2022 (6) TMI 1529 - AT - Income Tax

Deduction u/s 80IA - Assessee earned income from tender fee and interest on deposits and had accounted the same under the head Other Income in the financials - HELD THAT - The assessee earned interest on deposits made with lenders/bankers to adhere to the continents in the relevant Trust and Retention Account (TRA) agreements. The assessee is mandated to maintain debt service reserve amount by depositing the money by way of FDs. The interest income has arisen out of the deposit which is required to be kept mandatorily as per TRA agreement. Further the tender fees is earned for awarding tender which is part of the business operations of the assessee i.e. operation and management of the Bangalore International Airport. The ratio emanating from the various judicial pronouncement discussed in the case of Odisha Power Generation Corporation Ltd 2022 (3) TMI 539 - ORISSA HIGH COURT is that if there is direct nexus between income earned / expenses incurred to the business of the assessee then the net profits and gains after considering those incomes / expenses are derived from the business of the assessee and therefore would be eligible for deduction u/s. 80IA. Therefore in the given case of the assessee the important factor to be checked for determination Other Income to be eligible for deduction u/s. 80IA is whether the income is inextricably linked and is having direct and proximate connection/nexus with the Assessee s business of operation and management of the Bangalore International Airport. . We therefore remand the issue to the AO for factually verifying the Other Income earned by the assessee and its nexus with the business of the assessee in order to decide the eligibility for deduction u/s. 80IA of the Act as per law. AO is directed accordingly after giving reasonable opportunity of being heard to the assessee. This ground raised by the revenue is dismissed. Revenue share fee from food and beverage and retails outlets - assessee submitted that the non-aeronautical income (revenue from retail outlets sale of food and beverages, ) and other income are integral and part and parcel for developing operating and maintaining of the airport and therefore such income are eligible for deduction u/s 80-IA - HELD THAT - Classification of income from retail outlets and restaurants as non-aeronautical activities we are the view that the same is done as a disclosure as per the classification defined in the AERA Act and cannot be taken as a basis for denial of deduction u/s. 80IA. For the purpose of claiming deduction u/s. 80IA as rightly observed by the CIT(Appeals) the relevant clauses of the Concession Agreement and whether the conditions specified in the said sections have been complied with are more relevant. Hence we see no reason to interfere with the order of the CIT(Appeals) on this issue. Whether the income from revenue share is derived from the business of the assessee i.e. airport operation? - main contention of the revenue in this regard is that income from revenue share is not derived from the Airport Activities which allows the assessee to make investment for providing basic infrastructure facilities only and that the income from revenue share is much more than what is derived from providing basic infrastructure facilities - The assessee is entitled for a minimum guaranteed revenue share which is a fixed amount as contained in Schedule A of the agreement or the percentage as agreed in Schedule B of actual sale generated whichever is higher i.e. the consideration for the utilization of the premises will either be a fixed amount or the share of revenue whichever is higher. This clause makes it clear that the entire amount payable by the third party to the assessee either in the form of a fixed amount or a variable sum as a percentage of actual sales is fully attributable towards the utilization of the premises. The nomenclature used as revenue share does not change the nature of payment towards which it is made. As per Schedule 3 part 1 the assessee is entitled to run the airport activity of providing basic infrastructure facilities to retail outlets and restaurants and any revenue generated has a direct nexus to the business of the assessee of airport operation. Hence in our considered view the entire income earned by the assessee in the form of revenue share towards utilization of premises is derived from the business of the assessee and eligible for deduction u/s. 80IA. Disallowance of concession fee u/s 43B - CIT(A) allowed the appeal holding that the concession fee payable by the Assessee being in the nature of a profit sharing/recovery for foregoing the operation at the HAL airport by the Government of India the same was not in the nature of tax or levy covered by the provisions of Section 43B - HELD THAT - The interpretation of the AO that the words by whatever name called would include all payments made is not the right interpretation. These words need to be read in conjuncture with the words preceding viz. tax duty cess or fee. The concession fees is paid towards a profit sharing/recovery for foregoing the operation at the HAL airport by the Government of India and not in the nature of any tax duty cess or fee. We are therefore of the considered view that there cannot be any disallowance u/s. 43B of the Act and we see no reason to interfere with the decision of CIT(A). This ground of the revenue is therefore dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these cross appeals are:

(a) Whether the assessee is eligible to claim deduction under Section 80IA of the Income-tax Act, 1961 in respect of various heads of income, specifically:

• "Other Income" comprising tender fees and interest on deposits;
• Revenue share fees earned from food and beverage outlets;
• Revenue share fees earned from retail outlets.

