2026 (2) TMI 642 - HC - Income Tax

Fuel farm infrastructure status and hedge swap interest deductibility affirmed; tax deductions upheld for airport fuel facilities and swaps

Whether a fuel farm constitutes an infrastructure facility and integral part of an airport is answered by applying the functional indispensability test ... Deduction u/s 80-IA - Claim denied as assessee has not satisfied conditions for availing benefit under said section since assessee has entered into agreement with a Corporate and not with authorities as prescribed in said Section - fuel farm is located outside the airport premises and does not constitute an integral part of the airport - ambit of an “infrastructure facility” - Assessee has established a fuel farm facility at the Bangalore International Airport AND he respondent has entered into an agreement with BIAL for developing, operating, and maintaining the aviation fuel facility - HELD THAT:- As decided in Menzies Aviation Bobba (Bangalore) (P.) Ltd [2021 (9) TMI 606 - KARNATAKA HIGH COURT] M/s. Bangalore International Airport Limited (BIAL) is a statutory body. Upon perusal of the layout map of the airport, the cargo complex has been held to constitute an infrastructure facility. It has been further held that the establishment of the cargo complex and the fuel farm is in accordance with the Concession Agreement entered into between BIAL and the Government of India. By referring to sub-section (2) of Section 2 of the Aircraft Act, 1934, it has been held that the cargo complex forms part of the aerodrome. Contention of the Revenue that the respondent has no agreement with any statutory body, as one of the requisite conditions for claiming deduction under Section 80-IA of the Act, is unsustainable. BIAL has been held to be a statutory body, and the agreement entered into between the respondent–assessee and BIAL satisfies the requisite conditions contemplated under Section 80-IA of the Act. Second contention of the Revenue that the fuel farm facility does not form part of the airport is also not acceptable. An airport is held to be an infrastructure facility in terms of Explanation 2 to Section 80-IA of the Act. The term “airport” is not defined under the Act. However, the expression “aerodrome” is defined under the Aircraft Act, 1934. We have no hesitation in holding that the supply of fuel to aircraft is an integral part of airport operations, without which an airport cannot function. The fuel farm is, therefore, an indispensable component of airport activity. Under the Concession Agreement entered into between the Government of India and BIAL, BIAL has been expressly authorised to enter into agreements for developing aviation fuel facilities within the airport through oil companies. This, in our considered view, clearly indicates that the fuel farm is an integral part of the airport facility. The finding of this Court in Menzies Aviation Bobba (Bangalore) (P.) Ltd [2021 (9) TMI 606 - KARNATAKA HIGH COURT] though rendered in the context of cargo handling services, applies to the fuel farm facility with equal force and for the very same reasons. Allowance of deduction u/s 36(1)(iii) in respect of interest on Hedge (Swap) transactions - The said issue has been answered by the Tribunal by following the judgment of the Hon’ble Supreme Court in Core Health Care Ltd. [2008 (2) TMI 8 - SUPREME COURT] Revenue is not in serious dispute with regard to the applicability of the said judgment to the facts of the present case. Issues: (i) Whether the fuel farm facility qualifies as an 'infrastructure facility' and an integral part of the airport for entitlement to deduction under Section 80-IA(4) of the Income-tax Act, 1961; (ii) Whether interest on Hedge (Swap) transactions is allowable as deduction under Section 36(1)(iii) of the Income-tax Act, 1961.Issue (i): Whether the fuel farm facility qualifies as an infrastructure facility and forms an integral part of the airport for purposes of deduction under Section 80-IA(4) of the Income-tax Act, 1961.Analysis: The fuel farm was developed and operated pursuant to a Service Provider Right Holder Agreement granted under the concessionary powers of the airport concessionaire which holds exclusive rights from the Government. The expression 'aerodrome' in Section 2(2) of the Aircraft Act, 1934 is inclusive and encompasses buildings and structures appertaining to airport operations. Supply of aviation fuel is functionally essential to airport operations and the concession framework authorises the concessionaire to grant service provider rights for aviation fuel facilities. Prior authoritative judicial treatment applying the same legal tests to airport-related services has been followed.Conclusion: The fuel farm facility qualifies as an infrastructure facility and an integral part of the airport; entitlement to deduction under Section 80-IA(4) of the Income-tax Act, 1961 is in favour of the assessee.Issue (ii): Whether interest on Hedge (Swap) transactions is allowable as deduction under Section 36(1)(iii) of the Income-tax Act, 1961.Analysis: The Tribunal applied the binding decision of the Hon'ble Supreme Court on the allowability of interest on such hedging transactions and followed that precedent in allowing the deduction.Conclusion: The allowance of interest on Hedge (Swap) transactions under Section 36(1)(iii) of the Income-tax Act, 1961 is in favour of the assessee.Final Conclusion: Both substantial questions of law - entitlement to deduction under Section 80-IA(4) for the fuel farm facility and allowability of interest on Hedge (Swap) transactions under Section 36(1)(iii) - are answered in favour of the assessee and the Tribunal's order is sustained; the appeals are dismissed.Ratio Decidendi: A facility that is functionally indispensable to airport operations and developed/operated under authorization granted to the airport concessionaire (including by service provider agreements) qualifies as an 'infrastructure facility' within Section 80-IA(4) of the Income-tax Act, 1961, and interest on hedging transactions is allowable where governed by controlling Supreme Court precedent.