TaxTMI 
TaxTMI 
2005 (11) TMI 204
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.... in the facts and circumstances of the case in confirming the disallowance of the claim of the assessee for deduction under s. 80-IA of Rs. 2,96,09,123 on the income derived by it from the business of O&M of ports. 2(a) That the learned AO and CIT(A) erred in law and in the facts and circumstances of the case in confirming the disallowance of the claim made by the assessee for deduction under s. 80-IA notwithstanding the fact that the assessee's case is fully covered by the proviso to s. 80-IA(4)(i) and, as such, the assessee is eligible for deduction under the said section. 2(b) The learned AO and CIT(A) ought to have appreciated that as provided in the said proviso, the developer of the infrastructure facility (port) has transferred or in other words handed over the infrastructure facility to the assessee for operating and maintaining the same on its behalf in accordance with the agreement with the specified authorities, and as such, the claim of the assessee for deduction under s. 80-IA is perfectly justified and requires to be upheld. 3. That learned CIT(A) has erred in law and in the facts and circumstances of the case in confirming the disallowa....
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....nce Ports and Terminals Ltd. It would be pertinent to give a summary of the various agreements entered into by the assessee-company with the said developers of the ports. (i) Reg. : Kakinada Port : (a) International Seaports (P) Ltd. entered into a concession agreement with the Government of Andhra Pradesh on 19th March, 1999 for development, operation and maintenance of the Kakinada Deep Water Port. (b) This concession was subsequently assigned in favour of Cocanada Port Company (P) Ltd. The said Cocanada Port Company (P) Ltd. changed its name to Kakinada Seaports Ltd. on 18th Sept., 2001. (c) Kakinada Seaports Ltd. is a special purpose vehicle of International Seaports (P) Ltd., the awardees of the contract which was formed to execute the contract/concession agreement. As per the concession agreement, the project commencement was stated as 1st April, 1999, and the concession is valid upto March, 2019. (d) As per this agreement, the concessionaire is allowed total freedom in operations and the services can be subcontracted as and where found necessary. (e) Further, the concession agreement provided that on the expiry of the ....
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.... Maritime Board, a Board constituted under the Gujarat Maritime Board Act, 1981, on 28th July, 1999 to develop, maintain and operate the port infrastructure facilities located at Port Sikka, Jarimagar, on license basis on build, transfer, operate and maintain basis (b) In view of the above, the licensee, viz., RPTL subcontracted operations and maintenance services to the appellant-company as outsourcing is permissible under the port policy. (c) Accordingly, the assessee-company entered into an agreement with Reliance Ports and Terminals Ltd. (RPTL) vide LOC No. RPTL/Jam/Mech/LOC/010, dt. 24th June, 1999 and RPRL/Jam/Mech/LOC/00ll, dt. 1st July, 1999 to carry out various services of O&M of the jetty at Jamnagar developed by the aforesaid company. (d) Under the contract, the assessee was required to render the services of pilotage, mooring, radio operator, cleaning of hold, etc. in connection with the operation and maintenance of the port developed by Reliance Ports and Terminals Ltd. (e) The said services have been certified to be essential part of the maintenance and operation of the port facilities by Reliance Ports and Terminals Ltd. (....
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.... not provide that satisfying one or few conditions by the assessee will entitle it for claiming deduction under this section. The assessee is not in the development of any infrastructure facility. The assessee claims that it has maintained and operated various infrastructure facilities, more specifically the ports. Referring to ss. 10(23G) and 80-IA(12)(ca) of the Act, the AO commented that in the instant case the port refers to 'physical structure' like any other infrastructure, e.g., an airport, a railway station etc., the development or maintenance plus operation of port alone comes under the purview of s. 80IA. He further observed that the services or other activities rendered or the operations carried out at the port does not come under this ambit. The assessee-company merely entered into a contract for offering certain specialized services to other corporate entities, who are maintaining and operating the infrastructure facility. Referring to several agreements with the developers as mentioned above, the AO alleged that the assessee has been paid compensation for the specific services rendered as per the contractual obligations for which TDS has been deducted treating....
