Ita/196/2011 Of Commissioner Of Income Tax v. M/S Primal Projects (P) Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 10 DAY OF NOVEMBER 2070. PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD BETWEEN: LT.A. NO.196 OF JZO11 1.|COMMISSIONER OF INCOME TAX| CENTRAL CIRCLE, C.R. BUILDING QUEENS ROAD, BANGALORE. 2.|DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1(4), BANGALORE. (BY SRI. JEEVAN J. NEERALGI, ADV.,) .., APPELLANTS~ AND* M/S. PRIMAL PROJECTS (P) LTD.,.NO.97/B, I FLOOR, 6TH BLOCKKORAMANGALA, BANGALORE. (BY SRI. PAVAN KUMAR, ADV., FOR| SRI. S. PARTHASARATHI, ADV.,) .., RESPONDENT| THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED 28.02.20L1 PASSED IN ITANO.1297/BANG/2010 FOR THE ASSESSMENT YEAR 2007-08,PRAYING TQ: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN.» (11) SET ASIDE THE APPELLATE ORDER DATED 28.02.2011|PASSED BY THE ITAT, B BENCH, BANGALORE IN APPEAL PROCEEDINGS ITA NO.1297/BANG/2010, AS SOUGHT FOR INTHIS APPEAL, IN THE INTEREST OF JUSTICE AND EQUITY.THIS|ITACOMING|ONFOR.HEARING,THISALOK ARADHE J.,DELIVERED THE FOLLOWING: | DAY, | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)has been preferred by the revenue. The subject matter|of the appeal pertains to the Assessment year 2007-08.The appeal was admitted by a bench of this Court videorder dated 27.03.2012 on the following substantialquestion of law: (i) Whether the Tribunal was correctin law tn allowing assessee’s appeal by.holding that the assessee is eligible fordeduction under section 80IA(4)(iil) of the|I.T. Act, 1961 even when the assessee has|failed to satisfy the conditions put forth tnthe said provisions. (ii) Whether the Tribunal was correctin law to allow the deduction under section|8OIA(4)(iii) of the I.T. Act, 1961 when the|assessee had not fulfilled the conditions envisaged by the Government of India as.well as those Included in the Industrial! ParkScheme, 2002 and therefore contravened|the provisions of Rule 18C(3) of the|[ncome-Tax Rules and as such whether|because of this reason can the order passedby tribunal be said as perverse in nature. (iii) WhetherOf)thefacts|and|circumstances of the case, the _ Tribunaerred in law in interpreting the intentions ofthe legislation to promote large number of|industrial units in the Industrial Park, by|holding that the five floors leased to asinglecompanywouldconstitutefive|independent Industrial units and satisfy thecriteria mentioned in para i1(vii) of theapproval letter issued by the Ministry of|Commerce and Industry. (iV) Whether the Tribunal was correct’In|law.In|interpretingIndustrialParkScheme, 2002 by holding that the fivefloors leased out to a single entity t.e. M/s.Accenture|Services(P)Ltd.,wouldconstitute five separate taxable entities and therefore the assessee had not violated the|condition that no single unit shall occupy|more than 50% of the allocable industrial|area of an [Industrial Park. (v) Whether the Tribunal was correctin law to allow the deduction under section|SOIA of the [.T. Act when the assessee had|constructed only 2,01,350/- Sq.ft. instead|of the required area of 2,41,620 Sq.ft. and|therefore had not fulfilled the condition [aid|out in the approval granted by the Ministry|of Commerce and notification from Ministry|of Finance. (vi) Whether the Tribunal was correct’in law to allow the deduction under section|SOIA of the I.T. Act for the financial year|ZPOQ0Q6-O7 when the notification was issuby the CBDT, Ministry of Revenue on|31.05.7007|and|thereforewhentheassessee had developed and started the|Unit even before the approval and before|getting notified by the CBDT. (v) Whether the Tribunal was correctin law to allow the deduction under section|SOIA of the [.T. Act when the assessee had|constructed only 2,01,350/- Sq.ft. instead|of the required area of 2,41,620 Sq.ft. and|therefore had not fulfilled the condition [aid|out in the approval granted by the Ministry|of Commerce and notification from Ministry|of Finance. (vi) Whether the Tribunal was correct’in law to allow the deduction under section|SOIA of the I.T. Act for the financial year|ZPOQ0Q6-O7 when the notification was issuby the CBDT, Ministry of Revenue on|31.05.7007|and|thereforewhentheassessee had developed and started the|Unit even before the approval and before|getting notified by the CBDT. 2 |Thefactualbackground,In|whichtheaforesaid substantial questions of law arise for our.consideration