Ita/163/2012 Of Cocohin International Airport Ltd v. Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU MONDAY, THE 7TH DAY OF AUGUST 2017/16TH SRAVANA, 1939 ITA.No. 163 of 2012 ----------------------- AGAINST THE ORDER IN ITA 807/2008 of I.T.A.TRIBUNAL,COCHIN BENCH DATED04-05-2012 ---------- APPELLANT- RESPONDENT:------------------------------ COCHIN INTERNATIONAL AIRPORT LTD 35, GCDA COMPLEX, MARINE DRIVE, KOCHI 682031 REPRESENTEDBY ITS EXECUTIVE DIRECTOR (FINANCE) AND COMPANY SECRETARY BY ADVS.SRI.M.PATHROSE MATTHAI (SR.) SRI.SAJI VARGHESE SMT.MARIAM MATHAI RESPONDENT/APPELLANT: ------------------------------ DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1), ERNAKULAM BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-08-2017, ALONG WITH ITA. 169/2012 & CON. CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ANTONY DOMINIC & DAMA SESHADRI NAIDU, JJ. ------------------------------------------- I.T.A. Nos. 163, 169 & 176 of 2012 ( ) ------------------------------------------ Dated this the 7[th] day of August, 2017. JUDGMENT Antony Dominic,J. The common questions of law framed in these appeals for the consideration of this Court are the following: 1. Whether on the facts and in the circumstances of the case theAppellate Tribunal's decision that the agreement contemplated inclause (b) of Section 80-IA(4) is the agreement with theGovernment or Government bodies and not agreement with theAirports Authority of India the statutory body, is Airports Authorityof India is erroneous and contrary to the said clause (b) specificallymentioning other statutory body for operating and maintaining anew infrastructure facility?Appellate Tribunal's decision that the agreement contemplated inclause (b) of Section 80-IA(4) is the agreement with theGovernment or Government bodies and not agreement with theAirports Authority of India the statutory body, is Airports Authorityof India is erroneous and contrary to the said clause (b) specificallymentioning other statutory body for operating and maintaining anew infrastructure facility? 2. Whether on the facts and in the circumstances of the case theTribunal erred in setting aside the decision of the Commissioner ofIncome Tax (Appeals) and holding that Annexure C agreementdoes not constitute the agreement specified in clause (b) of sub-section (4) and it relates only to facilities inside the Airport,ignoring that the said equipments and high-tech services providedby Annexure C are mandatory statutory requirements for operationand maintenance of an Airport?Tribunal erred in setting aside the decision of the Commissioner ofIncome Tax (Appeals) and holding that Annexure C agreementdoes not constitute the agreement specified in clause (b) of sub-section (4) and it relates only to facilities inside the Airport,ignoring that the said equipments and high-tech services providedby Annexure C are mandatory statutory requirements for operationand maintenance of an Airport? 3. Whether on the facts and in the circumstances of the case theTribunal was right in law in interfering with the order of theCommissioner of Income Tax (Appeals)?Tribunal was right in law in interfering with the order of theCommissioner of Income Tax (Appeals)? 2. The appellant company has established an airport. In the assessment years 2005-2006, 2006-2007 and 2007-2008, thecompany claimed the benefit of deduction under Section80-IA of theIncome Tax Act ('IT Act'). The Assessing Officer took the view that the 3. Whether on the facts and in the circumstances of the case theTribunal was right in law in interfering with the order of theCommissioner of Income Tax (Appeals)?Tribunal was right in law in interfering with the order of theCommissioner of Income Tax (Appeals)? 2. The appellant company has established an airport. In the assessment years 2005-2006, 2006-2007 and 2007-2008, thecompany claimed the benefit of deduction under Section80-IA of theIncome Tax Act ('IT Act'). The Assessing Officer took the view that the assessee did not satisfy all the conditions specified in sub-section (4)of 80-IA and accordingly rejected the claim of the assessee. Appealswere filed before the Commissioner of Income Tax (Appeals) and thefirst appellate authority held that the MOU entered into by theassessee with the Airport Authority of India could be taken as anagreement as contemplated in clause (b) of Section 80-IA(4) of the ITAct. It was also agreed that the assessee satisfied clause (c) of sub-section (4). Accordingly, the Commissioner of Income Tax allowed theappeals and directed the Assessing Officer to allow deduction underSection 80(1)(A) of the IT Act. 3. Revenue filed I.T.A. Nos. 807/2008, 392/2010 and 375/2009before the Tribunal and in the impugned common order, the Tribunalheld that the agreements entered into between the assessee and theAirport Authority of India did not constitute agreements specified inclause (b) of sub-section (4) of Section 80-IA of the IT Act. Similarly,with respect to clause (c) of Section 80-IA(4) of the IT Act, theTribunal took the view that the basic particulars are not borne out ofthe assessment order, nor was there any occasion for the assessingofficer to verify those vital details. On that basis, the Tribunal setaside the order of the Commissioner and restored the matter to the fileof the assessing officer for fresh examination of that issue. It isaggrieved by these orders, the assessee is in appeal before us. 4. We heard the learned Senior Counsel for the assessee andthe learned Senior Counsel for the Revenue. 