2021 (2) TMI 868 - HC - Income Tax

Deduction u/s 80IA - rejecting the claim on the ground never urged or argued before the authorities below - Tribunal stated that the Appellant has not carried on operation and maintenance activities? - Revenue was largely aggrieved on account of non-fulfillment of the mandate under Rule 12(2) of the amended Income Tax Rules - HELD THAT - There are long line of decisions which hold that a substantive right cannot be denied or taken away by virtue of a rule which is only a machinery provision. In any event, the benefit granted under Section 80IA is a special benefit bearing in mind that industrial undertakings would undertake infrastructural projects. In the case on hand, the claim made by the assessee was under Section 80IA(4), by executing a project with the Government of India Organization. Therefore, we are of the view that the CIT(A) was right in rejecting such a plea raised by the Revenue. Tribunal did not go into the question as to the effect of the mandate under Rule 12(2), but proceeded to hold that the assessee Company has not derived any profits from the activities of developing or operating and maintaining any infrastructure facilities. There are absolutely no examination of the factual position in the case on hand. The Tribunal did not go through the Concession Agreement based on which the assessee Company had been granted the development work. Section 80IA(4) would apply to any enterprise carrying on business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfills all the conditions, which are set out in clause (a), (b) and (c), to be read along with the provisos thereunder. The important aspect to be taken note of is the use of the expression 'or'. Therefore, an enterprise, carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility, which fulfills the conditions set out under Sub-section 4, will be entitled to claim deduction. Therefore, the Tribunal, failed to make any endeavour as to whether the assessee was entitled to claim deduction under any one of the these heads, made a sweeping observation that the assessee has not derived any profits from the activities of developing or operating and maintaining any infrastructure facilities. Scope of the Concession Agreement as set out in Article 12 of the Concession Agreement would be very relevant, more particularly Clause 12.2, which mandates that the assessee shall maintain, at its cost, the existing lanes of the project. Therefore, to state that the existing four lanes would not fall within any one of the clauses under Sub-section 4 of 80IA is factually incorrect, as the assessee develops the fifth and sixth lane and would also operate and maintain the same and so far as the existing lanes, namely 1 to 4, in terms of the Concession Agreement, the assessee has to operate and maintain the same, so that the traffic worthiness and safety are at no time materially inferior as compared to its existing condition prior to the execution of the agreement. Therefore, we are of the clear view that the finding rendered by the Tribunal is utterly perverse and calls for interference. - Decided in favour of assessee.

Summary

Issues:
Appeal under Section 260A of the Income Tax Act, 1961 against ITAT order for assessment year 2014-15.

Analysis:
1. Issue 1 - Rejection of Claim under Section 80IA:
The appellant's claim under Section 80IA was rejected by the Assessing Officer due to the non-filing of Form No.10CCB along with the return of income. However, the form was filed during the assessment proceedings before finalization. The CIT(A) allowed the appeal based on the Supreme Court decision in G.M.Knitting Industries (P.) Ltd. and held that the filing of the form was a procedural formality and did not negate the substantive right of the assessee. The Tribunal did not address this issue directly but focused on the profits derived from infrastructure activities, leading to a favorable decision for the assessee.

2. Issue 2 - Profit from Infrastructure Activities:
The Tribunal concluded that the appellant had not derived profits from developing or maintaining infrastructure facilities. However, the Court found this conclusion to be based on insufficient factual examination. The Concession Agreement mandated the appellant to maintain existing lanes in addition to developing new lanes, making the Tribunal's finding factually incorrect. The Tribunal's decision was deemed perverse, and the Court held that the appellant was entitled to claim deductions under Section 80IA.

3. Issue 3 - Interpretation of Concession Agreement:
The Revenue argued that the appellant was only entitled to claim deductions for developing and maintaining the fifth and sixth lanes, not the entire toll road. However, this argument was not raised at previous stages of the proceedings. The Concession Agreement required the appellant to maintain existing lanes (1 to 4) as well, contradicting the Revenue's stance. The Court found the Tribunal's conclusion erroneous and ruled in favor of the appellant based on the terms of the Concession Agreement.

In conclusion, the Court allowed the Tax Case Appeal, answering the substantial questions of law in favor of the assessee. The decision highlighted the importance of substantive rights under Section 80IA and the necessity for a thorough factual examination in determining profit derivation from infrastructure activities.