Non Commercial entities- still not in Service tax ambit
CA Pradeep Jain, Ranu Dhoot
With the coming up of new government led by Mr. Naredndra Modi, came new hopes. The hopes for a better India once again dawned in the hearts of the people. The much talked about Budget of 2014 was the ray of hope for the people. The budget brought in a several boons if not many for different sectors in the country. One such gift budget brought along was some extent of clarification regarding different provisions of taxations. One such clarification brought about is the ambiguous Sl. 18 of mega exemption. But amendment in this regard has created ambiguity.
CONFUSION: ACCOMODATION SERVICES BY DHARAMSHALAS, ASHRAM..ARE THEY EXEMPT??
The upcoming of Mega Exemption vide Notification No. 25/2012-ST, dated 20.06.2012 brought relief to several services listed in the aforesaid notification.
It brought a sigh of relief for the small guest house or hotel owners. The Serial No. exempting such service reads as under:
"18. Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent;"
With the upcoming of the relief came up the point of confusion. The confusion was on account of use of the word "commercial" in the entry as to whether dharamshalas, ashram or any such entity which offer accommodation would be covered therein. These run on non commercial basis. These are run normally by trusts who do not have profit motive.
But we have seen in case of "Commercial coaching" service wherein it was clarified by then finance minister that "commercial" does not have any link with the profit motive. Even if trust is charging some nominal amount from the students will have to pay the tax. Although courts have different stand but the litigant department started issuing show cause notice to all the assessee.
AMENDMENT
The perplexity of the interpreter on account of use of word "commercial" has been brought to end by the amendment brought in the Budget of 2014, Vide Notification No.06/2014 – Service Tax dated 11th July, 2014, the enrty 18 has been substituted by the following
"18. Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent;"
The new definition no more contains the word "commercial". Hence, there will not be any dispute on this score. Thus, all the trusts who are running on non commercial basis will be covered by this amendment.
However, this is seen that all these non commercial units like dharmshala will not be offering room rent of more than Rs. 1000/-. Hence, they will not be still covered under the ambit of service tax. Moreover, the threshold exemption of Rs. 10 Laksh still be available to any entity providing service by the way of accommodation.
Conclusion: To remove any ambiguity in Serial No. 18 of Mega Exemption the word "commercial" has been omitted, thus providing a clear view of applicability of such exemption on non commercial trusts providing service by the way of accommodation. Despite the fact that the ambit of Sl No. 18 of mega exemption has been widened covering in it dharamshalas, ashrams etc., such clarification does not hold much relevance.
Section 10AA
Finance Bill, 2014 has proposed to amend section 35AD of the Income tax Act, 1961 ('the Act') and introduced investment linked deduction for business of laying and operating slurry pipelines used for carrying iron ore as well as setting up and operating semi-conductor wafer fabrication manufacturing unit.
Section 35AD, inter-alia, provides that in computing income of eligible business, the assessee shall be allowed deduction of specified percentage of capital investment in such business. The deduction is available in as much, the entire capital investment is allowed as deduction in the year of commencement of business and the tax loss is carried forward to subsequent years and set-off against income of future years.
On the other hand, section 10AA of the Act provides for profit linked deduction in respect of income earned by a unit set up in a Special Economic Zone and engaged in manufacture of production of any article or thing or provision of services. The tax holiday is available as follows:
• For 0- 5 years – 100% of eligible profits
• For 6 - 10 years – 50% of eligible profits
• For 11 – 15 years – Amount transferred to Special Economic Zone Re-Investment Reserve Account subject to maximum of 50% of eligible profits
With the introduction of investment linked tax holiday for business of manufacturing of semi-conductor wafers, a similar business set up in a Special Economic Zone as well as for other businesses specified in section 35AD, there is a possibility of claiming profit linked deduction under section 10AA after expiry of investment linked deduction in the initial years.
In order to plug this possible tax leakage and grant only one tax benefit to an eligible business, Budget 2014 proposes that once deduction under section 10AA is claimed for a particular business, the assessee shall not be allowed deduction under any other section for any other assessment year in respect of income from same business. A similar amendment has also been introduced in section 35AD.
In other words, the assessee, being a unit set up in Special Economic Zone, shall be required to opt in the initial year, whether to claim investment linked deduction under section 35AD or profit linked deduction under section 10AA.
Amendment Proposed:
Finance Bill, 2014 proposes to inserts sub-section (10) in Section 10AA of the Income-tax Act, with effect from the 1st day of April, 2015, namely:
"(10) Where a deduction under this section is claimed and allowed in respect of profits of any of the specified business, referred to in clause (c) of sub-section (8) of section 35AD, for any assessment year, no deduction shall be allowed under the provisions of section 35AD in relation to such specified business for the same or any other assessment year.".
Dopt rejects 6-day week schedule amid protests from women
The Department of Personnel and Training (DoPT) will soon inform Parliament that the government is not going back to a six-day week for its employees, even as a senior representative of the central government employees said that women employees were biggest opponents of any such change by the new government.
A senior DoPT official told ET on Tuesday that all individual ministries would be advised that before they ask employees to come to work on Saturdays, they were expected to first consult the Joint Consultative Machinery set up in each ministry which has representatives from the staff side before implementing the same. There was confusion among government ranks last week after the road ministry issued an order asking employees to report to work on all Saturdays except the second. The same was apparently withdrawn after women employees in the ministry took it up with transport minister Nitin Gadkari.
Employees in many other ministries have also been asked informally to report to work on Saturdays in case senior officials or the respective minister is in office. ET has learnt that DoPT will soon inform Parliament that the government would continue to work 5-days-a-week to end all speculation on this as it has received questions on the same from MPs.
Shiva Gopal Mishra, Secretary (staff side) of the National Council, JCM, told ET that "no government ministry can enforce six-day week on employees without the concurrence of the DoPT."Not just DoPT's concurrence, the government also needs to consult employees on the same through the JCM mechanism.
There will be no use of going back to a six-day week system as it will only raise electricity costs of the government. Also, women employees form a sizeable proportion of the workforce and they are strongly against any move to resort to a six-day week," Mishra, who is also general secretary, All India Railwaymen's Federation, told ET.
Most women employees use the weekend for pending household chores. The JCM, chaired by the Cabinet Secretary, is a joint group of various staff unions of central government employees supposed to act as a platform for constructive dialogue between the representatives of the staff side and the official side for peaceful resolution of all disputes.
Clarification on form MGT-14 through STP mode
General Circular 28/2014, Dated: 9th July, 2014
Subject: clarification on form MGT-14 through STP mode.
In order to simplify procedures and with a view to ensure timely disposal of E-Forms in the office of Registrars of Companies and keeping in view the penal provisions for false declaration as contained in section 448 read with section 447, the following E-Forms with the conditions mentioned along with will be processed and taken on record using the Straight Through Process mode.
| S.No. | E-Form | Conditions |
| 1 | MGT-14 | All cases except for change of Name, change of object, resolution for further issue of capital and conversionof companies will be STP Mode. |
This circular will be effective from 21.07.2014.
File No.1/9/2013- CL-V
Yours faithfully,
KMS Narayanan
(Assistant Director)
IT: Where assessee - advertising-company had developed existing road
median, erected bus-shelters and light poles for its advertisement
business, activities indulged by assessee-company were part of its
normal activities of advertising and publicity rather than one of
infrastructure development and therefore, was not eligible for
deduction under section 80-IA(4)
■■■
[2014] 45 taxmann.com 532 (Karnataka)
HIGH COURT OF KARNATAKA
Commissioner of Income Tax-III, Bangalore
v.
Skyline Advertising (P.) Ltd.*
DILIP B. BHOSALE AND B. MANOHAR, JJ.
IT APPEAL NOS. 453, 454 & 455 OF 2013†
FEBRUARY 28, 2014
Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and
gains from infrastructure undertakings (Infrastructure undertaking) -
Assessment years 2006-07 to 2008-09 - Assessee-company had entered
into an agreement with local authority for construction of
bus-shelters, putting up of footbridge, beautify road medians and
erecting street lights - Assessee was allowed to utilise these bus
shelters, lamp posts, road medians and footbridge, for their
advertisement business to recoup expenditure incurred for same -
Assessee claimed deduction under section 80-IA(4) contending that it
was involved in infrastructure development - Whether benefit under
section 80-IA could be extended only to those assessees who had
developed infrastructure facility as defined under sub-section (4) of
section 80-IA and income eligible for deduction had to arose from use
of such infrastructure facility - Held, yes - Whether since assessee
eventually was an advertising company, and had developed, existing
road median, erected bus-shelters and light poles for its
advertisement business, activities indulged by assessee were part of
its normal activities of advertising and publicity rather than one of
infrastructure development - Held, yes - Whether further since
assessee derived income only from advertisement hoardings erected on
bus shelters, road medians and street light poles, said income could
not be treated as income derived from 'infrastructure facility' -
Held, yes - Whether, therefore, respondent-assessee was not eligible
for deduction under section 80-IA(4) - Held, yes [Para 20][In favour
of revenue]
Circulars & Notification : CBDT Circular No. 717, dated 14-8-1995
FACTS
■ The assessee-company was engaged in the business of outdoor
advertisement and media advertising.
■ The assessee-company had entered into an agreement with the local
authority for construction of bus shelters, putting up of footbridge,
beautify the road medians and erecting street lights and the assessee
was allowed to utilise these bus-shelters, lamp posts, road medians
and footbridge, for their advertisement business to recoup the
expenditure incurred for same.
■ The assessee had filed return of income claiming deduction under
section 80-IA(4) and contended that it has constructed bus shelters,
beautified the road median, put up the street lights and constructed
foot bridge which was the part of the infrastructure development and
was entitled for deduction under section 80-IA(4).
■ The Assessing Officer concluded that work carried on by assessee,
was for earning income by putting up the advertisement boards on the
same which would not amount to infrastructure development and
accordingly, denied the benefit under section 80-IA(4).
■ On appeal, the Commissioner (Appeals) confirmed the order of the
Assessing Officer.
■ On second appeal, the Tribunal set aside the order passed by the
Commissioner (Appeals) and held that the assessee was entitled for
deduction under section 80-IA.
■ On revenue's appeal:
HELD
■ It is found that the assessee in the instant cases though has
erected bus shelters, beautified the road median, erected street
lights and footbridge in the specified place as per the specifications
and erected advertisement hoardings for earning income from the said
advertising business, it cannot be treated as infrastructure facility
as explained in the explanation of section 80-IA. It was not an
engineering or construction company that puts up
public-infrastructure. The assessee, which, eventually is an
advertising company, is interested only to find out the best space at
the best locations for advertisements. The assessee does not claim
that he has any experience of raising/erecting infrastructure facility
as contemplated by the Explanation of section 80-IA. Thus the
activities indulged by the assessee are part of its normal activities
of advertising and publicity rather than one of infrastructure
development. The business activities of the assessee do not involve
(a) Development (b) Operating; and (c) Maintenance. For the purpose of
its business, the assessee has taken up erection/construction of bus
shelter for its advertisement business.
■ The Circular issued by the CBDT makes it clear that the income
eligible for deduction has to be arisen from the use of facility, for
example, collection of toll from the road users. The said income has
to be treated as income derived from the infrastructure facility. In
the instant case, the assessee derives income only from the
advertisement hoardings erected on the bus-shelters, road medians and
the street light poles. Hence, the said income cannot be treated as
income derived from the 'infrastructure facility'. The income earned
by the assessee do not fall under section 80-IA(4).
■ It is found that the order passed by the Tribunal is contrary to
the intendment of the Act. The benefit under section 80-IA can be
extended only to those assessees who have developed infrastructure
facility as defined under sub-section (4) of section 80-IA. In the
instant case, the assessee has not developed road or a toll road,
bridge, highway or a rail system. However, it had developed the
existing road median, erected bus shelters and light poles for its
advertisement business, which, in any case cannot be treated as
infrastructure development. The order passed by the Tribunal cannot be
sustainable. The judgment relied upon by the assessee is not
applicable to the facts of the present case. Accordingly, the
questions of law in these appeals are held in favour of the revenue
and against the assessee. [Para 20]
CASE REVIEW
CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR 323/189 Taxman 54
(Bom.) (para 18) and Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62
Taxman 480 (SC) (para 19) distinguished.
CASES REFERRED TO
CIT v. Sterling Foods [1999] 237 ITR 579/104 Taxman 204 (SC) (para 3),
Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349 (SC) (para 3),
CIT v. Mayur Laminators [1995] 211 ITR 646/83 Taxman 406 (Raj.) (para
3), State of Jharkhand v. Ambay Cements [2005] 139 STC 74 (SC) (para
3), State Level Committee v. Morgardshammar India Ltd. [1996] 101 STC
1 (SC) (para 3), Polestar Electronic (P.) Ltd. v. Addl. CST. [1978] 41
STC 409 (SC) (para 3), Falcon Tyres Ltd. v. State of Karnataka [2006]
147 STC 466 (SC) (para 3), CIT v. ABG Heavy Industries Ltd. [2010] 322
ITR 323/189 Taxman 54 (Bom.) (para 4), CIT v. Gwalior Rayon Silk Mfg.
Co. Ltd. [1992] 196 ITR 149/62 Taxman 471 (SC) (para 4), CIT v.
