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2017 (11) TMI 1227
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....ompany was allowed to buy electric power from the Government in bulk, use it for its own purpose, and distribute the balance power to the residents of Munnar hill-station. So the predecessor company had an elaborate network of transmission lines. 3. Formed in March, 2005, the assessee company took over the power distribution network as well as the tea plantations. 4. For the assessment year 2008-09, the assessee filed its return of income declaring a total income of Rs. 2,45,83,170/-. Later, it filed a revised return declaring an income of Rs. 1,49,74,810/-. But the assessing officer selected the assessee company for scrutiny and determined the total income at Rs. 6,09,20,556/-, through Annexure A proceedings, after making certain disallowances. 5. Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) II, Kochi, who allowed the appeal in part through Annexure B order. Further aggrieved, the assessee approached the Income Tax Appellate Tribunal, Cochin bench ("the Tribunal"). Rest of the issues either held in assessee's favour or not pressed by assessee itself, only one issue remained for the Tribunal to decide: Is the Assessing Officer's d....
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....-IA? Discussion: 13. Indeed, the facts are not in dispute. The assessee took over a going concern: a tea estate with all its incidental businesses, too. A power distribution system with a network of transmission lines is part of that acquisition. The assessee maintained that in 2007-08 it renovated and modernised the transmission lines by investing huge amounts. So for the assessment year 2008-09, it claimed tax benefits under section 80-IA of the Act. Among other items, the Assessing Officer disallowed the deduction. The Appellate Authority and the Appellate Tribunal concurrently upheld the Assessing Officer's findings on the disallowance. 14. As on 01/04/2004, the assessee's plant and machinery were valued at Rs. 88,39,340/-. In the financial year 2007-08, the assessee invested Rs. 50,30,952/-. Because of this investment, the assessee asserts that the transmission network has been renovated and modernised. Accordingly, it also justifies its claim for tax deductions under section 80-IA of the Act. 15. The Revenue frontally attacks the assessee's claim for deduction on two grounds: (1) the machinery on the plant existing before the alleged renovation or modernisation was u....
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....ng conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an [* * *] undertaking which is formed as a result of the re-establishment, re-construction or revival by the assessee of the business of any such [* * *] undertaking as is referred to in Section 33-B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose: [Provided that nothing contained in this sub-section shall apply in the case of transfer, either in whole or in part, of machinery or plant previously used by a State Electricity Board referred to in clause (7) of Section 2 of the Electricity Act, 2003 (36 of 2003), whether or not such transfer is in pursuance of the splitting up or reconstruction or reorganisation of the Board under Part XIII of that Act.] Explanation 1.-For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used f....
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....y of April, 2004.] (italics supplied) The Provision in Plain English: (a) A linguistic Aside: 17. The Income Tax Act is one enactment that can shatter anybody's linguistic confidence or competence. Each provision- inevitably, though-runs into pages, superordinate, subordinate, and sub-subordinate clauses piling up in syntactic curlicues. With annual addition, the provisions lose coherence and defy comprehension. Neither a lawyer nor a Judge can claim with comfort, if not with confidence, that he could comprehend the provision at least on a rereading; the taxpayer is surely lost in in a maze of meandering phrases. It is therefore time for the Revenue to host on their website a plain English version of the enactment-only a suggestion, however. 18. Even the native speakers of the language-notably the USA and the UK-have re-drafted, and have been re-drafting, the bulk of their legislation in plain language. In the USA, the Federal and the State Governments apart, the Uniform Law Commission, "a non-profit organisation of volunteers promoting uniformity of laws throughout the United States", has drafted in legal-linguistic experts like Bryan A Garner a....
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....t was not used in India before its installation by the assessee; (b) the machinery or plant is imported into India; and (c) no depreciation is allowed or allowable under this Act on the machinery or plant in computing the total income of any person for any period before the assessee installed the machinery or plant. Explanation 2.-the restriction under clause (ii) will not apply if the used machinery transferred to the assessee's new business does not exceed twenty per cent of the total value of the machinery or plant used in the new business. (4) This section applies to- (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating, and maintaining any infrastructure facility fulfilling these conditions: (a) it is owned by a company registered in India, by a consortium of such companies, by an authority, a board, a corporation, or any other body established under any Central or State Act; (b) it has contracted with the Central Government, or a State Government, or a local authority, or any other statutory body for (i) developing; (ii) operating and mainta....
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....work of transmission or distribution lines between the same period. 21. The Revenue, indeed, has contended that these three contingencies are cumulative. We are afraid they are not. The clauses (a), (b), and (c) are disjointed and, in fact, unconnected. Clauses (b) and (c), especially, cannot go together. Under clause (b) a network of new transmission or distribution lines must be laid, whereas under clause (c), they must be renovated or modernized. Laying down a new network of transmission lines under clause (b) and simultaneously renovating them under clause (c) exposes a temporal impossibility and linguistic incongruity. 22. First, temporally, we can only renovate what has already been in use; second, linguistically, we cannot renovate what is new. So legislative intent is unmistakable, and the conditions are disjoint and independent. The assessee's fulfilling any one of them will suffice. And the assessee here did fulfil clause (c). 23. Now, we may, as well examine whether the conditions under sub-Section (4)(i) are cumulative. Clause (a) mandates that the company must have been registered in India under any Central or State Act. It should contract with the Central Gov....
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....ion or distribution lines during the period beginning on 01-04-2004 and ending on 31-3-2006. 'Substantial renovation and modernisation' means 50 per cent increase in the book value of plant and machinery in the network of transmission or distribution lines, as on 01-04-2004". (Italics supplied) 29. From the above extract, we can gather that Section 80-IA has a salutatory purpose of encouraging investment in renovation and modernization of the transmission and distribution network. Whose Benefit Does the Provision Exist For? 30. We must acknowledge that the deduction under section 80-IA is a profit-linked incentive, for the very Chapter VI-A provides for the incentives of tax deductions. The 1961 Act broadly provides for two types of tax incentives: (a) investment linked incentives; (b) profit linked incentives. So, according to the Supreme Court in Liberty India v. CIT, 183 TAXMAN 349 (SC) when Section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What merits the incentives under Section 80-IA/80-IB is the generation of profits (operational profits). 31. Further, if we look a....