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....ed the issue by a chart appearing on p. 11 of the assessment order. It is in this context that the AO held that the claim of the assessee for deduction under s. 80-IA for both the assessment years under appeal for operating and maintaining infrastructure facility does not hold good and thus rejected. 7. The assessee went in appeal before the CIT(A). After considering the arguments advanced on behalf of the assessee and discussing in detail the observation of the AO mentioned in the assessment order, the CIT(A), in a nutshell, observed as under: (i) On going through the agreements entered into by the appellant, it appears that the appellant-company has done, if not the entire O&M operation, at least a part of O&M operation, in respect of 3 ports and, therefore, prima facie, the appellant should be eligible for deduction under s. 80-IA. (ii) However. s. 80-IA(4) stipulates other conditions and one of the conditions at (i) (b) is that the company should have entered into an agreement with the Central Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining the ne....
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....riginal developer had claimed deduction under s. 80-IA say, for six years, then for the remaining four years, the deduction under s. 80-IA can be given to the O&M operator, provided the same deduction is not claimed by the original developer for those four years. According to the CIT(A), the assessee could not bring on record any evidence to show that the original promoters have not claimed deduction under s. 80-IA for these years. On the above context, the CIT(A) held that the assessee has not satisfied the three conditions contained in s. 80-IA and the AO has rightly rejected the claim of deduction made by the assessee for these assessment years under appeal. Aggrieved, the assessee is in appeal before the Tribunal. 8.1 At the outset, the assessee's learned counsel pointed out the points of agreement and disagreements by the CIT(A) on the claim of deduction under s. 80-IA of the Act. He submitted that the assessee has complied with the requisite conditions specified in s. 80-IA(4) and as such is entitled to deduction under the said section. Referring to proviso to s. 80-IA(4)(i), he contended that the proviso to the said section carves out an exceptional situation where de....
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....terprise to operate and maintain the infrastructure facility on behalf of the transferor enterprise, meaning thereby that originally the transferor enterprise was required to operate and maintain such facility after development in accordance with the agreement with the specified authority. Thus, the proviso aims at qualifying the transferee enterprise, as enterprise eligible for deduction under this section provided the other conditions be satisfied. In such a case, the proviso does not require any direct agreement between the transferee enterprise and the specified authority. However, it provides that there should be an agreement between the transferor enterprise and the specified authority for development, operation and maintenance of the infrastructure facility and after development, the transferor enterprise should hand over the infrastructure facility to the transferee enterprise for the purpose of operation and maintenance on its behalf in accordance with the terms of the original agreement between the transferor enterprise and the specified authority. 8.2 Referring to the observations of the AO as well as the CIT(A), Shri S.K. Tulsiyan, learned counsel, pointed out that a....
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.... be owned by a company registered in India. In the instant case, the assessee is a limited company registered in India. As such, the enterprise operating and maintaining the port infrastructure is owned by a company registered in India. As regards the contention of the AO that the assessee is not operating and maintaining the entire infrastructure facility, but only rendering certain specific service under the contract, it was submitted that the services rendered by the assessee-company are essentially in the nature of operation and maintenance of the port infrastructure. This fact is corroborated by the confirmations received from the counter-parties to the agreements who have certified that the services rendered by the assessee are essential part of the maintenance and operation of the port facilities. These confirmations are placed at pp. 15, 16, 56 and 128 of the paper book. According to the learned counsel s. 80-IA(4), inter alia, qualifies an enterprise engaged in the business of operating and maintaining an infrastructure facility, for deduction under the said section and this is exactly the nature of the assessee's business. Even the learned CIT(A) at para 2.12 of the a....
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....his connection, reference was made to the Circular No. 779, dt. 14th Sept., 1999 (Expl.) (F.A. 1999). It was, therefore, contended that the CIT(A)s' contention that since the appellant-company is not required to transfer the infrastructure facility to the specified authority and thus it is not entitled to deduction under s. 80-IA(4), is misconceived. In this connection, the learned counsel invited our attention to the Boot policy of the Gujarat Maritime Board placed at pp. 58 to 75 of the paper book and also the agreement between the Gujarat Maritime Board and Reliance Ports & Terminal Ltd. placed at pp. 17-47 of the paper book. Finally, it was submitted that on perusal of the facts of the case, it would be evident that the assessee has complied with all the conditions specified in s. 80-IA(4) in respect of the O&M business of Kakinada port and Jamnagar Jetty and as such there is no reason why deduction under the said section should be denied to the assessee. In the alternative, the deduction under s. 33AC is allowable. 8.5 The learned Departmental Representative, on the other hand, placed reliance on the orders of the Revenue authorities and submitted that the claim of the ....