Bangalore Turf Club Ltd. [1984] 150 ITR 23/[1983] 15 Taxmann 221
(Kar.) (para 4), Gujarat Industrial Development Corpn. v. CIT [1997]
227 ITR 414/94 Taxman 64 (SC) (para 4), CIT v. Engine Valves Ltd.
[1980] 126 ITR 347 (Mad.) (para 4), Tamil Nadu Petro Products Ltd., v.
Asstt. CIT [2011] 338 ITR 643/202 Taxman 31/13 taxmann.com 139 (Mad.)
(para 4), Bajaj Tempo Ltd., v. CIT [1992] 196 ITR 188/62 Taxman 480
(SC) (para 4), CIT v. Straw Board Mfg. Co. Ltd. [1989] 177 ITR 431/44
Taxman 189 (SC) (para 4), CIT v. Mazagaon Dock Ltd. [1994] 206 ITR
260/72 Taxman 91 (Bom.) (para 4), UCO Bank v. CIT [1999] 237 ITR
189/104 Taxman 547 (SC) (para 4), Pandian Chemicals v. CIT [2003] 263
ITR 378/130 Taxman 254 (Raj.) (para 11), Asstt CIT v. Ranglal Rameswar
Saraugi [1978] 41 STC 408 (Guahati) (para 14), CIT v. Mayur Laminators
[1995] 211 ITR 646/83 Taxman 406 (Raj.) (para 15) CIT v. ABG Heavy
Industries Ltd. [2010] 322 ITR 323/189 Taxman 54 (Bom.) (para 17) and
Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 (SC) (para
19).
Sanmathi E.I. for the Appellant. Nageshwar Rao for the Respondent.
JUDGMENT
B. Manohar, J. - These appeals are filed by the Revenue under Section
260A of the Income-tax Act, 1961 (for short 'the Act') against the
order dated 30th April, 2013 made in ITA Nos.263, 930 and
931/Bang/2012 passed by the Income Tax Appellate Tribunal, Bangalore
Bench 'A (for short 'the Tribunal9] for the assessment years 2006-07,
2007-08 & 2008-09, whereby the Tribunal has set aside the order passed
by the Commissioner of Income Tax, (Appeals)-III, Bangalore (for short
the First Appellate Authority'), wherein the Appellate Authority by
its order dated 16-12-2011 upheld the order of Assessing Officer and
held that the respondent-assessee is not eligible for deduction under
Section 80-IA(4) of the Act.
2. The brief facts of the case are as follows:
The respondent-assessee is a Private Limited Company engaged in the
business of Outdoor Advertisement, Media Advertising and Development
of Infrastructure. The assessee filed the return of income claiming
deduction under Section 80-IA(4) of the Act, contending that the
assessee-Company is involved in infrastructure development. The
Assessing Authority issued notice under Section 142(2) of the Act
calling upon the assessee to substantiate their claim of deduction
under Section 80-IA(4) of the Act. The authorized representative of
the assessee made available the records and also contended that the
respondent-assessee entered into an agreement with local
self-Government i.e. Bruhath Bangalore Mahanagara Palike (for short
'the BBMF') for construction of bus-shelter, erection of lamp posts,
beautification of road medians, construction of the footbridge near
ISCKON temple and maintenance of the same. The expenditure incurred
for the same has to be recouped by utilizing these bus shelters, lamp
posts, road medians and footbridge, for their advertisement business.
Since the assessee-Company is involved in the development of
infrastructure, it is entitled for deduction under Section 80-IA(4) of
the Act.
2.1 The Assessing Officer after examining the matter in detail and
verifying the clauses of agreement entered into between the assessee
and the BBMP was of the view that construction of bus shelters,
installation and maintenance of street lights and beautification of
the center road medians is for earning income by putting up the
advertisement boards on the same which would not amount to
infrastructure development. The work carried on by the assessee is in
the nature of work contract. The income is derived by displaying
advertisement hoardings on the road medians, bus shelters and light
poles. Hence, the Assessing Authority by its order dated 31-12-2000
held that the assessee is not eligible to claim deduction under
Section 80-IA of the Act and by its order dated 13-12-2010 and
disallowed the claim of deduction of income tax.
2.2 Being aggrieved by the order passed by the Assessing Authority,
the respondent-assessee preferred an appeal before the First Appellate
Authority challenging the denial of deduction on various grounds. The
First Appellate Authority on verification of the contentions raised by
the respondent-assessee found that though the Memorandum of
Association of the respondent-assessee contains provision for
undertaking infrastructure development, the assessee is essentially an
advertisement company and has not invested huge funds on long term
construction activities. The work carried out by the
respondent-assessee is not in the nature of construction work referred
to in the Explanation to Section 80-IA (13) of the Act. Hence,
confirmed the order passed by the Assessing Authority and dismissed
the appeal by its order dated 16-12-2011.
2.3 The assessee being aggrieved by the order passed by the First
Appellate Authority preferred an appeal before the Tribunal. The
Appellate Tribunal by its order dated 30-04-2013, allowed the appeal
filed by the assessee holding that the assessee is eligible to claim
deduction under Section 80-IA(4) of the Act. The Tribunal was of the
view that a bus-shelter without a road would be of no use and
similarly a road cannot be useful without a bus-shelter and road
medians in between and safe for the commuters at night without proper
lighting. As per the clauses of the agreement, the assessee has the
obligation not only to provide the facilities by constructing
bus-shelters, road medians, erecting light poles, but also to maintain
the same for a particular period. Therefore, the assessee not only
build, but also operate and maintain the said facilities for the
stipulated period. Relying upon an unreported judgment of Kolkata
Bench in the case of M/S. Vantage Advertisement Private Limited the
Tribunal allowed the appeal and held that the assessee is entitled for
deduction under Section 80-IA of the Act.
2.4 Being aggrieved by the order passed by the Appellate Tribunal, the
Revenue has preferred these three appeals. With the consent of the
learned counsel for the parties, these appeals are taken up for final
disposal at the stage of admission itself to consider the following
substantial questions of law:
'(i) Whether the respondent-assessee is entitled to the benefit of
deduction under Section 80-IA of the' Income-tax Act, 1961?
(ii) Whether the business activity of the respondent-assessee would
fall within the ambit of the expression "Infrastructure Facility" as
occurred in Section 80-IA of the Income-tax Act, in particular the
Explanation appended to sub-Section (4) thereof?'
3. Sri. E.I. Sanmathi, learned counsel appearing for the appellants
submitted that the order passed by the Appellate Tribunal is contrary
to law. The assessee-company entered into an agreement with the local
authorities for the purpose of its business of advertising and taken
up the work of construction of bus-shelter, erection of light poles
and beautification of the road median only for the purpose of putting
up of their advertisement hoardings or to lease the space for
advertisement. The income derived from the said advertisement business
cannot be treated as income from the infrastructure development.
Reading of some of the clauses of agreement makes it very clear that
the business of the assessee will not fulfill the conditions
prescribed under Section 80-IA(4) of the Act and also explanation
thereunder. The agreement for developing, maintaining and operating is
only with regard to the infrastructure facility. The infrastructure
facility was defined under Section 80-IA(4) of the Act. As per the
Explanation to the said Section, "infrastructure facility" means: —
(a) a road including toll road, a bridge or a rail system;
(b) a highway project including housing or other activities being an
integral part of highway project;
(c) a water supply project, water treatment system, irrigation
project, sanitation and sewerage system or solid waste management
system;
(d) a port, airport, inland waterway.
The agreement entered into between the assessee with the local
authority will not fall under any of the infrastructure facility
enumerated under the Section. In the instant case, the assessee
entered into an agreement for construction of the bus-shelters, street
lights, road medians and footbridge in order to create ambience and
the brand of being IT hub. The assessee has to construct the
bus-shelters; beautify the road medians and erect street lights as per
the specifications for the limited period. The Corporation will not
spend any money for the same. The assessee is permitted to use the
said portion for the purpose of its advertising business and they can
lease the said portion for advertisement. The advertisement hoardings
must be as per the specifications for the period prescribed by the
local authorities. The income earned from the said business cannot be
treated as the income from infrastructure. He also relied upon the
following judgments in support of his contention: CIT v. Sterling
Foods [2009] 237 ITR 579/104 Taxman 204 (SC); Liberty India v. CIT
[2009] 317 ITR 218/183 Taxman 349 (SC) Unreported decision of this
Hon'ble High Court in ITA No.3253/2005 Disposed of on; 11.08.2011 CIT
v. Mayur Laminators [1995] 211 ITR 646/83 Taxman 406 (Raj.); State of
Jharkhand v. Ambay Cements [2005] 139 STC 74 (SC) State Level
Committee v. Morgardshammar India Ltd. [1996] 101 STC 1 (SC); Polestar
Electronic (P.) Ltd. v. Addl. CST. [1978] 41 STC 409 (SC) Falcon Tyres
Ltd. v. State of Karnataka [2006] 147 STC 466 (SC).
4. On the other hand, Sri Nageshwara Rao, learned counsel appearing
for the respondent-assessee argued in support of the order passed by
the Tribunal and contended that the assessee is a Private Limited
Company incorporated under the Companies Act. It has entered into an
agreement with the local authority for infrastructure development such
as construction of bus shelters, putting up of footbridge, beautify
the road medians and erecting street lights. The infrastructure
facility referred to in the Explanation to sub-section (4) of Section
80-IA is inclusive definition. A road includes toll road itself
suggests that the definition is inclusive definition and include
everything with regard to the road, bridges or railway system. Clause
(b) of the aforesaid definition wherein a highway project has been
defined to mean a project including housing or other activities being
an integral part of highway project. Therefore, it is important to
note the words used including' or other activities' which itself bring
out the intent of the legislature not to restrict the activities to
the few specified field. The infrastructure facility as used in the
Explanation to Section 80-IA(4) of the Act is wide enough to cover
entire activities of the road. The road without bus shelter is of no
use. Further, without the road median, the commuter cannot use the
said road safely. Without lighting facility, road cannot be used
properly. Due to the heavy traffic, construction of footbridge is very
much necessary. Hence, the construction of the busshelter, road
median, street lights and construction of the footbridges are the part
of infrastructure facility. The intention of the legislature is very
clear and wide enough to cover other activities with regard to road
also fall under the definition of 'infrastructure facilities'. Hence,
the assessee is entitled for deduction of its income earned under
Section 80-IA(4) of the Act. In support of his contention, he relied
upon the following judgments: CIT v. ABG Heavy Industries Ltd. [2010]
322 ITR 323/189 Taxman 54 (Bom.)CIT v. Gwalior Rayon Silk Mfg. Co.
Ltd. [1992] 196 ITR 149/62 Taxman 471 (SC)CIT v. Bangalore Turf Club
Ltd. [1984] 150 ITR 23/[1983] 15 Taxmann 221 (Kar.)Gujarat Industrial
Development Corpn. v. CIT [1997] 227 ITR 414/94 Taxman 64 (SC) CIT v.
Engine Valves Ltd. [1980] 126 ITR 347 (Mad.)Tamil Nadu Petro Products
Ltd., v. Asstt. CIT [2011] 338 ITR 643/202 Taxman 31/13 taxmann.com
139 (Mad.)Bajaj Tempo Ltd., v. CIT [1992] 196 ITR 188/62 Taxman 480
(SC)CIT v. Strawboard Mfg. Co. Ltd. [1989] 177 ITR 431/44 Taxman 189
(SC)CIT v. Mazagaon Dock Ltd. [1994] 206 ITR 260/72 Taxman 91
(Bom.)UCO Bank v. CIT [1999] 237 ITR 189/104 Taxman 547 (SC).
5. We have carefully considered the arguments addressed by the learned
counsel for the parties and perused the order impugned and the
relevant records.
6. The records clearly disclose that the assessee is a Private Limited
Company mainly engaged in the business of Outdoor Advertisement and
Media Advertising. The assessee has entered into an agreement with
BBMP on 31-03-2004, 11-07-2004 and 30-11-2004 agreeing to beautify the
road median from Dairy Circle to Central Silk Board and the assessee
is allowed to put up advertisement boards to recoup the expenditure
incurred for beautifying the road median. Further, an agreement was
also entered into for construction of 11 bus-shelters in different
locations. The bus-shelter shall be constructed as per the
specifications and the design supplied by the BBMP. The expenditure
incurred for construction of the bus-shelter has to be recovered by
the assessee by putting up advertisement hoardings. Further, as per
the agreement dated 11-07-2004, the assessee is permitted to install
and erect 199 poles providing street light in four roads and permitted
to install 199 lit kiosks of 4 ft. ×2 ft. (double sided) at the height
of 18 feet from the road, so as to recover the expenditure incurred
for putting up 199 poles. This agreement is for a limited period and
the assessee has to pay the ground rent and other local taxes.
Further, the assessee was also permitted to install footbridge near
ISCKON temple and to erect advertisement hoardings in order to recoup
the expenditure for putting up of the said footbridge. As per the
terms and conditions imposed by the BBMP, the assessee had put up the
bus shelter, beautifies the road median from Diary Circle to Central
Silk Board Circle and also put up the street lights in four roads;
constructed the footbridge and erected the hoardings for its business.
