Airport tax and depreciation issues turn on real income, diverted receipts, and functional asset use for business purposes.

Disallowance under section 14A was deleted where no exempt income had been earned and Rule 8D lacked a sustainable basis. Leave encashment and section 40(a)(ia) issues were remanded for fresh factual verification. Taxiways, aprons and parking bays were treated as special-purpose airport assets integral to business operations and eligible for higher depreciation as plant and machinery. The passenger service fee security component, collected in escrow for security expenditure, was held not to be income under the real income and diversion by overriding title principles. Refurbishment and related civil works and the MMRDA contribution were treated as revenue expenditure, while the upfront fee created an intangible business right and the development fee was held non-taxable as a statutory receipt.

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Issues: (i) whether disallowance under section 14A could be sustained where the assessee had not earned exempt income and the recording of satisfaction was in dispute; (ii) whether leave encashment provision and expenditure under section 40(a)(ia) required remand for fresh factual verification; (iii) whether taxiways, aprons and parking bays formed part of plant and machinery for higher depreciation; (iv) whether passenger service fee security component was income of the assessee; (v) whether refurbishment and related civil works, contribution to MMRDA, upfront fee, retrenchment compensation and development fee were capital or revenue in nature.

Issue (i): whether disallowance under section 14A could be sustained where the assessee had not earned exempt income and the recording of satisfaction was in dispute.

Analysis: The disallowance under section 14A was deleted following the Tribunal's earlier decision in the assessee's own case. The absence of exempt income and the lack of a sustainable basis for invoking Rule 8D were treated as decisive. The same approach was applied consistently across the assessment years.

Conclusion: The disallowance under section 14A was deleted, in favour of the assessee.

Issue (ii): whether leave encashment provision and expenditure under section 40(a)(ia) required remand for fresh factual verification.

Analysis: The leave encashment claim and the disallowance under section 40(a)(ia) were not finally adjudicated on merits; both issues were sent back for fresh examination because the factual record was incomplete or required proper verification. The Tribunal directed the lower authority to redecide these matters after giving adequate opportunity to the assessee.

Conclusion: These issues were restored for fresh adjudication and allowed for statistical purposes.

Issue (iii): whether taxiways, aprons and parking bays formed part of plant and machinery for higher depreciation.

Analysis: The structures were held to be special-purpose assets integral to airport operations and not mere concrete structures. Applying the functional test, they were treated as tools of the business and therefore eligible for depreciation at the rate applicable to plant and machinery.

Conclusion: Higher depreciation was allowed, in favour of the assessee.

Issue (iv): whether passenger service fee security component was income of the assessee.

Analysis: The security component of passenger service fee was collected under the regulatory framework in a fiduciary capacity, kept in escrow, and earmarked solely for security-related expenditure. The Tribunal held that the assessee acted only as a conduit and that the amount never assumed the character of income under the Act. The doctrine of diversion of income by overriding title and the real income principle were applied.

Conclusion: The amount was held not taxable in the assessee's hands, in favour of the assessee.

Issue (v): whether refurbishment and related civil works, contribution to MMRDA, upfront fee, retrenchment compensation and development fee were capital or revenue in nature.

Analysis: Refurbishment and related civil works, as well as the contribution to MMRDA, were held to be revenue expenditure because they facilitated business operations without bringing any asset into the assessee's ownership. The upfront fee of Rs. 150 crores was treated as creating an intangible business or commercial right and depreciation thereon was upheld. Retrenchment compensation paid under the airport operating agreement was held not to fall within section 35DDA and was allowed as revenue expenditure. The development fee was held to be a capital receipt in the nature of a cess or tax collected for a specific statutory purpose and therefore not chargeable as income.

Conclusion: The Revenue's challenges on these issues largely failed, with the development fee and upfront fee issues decided in favour of the assessee and the MMRDA/refurbishment issues decided against the Revenue.

Final Conclusion: The Tribunal granted substantive relief to the assessee on the principal recurring disputes, sustained the treatment of certain receipts as capital or non-taxable, and remanded the limited factual issues for fresh adjudication.

Ratio Decidendi: Taxability depends on the true legal character of the receipt or expenditure under the Act, and not merely on accounting treatment, acquiescence, or administrative instructions; a receipt held in fiduciary capacity and diverted at source does not constitute income of the assessee.

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