Partnership firm gets section 80IA(4)(iii) deduction for industrial park operations despite acquisition from transferor company

ITAT Chennai allowed deduction u/s. 80IA(4)(iii) to partnership firm for industrial park operation and maintenance. The firm acquired a notified industrial park undertaking from transferor company as capital contribution. ITAT held that the date restriction in section 80IA(4)(iii) applies to scheme notification, not industrial park notification date. Transfer provisions under section 80IA(12) permit transferee to claim remaining deduction period. However, interest income from mandatory fixed deposits was excluded from industrial undertaking income and directed to be assessed separately under "income from other sources" with corresponding interest expenditure allowed as deduction.

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Issues Involved:

1. Eligibility for deduction under Section 80IA(4)(iii) of the Income-tax Act, 1961.
2. Notification requirements for transferor and transferee entities under Industrial Park Schemes.
3. Scope of income eligible for deduction under Section 80IA(4)(iii).
4. Treatment of interest income earned from bank deposits.
5. Classification of the assessee as a firm or an Association of Persons (AOP).

Issue-wise Detailed Analysis:

1. Eligibility for deduction under Section 80IA(4)(iii):

The central issue was whether the assessee, a partnership firm, was entitled to claim a deduction under Section 80IA(4)(iii) of the Income-tax Act, 1961. The Assessing Officer (AO) denied the deduction on the grounds that the firm was constituted after the specified date of March 31, 2011, as per the Industrial Park Scheme, 2002 and 2008, which stipulate eligibility only for undertakings notified between April 1, 1997, and March 31, 2011. However, the Commissioner of Income Tax (Appeals) [CIT(A)] concluded that the industrial park was duly approved and notified under the Industrial Park Scheme, 2002, and the transfer to the successor company allowed the deduction for the remaining period. The Tribunal upheld the CIT(A)'s decision, emphasizing that the date mentioned in the provision pertains to the notification of the scheme, not the formation date of the undertaking.

2. Notification requirements for transferor and transferee entities:

The AO argued that both the transferor and transferee entities must be notified under the Industrial Park Scheme to qualify for the deduction. The CIT(A) disagreed, stating that the transfer is related to the undertaking and not the entities themselves. The Tribunal supported this view, noting that the transferor's undertaking was duly notified and the necessary compliance with the Department of Industrial Policy and Promotion (DIPP) and CBDT was met. The Tribunal referenced CBDT Circular No. 10/2014, which clarifies that the transferee undertaking is eligible for deduction for the unexpired period post-transfer.

3. Scope of income eligible for deduction:

The AO restricted the deduction to income from operation and maintenance activities, excluding other income streams. The CIT(A) directed that the deduction should apply to the entire income of the undertaking, including rent and other operational income. The Tribunal agreed with the CIT(A), citing a CBDT circular and a government press release that support the view that the deduction applies broadly to the income generated by the undertaking, not limited to specific activities.

4. Treatment of interest income from bank deposits:

The AO treated interest income from bank deposits as not derived from the industrial undertaking, thus ineligible for the deduction. The CIT(A) allowed netting off interest income with interest expenditure. The Tribunal partially agreed with the AO, stating that interest income from bank deposits does not directly derive from the industrial undertaking. However, it acknowledged the linkage of these deposits to business activities, directing the AO to assess the interest income under "income from other sources" and allow corresponding interest expenditure as a deduction.

5. Classification of the assessee as a firm or AOP:

The AO classified the assessee as an AOP, citing unauthorized partnership formation by partner companies. The CIT(A) refuted this, confirming the entity's status as a partnership firm. The Tribunal upheld the CIT(A)'s decision, noting compliance with Section 184 of the Act and the authorization of partnership arrangements in the Memorandum of Association of partner companies.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow the deduction under Section 80IA(4)(iii) for the assessee, a partnership firm operating and maintaining an industrial park. The Tribunal's analysis emphasized the proper interpretation of the statutory provisions and the factual compliance of the assessee with the relevant schemes and notifications.

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