2020 (11) TMI 778 - HC - Income Tax

Deduction u/s 80IA - assessee was required to develop 95% of the area for industrial use, but has failed to do so - HELD THAT - Approval granted by Ministry of Commerce and Industry itself is a testimony that the assessee company has developed infrastructure facilities in the form of Multi storied structure to accommodate independent units to operate separate identities and individualities of the unit do not disappear only for the reason that the entire developed area has been leased out to a single company. The tribunal has therefore, applied the functional test and has held that each unit occupying a different floor is independent with independent facilities, instrumentation, power connection, door number and facility of functioning independently. It has been held that each unit is in a position to carrying on its activity without depending on other units. Therefore, a finding has been recorded in favour of the assessee that the assessee has successfully satisfied the functional test of an independent unit. Since, the assessee had applied for non automatic approval under paragraph 7 of the scheme, therefore, the requirement contained in paragraph 6(f), which requires a unit not to occupy more than 50% of the allocable area does not apply to the case of the assessee. Rule 18C of the Rules does not have a bearing on the claim of the assessee with regard to eligibility of deduction under Section80IA(4)(iii) of the Act in the fact situation of the case. Even otherwise, whether or not the assessee has complied with the conditions laid down in the Scheme in order to enable it to claim deduction under Section80IA(4)(iii) of the Act is a pure question of fact. The findings recorded by the tribunal have not been assailed by the revenue on the ground that the same are perverse. The aforesaid findings of fact could not be demonstrated to be perverse. - Decided against the revenue and in favour of the assessee

Issues Involved
1. Eligibility for deduction under Section 80IA(4)(iii) of the Income Tax Act, 1961.
2. Compliance with conditions under the Industrial Park Scheme, 2002 and Rule 18C(3) of the Income Tax Rules.
3. Interpretation of the term "industrial units" and whether leasing to a single company constitutes multiple units.
4. Compliance with the condition that no single unit shall occupy more than 50% of the allocable industrial area.
5. Construction of the required area as per the approval granted.
6. Timing of the deduction claim in relation to the notification by the CBDT.

Detailed Analysis

1. Eligibility for Deduction under Section 80IA(4)(iii)
The Tribunal allowed the assessee's appeal, holding that the assessee is eligible for deduction under Section 80IA(4)(iii) of the Income Tax Act, 1961, despite the revenue's claim that the assessee failed to meet the conditions specified.

2. Compliance with Conditions under the Industrial Park Scheme, 2002 and Rule 18C(3)
The revenue argued that the assessee did not comply with the conditions of the Industrial Park Scheme, 2002, and Rule 18C(3) of the Income Tax Rules. The Tribunal, however, found that the assessee had met the functional requirements of independent units, even though the entire developed area was leased to a single company.

3. Interpretation of "Industrial Units"
The Tribunal held that the five floors leased to a single company constituted five independent industrial units. Each unit had separate facilities, instrumentation, power connection, and the capacity to function independently. This interpretation was in line with the approval letter from the Ministry of Commerce and Industry.

4. Compliance with the 50% Allocable Industrial Area Condition
The Tribunal interpreted the Industrial Park Scheme, 2002, to mean that the five floors leased to a single entity would constitute five separate taxable entities. Therefore, the assessee did not violate the condition that no single unit shall occupy more than 50% of the allocable industrial area.

5. Construction of the Required Area
The revenue contended that the assessee constructed only 2,01,350 sq. ft. instead of the required 2,41,620 sq. ft. The Tribunal did not find this argument persuasive, noting that the issue was not raised before the Tribunal. Furthermore, the Tribunal found that the requirement of developing 95% of the area for industrial use was not applicable as the assessee had applied for non-automatic approval under paragraph 7 of the Scheme.

6. Timing of the Deduction Claim
The Tribunal held that the benefit of deduction under Section 80IA could not be denied on the ground that the assessee had started functioning before the formal approval was issued. The approval and notifications would relate back to the date of commencement of activities.

Conclusion
The High Court upheld the Tribunal's findings, noting that the assessee had complied with the functional test of independent units and that the findings of fact by the Tribunal were not perverse. The substantial questions of law were answered against the revenue and in favor of the assessee, leading to the dismissal of the appeal.

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