INLAND CONTAINER DEPOTS – AN INLAND PORT?

[Mr. M. GOVINDARAJAN]

Inland Container Depots (‘ICD’ for short) are situated at inland points away from sea ports.   ICD is a term used in the field of imports and exports of sea shipments.  The purpose of introducing ICS is to promote the export and import in the country as these depots act as a facilitator and reduce inconvenience to the person who wishes to export or import but place of his business is situated in a land locked area i.e., away from the sea.  These depots reduce the inconvenience in export and import in the sense that it reduces the bottlenecks that are arising out of handling and customs formalities that are required to be done at the sea ports by allowing the same to e done at these depots only that are situated near to them. 

The term ICD was inserted in 1983 under section 2(12) of the Customs Act, 1962 which defines ‘customs port’ and by the provisions of section 7(1)(aa) of the Customs Act, 1962, power has been given to the Central Board of Excise and Customs to notify which place alone to be considered as Inland Container Depots for the unloading of imported goods and the loading of export goods by Notification in the Official Gazette.

With the purpose of boosting country’s infrastructure and specially the transport infrastructure, the Finance Act, 1995 which came into effect from 01.04.1996 brought an amendment to the provisions of section 80-IA of the Income Tax Act.  Section 80-IA of the Income Tax Act, 1961 talks about deduction in respect of profits and gains from industrial undertaking or enterprises engaged in the infrastructure development etc.,  For the first time a provision was brought out in which a percentage of profits derived from the operation of infrastructure facility was allowed a deduction while computing the income of the assessee.  A ten years tax concession was allowed to the enterprises  subject to the fulfillment of conditions given therein, which develops, maintains and operates any new infrastructure facility such as roads, highways, expressways, bridges, airports, ports and rail system or any other public facility of similar nature as notified. 

Central Board of Direct Taxes, in exercise of powers under section 80-IA (12)(ca), vide Notification No. S.O. 744(E), dated 01.09.1998 notified ICDs as infrastructure facility.  The Finance Act, 1998 made a change in the definition of ‘infrastructure facility’ including inland ports and inland water ways.  The ‘infrastructure facility’ is defined as road, bridge, airport, port, inland water ways and inland ports, rail system by any other public facility of similar nature as may be notified by the Board in this behalf in Official Gazette.

The issue to be discussed in this article is whether the ICD may be treated as inland port with reference to decided case law in ‘Commissioner of Income Tax v. Container Corporation of India Limited’ – 2018 (5) TMI 359 - SUPREME COURT OF INDIA.  The facts of the case run as below-

The respondent is a Government company engaging in the business of handling and transportation of containerized cargo.  It is coming under the control of Ministry of Railways.  It is operating activities are mainly carried out at its ICSs, CFSs and Port Side Container Terminals spread all over the country.  The respondent filed the returns for all years and claimed deduction under section 80-IA on the profits earned from the ICDs and on rolling stocks.  The same has been rejected by the Assessing officer vide his assessment order dated 28.02.2006.   The respondent filed an appeal against the order of the Assessing Officer.  The Commissioner (Appeals) partly allowed the appeal but rejected the deduction claimed under section 80-IA of the Income Tax Act.  Against this order the respondent filed an appeal before the Appellate Tribunal.  The Tribunal allowed the appeal by allowing the deduction under section 80-IA to the rolling stocks but reject the deduction for ICDs.

The respondent challenged the order of the Appellate Tribunal before the High Court.  The High Court allowed the appeals and held that the respondent is entitled to claim deduction on the income earned from the ICDs for the relevant period under consideration under section 80-IA of the Act.  The Revenue, being aggrieved by the order of the High Court, filed an appeal before the Supreme Court.

The Revenue submitted the following before the Supreme Court-

• The High Court was not right in holding that the respondent is entitled to deduction under section 80-IA as the activities undertaken by the assessee cannot be said to fall within Explanation (d) of section 80-IA (4) defining the term infrastructure facility.
• The High Court was wrong in placing reliance on Notification dated 01.09.1998 issue by CBDT to hold that the respondent is allowed to claim deduction under section 80-IA as the power of the said Board was taken away by the Finance Act, 2001 which came into effect from 01.04.2002.
• Treating  ICD as infrastructure facility was applicable only up to the assessment year 2002 – 03.
• ICDs cannot be termed as ‘port’ or ‘inland ports’ within the meaning of section 80-IA (4) so as to allow them to claim deduction under the said section and the judgment rendered by the High Court is erroneous in the eyes of law and is liable to be set aside.

The respondent submitted the following before the Supreme Court-

• Once the ICDs have been notified validly by the CBDT, the fact that a later point of time the power was taken away does not put an end to the validity or effect of the notification an as per the relevant section as it stood at the time when the notification was issued, the respondent was eligible for deduction for a period of 10 successive assessment years which covers the Assessment Years 2003 – 04 to 2005 – 06.
• The judgment and order passed by the High Court does not call for any interference.

The Supreme Court analyzed the provisions relating to ICDs under Customs Act as well as Income Tax Act.    The Supreme Court found that the argument of the Revenue does not have much force as the amendment is silent with regard to any effect it would have upon the Notifications issued earlier by the Board in due exercise of its power.  Had it been the intention of the legislature that the Notification issued by the Board earlier is of no effect after 2002 – 03, it would have found a place in the said amendment.   In the absence of the same, the Supreme Court did not concur with the arguments of the Revenue that the Notifications which were issued in legitimate exercise of the power conferred on the Board would cease to have effect after the Assessment Year 2002 – 03.

The Revenue contended that the ICDs are never understood to fall in the category of ‘inland port’ under the scheme of Income Tax Act.  The Supreme Court observed that Explanation attached to section 80-IA (4) defining ‘infrastructure facility’ includes ICDs, there would have been no need for the CBDT to separately to notify it as infrastructure facility.

The Supreme Court found that the respondent has been held entitled for the benefit of Section 80-IA  much before the Finance Act, 2001 which came into force with effect from 01.04.2002 and exemption for the period of 10 years cannot be curtailed or denied by any subsequent amendment regarding the eligibility conditions unless the period is modified or specific provision is made that the benefit from 01.04.2002 onwards shall only be claimed by the existing eligible units if they fulfill the new conditions.

The Supreme Court held that considering the nature of the work performed by ICDs, they cannot be termed as ports.  However taking into consideration the fact that a part of activities are carried out at ports such as customs clearance are also carried out at these ICDs, the claim of the respondent can be considered within the term ‘inland port’.

The term ‘inland port’ has been defined nowhere.  But the notification holds that considering the nature of work carried out by ICDs they can be termed as inland ports.  Further the communication dated 25.05.2009 issued on behalf of the Ministry of Commerce and Industry confirming that the ICDs are Inland ports, fortifies the claims of the respondent.  Though both the notification and communication are not binding on CBDT to decide whether ICDs can be termed as ‘inland ports’ within the meaning of section 80-IA the appellant is unable to put forward any reasonable explanation as to why these notifications and communication should not be relied to hold ICDs are ‘inland ports’.  Unless shown otherwise, it cannot be held that the term ‘inland ports’ used differently under section 80-IA. 

The Supreme Court held that all these facts taken together clear the position beyond any doubt that the ICDs are ‘inland ports’ and subject to the provisions of section 80-IA and deduction can be claimed for the income earned out of these depots.    The Supreme Court dismissed the appeal filed by the Revenue.