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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 ..... cting 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 of the case are that the assessee is a private limited company engaged in the business of development, operation and maintenance of Pharma Special Economic Zone (SEZ). Return of income for Asst. Year 2009-10 was filed on 16.09.2009 disclosing income at R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 confirmation was not submitted. Unless, if is established by the A. O. that the liability has ceased to exist and has ceased with no chance of revival, the provisions of section 41(1) cannot be applied, as the -appellant has not still written back the liability and on the contrary the payment has been made in the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 justified as the computer software has been grouped as eligible to rate of depreciation @ 60% and, therefore, A. O. should have allowed the depreciation @ 60% in place of 25% at/owed by him. The appellant has also disputed the finding of the A, O. that the software were used for less than 180 days. The A. O. is directed to verify the claim from the facts available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction u/s 80IAB on the interest income of Rs. 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 Act, 2005, w.e.f. 10-02-2006, similar deduction for SEZs was allowed under the provisions of Sec, 80-IA(4)(iii) of the Income-tax Act. As per the same, the benefit of the deduction u/s. 80-IA(1) was allowed in respect of "the profits and gains derived by an undertaking which develops, develops and operates or maintains and operates an industrial park or special economic zone" notified by the Central Government during the period 1st April 1997 to 31st March 2006. 1.2 As per Sec. 80-IA(2), the benefit of the deduction u/s. sub-section (1) was allowed to be clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 Developer transfers the operation and maintenance of such SEZ to another Developer, the benefit of deduction is to be allowed to the transferee Developer as well, for the remaining period in the ten consecutive assessment years, as if the operation and maintenance were not so transferred to the transferee Developer. 2.0 Introduction of the term 'Developer' as defined in the SEZ Act and the important meaning & context of the same 2.1 Whereas the earlier provisions of Sec.80-IA applied to an assessee being "any undertaking which develops, develops and operates or mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 note that the benefit of exemption from tax on distributed profits u/s. 115O(6) came to be introduced for the first time, under The package of income-tax incentives as inserted by the SEZ Act, 2005. This exemption in respect of dividends declared, distributed or paid on or after 1st April, 2005 was intended to be granted to both the undertaking or enterprise as covered under the earlier provisions of Sec. 80-IA(4)(iii) (as notified prior to 31st March, 2006), as well as the Developer referred to under the new provisions of Sec. 80-IAB (as notified on or after 1st April, 2005). Therefore, the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 agree that literary construction may be the general rule in construing taxing enactments, it does not mean that it should be adopted (sic) if it leads to a discriminatory or incongruous result. Interpretation of statutes cannot be a mechanical exercise. Object of all the rules of interpretation is to give effect to the object of the enactment having regard to the language used. In this connection, we may refer to the well-recognized rule of interpretation of statutes that where a literal interpretation leads to absurd or unintended result, the language of the statute can be modified to accord with the intention of Parliament ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;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 for concession for tax purposes to encourage industrial activity should be liberally construed. The question before the Court was whether Straw Board could be said to fall within the expression 'paper and pulp' mentioned in the Schedule relevant to the respective assessment years. The Court held that since words 'paper and pulp' were mentioned in the Schedule, the intention was to refer to the paper and pulp industry and since Straw Board Industry could be described as forming part of the paper and pulp industry, it was entitled to benefit. The section, read as a whole, was a provision directed towards encouraging industrializati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant 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 and entitlement as may be approved by the Board who is approving the setting up of the SEZ. Therefore, if the approval has been granted for developing, operating and maintaining the SEZ, the term 'developer' would include operation and maintenance also. Further an examination of the letter of approval bearing no. F.2/44/2005- EPZ, dated 21* June, 2006, issued by the Central Government in favour of the appellant as the Developer show that the very first condition under which the approval is granted states that "the Developer shall develop, operate and maintain the Special Economic Zone in terms of the Special Economic Zones Act, 2005 and the Rules made there under." Thus, it is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to the main issue about the allowability of deduction u/s 80IAB for the income earned from operation and maintenance, we find that provisions of section 80IAB is self- explanatory which reads as under :- [Deductions in respect of profits and gains by an undertaking or enterprise engaged in development of Special Economic Zone. 80-IAB. (1) Where the gross total income of an assessee, being a Developerm, includes any profits and gains derived by an undertaking or an enterprise from any business of developing a Special Economic Zone, notified on or after the 1st day of April, 2005 under the Special Economic Zones Act, 2005, there shall, in accordance with and subject to the provisions of this section, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 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. 26. In view of our above discussion as well as observation made by ld. CIT(A), we are of the view that assessee being a developer of SEZ is eligible for deduction u/s 80IAB for income earned from operation and maintenance of SEZ. In the result ground no.3(a) of Revenue is dismissed. 27. Now we take ground no.3(b) of Revenue's appeal -wherein Revenue is aggrieved with the order of ld. CIT(A) directing the Assessing Officer to allow deduction u/s 80IAB on the income received from sale of scrap and professional fees. During the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 which a specific agenda relating to fixation of water charges was taken up for consideration for the first time and the charges for use of water were approved and fixed at Rs. 25 kl effective from the beginning of SEZ. On the basis of this decision necessary effect was given in books of account for F.Y.2008-09 and as far as F.Y.2007-08 was concerned, the income relating to water charges was impossible to be incorporated in the account of F.Y. 2007-08 as they were already closed and finalised and, therefore, this amount of Rs. 23,09,372/- was shown as a prior period income from water charges. In the given facts and circumstances, we are of the view that as the assessee being eligible u/s 80IAB of the Act for a particular block of years it will not make any impact to the Revenue if th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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