5. According to the learned Senior Counsel, the Memorandum ofUnderstanding entered into between the assessee and the AirportAuthority of India and the subsequent agreement between the parties,copies of which are Annexures C and K respectively in I.T.ANo.163/2012, would show that the assessee had entered into anagreement as contemplated in clause (b) of sub-section (4) of Section80-IA of the IT Act entitling the assessee for deduction under Section80-IA of the Act. On the other hand, the learned Senior Counselappearing for the Revenue contended that these documents did notqualify to be agreements as specified in clause (b) and that theagreement as contemplated in clause (b) is an agreement entered intowith an airport which has already been established and is a functioningone. According to him, the assessee had entered into the agreementsto make the airport operational and that therefore, the assessee is notentitled to claim the benefit of Section 80-IA of the IT Act. 6. We have considered the submissions made. Answer to thequestions of law framed in these appeals would depend upon ourunderstanding of Section80-IA of the IT Act. It is also to beconsidered whether Annexures C and K, the MOU and agreementrespectively, satisfied the requirements of clause (b) of sub-section (4) 6. We have considered the submissions made. Answer to thequestions of law framed in these appeals would depend upon ourunderstanding of Section80-IA of the IT Act. It is also to beconsidered whether Annexures C and K, the MOU and agreementrespectively, satisfied the requirements of clause (b) of sub-section (4) of Section 80-IA of the IT Act. Section 80-IA(1) provides that wheregross total income of an assessee includes any profits and gainsderived by an undertaking or an enterprise from any business referredto in sub-section (4), there shall, in accordance with and subject to theprovisions of the Section, be allowed, in computing the total income ofthe assessee, a deduction of an amount equal to hundred per cent ofprofits and gains derived from such business for ten consecutiveassessment years. Sub-section (2) provides that the deduction interms of sub-section (1) may, at the option of the assessee, beclaimed by the assessee for any ten consecutive assessment years outof fifteen years beginning from the year in which the undertaking orthe enterprise develops and begins to operate any infrastructurefacility referred to in clause (iii) of sub-section (4). 7. Sub-Section (4) provides that Section 80-IA would apply toany enterprise carrying on the business of (i) developing or (ii)operating and maintaining or (iii) developing, operating andmaintaining any infrastructure facility which fulfils all the conditionsspecified therein. The first condition in clause (a) is that theinfrastructure facility shall be owned by a company registered in Indiaor by a consortium of such companies or by an authority or board orcorporation or any other body established or constituted under theCentral or State Act. As per clause (b), the second condition that is required to be satisfied is that the infrastructure facility should haveentered into an agreement with the Central Government or a StateGovernment or a local authority or any other statutory body for (1)developing or (ii) operating and maintaining or (iii) developing,operating and maintaining a new infrastructure facility. The thirdcondition specified in clause (c) is that the assessee should havestarted or starts operating and maintaining the infrastructure facilityon or after 1[st] April, 1995. The explanation to sub-section (4) whichenumerates the infrastructure facilities for the purposes of theprovision includes an airport also. The aforesaid statutory provisions,therefore, would show that an airport is an infrastructure facility ascontemplated in sub-section 2 of Section 80-IA of the IT Act entitled tothe benefit of deduction as provided in sub-section (1), provided itsatisfied the conditions specified in clauses (a), (b) and (c) of sub-section 4 thereof. 8. Turning to the case on hand, the fact that the airport is ownedby a company registered in India as provided in clause (a) of sub-Section 4 is not disputed by the Revenue. The question whether it hasstarted operation of the airport after 1[st] April, 1995 as specified inclause (c), is not an issue raised in these appeals. The dispute iscentered around clause (b) and further on the question whetherAnnexures C and K, Memorandum of Understanding and the agreement respectively, would qualify to be an agreement with astatutory body as contemplated in clause (b) for “operating andmaintaining” an infrastructural facility. 8. Turning to the case on hand, the fact that the airport is ownedby a company registered in India as provided in clause (a) of sub-Section 4 is not disputed by the Revenue. The question whether it hasstarted operation of the airport after 1[st] April, 1995 as specified inclause (c), is not an issue raised in these appeals. The dispute iscentered around clause (b) and further on the question whetherAnnexures C and K, Memorandum of Understanding and the agreement respectively, would qualify to be an agreement with astatutory body as contemplated in clause (b) for “operating andmaintaining” an infrastructural facility. 