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TMI Blog2025 (5) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the present case, is a public company. The assessee company entered into concession agreement with Ministry of Civil Aviation Government of India dated 05-07-2004 to construct/develop the Kempegowda International Airport Bangalore. As per the agreement, the assessee was provided with the exclusive right and privilege to carry out the development, design, construction, commissioning, maintenance, operation and management of the Bangalore International Airport. In terms of the agreement, the assessee was required to operate and maintain the airport in accordance with good industry practices and standards, some of which include restaurants and eating facilities, general retail shops. Finally, the assessee constructed/developed and started the operation and maintenance of the said airport from 24th of May 2008. The assessee also entered into various JV with several parties for running restaurants, bars and other refreshment facilities as per the terms of which the assessee would get a revenue share in the business activities carried out by the third parties. 4. Further the assessee, following the provision of Airport Economic Regulatory Authority of India Act 2008 divided its rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Meru, Mega, Ola and car operator namely Akbar etc.) 4. License fee and Rentals (includes advertisement & promotion, rent offices, rental from cargo village, rent airport authority of India) 5. Information communication technology income 6. Landslide parking income 7. Revenue share from lounge area 8. Thus, the AO disallowed the claim of the deduction under section 80IA(4) of the Act for Rs. 207,99,58,356/- out of total claim of Rs. 778,46,96,003/- on account of other income and part of income under the head non-aeronautical revenue as discussed above. 9. The aggrieved assessee preferred an appeal before the learned CIT(A). 10. The assessee before the learned CIT(A) contended that it is engaged in the business of development, maintenance and operation of infrastructure facility namely airport. All the activity and revenue generated therefrom, whether classified aeronautical or non-aeronautical revenue are inextricably connected to the operation and maintenance of impugned infrastructure facility of airport. The assessee further contended that the interest income from income tax refund, interest on securities deposit and government grant of Rs. 4,42,46,535/- Rs. 60,78,788 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a clear nexus between the interest income and the business-related borrowings, as the deposits were mandated under the loan terms. Citing case laws such as the rulings in Vellore Electric Corporation reported in 227 ITR 557 and Karnal Cooperative Sugar Mills Ltd. reported in 118 taxman 489, the ld. CIT(A) concluded that the interest income earned in such a manner is eligible for deduction under section 80IA, as it is intrinsically linked to the business activity of the assessee. 15. Likewise, the learned CIT(A) regarding the tender fee of Rs. 1,44,68,813/- and other income of Rs. 1,21,40,657/- held that these incomes are also relatable to the business of the assessee. Hence, the ld. CIT-A allowed the claim of the assessee under section 80-IA of the Act. 16. Being aggrieved by the order of the learned CIT(A), the revenue is in appeal before us. 17. The learned DR before us reiterated the findings contained in the assessment order and further prayed to restore the issue to the file of the AO for fresh adjudication. 18. On the other hand, the learned AR before us contended that the assessee had entered into a concession agreement with the Ministry of Civil Aviation, Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal revenue as well as other incomes are not the income derived from the eligible or directly linked to eligible business. The incomes which were held as not derived from eligible business are detailed somewhere in the preceding paragraph. However, on appeal the learned CIT(A) allowed claim of the assessee. 24. We first proceed to resolve the dispute with respect to income classified under the head non aeronautical revenue. At the outset, we note that the year under consideration is not the first year of claim of deduction under section 80IA of the Act. As such the assessee has claimed the deduction in the A.Y. 2013-14 also wherein the AO had disallowed the claim with respect to non-aeronautical revenue being share of revenue from retail outlets, restaurant, bar and other refreshment facilities etc. The disputed reached to this Tribunal in assessee's appeal as well counter appeal by the revenue bearing ITA No. 191 & 374/Bang/2020. The ITAT vide order dated 14-06-2022 had decided the dispute in favor of the assessee by observing as under: 13. We have heard both the parties and perused material on record. Two issues arise for our consideration with regard to the income from revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. With regard to the classification of income from retail outlets and restaurants as nonaeronautical 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. 