Ita/48/2015 Of Kannan Devan Hills Plantations Company Pvt Ltd v. The Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE THE ACTING CHIEF JUSTICE MR.ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU THURSDAY, THE 16TH DAY OF NOVEMBER 2017/25TH KARTHIKA, 1939 ITA.No. 48 of 2015 () ---------------------- AGAINST THE ORDER/JUDGMENT IN ITA 157/COCH/2014 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 19-09-2014 APPELLANT(S)/APPELLANT: ------------------------------ KANAN DEVAN HILLS PLANTATIONS COMPANY PVT LTD., KDHP HOUSE, MUNNAR - 685 612, KERALA, PAN : AACCK5399 M. BY ADVS.SRI.JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOS SRI.BINU MATHEW SRI.TOM THOMAS (KAKKUZHIYIL) SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS SRI.NOBY THOMAS CYRIAC RESPONDENT(S)/RESPONDENT: ------------------------------------ THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1(2), ERNAKULAM, KOCHI - 682 018. R1 BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI (TAXES) R1 BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 06-11-2017, THE COURT ON 16.11.2017 DELIVERED THE FOLLOWING: : 2 : APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A:TRUE COPY OF ASSESSMENT ORDER DATED 28.12.2010PASSED BY THE ASSESSING OFFICER.PASSED BY THE ASSESSING OFFICER. ANNEXURE B:TRUE COPY OF ORDER DATED 15.01.2014 OF THECOMMISSIONER OF INCOME TAX (APPEALS)-II, KOCHI INITA 70/R-1/E/CIT(A)-II/2010-11.COMMISSIONER OF INCOME TAX (APPEALS)-II, KOCHI INITA 70/R-1/E/CIT(A)-II/2010-11. ANNEXURE C:TRUE COPY OF APPEAL ITA NO.157/2014 DATED07.04.2014 FILED BY THE APPELLANT BEFORE THEINCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH.07.04.2014 FILED BY THE APPELLANT BEFORE THEINCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH. ANNEXURE D:CERTIFIED COPY OF THE IMPUGNED ORDER DATED19.09.2014 OF THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH, COCHIN IN ITA NO. 157/COCH/2014 FORASSESSMENT YEAR 2008-200919.09.2014 OF THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH, COCHIN IN ITA NO. 157/COCH/2014 FORASSESSMENT YEAR 2008-2009 RESPONDENTS' ANNEXURES:NIL //TRUE COPY// P.A. TO JUDGE. ANTONY DOMINIC, Ag. CJ & DAMA SESHADRI NAIDU, J. ------------------------------------------------- I. T. Appeal No.48 of 2015 -------------------------------------------------- Dated this the 16[th] day of November, 2017 JUDGMENT Dama Seshadri Naidu, J The appellant-assessee is a private limited company, engagedin the business of “growing, manufacturing, and selling tea andother produce.” It is also engaged in the business of distributingelectricity taken from the State-owned Kerala State ElectricityBoard. 2. The assessee’s predecessor, Tata Tea Limited, had not onlyowned the plantation business but also generated hydel powerfrom the pre-independence days. Post-independence, when theState took over the power generation, the company was allowedto buy electric power from the Government in bulk, use it for itsown purpose, and distribute the balance power to the residents ofMunnar hill-station. So the predecessor company had anelaborate network of transmission lines. 3. Formed in March, 2005, the assessee company took over the power distribution network as well as the tea plantations. 4. For the assessment year 2008-09, the assessee filed its return of income declaring a total income of Rs.2,45,83,170/-. Later, it filed arevised return declaring an income of Rs.1,49,74,810/-. But theassessing officer selected the assessee company for scrutiny anddetermined the total income at Rs.6,09,20,556/-, through Annexure Aproceedings, after making certain disallowances. 3. Formed in March, 2005, the assessee company took over the power distribution network as well as the tea plantations. 4. For the assessment year 2008-09, the assessee filed its return of income declaring a total income of Rs.2,45,83,170/-. Later, it filed arevised return declaring an income of Rs.1,49,74,810/-. But theassessing officer selected the assessee company for scrutiny anddetermined the total income at Rs.6,09,20,556/-, through Annexure Aproceedings, after making certain disallowances. 