TMI Blog2006 (9) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... rastructure facility was carried on by the assessee for the purpose of deduction under section 80-IA of the Act. 3. holding that the business of leasing of assets of the assessee tantamount to carrying on the business of developing, maintaining and operating any infrastructure facility and thereby eligible for the purpose of deduction under section 80-IA of the Act. 4. failing to appreciate the terms of the tender whereby JNPT was to operate the equipment while the assessee was to maintain them and in holding that the assessee has carried on business of developing, maintaining and operating any infrastructure facility for the purpose of deduction under section 80-IA." 3. The assessee, a public limited company, has reported, in its Annual Accounts, its operational income from three sources. Its main source of operational income is Charter Hire of Plant Machinery. Other two comparatively much smaller sources of operational income are (i) Erection/Construction Contract Receipts; and (ii) Service Charges including Crane Mobilisation Charges. Return of income for the year under consideration was filed on 28-11-1997 declaring loss of Rs. 9,71,24,731. However, book profit of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... testing and commissioning of all the five equipments was required to be completed on or before 16th June, 1995. The said letter also contained terms and conditions regarding certification by an Inspection Agency, performance guarantee, minimum availability of equipments in terms of number of days per annum, liquidated damages, power supply for the equipments, time frame for payment of lease charges to the assessee, retention of equipment on expiry of lease period, working hours, payment of taxes, indemnity, third party insurance, insurance of equipment during lease period, workmen's compensation, income-tax deduction, dispute between the contractor and the employer, labour laws, transfer of contract, termination of contract, force majeaure, etc. The role of the assessee, as per the said letter, is that of a contractor while the role of the JNPT is that of an employer. Second contract, which is in respect of second stream of the Container Terminal, is contained in letter bearing Reference No. JNP/SM(CT)/CHE/AUG/S.stream/95/2415, dated 16-10-1995 issued by the JNPT for supply, installation, testing, commissioning, operation and maintenance of 1 No. Rail Mounted Quay Crane, 3 Nos. Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to withdraw the claim of deduction in this regard. On the basis of legal advice subsequently received, the assessee retracted from the aforesaid statement on the ground that there could not be any estoppel against law. 7. Apart from taking note of the aforesaid facts, the Assessing Officer. also made the enquiries from JNPT to find out as to whether the cranes supplied and installed by the assessee at the port were also operated by the assessee or by the JNPT in terms of the contracts. He has reproduced the reply submitted by JNPT, vide its letter dated 3-8-1999, at page 18 of the assessment order. In the said letter, the JNPT confirmed that the equipments supplied by the assessee were being operated by JNPT and that the assessee was only maintaining the equipments for which the assessee was being paid in accordance with Option "B" of the work-order, i.e., letters containing the terms and conditions of the contract. The Assessing Officer, after considering the factual aspects of the case, rejected the claim of the assessee for deduction under section 80-IA mainly for the reason that the said cranes could not be equated with the "port" and also for the reason that the assessee its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80-IA(12)(ca)(i), he submitted that the cranes installed by the assessee at JNPT were neither a port nor a public facility of similar nature notified by the Central Board of Direct Taxes and hence the assessee did not satisfy the basic requirement of being an "infrastructure facility" within the meaning of the aforesaid provisions. His second line of reasoning was that the cranes were taken by JNPT on lease under Option "B" which was inclusive of maintenance only and specifically exclusive of operation which was carried out by the operators of JNPT. According to him, the assessee could not, therefore, be said to have operated the cranes in view of the stipulations under Option "B" of the agreement. 10. In reply, the learned senior counsel for the assessee supported the order passed by the learned CIT(A). According to him, the assessee had satisfied all the conditions stipulated for availing the deduction under section 80-IA inasmuch as the enterprise was owned by a company registered in India, the assessee had entered into an agreement with JNPT for supply, maintenance and operation of container handling systems at the port with the condition that the cranes would be transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Surface Transport, it was submitted that the Government was keen to encourage private participation in the development of ports through, inter alia, leasing of equipment for port handling from private sector. The aforesaid Guidelines alleged to have been issued by the Ministry of Surface Transport do not, however, carry any reference! file No. or date. They seem to have been downloaded from the website of the aforesaid Ministry. (viii) He also placed reliance upon a certificate dated 31-3-1999 issued by the Chairman, JNPT certifying that the equipments supplied by the assessee had helped the port to record the highest throughput in container handling among the major ports in the country. (ix) He invited our attention to letter dated 27-3-2000 issued by JNPT to and at the instance of the assessee. It is mentioned in the said letter that (i) the sum of Rs. 40 lakhs p.a. offered by the assessee to JNPT comprised of salaries, wages and other emoluments of the operators provided by JNPT, (ii) it was the responsibility of the assessee to ensure the operational availability of the equipments on round the clock basis as per contractual obligations, (iii) the assessee was responsible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of infrastructure facility. He supported the order of the learned CIT(A) in relying upon Circular No. 793, dated 23-6-2000 issued by the Central Board of Direct Taxes. 