Taxap/426/2018 Of The Commissioner Of Income Tax v. M/S Ranjit Projects Pvt Ltd

C/TAXAP/426/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 426 of 2018With R/TAX APPEAL NO. 427 of 2018With R/TAX APPEAL NO. 433 of 2018FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHIandHONOURABLE MR.JUSTICE B.N. KARIA==========================================================1 Whether Reporters of Local Papers may be allowed to see the judgment ?2 To be referred to the Reporter or not ?3 Whether their Lordships wish to see the fair copy of the judgment ?4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ?==========================================================THE COMMISSIONER OF INCOME TAXVersusM/S RANJIT PROJECTS PVT LTD==========================================================Appearance:MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI andHONOURABLE MR.JUSTICE B.N. KARIA Date : 02/05/2018 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1.These appeals arise in common background. Facts being similar in all appeals, we may record facts from Tax Appeal No.426 of 2018. 2.Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 27.10.2017 raising following question for our consideration: “Whether on facts and circumstances, the Appellate Tribunal has erred in law and on facts in deleting the disallowance of deduction made by the Assessing Officer of Rs.4,97,39,025/- u/s. 80IA (4) of the Act? ” 3.Brief facts are as under. 4.Respondent assessee is a private limited company and is engaged in implementing infrastructure development projects. For the assessment year 2010-11, in the return of the assessee filed, it had claimed deduction of Rs.4.97 crores (rounded off) under section 80IA(4) of the Income Tax Act, 1961 ('the Act' for short). The case of the assessee was that it had undertaken road development project, for which, it had entered into an agreement with Gujarat State Road Development Corporation ('GSRDC' for short) which was incorporated by the Government for C/TAXAP/426/2018 JUDGMENT the special purpose. Assessing Officer doubted whether such agreement of the assessee i.e. GSRDC would satisfy the requirements of section 80IA(4) of the Act. Assessee however contended that the GSRDC was performing all the functions of the State Government and therefore the concession agreement executed by GSRDC should be treated to have been entered into by the State Government. The Assessing Officer however did not accept such contention and rejected the assessee's claim of deduction under section 80IA(4) of the Act. 5.The assessee carried the matter in appeal. Commissioner of Income Tax (Appeals) noted that GSRDC is a corporation incorporated under the Companies Act under the Gujarat Government's resolution and is 100% owned by the State Government. It is also totally controlled by the State Government which could be gathered from the list of Board of Directors and the Memorandum of Association. Commissioner of Income Tax (Appeals) was also of the opinion that GSRDC can be treated to be statutory body since it is a Government agency as defined under section 2(e) of the Gujarat Infrastructure Development Act, 1999 C/TAXAP/426/2018 JUDGMENT 5.The assessee carried the matter in appeal. Commissioner of Income Tax (Appeals) noted that GSRDC is a corporation incorporated under the Companies Act under the Gujarat Government's resolution and is 100% owned by the State Government. It is also totally controlled by the State Government which could be gathered from the list of Board of Directors and the Memorandum of Association. Commissioner of Income Tax (Appeals) was also of the opinion that GSRDC can be treated to be statutory body since it is a Government agency as defined under section 2(e) of the Gujarat Infrastructure Development Act, 1999 C/TAXAP/426/2018 JUDGMENT ('the Act of 1999' for short). The Act of 1999 was enacted to implement the Government policy for private participation in development works such as construction of roads, bridges etc. He also noted that GSRDC was acting only as a NODAL agency for the State Government for infrastructure development. He further noted that; “(i) The approval for the project i.e., four lining of Chhayapuri ROB, near GSFC Junction, Vadodara was sought from the Gujarat Industrial Development Board by the GSRDC. (ii) Government of Gujarat, Roads and Building Department, Gandhinagar by its Resolutino dated, 01-08-2002 alloted the land for construction of ROB on BOT basis. (iii)The Concession Agreement was entered into by GSRDC with the appellant which was approved by the Government of Gujarat in its meeting held on 24-10-2000. (iv) Governmentof Gujarat, R & B Department issued an order No.Toll/102001-(29)-part-1 Pvt. Cell dated, 07-03-2003 permitting the appellant to collect Toll fee as indicated therein.” 6.In view of such facts, Commissioner of Income Tax (Appeals) held that in case of the assessee, all conditions of section 80IA(4) of the Act were fulfilled. He therefore granted such deduction. 7.Revenue carried the matter in appeal before the Tribunal. The Tribunal for reasons similar to those which weighed with the Commissioner of Income Tax (Appeals) dismissed the Revenue's appeal, upon which, the department has filed the present Tax Appeal. 8.Section 80IA of the Act provides for certain deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. Sub-section (4) of section 80IA provides, inter alia, that such section would apply to any enterprise carrying on business of developing or operating and maintaining or developing,operatingandmaintainingany infrastructure facility which fulfills the conditions laid down therein. Clause (b) of these conditions read as under: “(b) It has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (I) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility.” 9.The Revenue argues that the agreement entered into between the assessee and GSRDC does not fulfill this condition since GSRDC is neither State Government, Central Government or any statutory body. read as under: “(b) It has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (I) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility.” 