Ita/204/2013 Of M/S Bangalore Electricity Supply Company Ltd v. The Deputy Commissioner Of Income-Tax

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 7/ DAY OF JANUARY 2071PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’‘’BLE MR. JUSTICE NATARAJ RANGASW A BETWEEN: LT.A. NO.204 OF 2013 M/S. BANGALORE ELECTRICITY SUPPLY COMPANY LITD.,REP. BY ITS CHIEF GENERAL MANAGER.SRI. ANANDA NAIK~CORPORATE OFFICE, 4TH FLOOR.K.R. CIRCLE, BANGALORE-S60001. — APPELLANT. (BY SRI. A. SHANKAR, SR. COUNSEL FOR.SRI. M. LAVA, ADV.,) AND* THE DEPUTY COMMISSIONER OF INCOME-TAX.CIRCLE 11(2), R.P. BHAVANOPP. RBI, NRRUPATHUNGA ROAD BANGALORE. .., RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX|ACT 1961, ARISING OUT OF ORDER DATED 04.07.2012 PASSEDIN ITA NO.359/BANG/2009 FOR THE ASSESSMENT YEAR 2005-06,PRAYING TO: | (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW,STATED THEREIN. | (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO.THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY.THE TRIBUNAL IN ITA NO.359/BANG/2009 DATED 4.7.2012. THIS I.7T.A. COMING ON FOR’ HEARING, THIS’ DAY, | ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)has been preferred by the assessee. The subject matter|of the appeal pertains to the Assessment year 2005-06.The appeal was admitted by a bench of this Court videorder dated 21.01.2014 on the following substantial|questions of law:| (i) Whether the Tribunal was Justified in law in confirming the disallowance ofRs.141,84,44,1/70/- being deduction claimedunder section 80IA(4)(iv)(c) of the Act onthe facts and circumstances of the case? (ii) Whether the Tribunal was Justifiedin| law in_ holding that capitalization oexpenaitureOf)renovationandmodernization in the Dooks of accounts Iscondition precedent for claiming deductionunder section 80IA(4)(iv)(c) of the Act on the facts and circumstances of the case? (iii) Whether the provision of section.115JB of the Act is applicable to theappellantCOMPalhlfor.theimpugnedassessment year 2005-06 on the facts andcircumstances of the case2. 2.|TnefactualDackgroundIn|WhICcntheaforesaidsubstantialquestionOf lawarise forconsideration in this appeal need mention. Theassessee iS a public limited company which is wholly.owned by the Government of Karnataka and is engaged in the activity of distribution of electricity. The assesseefiled the return of income for the Assessment Year.2005-06 on 30.10.2005 declaring NIL income undernormal computation of income after claiming deduction.of Rs.141,84,44,170/- under Section 80IA(4)(iv)(c) ofthe Act and book profits of Rs.88,46,17,415/- underSection 115JB of the Act. The case was selected for.scrutiny and notice under Section 143(2) of the Act was issued. The Assessing Officer passed an order under|Section 143(3) of the Act on 31.12.2007 and disallowedthe deduction claimed under Section 80IA(4)(iv)(c) of.the Act and held that computation as per normalprovisions of the Act is adopted as tax liability. | 3The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals), who-by an order dated 10.02.2009 dismissed the appealpreferred by the assessee. The assessee thereuponapproachedtheIncome.TaxAppellateTribunal|(hereinafter referred to as ‘the Tribunal’ for short)Tribunal Dy an order dated 04.07.2012 affirmed theOrder passed py the Commissioner of Income Tax(Appeals). In the aforesaid factual Dackground, tneassessee Nas approached this Court. 4Learned Senior counsel for the assessee,while inviting the attention of this Court to SectionSOIA(4)(iv)(c) of the Act, submitted that the aforesaid 3The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals), who-by an order dated 10.02.2009 dismissed the appealpreferred by the assessee. The assessee thereuponapproachedtheIncome.TaxAppellateTribunal|(hereinafter referred to as ‘the Tribunal’ for short)Tribunal Dy an order dated 04.07.2012 affirmed theOrder passed py the Commissioner of Income Tax(Appeals). In the aforesaid factual Dackground, tneassessee Nas approached this Court. 