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TMI Blog2017 (11) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee would get no deduction on the income arising out of sale of units in earlier years. For example, if the industrial park consists of 100 units, it is possible that the assessee may sell 30 units in the first year, 30 more units in the second year and 30 more in the third year. Remaining 10 units may be sold in the fourth year. As per the Revenue, the deduction would be available only during the year when the sale of these last 10 units are completed. This in turn would mean that the assessee would get no deduction on the sale of 90 units in the earlier years, completely defeating the object of the provisions. We may recall the deduction is available to any enterprise carrying on business of developing or developing and maintaining or developing, operating and maintaining any infrastructural facility. The deduction is spanned over a number of years. The interpretation given by the Revenue would mean that this availability of deduction over a span of year would not occur in case of an enterprise carrying on the business of developing any infrastructural facility and would be confined to only one assessment year. Once, as held in the case of Ganesh Housing (2011 (8) TMI 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the following facts: 3.1 The petitioner is a closely held limited company. By an application dated 23.05.2006 it applied for approval for setting up an industrial park at village Piplaj, Dist. Ahmedabad. This application was made for claiming and availing deduction under Section 80IA(4)(iii) of the Act. After having acknowledged the application so made, the Ministry of Commerce and Industry, New Delhi returned the application by a letter of 05.01.2009 advising the petitioner to apply under the Industrial Park Scheme, 2008. Accordingly, the petitioner applied under the Scheme of 2008, in the prescribed form IPS-I on 27.01.2009. The application was acknowledged by the Ministry by a letter of 09.02.2009. 3.2 According to the petitioner, the petitioner had completed the development of the park much before the date envisaged under the Scheme i.e. 31.03.2011. The case of the petitioner was that even according to the Scheme framed by the State Government, for setting up an industrial park, the State had examined the infrastructural development of the project and granted subsidy of ₹ 92,63,000 to such park. The Gujarat Industrial Development Corporation ( GIDC for short) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis that AUDA, which was the local authority had not given any clear certificate that the industrial park was completed with constructed units by 31.03.2011, was impermissible. This Court in its order held as under: 16. Ignoring such evidence, CBDT proceeded on the basis that AUDA which was a local authority had not given any clear certificate that the industrial park was completed with constructed units by 31.3.2011. This insistence from CBDT was impermissible for two reasons. Firstly, the scheme pertained to certificate from a local authority and could not confine its purview to certification by AUDA alone and second that the insistence on demonstrating completion of industrial units by the leasing industries was not part of the requirement of the scheme at all, as held in case of Ganesh Housing Corporation Ltd. (supra). For such reasons, the second part of the CBDT's objection must fail. 17.Coming back to the first objection, of the petitioner having failed to produce a completion certificate from the local authority, we have noticed that MARS Planning Engineering Services Pvt. Ltd. was appointed by GIDC for the purpose of certifying the quality control and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Direct Taxes issued a notification dated 26.12.2016 granting permission to the petitioner. The condition of the notification reads as under : Now, therefore, in exercise of the powers conferred by clause (iii) of sub-section (4) of secton 80-IA of the said Act, read with rule 8C of the Income-tax Rules, 1962, the Central Government hereby notifies the undertaking from the date of commencement of the industrial park the 5th September, 2010 being developed and being maintained and operated by M/s Devraj Infrastructure Ltd., for the purposes of the said clause (iii) subject to the terms and conditions mentioned in the Annexure to this notification. ANNEXURE The terms and conditions on which the approval of the Government of India has been accorded for setting up of an industrial park by Devraj Infrastructures Ltd. (i) Name of the industrial undertaking : Devraj Infrastructures Ltd. (ii) Location :Survey numbers : 99 to 102, 108, 112 to 116, 118 to 124, 126, 127 129 of Village Piplaj and Survey nos. 774, 776, 778, 780 to 784 789 to 792 of village Lambha (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner from the assessment year 2009-10 and not assessment year 2011-12 by recording a condition in the notification of the date of commencement of 05.09.2010. In other words, rectification was sought of condition no. 7 as under: Condition No. 7 The undertaking subject to the fulfillment of the term and conditions mentioned in this notification, may as its option claim deduction under clause (iii) of sub-section 80IA of the Income Tax Act, 1961 for any ten consecutive assessment year relevant to the date of commencement of industrial park mentioned in this notification Rectification Sought(Last Para) Undertaking has sought that it may be alloed to claim deduction under section 80-IA (4)(iii) of the Income-tax Act, 61 for any ten consecutive assessment years out of fifteen years beginning from the assessment year of development of industrial Park begun i.e. previous year 2008-09 relevant to A.Y. 2009- 10. This application for rectification was rejected giving rise to the present petition. 4. Mr. R.K. Patel, learned advocate appearing for the petitioner has taken us through the impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven when an undertaking begins development or starts providing services, the condition stipulated under section 80IA stands satisfied. 