need mention. The assessee is engaged inthe business of development of Information Technology|parks and similar infrastructure facilities. The assesseewas allotted 27 acres and 50 guntas of land in Phase-I|and 33 acres of land in Phase-II on 10.11.2003 byKarnataka Industrial Area Development Board (KIADB)for development of Information Technology park and theallied infrastructure facilities. The assessee entered into|a Joint Development Agreement (JDA) with M/s Millenia|Realtors (P) Ltd. On 14.12.2003 to develop theInformationTechnologyPark.The.aSS@C@SSCON)16.12.2003 obtained permission to develop the lands in|joint venture with M/s Millenia Realtors (P) Ltd.Thereafter, on 02.04.2005, the assessee entered into anagreement for sale of five units in 2A campus to.individuals and subsequently, on 02.08.2005 enteredinto an agreement for sale of the balance of 4 units in. 2A campus to individuals. The assessee thereafter, on05.12.2006 applied for obtaining the approval of theMinistry for the campus 2A as an Industrial Park. On.31.05.2007, approval under Section 80IA was notifiedby the Central Board of Direct Taxes (CBDT). Theassessee filed the return of Income for the Assessment|Year|2007-08anddisclosedtheincome|Of Rs.16,69,69,844/-. In computing the income, the|aSSe@SS€2claimed|deduction|tO.tnecune|OT Rs.16,68,51,429/- under Section 80IA(4)(iil) of the Act.The assessing authority by an order dated 26.10.2004|disallowed the claim of the assessee on the ground that|the assessee has not complied with the mandatory.conditions stipulated in the scheme framed by tneCentral Government viz., Industrial Parks Scheme, 2002.(hereinafter referred to as ‘the scheme’ for short). Itwas held that five software companies were not locatedat tne time of sale of Dullt up area and one unit wasoccupying more than 50% of the industrial area, whicn—05.12.2006 applied for obtaining the approval of theMinistry for the campus 2A as an Industrial Park. On.31.05.2007, approval under Section 80IA was notifiedby the Central Board of Direct Taxes (CBDT). Theassessee filed the return of Income for the Assessment|Year|2007-08anddisclosedtheincome|Of Rs.16,69,69,844/-. In computing the income, the|aSSe@SS€2claimed|deduction|tO.tnecune|OT Rs.16,68,51,429/- under Section 80IA(4)(iil) of the Act.The assessing authority by an order dated 26.10.2004|disallowed the claim of the assessee on the ground that|the assessee has not complied with the mandatory.conditions stipulated in the scheme framed by tneCentral Government viz., Industrial Parks Scheme, 2002.(hereinafter referred to as ‘the scheme’ for short). Itwas held that five software companies were not locatedat tne time of sale of Dullt up area and one unit wasoccupying more than 50% of the industrial area, whicn— is in violation of the mandatory conditions mentioned in-the scheme. It was held that the assessee Is not entitledto benefit of deduction under Section 80IA(4)(iii) of theAct. is in violation of the mandatory conditions mentioned in-the scheme. It was held that the assessee Is not entitledto benefit of deduction under Section 80IA(4)(iii) of theAct. 3The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals) who.by an order dated 29.01.2010 dismissed the appealpreferred by the assessee inter alia on the ground that.the substantial development of the software park has—taken place even before the approval was granted by the competent authority and therefore, the assessee is_not entitled to benefit under Section SOIA(4)(lil) of theAct. Tne assessee thereupon approached the Income.Tax Appellate Tribunal (hereinafter referred to as ‘thetribunal for short). The tribunal by an order dated28.02.2011 inter alia held that though entire developed|area has been leased out to the assessee to a singlecompany, yet the functional test nas to be applied and.eacn unit nas to be independent with separate facilities, instrumentation, power connection, door number and.capacity to function independently. It was further held.that since, the units are functioning independently on|different floors even though are situated under the sameroof, the assessee has_ successfully complied thefunctional test of five independent units. It was furtherheld that five separate functional units were operating in>the Assessment Year in question. It was further held.that it was not proper on the part of the AssessingOfficer.COdecline|thededuction|under|Section SOIA(4)(iiil) of the Act on the ground that the assesseehad started functioning even before the formal approvalwas issued under the scheme. Accordingly, the appealpreferred by the assessee was allowed. In the aforesaidfactual background, the revenue nas filed this appeal. 