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....se carrying on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely: (a) it is owned by a company registered in India or by a consortium of such companies; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another ente....
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....owing grounds: (i) That the appellant has not entered into an agreement with the Government. (ii) That the appellant has not transferred the infrastructure facility to the Government. (iii) That it is not ensured that two persons are not getting deduction under s. 80-IA for maintenance of the same facility. As per s. 80-IA(4)(i), three conditions are required to be satisfied for claiming deduction under the said section. There is no dispute about the first condition that the assessee is a company registered in India. There is also no dispute about the third condition about the date of starting of operating and maintaining the infrastructure facility. However, the second condition is that it has to enter into an agreement with the Central or State Government or specified authority for (i) developing, (ii) maintaining and operating; or (iii) developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Government or specified authority within the stipulated period mentioned in the agreement. According to the Revenue authorities, this condition has not been fulfil....
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....ctions raised by the CIT(A) that the assessee-company had not entered into an agreement with the Government and that it has not transferred the infrastructure facility to the Government and hence deduction of claim under s. 80-IA is not eligible to it, are beyond the aims and spirit provided in the said proviso to s. 80-IA(4)(i). Our above view also gets support from Circular No. 779, dt. 14th Sept., 1999 (Expl.) (F.A. 1999), the relevant portion reads as under: "39.5 Concession for infrastructure facility and industrial parks may be availed of by persons operating and maintaining it 39.5.1. The provisions of s. 80-IA provide that an infrastructure facility developed by an enterprise has to be ultimately transferred to the Central, State Government or local authority or such other statutory body, as the case may be within the stipulated period. To further encourage private sector participation, it is now provided in the newly inserted proviso to cl. (i) of sub-s. (4) of s. 80-IA that any person other than a developer (i.e., the O&M Contractor) may undertake operation and maintenance, before handing such facility to the Central Government, State Governments or stat....
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....fied authority within the period stipulated in the original agreement between the developer and the authority. As such, the learned CIT(A)'s contention that since the appellant-company is not required to transfer the infrastructure facility to the specified authority, it is not entitled to deduction under s. 80-IA(4) is, in our opinion, misunderstood. The assessee has filed Boot policy of the Gujarat Maritime Board which throws light on this issue. Pages 33 and 39 of the Boot policy state as under: Page 33 Government will grant licence/concession to private developer to build, own, operate and manage port facilities for a specific period. The Government will permit the developer to create a mortgage/hypothecation of real estate as a security for lenders to the project. This permission will be limited to BOOT period, after which the assets will be transferred back to the Government. The ownership of the land and waterfront will always vest with the Government." Emphasis, italicised in print, supplied). Page 39 "(III) Ownership rights of different parties 1. Ownership rights of the Government: The Government is vested with sovereign rights as owner, ....
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.... the decision of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC) wherein it has been held that the deduction provisions should be construed liberally. It has been further held as under: "A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it." 14. The other objection raised by the CIT(A) is that it is not ensured that two persons are not getting deduction under s. 80-IA for maintenance of the same facility. This objection also has no basis to stand on. As stated above and admitted by the CIT(A) himself that at least a part of operation and maintenance in respect of infrastructure facility of three ports was being done by the assessee entitling it for deduction under s. 80-IA. The assessee's claim was restricted to its performance of job and it was concerned with that only. Therefore, this objection of the CIT(A) is not acceptable. 15....
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.... in the nature of operation and maintenance of the port infrastructure. Sec. 80-IA(4), inter alia, qualifies an enterprise engaged in the business of operating and maintaining an infrastructure facility for deduction under the said section and this is exactly the nature of the assessee's business and hence, in our considered opinion, the assessee is eligible for deduction in terms of proviso to s. 80-IA(4)(i) of the Act. Hence, we direct the AO to compute the deduction allowable under s. 80-IA(4) in respect of the profits pertaining to Kakinada Port and Jamnagar Jetty Port. 17. Since we have accepted the main contention of the assessee with regard to the profits earned on account of Kakinada Port and Jamnagar Jetty, the alternative contention of the claim of deduction under s. 33AC need not be considered. However, with regard to the income from Dahej Port operation, the case falls outside the proviso of s. 80-IA(4) since O&M of infrastructure facility has commenced prior to 1st April, 1999. It may not be out of place to mention that the deduction under s. 80-IA with regard to the profits from other two ports was also based upon proviso which is applicable only to cases where....
