Ita/571/2008 Of The Director Of Income Tax v. M/S Bangalore International Airport Ltd

IN THE HIGH COURT OF KARNATAKA AT BANGALORE Dated this the l[st]day of July, 2014. PRESENT THE HON’BLE MR. JUSTICE N KUMAR ANTI THE HON’BLE MR. JUSTICE B MANOHAR| ITA No.571 of 2008 !"# ITA No 569 ot 2JOOITA No.573 otf JOOITA No.576 of JOOS ITA No.571 of 2008BBRITIWE 1.)The Director of Income TaxInternational TaxationRashtrothana BhavanNrupathunga RoadBangaloreInternational TaxationRashtrothana BhavanNrupathunga RoadBangalore iaThe Income-Tax Officer|Ward-19(1)|Ward-19(1)| International Taxation Rashtrothana Bhavan Nrupathunga Road Bangalore .. Appellant o (By Sri K.V. Aravind, Advocate) AND: M/s. Bangalore International Airport Ltd.,No.118, Gayathri LakefrontOuter Ring RoadHebbal, Near FlyoverBangalore — 560 024...Respondent (By Sri P. Dinesh, Advocate) This ITA filed under Section 260A of the Income Tax Act,1961 arising out of the order dated 17-12-200/7passed in ITANo.937/Bang/2006, for the assessment year 2006-2007praying to: 1) formulate the substantial questions of law stated|therein, 11) allow the appeal and set aside the orders passed bythe Income Tax!Appellate Tribunal, Bangalore in ITA|No.937/Bang/2006, dated 17-12-2007 and confirm the orderof the Appellate Commissioner confirming the order passed bythe Income Tax Officer, International Taxation, Ward-19(1),Bangalore. ITA No 569 of J2OO BETWEEN: Ll.The Director of Income Tax| International Taxation Rashtrothana Bhavan. Nrupathunga Road Bangalore iaThe Income-Tax Officer| Ward-19(1)| International Taxation & Rashtrothana Bhavan.Nrupathunga RoadBangalore .. Appellant (By Sri K.V. Aravind, Advocate) AND: M/s. Bangalore International Airport Ltd.,No.118, Gayathri LakefrontOuter Ring RoadHebbal, Near FlyoverBangalore — 560 024...Respondent (By Sri 8S. Parthasarathi, Adv., along withori P. Dinesh & Jinita Chatterjee, Advocates) This ITA filed under Section 260A of the Income Tax Act,1961 arising out of the order dated 17-12-2007 passed in ITANo.936/Bang/2006, tor the assessment year 2006-2007praying to: 1) formulate the substantial questions of law stated|therein, ii) allow the appeal and set aside the order passed bythe Income Tax!Appellate Tribunal, Bangalore in ITA|No.936/Bang/2006, dated 17-12-2007, confirming the orderof the Appellate Commissioner and confirm the order passedby the Income Tax Officer, International Taxation, Ward-19(1),Bangalore. ITA No.573 of 2008 BBRITIWE Ll.The Commissioner ot Income Tax. International Taxation Rashtrothana Bhavan Nrupathunga Road Bangalore v iaThe Income-Tax Officer|Ward-19(1)|Ward-19(1)| International Taxation Rashtrothana Bhavan. Nrupathunga RoadBangalore .. Appellant (By Sri K.V. Aravind, Advocate) AND: M/s. Bangalore International Airport Ltd.,No.118, Gayathri Lakefront Outer Ring Road Hebbal, Near FlyoverBangalore — 560 024...Respondent (By Sri P. Dinesh, Advocate) This ITA filed under Section 260A of the Income Tax Act,1961 arising out of the order dated 17-12-2007passed in ITANo.938/Bang/2006, tor the assessment year 2006-2007praying to: i) formulate the substantial questions of law stated|therein, 11) allow the appeal and set aside the order passed bythe Income Tax!Appellate Tribunal, Bangalore in ITA|No.938/Bang/2006, dated 17-12-2007 confirming the order ofthe Appellate Commissioner and confirm the order passed bythe Income Tax Officer, International Taxation, Ward-19(1),Bangalore. ITA No.576 of 2008 BE TW BE 1.)The Director of Income Tax International Taxation 5 Rashtrothana Bhavan. Nrupathunga Road Bangalore iaThe Income-Tax Officer|Ward-19(1)|Ward-19(1)| International Taxation Rashtrothana Bhavan. Nrupathunga Road Bangalore .. Appellant (By Sri K.V. Aravind, Advocate) AND: M/s. Bangalore International Airport Ltd.,No.118, Gayathri LakefrontOuter Ring RoadHebbal, Near FlyoverBangalore — 560 024 ...Respondent (By Sri P. Dinesh, Advocate) ITA No.576 of 2008 BE TW BE 1.)The Director of Income Tax International Taxation 5 Rashtrothana Bhavan. Nrupathunga Road Bangalore iaThe Income-Tax Officer|Ward-19(1)|Ward-19(1)| International