The agreement entered between the assessee and the BBMP, read as
under:
(i) Whereas BBMP who is the absolute owner of all the footpaths and
road within its jurisdiction, has in consultation with the Bangalore
City Police and Bangalore Metropolitan Transport Corporation
identified a critical need to erect bus shelters. Keeping in view the
aesthetic values, beautification of the city in general and commuter
benefits and interest particular and for that purpose has formulated a
scheme under which even a bus-shelter could be constructed by private
parties on the terms and conditions specified therein. The party of
the second part has approached with a proposal to erect bus-shelters
of the design specified by the first party.
(ii) find whereas under a third phase the first party had intended
to cause 11 bus shelters to be constructed in locations identified by
it as detailed in Annexure-A. And whereas the licensee had , offered
to participate in the third phase and has constructed bus shelters at
each of the location specified in Annexure-B in accordance with the
design - specifications detailed in Annexure-C.
Some of the clauses of the agreement read thus:
(1) The Licensee shall construct/erect the Bus-Shelters in
accordance with the specifications and design detailed in Annexure-C
any deviation shall be deemed to be a material breach of this
agreement.
(2) The period of license and permission granted hereunder will be
for a period of 11 months starting from the date specified for
completion as detailed at Clause-4.
(3) The period of completion for all the Bus-Shelters in accordance
with Annexure C was 60 . (sixty) days from the date of this agreement.
The completion certificate for each shelter is to be issued to the
Licensee from an engineer/team authorized by the Commissioner,
Bangalore Mahanagara Palike to do so provided the construction has
been in accordance with Annexure-C for adherence to design material,
equipment, structure specifications.
(4) The licensee will be at liberty to utilize the advertisement
space model-wise as specified below and more fully described in the
drawings:
Bus Shelter Model 'A' & 'C: The Advertisement right of the licensee
shall be limited to the space available on front side of the back
panel, not exceeding an extent of 4' x 15' (as shown in the drawing)
as also on both inside and outside faces of one side panel measuring a
maximum of 6' in height and 4' in width (as shown in the drawing). The
maximum advertisement space considering both back and side panel
together shall not exceed 108 sqfeet at any time.
Bus Shelter Model B: The advertisement right of the licensee will be
confined to the space available on front portion of the back panel of
the Bus Shelter measuring a maximum of 4' × 15' (as shown in the
drawing). The maximum advertisement space shall not exceed 86 sq. feet
at any time.
5. In addition to the License fee the Licensee shall pay all statutory
taxes cesses as applicable for in relation to the advertisement and or
advertisement space allotted in the Bus-Shelter as detailed in clause
6.
6. The Licensee shall-
(a) Maintain the bus-shelters floor, roof walls, etc., during the
period of this license, in a clean, hygienic and presentable manner.
(b) Forthwith replace/repair the Bus Shelter/s or any part thereof
upon any damage, loss breakage being noticed or reported or occurring.
(c) Construct and at all times maintain the Bus-Shelter/s in
accordance with Annexure 'C'
(d) Maintain in a clean, hygienic and usable condition the
dustbins, spittoons and other equipments, facilities provided by it at
the Bus-Shelters.
(f) Provide adequate lighting at the Bus-Shelters so as to ensure
public safety at all times.
(i) Initiate remedial action forthwith in respect of defects,
deficiencies brought to its notice by Bangalore Mahanagara Palike or
its authorized officials.
(m) Not to use the Bus-Shelters or permit their use for any purpose
other than as a Bus-Shelters.
(r) Ensure that all costs of constmction and maintenance of the
Bus-Shelters including costs of raw material, consumables, salaries,
expenses, electricity statutory deposits/advances, equipment
installation and replacement costs are paid and borne exclusively by
it.
(s) Not to collect from the public and/or users of Bus-Shelters any
fee, charge, and amount for use of the Bus-Shelters.
7. On expiry or termination of the license as never before stated the
Bus-shelter shall stand vested in Bangalore Mahanagara palike.
8. The EMD will be refunded after the satisfactory completion of the
license period and handing over the Bus Shelters in good and
Presentable conditions to Bangalore Mahanagara Palike by the licensee.
Street Lights
1. And whereas the First Party has intended to cause street lights on
4 roads to be erected and maintained as identified by it and as
detailed in Annexure-A and whereas the Licensee has submitted his
proposal on 29.3.2004 for.: installation and erection of 199 poles of
10 meter high M.S. Tubular Poles with under ground cabling and
maintenance of street lights against advertisement rights at the roads
specified in. Annexure-A in accordance with the design specifications
detailed in this Agreement.
Clauses:
1. The Licensor has granted permission to the Licensee to erect and
maintain the street lights against commercial advertisement at
allotted locations specified in Annexure-A in accordance with the
design, specifications and subject to limitations terms and conditions
specified in the Agreement.
2. Licensee shall maintain the street lights on the 4 roads against
commercial advertisement rights. Maintenance will include the
following.
(i) The lamp posts will be painted at least once in a year including
numberings intimated by the First party.
(ii) Replacement of fused bulbs will have to be done.
(iii) Repair works will be undertaken in case of any damage.
(iv) Repair/Replacement of fixtures including chokes, switches etc.,
whenever required.
3. The Licensee shall provide new 250 watt mental halide bulb whenever
the lights get 'Fused' on the above 4 roads mentioned. However,
Licensor will provide a vehicle to change the fused lights, whenever
such a demand is made.
4. The Licensee shall provide electrical 'Cut-outs' at his cost on all
the poles in order to isolate the problem, without disturbing bulbs on
other poles.
5. The Licensee shall return all the existing fixtures available on
the permitted 4 roads to the Licensor after executing the project.
However, the licensee will be permitted to utilize the existing cables
if in a usable condition in consultation with the First party.
6. The Licensee shall pay the electricity bills for electricity
consumed for advertisement boxes while the Licensor shall pay the
electricity bill for electricity consumed for the street lights.
7. The Licensor shall provide a NOC to enable the Licensor to obtain
electrical power from BESCOM to illuminate the advertisement boxes.
8. The Licensee shall pay the prescribed road cutting charges to the
concerned officer of BMP. The licensee shall restore footpaths to the
existing condition after erection of the street poles.
9. The Licensee shall be exclusively entitled to the revenue generated
by the display of commercial advertisement of the Kiosks installed in
the lamp posts.
10. The completion certificate for the maintenance of street lights
will be issued to the Licensee by the concerned Executive Engineer
(Electrical) authorized by the Commissioner, Bangalore Mahanagara
Palike.
11. On expiry of the contract the Licensee shall handover the lamp
poles to Bangalore Mahanagara Palike with all fixtures including lit
kiosks, etc.,
MEDIANS:
1. Whereas the Bangalore Mahanagara Palike is the absolute owner of
all the medians and road within its jurisdiction. Keeping in view
aesthetic values, beautification of the city in general and commuters
benefits and interest in particular a scheme has been formulated under
which the even medians could be beautified by private parties on Terms
and Conditions specified therein:
Clauses:
1. The Licensor has granted permission to the licensee to beautify
the median at allotted locations specified in Annexure - B in
accordance with the designs, specifications and subject to
limitations, terms and conditions specified in the agreement.
2. The Licensee shall beautify the median in accordance with the
specifications and design detailed in the agreement and any deviation
shall be deemed to be a material breach of this agreement.
3. The Licensee has designed the median with the following
specification more fully described in agreement.
4. The Licensee is allowed to install double side, illuminated glow
sign boxes of size 4'×2' at intervals of 100 feet in the median, for
displaying commercial advertisements of their clients. The revenue so
generated will accrue exclusively to the Licensee.
5. Licensee shall beautify the medians in consultation with the
concerned Horticultural Superintendent (South) as indicated below.
* Mexican grass, Bermuda grass and Shade grass, Shade grass is
generally planted under flyovers.
* In some places flowering shrubs should be planted to make median
more colourful and attractive.
* Waterfalls fountains and cascades with illumination shall be installed.
* 2 inch gauge ornamental grills of suitable height shall be installed
both sides of the medians.
7. The assessee filed return of income claiming deduction under
Section 80-IA(4) of the Act contending that it has constructed bus
shelters, beautified the road median, put up the street lights and
constructed footbridge which is the part of the infrastructure
development and is entitled for deduction under Section 80-IA(4) of
the Act. Section 80-IA was enacted by the Government in order to give
encouragement to the private industries who are involved in
infrastructural development. The CBDT circular No.717 dated
14.08.1995, reads as under:
34.2 Industrial modernization requires a massive expansion of, and
qualitative improvement in infrastructure. Our country is very
deficient in infrastructure such as expressways, highways, airports,
ports and rapid urban rail transport systems. Additional resources are
needed to fulfil the requirements of the country within a reasonable
time frame. In many countries the BOT (build-operate-transfer) or the
BOOT (build-own-operate-transfer) concepts have been utilized for
developing new infrastructure.
34.3 Applying commercial principles in the operation of infrastructure
facilities can provide both managerial and financial efficiency. In
view of this, a ten-year concession including a five-year tax holiday
has been allowed for any enterprise which develops, maintains and
operates any new infrastructure facility such as roads, highways,
expressways, bridges, airports, ports and rail systems or any other
public facility of similar nature as may be notified by the Board on
BOT or BOOT or similar other basis (where there is an ultimate
transfer of the facility to a Government or public authority). The
enterprise has to enter into an agreement with the Central or the
State Government or a local authority or any other statutory authority
for this purpose. The period within which the infrastructure facility
has to be transferred needs to be stipulated in the agreement between
the undertaking and the Government concerned. The enterprise has to be
owned by a company registered in India or a consortium of such
companies. The tax holiday will be in respect of income derived from
the use of the infrastructure facilities developed by them."
8. Section 80-IA reads as under for the better understanding of the provision:
"Section 80-IA: Deductions in respect of profits and gains from
industrial undertakings or enterprises engaged in infrastructure
development, etc.— (1) Where the gross total income of an assessee
includes any profits and gains derived by an undertaking or an
enterprise from any business referred to in sub-sec. (4) (such
business being hereinafter referred to as the eligible business),
there shall, in accordance with and subject to the provisions of this
section, be allowed, in computing the total income of the assessee.
(2), (3) ** ** **
(4) This section applied to
(i) any enterprise carrying on the business of (i) developing or
(ii) operating and maintaining or (ii) developing, operating and
maintaining any infrastructure facility which fulfils all the
following conditions, namely:—
(a) it is owned by a company registered in India or by a consortium
of such companies (or by an authority or a board or a corporation or
any other body established or constituted under any Centre or State
Act;)
(b) it has entered into an agreement with the Central Government or
a State Government or a local authority or any other statutory body
for (i) developing or (ii) operating and maintaining or (iii)
developing, operating and maintaining a new infrastructure facility;
(c) it has started or starts operating and maintaining the
infrastructure facility on or after the 1st day of April, 1995:
Provided that where an infrastructure facility is transferred on or
after the 1st day of April, 1999 by an enterprise which developed such
infrastructure facility (hereafter referred to in this section as the
transferor enterprise) to another enterprise (hereafter in this
section referred to as the transferee enterprise) for the purpose of
operating and maintaining the infrastructure facility on its behalf in
accordance with agreement with Central Government, State Government
local authority or statutory body, the provisions of this section
shall apply to the transferee enterprise as fit were the enterprise to
which this clause applied and. the deduction from profits and gains
would be available to such transferee enterprise for the unexpired
period during which the transferor enterprise would have been entitled
to the deduction, if the transfer had not taken place. '
(Explanation — For the purpose of this clause, 'infrastructure facility 'means—
(a) a road including toll road, a bridge or a rail system; '
(b) a highway project including housing or other activities being an
integral part of the highway project;
(c) a water supply project, water treatment " system, irrigation
project, sanitation and sewerage system or solid waste management
system;
(d) a port, airport, inland waterway (inland port or navigational
channel in the sea);
To avail the benefit under Section 80-IA(4), the assessee has to
fulfil the following conditions:
(a) the assessee must be running an eligible business of
developing, operating and maintaining or operating and maintaining any
infrastructure facility as defined by the Section and clarified by the
circular;
(b) The assessee must have ability to transfer the facility to the
Government at a future date in terms of the agreement;
(c) The facility should help industrial modernization: by serving to
expand the infrastructure i.e. major items, such as highway, express
highway, airports, port and railway system;
(d) The deduction shall be of the incomes, derived from the use of
the infrastructure facilities developed."
9. Further, the "Infrastructure Facility" is defined under Explanation
to Section 80-IA(4) of the Act. The infrastructure facility means, a
road including a toll road, a bridge or a railway system. Thus, in
order to claim benefit under Section 80-IA(4) of the Act the business
of the respondent-assessee is required to be that of developing an
infrastructure facility and derive income from use of the said
infrastructure facility developed by them.
10. In the instant case, reading of the agreement entered into by the
assessee with BBMP clearly reveals that the assessee was only a
licensee for putting up 11 bus shelters at various places, beautifying
the road medians at Diary Circle, putting up 199 light poles in four
roads; construction of the footbridge near ISCKON temple and
maintaining the same for the specified period. The assessee was
permitted to erect advertisement hoardings to recoup the expenditure
for putting of the same. No ownership or other right accrued to it
apart from the license to earn revenue from the advertisements placed
on these structures. Duration of the agreement shows that the
arrangement is only for a temporary period. The income is derived only
from the advertisement and not from the income from infrastructure
development. The Assessing Officer after looking into the agreement
entered into between the parties and taking into consideration the
provision of Section 80-IA came to a conclusion that the work carried
on by the assessee will not come under the "Infrastructure
Development" and accordingly, denied the benefit under Section
80-IA(4) of the Act. The said order was confirmed by the First
Appellate Authority. However, The Appellate Tribunal set aside the
order passed by the First Appellate Authority and held that the
assessee not only built bus shelters, road medians, street lights, but
also maintained the same for a specified period as per the agreement.
