The Commissioner Of Incometax, Coimbatore v. M/S.chettinad Lignite Transport Services Private Limited

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06.03.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN Tax Case Appeal Nos.741, 1266 of 2009 and 162 of 2015 The Commissioner of Incometax,Coimbatore....Appellant inall appealsVs. M/s.Chettinad Lignite Transport Services Private Limited,43, Race Course Road,Coimbatore – 641 018. ...Respondent inboth appeals Tax Case Appeal No.741 of 2009 filed under Section 260A ofthe Income Tax Act, 1961 against the order of the Income TaxAppellate Tribunal, Madras 'D' Bench, Chennai, dated 27.07.2007made in ITA No.2287/Mds/06.Against the Order of the Commissioner of Income Tax(Appeals)-1, Coimbatore dated 16/10/2006 in ITA.No. 294/05-06against the order of the Assistant Commissioner of Income TaxCompany Circle – 1(1) Coimbatore dated 22/09/2005 in PAN-GIR No.AABCC – 7357 G for the assessment Year 2004-2005. Tax Case Appeal No.1266 of 2009 filed under Section 260A ofthe Income Tax Act, 1961 against the order of the Income TaxAppellate Tribunal, Madras 'D' Bench, Chennai, dated 31.07.2007made in ITA No.2286/Mds/2006. Against the order of the Commissioner of Income Tax,appeals – I Coimbatore dated 16/10/2006 in ITA.No. 293/05-06against the order of the Assistant Commissioner of Income Tax,Company Circle – I (i) Coimbatore dated 22/09/2005 inPAN.GIR.No. AABCC 7357 G for the Assessment Year 2003-2004. Tax Case Appeal No.162 of 2015 filed under Section 260A ofthe Income Tax Act, 1961 against the order of the Income TaxAppellate Tribunal, Madras 'D' Bench, Chennai, dated 13.08.2014made in ITA No.1151/Mds/2014. Against the order of the Commissioner of Income Tax(Appeals)-I Coimbatore dated 19/02/2014 in Appeal No. 82/13-14against the order of the Joint Commissioner of Income Tax Range https://hcservices.ecourts.gov.in/hcservices/ I Coimbatore dated 18/03/2013 in PAN.GIR.No. for theAssessment Year 2010-2011. For Appellant : M/s.T.R.Senthilkumarin all appeals K.G.Usharani Sr. Standing CounselFor Respondent : Mr.R.Vijayaraghavanin all appeals for M/s.Subbaraya Aiyar Padmanabhan COMMON JUDGMENT (Delivered by DR.VINEET KOTHARI,J.) The Revenue has filed these appeals under Section 260-A ofthe Income Tax Act, 1961, raising the following substantialquestions of law arising from the orders of the learned Tribunaldated 27[th] July 2007; 31[st] July 2007 and 13[th] August 2014respectively, whereby the learned Tribunal allowed the appealsfor the assessment years 2003-2004; 2004-2005 and 2010-2011 andheld that the Assessee is entitled to the benefit of deductionunder Section 80IA of the Act. “T.C. (A) No.741 of 2009: 1. Whether on the facts and in thecircumstances of the case, the Income TaxTribunal is right in holding that the assesseewas entitled to deduction under Section 80IAeven though the conditions specified thereunderare not satisfied? 2. Whether on the facts and in thecircumstances of the case, the Income TaxTribunalisrightinholdingthatinfrastructure facility was eligible fordeduction under Section 80IA even though theassessee was only a transport contractor toaugment the power generation and was only likeany other building contractor/labour contractornot eligible for such deduction? 3. Whether on the facts and in thecircumstances of the case, the Income TaxTribunal is right in holding that the provisoto sub section 4 of section 80IA would holdgood when there was no transfer ofinfrastructure facility?” 1. Whether on the facts and in thecircumstances of the case, the AppellateTribunal was right in law in allowing thededuction under Section 80IA of the Act, eventhough the assessee does not satisfy theproviso to Sub-section 4 of Section 80IA of theAct? 3. Whether on the facts and in thecircumstances of the case, the Income TaxTribunal is right in holding that the provisoto sub section 4 of section 80IA would holdgood when there was no transfer ofinfrastructure facility?” 1. Whether on the facts and in thecircumstances of the case, the AppellateTribunal was right in law in allowing thededuction under Section 80IA of the Act, eventhough the assessee does not satisfy theproviso to Sub-section 4 of Section 80IA of theAct? 2. Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in law in allowingthe deduction under section 80IA of the Act,without considering the explanation 13 toSection 80IA introduced by the Finance Act,2007 with retrospective effect from 1.4.2000,no deduction under Section 80IA, is allowableto a Sub-contractor? “T.C.A.No.162 of 2015 1.Whether under the facts and circumstances ofthe case, the Income Tax Appellate Tribunal wasright in holding that the assessee is eligiblefor deduction under Section 80 IA, when theassessee is only a sub-contractor? 