Taxation Rashtrothana Bhavan. Nrupathunga Road Bangalore .. Appellant (By Sri K.V. Aravind, Advocate) AND: M/s. Bangalore International Airport Ltd.,No.118, Gayathri LakefrontOuter Ring RoadHebbal, Near FlyoverBangalore — 560 024 ...Respondent (By Sri P. Dinesh, Advocate) This ITA filed under Section 260A of the Income Tax Act,1961 arising out of the order dated 17-12-2007 passed in ITANo.939/Bang/2006, tor the assessment year 2006-2007praying to: i) formulate the substantial questions of law stated|therein, 11) allow the appeal and set aside the order passed bythe Income Tax!Appellate Tribunal, Bangalore in ITA|No.939/Bang/2006, dated 17-12-2007 confirming the order ofthe Appellate Commissioner and confirm the order passed bythe Income Tax Officer, International Taxation, Ward-19(1),Bangalore. These ITAs coming on for hearing this day,N,. KUMAR delivered the following: $ JU DGMENT The revenue has preferred these appeals against the|order of the Tribunal holding that the assessee is justified in claiming that reimbursement expenses in the circumstances ofthe case to the extent of 50% did not attract the provisions ofsection 195(2) of the Income Tax Act, 1961 (hereinafter for|short referred to as “the Act”). 2. In 1994 the Bangalore International Airport Project|was conceived as the project of public and private participation.A limited Company was floated called ‘Bangalore International|Airport Limited’ for the sole purpose of developing the|international airport at Devanahalli, Bangalore. The share|holders who are four in number entered into an agreement on 23.1.2002under.whichSiemensWa STOhave.40% shareholding, Unique and L & T were to have 17% each,|KSIIDC and AAI were to have 13% each. The said agreement|covereddevelopmentCOSTSwhichWETEpre-agreement w development cost, state promoters pre-agreement developmentcost, reimbursement of development cost to the privatepromoters in certain circumstances and reimbursement ofdevelopmentCOST.TO|thestatepromoters1nNcertaincircumstances. On the basis of this agreement, on 8.7.2002 aresolution was passed to the effect that, “the offshore expensesshall be advanced by Private Promoters. All expenses will be|reimbursed and capitalized after Financial Close”. The twoforeign companies, Siemens and Unique incurred expensesfrom March 2000 to August 2004 and these were to bereimbursed to the two parties. Similarly, L & T also incurredexpenses which also came for consideration for financial closeand capitalization of the project. The details of developmentcosts to be reimbursed are set out by the Tribunal in its order|at pages 4, 5and 6. 3. The Bangalore International Airport Limited on0.10.2004 filed an application under Section 195(2) of the Actfor nil deduction ot tax at source. On consideration of the said request, the assessing authority by a considered order heldthat, such an exemption is not permissible in law. 4. Agegrieved by the said order, the assessee preferred an appeal. The first Appellate Authority affirmed the order of theassessing authority. The same was challenged by the assesseebefore the Tribunal. 3. The Bangalore International Airport Limited on0.10.2004 filed an application under Section 195(2) of the Actfor nil deduction ot tax at source. On consideration of the said request, the assessing authority by a considered order heldthat, such an exemption is not permissible in law. 4. Agegrieved by the said order, the assessee preferred an appeal. The first Appellate Authority affirmed the order of theassessing authority. The same was challenged by the assesseebefore the Tribunal. o. The Tribunal proceeded on the basis that, it is a caseof reimbursement of various expenses incurred and in this caseit is also limited to only 50%. The expenses as incurred by thepromoters compensated to them would not involve any profitelement also, especially as is seen in the instant case, thecompensation is also only to the extent of 50%. Initially when|the expenses were incurred by the non-resident company, itwas not answerable to any of the provisions