L&T TIL has claimed deduction under section 80-IA of the Income-tax Act, 1961 in respect of the following streams of income from the above-mentioned project:

S No

Brief description of income

Amount (in Rs)

1

Income from toll collections

172,900,492

2

Income from use of way-side amenities (toilets, service stations etc) as per clause 7.4 of the concession agreement

298,476

3

Income from putting up advertisements on the road (hoardings) as per clause 15.12 of the concession agreement

1,902,523

4

Fee for laying optical fiber cable

500,000

5

Others (revenues from sale of scrap, film shooting etc)

99,238

While deduction under section 80-IA in respect of item 1 had been allowed by the AO, deduction in respect of items (2) to (5) had been disallowed by the assessing officer. On appeal the Commissioner of Income-tax (Appeals) was of the view that incomes referred in (2) to (5) above are not “derived from” the business of developing, operating and maintaining the infrastructure facility (being the road / bridge in the instant case) and hence ineligible for deduction under section 80-IA of the Act. The CIT(A) has stated in his order that the income referred to in (2) to (5) above has no nexus with the profits and gains of eligible business and its connection with the business of infrastructure development is only incidental.

OUR SUBMISSION

3. Classification of income – Is the income “Profits and Gains of Business or Profession” (‘PGBP’) or is it “Income From Other Sources” (‘IFOS’)

3.1 Relevant provisions of Act and position in law

PGBP is subject to tax under section 28 of the Act. As per section 28:

“The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,—

(i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year ..”

The term “business” is not defined under the Act. The meaning assigned to the said term by various judicial precedents is provided below:

  • The expression ‘business’ in ordinary parlance means any trading activity accompanied by regularity of transactions intended for the purpose of making profit. In general, a single transaction is not taken as business [Eclat Construction (P.) Ltd. v. CIT [1988] 172 ITR 84 (Pat.)].
  • The expression ‘business’ is a well-known expression in income-tax law. It means some real, substantial and systematic or organised course of activity or conduct with a set purpose [CIT v. Distributors (Baroda) (P.) Ltd. [1972] 83 ITR 377 (SC) / Narain Swadeshi Wvg. Mills v. CEPT [1954] 26 ITR 765 (SC) / CIT v. Admiralty Flats Motel [1982] 133 ITR 895 (Mad)].
  • The expression ‘business’ does not necessarily mean trade or manufacture only: it is being used as including within its scope professions, vocations and callings for a fairly long time. The word ‘business’ is one of wide import and it means an activity carried on continuously and systematically by a person by the application his labour and skill with a view to earn income [Barendra Prasad Ray v. ITO [1981] 129 ITR 295 (SC)].
  • Where an activity forms part of the main objects of the company under its memorandum of association, it should be taxable under the head “PGBP” [CIT v Rajasthan Land Development Corporation [1995] 211 ITR 597 (Raj) / CIT v Monarch Tools Pvt Ltd 260 ITR 258].

3.2 Applicability in the instant case

(A) Collection of advertisement revenues and income from way-side amenities are regular income-streams of the Company, in addition to income from toll collections from users of infrastructure facility, hence satisfying the test of being a business income per judicial precedents referred above.

(B) As per the Main objects clause of the Memorandum of Association of the Appellant:

“THE MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION ARE:

1. To negotiate and obtain concessions from the appropriate Government/s for the rights to build, operate and own or transfer highways, by-passes, rail over bridges, … … and upon such terms and for such benefits as may be set-forth in the concessions or negotiated from time-to-time and generally carry on the business of owners, operators of highways, bridges … … public utilities, telecommunication facilities and any such other rights,  properties, utilities and services wherever situated.”

As is evident from the above, the appellant is authorised to carry on the business of owner and operator of the facility and is authorised to operate the project asset as per terms of the concession agreement. It is submitted that the concession agreements entered into between the appellant and the Governments clearly state that the appellant is authorised to provide way-side amenities and put up hoardings etc and earn income from the said sources. [Relevant extracts provided in paragraph 4.2 and 4.3]

(C) Without prejudice to the above, we also wish to submit that the above-mentioned sources of income items (2) and (3) shown separately as “license fee for wayside amenities”, have been reported under the head “income” in the financial statements alongside “Fee collection from users of infrastructure facility”. The fact that income has been reported under the main head of income and not under the residual head of “other income” signifies the intent of the assessee to earn such income as part of its main “business” and the same should be subject to tax as business income.

