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2020 (12) TMI 851 - AT - Income TaxDeduction u/s 80IA(4) denied - substantial work of Solid Waste Management - AO arrived at a finding that it was purely hiring of vehicles for collection and transportation of municipal solid waste including common house gully materials and also materials removed from the slums of various zones - CIT(A) arrived at a finding that the assessee-company has not done the work of waste treatment/processing/development/maintenance of waste, by creating the necessary infrastructure, as has been provided in the provisions of section 80IA(4) - HELD THAT - In the present case, deduction has been allowed for all the earlier assessment years and the AO has now sought to disallow the deduction for the last two years, whereas the deduction u/s 80IA(4) is allowable for a consecutive period of 10 assessment years. In the instant case, as there in no change in the fact, if deduction has been allowed in the initial assessment years, the same cannot be withdrawn in the subsequent years without making disallowance in the initial assessment years. See PAUL BROTHERS 1992 (10) TMI 5 - BOMBAY HIGH COURT and PAUL BROTHERS 1992 (10) TMI 5 - BOMBAY HIGH COURT The fact that the contract has been awarded by respective Municipal Authorities does not make the assessee ineligible for claim of deduction u/s 80IA of the Act, as substantial work of Solid Waste Management is carried out by the assessee and not the Municipal Authorities. Further section 80IA(4)(i)(b) of the Act requires the assessee to enter into an agreement with the Government for carrying out such an activity and, therefore, the assessee fulfils all the conditions of section 80IA of the Act to be eligible for deduction under the said section. The assessee has been claiming deduction u/s 80IA(4) of the Act on the income earned by it from the activity of solid waste management. There is no dispute that Solid Waste Management System is one of the infrastructure facilities as defined in Explanation to the section 80IA(4) of the Act, which entitles the assessee to claim deduction for the consecutive period of 10 years. In seeking the purpose of a contract, one should treat the contract as a whole. A contract is an integrative framework. Its different parts are entwined. Its different parts are intermingled. In interpreting a contract, one should view it holistically, as a whole. One should evaluate the connections between its various parts in an attempt to arrive at parties joint intent. In view of the factual matrix and position of law delineated we hold that the assessee is eligible for deduction u/s 80IA(4) of the Act. Thus the order of the Ld. CIT(A) is set-aside - Decided in favour of assessee.
Issues Involved:
1. Eligibility for deduction under section 80-IA(4) of the Income Tax Act, 1961. 2. Consistency in allowing deduction in subsequent years. 3. Definition and scope of 'Solid Waste Management System' under section 80-IA(4). Issue-wise Detailed Analysis: I. Eligibility for Deduction under Section 80-IA(4): The primary issue was whether the assessee was eligible for claiming a deduction of ?8,57,95,998 under section 80-IA(4) of the Income Tax Act for AY 2010-11. The Assessing Officer (AO) disallowed the deduction, arguing that the assessee's contract with the Municipal Corporation of Greater Mumbai (MCGM) involved merely the hiring of vehicles for garbage collection and transportation, not the development, operation, or maintenance of a solid waste management system as required by section 80-IA(4). The AO concluded that the assessee was executing a works contract rather than developing an infrastructure facility. II. Consistency in Allowing Deduction in Subsequent Years: The assessee argued that the deduction under section 80-IA(4) had been consistently allowed in previous assessment years (AY 2003-04 to 2009-10) after thorough scrutiny under section 143(3). The assessee contended that there was no change in the facts and that the deduction could not be withdrawn in subsequent years without disallowing it in the initial years. The assessee cited several judicial precedents to support this argument, including CIT v. Western Outer Interactive Pvt. Ltd., CIT v. Paul Brothers, and Simple Products Food Pvt. Ltd. v. CIT. III. Definition and Scope of 'Solid Waste Management System': The assessee claimed that it was engaged in the business of developing, operating, and maintaining a solid waste management system, which qualifies as an infrastructure facility under section 80-IA(4). The scope of work under various contracts with municipal corporations included door-to-door collection, segregation, transportation, and disposal of solid waste, deploying specialized vehicles, and setting up compost plants. The assessee argued that these activities constituted a solid waste management system, as defined in the 'Manual on Municipal Solid Waste Management' issued by the Central Public Health & Engineering Organization. Judgment Analysis: A. Arguments by the Assessee: The assessee's counsel argued that the deduction under section 80-IA(4) should be allowed as the assessee was engaged in solid waste management, which includes collection, segregation, transportation, and disposal of waste. The counsel emphasized that the term 'Solid Waste Management System' encompasses these activities and cited the 'Manual on Municipal Solid Waste Management' to support this claim. The counsel also argued that the AO and CIT(A) had not pointed out any change in facts compared to earlier years, and the deduction could not be disallowed without withdrawing it from the initial years. B. Arguments by the Revenue: The Departmental Representative (DR) argued that the assessee's activities did not qualify as a solid waste management system under section 80-IA(4) as they were limited to collection and transportation of waste without any infrastructure for waste processing or resource recovery. The DR cited the Tribunal's decision in Antony Motors (P.) Ltd. v. ACIT, where a similar claim was disallowed. The DR also referred to the 'Manual on Solid Waste Management' to argue that effective waste management includes resource recovery and waste transformation, which the assessee was not engaged in. C. Tribunal's Decision: The Tribunal examined the agreements between the assessee and various municipal corporations, which detailed the scope of work involving collection, segregation, transportation, and disposal of solid waste. The Tribunal referred to the 'Manual on Municipal Solid Waste Management' and concluded that waste collection and transportation are integral parts of a solid waste management system. The Tribunal distinguished the assessee's case from Antony Motors (P.) Ltd., noting that the assessee's activities were more comprehensive and aligned with the definition of a solid waste management system. The Tribunal also upheld the principle of consistency, stating that the deduction allowed in initial years could not be withdrawn in subsequent years without disallowing it from the start. The Tribunal cited judicial precedents, including ABG Heavy Industries Ltd. v. DCIT, to support this view. Conclusion: The Tribunal held that the assessee was eligible for deduction under section 80-IA(4) as it was engaged in the development, operation, and maintenance of a solid waste management system. The Tribunal set aside the CIT(A)'s order and allowed the assessee's appeal for AY 2010-11 and AY 2011-12, emphasizing the need to interpret contracts holistically and uphold the principle of consistency in tax assessments.
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