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2024 (1) TMI 1392 - AT - Income TaxDisallowance u/s. 80IA(4)(iii) - new undertaking which is taking up operation and maintenance of industrial park is not approved under Industrial Park Scheme, 2002 Industrial Park Scheme, 2008 and new firm just came into existence is not approved on or before the specified date as per the provisions of section u/s. 80IA(4)(iii) Firm was constituted after 31.03.2011, whereas the Industrial Park Scheme, 2002 and Industrial Park Scheme, 2008 provides that deduction is eligible only to those undertakings which were notified between 01.04.1997 and 31.03.2011 - HELD THAT - No merits in the reasons given by the Assessing Officer to deny deduction u/s. 80IA(4)(iii) of the Act, for the simple reason that the industrial park developed by the assessee company is approved under Industrial Park Scheme, 2002 and the assessee has developed the same within time prescribed under said scheme. Therefore, the date mentioned in section 80IA(4)(iii) of the Act, is qua the date for which the scheme is to be notified and not the actual date of notification of the industrial park. The undertaking and the industrial park of the assessee has been duly approved and notified by the CBDT. The said notified undertaking and industrial park was transferred to the appellant partnership firm as capital contribution. As per provisions of section 80IA(12) of the Act, if the undertaking is transferred and said transfer is not by amalgamation or demerger, the benefit shall be available to the transferee undertaking. Unlike section 80IA(4)(v) of the Act, which stipulates conditions on formation of assessee being an Indian company should be formed before 30.11.2005, no such condition is stipulated in section 80IA(4)(iii) of the Act. Therefore, from the above it is very clear that transfer u/s. 80IA(4)(iii) of the Act, is qua the undertaking and not qua the assessee. Therefore, the reasons given by the Assessing Officer to deny deduction u/s. 80IA(4)(iii) of the Act, with the successor undertaking is not formed within date prescribed under Industrial Park Scheme, 2002 Industrial Park Scheme, 2008 is not correct and devoid of merits. Transferor undertaking and transferee undertaking shall be notified as per Industrial Park Scheme - In the present case, transferor undertaking is duly notified, whereas the transferee undertaking is not notified in any of the section. In our considered view, the Assessing Officer is once again failed to understand the provisions of section 80IA(4)(iii) of the Act, in right perspective because as we have stated in earlier part of this order transfer u/s. 80IA(4)(iii) of the Act is qua the undertaking and not qua the assessee. The undertaking owned by the transferor is same undertaking owned by the transferee. It is not a case of the department that the undertaking and industrial park transferred by the transferor is not notified. Further, as per Paragraph 9(4) of the Industrial Park Scheme, 2002 and Paragraph 10 of CBDT notification, if there is a transfer of undertaking, the transferor and transferee should jointly intimate to the DIPP. In our considered view said compliance is sufficient for the transferee undertaking to claim deduction u/s. 80IA(4)(iii) of the Act for remaining period. This fact is further strengthened by Circular no. 10/2014 issued by the CBDT, where it has been clearly explained the concept of deduction and as per said circular, if an undertaking is transferred to another undertaking other than by way of amalgamation and demerger and in other cases, the transferee undertaking shall be eligible for deduction for remaining unexpired period. Therefore, we are of the considered view that the ground taken by the revenue on this issue fails. Provisions of section 80IA(4)(iii) restricts the deduction only to the operation and maintenance of industrial park - Government of India has no intention to split the deduction as intended by the revenue. It should be noted that proviso to section 80IA(12) of the Act applies only when there is a transfer of operation and maintenance of industrial park. In the facts of the appellant case, the entire undertaking which developed the industrial park has been transferred and not merely the operation and maintenance alone. Therefore, in our considered view, the reasons given by the Assessing Officer to allow deduction u/s. 80IA(4) of the Act only to operation and maintenance is not in accordance with law. Exclusion of interest income earned from fixed deposits kept with bank - There is a mandatory requirement of keeping fixed deposits in bank. But fact remains that, said condition is sufficient to hold that interest income earned from fixed deposits is derived from industrial undertaking. In our considered view, it cannot be said that just because there is a condition between the parties for availing loan, any interest income earned from fixed deposits can be said to be derived from an industrial undertaking for the purpose of section 80IA(4). In order to derive income from an industrial undertaking, there should be direct link between the business activity of the assessee and nature of income earned from industrial undertaking. In the present case, the nature of business of the assessee is to develop, operate and maintain an industrial undertaking and consequently any income derived from said undertaking can be considered as income derived from an industrial undertaking. Therefore, to this extent, we are not in agreement with the arguments of the assessee. Whether entire interest income should be taxed under the head income from other sources? - The answer is No, because there is a direct link between the funds utilized for keeping fixed deposits in bank and interest income earned from banks. If interest income is to be assessed under the head income from other source, then corresponding interest paid on loan borrowed for the purpose of funds utilized for making fixed deposits also needs to be allowed as deduction. Therefore, we direct the Assessing Officer to exclude interest income from income derived from industrial undertaking and assess separately under the head income from other source. We also direct the Assessing Officer to allow deduction towards corresponding interest expenditure linked to such income. The Assessing Officer is also directed to exclude interest portion that is relatable to interest income while computing deduction u/s. 80IA(4) of the Act. Status of the assessee should be that of AOP and not firm - Section 184 of the Act provides the situations under which partnership firm can be treated as AOP. The conditions of section 184 of the Act have been duly complied and same is not under dispute. Further, the MOA of partner companies authorizes to enter into partnership arrangements as required under the Companies Act. Department has also considered the same in the remand report dated 08.12.2017. Therefore, we are of the considered view that the ground taken by the revenue in so far as assessment of the appellant as AOP instead of partnership firm is devoid of merits and thus, rejected. CIT(A) after considering relevant facts has rightly allowed deduction claimed u/s. 80IA(4)(iii) of the Act, by the appellant in respect of income derived from an industrial undertaking which operate and maintains industrial park developed under Industrial Park Scheme, 2002.
