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TMI Blog2016 (8) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s.80IAB - income earned from operation and maintenance of SEZ - Held that:- From going through the proviso (2) of section 80IAB of the Act which says that if the work of operation and maintenance of SEZ is transferred from one developer to another then the deduction allowable in sub-sec.(1) of sec.80IAB will be allowed to transferee developer for the remaining period of the remaining of consecutive 10 years. This proviso gives a very clear picture that when the transferee is eligible for deduction u/s 80IAB for the income from operation and maintenance of SEZ then certainly transferor i.e. developer is eligible for deduction u/s 80IAB from operation and maintenance. Further from going through the letter issued by Government of India Ministry of Commerce & Industries dated 21st June, 2006 to the assessee for setting up of a sector specific Special Economic Zone for Pharmaceuticals at Ahmedabad, we find that in clause (ii) under the main clause (III) referring to general condition it reads that operation and maintenance of the facilities will be met as per the standard in the specific manner and proposition of the user. We are of the view that assessee being a developer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dabad has erred in law and on facts in directing the Assessing Officer to allow the depreciation on application software license @ 60% 3(a) Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing the Assessing Officer to allow the deduction u/s.80IAB of the Act on the income derived from activities of operation and maintenance. : (b) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing the Assessing Officer to allow the deduction u/s.80IAB of the Act on the income received from sale of scrap and professional fees. (c) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing to allow the deduction u/s.80lAB of the Act on the prior period income. 4. On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 5. It is therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored. 2. Briefly stated facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the addition made u/s 41(1) of the Act for cessation of liability. We observe that ld. CIT(A) has deleted the addition u/s 41(1) of the Act of ₹ 84,841/- by observing as under :- 3.3 Decision I have carefully perused the assessment order and the submissions given by the appellant. During the course of assessment proceedings, the appellant could not furnish the confirmations from certain creditors and the A. O. treated the liability as ceased and applied the provisions of section 41 (I) of the Act. The appellant has submitted that the confirmation could not be submitted during the assessment proceedings as the same was awaited. However, the appellant has actually made the payment to said party In the subsequent year and the proof of such payment was also enclosed and produced before the A. O. After consideration of all facts, I am in agreement with the submission of the appellant that the payment has been made in the subsequent year. The A. O. also has not given any specific finding regarding the fact that the liability has ceased to exist. He has applied the provisions by generally mentioning the provisions of section 41 (1) and only on the reason that the conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation on software @ 60% in place of 25% which are applicable for intangible asset. We observe that ld. Assessing Officer has treated the expenditure of ₹ 91,999/- towards purchase of software license as capital asset under the block of intangible assets eligible for depreciation @ 25% whereas ld. CIT(A) has also treated the expenditure of ₹ 91,999/- as capital expenditure but has categorized it along with computers and directed the Assessing Officer to allow depreciation @ 60% by observing as under :- 4.3 Decision: I have careful!/ perused the assessment order and the submissions given by the appellant. The appellant has submitted that since the software involves rapid obsolescence, the claim of revenue expenditure-should be allowed. I am not inclined to agree with the submission of the appellant. The appellant has bought software licenses which are valid for long term and the expenditure incurred thereon is, therefore, not in the nature of revenue. Therefore; the plea of the appellant that expenditure is in the nature of revenue is dismissed. However, the treatment of the software by the A. O. as intangible asset and allowing interest @ 25% is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer denied deduction u/s 80IAB of the Act for ₹ 1,53,66,673/- on account of following :- i) Income from operation maintenance inclusive of prior period raw-water charges. 1,52,00,000/- ii) Sale of scrap 91,000/- iii) Plan approval fees 16,535/- iv) Interest income 59,138/- 18. When assessee went in appeal before ld. CIT(A) no ground was raised against disallowance of deduction u/s 80IAB on the interest income of ₹ 59,138/- and for the remaining disallowance of deduction whole of the assessee s claim was allowed by ld. CIT(A). 