5. Aggrieved, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) II, Kochi, who allowed theappeal in part through Annexure B order. Further aggrieved, theassessee approached the Income Tax Appellate Tribunal, Cochin bench(“the Tribunal”). Rest of the issues either held in assessee’s favour ornot pressed by assessee itself, only one issue remained for the Tribunalto decide: Is the Assessing Officer’s disallowing the deduction underSection 80-IA justified? Submissions: Assessee’s: 6. Sri Joseph Markos, the learned Senior Counsel for the assessee,has submitted that the assessee has fulfilled all the eligibility criteriaprescribed under Section 80-IA of the Act. To elaborate, he hassubmitted that the assessee substantially improved and increased thedistribution network spending huge amounts. According to him theincrease was beyond 50% of the then existing establishment's value. 7. Sri Markos has drawn our attention to a clarificatory circularissued by CBDT and also the legislative purpose of Section 80-IA asspelt out in the Finance Act, 2004. He contends that the statutoryprovision enables an assessee to claim certain deductions if theinvestment has led to renovation and modernisation of thetransmission and distribution network. 8. To sum up, the learned Senior Counsel has contended that onecompany taking over the entire undertaking of another companyhardly makes any difference to the undertaking itself. According tohim, the tax benefits are undertaking-specific, and they do not run withthe undertaking’s owner. So he urges us to answer the questions of law in assessee’s favour and restore the deductions under Section 80-IA ofthe Act. Revenue’s: 9. Sri P. K. Ravindranatha Menon, the learned Senior Counselfor the Revenue, has contended that the assessee’s business is not a new industrial undertaking. According to him, the assessee has alsomiserably failed to establish that it has spent more than 50% of theplant’s book value on any renovation or modernisation. 10. The learned Senior Counsel has strenuously contended thatthe plant and machinery used by the assessee had been used by itspredecessor. So whatever the assessee has is only used machinery orplant, and that cannot entail the assessee to any tax concessions.According to Sri Menon, the plant and machinery acquired by theassessee company had been installed and continuously used by theprevious owner. 11. The conditions imposed under section 80-IA(3) of the Act arecumulative, contends Sri Menon. ITA No. 48/2015 Substantial Question of Law: 12. Has the Appellate Tribunal any material or evidence onrecord to justify its finding that the assessee has not substantiallyrenovated and modernised the transmission and distribution lineswithin the meaning of Section 80-IA?Discussion: 13. Indeed, the facts are not in dispute. The assessee took over agoing concern: a tea estate with all its incidental businesses, too. Apower distribution system with a network of transmission lines is partof that acquisition. The assessee maintained that in 2007-08 itrenovated and modernised the transmission lines by investing hugeamounts. So for the assessment year 2008-09, it claimed tax benefitsunder section 80-IA of the Act. Among other items, the AssessingOfficer disallowed the deduction. The Appellate Authority and theAppellate Tribunal concurrently upheld the Assessing Officer’s findingson the disallowance. 13. Indeed, the facts are not in dispute. The assessee took over agoing concern: a tea estate with all its incidental businesses, too. Apower distribution system with a network of transmission lines is partof that acquisition. The assessee maintained that in 2007-08 itrenovated and modernised the transmission lines by investing hugeamounts. So for the assessment year 2008-09, it claimed tax benefitsunder section 80-IA of the Act. Among other items, the AssessingOfficer disallowed the deduction. The Appellate Authority and theAppellate Tribunal concurrently upheld the Assessing Officer’s findingson the disallowance. 14. As on 01/04/2004, the assessee’s plant and machinery werevalued at Rs.88,39,340/-. In the financial year 2007-08, the assesseeinvested Rs.50,30,952/-. Because of this investment, the assessee asserts that the transmission network has been renovated and modernised.Accordingly, it also justifies its claim for tax deductions under section80-IA of the Act. 15. The Revenue frontally attacks the assessee’s claim fordeduction on two grounds: (1) the machinery on the plant existingbefore the alleged renovation or modernisation was used by theassessee’s predecessor; (2) the conditions under Section 80-IA arecumulative, but the assessee has failed to prove that it has fulfilled allthose conditions. The Statutory Scheme: 16. To be specific, the assessee’s claim for deduction hangs on the scope and ambit of Section 80-IA of the Act. It is, then, apposite for usto examine the long-winded provision only to the extent relevant forour purpose: “Section 80 IA: 80-IA. Deductions in respect of profits and gainsfrom industrial undertakings or enterprises engaged ininfrastructure development, etc.