Government agency concession under a BOT project can satisfy section 80IA deduction conditions when State approval and participation are direct.

A BOT infrastructure concession routed through GSRDC qualified for deduction under section 80IA(4)(i)(b) because the project was part of a Government-approved scheme, the State had allotted land and authorised toll collection, and GSRDC operated as a Government agency under the Gujarat Infrastructure Development Act, 1999. Applying the settled tests for identifying an instrumentality or agency of the State, the arrangement was treated as an agreement with a governmental authority rather than a mere private contract. The statutory conditions for the deduction were therefore satisfied, and the disallowance was held unsustainable.

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Issues: Whether the assessee was entitled to deduction under section 80IA(4)(i)(b) of the Income-tax Act, 1961 where the infrastructure project was executed through GSRDC under a BOT arrangement and the Gujarat Government had approved the project, allotted land, and permitted toll collection.

Analysis: The project was not a mere private contract with a corporate entity in isolation. The concession arrangement was part of a Government-approved infrastructure scheme, GSRDC functioned as a Government agency under the Gujarat Infrastructure Development Act, 1999, and the State Government was directly involved through approvals, allotment of land, and authorization to collect toll. Applying the settled tests for identifying an instrumentality or agency of the State, the arrangement was treated as one with a Governmental agency for the purposes of section 80IA(4)(i)(b).

Conclusion: The assessee satisfied the statutory conditions for deduction under section 80IA(4)(i)(b), and the disallowance was unsustainable.

Final Conclusion: The departmental appeals failed, and the deduction claimed by the assessee was upheld.

Ratio Decidendi: For section 80IA(4)(i)(b), a concession entered through a State-controlled agency acting as an instrumentality of Government, with direct governmental approval and participation in the project, can satisfy the requirement of an agreement with the State Government or an eligible governmental authority.

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