Hence, the infrastructure work carried out by the assessee falls under
the definition of Section 80-IA(4) and entitled for deduction. The
said order was questioned by the Revenue.
11. Sri. E.I. Sanmathi, learned counsel appearing for the appellants
contended that the word income' derived from eligible business
referred to in Section 80-IA is the income derived by developing,
operating and maintaining a road including toll road, bridge or rail
system. However, the assessee has only beautified the existing road
and put up the bus shelter as per the permission granted by the BBMP
for its advertisement business. The main income derived is not from
construction of bus shelters it has developed, but from the
advertisement. The work carried on by the assessee do not fall under
the definition of infrastructure development. In other words, to claim
deduction under Section 80-IA, the assessee has to earn from the
activities which amount to infrastructure development which are
prescribed specifically in the Explanation to the aforesaid provision.
Basically, the assessee is only an advertising company involved in
outdoor and media advertising and it has no experience of civil
construction. As per the agreement entered into between the assessee
and BBMP, the said work was entrusted to the assessee in order's to
enhance the aesthetic beauty of the road divider, and expenditure
incurred for the said work has to be recouped by erecting
advertisement hoardings. By no stretch of imagination, the income
derived from the advertisement hoardings can be treated as income
earned from the infrastructure development. In support of his
contention, he relied upon the judgments reported in Sterling Foods
(supra); in the case of Liberty India (supra); and in the case of
Pandian Chemicals v. CIT [2003] 263 ITR 378/130 Taxman 254 (Raj.)
12. The Hon'ble Supreme Court in a judgment reported in Ambay Cements
(supra) held that the exemption clause should be strictly construed
and if the conditions under which the exemption granted is violated or
changed on account of any subsequent event, the exemption would not
operate. Para 24 of the judgment reads as under:
"In our view, an exception or an exempting provision in a taxing
statute should be construed strictly and it is not open to the court
to ignore the conditions prescribed in the industrial policy and the
exemption notifications.
In our view, the failure to comply with the requirements renders the
writ petition filed by the respondent liable to be dismissed.
While mandatory rule must be strictly observed, substantial compliance
might suffice in the case of a directory rule.
Whenever statute prescribes that a particular act is to be done in a
particular manner and also lays down that failure to comply with the
said requirement leads to severe consequences, such requirement would
be mandatory. It is the cardinal rule of the interpretation that where
a statute provides that a particular thing should be done, it should
be done in the manner prescribed and not in any other way. It also
well-settled rule of interpretation that where a statute is penal in
character, it must be strictly construed and followed".
13. In the instant case, the exemption under Section 80-IA is subject
to fulfilment of Section 80-IA(4). The infrastructure facility' has
been explained in the explanation. It applies to a road including the
toll road or a bridge. That infrastructure facility is of permanent in
nature and not temporary construction of bus-shelters, beautification
of road median and erection of light poles and temporary construction
of footbridge.
14. The Guahati High Court in a judgment reported in Asstt CIT v.
Ranglal Rameswar Saraugi [1978] 41 STC 408 while interpreting the
sales tax statute held that when the court is construing a statutory
enactment, the intention of the legislature should be gathered from
the language used by it and it is not permissible for the court to
speculate about the legislature intent. If the language of statue is
clear and explicit effect must be given to it. The relevant paragraph
of the judgment reads as under:
'A statutory enactment must ordinarily be construed according to the
plain natural meaning of its language and no words should be added,
altered or modified unless it is plainly necessary to do so in order
to prevent a provision from being unintelligible, absurd,
unreasonable, unworkable or totally irreconcilable with the rest of
the statutes. This rule of literal construction is firmly established
and it has received judicial recognition in numerous cases.
Where there are two expressions which might have used to convey a
certain intention, but one of those expressions will convey that
intention more clearly than other, it is proper to conclude that, if
the legislature use that one of the two expressions which would convey
. the intention less clearly, it does not intend to . "convey that
intention at all. If the language of a statute is clear and explicit,
court must give effect to that."'
15. In a judgment reported in the case of CIT v. Mayur Laminators
[1995] 211 ITR 646/83 Taxman 406 (Raj.), the Rajasthan High Court held
as under:
"The burden is on the assessee when a deduction is claimed by him to
prove that he is entitled to the said deduction. The object of Section
80J of the Income-tax Act may be for the industrial growth, but the
relief can be given only when the assessee falls within the four
corners of law.. On an interpretation which is not supported by law,
the scope of this Section cannot be enlarged. The assessee cannot be
entitled to the relief in accordance with this Section and if the
assessee does not fall within the purview of the exemption, then for
the purpose of beneficent legislation, the extended meaning cannot be
given."
16. To avail the benefit under Section 80-IA i.e. infrastructure
facility under which the enterprises shall carry on the business of
(i) developing or (ii) operating and maintaining or (iii) developing,
operating and maintaining any infrastructure facility which fulfil the
conditions enumerated under sub-Section 4 of Section 80-IA of the Act.
From the reading of some of the clauses of the agreement entered into,
in the instant case, between the assessee and the BBMP, it is very
clear that the assessee has to beautify the road medians of existing
roads and put up hi-tech bus-shelters using the modern techniques and
material for construction of bus-shelters which in any case cannot be
treated as erection/development of permanent infrastructure. At the
most, it can be treated as a temporary structure which can be either
removed or shifted without any difficulty and hassle. Development of
such temporary structure cannot be termed or treated as permanent
infrastructure development as contemplated by Section 80-IA of the
Act. The Explanation of Section 80-IA make it clear, what
infrastructure facility means. In the present case the assessee for
erecting bus-shelters has to deposit EMD amount with the BBMP and only
after expiry of term of lease, EMD amount will be refunded. One of the
requirements of the infrastructure facility is that income has to be
derived from the infrastructure developed by the developer. In the
instant case, the BBMP imposed a condition that the assessee shall not
collect any money from the user of the bus-shelters as well as the
footbridge. There is no income from the development of infrastructure
apart from income from the advertisement business.
17. On the other hand, Sri. Nageshwar Rao, learned counsel appearing
for the assessee contended that the Explanation clause of Section
80-IA of the Act is that "a road including toll road" which itself
suggests that the definition is inclusive; and not exclusive
definition. The word used is "including" or "other activities" itself
brings out the intention of the legislation to not to restrict the
activities to a few specified field. The legislature do not intend to
narrow down the meaning of "infrastructure facility" as used in the
Explanation to Section 80-IA(4) of the Act. The legislature has
intended to give benefit under Section 80-IA to the activities carried
on in relation to road including toll road, bridge or railway system.
The road shall not be treated as toll road alone, it may be a road
within the city of Municipal Corporation. The intention of the
legislature while defining the term "infrastructure facility is not to
narrow down the scope of benefit granted under the Section and to
grant it even to a developer, like the assessee who is bona fidely
involved in development, operation and maintenance of structures like
bus-shelters, which would not fall in the category of infrastructure
facility' as contemplated by Section 80-IA of the Act. The assessee,-
in the present cases, has developed bus-shelters on the road,
beautified the road divider, put up street lights and maintained the
same as per the agreement entered into between the parties.
Thereafter, handed over the same to BBMP. Hence, the activities
carried on by the assessee has to be treated as development and not
infrastructure facility as contemplated by the explanation of Section
80-IA of the Act. In (CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR
323/189 Taxman 54 (Bom.) the supply and installation of Crane in a
Port was included within the purview of expression "infrastructure
facility.
18. It is relevant to note that Central Board of Direct Taxes in its
Circular No.793 dated 23-06-2000, on the representation received with
regard to the definition of "Port" as infrastructure facility
clarified as under:
'The Board has considered the matter and it has decided that such
structure will be included in the definition of the "Port" for the
purpose of Section 10/(23) (Guarantor) and 80-IA for the Income-tax
Act, 1961 if the following conditions are fulfilled:
(a) The concerned Port Authority has issued a certificate to that
the said structure form part of the Port and
(b) Such structure have been built under BOT and BOLT scheme and
there is an agreement that the same would be transferred to the said
authority on the expiry of the time stipulated in the agreement.
Hence, the judgments relied upon by the learned counsel for the
assessee referred to above is not applicable to the facts of the
present case.'
19. It was further contended on behalf of the assessee that a
provision in taxing statute granting incentives for promoting growth
and development should be construed liberally, relying upon the
judgment reported in Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62
Taxman 480 (SC). The relevant paragraph read thus:
"Denying benefit to such undertaking could not have been intended when
the very purpose of Section 15C was to encourage industrialization. It
was for this reason that various High Courts evolved the test of
commercial expediency or substantial involvement valued in terms of
money etc., to interpret this clause. Adopting a literal construction
in such cases would have resulted in defeating the very purpose of
Section 15C. Therefore, it becomes necessary to resort to a
construction which is reasonable and purposive to make such provision
meaningful."
This contention of the respondent-assessee cannot be acceptable. The
benefit under Section 15C of the Act cannot be compared with the
benefit under Section 80-IA(4) of the Act. Under Section 80 IA(4), the
Government of India in order to encourage the Private Sectors to
participate in the development . of infrastructure has given benefit
under the said scheme, the private entrepreneur has to develop,
operate and maintain the said infrastructure. The income derived from
the said infrastructure is only exempted under Section 80-IA(4) of the
Act. The judgment relied upon by the assessee is not applicable to the
present case.
20. On careful examination of facts before us, we find that the
assessee in the present cases though has erected bus-shelters,
beautified the road median, erected street lights and footbridge in
the specified place as 'per the specifications and erected
advertisement hoardings for earning income from the said advertising
business, it cannot be treated as infrastructure facility as explained
in the Explanation of Section 80-IA of the Act. It was not an
engineering or construction company that puts up public
infrastructure. The assessee, which, eventually is an advertising
company, is interested only to find out the best space at the best
locations for advertisements. The assessee does not claim that he has
any experience of raising/erecting infrastructure facility as
contemplated by the Explanation of Section 80-IA of the Act. Thus the
activities indulged by the assessee are part of its normal activities
of advertising and publicity rather than one of infrastructure
development. The business activities of the assessee do not involve
(a) Development (b) Operating; and (c) Maintenance. For the purpose of
its business, the assessee has taken up erection/construction of
bus-shelter for its advertisement business. The circular issued by the
CBDT makes it clear that the income eligible for deduction has to be
arisen from the use of facility, for example, collection of toll from
the road users. The said income has to be treated as income derived
from the infrastructure facility. In the instant case, the assessee
derives income only from the advertisement hoardings erected on the
bus-shelters, road medians and the street light poles. Hence, the said
income cannot be treated as income derived from the "infrastructure
facility. The income earned by the assessee do not fall under Section
80-IA(4). We find that the order passed by the Tribunal is contrary to
the intendment of the Act.
The benefit under Section 80-IA can be extended only to those
assessees who have developed infrastructure facility as defined under
sub-Section (4) of Section 80-IA. In the instant case, the assessee
has not developed road or a toll road, bridge, highway or a rail
system.
However, it has developed the existing road median, erected
bus-shelters and light poles for its advertisement business, which, in
any case cannot be treated as infrastructure development. The order
passed by the Tribunal cannot be sustainable. The judgment relied upon
by the assessee is not applicable to the facts of the present case.
Accordingly, the questions of law in these appeals are held in favour
of the Revenue and against the assessee. Hence, we pass the following:
ORDER
All the three appeals are allowed. The order passed by the Tribunal is
set aside and the order passed by the authorities below are up held.
RITESH
*In favour of revenue.
†Arising out of IT Appeal Nos. 263, 930 & 931 (Bang.) of 2012, dated 30-4-2013.
median, erected bus-shelters and light poles for its advertisement
business, activities indulged by assessee-company were part of its
normal activities of advertising and publicity rather than one of
infrastructure development and therefore, was not eligible for
deduction under section 80-IA(4)
■■■
[2014] 45 taxmann.com 532 (Karnataka)
HIGH COURT OF KARNATAKA
Commissioner of Income Tax-III, Bangalore
v.
Skyline Advertising (P.) Ltd.*
DILIP B. BHOSALE AND B. MANOHAR, JJ.