4Learned Senior counsel for the assessee,while inviting the attention of this Court to SectionSOIA(4)(iv)(c) of the Act, submitted that the aforesaid provision prescribes for 3 types of undertaking which.are different from each other for which deduction underSection 80IA of the Act is available. It is pointed thatthey are an undertaking which is set up for generation|OTgenerationanddistribution ofDOWET,,Startstransmission or distribution for laying network of new)transmission or distribution lines, undertakes substantialrenovation and modernization of existing network of.transmission or aistribution lines. It is submitted tnat.the case of the assessee falls within the third categoryof undertaking and therefore, the amount undertaken|towards renovation and modernization has to be.considered. Alternatively, it is submitted that capitalwork in progress are to be iInciuded, the same snouldnot be restricted only to those amounts which arecapitalized in books and substantial renovation andmodernization should be at any time during the period.beginning on ist day of April 2004 and ending on 31stday of Marcn 2006. It is contended that in the instant CaSe€,theaSS@C@SSChadundertaken|substantialrenovation and modernization of existing lines which is.more than 50% of book value of assets as on.01.04.2004 as per explanation to Section 80IA(4)(iv)(c).of the Act. It is also pointed out that it is sufficient ifthe assessee has undertaken substantial renovation or.modernization of existing lines and it is not necessarythat same has to be capitalized in the books of accountsin the current year itself. It is also argued that theassessee has incurred expenditure towards renovation.and modernization and the same is shown in the books.of account under the heading fixed assets’ and sub-heading ‘capital work in progress. The assesseetherefore has undertaken and has incurred expenditurein furtherance of the undertaking. — 5.|Withoutprejudice|CO theaforesaidsubmission, it is further submitted that even ifrenovation and modernization of only current year isconsidered, the same is more than 50% of the DOOK value of plant and machinery as on 01.04.2004. It isfurther submitted that the Assessing Officer hasremoved the capital in work in progress as well as.assets shown In Schedule 7 of the balance sheet. It Is.pointed out that since the Assessing Officer has not|rejected books of accounts of the assessee, therefore,|the figures and classifications mentioned in the balance|Sheet have to be accepted. It is also urged that there is"no requirement of a certain item to be capitalized to thebooks of accounts for benefit of the claimed and hadthe legislature intended for such a requirement, it would have clearly said so in Section 80IA(4)(iv)(c) of the Act.In this connection, our attention has been invited toSection 35AD of the Act, which contains a requirementthat the amount is to be capitalized in the books ofaccounts of the assessee in order to enable him to claim.the benefit under Section 35AD of the Act. It Is”contended that once the asset is acquired or purchasedfor the purpose of business, it has to be treated as capital expenditure and the provisions of Section 115JBof the Act are not applicable to the fact situation of thecase. In support of aforesaid submissions, reliance has.been placed on decisions in."RAGHUNATH RAIBAREJA AND ANR, VY. PUNJAB NATIONAL BANKAND OTHERS (2007) 2 SCC 230, STATE LEVELCOMMITTEE AND ANR. VY MORGARDSHAMMAR|INDIA.LTD,(1996)1SCC108,STATE|OF|MAHARASHTRA ANDOTHERS|V,,SANTOSHSHANKARACHARYA(2000)7.SCC463,FEDERATION OF ANDHRA PRADESH CHAMBERS OFCOMMERCE AND INDUSTRY V. STATE OF ANDHRA|PRADESH (2001) 247 ITR 36 (SC), UOI V.HANSOLI DEVI (2002) 7 SCC 309, NASIRUDDIN V.—SITARAVAGARWAL(2003)2.SCT3/17,MITHILESH SINGH V. UOI (2003) 3 SCC 309, S.REGHURAM REDDY V. CCT (2004) 134 STC 598,CWT V. RAMARAJU SURGICAL COTTON MILLS LTD. (1967) 63 ITR 478 (SC), CIT V. ALCOCK ASHDOWN & CO. LTD. (1997) 224 ITR 353 (SC), CIT V. INGVYSYA BANK LTD. (2020) 422 ITR 116 (KAR.) © 6.|On the other hand, learned counsel for therevenue submitted that deduction under Section S8OIA ofthe Act was intended to be provided to encouragemodernization and upgradation of plant and machinery|in power sector within a specified period. In order toensure wider network and prevention of transmissionlosses. It is further submitted that language employed inSection 80IA (4)(iv)(c) of the Act is unambiguouslyclear, which provides for deduction towards substantialrenovation and modernization of existing network oftransmission or distribution lines and explanation to theaforesaid clause explains substantial renovation andmodernization to mean increase in plant and machinery.network in the network of transmission or distribution.lines by at least 50% of the book value of such plantand machinery. It Is also pointed out that entire expenditure has admittedly being incurred by and unless the work is completed, thevalue of plant and machinery will not be increased as.provided in explanation to Section 80IA (4)(iv)(c) of theAct. Therefore, all the authorities have concurrently held.that expenditure reflected as work in progress is noteligible unless work is complete and value of plant and)machinery is reflected in the books. 