4Learned counsel for the revenue submittedthat in order to.claim deduction under Section|SOIA(4)(ill) of the Act, a assessee nas to satisfy theconditions mentioned in the scneme framed and notified by the Central Government as well as the rules. It is.further submitted that the tribunal failed to appreciatethat the assessee did not comply with the conditions.envisaged in the scheme and also did not comply with|the requirement contained in Section 18C contained in.the Income Tax Rules. It is also argued that as per the|approval granted to the assessee, the assessee was|required to develop an area of 2,41,620 square feet, outof wnichn 95% was for industrial use, Dut developed only2,01,350/- square feet as per Joint DevelopmentAgreement, which works out to less than 90% and as'per the approval granted by Ministry of Commerce and|Industry, the number of industrial units located in theIndustrial Parks should Nave been five, whereas, for the.Assessment Year 2007-08, only one software company.i.e., Accenture Services P. Ltd. was located. It is further|submitted that as per the Scheme, ‘unit’ means aseparate and distinct entity, Dut in the instant case, Accenture Services P. Ltd is only one unit, which has.occupied five floors. 5.|It is further submitted that the assessee soldthe entire built up area on 01.04.2007 for a totalconsideration of Rs.21,02,8/7,5/5/- i.e., prior to notifyingthe approval which was granted to the assessee on|05.12.2006. Therefore, the assessee is not entitled todeduction under Section 80IA(4)(iil) of the Act. It is also.submitted that the assessee has not complied with therequirement contained in Section 6F of the Schemeinasmuch as one single unit has occupied more than|50% of the allocable area. It is also urged that theexpression unit for Industrial park Nas to be interpretedejyusdem generiwith the meaning of the term in Clause.(i) of the Scheme, therefore, a unit which is an industrialpark has to be a part of the building, which has to be|dealt with independently under the state of central laws.for the purpose of stamp duty under the Stamp duty Actand for the purpose of levy of capital gain under tne Act. It is also contended that a unit means a separatetaxable entity. It is also argued that Section 80IA of theAct is a incentive provision granting tax benefit and|therefore, the same has to be construed strictly and theprovision of the taxing statute has to be construed in a|manner, object / purpose of the enactment is a cheat. InSupport of aforesaid submissions, reliance has been.placed on decisions of the Supreme Court in.'GOPALREDDY VS. STATE OF ANDHRA PRADESH JT, ', 1996(6) SC 268, 'P. VARGHESE VS. ITO, (1981) 131 ITR.597 (SC), INDIAN HOTEL CO. LTD. VS. ITO,(2000) 245 ITR 538 (SC).6. On the other nand, learned counsel for the|assessee submitted tnat the finding of the tribunal tnatthe respondent constructed required number of units isa question of fact and by no stretch of imagination can|be said to be perverse. It is also submitted that thefindingtnat|tnerespondentNasfulfilled tnerequirements as laid down in Section 80IA(4)(il) of the: Act are pure findings of fact, which has not been|assailed by the revenue. It is also contended thattribunal has rightly applied the functional test and Nas|held that the assessee has complied the requirementwith regard to a unit and a unit should be a functionally|independent unit having common facilities and the|scheme does not envisage that a unit would mean ajseparate software company. It is also submitted that theunits developed by the assessee were sold to differentpersons as held by the Assessing Officer himself in-paragraph 19 of the order, which clearly shows that the|units were separate entities capable of being sold|separately and were subject to Stamp Duty AndRegistration Act. It is also pointed out that the assesseeNas not constructed the required area was not raised by.therevenue|and.therefore,|does.notarise for.consideration. It is also pointed out that mere delay in.issuing the concerned Notification on the part of theCentral Board of Direct Taxes (CBDT), deduction under. Section 80I could not be denied to the assessee. I[nSupport of aforesaid submissions, reliance has been.placed on decisions of'COMMISSTONER OF INCOME-TAX, CENTRAL-III MUMBAI VS. ACKRUTI CITYLTD’, (2013) 31 TAXMANN.COM 275 (BOMBAY),'GANESHHOUSINGCORPORATIONLTD.VS,DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE.4 & 1 (2012) 21 TAXMANN.COM 157 (GUJ.)and|decisionoftneSupreme,Court|In"DEPUTYCOMMISSIONER OF INCOME-TAX VS. GANESH|HOUSINGCORPORATIONLTD.', (2012)D5TAXMANN.COM 305. 