—[(1) Where the gross totalincome of an assessee includes any profits and gains derived byan undertaking or an enterprise from any business referred to insub-section (4) (such business being hereinafter referred to as theeligible business), there shall, in accordance with and subject tothe provisions of this section, be allowed, in computing the totalincome of the assessee, a deduction of an amount equal to hundred per cent of profits and gains derived from such businessfor ten consecutive assessment years.] (2) The deduction specified in sub-section (1) may, at theoption of the assessee, be claimed by him for any ten consecutiveassessment years out of fifteen years beginning from the year inwhich the undertaking or the enterprise develops and begins tooperate any infrastructure facility or starts providingtelecommunication service or develops an industrial park [[ordevelops a special economic zone] referred to in clause (iii) ofsub-section(4)] or generates power or commences transmission ordistribution of power [or undertakes substantial renovation andmodernisation of the existing transmission or distributionlines [or lays and begins to operate a cross-country natural gasdistribution network]]: [Provided that where the assessee develops or operates andmaintains or develops, operates and maintains any infrastructurefacility referred to in clause (a) or clause (b) or clause (c) ofthe Explanation to clause (i) of sub-section (4), the provisions ofthis sub-section shall have effect as if for the words “fifteenyears”, the words “twenty years” had been substituted;] * * * (3) This section applies to [an [* * *] undertaking referred toin [clause (ii) or] [clause (iv) or clause (vi)] of sub-section (4)]which fulfils all the following conditions, namely:— [Provided that where the assessee develops or operates andmaintains or develops, operates and maintains any infrastructurefacility referred to in clause (a) or clause (b) or clause (c) ofthe Explanation to clause (i) of sub-section (4), the provisions ofthis sub-section shall have effect as if for the words “fifteenyears”, the words “twenty years” had been substituted;] * * * (3) This section applies to [an [* * *] undertaking referred toin [clause (ii) or] [clause (iv) or clause (vi)] of sub-section (4)]which fulfils all the following conditions, namely:— (i) it is not formed by splitting up, or the reconstruction, of abusiness already in existence:Provided that this condition shall not apply in respect of an [* **] undertaking which is formed as a result of the re-establishment,re-construction or revival by the assessee of the business of anysuch [* * *] undertaking as is referred to in Section 33-B, in thecircumstances and within the period specified in that section;business already in existence:Provided that this condition shall not apply in respect of an [* **] undertaking which is formed as a result of the re-establishment,re-construction or revival by the assessee of the business of anysuch [* * *] undertaking as is referred to in Section 33-B, in thecircumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machineryor plant previously used for any purpose:[Provided that nothing contained in this sub-section shall applyin the case of transfer, either in whole or in part, of machinery orplant previously used by a State Electricity Board referred to inor plant previously used for any purpose:[Provided that nothing contained in this sub-section shall applyin the case of transfer, either in whole or in part, of machinery orplant previously used by a State Electricity Board referred to in clause (7) of Section 2 of the Electricity Act, 2003 (36 of 2003),whether or not such transfer is in pursuance of the splitting upor reconstruction or reorganisation of the Board under Part XIIIof that Act.] Explanation 1.—For the purposes of clause (ii), any machinery orplant which was used outside India by any person other than theassessee shall not be regarded as machinery or plant previouslyused for any purpose, if the following conditions are fulfilled,namely:— (a) such machinery or plant was not, at any time previous to thedate of the installation by the assessee, used in India;date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from anycountry outside India; andcountry outside India; and (c) no deduction on account of depreciation in respect of suchmachinery or plant has been allowed or is allowable under theprovisions of this Act in computing the total income of anyperson for any period prior to the date of the installation ofmachinery or plant by the assessee.machinery or plant has been allowed or is allowable under theprovisions of this Act in computing the total income of anyperson for any period prior to the date of the installation ofmachinery or plant by the assessee. Explanation 2.