9. Annexures C and K are the Memorandum of Understandingand agreement with Airport Authority of India. The Airport Authorityof India is a body constituted by the Government of India underSection 3 of the Airports Authority of India Act, 1994 and is,undoubtedly, a statutory body. Section 12 of the Act provides for thefunctions of the Authority. Section 12(1) provides that subject to theRules, if any, made by the Central Government in this behalf, it shallbe the function of the Authority to manage the Airports, the civilenclaves and aeronautical communication stations efficiently. Section12(2) further provides that it shall be the duty of the Authority toprovide air traffic service and air transport service at any airport andcivil enclaves. The Authority is also empowered, among others, toplan, procure, install and maintain navigational aids, communicationequipments, beacons and ground aids at the airports and at suchlocations as may be considered necessary for safe navigation andoperation of aircrafts, vide clause (b) of sub-Section (3) of the Act.Airport has been defined in Section 2(b) as a landing and taking offarea for aircrafts, usually with runways and aircraft maintenance andpassenger facilities and includes aerodrome as defined in sub-section (2) of Section 2 of the Aircraft Act, 1934. The air transport service,which the Airport Authority is duty bound to provide under Section 12(2), is defined in Section 2(e) as any service for any kind ofremmuneration, whatsoever, for the transport by air of persons, mailor any other thing, animate or inanimate, whether such service relatesto a single flight or series of flights. Similarly, air traffic service, whichis also the duty of Airport Authority of India, is defined in Section 2(d)and it includes flight information service, alerting service, air trafficadvisory service, air traffic control service, area control service,approach control service and airport control service. 10. From the above, it is evident that in view of the provisionscontained in the Airports Authority of India Act, 1994, providing of airtraffic service and air transport service at any airport and civil enclavesin India is the duty of the Airport Authority of India, a statutory bodyestablished under Airport Authority of India Act, 1994. It shall also bethe function of the Authority to manage the airports and theAeronautical Communication Stations efficiently. It was in view ofthese statutory obligations of the Airport Authority of India, the solerepository of these duties in the country, that the assessee hadentered into Memorandum of Understanding dated 07.06.1999 withthe Authority, a copy of which is produced as Annexure C. Theobligations that are undertaken by the Airport Authority of India are: 1.AAI would provide CNS equipment, install, test, flightcalliberate and commission for operational use as required forfacilitating safe aircraft operation at the airport.calliberate and commission for operational use as required forfacilitating safe aircraft operation at the airport. 1.AAI would provide CNS equipment, install, test, flightcalliberate and commission for operational use as required forfacilitating safe aircraft operation at the airport.calliberate and commission for operational use as required forfacilitating safe aircraft operation at the airport. 2. The cost of the CNS equipment so provided by AAI including allpre-operative expenditure incurred towards installation, testing,flight calliberation, commissioning and any other associatedincidental expenditure subject to a maximum of Rs.11 crores will beconverted as AAI's equity in the share capital of CIAL. At the timeof AAI and CIAL executing a formal agreement in this regard, ifaforesaid expenditure exceeds Rs.11 crores, the excess amount shallbe refunded in cash to AAI by CIAL.pre-operative expenditure incurred towards installation, testing,flight calliberation, commissioning and any other associatedincidental expenditure subject to a maximum of Rs.11 crores will beconverted as AAI's equity in the share capital of CIAL. At the timeof AAI and CIAL executing a formal agreement in this regard, ifaforesaid expenditure exceeds Rs.11 crores, the excess amount shallbe refunded in cash to AAI by CIAL. 3. In order to assess the viability of the project all relevant documentslike feasibility reports etc. shall be provided by CIAL to AAI.like feasibility reports etc. shall be provided by CIAL to AAI. 4. AAI will maintain CNS equipment in serviceable condition andwould undertake periodical flight caliberation of Nav-aids as per therequirements and practice in vogue in AAI. The cost for flightcaliberation will be borne by CIAL.would undertake periodical flight caliberation of Nav-aids as per therequirements and practice in vogue in AAI. The cost for flightcaliberation will be borne by CIAL. 5. AAI would provide AIR Traffic Services, Aeronautical Informationand Aerounatical Communication Services, Search & Rescue andother associated service as per the ICAO guidelines.and Aerounatical Communication Services, Search & Rescue andother associated service as per the ICAO guidelines. 