Based on discussion above, the appellant wishes to submit that the incomes referred in points (2) to (5) of paragraph 2 should be subjected to tax as its business income.

4. Eligibility for deduction under section 80-IA

As discussed in paragraph 3, the Appellant wishes to subject income in the nature referred in clauses (2) to (5) should be subject to tax as PGBP and not IFOS. Further, the appellant also submits that the said income should be eligible for deduction under section 80-IA of the Act, for reasons mentioned below:

4.1  Relevant provisions of the Act and position in law

As per section 80IA of the Act, “Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction…” .

The expression “derived from” has not been defined in the Act. It is typically understood to mean profits having close nexus with the business eligible for deduction under section 80-IA of the Act (in the instant case, development of infrastructure facility being toll road and bridge). The following judicial precedents can be relied on for the meaning of the term “derived from”:

•CIT v Viswanathan and Co. (261 ITR 737) (Mad)“the word ‘derived’ is usually followed by the word ‘from’ and it means: get or trace from a source; arise from, originate in; show the origin of formation of.”

In the case of L&T TIL, the impugned items of income have originated and arisen from the infrastructure which was developed, operated and maintained by the Company. Hence we wish to submit that such income is derived from the business of infrastructure development.

CIT v. Sportking India Limited [2010] 324 ITR 283 (Del)“There is no reason why keeping in account the intent of the provision of section 80- IA and the fact that an industrial undertaking has already been established and is running, (i.e. investment done, machinery purchased, employment and revenue generated etc.) a restricted interpretation be given to the expression “derived from any business of an industrial undertaking”.” .

ACIT v. Maxcare Laboratories Ltd. [2005] 273 ITR (A.T.) 1“… even for determining the profits and gains “derived from any business of industrial undertaking”, manufacturing or producing any article or thing include sale proceeds of such article or thing of scrap generated during the course of such manufacturing activity. It is not possible to close eyes to the event which amounts to increase in the sale consideration. After all what is to be determined is the profits and gains of business of industrial undertaking and there is no warrant to stop for the above purpose at sales of main products only. The controversy here is not when manufacturing activity of the assessee was over, but what was the profit and gains of the business of the industrial undertaking and how was it to be determined. For determining the above profits of business of industrial undertaking it is not possible to ignore sale of empty drums/containers, sale of useless materials which is closely and directly connected with and outcome of the manufacturing process itself.”

4.2 Applicability in the instant case

4.2.1 License fee from use of way-side amenities

Way-side amenities represent infrastructure facilities linked to the project developed by the appellant (toll road and bridge) such as parking facilities, service stations and other facilities for users of the infrastructure facility. Operation and maintenance of toll roads / by-pass roads include inter alia provision of wayside amenities to users of infrastructure facilities. The requirement to provide way-side amenities stems from the concession agreement entered into by the appellant with the Government as part of clause 7 which deals with the “Scope of the project”. The relevant extract is re[produced below:

“7.4.4 Passenger oriented wayside amenities like toilets, parking facilities, service station … shall be provided at suitable location in the acquired right of way as per relevant standards and guidelines of M. O.S. RiI.R. C”

Also, the Appellant intends to draw attention of your goodself to the provisions of clause 7.5.9 which pertains to “Maintenance and operations”:

“7.5.9 The road user oriented wayside amenities shall be kept clean and well maintained condition, with the tariff rates conspicuously displayed for the information of the users.”

From the above, it is apparent that provision of way-side amenities and earning related income is an integral part of the infrastructure facility. Accordingly, the Appellant reiterates that such income is essentially “derived from” the business of infrastructure development and has a close nexus with the infrastructure facility.

4.2.2 Revenues from advertisement

Miscellaneous income includes income from advertisements and hoardings; including advertisements on toll tickets. The authority to put up hoardings/ advertisements is any form springs directly from the concession agreement in this regard Clause 15.12 has been reproduced below.

15.12 During the Concession period, the Company shall be entitled to put up hoardings or other forms of advertisement as per IRC standards in this regard on the project facility within the right of way and be solely entitled to all the revenues arising therefrom”

From the above clause, it is clear that the receipts under the advertisement/ hoardings were envisaged to be an important form of payment over and above the toll collection and that the income is of a nature similar to the toll collection i.e., income from the operation of the infrastructure facility.