2.Whether under the facts and circumstances ofthe case, the Income Tax Appellate Tribunal wasright in holding that the assessee is eligiblefor deduction under Section 80IA, withoutexamining the effect of explanation inserted atthe end of the Section by Finance Act 2007 withretrospective effect from 1.4.2000 which wasalso substituted by Finance (No.2) Act, 2009with retrospective effect from 1.4.2000? 3.Whether under the facts and circumstances ofthe case, the Income Tax Appellate Tribunal wasright in holding that the assessee is eligiblefor deduction under Section 80IA, though theassessee did not fulfil the condition laid downin Section 80 IA(4) of having a contract withany Government/authority referred to in thatsection? 4.Whether under the facts and circumstances ofthe case, the Income Tax Appellate Tribunal wasright in holding that the assessee is eligiblefor deduction under Section 80IA, the assesseedid not satisfy proviso to Section 80IA(4) inasmuch as there is no transfer ofinfrastructure facility?” 2. Section 80IA of the Act is quoted below for readyreference: “S.80-IA. Deductions in respect of profits andgains from industrial undertakings or enterprisesengaged in infrastructure development, etc. (1) Where the gross total income of an assesseeincludes any profits and gains derived by anundertaking or an enterprise from any businessreferred to in sub-section (4) (such business beinghereinafter referred to as the eligible business),there shall, in accordance with and subject to theprovisions of this section, be allowed, incomputing the total income of the assessee, adeduction of an amount equal to hundred per cent ofprofits and gains derived from such business forten consecutive assessment years. (2) The deduction specified in sub-section (1) may,at the option of the assessee, be claimed by himfor any ten consecutive assessment years out offifteen years beginning from the year in which theundertaking or the enterprise develops and beginsto operate any infrastructure facility or startsproviding telecommunication service or develops anindustrial park or develops a special economic zonereferred to in clause (iii) of sub-section (4) orgenerates power or commences transmission ordistribution of power or undertakes substantialrenovation and modernisation of the existingtransmission or distribution lines. (2) The deduction specified in sub-section (1) may,at the option of the assessee, be claimed by himfor any ten consecutive assessment years out offifteen years beginning from the year in which theundertaking or the enterprise develops and beginsto operate any infrastructure facility or startsproviding telecommunication service or develops anindustrial park or develops a special economic zonereferred to in clause (iii) of sub-section (4) orgenerates power or commences transmission ordistribution of power or undertakes substantialrenovation and modernisation of the existingtransmission or distribution lines. Provided that where the assessee develops oroperates and maintains or develops, operates andmaintains any infrastructure facility referred toin clause (a) or clause (b) or clause (c) of theExplanation to clause (i) of sub-section (4), theprovisions of this sub-section shall have effect asif for the words "fifteen years", the words "twentyyears" had been substituted.”3.ThelearnedcounselfortheRevenue,Mr.T.R.Senthilkumar, urged before us that since the Assessee wasonly a sub-contractor and since it was not the Assessee, whoitself had entered into a contract with the specified authorityviz., Central Government or State Government or Local Authorityas envisaged under Section 80IA(4) of the Act, the Assessee willnot be entitled to the benefit of deduction under Section 80IA of https://hcservices.ecourts.gov.in/hcservices/ the Act and that the Tribunal erred in giving the said benefit tothe said Assessee. He submitted that the principal contractor,who had entered into an agreement with the Railways, was oneM/s.ST-CMS Electric Company Private Limited and the Assessee wasonly a sub-contractor and undertook the work of development ofthe railway sidings at Vadalur and Uthangalmangalam RailwayStations and was operating and maintaining such railway sidingsunder the agreement dated 16.04.2002 captioned as Lignitetransport system and therefore, the