6. AAI would prepare all laid-down procedures, charts, etc as may benecessary for safe aircraft operation at the airport.necessary for safe aircraft operation at the airport. 7. AAI would maintain an Anti-hijacking Control Center to deal withcontingencies arising out of hijacking of aircraft or any such act. contingencies arising out of hijacking of aircraft or any such act. 8. AAI would maintain its administrative office at the airport as may benecessary to support its operational activities.necessary to support its operational activities. 9. AAI would deploy manpower as considered necessary by it forproviding the services as detailed above.providing the services as detailed above. 11. Although the MOU was to remain valid for a period of one year from the date of its execution and the parties were to enter into a formal agreement within the said period, it would appear that theparties carried on their activities on the basis of the MOU until theyentered into Annexure K, a comprehensive agreement dated25.02.2010, which is given effect to from 16.09.2006. The obligationsof the Airport Authority as enumerated under the agreement readthus: OBLIGATIONS OF AAI 2.1 Operating and Future Commissioning Services 2.2 During the Operational and any Future Commissioningservices for the facilities at Cochin International Airport, AAIshall, at its own cost: i. Take all steps necessary to integrate the AAI Equipment withany relevant air navigation and meteorological equipments andsystems operated by AAI.any relevant air navigation and meteorological equipments andsystems operated by AAI. OBLIGATIONS OF AAI 2.1 Operating and Future Commissioning Services 2.2 During the Operational and any Future Commissioningservices for the facilities at Cochin International Airport, AAIshall, at its own cost: i. Take all steps necessary to integrate the AAI Equipment withany relevant air navigation and meteorological equipments andsystems operated by AAI.any relevant air navigation and meteorological equipments andsystems operated by AAI. ii. Carry out such calibration flights as are necessary tocommission the AAI Equipment and, to the extent practicable,shall co-ordinate those flights with Cochin International Airportto enable CIAL to calibrate the CIAL Equipment at the sametime. For the avoidance of doubt, AAI shall not be liable forthe cost incurred by CIAL to calibrate the CIAL Equipment.commission the AAI Equipment and, to the extent practicable,shall co-ordinate those flights with Cochin International Airportto enable CIAL to calibrate the CIAL Equipment at the sametime. For the avoidance of doubt, AAI shall not be liable forthe cost incurred by CIAL to calibrate the CIAL Equipment. iii.Where appropriate, assist DGCA in the performance of anychecks and procedures, which are required to be performedfor the optimum use of airport.checks and procedures, which are required to be performedfor the optimum use of airport. iv.Prepare all such procedures, manuals and charts related to theAAI Services as are necessary in order to ensure the safeoperation of aircraft at the Airport and in the airspace in thevicinity of the Airport. AAI Services as are necessary in order to ensure the safeoperation of aircraft at the Airport and in the airspace in thevicinity of the Airport. v. Mutually agree with CIAL the Operating Reporting Procedureand the Incident Reporting Procedure.and the Incident Reporting Procedure. vi.Provide CIAL and other agencies with such assistance as maybe reasonably required during any trial operations at theAirport. 2.3 AAI shall, during performance of the AAI operating phaseand future Commissioning phase provide such reasonableassistance as may be necessary to the Contractors to ensurethat the AAI Equipment is adequately integrated with the CIALEquipment. 2.4 Following performance of the AAI Services in accordancewith Clause-2 and prior to the end of Future CommissioningPeriod, AAI shall confirm to CIAL in writing that the AAIEquipment is fully operational and integrated with the CIALEquipment and that the AAI Equipment is such that AAI canperform the AAI Operative Services in accordance with therelevant standards prescribed in the relevant ICAO Annexes anddocuments (as amended from time to time). 2.5 AAI shall at all times (including twenty-four hours each day)in accordance with the relevant standards prescribed in therelevant ICAO Annexes and documents (as amended from timeto time) and at its own cost. 2.5.1 Provide the CNS/ATM Services as defined in Schedule 3. 2.5.2 Maintain the AAI Equipment including carrying out periodicflight calibration of the AAI Equipment and other tests at its owncost. 2.5.3.Upgrade the AAI Equipment from time to time at its owncost (i) as a minimum to comply with the relevant provisionscontained in the relevant ICAO Annexes and documents (asamended from time to time) and (ii) as a result ofexpansion/upgradation of the airport required by it. 2.5.4 Purchase at its own cost such equipment as may be therequirement from time to time to enable AAI to provide theCNS/ATM Services at the Airport. 