2019 (2) TMI 2083 - HC - Income Tax

Deduction u/s 80IA - deductions to the assessee who is an undertaking which develops and operates or maintains and operates an Industrial Park - HELD THAT - In the present case, the assessee had already developed the Industrial Park and as many as 21 units were already operational as admitted by the revenue. These units were sold during the assessment year in question. The profit arising out of such sale was accounted for in the said year and offered to tax. As therefore, that the assessee was entitled to deduction in respect of such profit. The assessee was following Percentage Completion Method and not Project Completion Method and was therefore obliged to account for the revenue generated from the sale of the units during the year in question itself. Any other view would amount to the assessee offering the income arising out of the sale of the units to tax during the current year on which no deduction u/s 80IA of the Act would be available under the Act. ITAT has not erred allowing claim of deduction u/s 80IA(4) in favour of the assessee for the impugned assessment year. Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 80IA(2) and Section 80IA(4) of the Income Tax Act, 1961.
2. Interpretation of Income Tax Rule 18C and the Industrial Parks Scheme 2008.

Analysis:

Issue 1:
The appellant, a private limited company engaged in Infrastructure Development Project, claimed a deduction under Section 80IA(4)(iii) of the Income Tax Act for the assessment year 2007-08. The Assessing Officer rejected the claim citing non-compliance with essential conditions of the scheme. The Tribunal, however, allowed the appeal, noting that the assessee had already allotted 21 units in the Industrial Park, which were operational, and had obtained a certificate from the local authority. The Tribunal held that the assessee had fulfilled the conditions for deduction under Section 80IA(4) and that the profits generated were eligible for deduction. The High Court concurred, emphasizing that the assessee had developed the Industrial Park and sold units during the relevant period, making the profits eligible for deduction as per the Percentage Completion Method. The Court referred to Gujarat High Court's judgment, highlighting the developer's responsibility to provide infrastructure and facilitate industrial growth, not to ensure operational units post-sale. Consequently, the Court dismissed the Income Tax Appeal.

Issue 2:
The Tribunal interpreted sub-Rule 18C of the Income Tax Rules 1962, emphasizing that the benefit under Section 80IA(4) was available to undertakings that had begun developing the Industrial Park. The Tribunal considered the sale of 21 units by the assessee during the relevant period, accounting for profits in the same year, as meeting the conditions for deduction. It also noted that the Central Government could withdraw approval if conditions were not met. The High Court upheld this interpretation, stating that the assessee had fulfilled the procedural requirements and was entitled to the deduction. The Court highlighted the importance of the developer's role in setting up the Industrial Park and facilitating industrial activities, rather than ensuring ongoing operations of units post-sale. The Court's decision aligned with the Tribunal's findings, leading to the dismissal of the Income Tax Appeal.