4.2.3  Revenues from sale of scrap

Income from sale of scrap should be eligible for deduction under section 80-IA. Reliance in this regard is placed on the decision of the Cuttack ITAT in the case of ACIT v. Maxcare Laboratories Ltd.

4.3 Rebuttals to the argument of the CIT(A)/ applicability of Pandian Chemicals Ltd. Vs CIT (262 ITR 278) (SC)

The learned CIT(A) has without distinguishing the facts and circumstances of the case has relied on judicial precedents [Pandian Chemicals (supra)] not applicable to the Appellant in deciding on the matter.

The learned CIT(A) has compared income arising from such wayside amenities to deposit made with the electricity board; as in the case of Pandian Chemicals Ltd. [262 ITR 278 (SC)] in holding that by their very nature the said income are a step removed from the eligible business and not derived from the business eligible for deduction under section 80- IA (in the instant case infrastructure development). The learned CIT(A) has erred in making the said comparison for the following reasons:

(a) Facts in the case of Pandian Chemicals (supra) are significantly different from the facts in the instant case.

(b) The difference in language employed and scope of deduction in case of section 80HH (subject matter of deduction in the case of Pandian Chemicals) and section 80-IA (subject matter of deduction in the instant case)

Particulars

Pandian Chemicals Ltd.

Current case
Deduction claimed under

Section 80HH

Section 80-IA

Deduction can be claimed in respect

 

any profits and gains derived from an industrial undertaking

 

profits and gains derived by an undertaking or an enterprise from any business referred to in sub­section (4)Note – L&T TIL is covered within the scope of sub­section (4) of section 80-IA
Scope of the section

 

 

 

 

 

Tax holiday is restricted to income arising from the activity of the industrial undertaking. Any incidental income arising in the course of such activity may not be eligible for deduction The words “any business referred to in sub-section (4)” widens the scope of income eligible for tax holiday to all incomes that arise from the business in sub-section

(4) ie all income from the business of infrastructure development. In other words, the benefit of deduction is available not only to the income derived from the undertaking but to all sort of income which is derived from the business of the undertaking.

Based on the above, it is submitted that the intention of the Legislature was to give the benefit of the deduction not only to the income derived from the undertaking but to income which is derived from the business of infrastructure development.

In the case of L&T TIL, revenues from provision of way-side amenities on the project facility, revenues from hoardings / advertisement, sale of scrap etc have a direct nexus with the business of infrastructure development. Hence, the said income should be eligible for deduction under section 80-IA being income “derived from the business of development of infrastructure facility.

5. Our Prayer

On the basis of the above submissions, the company prays that:

  • The income earned by the company classified as “license fee for wayside amenities” and “miscellaneous income” are business income by nature.
  • The said incomes are eligible for deduction under section 80IA because they relate directly to the business of providing infrastructure facility.
  • The order of the CIT (A) be set aside considering the merits of the case and the
    company be allowed the deduction under section 80IA on the said incomes.”
8. On the other hand, the Ld. DR vehemently argued and supported the orders of lower authorities.
9. We have heard the rival submissions and perused the orders of lower authorities and the materials available on record. In the instant case, the assessee entered into a tripartite agreement with Central Government and Government of Tamilnadu to build, operate and maintain toll road and by pass road. According to the said agreement the assessee was also required to build maintain and operate way side amenities to users of infrastructure facility. Further, it is not in dispute that he assessee is eligible for deduction u/s.80-IA in respect of income derived from the business of developing operating and maintaining infrastructure facilities i.e. road including toll road. The Learned Assessing Officer observed that the assessee has also derived the following income during the year under consideration:-

Brief description of Income

Amount (in Rs.)
Income from use of way-side amenities (toilets, service stations etc) as per clause 7.4 of the concession agreement 298,476

Income from putting up advertisements on the road (Hoardings) as per clause 15.12  of  the concession
agreement

1,902,523
Fee for laying optical fibre cable 500,000
Others (revenues from sale of scrap, film shooting etc.) 99,238

10. According to the Learned Assessing Officer, the above income were not derived from the developing operating and maintaining any infrastructure facility and therefore, he excluded the same while computing deduction allowable u/s. 80-IA of the Act.