Assessee was not entitled tothe said deduction under Section 80IA of the Act. 4. On the other hand, the learned counsel for the Assessee,Mr.R.Vijayaraghavan, submitted that the provision of Section 80IA(4) of the Act, especially, the Provisos thereto, permits eventhe transferee of an infrastructure facility to avail suchdeduction under Section 80IA of the Act and the Tribunal hasrightly allowed the said benefit to the Assessee invoking thefirst Proviso to Section 80IA(4) of the Act. 5. The relevant findings of the learned Tribunal in thisregard are quoted below for ready reference: “8. On a careful consideration of the rival 4. On the other hand, the learned counsel for the Assessee,Mr.R.Vijayaraghavan, submitted that the provision of Section 80IA(4) of the Act, especially, the Provisos thereto, permits eventhe transferee of an infrastructure facility to avail suchdeduction under Section 80IA of the Act and the Tribunal hasrightly allowed the said benefit to the Assessee invoking thefirst Proviso to Section 80IA(4) of the Act. 5. The relevant findings of the learned Tribunal in thisregard are quoted below for ready reference: “8. On a careful consideration of the rival submissions advanced by the parties and from acareful perusal of the orders of the authoritiesbelow and the documents placed on record includingthe precedents relied upon, we find that theDepartment had rejected the assessee's claim forrelief u/s 80IA on the ground that the assessee hasnot satisfied the requirement of sub-sec.(4) tosec.80IA. According to the authorities below theassessee had not entered into an agreement with theCentral or State Government, local authority or anystatutory body for developing or operating andmaintainingordeveloping,operatingandmaintaining a new infrastructure facility. Forrejecting the assessee's claim another reasonadopted by the Department is that operation andmaintenance of the Lignite Transport System is notan infrastructure facility eligible for relief u/s80IA and further that the assessee had only anagreement with ST-CMS and therefore it is notentitled to sec. 80IA relief. However, while goingthrough the orders of the authorities belowparticularly with regard to the contract withRailways, the Department concluded that there wasonly approval from the Railway authorities to putup the rail track, sidings etc. notwithstanding thefact that the Railways has recognised the assesseeas a contractor. Impliedly the Department hasaccepted the fact that the assessee has provided“Infrastructure facility” to the specified authority. The only doubt in the mind of theDepartment was that there was no existence ofdirect contract between the assessee and theRailways. The Department proceeded further toconclude that there was no contract as envisagedunder sec.80IA. As rightly pointed out by the ld.Counsel for the assessee, the proviso was neverattempted to be deliberated upon whereas theassessee relies only on the proviso to claim therelief u/s 80IA as if no transfer had taken place.To maintain a rail system and operating andmaintaining such infrastructure facility as definedand the original ST-CMS agreement will hold good inview of the proviso to sec.80IA(4). This provisohas to be read along with CBDT Circular No.779dated 14.09.1999 cited supra, clearly brings theassessee as one entitled to claim deduction u/s80IA of the Act particularly in view of proviso tosub-sec.(4). The assessee performed the contractaccording to the terms agreed upon is not indispute. Once we are satisfied that the servicesrendered by the assessee were an integral andinseparable part of operation and maintenance of aLignite Transport System and therefore, theassessee's claim that it had complied with therequisite conditions specified under the proviso,and is entitled to deduction under sec. 80-IA interms of proviso to sub-sec.(4) has to be accepted.As rightly claimed by the ld. Counsel for theassessee the decision of the Hon'ble Supreme Courtin the case of Bajaj Tempo Ltd. (supra) is squarelyapplicable to the facts of the present case andwould come to the assessee's rescue. For coming tothe conclusion that the assessee is eligible fordeduction under sec.80IA in terms of proviso tosec.80IA(4), we also derive support from thedecision of the Hyderabad Bench of the Tribunal inthe case of Ocean Sparkle Ltd. v. DCIT, 99 TTJ(Hyd) 582, wherein under similar set of facts theTribunal concluded as under: “Proviso to sec.80IA(4) does not require thatthere should be a direct agreement between thetransferee enterprise and the specifiedauthority, the assessee-company engaged inoperationandmaintenanceofportinfrastructure which was transferred by thedeveloper to the assess in accordance with theagreement with the specified authorities waseligible for deduction under sec.80-IA.” Under the above circumstances, we set aside theorders of the authorities below and direct the AOto allow the claim of the assessee for deductionunder sec.80IA of the Act. 9. In the result, appeal of the assessee standsallowed.” 