(b) Whether the concession fee payable by the assessee to the Government of India qualifies as an allowable deduction under Section 43B of the Act on accrual basis or only on payment basis.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility for deduction under Section 80IA in respect of Other Income (Tender Fees and Interest on Deposits)

Relevant legal framework and precedents: Section 80IA allows a deduction of 100% of profits and gains derived from specified infrastructure businesses, including airports. The key phrase is "profits and gains derived from such business." The Odisha High Court decision in Odisha Power Generation Corporation Ltd. v. ACIT (2022) was extensively relied upon, which interpreted the phrase to require a direct and proximate nexus between the income and the eligible business. The Supreme Court's ruling in CIT v. Meghalaya Steels Ltd. (2016) was also cited, emphasizing that income must be directly derived from the business and not merely attributable indirectly.

Court's interpretation and reasoning: The Tribunal noted that the assessee earned tender fees for awarding tenders related to airport infrastructure and interest income on deposits mandated by lending agreements under trust and retention account (TRA) covenants. The interest arose from funds deposited as part of debt service reserves required for the airport business.

The Tribunal held that since the deposits and tender fees are integrally connected to the business of operating and managing the airport, the income therefrom has a direct nexus with the eligible business under Section 80IA. The Odisha High Court's reasoning was adopted to conclude that such income is "derived from" the business and eligible for deduction.

Key evidence and findings: The assessee's submission that the deposits were mandatory under loan covenants and that tender fees related to business operations was accepted. The CIT(A) had allowed the deduction subject to verification, and the Tribunal remanded the matter to the Assessing Officer (AO) for factual verification of the nexus.

Application of law to facts: The Tribunal emphasized that the income must have a direct and proximate connection to the business. Since the tender fees and interest income arose as an inherent part of the airport operation and financing, they qualify as income derived from the eligible business.

Treatment of competing arguments: The revenue contended that interest income was not directly relatable to the business and hence ineligible. The Tribunal rejected this view, relying on judicial precedents to hold that indirect or incidental income with direct nexus qualifies.

Conclusion: The Tribunal allowed the assessee's claim for deduction under Section 80IA on "Other Income" subject to factual verification of the nexus by the AO, dismissing the revenue's appeal on this issue.

Issue 2: Eligibility for deduction under Section 80IA in respect of Revenue Share Fees from Food & Beverage and Retail Outlets

Relevant legal framework and precedents: Section 80IA(4) defines "infrastructure facility" to include airports. The concession agreement between the assessee and the Government of India defines "Airport Activities" to include retail shops, restaurants, bars, and other refreshment facilities as part of airport infrastructure. The Airports Economic Regulatory Authority (AERA) Act classifies income streams as aeronautical and non-aeronautical for tariff purposes but does not define the scope of eligible business income under the Income-tax Act.

Court's interpretation and reasoning: The Tribunal examined the concession agreement and noted that the assessee is mandated to develop, operate, and maintain all airport facilities, including retail and food outlets, as part of its airport activities. The Tribunal held that these activities fall within the definition of infrastructure facility under Section 80IA(4).

Regarding the nature of revenue share income, the Tribunal analyzed the JV agreements under which the assessee granted third parties the right to utilize premises in exchange for revenue share or minimum guaranteed amounts. The Tribunal found that the revenue share is effectively consideration for the use of airport premises, i.e., lease or license fees, and thus directly connected to the airport business.

The CIT(A) had allowed 30% of such revenue share income as eligible and disallowed 70% on the basis that the assessee earned more than a reasonable lease rent, treating the excess as income not derived from eligible business. The Tribunal disagreed with this artificial bifurcation and held that the entire revenue share income is derived from the business of airport operation and eligible for deduction.