11. On appeal, the Learned Commissioner of Income Tax(A) confirmed the action of the Learned Assessing Officer

12. Before us, the main contention of the assessee is that wayside amenities were built and maintained and operated by the assessee in pursuance to the tripartite agreement for developing, operating and maintaining infrastructure facility entered into by it with Central and State Governments. In other words, to build maintain and operate road side amenities was the condition precedent or part of the agreement to develop operate and maintain road. Therefore, according to the assessee the income derived from road side amenities were part of the business of developing operating and maintaining of infrastructure facility and therefore, eligible for deduction u/s.80-IA of the Act. The assessee also contended that the use of word ‘business” in section 80-IA which is of a wider connotations makes it distinguishable from the provisions of Section 80-HH wherein the word ‘business’ was not there and therefore, the decisions in respect of Section 80-HH are not applicable. The assessee also submitted that scrap sale was with respect to the sale of left over material, which was purchased for construction of infrastructure facility and therefore, the entire receipt of sale proceeds was not the income of the assessee and the same was also intimately connected with the developing operating and maintaining of infrastructure facility. In view of the above, the assessee contended that the lower authorities were not justified in not allowing deduction u/s.80-IA in respect of the above income.

13. On the other hand, the Ld. Learned Departmental Representative supported the order of the lower authorities.
14. We find that the first issue which requires our adjudication is whether the operation and maintenance of road side amenities forms part of the assessee’s business of building operating and maintaining of infrastructure facility as envisaged in sub-section (4) of Section 80-IA or not. We find that infrastructure facility has been defined in Explanation to Section 80-IA (4) as under:-

For the purposes of this clause, ”infrastructure facility” means-

(a) A road including toll road, a bridge or a rail system;

(b) A highway project including housing or other activities being an integral part of the highway project;

(c) A water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system;

(d) A port , airport, inland waterway [inland port or navigational channel in the sea]”

15. A reading of the above provision shows that the road side amenities are not included within the meaning of infrastructure facility for the purposes of section 80-IA(4) of the Act. Road side amenities cannot be called road. Therefore, in the instant case, even when the road side amenities were required to be built operated and maintained by the assessee under the same agreement under which it was authorised to build operate and maintain road, such roadside amenities cannot be called infrastructure facilities as envisaged in Section 80-IA(4) of the Act. Further, we find that sub-section(1) and sub-section (4) of Section 80-IA read as under:-

“(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive assessment years.]

(4) This section applies to—

(i)  any enterprise carrying on the business [of (i) developing, or

(ii) operating and maintaining or

(iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely :

(a) it is owned by a company registered in India or by a consortium of such companies [or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act];

[(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for

(i) developing or

(ii) operating and maintaining or

(iii) developing, operating and maintaining a new infrastructure facility;]

(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: 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.

[Explanation : For the purposes of this clause, “infrastructure facility’’ means—

(a)  a road including toll road, a bridge or a rail system;

(b)  a highway project including housing or other activities being an integral part of the highway project;

(c)  a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system;

(d)  a port, airport, inland waterway [,inland port or navigational channel in the sea.]

[(ii) any undertaking which has started or starts providing telecommunication services whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the [31st day of March, 2005;]

Explanation : For the purposes of this clause, “domestic satellite” means a satellite owned and operated by an Indian company for providing telecommunication service.

(iii) any undertaking which develops, develops and operates or maintains and operates an industrial park [or special economic zone] notified by the Central Government in accordance with the scheme framed and notified by that Government for the period beginning on the 1st day of April, 1997, and ending on [the 31st day of March, 2006]:

[Provided that in a case where an undertaking develops an industrial park on or after the 1st day of April, 1999 or a special economic zone on or after the 1st day of April, 2001 and transfers the operation and maintenance of such industrial park or such special economic zone, as the case may be, to another undertaking (hereafter in this section referred to as the transferee undertaking), the deduction under sub-section (1) shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking:]

[Provided further that in the case of any undertaking which develops, develops and operates or maintains and operates an industrial park, the provisions of this clause shall have effect as if for the figures, letters and words “31st day of March, 2006”, the figures, letters and words [“the 31st day of March, 2011”] had been substituted;]

(iv) an [undertaking] which,—

(a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993, and [ending on [the 31st day of March, 2011];

(b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999, and [ending on [the 31st day of March, 2011]:

Provided that the deduction under this section to an [undertaking] under sub-clause (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution.