4.4 Further Mr. Patel has invited our attention to the impugned communication dated 17.03.2017 particularly on para 13 which reads as under: 13. Here it is important to bear in mind the condition specified at para 5(11) of the IPS 2008 Scheme, wherein it is clearly specified that the tax benefits under the Act will be available to the undertaking only after minimum number of thirty units are located in the Industrial Park. Hence, merely the beginning of the development of the industrial park is not suffice to claim deduction as contended by the undertaking but its complete development along with the location of industrial units is a prerequisite so as to start availing deduction. 4.5 According to Mr. Patel, even according to the authority tax benefits under the Act would be available once the minimum number of 30 units are located in the industrial park. 5. On the other hand Mr. Bhatt, learned advocate for the Revenue contended that it was apparent from the earlier order dated 05.11.2014 that the local authority namely AUD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of deduction under clause (iii) of sub-section(4) of Section 80IA of the Income Tax Act beginning from the assessment year of development of Industrial Park begun i.e. previous year 2009-10 relevant to the assessment year 2010-11, as prayed for by the Petitioner. 7. In order to appreciate the controversy at hand, before we may consider the factual aspects of the matter, a brief recapitulation of the legal provisions would be necessary. Section 80IA of the Act provides for deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. The provision, as far as is relevant for our purposes reads as under: Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. Explanation.-For the purposes of this clause, infrastructure facility means- ( a) a road including toll road, a bridge or a rail system; ( b) a highway project including housing or other activities being an integral part of the highway project; ( c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; ( d) a port, airport, inland waterway, inland port or navigational channel in the sea; ( ii) any undertaking which has started or starts provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to fulfill the conditions envisaged in the Industrial Park Scheme,2008. 7.2 Relevant portion of The Industrial Park Scheme,2008 is as under: NOTIFICATION NO. 3/2008, DATED 8-1-2008 S.O. 51 (E) In exercise of the powers conferred by clause (iii) of subsection (4) of section 80-IA of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby frames the following scheme for Industrial Parks, namely: 1. Short title, commencement and application.-(1) This Scheme may be called the Industrial Park Scheme, 2008. 2. It shall come into force on the date of its publication in the Official Gazette. 3. The scheme shall be applicable for any undertaking which develops, develops and operates or maintains and operates an industrial park. 2. Definitions.- In this Scheme, unless the context otherwise requires,- ( a) Act means the Income-tax Act, 1961 (43 of 1961); ( b) allocable area means area available for allocation to the units for industrial activity or commercial activity and shall exclude the area utilized for providing common facility or infrastructure facility; ( c) associated enterprise s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication for notification under clause (iii) of subsection (4) of section 80-IA of the Act, in the prescribed form, IPS-I, to the Secretary (ITA-1 section), Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, North Block, New Delhi. ( 2)The Central Board of Direct Taxes shall process the application for approval and notification by the Central Government and for this purpose it may call for reports from other Departments or agencies, as it may deem fit. 4. Criteria for approval.- An undertaking shall be considered for notification under clause (iii) of sub-section (4) of section 80-IA of the Act, if it fulfills all of the following conditions, namely:- 1. The date of commencement of the Industrial Park should be on or after the 1st day of April 2006 and not later than 31st of March 2009; 2. The area allocated or to be allocated to industrial units shall not be less than ninety per cent of the allocable area; 3. There shall be a minimum of thirty industrial units located in a industrial park; 4. For the purpose of computing the minimum number of industrial units; all units of a person and his associated enterprises will be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. An agency known as MARS Planning Engineering Services Pvt Ltd, a consultant agency appointed on behalf of GIDC, supervised the development work and submitted a progress report dated 5.09.2010 stating that the entire project was completed on 5.9.2010 i.e. before 31.3.2011, the date relevant before which the project had to be established as per the Scheme. The State, based on the facts recorded in the meeting of the State Level Approval committee on 28/2/2011 granted a subsidy of ₹ 92,63,000/- Therefore the petitioner's project had been completed before the statutory date of 31.3.2011. 