2009 (2) TMI 499 - AT - Income Tax

Eligibility for deduction u/s 80-IA - income derived from rolling stock - Profits and gains from infrastructure development undertakings - Rail system - Whether Inland Container Depot (ICD) and Central Freight Station (CFS) as separate infrastructure facility and are not part of Port? - HELD THAT - In its business of handling and transportation of containerized cargo the operating activities are mainly carried out at its Inland Container depots (ICDs) Container Freight Station (CFS) and Port Side Container Terminals (PSCT s) spread all over the country. Its wagons are running on Indian Railway System for carriage of container traffic. Thus assessee is engaged in developing operating and maintaining infrastructure facilities the income from which eligible for deduction u/s 80-IA. The assessee fulfils the conditions of section 80-IA for being eligible to the said deduction namely; ( a ) it is a company registered in India; ( b ) it is providing infrastructure facility; ( c ) it has kept separate accounts for the eligible business and submitted separate P L Account and Balance Sheet duly audited; ( d ) it is new industrial undertaking in view of the Supreme Court decision in Textile Machinery Corpn. Ltd. 1977 (1) TMI 3 - SUPREME COURT and in Premier Cotton Mills Ltd. 1999 (2) TMI 41 - MADRAS HIGH COURT as it had purchased huge new machinery for substantial expansion as evidenced by the depreciation chart from 1-4-2001; (e) it had filed the CA certificate in Form No. 10CCB accompanied by accounts of eligible ICDs and Rail System as required under the law; (f) the places of its ICD/CFS are notified vide notification No. 10682 dated 1-9-1998 in exercise of powers conferred by section 80-IA(12)(ca) CBDT has notified ICDs and CFS as infrastructure facility eligible for deduction provided that such places are notified as ICDs and CFS under section 7(aa) of Customs Act. Custom Department has so notified the above places; (g) its Rail System is part of the term Infrastructure facilities as defined in Explanation to section 80-IA(4)(c); (h) its rail system is clarified by the CBDT Circular No. 733 dated 3-1-1996 as infrastructure facilities; (i) the rolling stock i.e. wagons etc. form part of Rail System vide definition of Railways under the Railways Act and Rail System is part of infrastructure facility vide Explanation (a ) to section 80-IA(4)(c) of the Act. The CBDT Circular No. 733 and Letter of Ministry of Railways supports the view that the assessee s wagon etc. (Rolling Stock) running on Indian Railways System are part of infrastructure facilities; (j) it had not been allowed any deduction on these profits under any of the provisions of Chapter VIA of the Act therefore it is not hit by the provisions of section 80-IA(9) of the Act; (k) it had created developed operated and maintained ICDs after 1-4-1995 as is evidenced from notifications stating (i) The ICD at Jamshedpur vide notifications u/s 7(aa) of Customs Act and u/s 8 of the same Act and u/s 45 (ii) the ICD at Jaipur vide notification u/s 7(aa) and u/s 8 and u/s 45; (iii) the ICD at Jodhpur vide notification u/s 7(aa) and u/s 8 and u/s 45; (iv) the ICD at Pondicherry port vide notification u/s 7(a) and u/s 8; and (v) the ICD at Dronagiri vide copy of letter from Ministry of Commerce and Industries for setting up this ICD Custom Notification u/s 8 and u/s 45. The provisions for deduction u/s 80-I are different than the provisions u/s 80-IA. Sub-section (9) only provides that the income to the extent of which deduction has been allowed under this other section of Chapter VIA the same cannot be qualified for deduction under different section and the income pertaining to Rail System and ICD has not been claimed as deduction under any other section the deduction cannot be denied only on the ground of its claim in earlier years claimed but disallowed u/s 80-I. The term Rail system for deduction u/s 80-IA has not been defined under the Income-tax Act but as declared in letter issued by Government of India Ministry of Railways (Rail Board) the assessee Container Corporation of India Limited (CONCOR) is running on for carriage of containers carriage trzaffic. The rolling stock of the assessee is therefore a part and parcel of rail system. Accordingly we uphold the direction of CIT(A) to allow the deduction u/s 80-IA against the income derived from rolling stock. A Port is a place for the lading and unlading of ships or vessels erected by Charter of the King or a lawful prescription. (per Ld. Chelmsford Foreman v. Free Fishers of Whitstable). Thus in common parlance and commercial world and statutorily recognized a port is associated with ships and is a place of shelter where ships may load and unload their cargo. That seems to be the reason for stating in the definition a port airport inland waterways inland port which distinguishes the term port from inland port. A port therefore would not include an inland port. We therefore uphold the order of the CIT(A) in denying the deduction u/s 80-IA on the income derived from ICDs and SKFs situated in Jaipur Jodhpur and Jamshedpur ICDs of Pondicherry and Drongiri. Inland Container Depot (ICD) and Central Freight Station (CFS) as separate infrastructure facility and are not part of Port. The ICDs and CFSs of the assessee were included in infrastructure facility by extended meaning given to it in terms of the phrase any other public facility of similar nature as may be notified by the Board in this behalf in the Official Gazette . But this phrase has been omitted from the Explanation as substituted by Finance Act 2001 with effect from 1-4-2002 and therefore these ICDs and CFSs ceased to be infrastructure facility. We therefore are of the opinion that term Inland Port does not include the ICD . Had it been included in the term Inland Port the CBDT would have not notified them as separate infrastructure facility and would have clarified that ICDs and CFSs are part and parcel of Inland Port. Thus after amendment of the section vide Finance Act 2001 with effect from 1-4-2002 there is certain change in the definition of infrastructure facility given in the Explanation. Prior to the said amendment sub-section (12)(ca) provided that Infrastructure facility means (i) a road bridge airport port inland waterways and inland ports rail system or any other public facility of similar nature as may be notified by the Board in this behalf in the Official Gazette. But Explanations (a) and (d ) to sub-section (4)(c) provide that For the purpose of this clause infrastructure facility means - (a) a road including toll road a bridge or a rail system;. . . (d) a port airport inland waterways or inland port. Thus the portion as may be notified by the Board in this behalf in the Official Gazette as appearing before the said amendment has been deleted in the new Explanation. Therefore AO s observation about the customs notification in respect of the ICD s is irrelevant and unjustified. Not only that the assessee s claim based on CBDT s and customs notifications in respect of the ICD s referred to above is not correct after the said amendment dropping the words as may be notified by the Board in this behalf in the Official Gazette the claim is not allowable on the basis of the above Explanation independent of the notifications. Claimed Depreciation at 60 per cent on computer peripherals and accessories and peripherals like Printers Scanner Modems and Servers etc - AO held that depreciation at 60 per cent was allowable only on computer and software but not on accessories and peripherals - He allowed depreciation at 25 per cent as normal plant and machinery - HELD THAT - The claim of depreciation of 60 per cent gets justified in view of the fact that even computer software which is installed on computer system supports the computer hardware and is eligible for depreciation at 60 per cent. As held in CIT v. Jokai India Ltd. 2001 (6) TMI 45 - CALCUTTA HIGH COURT . In view of the decision in the case of ITO v. Samiran Majumdar 2005 (8) TMI 293 - ITAT CALCUTTA-B we hold that printers scanners and other peripherals were part and parcel of computer and depreciation against such asset are allowable at the rate of 60 per cent. Therefore this ground is decided in favour of the assessee and against the revenue. Hence we uphold the order of CIT(A) in allowing depreciation at the rate of 60 per cent on computer peripherals and accessories by treating them as computers. In the result all the appeals by the assessee and revenue are dismissed.