[(c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on [the 31st day of March, 2011].

Explanation : For the purposes of this sub-clause, “substantial renovation and modernisation” means an increase in the plant and machinery in the network of transmission or distribution lines by at least fifty per cent of the book value of such plant and machinery as on the 1st day of April, 2004.]

(a) such Indian company is formed before the 30th day of November, 2005 with majority equity participation by public sector companies for the purposes of enforcing the security interest ofthe lenders to the company owning the power generating plant and such Indian company is notified before the 31st day of December, 2005 by the Central Government for the purposes of this clause;

(b) such undertaking begins to generate or transmit or distribute power before the [31st day of March, 2011.]

(c) [(vi) * * * * *]”

16. Reading of the above provisions shows that all the business income of an assessee who is engaged in the business of developing operating and maintaining any infrastructure facility does not qualify for deduction u/s.80-IA of the Act. Only those business income, which are derived by an undertaking or an enterprise from an eligible business is only eligible for deduction u/s.80-IA of the Act. Further, the eligible business has been defined in sub-section (4) of the Section 80-IA. In relation to the facts of the present case, the eligible business means business of developing operating and maintaining any infrastructure facility i.e. road. Thus, the income derived from business of developing, operating and maintaining road only qualifies for deduction u/s.80-IA of the Act. On facts of the instant case, the business of developing, operating and maintaining road in our considered opinion does not include the activity of business of developing operating and maintaining road side amenities though such activity may be incidental to or facilitate the business of developing and maintaining roads. Therefore, in our view, simply because the word ‘business’ has been used in Section 80-IA(4), the same cannot be read so as to mean that income derived from operating and maintaining roadside amenities will form part of business of developing operating and maintaining road because the business of developing operating and maintaining road can be carried out without undertaking any activity of developing, operating and maintaining roadside amenities also. Though we agree with the contention of the Ld. Learned Authorised Representative that in the instant case the assessee was required to develop operate and maintain roadside amenities such a condition of the agreement under which it was allowed to build operate and maintain road but that by itself does not make the road and amenities a part of the road or infrastructure facility. Therefore in our considered opinion the assessee is eligible for deduction u/s.80-IA only in respect of road business income which are derived from developing operating and maintaining road and income which were derived by the assessee from roadside amenities are not allowable as deduction u/s.80-IA of the Act. It is not in dispute that the assessee derived income of Rs. 21,91 ,999/- from roadside amenities. We therefore, confirm the order of the lower authorities to the extent of exclusion of above income for calculating deduction allowable u/s. 80-IA of the Act.

17. Regarding fee for lying optical fibre cable of Rs.5 lakhs and fee from film shooting, we find that the full facts are not available before us. From the records before us, it is not clear whether the same relates to road or the same relates to road side facility. We find that income derived from operating and maintaining of road qualifies for deduction u/s.80-IA of the Act. Nowhere the said section provides any manner of operation of infrastructure facility or prohibits any manner of operation of road or infrastructure facility. Thus, income derived by assessee from any operation of road is eligible for deduction u/s.8-IA of the Act and the contention of the Revenue that only toll charges will qualify for deduction u/s.80-IA cannot be accepted. We therefore, set aside the issue relating to fee from lying down optical fibre cable and fee from film shooting back to the file of the Learned Assessing Officer and direct him to verify the facts in line of the discussion made above and allow deduction u/s.80-IA in respect of those income which relates to road.

18. The last issue relates to scrap sales. We find force in the submissions of the Ld. Learned Authorized Representative in this respect. We find that sale of scrap represents the sale of left over materials which were acquired for developing road. No material has been brought on record by the lower authorities to controvert the above submission of the assessee Thus we agree that the above sale of scrap was intimately connected with the business of developing operating and maintaining infrastructure facility and income from such sale goes on to reduce the expenditure of developing the infrastructure facility and truly speaking the same is not an independent income to the assessee. We therefore, delete the disallowance of deduction u/s.80-IA in respect of the sale of scrap and allow this part of the ground of the assessee.
19. In the result the appeal of the assessee is disposed of as above.

20. In the Revenue’s appeal, the sole issue involved is that the Commissioner of Income Tax(A) erred in allowing depreciation claim of the assessee on project assets at the rate of 10% applicable to building.