IT APPEAL NOS. 453, 454 & 455 OF 2013†
FEBRUARY 28, 2014
Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and
gains from infrastructure undertakings (Infrastructure undertaking) -
Assessment years 2006-07 to 2008-09 - Assessee-company had entered
into an agreement with local authority for construction of
bus-shelters, putting up of footbridge, beautify road medians and
erecting street lights - Assessee was allowed to utilise these bus
shelters, lamp posts, road medians and footbridge, for their
advertisement business to recoup expenditure incurred for same -
Assessee claimed deduction under section 80-IA(4) contending that it
was involved in infrastructure development - Whether benefit under
section 80-IA could be extended only to those assessees who had
developed infrastructure facility as defined under sub-section (4) of
section 80-IA and income eligible for deduction had to arose from use
of such infrastructure facility - Held, yes - Whether since assessee
eventually was an advertising company, and had developed, existing
road median, erected bus-shelters and light poles for its
advertisement business, activities indulged by assessee were part of
its normal activities of advertising and publicity rather than one of
infrastructure development - Held, yes - Whether further since
assessee derived income only from advertisement hoardings erected on
bus shelters, road medians and street light poles, said income could
not be treated as income derived from 'infrastructure facility' -
Held, yes - Whether, therefore, respondent-assessee was not eligible
for deduction under section 80-IA(4) - Held, yes [Para 20][In favour
of revenue]
Circulars & Notification : CBDT Circular No. 717, dated 14-8-1995
FACTS
■ The assessee-company was engaged in the business of outdoor
advertisement and media advertising.
■ The assessee-company had entered into an agreement with the local
authority for construction of bus shelters, putting up of footbridge,
beautify the road medians and erecting street lights and the assessee
was allowed to utilise these bus-shelters, lamp posts, road medians
and footbridge, for their advertisement business to recoup the
expenditure incurred for same.
■ The assessee had filed return of income claiming deduction under
section 80-IA(4) and contended that it has constructed bus shelters,
beautified the road median, put up the street lights and constructed
foot bridge which was the part of the infrastructure development and
was entitled for deduction under section 80-IA(4).
■ The Assessing Officer concluded that work carried on by assessee,
was for earning income by putting up the advertisement boards on the
same which would not amount to infrastructure development and
accordingly, denied the benefit under section 80-IA(4).
■ On appeal, the Commissioner (Appeals) confirmed the order of the
Assessing Officer.
■ On second appeal, the Tribunal set aside the order passed by the
Commissioner (Appeals) and held that the assessee was entitled for
deduction under section 80-IA.
■ On revenue's appeal:
HELD
■ It is found that the assessee in the instant cases though has
erected bus shelters, beautified the road median, erected street
lights and footbridge in the specified place as per the specifications
and erected advertisement hoardings for earning income from the said
advertising business, it cannot be treated as infrastructure facility
as explained in the explanation of section 80-IA. It was not an
engineering or construction company that puts up
public-infrastructure. The assessee, which, eventually is an
advertising company, is interested only to find out the best space at
the best locations for advertisements. The assessee does not claim
that he has any experience of raising/erecting infrastructure facility
as contemplated by the Explanation of section 80-IA. Thus the
activities indulged by the assessee are part of its normal activities
of advertising and publicity rather than one of infrastructure
development. The business activities of the assessee do not involve
(a) Development (b) Operating; and (c) Maintenance. For the purpose of
its business, the assessee has taken up erection/construction of bus
shelter for its advertisement business.
■ The Circular issued by the CBDT makes it clear that the income
eligible for deduction has to be arisen from the use of facility, for
example, collection of toll from the road users. The said income has
to be treated as income derived from the infrastructure facility. In
the instant case, the assessee derives income only from the
advertisement hoardings erected on the bus-shelters, road medians and
the street light poles. Hence, the said income cannot be treated as
income derived from the 'infrastructure facility'. The income earned
by the assessee do not fall under section 80-IA(4).
■ It is found that the order passed by the Tribunal is contrary to
the intendment of the Act. The benefit under section 80-IA can be
extended only to those assessees who have developed infrastructure
facility as defined under sub-section (4) of section 80-IA. In the
instant case, the assessee has not developed road or a toll road,
bridge, highway or a rail system. However, it had developed the
existing road median, erected bus shelters and light poles for its
advertisement business, which, in any case cannot be treated as
infrastructure development. The order passed by the Tribunal cannot be
sustainable. The judgment relied upon by the assessee is not
applicable to the facts of the present case. Accordingly, the
questions of law in these appeals are held in favour of the revenue
and against the assessee. [Para 20]
CASE REVIEW
CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR 323/189 Taxman 54
(Bom.) (para 18) and Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62
Taxman 480 (SC) (para 19) distinguished.
CASES REFERRED TO
CIT v. Sterling Foods [1999] 237 ITR 579/104 Taxman 204 (SC) (para 3),
Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349 (SC) (para 3),
CIT v. Mayur Laminators [1995] 211 ITR 646/83 Taxman 406 (Raj.) (para
3), State of Jharkhand v. Ambay Cements [2005] 139 STC 74 (SC) (para
3), State Level Committee v. Morgardshammar India Ltd. [1996] 101 STC
1 (SC) (para 3), Polestar Electronic (P.) Ltd. v. Addl. CST. [1978] 41
STC 409 (SC) (para 3), Falcon Tyres Ltd. v. State of Karnataka [2006]
147 STC 466 (SC) (para 3), CIT v. ABG Heavy Industries Ltd. [2010] 322
ITR 323/189 Taxman 54 (Bom.) (para 4), CIT v. Gwalior Rayon Silk Mfg.
Co. Ltd. [1992] 196 ITR 149/62 Taxman 471 (SC) (para 4), CIT v.
Bangalore Turf Club Ltd. [1984] 150 ITR 23/[1983] 15 Taxmann 221
(Kar.) (para 4), Gujarat Industrial Development Corpn. v. CIT [1997]
227 ITR 414/94 Taxman 64 (SC) (para 4), CIT v. Engine Valves Ltd.
[1980] 126 ITR 347 (Mad.) (para 4), Tamil Nadu Petro Products Ltd., v.
Asstt. CIT [2011] 338 ITR 643/202 Taxman 31/13 taxmann.com 139 (Mad.)
(para 4), Bajaj Tempo Ltd., v. CIT [1992] 196 ITR 188/62 Taxman 480
(SC) (para 4), CIT v. Straw Board Mfg. Co. Ltd. [1989] 177 ITR 431/44
Taxman 189 (SC) (para 4), CIT v. Mazagaon Dock Ltd. [1994] 206 ITR
260/72 Taxman 91 (Bom.) (para 4), UCO Bank v. CIT [1999] 237 ITR
189/104 Taxman 547 (SC) (para 4), Pandian Chemicals v. CIT [2003] 263
ITR 378/130 Taxman 254 (Raj.) (para 11), Asstt CIT v. Ranglal Rameswar
Saraugi [1978] 41 STC 408 (Guahati) (para 14), CIT v. Mayur Laminators
[1995] 211 ITR 646/83 Taxman 406 (Raj.) (para 15) CIT v. ABG Heavy
Industries Ltd. [2010] 322 ITR 323/189 Taxman 54 (Bom.) (para 17) and
Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 (SC) (para
19).
Sanmathi E.I. for the Appellant. Nageshwar Rao for the Respondent.
JUDGMENT
B. Manohar, J. - These appeals are filed by the Revenue under Section
260A of the Income-tax Act, 1961 (for short 'the Act') against the
order dated 30th April, 2013 made in ITA Nos.263, 930 and
931/Bang/2012 passed by the Income Tax Appellate Tribunal, Bangalore
Bench 'A (for short 'the Tribunal9] for the assessment years 2006-07,
2007-08 & 2008-09, whereby the Tribunal has set aside the order passed
by the Commissioner of Income Tax, (Appeals)-III, Bangalore (for short
the First Appellate Authority'), wherein the Appellate Authority by
its order dated 16-12-2011 upheld the order of Assessing Officer and
held that the respondent-assessee is not eligible for deduction under
Section 80-IA(4) of the Act.
2. The brief facts of the case are as follows:
The respondent-assessee is a Private Limited Company engaged in the
business of Outdoor Advertisement, Media Advertising and Development
of Infrastructure. The assessee filed the return of income claiming
deduction under Section 80-IA(4) of the Act, contending that the
assessee-Company is involved in infrastructure development. The
Assessing Authority issued notice under Section 142(2) of the Act
calling upon the assessee to substantiate their claim of deduction
under Section 80-IA(4) of the Act. The authorized representative of
the assessee made available the records and also contended that the
respondent-assessee entered into an agreement with local
self-Government i.e. Bruhath Bangalore Mahanagara Palike (for short
'the BBMF') for construction of bus-shelter, erection of lamp posts,
beautification of road medians, construction of the footbridge near
ISCKON temple and maintenance of the same. The expenditure incurred
for the same has to be recouped by utilizing these bus shelters, lamp
posts, road medians and footbridge, for their advertisement business.
Since the assessee-Company is involved in the development of
infrastructure, it is entitled for deduction under Section 80-IA(4) of
the Act.
2.1 The Assessing Officer after examining the matter in detail and
verifying the clauses of agreement entered into between the assessee
and the BBMP was of the view that construction of bus shelters,
installation and maintenance of street lights and beautification of
the center road medians is for earning income by putting up the
advertisement boards on the same which would not amount to
infrastructure development. The work carried on by the assessee is in
the nature of work contract. The income is derived by displaying
advertisement hoardings on the road medians, bus shelters and light
poles. Hence, the Assessing Authority by its order dated 31-12-2000
held that the assessee is not eligible to claim deduction under
Section 80-IA of the Act and by its order dated 13-12-2010 and
disallowed the claim of deduction of income tax.
2.2 Being aggrieved by the order passed by the Assessing Authority,
the respondent-assessee preferred an appeal before the First Appellate
Authority challenging the denial of deduction on various grounds. The
First Appellate Authority on verification of the contentions raised by
the respondent-assessee found that though the Memorandum of
Association of the respondent-assessee contains provision for
undertaking infrastructure development, the assessee is essentially an
advertisement company and has not invested huge funds on long term
construction activities. The work carried out by the
respondent-assessee is not in the nature of construction work referred
to in the Explanation to Section 80-IA (13) of the Act. Hence,
confirmed the order passed by the Assessing Authority and dismissed
the appeal by its order dated 16-12-2011.
2.3 The assessee being aggrieved by the order passed by the First
Appellate Authority preferred an appeal before the Tribunal. The
Appellate Tribunal by its order dated 30-04-2013, allowed the appeal
filed by the assessee holding that the assessee is eligible to claim
deduction under Section 80-IA(4) of the Act. The Tribunal was of the
view that a bus-shelter without a road would be of no use and
similarly a road cannot be useful without a bus-shelter and road
medians in between and safe for the commuters at night without proper
lighting. As per the clauses of the agreement, the assessee has the
obligation not only to provide the facilities by constructing
bus-shelters, road medians, erecting light poles, but also to maintain
the same for a particular period. Therefore, the assessee not only
build, but also operate and maintain the said facilities for the
stipulated period. Relying upon an unreported judgment of Kolkata
Bench in the case of M/S. Vantage Advertisement Private Limited the
Tribunal allowed the appeal and held that the assessee is entitled for
deduction under Section 80-IA of the Act.
2.4 Being aggrieved by the order passed by the Appellate Tribunal, the
Revenue has preferred these three appeals. With the consent of the
learned counsel for the parties, these appeals are taken up for final
disposal at the stage of admission itself to consider the following
substantial questions of law:
'(i) Whether the respondent-assessee is entitled to the benefit of
deduction under Section 80-IA of the' Income-tax Act, 1961?
(ii) Whether the business activity of the respondent-assessee would
fall within the ambit of the expression "Infrastructure Facility" as
occurred in Section 80-IA of the Income-tax Act, in particular the
Explanation appended to sub-Section (4) thereof?'
3. Sri. E.I. Sanmathi, learned counsel appearing for the appellants
submitted that the order passed by the Appellate Tribunal is contrary
to law. The assessee-company entered into an agreement with the local
authorities for the purpose of its business of advertising and taken
up the work of construction of bus-shelter, erection of light poles
and beautification of the road median only for the purpose of putting
up of their advertisement hoardings or to lease the space for
advertisement. The income derived from the said advertisement business
cannot be treated as income from the infrastructure development.
Reading of some of the clauses of agreement makes it very clear that
the business of the assessee will not fulfill the conditions
prescribed under Section 80-IA(4) of the Act and also explanation
thereunder. The agreement for developing, maintaining and operating is
only with regard to the infrastructure facility. The infrastructure
facility was defined under Section 80-IA(4) of the Act. As per the
Explanation to the said Section, "infrastructure facility" means: —
(a) a road including toll road, a bridge or a rail system;
(b) a highway project including housing or other activities being an
integral part of highway project;
(c) a water supply project, water treatment system, irrigation
project, sanitation and sewerage system or solid waste management
system;
(d) a port, airport, inland waterway.
The agreement entered into between the assessee with the local
authority will not fall under any of the infrastructure facility
enumerated under the Section. In the instant case, the assessee
entered into an agreement for construction of the bus-shelters, street
lights, road medians and footbridge in order to create ambience and
the brand of being IT hub. The assessee has to construct the
bus-shelters; beautify the road medians and erect street lights as per
the specifications for the limited period. The Corporation will not
spend any money for the same. The assessee is permitted to use the
said portion for the purpose of its advertising business and they can
lease the said portion for advertisement. The advertisement hoardings
must be as per the specifications for the period prescribed by the
local authorities. The income earned from the said business cannot be
treated as the income from infrastructure. He also relied upon the
following judgments in support of his contention: CIT v. Sterling
Foods [2009] 237 ITR 579/104 Taxman 204 (SC); Liberty India v. CIT
[2009] 317 ITR 218/183 Taxman 349 (SC) Unreported decision of this
Hon'ble High Court in ITA No.3253/2005 Disposed of on; 11.08.2011 CIT
v. Mayur Laminators [1995] 211 ITR 646/83 Taxman 406 (Raj.); State of
Jharkhand v. Ambay Cements [2005] 139 STC 74 (SC) State Level
Committee v. Morgardshammar India Ltd. [1996] 101 STC 1 (SC); Polestar
Electronic (P.) Ltd. v. Addl. CST. [1978] 41 STC 409 (SC) Falcon Tyres
Ltd. v. State of Karnataka [2006] 147 STC 466 (SC).