7It is also argued that eligibility conditions ofincentive provisions have to be strictly construed and incase of any ambiguity with respect to. eligibilityconditions the ambiguity has to be read in favour of therevenue. It is further submitted that since, in order toclaim deduction under Section 80IA (4)(iv)(c) of the Act.the renovation and modernization work should be.complete and the completion should be value addition tothe book value of the plant and machinery. It is urgedthat the aforesaid criteria has not been fulfilled by the assessee for the Assessment Year 2005-06. It Is alsoargued that if contention of the assessee is to beaccepted that incentive would be provided on making|advances and not in bringing into existence increase in-value of plant and machinery, the incentive provision.would not be applicable. Without prejudice to the)aforesaid contention, it is urged that assessee had been given benefit for a period of 10 years from Assessment.Year 2006-07 and on completion of Assessment Year2006-07 on completion of renovation and modernizationon compliance with the conditions in Section 80IA(4)(iv)(c) of the Act. Therefore, the assessee has notbeen deprived of the benefit of incentive provisions. Itis alSo urged that the issue with regard to applicability ofSection 115JB of tne Act does not arise from the ordersimpugnedbeforethis.court,andtherefore,|thesubstantial question of law with regard to applicability of|Section115JBOF theAct.does.notarise|for.consideration. 8.|We have considered the SUDMISSIONS made§by learned counsel for the parties and have perused therecord. Before proceeding further, it is apposite to take|note of well settled legal principles with regard to.statutoryinterpretation.ItIS.cardinal|rule|ofconstruction of statutes to read the statutes literally thatis by giving to the words their ordinary, natural and.grammatical meaning. It is equally well settled legalproposition that if the language of the statute is plain|and unambiguous, the court must adopt the ordinaryrule of literal interpretation and departure from theaforesaid rule can only be made only In case of apparent:absurdity. |See:"JUGAL KISHORE SARAF VS, RAWCOTTON CO. LTD.', AIR 1955 SC 376, ‘RAKESHKUMAR PAUL VS. STATE OF ASSAM’, AIR 2017 SC.3948, ‘UNION OF INDIA VS. EXIDE INDUSTRIESLIMITED & ORS.', 2020 (5) SCC 2/7|. Now we may|advert to the relevant extracts of Section S8OIJA(2)SOIA(4)(iv)(c) of the Act, wnich read as follows: 80-IA. (2) The deduction specified in sub-section (1) may, at the option of the assessee,be claimed by him for any ten consecutive|assessment.Yearsoutoffifteen Yea’rsbeginningfromtheYearIn|whichtheundertaking or the enterprise develops and.begins to operate any infrastructure facility orStarts providing telecommunication service ordevelops an industrial park or develops a.special economic zone referred to in clause (ili).of sub-section (4) or generates power orcommences transmission or distribution ofpower or undertakes substantial renovation|and modernisation of the existing transmission|or distribution [ines : Section8OIA(4)(iv)al)undertakingwhich, — (a) is set up In any part of India for the|generation or generation and distribution ofpower if it begins to generate power at anytime during the period beginning on the 1stday of April, 1993 and ending on the 31st dayof March, 80; (b) starts transmission or distribution by|laying a network of new _ transmission. distribution lines at any time during the periodbeginning on the ist day of April, 1999 andending on the 31st day of March, 80: Provided that the deduction under this|section to an undertaking under sub-clause (Db)Shall be allowed only in relation to the profitsderived from laying of such network of newlines for transmission or distribution; (c) undertakes substantial renovation|and modernisation of the existing network oftransmission or distribution lines at any time.during the period beginning on the 1st day ofApril, 2004 and ending on the 3ist day ofMarch, 80. Explanation.—For the purposes of this|sub-clause,"Substantialrenovationand|modernisation” means an increase in the plant.and machinery in the network of transmissionor distribution lines by at least fifty per cent ofthe book value of such plant and machinery as_on the 1st day of April, 2004; oiThus, from perusal of the aforesaid provision,it is evident that there are three types of undertaking,which are considered by the Legislature eligible for|deduction under Section 80IA of the Act viz., anundertaking which is (i)is set up for generation or generation anddistribution of power. (ii)|starts transmission or distribution by layingnetwork of new transmission or distribution lines. (iii) undertakes|substantialrenovationand|modernization of the existing network of transmission or distribution lines. Thus, for each type of an