Key evidence and findings: The concession agreement's detailed provisions defining airport activities and the requirement to provide retail and F&B facilities were pivotal. The JV agreements' clauses on minimum guaranteed revenue share and revenue share based on actual sales were examined to establish the nature of income as rent for premises.

Application of law to facts: The Tribunal applied the principle that income derived from all activities integral to the airport operation, as defined in the concession agreement, qualifies for deduction under Section 80IA. The classification under the AERA Act for tariff purposes was held irrelevant for this determination.

Treatment of competing arguments: The revenue argued that revenue share income exceeded basic infrastructure provision and thus was not eligible. The Tribunal rejected this, emphasizing the legal and contractual framework that the income is consideration for airport infrastructure usage, making it eligible.

Conclusion: The Tribunal allowed the assessee's claim for deduction under Section 80IA on the entire revenue share income from food, beverage, and retail outlets, dismissing the revenue's appeal.

Issue 3: Disallowance of Concession Fee under Section 43B

Relevant legal framework and precedents: Section 43B mandates that certain expenses, including sums payable by way of tax, duty, cess or fee, are allowable only on actual payment and not on accrual. The issue was whether the concession fee payable under the concession agreement is a "fee" within the meaning of Section 43B.

Court's interpretation and reasoning: The Tribunal examined the nature of the concession fee, which is payable as consideration for the exclusive right and privilege to develop, operate, and manage the airport. It held that the concession fee is a profit-sharing or recovery payment and not a tax, duty, cess, or fee as contemplated under Section 43B.

The Tribunal relied on the earlier CIT(A) order for AY 2010-11, which had accepted this position, and judicial precedents including CIT v. McDowell & Co. Ltd. and CIT v. Sri Balaji & Co. that distinguish between contractual payments and statutory levies.

Key evidence and findings: The concession agreement and its terms were crucial in establishing the nature of the fee as contractual consideration rather than a statutory levy.

Application of law to facts: Since the concession fee does not fall within the scope of sums covered by Section 43B, the deduction is allowable on accrual basis and not restricted to payment basis.

Treatment of competing arguments: The revenue contended that the phrase "by whatever name called" encompasses all payments, including the concession fee. The Tribunal rejected this broad interpretation, emphasizing the need to read the phrase in context with preceding terms "tax, duty, cess or fee."

Conclusion: The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s order allowing the concession fee deduction on accrual basis.

3. SIGNIFICANT HOLDINGS

"The ratio emanating from the various judicial pronouncement ... is that if there is direct nexus between income earned / expenses incurred to the business of the assessee then the net profits and gains after considering those incomes / expenses are 'derived from the business' of the assessee and therefore would be eligible for deduction u/s. 80IA."

"The entire amount payable by the third party to the assessee either in the form of a fixed amount or a variable sum as a percentage of actual sales is fully attributable towards the utilization of the premises. The nomenclature used as 'revenue share' does not change the nature of payment towards which it is made."

"The concession fees is paid towards a profit sharing/recovery for foregoing the operation at the HAL airport by the Government of India and not in the nature of any tax, duty, cess or fee. We are, therefore, of the considered view that there cannot be any disallowance u/s. 43B of the Act."

Core principles established include:

• The requirement of a direct and proximate nexus between income and eligible business for claiming deduction under Section 80IA.
• Income incidental or integral to the core business activity qualifies as "derived from" the business.
• Classification of income for regulatory or tariff purposes (such as aeronautical vs non-aeronautical) does not determine eligibility for tax deduction under Section 80IA.
• Contractual payments for rights and privileges are distinct from statutory levies and not subject to Section 43B restrictions unless specifically covered.

Final determinations:

• The assessee's claim for deduction under Section 80IA on "Other Income" (tender fees and interest on deposits) was allowed subject to factual verification of nexus.
• The entire revenue share income from food and beverage and retail outlets was held eligible for deduction under Section 80IA, rejecting any partial disallowance.
• The concession fee payable to the Government of India was held not to be a fee under Section 43B and hence deductible on accrual basis, dismissing the revenue's appeal.