19. Aggrieved Revenue is now in appeal before the Tribunal. 20. Ld. DR supported the order of Assessing Officer. 21. Ld. AR submitted as under - 1.0 Tax Incentives for SEZ - A Historical Overview, which prima-facie explains the logical justification of our claim for Deduction in respect of Income from Operation Maintenance 1.1 Prior to the introduction of Sec. 80-IAB, which came to be inserted in the Income- tax Act, 1961, by the Special Economic Zones A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of developing of SEZ, as highlighted in your notice, the benefit of deduction would not have been continued to be provided for the same period of 10 years out of 15 years from the notification of the SEZ, as in the case of the earlier Sec. 80-IA(4)(iii) of the Income-tax Act. The period of 10 years of deduction, provided u/s. 80-IAB, is obviously intended to ensure that even after the completion of the Development, the income from Operation and Maintenance of the SEZ also continues to enjoy the benefit of 100% deduction. 1.6 Moreover, as per the second Proviso to Section 80-IAB, where an undertaking being a Developer of a Special Economic Zone transfers the operation and maintenance of such SEZ to another Developer, the benefit of deduction is to be allowed to the transferee Developer for the remaining period in the ten consecutive assessment years, as if the operation and maintenance were not so transferred to the transferee Developer. The language of the aforesaid provision impliedly clarifies that the benefit of deduction is also available in respect of operation and maintenance income. If this were not so, there was no logical meaning or purpose to provide that when a De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ful and relevant to examine the provisions of Sec. 115JB(6) in relation to exemption from Minimum Alternate Tax (MAT) and Sec. 115O(6) in relation to exemption from Dividend Distribution Tax (DDTO, which came to be simultaneously introduced by the Special Economic Zones Act, 2005, w.e.f. from 10-02-2006. 3.2 Under Sec. 115JB(6) it has been provided that the provisions of this section viz. MAT shall not apply to the income accrued or arising on or after 1st April, 2005 from any business carried on or services rendered by an Entrepreneur or a Developer in a Unit or Special Economic Zone, as the case may be. Thus, the exemption from IVIAT is applicable in the case of a Developer as referred to u/s. 80-IAB in respect of all income accruing or arising from any business carried on or services rendered, which would very much cover not only income from development of SEZ, but also income on account of operation and maintenance of SEZ also. When the relevant benefit of exemption in respect of income from operation and maintenance is granted under MAT, there is no logical basis or justification for not granting similar benefit of deduction u/s. 80-IAB. 3.3 It is also pertinent to n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange has been made in the format of the prescribed Form No. 10CCB, is a clear pointer and support to the logical contention presented by us hereinabove, that there is in effect no change in the basic scheme of granting of deduction to a notified SEZ under the provisions of Sec. 80-IAB, with reference to the earlier provisions under Sec. 80-IA(4)(iii), applicable to SEZs notified upto 31st March, 2006. The fact that Form No. 10CCB continues to refer to 'Development, Operation Maintenance of SEZ' and determination of Profits and Gains derived from the eligible business on the basis of the above, supports the continuing legislative intention to grant deduction of income in respect of 'Development, Operation Maintenance of SEZ,' as correctly claimed by us. 5.0 Judicial Pronouncements that support the 'Rule of Liberal interpretation,' which needs to be applied in the instant case 5.1 Object of all the rules of interpretation is to give effect to the object of the enactment having regard to the language used. In the case of C.W.S. (India) Ltd. vs. CIT 208 ITR 649 (SC), the Hon'ble Supreme Court was pleased to hold as under: While we ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Supreme Court relying stressed on the need for incentive provisions to be construed liberally: A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally! In Broach Distt. Cooperative Cotton Sales Ginning Pressing Society Ltd. vs. CIT [1989] 177 ITR 418 (SC), the assessee a co-operative society claimed that the receipts from the ginning and pressing activities were exempt under section 81 of the Income-tax Act, 1961. The question for interpretation was whether the co-operative society which carried on the business of ginning and pressing was a society engaged in 'marketing' of the agricultural produce of its members. The Court held that object of section 81(1) was to encourage and promote the growth of cooperative societies and, consequently, a liberal construction must be given to the operation of that provision. And since ginning and pressing was incidental or ancillary to the activities mentioned in section 81(1) the