undertaking, the|Legislature has used different expressions viz., set up,‘Starts and undertakes. Tne aforesaid words navedifferent meanings. The expression ‘undertake has notbeen defined under the Act. Therefore, its common.parlance meaning has to be taken into account. Themeaning of the word undertake as defined under (i)is set up for generation or generation anddistribution of power. (ii)|starts transmission or distribution by layingnetwork of new transmission or distribution lines. (iii) undertakes|substantialrenovationand|modernization of the existing network of transmission or distribution lines. Thus, for each type of an undertaking, the|Legislature has used different expressions viz., set up,‘Starts and undertakes. Tne aforesaid words navedifferent meanings. The expression ‘undertake has notbeen defined under the Act. Therefore, its common.parlance meaning has to be taken into account. Themeaning of the word undertake as defined under Black's Law Dictionary, 9th Edition to mean to give a|formal promise; guarantee, to act as surety for(another); to make oneself responsible for (a person.fact, or the like). Similarly, in P Ramanatha Ajiyars LawLexicon, 2nd Edition, the expression ‘undertake’ isdefined as to engage to look after or attend to. Toendeavor to perform or try, to promise, to finalise,engage, agree or assume an obligation. To lay oneselfunder an obligation or to enter into stipulation, toperform or to execute, to convenient, to contract.THUS, theword.‘undertake'usedInSection SOIA(4)(iv)(c) of the Act cannot be equated with theword completion. Tne Circular dated 15.07.2005 issued.by tne Central Board of Direct Taxes (CBDT) clearlystates tnat tne tax penefit under the Section nas Deenextended to undertakings, which undertake substantialrenovation and modernization of existing network of.transmission or distribution lines during the periodbeginning from 01.04.2004 and ending on 31.03.2006. It is also pertinent to note that provision of Section.SOIA(4)(iv)(c) of the Act uses the expression ‘any timeduring the period beginning from 01.04.2004 and)ending on 31.03.2006 and does not use the word)‘previous year’. Wherever the Legislature has intended|to use the expression Previous Year, it has consciouslydone so viz., in Section 35AB, Section 35ABB, Section.35AC and Section 35AD as well as in 7/7 other Sectionsof the Act. 10. In the instant case, the assessee had|undertaking substantial renovation and modernization of existing lines wnich is more than 50% of the book valueof assets as on OQ1.04.2004 as per explanation toSection 8OIA(4)(iv)(c) of the Act. Thus, it can safely Deinferred that the assessee has undertaken the works.towards renovation and modernization of existing|transmission or distribution lines. It is pertinent to notethat there is no requirement of capitalization of theamount in the books of accounts mentioned in Section. SOIA(4)(iv)(c) of the Act. It is pertinent also to notethat Section 80IA(4)(iv)(c) of the Act does not mandatethat there has to be increase in the value of plant andmachinery in the books of accounts. Therefore, such arequirement, which is not prescribed in the language of.the provision cannot be read into it. 11. So far as issue with regard to applicability of|Section 115JB of the Act is concerned, the same hasalreadybeenansweredbythis|Court.In‘COMMISSIONER OF INCOME TAX VS. ING VYSYA.BANK LTD.', (2020) 114 TAXMANN.COM 506(KARNATAKA). Tnus, in view of language employed inSection 8OQOIA(4)(iv)(c) of the Act, the requiremencontained tnerein is fulfilled if the assessee undertakes.the substantial renovation and modernization of theexisting or distribution lines and it is not necessary for|the assessee to complete the same as the aforesaidprovisiondoesnotcontaintnerequirement.ofcompletion. The authorities have erred in law in adding. the words ‘capital work in progress in the provision.which is not mentioned and Nave also erred in holdingthat the renovation and modernization should be done In.Previous Year. The aforesaid requirements are notcontemplated by the provision in question. the words ‘capital work in progress in the provision.which is not mentioned and Nave also erred in holdingthat the renovation and modernization should be done In.Previous Year. The aforesaid requirements are notcontemplated by the provision in question. In view of preceding analysis, the substantial|questions of law framed by a bench of this court areanswered in favour of the assessee and against therevenue. In the result, the order passed by the tribunaldated 04.07.2012 insofar as it contains findings against|the assessee is hereby quashed. In the result, theappeal is disposed of. Sd/-—JUDGE. Sd/-JUDGE.