6. We have heard the learned counsel for the Revenue andthe Assessee. 7. The provisions of Section 80IA(4) of the Act, includingits Provisos and Explanations to the extent relevant are alsoquoted below for ready reference: “(4) This section applies to - (i) any enterprise carrying on the business of (i)developing or (ii) operating and maintaining or(iii) developing, operating and maintaining anyinfrastructure facility which fulfils all thefollowing conditions, namely: (a) it is owned by a company registered in India orby a consortium of such companies or by anauthority or a board or a corporation or any otherbody established or constituted under any Centralor State Act; (b) it has entered into an agreement with theCentral Government or a State Government or a localauthority or any other statutory body for (i)developing or (ii) operating and maintaining or(iii) developing, operating and maintaining a newinfrastructure facility; (c) it has started or starts operating andmaintaining the infrastructure facility on or afterthe 1st day of April, 1995: Provided that where an infrastructure facility istransferred on or after the 1st day of April, 1999byanenterprisewhichdevelopedsuchinfrastructure facility (hereafter referred to inthis section as the transferor enterprise) toanother enterprise (hereafter in this sectionreferred to as the transferee enterprise) for thepurpose of operating and maintaining theinfrastructure facility on its behalf in accordancewith the agreement with the Central Government,State Government, local authority or statutory body, the provisions of this section shall apply tothe transferee enterprise as if it were theenterprise to which this clause applies and thededuction from profits and gains would be availableto such transferee enterprise for the unexpiredperiod during which the transferor enterprise wouldhave been entitled to the deduction, if thetransfer had not taken place.Provided further that nothing contained in thissection shall apply to any enterprise which startsthe development or operation and maintenance of theinfrastructure facility on or after the 1[st] day ofApril 2017. Explanation : For the purposes of this clause,"infrastructure facility" means- (a) a road including toll road, a bridge or a railsystem; (b) a highway project including housing or otheractivities being an integral part of the highwayproject; (c) a water supply project, water treatment system,irrigation project, sanitation and sewerage systemor solid waste management system; (d) a port, airport, inland waterway, inland portor navigational channel in the sea.” Explanation : For the purposes of this clause,"infrastructure facility" means- (a) a road including toll road, a bridge or a railsystem; (b) a highway project including housing or otheractivities being an integral part of the highwayproject; (c) a water supply project, water treatment system,irrigation project, sanitation and sewerage systemor solid waste management system; (d) a port, airport, inland waterway, inland portor navigational channel in the sea.” 8. From a reading of the aforesaid Provisos to Section 80IA(4), it is clear that the Legislature intended to extend the saidbenefit under Section 80IA of the Act to an enterprise involvedin (i) developing or; (ii) operating and maintaining or; (iii)developing, operating and maintaining any infrastructurefacility. The term “infrastructure facility” has been defined inthe Explanation and the same includes a toll road, a bridge or arail system, a highway project, etc. These are, obviously, biginfrastructure facilities for which the enterprise in questionshould enter into a contract with the Central Government or StateGovernment or Local Authority. However, the Proviso intends toextend the benefit of the said deduction under Section 80IA ofthe Act even to a transferee or a contractor who is approved andrecognised by the concerned authority and undertakes the work ofthe said development of infrastructure facility or only operatingor maintaining the same. The Proviso to