2025 (6) TMI 382 - AT - Income Tax

Eligibility for deduction u/s 80IA - assessee is not into the business of maintenance and operating infrastructure - as alleged assessee has received only contractual amounts and there were no direct agreement(s) made by the assessee with any Central/State/Statutory bodies and that the specific conditions stipulated u/s 80IA are not satisfied HELD THAT - As in the absence of the relevant agreement entered into between the assessee and other enterprises or with the Port Authority if any it cannot be concluded that the infrastructure facility was transferred to the assessee for the purpose of operating and maintaining the Port. Neither of the parties have produced those relevant agreements before us nor the same are quoted in either of the orders of the AO and the CIT (A) as well as in the decisions of this Tribunal in assessee s own case for the earlier A.Ys. Therefore this is being an issue requires factual as well as legal finding cannot be decided conclusively in the absence of the relevant record particularly the agreements as well as the alleged certificate referred in the earlier orders of the Tribunal. Hence impugned order of the CIT (A) is set aside and the matter is remanded to the record of the AO for fresh adjudication after recording the relevant terms conditions of the agreement entered into by the assessee for the purpose of operating and maintaining the Ports/infrastructure facility. Needless to say before passing the fresh order the assessee shall be given reasonable opportunity of hearing. Appeal filed by the Revenue is allowed for statistical purposes.

Summary

The core legal questions considered in this appeal revolve around the eligibility of the assessee for deduction under section 80IA of the Income Tax Act, 1961, specifically:

1. Whether the assessee qualifies as an enterprise engaged in the business of developing or operating and maintaining infrastructure facilities, particularly port infrastructure, as required under section 80IA(4)(i) of the Act.

2. Whether the assessee has entered into the requisite agreement with the Central Government, State Government, local authority, or any other statutory body as mandated under section 80IA(4)(i)(b) for claiming deduction.

3. Whether the assessee's contractual arrangements with private companies, which themselves have agreements with government or statutory authorities, satisfy the conditions for claiming deduction under section 80IA.

4. The impact of pending appeals in higher courts on the judicial finality of the issue.

5. The effect of amendments introduced by the Finance Act, 1999 and 2009 on the eligibility of the assessee for deduction under section 80IA, particularly concerning works contracts.

Issue-wise Detailed Analysis:

Issue 1: Eligibility as an Enterprise Carrying on Business of Developing or Operating and Maintaining Infrastructure Facility

Legal Framework and Precedents: Section 80IA(4)(i) prescribes that the deduction applies to any enterprise engaged in developing, operating and maintaining, or both developing and operating and maintaining an infrastructure facility, which includes ports as per the Explanation to the section. The enterprise must be owned by an Indian company or consortium or statutory body and must have entered into an agreement with specified government or statutory authorities.

Court's Interpretation and Reasoning: The Assessing Officer (AO) found that the assessee was not engaged in development of infrastructure, which requires substantial investment, and that the assessee's activities were limited to providing certain specialized services under contracts with private companies. The AO distinguished between the commercial operation and maintenance of port infrastructure by developers/operators and the contractual services rendered by the assessee, concluding that the latter does not amount to operating and maintaining the infrastructure facility itself.

Key Evidence and Findings: The AO examined the nature of agreements entered into by the assessee, which were with private companies and not directly with government or statutory authorities. The services included pilotage, towage, lighterage, mooring, radio operator services, cleaning, and watch and ward duties, which were considered contractual services rather than operation and maintenance of port infrastructure.

Application of Law to Facts: The AO applied the statutory definition and concluded that the assessee's role as a contractor or subcontractor providing specified services does not meet the threshold of operating and maintaining the port infrastructure as envisaged under section 80IA.

Treatment of Competing Arguments: The assessee argued that its services are integral to port operation and maintenance and relied on earlier favorable orders of the Tribunal for prior assessment years. However, the AO emphasized the distinction between contractual services and actual operation and maintenance of infrastructure.

Conclusion: The AO concluded that the assessee is not eligible for deduction under section 80IA as it does not carry on the business of developing or operating and maintaining infrastructure facilities.

Issue 2: Requirement of Agreement with Government or Statutory Authorities

Legal Framework and Precedents: Section 80IA(4)(i)(b) mandates that the enterprise must have entered into an agreement with the Central Government, State Government, local authority, or any other statutory body for developing or operating and maintaining the infrastructure facility.

Court's Interpretation and Reasoning: The AO found that the assessee had no direct agreement with any government or statutory authority. Instead, the agreements were with private companies who themselves had agreements with government authorities. The AO held that this does not satisfy the statutory condition.

Key Evidence and Findings: The AO cited agreements such as those between the Government of Andhra Pradesh and International Sea Ports (India) Pvt. Ltd., and between International Sea Ports and Cocanada Port Company Pvt. Ltd., with the assessee only having contracts with the latter. Similar facts applied to other ports and companies.

Application of Law to Facts: The AO applied the statutory requirement strictly, stating that only enterprises with direct agreements with specified authorities are eligible, except in cases where there is a transfer of infrastructure facility in accordance with such agreements.

