Commercial character of airport receipts and expenditure governed depreciation, deductibility, capital treatment and taxability across the disputed operational items.

Unadjudicated additional grounds on alleged accommodation entries and written-off investments require fresh decision by the first appellate authority because a speaking appellate order must address the points raised and reasons. The airport-operation concession fee was treated as a depreciable intangible commercial right, while contractual retrenchment compensation was revenue expenditure rather than voluntary-retirement expenditure. Passenger development fee and temporary investment gains from project funds were characterised as capital-linked receipts adjustable against project cost. No disallowance for exempt-income expenditure was permissible without exempt income. Security-component collections held in escrow were not taxable income due to absence of beneficial ownership. Airport operational infrastructure qualified as plant and machinery under the functional test.

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Issues: (i) Whether unadjudicated additional grounds concerning alleged accommodation entries and investment written off required restoration to the first appellate authority; (ii) Whether an upfront airport-operation concession fee was depreciable as an intangible asset; (iii) Whether retrenchment compensation paid to the Airports Authority of India was fully deductible as revenue expenditure; (iv) Whether passenger development fee was a non-taxable capital receipt; (v) Whether disallowance under section 14A read with Rule 8D could be made despite absence of exempt income; (vi) Whether gains from temporary investment of idle project funds were adjustable against capital work-in-progress; (vii) Whether Passenger Service Fee-Security Component constituted the assessee's taxable income; (viii) Whether airport operational infrastructure qualified as plant and machinery for depreciation.

Issue (i): Whether unadjudicated additional grounds concerning alleged accommodation entries and investment written off required restoration to the first appellate authority.

Analysis: The additional grounds were specifically raised before the first appellate authority, but its order contained no findings on them. Section 250(6) requires a speaking appellate order stating the points for determination, decisions and reasons. Non-adjudication of grounds violates that statutory obligation and principles of natural justice.

Conclusion: The unadjudicated additional grounds were restored to the first appellate authority for decision on merits after granting opportunity of hearing, in favour of the assessee.

Issue (ii): Whether an upfront airport-operation concession fee was depreciable as an intangible asset.

Analysis: The concession arrangement conferred exclusive commercial rights to operate, maintain, develop and collect charges from the airport. The fee did not acquire tangible assets but acquired a licence-like business or commercial right falling within the intangible-asset category.

Conclusion: Depreciation on the upfront concession fee was allowable under section 32(1)(ii), in favour of the assessee.

Issue (iii): Whether retrenchment compensation paid to the Airports Authority of India was fully deductible as revenue expenditure.

Analysis: The payment arose from a contractual obligation under the airport-development agreement and was made to the Airports Authority of India for its employees, rather than under a voluntary retirement scheme of the assessee's own employees. It substituted recurring salary and employee-benefit expenditure and retained revenue character.

Conclusion: The payment was allowable as revenue expenditure and section 35DDA was inapplicable, in favour of the assessee.

Issue (iv): Whether passenger development fee was a non-taxable capital receipt.

Analysis: The development fee was statutorily collected and earmarked solely for modernisation and development of airport infrastructure. Its character was that of a levy for specified capital purposes rather than consideration for services or business revenue.

Conclusion: The development fee was a capital receipt and not taxable as revenue income, in favour of the assessee.

Issue (v): Whether disallowance under section 14A read with Rule 8D could be made despite absence of exempt income.

Analysis: No exempt income was earned during the relevant year; the gains from debt mutual funds had been offered to tax or adjusted against project cost. In the absence of exempt income, the foundational condition for disallowance under section 14A was absent.

Conclusion: No disallowance under section 14A read with Rule 8D was permissible, in favour of the assessee.

Issue (vi): Whether gains from temporary investment of idle project funds were adjustable against capital work-in-progress.

Analysis: The borrowed funds were specifically raised for airport development and temporarily invested pending project utilisation. The financing arrangements restricted their deployment and required investment income to be credited to the project account, establishing an inextricable nexus with the implementation of the project.

Conclusion: The short-term capital gains from temporary investment of project funds were adjustable against project cost and not separately taxable, in favour of the assessee.

Issue (vii): Whether Passenger Service Fee-Security Component constituted the assessee's taxable income.

Analysis: The security component was collected in a fiduciary capacity, deposited in an escrow account and earmarked exclusively for airport-security expenditure. The assessee had neither beneficial ownership nor discretion over its use; any surplus or deficit was governed by the prescribed regulatory arrangement.

Conclusion: Passenger Service Fee-Security Component did not constitute taxable income of the assessee, in favour of the assessee.

Issue (viii): Whether airport operational infrastructure qualified as plant and machinery for depreciation.

Analysis: Runways, taxiways, aprons, parking bays and allied infrastructure were specially designed and indispensable operational tools for aircraft landing, movement and airport functioning. Applying the functional test, they could not be treated merely as ordinary civil structures or buildings.

Conclusion: The airport operational infrastructure qualified as plant and machinery for the applicable depreciation, in favour of the assessee.

Final Conclusion: The assessee's substantive tax positions on all the Revenue's challenged additions and disallowances were sustained, while the omitted additional grounds require fresh adjudication by the first appellate authority.

Ratio Decidendi: A receipt or expenditure must be characterised according to its real legal and commercial nature: contractual payments substituting recurring business costs are revenue expenditure, project-linked funds and receipts must follow their earmarked capital purpose, and amounts collected without beneficial ownership do not accrue as taxable income.

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