of Section 5 orsection 9 of the Act. By virtue of the arrangement, theexpenses to the extent of 50% was agreed to be reimbursed andreimbursement under no circumstances could be equated toamount paid tor technical services. In fact, what really happened or what really was incurred by the promoters was astudy with regard to feasibility, viability, etc., of the entireproject and finally whether it would ultimately result in themending up with some profit or not. This study as a promoter forwhich they used the services of other agencies for their ownpurpose was to decide about whether their decision to jointly|participate in the international airport project was a decisiontaken in the right direction or otherwise along with the input inthe shape of finance and other technical information. Thebenefit that the promoters received in the shape of legal advice,technical advice and other things was only to provide them thenecessary input to decide to go ahead or not to go ahead withthe project. Such services even in the remotest possibility|would have no connection whatsoever with the project and allthe details was so provided so as to satisfy that the expenses asincurred were justified and reimbursable. AS a _ passinreference they observed that one of the bidders of the projectviz., HOCHTIEF Airport GmbH, which bid was not accepted,also had incurred certain expenses and was reimbursed to the extent of 50%. The Department vide its NOC dated 12-09-2003had permitted the reimbursement to the tune of 50% withoutany deduction of tax. There is absolutely no difference betweenthe bidder who had gone off and the bidder who has continuedbecause he was accepted. Therefore, the Tribunal was of theopinion that the assessee is justified in claiming thatreimbursement of expenses in the circumstances of the case tothe extent of 50% did not attract the provisions of Section195(2) of the Act. Accordingly, it allowed the appeal. 6. Aggrieved by the said order, the revenue has preferredthese appeals. 7. We have heard the learned counsel for the parties.We have gone through the application filed under Section195(2) of the Act seeking for nil deduction of tax at source. Wedo not find from the said application the facts which are set outby the Tribunal in its order. Even otherwise, the findingsrecorded by the Tribunal to the effect it is a case ofreimbursement of various expenses incurred which is limited| 6. Aggrieved by the said order, the revenue has preferredthese appeals. 7. We have heard the learned counsel for the parties.We have gone through the application filed under Section195(2) of the Act seeking for nil deduction of tax at source. Wedo not find from the said application the facts which are set outby the Tribunal in its order. Even otherwise, the findingsrecorded by the Tribunal to the effect it is a case ofreimbursement of various expenses incurred which is limited| only to the extent of 50% is a case which is not pleaded byanyone. Probably the Tribunal appears to have carried awayby the reimbursement in the case of HOCHTIEF Airport GmbHwhere the department permitted reimbursement to the tune of00% without any deduction at source. Therefore, we are of theview there is no application of mind to the facts of this casebefore arriving at the conclusion by the Tribunal. Therefore,the impugned order cannot be sustained. It is liable to be set|aside. The matter has to be remanded back to the Tribunal forfresh consideration in accordance with law on the basis of thecase of the assessee and the material on record independently.In view of the fact that we are setting aside the impugned orderand remitting the matter to the Tribunal, the question ofanswering any of the substantial questions which are framed inthese cases do not arise. All of them are left open to be decidedin the future, if need arises. Hence, we pass the followingorder:- (yAppeals are allowed. �� �������������������������������������� ���������������������������������������������������������� ��������������������������������������� ����������� ����������� *;�"1