9.The Revenue argues that the agreement entered into between the assessee and GSRDC does not fulfill this condition since GSRDC is neither State Government, Central Government or any statutory body. This contention of the Revenue would have to be examined in light of facts on record. Such facts are that the GSRDC is a wholly Government owned company incorporated pursuant to the State Government's resolution dated 28.02.1999. The members and the Board of Directors and the memorandum of association would show that Government enjoys total control over the said Corporation. In the present case, there was a requirement of four laning of road near GSFC junction, Vadodara. A request for such purpose was made by Gujarat Industrial Development Board. For such road widening, Government of Gujarat, Road and Building Development, under its resolution dated 01.08.2002 alloted the land for construction of the road on build, operate and transfer basis. The concession agreement which GSRDC entered into with assessee was approved by the State Government in its meeting dated 24.10.2000. The Government of Gujarat passed an order dated 07.03.2003 permitting the assessee to collect toll fee at prescribed rates. 10.We further notice that the State legislature had enacted the Gujarat Infrastructure Development Act, 1999. Section 2(b) defines a term 'concession C/TAXAP/426/2018 JUDGMENT agreement' as to mean a contract of the nature specified in schedule II between a developer and the State Government, a Government agency or a specified Government agency relating to a project. Section 2(e) of which defines 'Government agency' as to mean a Corporation or a body owned or controlled by the State Government or an authority established by or under any law and includes of local authorities. Section 4 of the Act of 1999 pertains to concession agreement. Sub-section (1) of section 4 provides that a person may enter into a concession agreement of the nature specified in schedule II with the State Government, a Government agency or a specified Government agency and the scheme for concession agreement shall be such as may be prescribed. Sub-section (3) of section 4 provides that no concession agreement shall provide for transfer of a project by a developer to the State Government, a Government Agency or a specified Government Agency later than thirty-five years from the date of agreement. 11.Section 7 of the Act of 1999 provides that no concession agreement for undertaking a project shall be entered into with a person unless the procedure specified in sections 8 and 9 or sections 8 and 10, as the case may be. Section 8 of the Act provides that a concession agreement for undertaking a project may be entered into with a person who is selected through a competitive public biddings as provided in section 9 or by direct negotiation as provided in section 10. Section 9 of Act of 1999 lays down a detailed procedure for selection of a person by competitive public bidding. Section 10 on the other hand lays down a procedure prescribed to select a person by direct negotiation. 11.Section 7 of the Act of 1999 provides that no concession agreement for undertaking a project shall be entered into with a person unless the procedure specified in sections 8 and 9 or sections 8 and 10, as the case may be. Section 8 of the Act provides that a concession agreement for undertaking a project may be entered into with a person who is selected through a competitive public biddings as provided in section 9 or by direct negotiation as provided in section 10. Section 9 of Act of 1999 lays down a detailed procedure for selection of a person by competitive public bidding. Section 10 on the other hand lays down a procedure prescribed to select a person by direct negotiation. 12.It can thus, be seen that the Act of 1999 makes detail provisions for awarding contracts for infrastructure development within the State through private participation. In the process, the Government could take assistance of a Government agency or a specified Government agency. The selection of the person would either be on the basis of competitive public bidding as provided in section 9 of the Act or through direct negotiations as provided in section 10. The Act of 1999 also lays down broad parameters of the concession agreement that such a person would enter into with the Government, Government agency or the specified Government agency as the case may be. 13.The above statutory provisions and the relevant facts arising in the present case and noted above would leave little doubt in one's mind that GSRDC was a nodal agency constituted by the State Government for the purpose of executing road development projects through private participation and was a Government agency as defined in section 2(e) of the Act of 1999. Significant factors in the present case are that the road widening project was cleared by the Government, land for such purpose was alloted by the Government. The concession agreement which GSRDC executed was approved by the Government. It was under the Government Resolution that the assessee would collect toll upon completion of such project. Upon the completion of the project period, the entire infrastructure so developed would vest in the Government. Signatory to the applicant may be GSRDC for all practical purposes and in essence, it was the agreement between the assessee and the State Government. We are conscious that condition-(b) of sub-section (4) of section 80IA requires the assessee to have entered into agreement with the Central Government or a State Government or a local authority or any other statutory authority. However, rigid interpretation of this provision as canvassed by the Revenue would only result into the assesseesinvolved in genuine infrastructure development projects for and on behalf of the Government or local authorities would be denied the deduction merely on the ground that the State Government had created a nodal agency for working out the finer details and nitty-gritty of such infrastructure development. The purpose of creating such nodal agencies as well as the legislative intent of granting deduction to the assessee engaged in developing, maintaining or operating any infrastructure projects for Central or State Government or local or statutory authorities would frustrate. 14.In the result, all Tax Appeals are dismissed. (AKIL KURESHI, J) (B.N. KARIA, J)