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....day of April. 2001, and ending before the 1st day of April, 2006. The primary objection of the AO is that the assessee is engaged in various port operations and that although the assessee is using ships in its business but operation of ships is not yielding revenue. In this regard, it is pertinent to note that the assessee has never denied that it is engaged in port operations. Rather, the assessee-company's engagement in the business of port operation and maintenance is the very basis for claiming deduction under s. 80-IA. This, however, does not alter the fact that the assessee is also engaged in the business of operation of ships (i.e., tugs), which forms an integral and inseparable part of its business of port operation and maintenance. Operation, of ports without tugs cannot be conceived. Reference was made to object-clause of the memorandum of the assessee-company at pp. 194 to 195 of the paper book, in particular cl. (3) of the main objects of the company, p. 195 and submitted that operation of ships is one of the main objects of the company. As such, the assessee has complied with the first part of sub-s. (1) of s. 33AC which qualifies a public limited company with t....
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.... to the special reserve for the purposes of the business of the assessee other than for distribution of dividends or profits or for remittance outside India as profits or for creation of any asset outside India until the acquisition of a new ship as contemplated in cl. (a) of sub-s. (2) of s. 33AC. Thus, the assessee is entitled and empowered by cl. (b) of sub-s. (2) of s. 33AC to utilise the profits credited to the special reserve for the purposes of its business (other than for acquiring the ship) until the acquisition of a new ship except by way of distribution of dividends or profits or for remittance outside India as profits or for creation of any asset outside India. In other words, except the prohibited items in cl. (b) of sub-s. (2) the assessee is free to use the amount credited to the special reserve for the general purposes of the business of the assessee till it acquires a new ship. Thus, it can be seen that it is not a pre-condition at the threshold level that the assessee should own a ship for claiming the deduction under s. 33AC, but the assessee should be a Government company or a public company with the main object of carrying on the business of operation of ships.....
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....the tugs cannot be equated with operation of ships. In this regard, it is submitted that the term 'ship' per se has not been defined in the IT Act, 1961. However. 'ship' has been defined under Appendix I to r. 5 of the IT Rules, 1962 as under: 'IV. Ships (1) Ocean-going ships including dredgers, tugs, barges, survey launches and other similar ships used mainly for dredging purposes and fishing vessels with wooden hull. (2) Vessels ordinarily operating on inland waters, not covered by sub-item (3) below. (3) Vessels ordinarily operating on inland waters being speed boats.' As such, tugs, are also ships in accordance with the express definition provided under Appendix I to r. 5 of the IT Rules, 1962, and profits earned from operation of tugs will qualify for deduction under s. 33AC of the Act. Further, the assessee is also operating its own tugs at the Dahej Port and the Kakinada Port. These tugs have been registered as ships under s. 34 of the Merchant Shipping Act, 1958. As such, it is confirmed that both under the IT Rules, 1962 and under the Merchant Shipping Act, 1958, tugs are considered as ships. Aga....
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....' itself suggests that it is a public limited company and not a private limited company. The allegation of the CIT(A) is baseless and without taking into consideration the factual aspects of the case. Another ground taken by the AO in denying the assessee's claim under s. 33AC is that the books of account and records are not maintained in such a way to ascertain the profits derived from the operation of ships. In this regard, it is most humbly submitted that no opportunity of being heard was given to the assessee. The business of operation of tugs is a part of the assessee's business of port operation and maintenance and as such, the overall profit from port operation was depicted in the P&L a/c of the company. However, the manner of presentation of profits in the P&L a/c cannot form a basis of denying deduction under s. 33AC of the Act. It is prayed that if an opportunity is given to the assessee, it is in a position to clarify the issue and work out the profits from the business of operation of ships and its claim under s. 33AC of the Act". 19. On the other hand, the learned Departmental Representative relied upon the orders of the authorities below. 20....