TaxTMI 
TaxTMI 
2026 (2) TMI 1122
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....heard together and are being disposed of by this consolidated order. 2. The assessee, Ascendas Panvel FTWZ Private Limited, is engaged in the business of development, operation and maintenance of infrastructure facilities in a notified Special Economic Zone and Free Trade Warehousing Zone situated at Panvel, Maharashtra. The genesis of the controversy lies in the claim of deduction under section 80-IAB on profits derived from operation and maintenance of six fully operational warehouses located in the FTWZ, forming part of a sector-specific SEZ notified under the Special Economic Zones Act, 2005. 3. The SEZ in question was originally conceived and developed by Arshiya Limited, which was granted in-principle approval on 14.11.2008, formal approval on 27.02.2009 and was subsequently notified as a "Developer" for setting up a sector-specific SEZ for FTWZ at Sai Village, Panvel Taluk, Raigad, Maharashtra, vide Gazette Notification dated 04.05.2009 issued by the Ministry of Commerce and Industry, Department of Commerce, Government of India. 4. On 13.10.2016, the assessee entered into a co-development agreement with Arshiya Limited for undertaking authorised operations, includin....
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.... filed by the Appellant with the Director (SEZ), Department of Commerce, accepting the terms and conditions stated in the above approval letter issued by the Government. 9 18.04.2017 Acceptance letter as submitted before the Department of Commerce, filed with the Development Commissioner, Seepz SEZ. 10 03.02.2018 Appellant entered into a lease agreement with Arshiya Limited, in terms of which, the six operating warehouses of Arshiya Limited in FTWZ, has been leased to the Appellant. 6. For Assessment Year 2018-19, the assessee filed its return of income on 29.11.2018 declaring total income of Rs. 26,45,480 after claiming deduction of Rs. 2,44,41,889 under section 80-IAB. Similar deductions were claimed in Assessment Years 2020-21 and 2021-22 amounting to Rs. 18,20,75,033 and Rs. 19,93,03,919 respectively. All three years were selected for scrutiny and the Assessing Officer disallowed the deduction under section 80-IAB in each year. 7. The learned counsel for the assessee submitted that the disallowance was made on wholly erroneous understanding of section 80-IAB and the SEZ Act, 2005. It was submitted that the Assessing Officer proceeded on the fundamentally....
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....ew conditions while interpreting the second proviso to section 80-IAB(2), namely, that the entire SEZ must be fully developed before any transfer of operation and maintenance could occur, and that there must be absolute extinguishment of rights by the original developer. It was submitted that none of these conditions find place in the statutory language and that the CIT(A) effectively legislated by adding words to the provision. 11. It was emphasized that development, operation and maintenance of SEZ infrastructure is a continuous and overlapping commercial activity, and the SEZ Act itself contemplates approval of co-developers during the development phase. It was submitted that insisting upon completion of the entire SEZ as a pre-condition would render section 3(12) of the SEZ Act otiose and defeat the very purpose of the incentive scheme. Reliance was placed on settled principles that beneficial provisions must be construed liberally and provisos cannot be interpreted to defeat the main enactment. The learned counsel also submitted that for Assessment Year 2018-19, there was a serious violation of principles of natural justice, as the show cause notice proposing disallowance w....
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....s is not merely one of arithmetical eligibility, but one that turns upon the correct understanding of the legislative architecture of section 80-IAB of the Income-tax Act, 1961, read integrally and harmoniously with the Special Economic Zones Act, 2005, which is the parent statute that conceived, structured, and statutorily embedded this incentive. Any adjudication divorced from that architecture would, in our view, be fundamentally flawed. 17. At this point for the sake of ready reference, the relevant provision of Section 80-IAB is reproduced hereunder:- "80-IAB(1) Where the gross total income of an assessee, being a Developer, includes any profits and gains derived by an undertaking or an enterprise from any business of developing a Special Economic Zone, notified on or after the 1st day of April, 2005 under the Special Economic Zones Act, 2005, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. Provided that the provisions of thi....