Summary

Issues Involved:

1. Deduction under section 80-IA for income from inland ports.
2. Deduction under section 80-IA for profits in the business of rolling stock.
3. Disallowance of earlier year expenses for the assessment year 2004-05.
4. Depreciation rate on computer peripherals and accessories.

Issue-wise Detailed Analysis:

1. Deduction under section 80-IA for income from inland ports:

The assessee claimed deduction under section 80-IA for income derived from Inland Container Depots (ICDs), asserting that these facilities qualify as "inland ports." The Assessing Officer (AO) rejected this claim, arguing that ICDs are not explicitly mentioned as "inland ports" in the relevant provisions of the Income-tax Act. The AO also noted that some ICDs were not notified by the Customs Department, which was necessary for the deduction under the earlier provisions.

The CIT(A) upheld the AO's decision, stating that the term "inland port" does not include ICDs. The CIT(A) reasoned that if ICDs were considered part of "inland ports," the CBDT would not have issued separate notifications for ICDs and Container Freight Stations (CFS). The CIT(A) also pointed out that the phrase "any other public facility of similar nature" was removed from the definition of infrastructure facilities by the Finance Act, 2001, effective from 1-4-2002, making ICDs ineligible for the deduction under section 80-IA.

2. Deduction under section 80-IA for profits in the business of rolling stock:

The assessee also claimed deduction under section 80-IA for profits derived from rolling stock, arguing that their wagons, which are part of the Indian Railways system, qualify as part of the "rail system" under the Income-tax Act. The AO denied this claim, stating that rolling stock does not constitute a rail system and that the deduction is available for the entire infrastructure facility, not its parts.

The CIT(A) disagreed with the AO, holding that rolling stock is indeed part of the rail system as per the Indian Railways Act, 1989, which defines "railways" to include rolling stock. The CIT(A) directed the AO to allow the deduction under section 80-IA for income derived from rolling stock, noting that the assessee fulfilled all conditions for the deduction, including maintaining separate accounts and providing the necessary certifications.

3. Disallowance of earlier year expenses for the assessment year 2004-05:

The assessee's appeal for the assessment year 2004-05 included a dispute over the disallowance of earlier year expenses amounting to Rs. 1,61,17,074. The Cabinet Committee did not clear these expenses, leading to their rejection.

4. Depreciation rate on computer peripherals and accessories:

The assessee claimed depreciation at 60% on computer peripherals and accessories, including printers, scanners, modems, and servers, treating them as part of the computer system. The AO allowed depreciation at 25%, treating these items as normal plant and machinery.

The CIT(A) ruled in favor of the assessee, stating that computer peripherals and accessories are integral parts of the computer system and should be eligible for depreciation at 60%. This decision was supported by the Kolkata ITAT's ruling in the case of ITO v. Samiran Majumdar, which held that peripherals like printers and scanners are part of the computer system for depreciation purposes.

Conclusion:

The Tribunal upheld the CIT(A)'s decisions on all issues. The assessee was granted the deduction under section 80-IA for profits derived from rolling stock but denied the deduction for income from ICDs. The Tribunal also upheld the CIT(A)'s decision to allow a 60% depreciation rate on computer peripherals and accessories. The disallowance of earlier year expenses for the assessment year 2004-05 was not contested further. As a result, all appeals by the assessee and revenue were dismissed.