—Where in the case of an [* * *] undertaking, anymachinery or plant or any part thereof previously used for anypurpose is transferred to a new business and the total value of themachinery or plant or part so transferred does not exceed twentyper cent of the total value of the machinery or plant used in thebusiness, then, for the purposes of clause (ii) of this sub-section,the condition specified therein shall be deemed to have beencomplied with.machinery or plant or any part thereof previously used for anypurpose is transferred to a new business and the total value of themachinery or plant or part so transferred does not exceed twentyper cent of the total value of the machinery or plant used in thebusiness, then, for the purposes of clause (ii) of this sub-section,the condition specified therein shall be deemed to have beencomplied with. (4) This section applies to— * * (4) This section applies to— * * (iv) an [* * *] undertaking which, — (a) is set up in any part of India for the generation or generationand distribution of power if it begins to generate power at anytime during the period beginning on the 1st day of April, 1993and ending on [the 31st day of March, 2010];and distribution of power if it begins to generate power at anytime during the period beginning on the 1st day of April, 1993and ending on [the 31st day of March, 2010]; (b) starts transmission or distribution by laying a network of newtransmission or distribution lines at any time during the periodtransmission or distribution lines at any time during the period ITA No. 48/2015 : 9 : beginning on the 1st day of April, 1999 and ending on [the 31stday of March, 2010]:Provided that the deduction under this section to an [* * *]undertaking under sub-clause (b) shall be allowed only in relationto the profits derived from laying of such network of new linesfor transmission or distribution. [(c) undertakes substantial renovation and modernisation of theexisting network of transmission or distribution lines at any timeduring the period beginning on the 1st day of April, 2004 andending on [the 31st day of March, 2010].existing network of transmission or distribution lines at any timeduring the period beginning on the 1st day of April, 2004 andending on [the 31st day of March, 2010]. Explanation.—For the purposes of this sub-clause, “substantialrenovation and modernisation” means an increase in the plantand machinery in the network of transmission or distributionlines by at least fifty per cent of the book value of such plant andmachinery as on the 1st day of April, 2004.]renovation and modernisation” means an increase in the plantand machinery in the network of transmission or distributionlines by at least fifty per cent of the book value of such plant andmachinery as on the 1st day of April, 2004.] (italics supplied) The Provision in Plain English: (a) A linguistic Aside: 17. The Income Tax Act is one enactment that can shatteranybody’s linguistic confidence or competence. Each provision—inevitably, though—runs into pages, superordinate, subordinate, andsub-subordinate clauses piling up in syntactic curlicues. With annual addition, the provisions lose coherence and defy comprehension.Neither a lawyer nor a Judge can claim with comfort, if not withconfidence, that he could comprehend the provision at least on a re-reading; the taxpayer is surely lost in in a maze of meandering phrases. It is therefore time for the Revenue to host on their website a plainEnglish version of the enactment—only a suggestion, however. 