7. We nave considered the SUuDMISSIONS made onpoth sides and have perused the record. Before.proceeding further, it is apposite to take note of SectionSOIA(4)(ili) of the Act as well as Rule 18C of the Income.Tax Rules, 1962 as it existed prior to 08.01.2008, wnhicnread as under: “Section 80IA(4) (iii)- any undertaking whichdevelops, develops and operates or maintains andoperates an industrial park or special economiczone notified by the Central Government’ inaccordancewiththeschemeframedandnotified[&']by that Government for the periodbeginning on the 1st day of April, 1997 andending on the 31st day of March, 2006 : Provided thatIn.aCasewhereaf)undertaking develops an industrial park on or.after the ist day of April, 1999 or a specialeconomic zone on or after the 1st day of April,ZOOand|transferstheoperationand|maintenance of such industrial park or suchspecial economic zone, as the case may be, toanother undertaking (hereafter in this section|referred to as the transferee undertaking), thededuction under sub-section (1) shall be allowedto sucn transferee undertaking for the remainingperiod in the ten consecutive assessment years asif the operation and maintenance were not sotransferred to the transferee undertaking: Provided further that in the case of anyundertakingWAHICAdevelops,developsandoperates or maintains and operates an inaustrial park, the provisions of this clause shall have effectas if for the figures, letters and words “31st day ofMarch, 2006", the figures, letters and words “31st|day of March, 2011" had been substituted” Provided further that in the case of anyundertakingWAHICAdevelops,developsandoperates or maintains and operates an inaustrial park, the provisions of this clause shall have effectas if for the figures, letters and words “31st day ofMarch, 2006", the figures, letters and words “31st|day of March, 2011" had been substituted” 18C. Eligibility of Industrial parks andSpecial Economic Zones for benefits underSection 80-IA(4)(iii) - (1) The undertakingshall begin to operate an industrial parkduring the period beginning on the 1st day ofApril, 1997 and ending on the 31st day ofMarch 7007. (1A) The undertaking shall begin todevelop or develop and operate or maintainand operate a special economic zone anytime during the period beginning on the istday of April, 2001 and ending on 31st day ofMarch, 2006. (2) The undertaking shall be dulyapproved by the Ministry of Commerce andIndustry in the Central Government underthe scheme for industrial park or SpecialEconomic Zones notified by the Ministry. (3)The undertaking shall continue to fulfilltheconditionsENVISAGE?In|thescheme. (4)On approval under sub-rule (2),|the Central Board of Direct Taxes, shallnotify industrial parks for benefits underSection 80-IA. 8.In exercise of powers conferred by clause (ili)of sub-section (4) of Section 80IA of the Act, the CentralGovernment has framed the Scheme which is known as!Industrial Park Scheme, 2002. Clause(2)(i) of theScheme defines the expression ‘unit which means anyseparate and distinct entity for the purpose of one or.more State or Central Tax law. Clause 6 of the Scneme.deals with criteria for automatic approval. Clause 6(T)provides that no single unit referred to in Column No.2|(of the table given in sub paragraph (b) of paragraph 6)Shall occupy more than 50% of the allocable industrialarea of an industrial mode! town or industrial park orgrowtn centre. Clause 7 deals with non-automatic approval. There cannot be any dispute with the legal.proposition that in order to claim the benefit of.deduction under Section 80IA(4)(iii) of the Act, theconditions mentioned in the Scheme have to be!complied with. oiIn the backdrop of aforesaid factual position,we may advert to the facts of the case. Paragraph 2(1) of the Scheme defines the expression ‘unit to mean aseparate and distinct entity for the purpose of one or.more state or Central Tax Laws. Paragraph 6 of the|Scheme deals with criteria