13. Referring to the aforesaid facts, the learned senior counsel submitted that it was the overall responsibility of the assessee to ensure round the clock availability and operation of the cranes as it was the assessee who was bound by the contractual obligations to maintain and operate the cranes notwithstanding the obligation of JNPT to provide operators for operating the cranes. He submitted that technical experts needed to operate the cranes were deployed by the assessee at the port for which payments were made to them by the assessee and hence it could not be said that the cranes were not operated by the assessee. 14. We have heard the parties and considered their submissions. Jawaharlal Nehru Port was commissioned in May 1989 in Navi Mumbai. Its land area is about 6,000 acres. It has container terminal, bulk terminal, storage, bagging and dispatch facilities, multi-purpose berths, facility for car carriers, pilotage, container freight station, buffer yard, etc. The port is run by the Jawaharlal Nehru P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . given in sub-clause (i) of section 80-IA(12)(ca) which reads as follows: "infrastructure facility" means "a road, highway, bridge, airport, port, rail system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette..." The aforesaid definition has thus two limbs. While first limb covers the infrastructure as specified in section 80-IA(12)(ca)(i) itself which are roads, highways, bridges, airports, ports and rail systems, second limb covers any other public facility of a similar nature as may be notified by the Central Board of Direct Taxes in this behalf in the Official Gazette. The distinction between the aforesaid two limbs lies in the fact that while first limb specifies the infrastructure per se, the second limb leaves it to the CBDT to notify any other public facility of a similar nature as infrastructure facility. First limb covers only the specified categories of infrastructure but the second limb covers any public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette. The case of the assessee, which has found favour with the learned CIT(A), is that it is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may, from time to time, be defined by the Central Government for the purposes of this Act by notification in the Official Gazette, and, until a notification is so issued, within such limits as may have been defined by the Central Government under the provisions of the Indian Ports Act". This definition does not help us as it defines a port with reference to any major port to which the Major Port Trusts Act is made applicable by the Central Government. We shall, therefore, turn to the definition of "port" as given in the Dictionaries and Law Lexicons. In "The New Shorter Oxford English Dictionary", the word "Port" has been assigned, as relevant for us, the meanings as follows: "1. A place by the shore where ships can shelter from storms, or load and unload; a harbour, 'a haven (lit. and fig.). OE. 2. A town or place possessing a harbour where ships load or unload, or begin or end their voyages, or at which passengers embark or disembark, esp. on departure from or arrival in a country; spec. such a place where charges may be levied under statute on ships making use of the facilities. Also (more fully inland port), any point or place inland recognized or functioning as a port......" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by themselves. Apart from the letters issued by the JNPT, we further find from the Annual Report of the assessee for 1997 that it is not its business either to develop, maintain and operate the ports. In fact, it is the exclusive and statutory responsibility of the JNPT and of none else to run and manage the port. All the three facets, namely, development, maintenance and operation of the port are well entrenched in the running and management of the port by the JNPT. The assessee is a mere service provider to the JNPT by supplying, installing, testing, commissioning and maintaining certain cranes at the port. Besides,' the terms of the contracts as contained in the aforesaid letters issued by the JNPT as also the fact that the contract has been awarded under Option "B" make it further clear that the contracts are for mere "'supply, installation, testing, commissioning and maintenance" of the cranes and not for operating the cranes. This position has also been confirmed by JNPT in its own letter dated 3-8-1999, cited supra. In this view of the matter, we are in agreement with the Assessing Officer that the assessee is merely engaged in the business of "supplying, installing, testin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act subject to the fulfilment of certain conditions specified therein. Cranes supplied, installed and maintained by the assessee at the port are not structures for storage, loading and unloading, etc. and hence the benefit of the aforesaid Circular cannot be extended to the activities undertaken by the assessee. In fact, the aforesaid Circular makes it quite clear that a conscious decision has been taken by the CBDT to restrict the benefit of sections 10(23G) and 80-IA to either a port or the structures built at the port for storage, loading, unloading, etc. In our view, learned CIT was not justified in enlarging the scope of that Circular so as to treat cranes as ports or as structures built at the port for storage, loading, unloading, etc. Neither the Circular issued by the CBDT nor the statutorily defined or commonly understood meaning of the term "port" suggests such an interpretation by which the cranes installed by the assessee at the port can be taken to be a port or a notified public facility. 