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....gible to claim deduction equal to 100% of the profits and gains derived from such business for ten consecutive assessment years out of a block of fifteen assessment years. Further, the second proviso to sub-section (2) specifically provides that in case of transfer of operation and maintenance of an SEZ by a developer to another developer, the transferee developer becomes eligible to claim deduction for the remaining period in the ten consecutive assessment years. 19. However, the term "developer" is not independently defined in section 80-IAB of the Act. However, the Explanation to section 80-IAB mandates that the meanings of "developer" and "Special Economic Zone" shall be the same as assigned under the SEZ Act, 2005. 20. In this context, it would be relevant to refer to the following provisions of the SEZ Act, 2005: (i) Section 2(g) defines "Developer" to mean a person who has been granted by the Central Government a letter of approval under sub-section (10) of section 3 of the SEZ Act, and includes an Authority and a Co-Developer. (ii) Section 2(f) defines a "Co-Developer" to mean a person who has been granted by the Central Government a letter of approv....
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....ce: Parliament did not merely grant a tax incentive in abstract, but consciously embedded it within the SEZ statutory ecosystem, importing definitions, concepts, and operational realities from the SEZ Act into the Income-tax Act itself. This intent is made explicit by the Explanation to section 80-IAB, which mandates that the expressions "Developer" and "Special Economic Zone" shall have the meanings respectively assigned to them in clauses (g) and (za) of section 2 of the SEZ Act, 2005. 22. Once this statutory bridge is crossed, the controversy regarding the assessee's status as a "co-developer" loses much of its supposed complexity. Section 2(g) of the SEZ Act defines "Developer" to mean a person granted a letter of approval under section 3(10) and expressly includes a "Co-Developer". Section 2(f) defines "Co-Developer" as a person granted a letter of approval under section 3(12). Section 3(11) and section 3(12) together contemplate a structured statutory mechanism by which a person, after entering into an agreement with the Developer, is approved by the Central Government to provide infrastructure facilities or undertake authorised operations in the identified area of the SEZ....
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....t so transferred. 25. The learned CIT(A) has read into this proviso two cumulative "legal tests": first, that the entire SEZ must be fully developed before any transfer of operation and maintenance can be recognised; and second, that such transfer must involve absolute extinguishment or parting of rights by the original developer in favour of the transferee. With respect, we find no statutory warrant for either of these judicially introduced conditions. 26. The proviso does not employ the phrase "entire SEZ must be completely developed", nor does it predicate the availability of deduction to the transferee upon completion of development in every parcel or phase of the SEZ. What it requires is that a Developer "develops a Special Economic Zone" and thereafter "transfers the operation and maintenance of such Special Economic Zone" to another Developer. The emphasis of the proviso is on continuity of the incentive attached to the SEZ project and the period of eligibility, not on imposing an artificial temporal sequence between development and operation. To insist that development must reach a state of absolute completion before any transfer of operation and maintenance can be re....
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....term arrangements. The statute recognises and legitimises such arrangements. To import concepts of absolute conveyance drawn from property law into a provision dealing with operational transfer within a regulated SEZ environment is to misconstrue the legislative intent. 30. In this context, the lease agreement dated 03.02.2018 assumes significance. As placed on record, it evidences a long-term arrangement whereby six fully operational warehouses were leased to the assessee for an initial period of thirty years, renewable for a further thirty years at the assessee's option, against substantial consideration running into hundreds of crores. The assessee assumed full responsibility for operation and maintenance of these warehouses. Such an arrangement cannot be dismissed as a mere revocable or cosmetic delegation. It constitutes, in substance and in law, a transfer of operation and maintenance rights in respect of the specified SEZ infrastructure for a substantial and enduring period. 31. The objection regarding Form 10CCB, particularly the response in clause 16(c), also does not advance the Revenue's case. The assessee has explained, with specificity, the technical design of th....