18. Even the native speakers of the language—notably the USAand the UK—have re-drafted, and have been re-drafting, the bulk oftheir legislation in plain language. In the USA, the Federal and theState Governments apart, the Uniform Law Commission, “a non-profit organisation of volunteers promoting uniformity of laws throughout the United States”, has drafted in legal-linguistic experts like Bryan AGarner and Joseph Kimble for this purpose. (b) Paraphrased Provision: Section 80-IA: (1) An assessee can deduct his entire profits for tenconsecutive assessment years if his profits are from a businessreferred to in sub-section (4) of this section. But the deduction issubject to the limitations in this provision. (2) The assessee can deduct the profits in any ten consecutiveyears out of fifteen years. The fifteen-year period begins when theassessee’s establishment involves in any of these activities: (a)develop and operate any infrastructure facility, (b) starttelecommunication service, (c) develop an industrial park, (d)develop a special economic zone [referred to in clause (iii) of sub-section(4)], (e) generate, transmit, or distribute power, (f)substantially renovate or modernise the existing transmission ordistribution lines, or (g) lay and operate a cross-country naturalgas distribution network. (2) The assessee can deduct the profits in any ten consecutiveyears out of fifteen years. The fifteen-year period begins when theassessee’s establishment involves in any of these activities: (a)develop and operate any infrastructure facility, (b) starttelecommunication service, (c) develop an industrial park, (d)develop a special economic zone [referred to in clause (iii) of sub-section(4)], (e) generate, transmit, or distribute power, (f)substantially renovate or modernise the existing transmission ordistribution lines, or (g) lay and operate a cross-country naturalgas distribution network. But the fifteen-year period will be extended by five moreyears if the assessee develops; or operatives and maintains; ordevelops, operates, and maintains any infrastructure facilityreferred to in clause (a) or clause (b) or clause (c) ofthe Explanation to clause (i) of sub-section (4). (3) This section applies to an undertakings referred to in clause(ii) or clause (iv) or clause (vi) of sub-section (4)] fulfilling allthese conditions:— (i) the undertaking is not formed by splitting up or byreconstructing an existing business: But this condition will not apply to an undertaking if the assesseere-establishes, re-constructs, revives the business as referred to inSection 33-B and in the circumstances and within the periodspecified in that section;reconstructing an existing business: But this condition will not apply to an undertaking if the assesseere-establishes, re-constructs, revives the business as referred to inSection 33-B and in the circumstances and within the periodspecified in that section; (ii) it is not formed by transferring to a new business any machineryor plant used earlier for any purpose:But this sub-section will not affect transfer, either in whole or inpart, of machinery or plant used by a State Electricity Boardreferred to in clause (7) of Section 2 of the Electricity Act, 2003(36 of 2003). Even if the transfer is by splitting up or byreconstructing, or by reorganizing the Board under Part XIII ofthat Act.or plant used earlier for any purpose:But this sub-section will not affect transfer, either in whole or inpart, of machinery or plant used by a State Electricity Boardreferred to in clause (7) of Section 2 of the Electricity Act, 2003(36 of 2003). Even if the transfer is by splitting up or byreconstructing, or by reorganizing the Board under Part XIII ofthat Act. Explanation 1.—the restriction under clause (ii) will not apply tothe machinery or plant used abroad by any other person than theassessee, if these conditions are fulfilled:—the machinery or plant used abroad by any other person than theassessee, if these conditions are fulfilled:— (a) the machinery or plant was not used in India before itsinstallation by the assessee; installation by the assessee; (b) the machinery or plant is imported into India; and (c) no depreciation is allowed or allowable under this Act on themachinery or plant in computing the total income of any personfor any period before the assessee installed the machinery orplant. machinery or plant in computing the total income of any personfor any period before the assessee installed the machinery orplant. Explanation 2.—the restriction under clause (ii) will not apply ifthe used machinery transferred to the assessee’s new business doesthe used machinery transferred to the assessee’s new business does not exceed twenty per cent of the total value of the machinery orplant used in the new business. (4) This section applies to— (i) any enterprise carrying on the business of (i) developing or (ii)operating and maintaining or (iii) developing, operating, andmaintaining any infrastructure facility fulfilling these conditions:operating and maintaining or (iii) developing, operating, andmaintaining any infrastructure facility fulfilling these conditions: Explanation 2.