23. The learned CIT(A) has relied upon the aforesaid Circular on the ground that it is a benevolent Circular the spirit of which is applicable to all pending proceedings. Dealin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation of the cranes but for supply, installation, testing, commissioning and maintenance of the cranes. In this view of the matter the order of the ld. CIT(A) in this behalf is reversed and that of the Assessing Officer is restored. Ground Nos. 1 to 4 stand allowed. 26. Ground Nos. 5 and 6, which revolve around the interpretation of clause (1) of Explanation to section 115JA, read as under: "On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in:- 5. directing the Assessing Officer to deduct a sum of Rs. 2,12,05,842 being excess depreciation returned back, in the accounts by holding that the proviso to clause (i) of Explanation under section 115JA was not applicable while calculating the Book Profits under section 115JA of the Act. 6. directing the Assessing Officer to deduct a sum of Rs. 4,32,60,545 being lease equalization credit to the P L account by holding that clause (i) of Explanation under section 115JA was applicable while calculating the Book Profits under section 115JA of the Act." 27. Facts giving rise to the dispute raised in Ground No. 5 are that the assessee has written back a sum of Rs. 2,12,05,840 being excess depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments of the appellant are correct because the provisions made were much before the assessment year commencing on 1-4-1997. Therefore, the proviso would not be applicable to the case of the appellant as has already been held in the case of P.S.I. Data System, a decision of the Cochin Bench of the ITAT. The Assessing Officer is, therefore, directed to allow a relief of Rs. 2,12,05,842 to the appellant." 28. Facts giving rise to the dispute raised in Ground No.6 are that the assessee has credited a sum of Rs. 4,32,60,545 to the Profit Loss Account for the year under appeal as "Lease Equalisation" under the head "Operational Receipts". Note No.6 to Accounts states: "Consequent upon adoption of recommended accounting practice, as per the guidance note on accounting for lease issued by the Institute of Chartered Accountants of India from current year, Company has taken credit towards lease equalization amounting to Rs. 8,78,83,930 (including Rs. 4,32,60,545 for previous year) for the plant and machinery given on long-term charter/lease." It is thus clear that a sum of Rs. 4,32,60,545 relates to the excess depreciation provided in earlier years which the assessee has sought to equal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be excluded while computing the tax liability under section 115JA of the Income-tax Act. The Assessing Officer, however, rejected the claim of the assessee mainly for the reason that there was no specific provision in clause (i) of the Explanation to section 115JA in this behalf. 29. On appeal, the ld. CIT(A) allowed the claim of the assessee following the decision of the Tribunal in Sipani Automobiles Ltd v. Dy. CIT [1993] 46 ITD 280 (Bang.) with the following observations: "I have considered the facts of the case and the arguments of the appellant. There is no doubt that the amount credited to the profit and loss account is a fictitious income and had arisen due to the lease equalization which was made out of the provision for depreciation in the accounting year relevant to assessment year 1996-97. Therefore, in accordance with clause (i) to Explanation to section 115JA the amount of Rs. 4,32,60,545 has to be deleted from the income for the purpose of section 115JA of the Income-tax Act. The Assessing Officer is, therefore, directed to amend his orders accordingly." 30. Thus, the learned CIT(A) has accepted both the claims of the assessee under clause(i) of the Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to which the amount withdrawn from reserves created are provisions made in a previous year relevant to the assessment year commencing on or after 1-4-1997, shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions out of which the said amount was withdrawn under the said Explanation. 33. The case of the learned senior counsel for the assessee is that the impugned entries in the books were made to comply with the "Guidance Note on Accounting for Leases" issued by the Institute of Chartered Accountants of India effective from 1-4-1996, i.e., the assessment year under appeal replacing similar Guidance Note issued by the ICAI in 1988. He submits that the excess depreciation provided in the books in earlier years is in the nature of reserve and hence any amount withdrawn from such a reserve and credited to the profit and loss account is eligible for reduction from book profit under clause (i). He relies upon the decision of the Hon'ble jurisdictional High Court in CIT v. Protos Engg. Co. (P.) Ltd. [1994] 207 ITR 831 (Bom.) to support his submission that any excess provision for depreciation is reserve. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I Data Systems also shows that the issue of applicability of the said proviso was neither involved nor considered nor adjudicated upon in that case. Learned CIT(A) has also not examined as to whether the proviso is applicable to the assessee. In this view of the matter, we set aside the order of the learned CIT(A) and restore the issue raised in Ground Nos. 5 and 6 to the file of the CIT(A) with the direction to examine the claim of the assessee in the light of the proviso to clause (i) and dispose of the matter accordingly after giving a reasonable opportunity of hearing to both the parties. The other decision relied upon by the learned CIT(A), namely, Sipani Automobiles Ltd., 46 ITD 280 is also not applicable as it does not deal with the issue arising under the proviso to clause (i). Ground Nos. 5 and 6 are treated as allowed for statistical purposes. 35. Ground Nos. 7 and 8 are general and hence do not call for adjudication. 36. Appeal filed by the Department is partly allowed. ITA No. 672/M/2002:A.Y. 1998-99. 37. Ground Nos. 1 to 4 taken by the Department in the aforesaid appeal for assessment year 1998-99 are similar to those taken by it in assessment year 1997-98. F ..... 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