sub-section (4)stipulates that subject to the fulfillment of conditions, thetransferee will be entitled to the said benefit, as if thetransfer in question had not taken place. It has been found by the Assessing Authority himself, in the present case, that thepresent Assessee M/s.Chettinad Lignite Transport Services PrivateLimited under an Agreement dated 16.04.2002, captioned as LigniteTransport System with M/s.ST-CMS Electric Company PrivateLimited, had undertaken the work of developing the said railwaysidings and was operating and maintaining the same. The onlyground on which, the Assessing Authority denied the said benefitwas that the Assessee himself did not enter into any suchcontract with the Railways or with the Central Government.9. The learned Tribunal, however, in our opinion, rightlyapplied the Proviso to Section 80IA(4) of the Act and held thatsince the Assessee was recognised as contractor for these railwaysidings, which undoubtedly fell under the definition of“infrastructure facility”, it was entitled to the said benefitunder Section 80IA of the Act. The grounds on which theAssessing Authority denied the said benefit to the Asesseeignoring the effect of Provisos to Section 80IA(4), therefore,could not be sustained. The learned Tribunal, in our opinion,has rightly held that the Proviso does not require that thereshould be a direct agreement between the transferee enterpriseand the specified authority for availing the benefit underSection 80IA of the Act. There is no dispute before us that theAssessee was duly recognised as transferee or assignee of theprincipal contractor M/s.ST-CMS Company Private Limited and wasduly so recognised by the Railways to operate and maintain thesaid railway sidings at Vadalur and Uthangalmangalam RailwayStations. The findings of fact with regard to the said positionrecorded by the learned Tribunal are, therefore, unassailable andthat clearly attracted the first Proviso to Section 80IA(4) ofthe Act. 10. The learned counsel for the Revenue relied upon adecision of this Court in the case of M/s.Covanta SamalpattiOperating Private Limited, Chennai-20 v. The AssistantCommissioner of Income Tax, Company Circle I (3), Chennai-34,reported in (2018) 93 Taxmann 38. In the said case, the claim ofthe Assessee company, which was engaged in power generation, fordeduction under Section 80IA of the Act was denied by the Revenueon the ground that the Assessee Undertaking had not been set upfor generation and distribution of power and that the Assesseewas only a contractor for the maintenance work of power plant,which was owned by Samalpatti Power Corporation Private Limited(SPCL). On these facts, the Court held that the Assessee wasnot entitled to deduction under Section 80IA of the Act. We donot find any parity of facts of the said case with the factsavailable before us. The power generating companies are entitledto deduction under Section 80IA of the Act in different subclauses viz., under Section 80IA(4)(iv) of the Act. Where thereis no such Proviso, as is available in clause (i) of Section 80IA(4) of the Act, which deals with deduction to enterprise involved https://hcservices.ecourts.gov.in/hcservices/ in developing, operating and maintaining the infrastructurefacilities. Obviously, if the Assessee is getting only fees forthe maintenance of certain power generating plant, as was thecase before the Co-ordinate Bench of this Court in Covanta case(supra), he may not be entitled to such deduction, but the factsituation before us is entirely different and, therefore, we donot find any support from the said case cited by the learnedcounsel for the Revenue. 11. We are, therefore, of the considered opinion that thereis no merit in these appeals filed by the Revenue and thequestions of law framed above deserve to be answered in favour ofthe Asessee and against the Revenue. We hereby do so. Theappeals preferred by the Revenue deserve to be dismissed andaccordingly, the same are dismissed. No costs. Sd/-Assistant Registrar (CS-V)//True Copy// Sub Assistant Registrar bbrTo1. The Registrar, Income Tax Appellate Tribunal, Madras "D" Bench, Chennai.2. The Commissioner of Income Tax (Appeals)-I, Coimbatore.3. The Assistant Commissioner of Income-tax, Company Circle-1(I), Coimbatore. 4. The Joint Secretary to Government, Public (law & Order), Fort Saint George, Chennai 9 +1cc to Mr.T.R.Senthil Kumar, Advocate, S.R.No. 21245+1cc to Mr.Subbaraya Aiyar Padmanabhan, Advocate, S.R.No. 21239T.C.(A) Nos.741,1266 of 2009and 162 of 2015 NRL(CO)GN(05/04/2019)