9. As per the application, a total of 182 units were to be located at the Park. However, as is evident from the schedule of requirements vis-a-vis the implementation furnished, that as per the scheme 34 Units were located in the park in the Financial Year 2009-2010. In the first round in the petitioner's case where the CBDT had rejected the application for approval, the Court reproduced the observations of the CBDT, which weighed with the authority to reject the application. Reproduction of the para could be of help. The same reads as under: 5. CBDT noted that the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This certificate issued by AUDA in Gujarati, is in respect of occupation of the first unit only and does not cover the occupation of 182 units that form part of the entire project. It also gives area related information pertaining to that first unit and not the entire project. The certificate is dated 17.06.2010 and as mentioned in the text, it is based on physical verification by AUDA. The Applicant has placed reliance on this document to contend that the project was completed on 17.06.2010. This is certainly not the position. The occupancy certificate was issued by AUDA on applicant's request and the vital question is why such request was made when only one unit was complete and not all the units. The obvious indication is that since only one unit was complete before the cutoff date, the applicant obtained this certificate and has been using it as an evidence under the camouflage that entire project was complete by this date and the applicant can avail huge tax benefits for ten years. It may further be clarified here that the completion of project not only means completion of basic infrastructure but also industrial units which are the integral part of any industrial park. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copies of agreements are not on record although the applicant has made such a claim). This is supported by the certificate of AUDA dated 17.06.2010 (at SL No.1 of this table) that only one unit was fit for occupation. Moreover, it specifically mentions that 'Construction in progress' is in respect of 19 units and therefore the completion of project as a whole on that day remains unsubstantiated. Therefore, this document does not prove completion of project by 05.09.2010. 4. A letter dated 08/04/2013 related to Project completion certificate issued by Industries Commissioner, Government of Gujarat This letter issued by the Industrial Commissioner, Gandhinagar dated 08.04.2013 is in response to applicant's request for issuing completion certificate made vide its letter dated 14.03.2013. Why the applicant applied for the issue of completion certificate about two years subsequent to the claimed date of completion i.e. 05.09.2010 is not understood. Further, the text of the letter indicates that the same is in context of releasing financial grant to the applicant as per State Government Scheme linked to the develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uggests that the decision regarding the actual date or final completion of said project may be taken at your level.' 15. In view of the above, the only choice that remains with us is to decide the date of completion based on the information contained in the said four documents. As already discussed, after analyzing these documents, the date of completion/occupation is established to be certainly beyond 31.03.2011 and hence the applicant has failed to meet the deadline regarding completion of the project. Thus, the condition at para 4(1) of the Industrial Park Scheme, 2010 has not been met in this case. Accordingly, I have been directed to state that it has not been found to be a fit case for notification u/s 80IA(4)(iii) of the Act. Hence, the competent authority has decided to reject the application. 10. The reading of the table above indicates that according to CBDT, the completion report dated 5/09/2010 of MARS Planning and Engineering Services Private Limited indicated as under: (1) No. Of Units sold - 180. (2) Out of which agreement executed - 99 (3) Out of which construction in progress - 19 (4) Out of which production started in - 4. 11. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard that completion certificate should be provided by a local authority. In strict sense of the term, perhaps the petitioner did not fulfill this requirement. However, a more liberal or practical approach could be that when MARS Planning Engineering Services Pvt. Ltd. was appointed by GIDC who had certified that the project was completed before 31.3.2011 and when the State Government had acted on such report and approved the subsidy, this should have been seen as a substantial compliance of such requirement. However, to put the issue beyond any controversy, we permit the petitioner to produce such certificate from GIDC, which is also a local authority, before CBDT which may be done latest by 30.9.2016. If such certificate providing that the project of the petitioner is completed before 31.3.2011, is issued, CBDT shall approve the petitioner for grant of deduction under section 80IA(4) of the Act and issue necessary notification in this respect, within three months from the date of receipt of such certificate. 13. In other words, the notification dated 26.12.2016 and the impugned order dated 17.3.2017 would indicate that the CBDT is of the opinion that unless the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IA,that benefit of deductions is available from the date the unit starts or begins to develop. The language of the Section when compared to that of the Circular of 15.2.2016 do not suggest that the intent of the Section is as wide as sought to be canvassed by the Petitioner. 16. The language professed in the Circular has other connotations. Assessing Officers while determining the quantum of deduction in reference to the term ' initial assessment year' were considering the first year of commencement/operation itself as the first year of commencement/operation. This was against the clear mandate provided under sub-section (2) which allowed a choice to the assessee for deciding the year from which it desires to claim deduction out of applicable slab of fifteen years. 