for automatic approval. Para.6(T) provides that no single unit snail occupy more tnan.50% of tne allocable industrial area of an industrial.model town or industrial park or growth center. TneAssessing Officer in its order has held that in the|relevant Assessment Year, the assessee did not Nave)five industrial units, therefore, the assessee is notentitledtO.penetfitofdeductionunder|Section SOIA(4)(ill) of the Act. The Commissioner of Income Tax. (Appeals) has held that since, the assessee had carriedout the substantial development of the work prior toobtaining approval, therefore, the assessee is not!entitledCO benefitofdeductionunder|SectionSOIA(4)(ili) of the Act. It is pertinent to mention herethat assessee has developed Information Technology|Park on the basis of an agreement entered into by it andKarnataka Government Agency. The business was set up.before or after the time prescribed in the statute. Tnetribunal has recorded a finding that even though,|assessee has leased out five / four floors to a particulartenant, but the tenants are carrying on their operations|as independent units and their activities are functionallydifferent. It nas furtner Deen hneld that eacn floor isphysically identified for all functional purposes. It has.also been held that approval granted by Ministry of Commerce and Industry itself is a testimony that theassessee company has developed infrastructure facilitiesin the form of Multi storied structure to accommodate independent units to operate separate identities and.individualities of the unit do not disappear only for thereason that the entire developed area has been leasedout to a single company. The tribunal has therefore,|applied the functional test and has held that each unitoccupyingadifferent|floor|IS|independentwithindependentfacilities,instrumentation,DOWET connection, door number and facility of functioning|independently. It nas been held tnat eacn unit Is in aposition to carrying on its activity without depending on other units. Therefore, a finding has been recorded in|favour.oftheaSS@SSCECthat|theaSS@CSSCEhassuccessfullysatisfied|thefunctional CesT|ofan)independent unit. 10. The tribunal has further held that assesseehad applied through non automatic approval to get its|CalNPDUSEapproved|for.deduction|under|SectionSOIA(4)(ill) of the Act. It has further been held that once.the projects are approved and the notifications are issued by the competent authorities, the approvals and.thenotificationswouldrelate|tO.thedateofcommencement of the activities and therefore, thebenefit of deduction cannot be deprived to the assesseeon the ground that he had carried out substantial part of the software projects prior to grant of approval. Thus,|the assessee has been held entitled to the benefit of deduction under Section 80I1A(4)(iii) of the Act. 11. The submissions raised in this appeal onbehalf of the revenue that the assessee was required to.develop 95% of the area for industrial use, but has.failed to do sO was never urged before the tribunal. It ispertinent to note that since, the assessee nad appliedfor non automatic approval under paragrapn 7 of tnescheme,|therefore,|therequirement.containedInparagraph 6(f), which requires a unit not to occupy|more than 50% of the allocable area does not apply to.the case of the assessee. Rule 18C of tne Rules does not|Nave a Dearing on the claim of the assessee with regard to eligibility of deduction under Section80IA(4)(ili) of theAct in the fact situation of the case. Even otherwise,whether or not the assessee has complied with theconditions laid down in the Scheme in order to enable Itto claim deduction under Section80IA(4)(iii) of the Act isa pure question of fact. The findings recorded by the|tribunal have not been assailed by the revenue on theground that the same are perverse. The aforesaid.findings of fact could not be demonstrated to beperverse. Therefore, interference of this court inexercise of powers under Section 260A of the Act iswarranted. [SEE: SYEDA RAHIMUNNISA VS, MALANBI BY L.RS. AND ORS. (2016)10 SCC 315andPRINCIPALCOMMISSIONER|OFINCOME|TAX,BANGALORE & ORS, VS, SOFTBRANDS INDIA P.,LTD., (2018) 406 ITR 513| In view of preceding analysis, the substantialquestions of law framed by a bench of this court areanswered against the revenue and in favour of tne �������� ���������������������������������������������"���������� � ����������� ��� �����������