Issues Involved:
1. Eligibility for deduction under Section 80IA(4)(iii) of the Income-tax Act, 1961. 2. Notification requirements for transferor and transferee entities under Industrial Park Schemes. 3. Scope of income eligible for deduction under Section 80IA(4)(iii). 4. Treatment of interest income earned from bank deposits. 5. Classification of the assessee as a firm or an Association of Persons (AOP). Issue-wise Detailed Analysis: 1. Eligibility for deduction under Section 80IA(4)(iii): The central issue was whether the assessee, a partnership firm, was entitled to claim a deduction under Section 80IA(4)(iii) of the Income-tax Act, 1961. The Assessing Officer (AO) denied the deduction on the grounds that the firm was constituted after the specified date of March 31, 2011, as per the Industrial Park Scheme, 2002 and 2008, which stipulate eligibility only for undertakings notified between April 1, 1997, and March 31, 2011. However, the Commissioner of Income Tax (Appeals) [CIT(A)] concluded that the industrial park was duly approved and notified under the Industrial Park Scheme, 2002, and the transfer to the successor company allowed the deduction for the remaining period. The Tribunal upheld the CIT(A)'s decision, emphasizing that the date mentioned in the provision pertains to the notification of the scheme, not the formation date of the undertaking. 2. Notification requirements for transferor and transferee entities: The AO argued that both the transferor and transferee entities must be notified under the Industrial Park Scheme to qualify for the deduction. The CIT(A) disagreed, stating that the transfer is related to the undertaking and not the entities themselves. The Tribunal supported this view, noting that the transferor's undertaking was duly notified and the necessary compliance with the Department of Industrial Policy and Promotion (DIPP) and CBDT was met. The Tribunal referenced CBDT Circular No. 10/2014, which clarifies that the transferee undertaking is eligible for deduction for the unexpired period post-transfer. 3. Scope of income eligible for deduction: The AO restricted the deduction to income from operation and maintenance activities, excluding other income streams. The CIT(A) directed that the deduction should apply to the entire income of the undertaking, including rent and other operational income. The Tribunal agreed with the CIT(A), citing a CBDT circular and a government press release that support the view that the deduction applies broadly to the income generated by the undertaking, not limited to specific activities. 4. Treatment of interest income from bank deposits: The AO treated interest income from bank deposits as not derived from the industrial undertaking, thus ineligible for the deduction. The CIT(A) allowed netting off interest income with interest expenditure. The Tribunal partially agreed with the AO, stating that interest income from bank deposits does not directly derive from the industrial undertaking. However, it acknowledged the linkage of these deposits to business activities, directing the AO to assess the interest income under "income from other sources" and allow corresponding interest expenditure as a deduction. 5. Classification of the assessee as a firm or AOP: The AO classified the assessee as an AOP, citing unauthorized partnership formation by partner companies. The CIT(A) refuted this, confirming the entity's status as a partnership firm. The Tribunal upheld the CIT(A)'s decision, noting compliance with Section 184 of the Act and the authorization of partnership arrangements in the Memorandum of Association of partner companies. Conclusion: The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to allow the deduction under Section 80IA(4)(iii) for the assessee, a partnership firm operating and maintaining an industrial park. The Tribunal's analysis emphasized the proper interpretation of the statutory provisions and the factual compliance of the assessee with the relevant schemes and notifications.
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