2017 (11) TMI 1227 - HC - Income Tax

Court clarifies Section 80-IA(4) conditions, allows deductions for substantial renovation.

The court held that the conditions under Section 80-IA(4) are not cumulative. The assessee fulfilled the eligibility criteria for substantial renovation ... Eligibility to deduction u/s 80-IA - Has the Appellate Tribunal any material or evidence on record to justify its finding that the assessee has not substantially renovated and modernised the transmission and distribution lines within the meaning of Section 80-IA? - Held that:- If we look at the scheme of Section 80-IA(2), it does not speak about the business of assessee but of “undertaking” or “enterprise”. Then, an undertaking or an enterprise alone matters for the Revenue to decide the eligibility. Significantly, section 80-IA (2), the charging provision, does not refer to “business” as such. The assessee acquired in March, 2005 certain tea estates at Munnar, as a going concern. This acquisition included the erstwhile “Devikulam Estate” from Tata Tea Limited. The plant and machinery thus acquired included the electric power distribution network-the transmission lines. The assessee produced an audited certificate that the written down value of the plant and machinery as on 01/04/2004 was ₹ 88,39,340/-. It has claimed that it spent for the assessment year 2008-09 ₹ 50.31 Lakh to renovate and modernize its transmission network. So, the amount spent is over 50% of the then existing establishment's book value. Indeed, the undertaking squarely falls under Section 80-1A(4)(iv) (c) of the Act. The renovation or modernization, admittedly, took place between 01.04.2004 and 31.03.2011. To be specific, the assessee claims that the undertaking’s renovation or modernization has brought about “substantial improvement in the 'line loss.' Substantial renovation and modernization has been done by replacement of High Tension distribution lines and installation of new CT/PT units.” Conclusion: In the above circumstances, the Assessing Officer’s disallowing under section 80-IA of the Act, as affirmed by the Appellate Authority and the Tribunal, cannot be sustained. - Decided in favour of assessee. Issues Involved:1. Eligibility for deduction under Section 80-IA of the Income Tax Act.2. Whether the conditions under Section 80-IA(4) are cumulative.3. Whether the machinery used by the assessee was previously used by another establishment.4. Whether the assessee fulfilled the eligibility criteria for substantial renovation and modernization of transmission and distribution lines.Issue-wise Detailed Analysis:1. Eligibility for Deduction under Section 80-IA:The appellant-assessee, a private limited company involved in tea production and electricity distribution, claimed deductions under Section 80-IA for the assessment year 2008-09. The Assessing Officer disallowed the deduction, which was upheld by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. The main contention was whether the assessee was eligible for the deduction under Section 80-IA, which provides tax benefits for substantial renovation and modernization of transmission and distribution networks.2. Are the Conditions under Section 80-IA(4) CumulativeRs.The court analyzed whether the conditions under Section 80-IA(4) were cumulative. The provision outlines three distinct activities: (a) generating or generating and distributing power, (b) laying a network of new transmission or distribution lines, and (c) substantial renovation and modernization of existing transmission or distribution lines. The court concluded that these activities are disjoint and independent, meaning they are not cumulative. Therefore, fulfilling any one of these conditions is sufficient for claiming the deduction. The assessee fulfilled the condition under clause (c) for substantial renovation and modernization.3. Whether the Machinery Used by the Assessee was Previously Used by Another Establishment:The Revenue argued that the machinery and plant used by the assessee were previously used by its predecessor, Tata Tea Limited. Section 80-IA(3) stipulates that the undertaking should not be formed by transferring used machinery or plant to a new business. The court noted that the assessee acquired the business as a going concern, including the transmission lines. The court emphasized that the restriction on using previously used machinery does not apply if the machinery was used outside India or if less than 20% of the machinery was previously used, neither of which was relevant in this case.4. Whether the Assessee Fulfilled the Eligibility Criteria for Substantial Renovation and Modernization:The assessee claimed to have invested Rs. 50,30,952 in renovating and modernizing the transmission network during the financial year 2007-08, which was more than 50% of the book value of the plant and machinery as on 01/04/2004. The court referred to the statutory purpose of Section 80-IA, which aims to encourage investment in the renovation and modernization of transmission and distribution networks. The court found that the assessee's investment met the criteria for substantial renovation and modernization, thus qualifying for the deduction under Section 80-IA.Conclusion:The court held that the conditions under Section 80-IA(4) are not cumulative and that the assessee fulfilled the eligibility criteria for substantial renovation and modernization. Consequently, the court set aside the Tribunal's order and allowed the appeal, restoring the deductions under Section 80-IA. No order on costs was made.