—the restriction under clause (ii) will not apply ifthe used machinery transferred to the assessee’s new business doesthe used machinery transferred to the assessee’s new business does not exceed twenty per cent of the total value of the machinery orplant used in the new business. (4) This section applies to— (i) any enterprise carrying on the business of (i) developing or (ii)operating and maintaining or (iii) developing, operating, andmaintaining any infrastructure facility fulfilling these conditions:operating and maintaining or (iii) developing, operating, andmaintaining any infrastructure facility fulfilling these conditions: (a) it is owned by a company registered in India, by a consortium ofsuch companies, by an authority, a board, a corporation, or anyother body established under any Central or State Act;such companies, by an authority, a board, a corporation, or anyother body established under any Central or State Act; (b) it has contracted with the Central Government, or a StateGovernment, or a local authority, or any other statutory body for(i) developing; (ii) operating and maintaining; or (iii) developing,operating, and maintaining a new infrastructure facility;Government, or a local authority, or any other statutory body for(i) developing; (ii) operating and maintaining; or (iii) developing,operating, and maintaining a new infrastructure facility; (c) it operates and maintains the infrastructure facility from any dayafter the 1st day of April 1995:after the 1st day of April 1995: . . . (iv) if an undertaking in India — (a) generates or generates and distributes power at any time between1[st] April 1993 and 31[st] March 2010;1[st] April 1993 and 31[st] March 2010; (b) transmits and distributes by laying a network of newtransmission or distribution lines between 1[st] April 1999 and 31[st]March 2010:transmission or distribution lines between 1[st] April 1999 and 31[st]March 2010: But the assessee can deduct the profits under sub-clause (b) only ifthey are derived from the network of new transmission ordistribution lines. they are derived from the network of new transmission ordistribution lines. (c) substantially renovates or modernizes the existing network oftransmission or distribution lines between 1st April 2004 and 31[st]March 2010.transmission or distribution lines between 1st April 2004 and 31[st]March 2010. Explanation.—For sub-clause (c), the renovation or modernizationmust have increased at least by fifty per cent the book value ofthe plant and machinery as it stood on 1[st] April 2004.must have increased at least by fifty per cent the book value ofthe plant and machinery as it stood on 1[st] April 2004. Analysis: Are the Conditions Cumulative? 19. Section 80-IA of the Act, to begin with, is the beneficialprovision, carving out an exception from the rigors of tax payment. An assessee can deduct his total profits for ten consecutive assessmentyears if it earns those profits from any of those businesses enumeratedunder sub-Section (4) of the provision. Indeed, the deduction is subjectto certain limitations. Undoubtedly, the assessee's business is coveredby sub-Section (4) of Section 80-IA. As seen from sub-Section (2) ofSection 80-IA, the assessee can deduct the profits in any consecutiveyears out of the initial 15 years when he started his business or when hefirst met the conditions imposed in the provision. 20. We may first deal with a pertinent issue: An enterprise may(i) develop, or (ii) operate and maintain, or (iii) develop, operate, andmaintain any infrastructural facility. It brooks no contradiction if wehold that all these three activities are disjoint. Now, we will see clause(iv) of sub-section (4). It mandates that an undertaking in India may (a)generate or generate and distribute power at any time between 1.4.1993and 31.3.2010; (b) transmit and distribute by laying a network of new 20. We may first deal with a pertinent issue: An enterprise may(i) develop, or (ii) operate and maintain, or (iii) develop, operate, andmaintain any infrastructural facility. It brooks no contradiction if wehold that all these three activities are disjoint. Now, we will see clause(iv) of sub-section (4). It mandates that an undertaking in India may (a)generate or generate and distribute power at any time between 1.4.1993and 31.3.2010; (b) transmit and distribute by laying a network of new transmission or distribution lines between the above-mentioned period;or (c) substantially renovate or modernize the existing network oftransmission or distribution lines between the same period. 