2017 (10) TMI 779 - HC - Income Tax

Qualification for deduction under Section 80IA - infrastructure facility transferred to another enterprise for the purpose of operating and maintaining such facility - whether once the assessee had transferred the infrastructure facility for maintenance and operation, the assessee could not claim any deduction under sub-section (4)? - Held that - By virtue of the operation of the proviso, the developer would not be deprived of the benefit of deduction under sub-section (1) of Section 80IA on the profit earned by it from its activity of developing the infrastructure facility. The proviso does not operate as to depriving the developer of the benefit of the deduction even after the facility is transferred for the purpose of maintenance and operation but would split the profit element into one derived from the development of the infrastructure and that derived from the activity of maintenance and operation thereof. The assessee having transferred the facility for the limited purpose of maintenance and operation to RTIL, would receive a fixed payment of ₹ 328 lakhs per annum irrespective of the toll collection by RTIL. This profit element therefore would be relatable to the infrastructure development activity of the assessee and would qualify for deduction under Section 80IA of the Act. The RTIL would have a claim or deduction on its profit arising out of maintenance and operation of infrastructure facility which apparently would exclude the pay out of ₹ 328 lakhs to the assessee. Learned counsel for the Revenue submitted that this last element is, however, not clearly emerging from the record. Firstly, no such case is made out by the Revenue before the Tribunal. Secondly, if at all, the RTIL has claimed deduction on an amount larger than what it was entitled to, it would be a claim which should be disallowed in the hands of the RTIL and not in the hands of the present assessee.

Summary

Issues:
- Interpretation of Section 80IA(4) of the Income Tax Act
- Allowance of deduction for infrastructure facility transfer
- Claim of deduction by transferee enterprise

Analysis:

Interpretation of Section 80IA(4) of the Income Tax Act:
The case involved a dispute regarding the interpretation of Section 80IA(4) of the Income Tax Act. The respondent, a limited company engaged in civil construction and infrastructure projects, claimed a deduction under this section. The provision allows for a deduction for enterprises involved in developing, operating, and maintaining infrastructure facilities. The court examined the conditions specified in the section and focused on the proviso to sub-section (4), which deals with the transfer of infrastructure facilities between enterprises for maintenance and operation.

Allowance of Deduction for Infrastructure Facility Transfer:
The Revenue contended that once the assessee transferred the infrastructure facility for maintenance and operation, it could not claim any deduction under sub-section (4) of Section 80IA. The argument was that the transferee enterprise, responsible for maintenance and operation, should be the one eligible for the deduction to avoid double benefits. However, the court analyzed the proviso to sub-section (4), which allows the transferee to claim the deduction for the unexpired period during which the transferor would have been entitled to it if the transfer had not occurred. The court emphasized that the transferor would not be deprived of the deduction but that the profit elements would be split between development and maintenance/operation activities.

Claim of Deduction by Transferee Enterprise:
In this case, the assessee had transferred the facility for maintenance and operation to another entity, receiving a fixed payment annually. The court found that the profit element from this arrangement was related to the infrastructure development activity of the assessee and thus qualified for deduction under Section 80IA. The transferee, in turn, would have a claim for deduction on its profit from maintenance and operation activities. The court dismissed the tax appeal, noting that any discrepancy in the claim amount by the transferee should be addressed separately and not impact the deduction available to the transferor.

This detailed analysis of the judgment provides insights into the court's interpretation of the Income Tax Act provisions and the specific circumstances surrounding the deduction claim related to infrastructure facility transfer and maintenance/operation activities.