17. After having examined the matter, the Board opined that it is abundantly clear from sub-section (2) that the assessee has the option to choose the initial/first year from which it may desire the claim of deduction. The 'initial assessment year' therefore would mean the first year opted for by the assessee for claiming deduction under Section 80IA.It need not necessarily mean the year of commence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at economic growth of 7 to 8%, which has been achieved in other countries and which alone can provide the jobs we need for our growing labour force, then we need much larger investment and much greater efficiency in key infrastructure sectors such as power, roads, ports, irrigation, railways and telecommunications. Sound financial management holds the key to progress in this area. Adequate supply of quality infrastructure depends crucially on the financial viability of these sectors, which in turn depends upon the adoption of reasonable cost recovery policies. To take the example of power, many State Governments are unable to finance new investment in power generation because of the financial weakness of the State Electricity Boards. Taking advantage of the Central Government s initiative to encourage private investment in power generation, many State Governments are actively trying to attract private sector investments into this area. But private sector investors are unwilling to invest in power unless the State Governments and the Central Government provide guarantees and counter-guarantees to reassure the private sector producers that they will be paid for the power they genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h states that the industrial park shall be construed as developed on the date of commencement, would indicate that, unless the Park had a completion certificate or occupation certificate it would not be deemed to have commenced. 23. As seen from the provision of Section 80IA, the intent behind this provision was to give an impetus to the development of infrastructure at the hands of the private players, as the Government could not be a participant in each and every activity to the fullest. A fillip to such projects would receive the necessary stimulus only if tax concessions are granted to the project aspirant so that the investments that go into the making of the project bear fruit,in as much as option is given to claim deductions in tax over profits arising out of setting up such facilities are given. 24. Rule 18C of the Income Tax Rules provide that if such an Industrial Park is begun to develop, developed or operated and maintained any time during the period beginning on the 1st day of April 2006 and ending on 31st March 2011 shall be eligible for the benefits under Section 80IA(4)(iii) of the Act. According to Section 80IA(2) of the Act, the assessee may at his option cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll infrastructural facilities; sub plotting the entire plot and also ensuring that the number of units indicated in the application are sold to the intending industries. In short, the duty and responsibility of the petitioner was to ensure that the industrial activity is facilitated on the Industrial Park so developed by it. It was thereafter not responsible to ensure that industries do in fact set-up their units and commence production activities on such units that too before the last date envisaged in the Scheme. To our mind, such responsibility fastened on the petitioner is not borne out from the Scheme. The duty and responsibility of the petitioner was to provide infrastructural facilities which would be a catalyst for industrial growth by enabling the intending industries to set-up their industry in such a Park. Such manufacturing units or the intending industries were in no way under the control of the petitioner. There can be variety of reasons why such industries may not be able to start their units, such as, non-availability of funds for setting up of the units, pending approval and clearances from the Government and other agencies and such similar reasons which can be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k project with an aim to have tax concessions; Impetus to set up such infrastructure facilities would receive a set back if the tax concession to such a Park is left to be opted for,only when the entire project is sold out. It could prove to be counter-productive to setting up such projects, if the developer has to wait to avail of tax concessions till such time. He could be left to fend for himself and be deprived of tax concessions though he opted to set up and develop an infrastructure facility with a view to avail of tax sops. This would go against the spirit of the purpose of the Section's object. 28. The issue can be looked from a slightly different angle. As per the Revenue's interpretation, an assessee cannot claim deduction under the said provision till all units are sold. This would have wholly unintended consequences. The assessee would have to recognize the income arising out of the sale of units in the year when such event happens. It may take number of years for all units to be sold. If the starting point of deduction is deferred till all units are sold, the assessee would get no deduction on the income arising out of sale of units in earlier years. For exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive to the purpose of such a scheme if the deductions under Section 801A(4)(iii) are postponed till the entire project is set up which cannot be said to be the intention of the scheme. Once the minimum number of units, 30 in number are located, the Park can at its choosing, opt for availing the deductions under Section 80IA from the date of its first year or choose a subsequent year as its initial assessment year 31. As a result of a specific finding given by us that the petitioner is deemed to have been eligible for availing tax deduction under Section 80IA(4)(iii) from the Financial Year 2009-2010, Assessment Year 2010-11, the order rejecting the Rectification Application dated 17.3.2017 deserves to be set aside. The condition in the Notification extending the benefit of availing of deductions under Section 80IA(4)(iii) from the date of commencement of 5.09.2010 is a condition not found in any of the other notifications vis-a-vis other such projects, produced in other such cases. Accordingly, the respondents are directed to delete Condition No. 7 in the Notification of 26.12.2016. The petitioner's claim for deduction at whichever stage pending before the assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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