ITAT allows Section 80IA deduction for cargo handling facilities as integral part of airport infrastructure operations

The ITAT Delhi ruled in favor of the assessee company regarding Section 80IA deduction for cargo handling facilities at an airport. The tribunal held that cargo handling services are integral to airport operations and fall within the infrastructure facility definition under Section 80IA. The AO erred in restrictively interpreting airport facilities as isolated structures, when airport functionality encompasses all supplemental services including cargo handling, ground handling, and passenger services. The tribunal confirmed the assessee, being an Indian incorporated company owning the infrastructure facility, satisfied eligibility conditions. Additionally, regarding TDS provisions under Section 194C on concession fees, the tribunal ruled no disallowance was required under Section 40(a)(ia) for year-end provisions as no actual debt accrued to the payee.

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Issues Involved:
1. Eligibility for deduction under Section 80IA of the Income Tax Act.
2. Disallowance under Section 40(a)(ia) of the Income Tax Act.

Summary:

Issue 1: Eligibility for Deduction under Section 80IA

The Revenue appealed against the order allowing the assessee's claim for deduction under Section 80IA, arguing that the assessee's business activities of ground handling and cargo handling services do not qualify as infrastructure facilities under Section 80IA. The AO contended that the agreement was not directly with the Government of India but with Bengaluru International Airport Limited (BIAL), and the assessee was a reconstitution of a previous joint venture between Air India Ltd. and SATS Ltd. Singapore.

The Tribunal held that the cargo handling facility is indeed an infrastructure facility as per Section 80IA, referencing previous judgments such as Menzies Aviation Bobba (Bangalore) Pvt. Ltd. and Celebi Delhi Cargo Terminal. It was determined that the functionality of an airport includes all activities incidental or supplemental to the transportation of passengers or cargo, thus encompassing ground and cargo handling services.

The Tribunal also noted that the assessee's incorporation was approved by the Government of India, evidenced by a letter from the Ministry of Aviation and the Cabinet's approval. The agreement with BIAL, which had the authority from the Government of India, was deemed sufficient for the purposes of Section 80IA. The Tribunal rejected the AO's argument that the assessee was merely a reconstitution of the previous joint venture and upheld the CIT(A)'s decision that the assessee met all conditions for the deduction under Section 80IA.

Issue 2: Disallowance under Section 40(a)(ia)

The AO disallowed Rs. 3.82 crores under Section 40(a)(ia) for non-deduction of tax at source on a provision made for concession fees. The assessee argued that the provision was based on best estimates and reversed when actual bills were received, at which point TDS was deducted. The CIT(A) deleted the disallowance, and the Revenue appealed.

The Tribunal agreed with the CIT(A), noting that the provision did not create a debt in favor of BIAL as the concession fee was uncertain and more akin to a royalty. The Tribunal referenced the CBDT circular no. 37/2016, which allows for deductions on enhanced business profits due to specific disallowances, making the issue academic. Additionally, the Tribunal cited the Karnataka High Court's decision in Toyota Kirloskar Motor (P.) Ltd., supporting the view that no tax is levied on income that does not result.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the deduction under Section 80IA and delete the disallowance under Section 40(a)(ia). The order was pronounced in open court on 01.11.2023.

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