21. The Revenue, indeed, has contended that these threecontingencies are cumulative. We are afraid they are not. The clauses(a), (b), and (c) are disjointed and, in fact, unconnected. Clauses (b) and(c), especially, cannot go together. Under clause (b) a network of newtransmission or distribution lines must be laid, whereas under clause(c), they must be renovated or modernized. Laying down a new networkof transmission lines under clause (b) and simultaneously renovatingthem under clause (c) exposes a temporal impossibility and linguisticincongruity. 22. First, temporally, we can only renovate what has already beenin use; second, linguistically, we cannot renovate what is new. Solegislative intent is unmistakable, and the conditions are disjoint andindependent. The assessee’s fulfilling any one of them will suffice. Andthe assessee here did fulfil clause (c). 23. Now, we may, as well examine whether the conditions undersub-Section (4)(i) are cumulative. Clause (a) mandates that the company must have been registered in India under any Central or State Act. Itshould contract with the Central Government, or State Government, orany other statutory authority to develop, or operate and maintain or,develop, operate and maintain a new infrastructure facility. Underclause (c), the operating and maintaining infrastructure facility musthave commenced after the 1[st] April, 1995. It is not disputed that allthese three activities are cumulative and the assessee fulfils them all.Has the Machinery Been Used? 24. Indeed, the learned Senior Counsel for the Revenue hasemphasized that much of the machinery in the assessee's establishmenthas already been used by another establishment. 25. Section 80IA, evidently, applies to an “undertaking” referredto in clause (ii) or clause (iv) or clause (vi) of sub-section (4) if it fulfilsthe enumerated conditions. We have already held that the assessee’sundertaking falls in clause (iv) of sub-section (4). 26. As per the conditions stipulated, the assessee ought not tohave formed the undertaking by splitting up or reconstructing anexisting business. Here there is neither splitting up nor reconstructing;nor is it the Revenue’s case, either. Equally mandatory is the other condition that the assessee has not formed the undertaking (ii) bytransferring to a new business any machinery or plant used earlier forany purpose. The Revenue, true, latches on to it. We will see whether itcan sustain this plea: the assessee formed the undertaking bytransferring used machinery or plant to a new business. 27. Of course, the restriction under clause (ii) will not apply tothe machinery or plant used abroad by any other person than theassessee, as stated in the Explanation I. But it does not apply to thiscase; nor does the Explanation 2, which permits an assessee’s newbusiness to use less than 20% of the used machinery. The Statutory Purpose: 28. It is well to remember that deduction under Section 80-IAwas introduced only through Finance (No.2) Act, 2004; the Act spellsout that it is to encourage investment in existing undertakings. CBDTCircular No. 5 of 2005, dated 15[th] July, 2005, clarifies the legislativeintention: 27. Of course, the restriction under clause (ii) will not apply tothe machinery or plant used abroad by any other person than theassessee, as stated in the Explanation I. But it does not apply to thiscase; nor does the Explanation 2, which permits an assessee’s newbusiness to use less than 20% of the used machinery. The Statutory Purpose: 28. It is well to remember that deduction under Section 80-IAwas introduced only through Finance (No.2) Act, 2004; the Act spellsout that it is to encourage investment in existing undertakings. CBDTCircular No. 5 of 2005, dated 15[th] July, 2005, clarifies the legislativeintention: ''[R]ecognising the need to encourage investment in renovationand modernization of the transmission and distribution network,the benefit under the section has been extended to undertakingswhich undertake substantial renovation and modernization ofthe existing network of transmission or distribution lines during the period beginning on 01-04-2004 and ending on 31-3-2006.'Substantial renovation and modernisation' means 50 per centincrease in the book value of plant and machinery in the networkof transmission or distribution lines, as on 01-04-2004''. (Italics supplied) 29. From the above extract, we can gather that Section 