4. On the other hand, Sri Nageshwara Rao, learned counsel appearing
for the respondent-assessee argued in support of the order passed by
the Tribunal and contended that the assessee is a Private Limited
Company incorporated under the Companies Act. It has entered into an
agreement with the local authority for infrastructure development such
as construction of bus shelters, putting up of footbridge, beautify
the road medians and erecting street lights. The infrastructure
facility referred to in the Explanation to sub-section (4) of Section
80-IA is inclusive definition. A road includes toll road itself
suggests that the definition is inclusive definition and include
everything with regard to the road, bridges or railway system. Clause
(b) of the aforesaid definition wherein a highway project has been
defined to mean a project including housing or other activities being
an integral part of highway project. Therefore, it is important to
note the words used including' or other activities' which itself bring
out the intent of the legislature not to restrict the activities to
the few specified field. The infrastructure facility as used in the
Explanation to Section 80-IA(4) of the Act is wide enough to cover
entire activities of the road. The road without bus shelter is of no
use. Further, without the road median, the commuter cannot use the
said road safely. Without lighting facility, road cannot be used
properly. Due to the heavy traffic, construction of footbridge is very
much necessary. Hence, the construction of the busshelter, road
median, street lights and construction of the footbridges are the part
of infrastructure facility. The intention of the legislature is very
clear and wide enough to cover other activities with regard to road
also fall under the definition of 'infrastructure facilities'. Hence,
the assessee is entitled for deduction of its income earned under
Section 80-IA(4) of the Act. In support of his contention, he relied
upon the following judgments: CIT v. ABG Heavy Industries Ltd. [2010]
322 ITR 323/189 Taxman 54 (Bom.)CIT v. Gwalior Rayon Silk Mfg. Co.
Ltd. [1992] 196 ITR 149/62 Taxman 471 (SC)CIT v. Bangalore Turf Club
Ltd. [1984] 150 ITR 23/[1983] 15 Taxmann 221 (Kar.)Gujarat Industrial
Development Corpn. v. CIT [1997] 227 ITR 414/94 Taxman 64 (SC) CIT v.
Engine Valves Ltd. [1980] 126 ITR 347 (Mad.)Tamil Nadu Petro Products
Ltd., v. Asstt. CIT [2011] 338 ITR 643/202 Taxman 31/13 taxmann.com
139 (Mad.)Bajaj Tempo Ltd., v. CIT [1992] 196 ITR 188/62 Taxman 480
(SC)CIT v. Strawboard Mfg. Co. Ltd. [1989] 177 ITR 431/44 Taxman 189
(SC)CIT v. Mazagaon Dock Ltd. [1994] 206 ITR 260/72 Taxman 91
(Bom.)UCO Bank v. CIT [1999] 237 ITR 189/104 Taxman 547 (SC).
5. We have carefully considered the arguments addressed by the learned
counsel for the parties and perused the order impugned and the
relevant records.
6. The records clearly disclose that the assessee is a Private Limited
Company mainly engaged in the business of Outdoor Advertisement and
Media Advertising. The assessee has entered into an agreement with
BBMP on 31-03-2004, 11-07-2004 and 30-11-2004 agreeing to beautify the
road median from Dairy Circle to Central Silk Board and the assessee
is allowed to put up advertisement boards to recoup the expenditure
incurred for beautifying the road median. Further, an agreement was
also entered into for construction of 11 bus-shelters in different
locations. The bus-shelter shall be constructed as per the
specifications and the design supplied by the BBMP. The expenditure
incurred for construction of the bus-shelter has to be recovered by
the assessee by putting up advertisement hoardings. Further, as per
the agreement dated 11-07-2004, the assessee is permitted to install
and erect 199 poles providing street light in four roads and permitted
to install 199 lit kiosks of 4 ft. ×2 ft. (double sided) at the height
of 18 feet from the road, so as to recover the expenditure incurred
for putting up 199 poles. This agreement is for a limited period and
the assessee has to pay the ground rent and other local taxes.
Further, the assessee was also permitted to install footbridge near
ISCKON temple and to erect advertisement hoardings in order to recoup
the expenditure for putting up of the said footbridge. As per the
terms and conditions imposed by the BBMP, the assessee had put up the
bus shelter, beautifies the road median from Diary Circle to Central
Silk Board Circle and also put up the street lights in four roads;
constructed the footbridge and erected the hoardings for its business.
The agreement entered between the assessee and the BBMP, read as
under:
(i) Whereas BBMP who is the absolute owner of all the footpaths and
road within its jurisdiction, has in consultation with the Bangalore
City Police and Bangalore Metropolitan Transport Corporation
identified a critical need to erect bus shelters. Keeping in view the
aesthetic values, beautification of the city in general and commuter
benefits and interest particular and for that purpose has formulated a
scheme under which even a bus-shelter could be constructed by private
parties on the terms and conditions specified therein. The party of
the second part has approached with a proposal to erect bus-shelters
of the design specified by the first party.
(ii) find whereas under a third phase the first party had intended
to cause 11 bus shelters to be constructed in locations identified by
it as detailed in Annexure-A. And whereas the licensee had , offered
to participate in the third phase and has constructed bus shelters at
each of the location specified in Annexure-B in accordance with the
design - specifications detailed in Annexure-C.
Some of the clauses of the agreement read thus:
(1) The Licensee shall construct/erect the Bus-Shelters in
accordance with the specifications and design detailed in Annexure-C
any deviation shall be deemed to be a material breach of this
agreement.
(2) The period of license and permission granted hereunder will be
for a period of 11 months starting from the date specified for
completion as detailed at Clause-4.
(3) The period of completion for all the Bus-Shelters in accordance
with Annexure C was 60 . (sixty) days from the date of this agreement.
The completion certificate for each shelter is to be issued to the
Licensee from an engineer/team authorized by the Commissioner,
Bangalore Mahanagara Palike to do so provided the construction has
been in accordance with Annexure-C for adherence to design material,
equipment, structure specifications.
(4) The licensee will be at liberty to utilize the advertisement
space model-wise as specified below and more fully described in the
drawings:
Bus Shelter Model 'A' & 'C: The Advertisement right of the licensee
shall be limited to the space available on front side of the back
panel, not exceeding an extent of 4' x 15' (as shown in the drawing)
as also on both inside and outside faces of one side panel measuring a
maximum of 6' in height and 4' in width (as shown in the drawing). The
maximum advertisement space considering both back and side panel
together shall not exceed 108 sqfeet at any time.
Bus Shelter Model B: The advertisement right of the licensee will be
confined to the space available on front portion of the back panel of
the Bus Shelter measuring a maximum of 4' × 15' (as shown in the
drawing). The maximum advertisement space shall not exceed 86 sq. feet
at any time.
5. In addition to the License fee the Licensee shall pay all statutory
taxes cesses as applicable for in relation to the advertisement and or
advertisement space allotted in the Bus-Shelter as detailed in clause
6.
6. The Licensee shall-
(a) Maintain the bus-shelters floor, roof walls, etc., during the
period of this license, in a clean, hygienic and presentable manner.
(b) Forthwith replace/repair the Bus Shelter/s or any part thereof
upon any damage, loss breakage being noticed or reported or occurring.
(c) Construct and at all times maintain the Bus-Shelter/s in
accordance with Annexure 'C'
(d) Maintain in a clean, hygienic and usable condition the
dustbins, spittoons and other equipments, facilities provided by it at
the Bus-Shelters.
(f) Provide adequate lighting at the Bus-Shelters so as to ensure
public safety at all times.
(i) Initiate remedial action forthwith in respect of defects,
deficiencies brought to its notice by Bangalore Mahanagara Palike or
its authorized officials.
(m) Not to use the Bus-Shelters or permit their use for any purpose
other than as a Bus-Shelters.
(r) Ensure that all costs of constmction and maintenance of the
Bus-Shelters including costs of raw material, consumables, salaries,
expenses, electricity statutory deposits/advances, equipment
installation and replacement costs are paid and borne exclusively by
it.
(s) Not to collect from the public and/or users of Bus-Shelters any
fee, charge, and amount for use of the Bus-Shelters.
7. On expiry or termination of the license as never before stated the
Bus-shelter shall stand vested in Bangalore Mahanagara palike.
8. The EMD will be refunded after the satisfactory completion of the
license period and handing over the Bus Shelters in good and
Presentable conditions to Bangalore Mahanagara Palike by the licensee.
Street Lights
1. And whereas the First Party has intended to cause street lights on
4 roads to be erected and maintained as identified by it and as
detailed in Annexure-A and whereas the Licensee has submitted his
proposal on 29.3.2004 for.: installation and erection of 199 poles of
10 meter high M.S. Tubular Poles with under ground cabling and
maintenance of street lights against advertisement rights at the roads
specified in. Annexure-A in accordance with the design specifications
detailed in this Agreement.
Clauses:
1. The Licensor has granted permission to the Licensee to erect and
maintain the street lights against commercial advertisement at
allotted locations specified in Annexure-A in accordance with the
design, specifications and subject to limitations terms and conditions
specified in the Agreement.
2. Licensee shall maintain the street lights on the 4 roads against
commercial advertisement rights. Maintenance will include the
following.
(i) The lamp posts will be painted at least once in a year including
numberings intimated by the First party.
(ii) Replacement of fused bulbs will have to be done.
(iii) Repair works will be undertaken in case of any damage.
(iv) Repair/Replacement of fixtures including chokes, switches etc.,
whenever required.
3. The Licensee shall provide new 250 watt mental halide bulb whenever
the lights get 'Fused' on the above 4 roads mentioned. However,
Licensor will provide a vehicle to change the fused lights, whenever
such a demand is made.
4. The Licensee shall provide electrical 'Cut-outs' at his cost on all
the poles in order to isolate the problem, without disturbing bulbs on
other poles.
5. The Licensee shall return all the existing fixtures available on
the permitted 4 roads to the Licensor after executing the project.
However, the licensee will be permitted to utilize the existing cables
if in a usable condition in consultation with the First party.
6. The Licensee shall pay the electricity bills for electricity
consumed for advertisement boxes while the Licensor shall pay the
electricity bill for electricity consumed for the street lights.
7. The Licensor shall provide a NOC to enable the Licensor to obtain
electrical power from BESCOM to illuminate the advertisement boxes.
8. The Licensee shall pay the prescribed road cutting charges to the
concerned officer of BMP. The licensee shall restore footpaths to the
existing condition after erection of the street poles.
9. The Licensee shall be exclusively entitled to the revenue generated
by the display of commercial advertisement of the Kiosks installed in
the lamp posts.
10. The completion certificate for the maintenance of street lights
will be issued to the Licensee by the concerned Executive Engineer
(Electrical) authorized by the Commissioner, Bangalore Mahanagara
Palike.
11. On expiry of the contract the Licensee shall handover the lamp
poles to Bangalore Mahanagara Palike with all fixtures including lit
kiosks, etc.,
MEDIANS:
1. Whereas the Bangalore Mahanagara Palike is the absolute owner of
all the medians and road within its jurisdiction. Keeping in view
aesthetic values, beautification of the city in general and commuters
benefits and interest in particular a scheme has been formulated under
which the even medians could be beautified by private parties on Terms
and Conditions specified therein:
Clauses:
1. The Licensor has granted permission to the licensee to beautify
the median at allotted locations specified in Annexure - B in
accordance with the designs, specifications and subject to
limitations, terms and conditions specified in the agreement.
2. The Licensee shall beautify the median in accordance with the
specifications and design detailed in the agreement and any deviation
shall be deemed to be a material breach of this agreement.
3. The Licensee has designed the median with the following
specification more fully described in agreement.
4. The Licensee is allowed to install double side, illuminated glow
sign boxes of size 4'×2' at intervals of 100 feet in the median, for
displaying commercial advertisements of their clients. The revenue so
generated will accrue exclusively to the Licensee.
5. Licensee shall beautify the medians in consultation with the
concerned Horticultural Superintendent (South) as indicated below.
* Mexican grass, Bermuda grass and Shade grass, Shade grass is
generally planted under flyovers.
* In some places flowering shrubs should be planted to make median
more colourful and attractive.
* Waterfalls fountains and cascades with illumination shall be installed.
* 2 inch gauge ornamental grills of suitable height shall be installed
both sides of the medians.
7. The assessee filed return of income claiming deduction under
Section 80-IA(4) of the Act contending that it has constructed bus
shelters, beautified the road median, put up the street lights and
constructed footbridge which is the part of the infrastructure
development and is entitled for deduction under Section 80-IA(4) of
the Act. Section 80-IA was enacted by the Government in order to give
encouragement to the private industries who are involved in
infrastructural development. The CBDT circular No.717 dated
14.08.1995, reads as under:
34.2 Industrial modernization requires a massive expansion of, and
qualitative improvement in infrastructure. Our country is very
deficient in infrastructure such as expressways, highways, airports,
ports and rapid urban rail transport systems. Additional resources are
needed to fulfil the requirements of the country within a reasonable
time frame. In many countries the BOT (build-operate-transfer) or the
BOOT (build-own-operate-transfer) concepts have been utilized for
developing new infrastructure.