21. The Ld. AR of the assessee filed before us a copy of the order of the Tribunal in assessee’s own case for Assessment Years 2002-03 to 2004-05 & 2006-07, wherein the Tribunal vide order dt.30.11.10confirmed the order of the Commissioner of Income Tax(A) allowing depreciation @ 10% on project assets to the assessee and dismissed the appeal of the Revenue. The Learned Departmental Representative very fairly conceded that the issue is covered in favour of the assessee and against the Department by the above quoted order of the Tribunal.
22. After hearing rival submissions and perusing the orders of the lower authorities and materials available on record, we find that Tribunal in Assessment Years 2002-03 to 2004-05 & 2006- 07 vide consolidated order date 30.11.10 in ITA Nos.1692 to 1695/Mds/10 held as under:-

“4. The issue pertains to dis allowance of depreciation on project assets being road and bridge in the Assessment Years 2002-03, 03-04 and 04-05, the Assessing Officer has disallowed the claim of depreciation on the basis of elaborate discussion made by him in the order for the Assessment Year 2006-07. During the course of assessment proceedings in the Assessment Year 2006- 07 after analysing various factors and also taking into account all th objections raised by the assessee, it was held by the Assessing Officer that the assessee is not the owner of the project assets, as such is not eligible for claiming depreciation of such assets. However, taking into account the fact that the entire cost of the project has to be borne by the assessee and such cost has to be recovered from the users of the project by way of toll fees prescribed by the Government, the entire cost was amortised over the period of concession. So,as the assessee has claimed huge depreciation more than the amortisation value of the Assessment Years 2002-03, 03-04 and 04-05, notices u/s. 148 were issued for the reasons that depreciation claim was far in excess than the amortisation to be allowed as per the decision taken in the Assessment Year 2006-07. Accordingly, returns for these three years were filed and after hearing the assessee, assessments were finalised which were challenged in appeals and the ld. Commissioner of Income Tax(A) concluded to allow the appeals of the assessee as per para 5.4. & 6 of his order which read asunder:-

5.4. I have carefully considered the facts of the case and the submissions of the ld. AR. I have also gone through the decisions relied on by the Assessing Officer and AR. The appellant company has been incorporated to undertake development of infrastructural facilities and has developed a by-pass road and a bridge on NH 47 near Coimbatore. The appellant has entered into a concession agreement with the Government of India and Government of Tamil Nadu to develop the project on Build- Operate Transfer (BOT) basis. I have perused the concession agreement and the relevant clauses contained therein. I find that the facts of the appellant are similar to the case of Tamil Nadu Road Development Company Ltd., (supra) for A. Y.s 2003-04 and 2004-05. The ld. AR has relied on the decision of the jurisdictional ITAT, Chennai in the above case. The Assessing Officer in his remand report for A. Y.2006-07 has not accepted the contention of the ld. AR by stating that “the assessee has also objected stating that the Tribunal in the case of Tamil Nadu Road Development Company Ltd., has allowed the assessee’s claim of depreciation. However, an appeal has been filed in the High Court against the Tribunal order. It isw clear from the above that the only reason for non-acceptance of the decision is that the Department has not accepted the above decision and appeal has been filed against the order in the High Court. The Hon’ble ITAT in the above case in ITA No.2082/Mds./2008 & 817/Mds./2007 for A. Y.s 2003-04 and 2004-05 respectively has held as under:

“after the Asst. year 1988-89 all the Appendices have the note that building would include roads. Therefore, in our view, the assessee would become entitled to depreciation on the road in the category of building. In these circumstances, we set aside the order of the Commissioner of Income Tax(A) on this issue and direct the Assessing Officer to allow depreciation on the road at the rate applicable to the building.”

Since the facts are similar, respectfully following the above decision of the Honourable jurisdictional ITAT, the Assessing Officer is directed to allow depreciation on the road at the rate applicable to building. The appellant succeeds on this ground.”

23. In the absence of any distinguishing features pointed out by the Learned Departmental Representative and also as no material was brought on record by the revenue to show that the above quoted order of the Tribunal was reversed in an appeal by an higher authority , we respectfully following the above quoted order of the Tribunal confirm the order of the Learned Commissioner of Income Tax(A) and dismiss the ground of appeal of the Revenue.

24. In the result the appeal of the Revenue is dismissed.

Order pronounced on 22nd July, 2011.

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Category : Income Tax (25052)
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Tags : ITAT Judgments (4421)

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