80-IA has a salutatory purpose of encouraging investment in renovation andmodernization of the transmission and distribution network. Whose Benefit Does the Provision Exist For? 30. We must acknowledge that the deduction under section 80-IAis a profit-linked incentive, for the very Chapter VI-A provides for theincentives of tax deductions. The 1961 Act broadly provides for twotypes of tax incentives: (a) investment linked incentives; (b) profitlinked incentives. So, according to the Supreme Court in Liberty Indiav. CIT,[1] when Section 80-IA/80-IB refers to profits derived from eligiblebusiness, it is not the ownership of that business which attracts theincentives. What merits the incentives under Section 80-IA/80-IB is thegeneration of profits (operational profits). 1[] 183 TAXMAN 349 (SC) 31. Further, if we look at the scheme of Section 80-IA(2), it doesnot speak about the business of assessee but of "undertaking" or"enterprise". Then, an undertaking or an enterprise alone matters forthe Revenue to decide the eligibility. Significantly, section 80-IA (2), thecharging provision, does not refer to “business” as such. Analogous Provision and Its Interpretation: 32. Section 84—since repealed—is in pari materia.[2] Interpretingthis provision, CBDT issued a clarificatory note, dt. 13/12/1963: TheBoard agree that the benefit of section 84 of the IT Act, 1961, attachesto the undertaking and not to the owner thereof. The successor mayhave the benefit for the unexpired period of five years provided theundertaking is taken over as a running concern. Has the Assessee’s Undertaking Fulfilled the Eligibility Criteria? 2(1)[] Section 84. Income of newly established industrial undertakings or hotels. – (1) Save asotherwise hereinafter provided, income tax shall not be payable by an assessee on so much of theprofits and gains derived from any industrial undertaking or business of a hotel or from any ship, towhich this section applies, as does not exceed six per cent. per annum on the capital employed insuch undertaking or business or ship, computed in the prescribed manner. (2) This section applies to any industrial undertaking which fulfils all the following conditionsnamely: (i) it is not formed by the splitting up, or the reconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business of a building, machinery or plant previouslyused for any purpose; … 33. Repetitive it may be, the assessee acquired in March, 2005certain tea estates at Munnar, as a going concern. This acquisitionincluded the erstwhile “Devikulam Estate” from Tata Tea Limited. Theplant and machinery thus acquired included the electric powerdistribution network—the transmission lines. (2) This section applies to any industrial undertaking which fulfils all the following conditionsnamely: (i) it is not formed by the splitting up, or the reconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business of a building, machinery or plant previouslyused for any purpose; … 33. Repetitive it may be, the assessee acquired in March, 2005certain tea estates at Munnar, as a going concern. This acquisitionincluded the erstwhile “Devikulam Estate” from Tata Tea Limited. Theplant and machinery thus acquired included the electric powerdistribution network—the transmission lines. 34. The assessee produced an audited certificate that the writtendown value of the plant and machinery as on 01/04/2004 was Rs.88,39,340/-. It has claimed that it spent for the assessment year 2008-09Rs.50.31 Lakh to renovate and modernize its transmission network. So,the amount spent is over 50% of the then existing establishment's bookvalue. Indeed, the undertaking squarely falls under Section 80-1A(4)(iv)(c) of the Act. The renovation or modernization, admittedly, took placebetween 01.04.2004 and 31.03.2011. 35. To be specific, the assessee claims that the undertaking’srenovation or modernization has brought about “substantialimprovement in the 'line loss.' Substantial renovation andmodernization has been done by replacement of High Tensiondistribution lines and installation of new CT/PT units.” Conclusion: 36. In the above circumstances, the Assessing Officer’sdisallowing Rs.58,91,000/- under section 80-IA of the Act, as affirmedby the Appellate Authority and the Tribunal, cannot be sustained. So, we answer the question of law in the assessee’s favour. As acorollary, we set aside the Tribunal’s impugned order, dated 19.09.2014,and allow the Appeal. No order on costs. ANTONY DOMINIC, ACTING CHIEF JUSTICE. DAMA SESHADRI NAIDU, JUDGE. rv