assessee was entitled to exemption and the proviso did not stand in the way. In CIT v. Strawboard Mfg. Co. Ltd. [1989] 177 ITR 431 (SC), it was held that the law providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains derived from such business for ten consecutive assessment years The word 'developer1 has further been defined in Explanation to Section 80IAB which reads as under: Developer shall have the meaning as assigned underclause (g) of Sec. 2 of the Special Economic Zones Act. Further, section 2(g) of the SEZ Act has defined the term developer as under: Sec. 2{g) - Developer means a person who, or a State Government which, has been granted a letter of approval under sub-section (10) of Sec. 3 and includes an authority and a Co-Developer. Section 3(10) of the SEZ Act provides that the Central Government shall on receipt of communication by the Board, grant a letter of approval on such 'terms and conditions' and obligations and entitlements as may be approved by the Board to the Developer, being the personpj; the State Government concerned. A combined reading of the provisions of section 80IAB of the Income Tax Act with Section 2(g) and Section 3(10) of the Special Economic Zone Act show that a person would be considered as a developer in accordance with the grant of letter of approval on the basis of terms and conditions and obligation an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly that the activity of development, operation and maintenance will go on simultaneously. It is a different fact that once all the plots are developed and sold, the operation and maintenance can be transferred to some other party and for this purpose, the proviso to section 80IAB has been incorporated. In the case of the appellant, the approval given is for all the activities. If would not be out of place to mention here that the provisions of section 80IA(4) initially had the words developing, maintaining and operating or developing, maintaining and operating. However, once the difficulty or anomaly in implementation of the language was observed, the provisions were subsequently amended from 01/04/2001 and the words or were introduced to take the work of development or development and operation or development operation and maintenance for entitlement of deduction. In view of the preceding discussion, I am of the considered opinion that the appellant is entitled for deduction u/s. 80IAB for the income earned from operation and maintenance, as the activities are covered by the letter of approval and accordingly make the appellant entitled for deduction. 23. Now coming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes for the purpose of allowing deductions under sub- section (1). Explanation.-For the purposes of this section, Developer and Special Economic Zone shall have the same meanings respectively as assigned to them in clauses (g) and (za) of section 2 of the Special Economic Zones Act, 2005.] 24. From going through the proviso (2) of section 80IAB of the Act as referred above, which says that if the work of operation and maintenance of SEZ is transferred from one developer to another then the deduction allowable in sub-sec.(1) of sec.80IAB will be allowed to transferee developer for the remaining period of the remaining of consecutive 10 years. This proviso gives a very clear picture that when the transferee is eligible for deduction u/s 80IAB for the income from operation and maintenance of SEZ then certainly transferor i.e. developer is eligible for deduction u/s 80IAB from operation and maintenance. 25. Further from going through the letter issued by Government of India Ministry of Commerce Industries dated 21st June, 2006 to the assessee for setting up of a sector specific Special Economic Zone for Pharmaceuticals at Ahmedabad, we find that in clause (ii) under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infrasctructure development and they cannot be treated separately and, therefore, we are of the view that ld. CIT(A) has rightly allowed the claim of deduction u/s 80IAB on these amounts of ₹ 91,000/- and ₹ 16,535/-. We uphold the order of ld. CIT(A). So ground no.3(b) of Revenue is also dismissed. 30. Further we also observe that ld. Assessing Officer while making disallowance of ₹ 1.52 crores also referred to the prior period income of ₹ 23,09,372/- earned by the assessee from raw water charges. We also observe that ld. Assessing Officer has not raised any objection against the allowability of deduction u/s 80IAB for the raw-water charges income earned during the year at ₹ 33,01,028/-. The only reason for disallowance was that this amount pertains to the previous year and was shown as a prior period income in this year and ld. Assessing Officer was of the view that this amount was eligible for deduction in the year to which the income pertained and not in the year under appeal. 31. On the basis of submissions made by ld. AR we understand that fixation of water charges was approved in the Developer Committee meeting held on 22nd April, 2009 in w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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