TMI Blog2010 (2) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... cility and that it was engaged in operating the cranes was, therefore, based on the material on record. The fact that the assessee was also maintaining the cranes was not disputed. The assessee was entitled to the special deduction under section 80IA. - 1687, 2121, 2291, 2663 of 2009 and 416 of 2010. - - - Dated:- 15-2-2010 - DR. D. Y. CHANDRACHUD and J. P. DEVADHAR JJ. Income-tax Appeal Nos. Suresh Kumar, D. A. Athavale and Ms. Padma Diva for the appellant. S. E. Dastur, Senior Advocate with Ms. A. Vissanji and S. P. Mehta for the respondent JUDGMENT The judgment of the court was delivered by 1. DR. D. Y. CRANDRACHUD J . - Admit. 2. The following substantial question of law arises in the batch of appeals filed by the Revenue under section 260A of the Income-tax Act, 1961 ("Act"): "Whether the assessee is entitled to the benefit of a deduction under section 80-IA of the Act and whether the Tribunal was justified in holding that the assessee had carried on the business of developing, maintaining and operating an infrastructural facility so as to entitle it to a deduction under section 80-IA?" 3. The appeal arises out of an order of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ten years, the assessee was liable to hand over the equipment to JNPT free of cost. Under the contract, the assessee furnished an indemnity to JNPT towards damages that may be sustained to the equipment or to any property of the port trust or to the lives, persons or properties of others. The assessee assumed other contractual obligations including amongst them, the liability to insure the equipment, to indemnify JNJF'T towards the claims of workers' compensation and for compliance with labour legislation. 6. By a letter dated March 27, 2000, JNPT clarified that the amount of Rs.40,00,000 per annum comprised of salaries, wages and other emoluments of operators provided by JNPT; that it was the responsibility of the assessee to guarantee the availability of the equipment, to ensure that it is in operation on a "round the clock basis" and to meet the cost of repair; and that the overall responsibility for ensuring the operation of the equipment, and for guaranteeing the availability of the equipment would be that of the assessee. 7. The assessee claimed the benefit of a deduction under section 80-IA of the Act, upon which the dispute in the appeals centres. The Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying on the business of developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely: (i) the enterprise must be owned by a company registered in India or by a consortium of companies; (ii) the enterprise must have entered into an agreement with the Central or a State Government or a local authority or any other statutory body for developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement ; and (iii) The enterprise must start operating and maintaining the infrastructure facility on or after April 1, 1995. Sub-section (12) of section 80-IA of the Act contains a statutory dictionary defining the terms used in the provision. Clause (ca) was substituted by the Finance Act of 1996, with effect from April 1, 1997 to define an infrastructural facility to mean (i) a road, highway, bridge, airport, port, rail system or any other public facility of a similar nature as may be notified by the Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative policy, conceived with a view to provide an impetus to private sector participation in infrastructural projects. Consistent with the legislative object of encouraging private sector participation in the development of infrastructure, section 80-IA was enacted. Contemporaneously, with the provisions which were made by Parliament in section 80-IA of the Act, explanatory circulars issued in an administrative capacity by the Central Board of Direct Taxes held the field. These circulars gave expression to the scope and ambit of the concession that was provided by section 80-IA of the Act. On August 14, 1995, Circular 717 was issued by the Central Board of Direct Taxes. The circular, in so far as is material provided thus (215 ITR (St.) 70, 91): "Five-year tax holiday for infrastructure development 34.1……. 34.2 Industrial modernization requires a massive expansion of, and qualitative improvement in infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfil the requirements of the country within a reasonable time frame. In many countries the BOT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect Taxes. The circular dealt with the question as to whether section 80-IA of the Act would be applicable to the build, own, lease and transfer (BOLT) scheme of the Indian Railways for the development of the railway system. Answering the issue in the affirmative, the circular clarified that the concession would be applicable only to an infra structure facility meant for development of the railway system and not to any other infrastructure facility including rolling stocks. Clearly, therefore, as far back as in January 1996, the application of section 80-IA of the Act to the development of infrastructural facilities in a BOLT project for the Indian Railways was within the contemplation of the Central Board of Direct Taxes, as a permissible source for deduction. 14. 13. Subsequently, on June 23, 2000, Circular 793 was issued by the Central Board of Direct Taxes, which postulated as follows ([2000] 244 ITR (St.) 103: "The Board has received various representations seeking clarification whether structures at ports for storage, loading and unloading, etc., will fall under the definition of 'port' for the purposes of sections 10(23G) and 80-IA of the Income-tax Act, 1961. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted. In other words, the conditions which were prescribed by the Central Board of Direct Taxes Circular dated June 23, 2000 were liberalized by the subsequent circular dated December 16, 2005. By the subsequent circular it was clarified that the conditions that were spelt out in the earlier circular dated June 23, 2000, would continue to operate in respect of assessment years prior to and culminating with the assessment year 2001-02. With effect from the assessment year 2002-03 all that was necessary was a certificate issued by the port authority that the structure in question forms a part of the port. Hence, the evolution of section 80-IA would show a progressive liberalisation of the legislative scheme, in the interests of aiding the growth of infrastructure. The administrative circulars issued by the Central Board of Direct Taxes in implementation of section 80-IA similarly liberalised the scheme, consistent with the Act. 17. At this stage, it would be necessary to note that on May 31, 2004, JNPT issued a certificate confirming the award of contracts to the assessee on September 2, 1994 and October 16, 1995 for supply, installation, testing, commissioning and maintenance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same time, JNPT clarified that it was the responsibility of the assessee to guarantee the availability of the equipment; to ensure that the equipment is in operation on a round the clock basis; to provide for repairs and to ensure the operation and availability of the equipment in accordance with the terms of the contract. 19. The obligations which have been assumed by the assessee under the terms of the contract are obligations involving the development of an infra structure facility. Section 80-IA of the Act essentially contemplated a deduction in a situation where an enterprise carried on the business of developing, maintaining and operating an infrastructure facility. A port was defined to be included within the purview of the expression "infrastructure facility". The obligations which the assessee assumed under the terms of the contract were not merely for supply and installation of the cranes, but involved a continuous obligation right from the supply of the cranes to the installation, testing, commissioning operation and maintenance of the cranes for a term of ten years after which the cranes were to vest in JNPT free of cost. An assessee did not have to develop the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was under the contract required to operate the facility. Merely because the operators of the cranes were provided by the port authority did not absolve the assessee of the overall responsibility of operating the cranes, under the terms of the contract. 22. Counsel appearing on behalf of the assessee urged that the requirement that the assessee ought to have developed, maintained and operated the facility is not a condition which is to be read in the cumulative. The learned counsel submitted that the scheme under section 80-IA of the Act was to provide a concession in order to attract private investment in infrastructure. It is in this background that the Central Board of Direct Taxes issued a clarificatory circular on August 14, 1995, stating that infrastructure facilities developed on a BOT, BOOT or other similar basis were within the contemplation of the provision. Reliance was placed on the circulars dated June 23, 2000 and December 16, 2005 as being indicative of the fact that the requirement of developing, maintaining and operating an infrastructure facility were never regarded to be cumulative. The learned counsel urged that it was in line with the Board's und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue on the applicability of the binding circulars of the Central Board of Direct Taxes, we are of the view that the condition as regards development, operation and maintenance of an infrastructure facility was contemporaneously construed by the authorities at all material times, to cover within its purview the development of an infrastructure facility under a scheme by which an enterprise would build, own, lease and eventually transfer the facility. This was perhaps a practical realisation of the fact a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed. Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. Parliament when it amended the law was obviously aware of the administrative practice resulting in the circulars of the Central Board of Direct Taxes. The fact that in such a scheme, an enterprise would not operate the facility itself was not regarded as being a statutory bar to the entitlement to a deduction under section 80-IA of the Act. The court cannot be unmindful in the present case of the underlying objects and reasons for a gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning; or (iii) developing, operating and maintaining any infrastructure facility which fulfils certain conditions. Those conditions are: (i) ownership of the enterprise by a company registered in India or by a consortium; (ii) an agreement with the Central or State Government, local authority or statutory body and (iii) the start of operation and maintenance of the infrastructure facility on or after April 1, 1995. The requirement that the operation and maintenance of the infrastructure facility should commence after April 1, 1995 has to be harmoniously construed with the main provision under which a deduction is available to an assessee who develops or operates and maintains; or develops, operates and maintains an infrastructure facility. Unless both the provisions are harmoniously construed, the object and intent underlying the amendment of the provision by the Finance Act of 2001 would be defeated. A harmonious reading of the provision in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops; or (ii) operates and maintains; or (iii) develops, maintains and operates that infrastructure facility. However, the commencement of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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