Treatment of Competing Arguments: The assessee contended that its agreements with developers, who have agreements with government authorities, suffice under the proviso to section 80IA(4). The AO rejected this, emphasizing the necessity of direct agreements or valid transfer of infrastructure facility.

Conclusion: The AO concluded that the assessee failed to satisfy the mandatory condition of having an agreement with the specified authorities and thus is not eligible for deduction.

Issue 3: Applicability of Proviso Regarding Transfer of Infrastructure Facility

Legal Framework and Precedents: The proviso to section 80IA(4) allows a transferee enterprise to claim deduction if infrastructure facility is transferred by the developer enterprise to the transferee for operation and maintenance under an agreement with the government or statutory body.

Court's Interpretation and Reasoning: The AO found no evidence that the assessee was a transferee enterprise under such a transfer arrangement. The assessee did not claim transfer of infrastructure facility and only performed contractual services.

Key Evidence and Findings: The AO noted the absence of agreements or documentation evidencing transfer of infrastructure facility to the assessee. The agreements were purely service contracts.

Application of Law to Facts: Without transfer of infrastructure facility under the specified agreements, the proviso does not apply.

Treatment of Competing Arguments: The assessee argued that its agreements with developers satisfy the proviso; the AO rejected this on the basis of lack of transfer.

Conclusion: The proviso to section 80IA(4) is inapplicable to the assessee's case.

Issue 4: Impact of Pending Appeals and Judicial Finality

Legal Framework and Precedents: The Department had filed appeals against earlier Tribunal orders in the High Court, which were pending.

Court's Interpretation and Reasoning: The AO and Revenue argued that the issue has not attained judicial finality. The CIT(A) and the Tribunal noted the pendency but relied on existing Tribunal decisions in favor of the assessee.

Key Evidence and Findings: The Tribunal noted that several appeals for earlier years were pending in the High Court, but also that for some years the Department had not pursued appeals further.

Application of Law to Facts: The Tribunal considered the precedents but also the factual matrix of the present year.

Treatment of Competing Arguments: The Revenue relied on pendency to argue against the assessee's claim; the assessee relied on favorable past Tribunal orders.

Conclusion: The Tribunal initially allowed the claim based on precedent but the present Bench observed that the issue requires fresh adjudication based on facts and agreements for the current year.

Issue 5: Effect of Amendments by Finance Act, 1999 and 2009

Legal Framework and Precedents: The Finance Act, 1999 introduced a proviso allowing operation and maintenance contractors (other than developers) to claim deduction if operating under agreement with government/statutory bodies. The Finance Act, 2009 clarified that deduction under section 80IA is not available for works contracts awarded by any person and executed by an enterprise.

Court's Interpretation and Reasoning: The AO observed that the assessee's activities resemble execution of works contracts and thus are excluded from deduction under section 80IA as per the 2009 amendment.

Key Evidence and Findings: The AO noted that the assessee's contracts were for specified services and the payments were subject to TDS under section 194C (contractual payments).

Application of Law to Facts: The AO applied the exclusion for works contracts to deny deduction.

Treatment of Competing Arguments: The assessee did not dispute the nature of contracts but relied on earlier Tribunal orders and the proviso to section 80IA(4).

Conclusion: The AO held the assessee's claim barred by the 2009 amendment.

Significant Holdings:

1. "It is not necessary that the assessee should have undertaken the entire O & M by the port infrastructure."

2. "An agreement with the authority specified in section 80IA (4)(i)(b) is not mandatory in view of the provisions of section 80IA(4)." (As per earlier Tribunal orders, but subject to factual verification.)

3. The proviso to section 80IA(4) contemplates that only where there is a transfer of infrastructure facility by a developer to another enterprise under an agreement with government/statutory bodies, the transferee enterprise is eligible for deduction.

4. The requirement of an agreement with specified authorities is a substantial and mandatory condition for claiming deduction under section 80IA.

5. The assessee's activities, being execution of works contracts and provision of specialized services under agreements with private companies, do not amount to operating and maintaining infrastructure facility as defined under section 80IA.

6. The amendments introduced by Finance Act, 1999 and 2009 clarify and restrict the scope of deduction under section 80IA to enterprises with direct agreements with specified authorities or those who have taken over operation and maintenance by transfer of infrastructure facility, excluding works contracts.

7. The Tribunal recognized the binding effect of earlier favorable orders but emphasized the necessity of examining the actual agreements and factual matrix for the assessment year under consideration.

8. The matter was remanded to the Assessing Officer for fresh adjudication after recording the relevant terms and conditions of the agreements entered into by the assessee for operating and maintaining the ports, with an opportunity of hearing to the assessee.

Final Determinations:

The appeal filed by the Revenue was allowed for statistical purposes by setting aside the order of the CIT(A) and remanding the matter to the Assessing Officer for fresh examination. The Assessing Officer was directed to verify the existence and terms of agreements between the assessee and the specified authorities or developers, and to determine whether the assessee qualifies as an enterprise eligible for deduction under section 80IA based on the statutory criteria, including the nature of the agreements and the activities undertaken. The assessee was to be given reasonable opportunity to present its case during the fresh proceedings.