25. The next issue is whether the income from revenue share is 'derived from the business' of the assessee i.e., airport operation. The 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. As per the Concession Agreement, the assessee is granted the exclusive right and privilege to carry out the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. This ground is allowed in favour of the assessee and ground raised by the revenue in this regard is dismissed. 25. Before us no material brought on record suggesting that above finding of the Tribunal in the own case of the assessee for A.Y. 2013-14 was overturned by the higher authority or there is any change in the facts and circumstances. Hence, respectfully following the finding of the Tribunal in the own case of the assessee, we uphold the order the learned CIT(A) and direct the AO to delete the addition made by him with respect to income under the head non-aeronautical Revenue. 26. Coming to the issue of addition with respect to interest income on Income Tax Refund, Security deposit and Government Grant aggregating to Rs. 16,13,28,744/-, we note that the learned CIT(A) had given categorical findings that the impugned incomes were not claimed as deduction under section 80IA of the Act. No material brought on record by the revenue contrary to the finding of the learned CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. The AO is directed accordingly, after giving reasonable opportunity of being heard to the assessee. 29. Hence respectfully following the order this Tribunal in own case of the assessee as discussed above, we hereby set aside the issue of claim of deduction on account of receipt of tender fee and other income to the file of the AO who will decide the issue in the light of the above direction and as per law. In view of the above, the ground of appeal of the Revenue is hereby partly allowed for statistical purposes. 30. The last issue raised by the revenue is that the learned CIT(A) erred in deleting the proportionate disallowance of interest expenses under section 36(1)(iii) of the Act. 31. The relevant facts are that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the disallowance of the amount u/s. 36(1)(iii) of the Act was made by reducing the claim of deduction u/s. 80IA and not separately adding it in the computation. The assessee submitted that as per the concession agreement in Schedule 3, Part 2 for non-airport activity, the assessee was allowable to establish a hotel within the airport premises. To achieve this objective the assessee company had invited tenders for construction of the hotel. The contract was awarded to a consortium to whom the assessee provided the operator rights to construct the hotel. Such consortium formed a company named Bangalore Airport Hotels Ltd. with the single objective of construction of the hotel). However, due to unavoidable circumstances, the consortium was not able to complete the contract and the assessee company ultimately had to buy out shares of BAHL to complete the project and thus BAHL became a wholly owned subsidiary company of the assessee. Being holding company the assessee advanced certain amount for immediate utilization in the business of the subsidiary, which was fully refundable but interest free. The initial lending was for Rs. 76,50,00,000/-. However, because of continuous fundi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration pertains to the disallowance of interest under section 36(1)(iii) of the Act, in respect of interest-free advances made by the assessee to its subsidiary, Bangalore Airport Hotels Ltd. (BAHL). 40. It is a well-established principle that advances made by a holding company to its subsidiary can be considered for the purpose of business expediency, provided the same is substantiated. In the present case, it is evident from the concession agreement with the Ministry of Civil Aviation that the assessee, being the developer of an international airport, was mandated to provide world-class amenities, including premium hotels and conference centers, for the benefit of air passengers and related stakeholders. 41. To fulfill this obligation, the assessee initially facilitated the formation of a consortium, which subsequently formed BAHL for the sole purpose of constructing the hotel. When the consortium could not complete the project, the assessee acquired full ownership of BAHL to ensure timely and quality execution. Hence, the advances made to BAHL were clearly in line with the assessee's business objectives and obligations, and were not made with the intention of earning intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of Rs.19,67,19,183/- made by him. Hence the ground of appeal of the revenue is hereby dismissed. 46.1 In the result appeal of the Revenue is hereby partly allowed for statistical purposes. Coming to ITA No. 1109/Bang/2024, an appeal by the Revenue for A.Y. 2020-21 47. The first issue raised by the revenue is that the learned CIT(A) erred in allowing the deduction under section 80IA(4) of the Act on the income from nonaeronautical operations, bank interest and other incomes. 48. At the outset, we note that the issues raised by the Revenue in its grounds of appeal for the AY 2020-21 is identical to the issue raised by the Revenue in ITA No. 1108/Bang/2024 for the assessment year 2018-19. Therefore, the findings given in ITA No. 1108/Bang/2024 shall also be applicable for the assessment year 2020-21. The appeal of the Revenue for the A.Y. 2018-19 has been decided by us vide paragraph Nos. 23 to 29 of this order wherein we have partly allowed the revenue's grounds of appeal for statistical purposes. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2018-19 shall also be applied for the assessment year 2020-21. Hence, the ground o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure in the year under consideration. Furthermore, the 10-year period expires, and the assessee started making actual payment from the year under consideration and thereby made actual payment in the year under consideration amounting to Rs. 88.54 crores. 54. The AO disallowed the claim of the assessee by invoking the provision of section 43B of the Act. The AO held that the concession fee payable to the Government is covered by the provision of section 43B of the Act which states any sum payable by way of tax, duty, cess or fee, by whatever name called shall be allowed as deduction on actual payment basis. The assessee is required to pay the impugned concession fee in certain installments starting from 11th year, hence the same cannot be allowed as deduction. Furthermore, the liability created in the books only represents the provision and provision created for future liability cannot be allowed as expenses. Thus, the AO disallowed the claim of the assessee for Rs. 53.55 crores and added to the total income. 55. The aggrieved assessee preferred an appeal before the learned CIT(A) 56. The learned CIT(A) following the order of his predecessor for A.Y. 2017-18 held that the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concession fee to the Government of India at 4% of its gross revenue. As per the agreement, such concession fee was payable in 20 equal half-yearly instalments starting from the 11th year of commencement of operations. Accordingly, the assessee made a provision of Rs.53.55 crores during the year under consideration and also made an actual payment of Rs.88.54 crores, as the 11-year deferment period had concluded. 62. The AO invoked section 43B of the Act, which mandates that any sum payable by way of tax, duty, cess, or fee shall be allowed as a deduction only on actual payment basis. Relying on this provision, the AO disallowed the provision amount on the ground that it represented a future liability and had not been actually paid during the year. This view was upheld by the learned CIT(A), who followed the order of his predecessor for Assessment Year 2017-18. 63. However, we note that in the assessee's own case for Assessment Years 2010-11 and 2012-13, the learned CIT(A) had held that concession fee is not covered under the provisions of section 43B of the Act. Importantly, the Revenue did not prefer any appeal against those orders, thereby accepting the position taken by the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny stood as guarantor for raising of fund for business of the said entity. I find that in the A.Y. 17-18, in the appellate order, the issue of close nexus of lending by the assessee to its wholly owned subsidiary BAHL was thoroughly analysed and accepted. In that appellate order disallowance of interest expense on the prorata amount relatable towards lending to BAHL was deleted. The said entity BAHL is a wholly owned subsidiary company of the assessee. 5.12 The business of establishment of a hotel is found to be a non-airport activity as per schedule 3 of the concession agreement. It is agreed that advancement of any non-interest bearing loan to a wholly owned subsidiary who was engaged in such non-airport activity, was essential for the overall business of the assessee but standing guarantee against independent borrowing of such wholly owned subsidiary for such non-airport activity and earning guarantee commission out of such action, cannot be treated as part of airport activity. Therefore, to the extent of disallowance of Rs. 1.80 crores on receipt of guarantee commission, it cannot be claimed to be earned out of airport activity and therefore to that extent the action of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unavoidable circumstances, the consortium was unable to complete the project. As a result, the assessee acquired the shares of BAHL, making it a wholly owned subsidiary, and took over the responsibility of completing the hotel project. 74. In order to facilitate BAHL in raising funds for the construction of the hotel, the assessee extended a corporate guarantee. The guarantee commission received in return was subsequently claimed as eligible income under Section 80IA(4) of the Act, on the premise that it was intrinsically connected to the development and maintenance of the airport facility, which falls within the definition of infrastructure facility under the said section. 75. The AO, however, disallowed the claim on the ground that the guarantee commission income was not derived from the core operations of the airport infrastructure facility and hence, was not eligible under section 80IA of the Act. This view was upheld by the ld. CIT(A), who noted that although the loan and guarantee were extended in furtherance of the assessee's overall business, the hotel activity itself was classified as a "non-airport activity" under schedule 3 of the concession agreement. Consequently, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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