34.3 Applying commercial principles in the operation of infrastructure
facilities can provide both managerial and financial efficiency. In
view of this, a ten-year concession including a five-year tax holiday
has been allowed for any enterprise which develops, maintains and
operates any new infrastructure facility such as roads, highways,
expressways, bridges, airports, ports and rail systems or any other
public facility of similar nature as may be notified by the Board on
BOT or BOOT or similar other basis (where there is an ultimate
transfer of the facility to a Government or public authority). The
enterprise has to enter into an agreement with the Central or the
State Government or a local authority or any other statutory authority
for this purpose. The period within which the infrastructure facility
has to be transferred needs to be stipulated in the agreement between
the undertaking and the Government concerned. The enterprise has to be
owned by a company registered in India or a consortium of such
companies. The tax holiday will be in respect of income derived from
the use of the infrastructure facilities developed by them."
8. Section 80-IA reads as under for the better understanding of the provision:
"Section 80-IA: Deductions in respect of profits and gains from
industrial undertakings or enterprises engaged in infrastructure
development, etc.— (1) Where the gross total income of an assessee
includes any profits and gains derived by an undertaking or an
enterprise from any business referred to in sub-sec. (4) (such
business being hereinafter referred to as the eligible business),
there shall, in accordance with and subject to the provisions of this
section, be allowed, in computing the total income of the assessee.
(2), (3) ** ** **
(4) This section applied to
(i) any enterprise carrying on the business of (i) developing or
(ii) operating and maintaining or (ii) developing, operating and
maintaining any infrastructure facility which fulfils all the
following conditions, namely:—
(a) it is owned by a company registered in India or by a consortium
of such companies (or by an authority or a board or a corporation or
any other body established or constituted under any Centre or State
Act;)
(b) it has entered into an agreement with the Central Government or
a State Government or a local authority or any other statutory body
for (i) developing or (ii) operating and maintaining or (iii)
developing, operating and maintaining a new infrastructure facility;
(c) it has started or starts operating and maintaining the
infrastructure facility on or after the 1st day of April, 1995:
Provided that where an infrastructure facility is transferred on or
after the 1st day of April, 1999 by an enterprise which developed such
infrastructure facility (hereafter referred to in this section as the
transferor enterprise) to another enterprise (hereafter in this
section referred to as the transferee enterprise) for the purpose of
operating and maintaining the infrastructure facility on its behalf in
accordance with agreement with Central Government, State Government
local authority or statutory body, the provisions of this section
shall apply to the transferee enterprise as fit were the enterprise to
which this clause applied and. the deduction from profits and gains
would be available to such transferee enterprise for the unexpired
period during which the transferor enterprise would have been entitled
to the deduction, if the transfer had not taken place. '
(Explanation — For the purpose of this clause, 'infrastructure facility 'means—
(a) a road including toll road, a bridge or a rail system; '
(b) a highway project including housing or other activities being an
integral part of the highway project;
(c) a water supply project, water treatment " system, irrigation
project, sanitation and sewerage system or solid waste management
system;
(d) a port, airport, inland waterway (inland port or navigational
channel in the sea);
To avail the benefit under Section 80-IA(4), the assessee has to
fulfil the following conditions:
(a) the assessee must be running an eligible business of
developing, operating and maintaining or operating and maintaining any
infrastructure facility as defined by the Section and clarified by the
circular;
(b) The assessee must have ability to transfer the facility to the
Government at a future date in terms of the agreement;
(c) The facility should help industrial modernization: by serving to
expand the infrastructure i.e. major items, such as highway, express
highway, airports, port and railway system;
(d) The deduction shall be of the incomes, derived from the use of
the infrastructure facilities developed."
9. Further, the "Infrastructure Facility" is defined under Explanation
to Section 80-IA(4) of the Act. The infrastructure facility means, a
road including a toll road, a bridge or a railway system. Thus, in
order to claim benefit under Section 80-IA(4) of the Act the business
of the respondent-assessee is required to be that of developing an
infrastructure facility and derive income from use of the said
infrastructure facility developed by them.
10. In the instant case, reading of the agreement entered into by the
assessee with BBMP clearly reveals that the assessee was only a
licensee for putting up 11 bus shelters at various places, beautifying
the road medians at Diary Circle, putting up 199 light poles in four
roads; construction of the footbridge near ISCKON temple and
maintaining the same for the specified period. The assessee was
permitted to erect advertisement hoardings to recoup the expenditure
for putting of the same. No ownership or other right accrued to it
apart from the license to earn revenue from the advertisements placed
on these structures. Duration of the agreement shows that the
arrangement is only for a temporary period. The income is derived only
from the advertisement and not from the income from infrastructure
development. The Assessing Officer after looking into the agreement
entered into between the parties and taking into consideration the
provision of Section 80-IA came to a conclusion that the work carried
on by the assessee will not come under the "Infrastructure
Development" and accordingly, denied the benefit under Section
80-IA(4) of the Act. The said order was confirmed by the First
Appellate Authority. However, The Appellate Tribunal set aside the
order passed by the First Appellate Authority and held that the
assessee not only built bus shelters, road medians, street lights, but
also maintained the same for a specified period as per the agreement.
Hence, the infrastructure work carried out by the assessee falls under
the definition of Section 80-IA(4) and entitled for deduction. The
said order was questioned by the Revenue.
11. Sri. E.I. Sanmathi, learned counsel appearing for the appellants
contended that the word income' derived from eligible business
referred to in Section 80-IA is the income derived by developing,
operating and maintaining a road including toll road, bridge or rail
system. However, the assessee has only beautified the existing road
and put up the bus shelter as per the permission granted by the BBMP
for its advertisement business. The main income derived is not from
construction of bus shelters it has developed, but from the
advertisement. The work carried on by the assessee do not fall under
the definition of infrastructure development. In other words, to claim
deduction under Section 80-IA, the assessee has to earn from the
activities which amount to infrastructure development which are
prescribed specifically in the Explanation to the aforesaid provision.
Basically, the assessee is only an advertising company involved in
outdoor and media advertising and it has no experience of civil
construction. As per the agreement entered into between the assessee
and BBMP, the said work was entrusted to the assessee in order's to
enhance the aesthetic beauty of the road divider, and expenditure
incurred for the said work has to be recouped by erecting
advertisement hoardings. By no stretch of imagination, the income
derived from the advertisement hoardings can be treated as income
earned from the infrastructure development. In support of his
contention, he relied upon the judgments reported in Sterling Foods
(supra); in the case of Liberty India (supra); and in the case of
Pandian Chemicals v. CIT [2003] 263 ITR 378/130 Taxman 254 (Raj.)
12. The Hon'ble Supreme Court in a judgment reported in Ambay Cements
(supra) held that the exemption clause should be strictly construed
and if the conditions under which the exemption granted is violated or
changed on account of any subsequent event, the exemption would not
operate. Para 24 of the judgment reads as under:
"In our view, an exception or an exempting provision in a taxing
statute should be construed strictly and it is not open to the court
to ignore the conditions prescribed in the industrial policy and the
exemption notifications.
In our view, the failure to comply with the requirements renders the
writ petition filed by the respondent liable to be dismissed.
While mandatory rule must be strictly observed, substantial compliance
might suffice in the case of a directory rule.
Whenever statute prescribes that a particular act is to be done in a
particular manner and also lays down that failure to comply with the
said requirement leads to severe consequences, such requirement would
be mandatory. It is the cardinal rule of the interpretation that where
a statute provides that a particular thing should be done, it should
be done in the manner prescribed and not in any other way. It also
well-settled rule of interpretation that where a statute is penal in
character, it must be strictly construed and followed".
13. In the instant case, the exemption under Section 80-IA is subject
to fulfilment of Section 80-IA(4). The infrastructure facility' has
been explained in the explanation. It applies to a road including the
toll road or a bridge. That infrastructure facility is of permanent in
nature and not temporary construction of bus-shelters, beautification
of road median and erection of light poles and temporary construction
of footbridge.
14. The Guahati High Court in a judgment reported in Asstt CIT v.
Ranglal Rameswar Saraugi [1978] 41 STC 408 while interpreting the
sales tax statute held that when the court is construing a statutory
enactment, the intention of the legislature should be gathered from
the language used by it and it is not permissible for the court to
speculate about the legislature intent. If the language of statue is
clear and explicit effect must be given to it. The relevant paragraph
of the judgment reads as under:
'A statutory enactment must ordinarily be construed according to the
plain natural meaning of its language and no words should be added,
altered or modified unless it is plainly necessary to do so in order
to prevent a provision from being unintelligible, absurd,
unreasonable, unworkable or totally irreconcilable with the rest of
the statutes. This rule of literal construction is firmly established
and it has received judicial recognition in numerous cases.
Where there are two expressions which might have used to convey a
certain intention, but one of those expressions will convey that
intention more clearly than other, it is proper to conclude that, if
the legislature use that one of the two expressions which would convey
. the intention less clearly, it does not intend to . "convey that
intention at all. If the language of a statute is clear and explicit,
court must give effect to that."'
15. In a judgment reported in the case of CIT v. Mayur Laminators
[1995] 211 ITR 646/83 Taxman 406 (Raj.), the Rajasthan High Court held
as under:
"The burden is on the assessee when a deduction is claimed by him to
prove that he is entitled to the said deduction. The object of Section
80J of the Income-tax Act may be for the industrial growth, but the
relief can be given only when the assessee falls within the four
corners of law.. On an interpretation which is not supported by law,
the scope of this Section cannot be enlarged. The assessee cannot be
entitled to the relief in accordance with this Section and if the
assessee does not fall within the purview of the exemption, then for
the purpose of beneficent legislation, the extended meaning cannot be
given."
16. To avail the benefit under Section 80-IA i.e. infrastructure
facility under which the enterprises shall carry on the business of
(i) developing or (ii) operating and maintaining or (iii) developing,
operating and maintaining any infrastructure facility which fulfil the
conditions enumerated under sub-Section 4 of Section 80-IA of the Act.
From the reading of some of the clauses of the agreement entered into,
in the instant case, between the assessee and the BBMP, it is very
clear that the assessee has to beautify the road medians of existing
roads and put up hi-tech bus-shelters using the modern techniques and
material for construction of bus-shelters which in any case cannot be
treated as erection/development of permanent infrastructure. At the
most, it can be treated as a temporary structure which can be either
removed or shifted without any difficulty and hassle. Development of
such temporary structure cannot be termed or treated as permanent
infrastructure development as contemplated by Section 80-IA of the
Act. The Explanation of Section 80-IA make it clear, what
infrastructure facility means. In the present case the assessee for
erecting bus-shelters has to deposit EMD amount with the BBMP and only
after expiry of term of lease, EMD amount will be refunded. One of the
requirements of the infrastructure facility is that income has to be
derived from the infrastructure developed by the developer. In the
instant case, the BBMP imposed a condition that the assessee shall not
collect any money from the user of the bus-shelters as well as the
footbridge. There is no income from the development of infrastructure
apart from income from the advertisement business.
17. On the other hand, Sri. Nageshwar Rao, learned counsel appearing
for the assessee contended that the Explanation clause of Section
80-IA of the Act is that "a road including toll road" which itself
suggests that the definition is inclusive; and not exclusive
definition. The word used is "including" or "other activities" itself
brings out the intention of the legislation to not to restrict the
activities to a few specified field. The legislature do not intend to
narrow down the meaning of "infrastructure facility" as used in the
Explanation to Section 80-IA(4) of the Act. The legislature has
intended to give benefit under Section 80-IA to the activities carried
on in relation to road including toll road, bridge or railway system.
The road shall not be treated as toll road alone, it may be a road
within the city of Municipal Corporation. The intention of the
legislature while defining the term "infrastructure facility is not to
narrow down the scope of benefit granted under the Section and to
grant it even to a developer, like the assessee who is bona fidely
involved in development, operation and maintenance of structures like
bus-shelters, which would not fall in the category of infrastructure
facility' as contemplated by Section 80-IA of the Act. The assessee,-
in the present cases, has developed bus-shelters on the road,
beautified the road divider, put up street lights and maintained the
same as per the agreement entered into between the parties.
Thereafter, handed over the same to BBMP. Hence, the activities
carried on by the assessee has to be treated as development and not
infrastructure facility as contemplated by the explanation of Section
80-IA of the Act. In (CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR
323/189 Taxman 54 (Bom.) the supply and installation of Crane in a
Port was included within the purview of expression "infrastructure
facility.
18. It is relevant to note that Central Board of Direct Taxes in its
Circular No.793 dated 23-06-2000, on the representation received with
regard to the definition of "Port" as infrastructure facility
clarified as under:
'The Board has considered the matter and it has decided that such
structure will be included in the definition of the "Port" for the
purpose of Section 10/(23) (Guarantor) and 80-IA for the Income-tax
Act, 1961 if the following conditions are fulfilled:
(a) The concerned Port Authority has issued a certificate to that
the said structure form part of the Port and
(b) Such structure have been built under BOT and BOLT scheme and
there is an agreement that the same would be transferred to the said
authority on the expiry of the time stipulated in the agreement.