2.5.5 Procure meteorological facilities and services for provisionof CNS/ATM Services at the Airport in accordance with the practices established or recommended from time to timepursuant to the Chicago Convention or as notified by Govt. ofIndia from time to time. 2.5.3.Upgrade the AAI Equipment from time to time at its owncost (i) as a minimum to comply with the relevant provisionscontained in the relevant ICAO Annexes and documents (asamended from time to time) and (ii) as a result ofexpansion/upgradation of the airport required by it. 2.5.4 Purchase at its own cost such equipment as may be therequirement from time to time to enable AAI to provide theCNS/ATM Services at the Airport. 2.5.5 Procure meteorological facilities and services for provisionof CNS/ATM Services at the Airport in accordance with the practices established or recommended from time to timepursuant to the Chicago Convention or as notified by Govt. ofIndia from time to time. 2.5.6 Relocate AAI Equipment at its own cost and in co-ordination with CIAL for its operative convenience provided suchrelocation does not affect the CIAL obligations and or smoothoperation of the airport. 2.5.7 AAI shall provide at its own cost all the communicationlines/facilities, telephone lines, internet services, broadbandservice etc. for the smooth functioning of the CNS/ATM services. 2.5.8 AAI shall provide at its own cost the vehicles required forthe transportation of men and materials for the operation,maintenance, installation, testing, commissioning and calibrationof CNS/ATM equipments. 2.5.9 AAI shall provide at its own cost the residentialaccommodation required for the AAI staff posted at CochinInternational Airport for the CNS/ATM Services (operation,maintenance, commissioning, testing, installation, calibrationetc.) 2.6 ATM -En-route and other services 2.6.1 If AAI requires, it may at its own cost, subject to receivingthe prior consent of CIAL, which will not be unreasonablywithheld, situate at the Airport or on the Site any radars,equipment, buildings, works or facilities necessary for theprovision of enroute air navigation services. In situating suchradars, equipment, buildings, work or other facilities at theAirport, AAI shall take appropriate measures to avoid anydisruption to the normal operation of the Airport. 2.7. Calibration of Equipments and Self-Insepction ofEquipments and Facilities. 2.7.1 AAI has to conduct calibration of equipments as per therequirements. 2.7.2 Periodical Self-Inspection of equipments and facilities is tobe carried out by AAI at required intervals. 12. From the provisions of Annexure-C and Annexure-K, whichcontain the obligations of the Airports Authority of India, it is clear thatthe Airport Authority of India was only undertaking to discharge itsfunctions as provided under Section 12 of the Airports Authority ofIndia Act, 1994 for the operation and maintenance of the airport whichwas developed by the Cochin International Airport Limited. Such anagreement between the Airports Authority of India and the assesseewould qualify to be an agreement entered into with a statutory bodyfor “operating and maintaining the infrastructure facility”, viz theairport. 13.It was argued by the Senior Counsel for the Revenue that toqualify for the benefit of deduction under Section 80-IA of the IT Act,the agreement with the statutory body should have been entered intoby an airport which is already operational. According to him, theprovisions of Annexure-C and Annexure-K would show that theobligations undertaken by the airport were, for making the airportoperational, which according to the counsel, was a part of developmentof the airport. Having read clause-(b) of sub-section (4) of Section 80-IA, we are not persuaded to think that to satisfy the requirement ofclause-(b), the agreement should be one entered into by an airportwhich is already functional. An airport to be operational require thefacilities that are agreed to be provided by the Airport Authority vide Annexure-C and Annexure-K. It is only on installation and operation ofsuch equipments can the airport be operated and maintained. Such anagreement would be an agreement for operating and maintaining theinfrastructure facility viz the airport and for the purpose of Section 80-IA, the statute does not contemplate that the airport should already beon stream and that the agreement should be entered into thereafter. 14. Further, this argument of the revenue would also militateagainst sub-section 2 which provides that the assessee would beentitled to the benefit of deduction from the year in which theundertaking or enterprise develops or begins to operate anyinfrastructure facility. Necessarily, therefore, the agreement and theinstallation of the equipments for the operation of the airport shouldprecede the commencement of operation of the infrastructure facilityto avail the benefit of deduction. The statutory provision and theagreement being as above, we cannot uphold the conclusion of theTribunal that both the agreements could not constitute agreementsspecified in clause-(b. Accordingly, the findings of the Tribunal withreference to clause-(b) of sub-section (4) of Section 80-IA are setaside. 15. The matter will stand remitted to the Assessing Officer forfresh examination as ordered by the Tribunal in paragraph 7 of itsorder. In the result, answering the questions of law framed in favour ofthe assessee and against the Revenue, these appeals are disposed of. ANTONY DOMINIC, JUDGE DAMA SESHADRI NAIDU, JUDGE rv & kns