Hence, the judgments relied upon by the learned counsel for the
assessee referred to above is not applicable to the facts of the
present case.'
19. It was further contended on behalf of the assessee that a
provision in taxing statute granting incentives for promoting growth
and development should be construed liberally, relying upon the
judgment reported in Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62
Taxman 480 (SC). The relevant paragraph read thus:
"Denying benefit to such undertaking could not have been intended when
the very purpose of Section 15C was to encourage industrialization. It
was for this reason that various High Courts evolved the test of
commercial expediency or substantial involvement valued in terms of
money etc., to interpret this clause. Adopting a literal construction
in such cases would have resulted in defeating the very purpose of
Section 15C. Therefore, it becomes necessary to resort to a
construction which is reasonable and purposive to make such provision
meaningful."
This contention of the respondent-assessee cannot be acceptable. The
benefit under Section 15C of the Act cannot be compared with the
benefit under Section 80-IA(4) of the Act. Under Section 80 IA(4), the
Government of India in order to encourage the Private Sectors to
participate in the development . of infrastructure has given benefit
under the said scheme, the private entrepreneur has to develop,
operate and maintain the said infrastructure. The income derived from
the said infrastructure is only exempted under Section 80-IA(4) of the
Act. The judgment relied upon by the assessee is not applicable to the
present case.
20. On careful examination of facts before us, we find that the
assessee in the present cases though has erected bus-shelters,
beautified the road median, erected street lights and footbridge in
the specified place as 'per the specifications and erected
advertisement hoardings for earning income from the said advertising
business, it cannot be treated as infrastructure facility as explained
in the Explanation of Section 80-IA of the Act. It was not an
engineering or construction company that puts up public
infrastructure. The assessee, which, eventually is an advertising
company, is interested only to find out the best space at the best
locations for advertisements. The assessee does not claim that he has
any experience of raising/erecting infrastructure facility as
contemplated by the Explanation of Section 80-IA of the Act. Thus the
activities indulged by the assessee are part of its normal activities
of advertising and publicity rather than one of infrastructure
development. The business activities of the assessee do not involve
(a) Development (b) Operating; and (c) Maintenance. For the purpose of
its business, the assessee has taken up erection/construction of
bus-shelter for its advertisement business. The circular issued by the
CBDT makes it clear that the income eligible for deduction has to be
arisen from the use of facility, for example, collection of toll from
the road users. The said income has to be treated as income derived
from the infrastructure facility. In the instant case, the assessee
derives income only from the advertisement hoardings erected on the
bus-shelters, road medians and the street light poles. Hence, the said
income cannot be treated as income derived from the "infrastructure
facility. The income earned by the assessee do not fall under Section
80-IA(4). We find that the order passed by the Tribunal is contrary to
the intendment of the Act.
The benefit under Section 80-IA can be extended only to those
assessees who have developed infrastructure facility as defined under
sub-Section (4) of Section 80-IA. In the instant case, the assessee
has not developed road or a toll road, bridge, highway or a rail
system.
However, it has developed the existing road median, erected
bus-shelters and light poles for its advertisement business, which, in
any case cannot be treated as infrastructure development. The order
passed by the Tribunal cannot be sustainable. The judgment relied upon
by the assessee is not applicable to the facts of the present case.
Accordingly, the questions of law in these appeals are held in favour
of the Revenue and against the assessee. Hence, we pass the following:
ORDER
All the three appeals are allowed. The order passed by the Tribunal is
set aside and the order passed by the authorities below are up held.
RITESH
*In favour of revenue.
†Arising out of IT Appeal Nos. 263, 930 & 931 (Bang.) of 2012, dated 30-4-2013.
*2014-TIOL-188-HC-AHM-IT*
*IN THE HIGH COURT OF GUJARAT*
*AT AHMEDABAD*
*Tax Appeal No.413 of 2013*
*DEEPKIRAN FOODS PVT LTD*
*Vs*
*ASSTT COMMISSIONER OF INCOME TAX RANGE-1*
*Akil Kureshi And Sonia Gokani, JJ*
*Dated : January 28, 2014*
*Appellant Rep by: *Mr Manish J Shah, Adv.
*Respondents Rep by: *Mr M R Bhatt, Sr Adv. With Mrs Mauna M Bhatt, Adv.
*Income Tax - Section 10B - EOU - manufacture - Whether when the assessee,
engaged in exports, outsources the preparation of food items and does not
supply any raw materials to its jobworkers, it can even then claim Sec 10B
benefits.*
*The* assessee company is engaged in the business of manufacturing and exporting of food items such as mathia, chorafali, paratha and other tandoor items. It had claimed benefit u/s 10B. The Revenue contested the claim on various grounds including that the assessee cannot be stated to be manufacturing or producing an article or thing. On appeal, Tribunal split the issue in two parts. Insofar as the majority of the claims of the assessee for deduction was concerned, the plea was accepted holding that the assessee had a manufacturing unit in Kandla Special Economic Zone which was a 100% EOU. The food items manufactured by the assessee thus would
qualify for such deduction. The Tribunal held that the assessee was an industrial undertaking and was engaged in manufacturing or producing article or thing when it produced different food preparations. To a limited extent when the assessee did not itself undertake such manufacturing activity, but claimed to had outsourced it, the Tribunal had not accepted the assessee's claim for deduction. The assessee contended that after receiving such items like mathia and chorafali from the outsourced agencies in bulk packaging, assessee undertook the process of sorting out and then
packing the same in consumer packets and thereafter freezing it to minus 180C in deep storage freezer for increasing its shelf life. This according to the assessee amounted to manufacturing activity. The Tribunal, however, was unmoved. On the premise that the breakup of the profit earned from outsourced items was not available, the Tribunal placed the matter back before the AO for the limited purpose to determine the profits of the items manufactured by the assessee and to exclude that from the outsourced items.
Before the HC, the assesee's counsel vehemently contended that Tribunal committed a serious error. The assessee, in addition to manufacturing food items itself, in order to expand its business, outsourced part of its manufacturing activity. Even after receiving prepared items, the assessee undertook detailed exercise of sorting, packing and storing the items in below frozen temperature. Reliance was placed by the counsel for the appellant on a decision of the HC in the case of CIT v. Prabhudas Kishordas Tobacco Products (P) Ltd., *(2006-TIOL-181-HC-AHM-IT) <http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=38&filename=legal/hc/2006/2006-TIOL-181-HC-AHM-IT.htm>*
. On the other hand, the Revenue's counsel opposed the appeal contending that the Tribunal had come to a factual finding that the assessee did not undertake any manufacturing activity on the outsourced items. Section 10B deduction was available to an exporter who manufactures or produces articles or things.
*Held that,*
*++ part of the exports of the assessee comprised of snack items such as,cholafali, mathia, etc. which was not manufactured by the assessee but the manufacturing activity was outsourced. The question therefore is whether for export of such items, deduction under section 10B of the Act would be available. Section 10B of the Act applies to any industrial undertaking which manufactures or produces articles or things and exports it.Admittedly, in the present case, the snacks were manufactured by the suppliers of the assessee and no manufacturing activity was done by the assessee till the stage of preparation of such items. If some follow up action is taken for packing and storing the same would not partake the
character of activity amounting to manufacturing or producing an article or
thing;*
*++ in the present case, the facts are very different. The assessee was not involved at any stage of manufacture of an article or thing. Even the raw material for preparation of the items was not procured and supplied by the assessee. For any food preparation, raw material itself is of great importance. In snack items under consideration, dough, oil, etc. would play a major role in deciding its quality and taste. The assessee did not involve itself even in procuring such basic material and the assessee's stand that it was only the preparation work which was outsourced and the assessee was all along involved in the manufacturing activity through supervision cannot be accepted.* *Counsel for the assessee relied on the report of the officer of the Company who had reported that the manufacturing activity was undertaken by one of the contractors in a
satisfactory manner. In our opinion, this in isolation would not be
sufficient to establish that the assessee was engaged in the manufacturing activity directly. The Tribunal having come to a factual finding, we do not see any scope of interference. In the result, the Tax Appeal is dismissed.*
*Assessee's appeal dismissed*
*JUDGEMENT*
*Per: Akil Kureshi:*
Assessee has filed this Tax Appeal calling in question the judgment of the
Income Tax Appellate Tribunal dated 14.12.12 raising following question for
our consideration:
*"Whether on the facts and in the circumstances of the case, the Tribunal
was right in law in holding that the appellant was not a
manufacturer/producer of Mathia and Chorafali and therefore, was not
entitled to sec.10B relief in respect of profits therefrom?"*
2. This appeal concerns the assessment year 2008-09. The assessee was
engaged in the business of manufacturing and exporting of food items such
as mathia, chorafali, paratha and other tandoor items. The assessee claimed
benefit under section 10B of the Income Tax Act, 1961. The Revenue
contested the claim on various grounds including that the assessee cannot
be stated to be manufacturing or producing an article or thing.
3. Ultimately when the issue reached the Tribunal, by the impugned
judgment, the Tribunal split the issue in two parts. Insofar as the
majority of the claims of the assessee for deduction was concerned, the
plea was accepted holding that the assessee had a manufacturing unit in
Kandla Special Economic Zone which was a 100% EOU. The food items
manufactured by the assessee thus would qualify for such deduction. The
Tribunal held that the assessee is an industrial undertaking and is engaged
in manufacturing or producing article or thing when it produced different
food preparations.
4. To a limited extent when the assessee did not itself undertake such
manufacturing activity, but claimed to have outsourced it, the Tribunal did
not accept the assessee's claim for deduction. The assessee contended that
after receiving such items like mathia and chorafali from the outsourced
agencies in bulk packaging, the assessee undertook the process of sorting
out and then packing the same in consumer packets and thereafter freezing
it to minus 180C in deep storage freezer for increasing its shelf life.
This according to the assessee amounted to manufacturing activity. The
Tribunal, however, was unmoved. The Tribunal considered this issue in
following manner:
*"From the flow chart of manufacturing process in the case of
"Mathia"/"Chorafali" submitted by the Ld.A.R. We find that the process id
described as under:*
*"Receiving of "mathia" / "Chorafali" in bulk packaging from supplier in
the production area, thereafter the process of sorting takes place and then
packing in consumer packs and thereafter freezing to -180C in deep storage
freezer.*
*Thus from the flow chart it appears that in the case of "mathia" and
"chorafali" the assessee does repackaging. Further from the details of
sales submitted by the assessee we find that the sales includes sale of
"coriander leaves", "chorafali", "custard apple pulp" "magaj ladu", "IQF
shredded coconut" and "misc. items". From the details it appears that the
aforesaid items are sourced ready made and not manufactured in the factory
of assessee. The total sales of such items as per the summary is
Rs.85,68,942/-. We are of the view that for the aforesaid items which have
been outsourced and not manufactured in the premises of the assessee but
have only been repackaged with some other connected activities at the
assessee's premises cannot be considered to be a manufacturing activity by
the assessee."*
5. In the result, on the premise that the breakup of the profit earned from
outsourced items was not available, the Tribunal placed the matter back
before the Assessing Officer for the limited purpose to determine the
profits of the items manufactured by the assessee and to exclude that from
the outsourced items.
6. Learned counsel Shri J.P.Shah for the appellant vehemently contended
that the Tribunal committed a serious error. The assessee, in addition to
manufacturing food items itself, in order to expand its business,
outsourced part of its manufacturing activity. Even after receiving
prepared items, the assessee undertook detailed exercise of sorting,
packing and storing the items in below frozen temperature. Heavy reliance
was placed by the learned counsel for the appellant on a decision of this
Court in the case of *CIT v. Prabhudas Kishordas Tobacco Products (P) Ltd.,
282 ITR 568 (Guj.) = (2006-TIOL-181-HC-AHM-IT)
<http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=38&filename=legal/hc/2006/2006-TIOL-181-HC-AHM-IT.htm>*
.
7. On the other hand, learned counsel Shri Manish Bhatt for the Revenue
opposed the appeal contending that the Tribunal had come to a factual
finding that the assessee did not undertake any manufacturing activity on
the outsourced items. Section 10B deduction is available to an exporter who
manufactures or produces articles or things.
8. Having heard the learned counsel for the parties and having perused the
documents on record, it clearly emerges that part of the exports of the
assessee comprised of snack items such as, cholafali, mathia, etc. which
was not manufactured by the assessee but the manufacturing activity was
outsourced. The question therefore is whether for export of such items,
deduction under section 10B of the Act would be available. Section 10B of
the Act applies to any industrial undertaking which manufactures or
produces articles or things and exports it. Admittedly, in the present
case, the snacks were manufactured by the suppliers of the assessee and no
manufacturing activity was done by the assessee till the stage of
preparation of such items. If some follow up action is taken for packing
and storing the same would not partake the character of activity amounting
to manufacturing or producing an article or thing.
9. The decision of this Court in the case of Prabhudas Kishordas Tobacco
Products (P) Ltd. (supra) was rendered in vastly different fact situation.
The assessee therein was engaged in preparation of beedies. It procured raw
materials such as, tendu leaves and tobacco and supplied it to workers for
rolling beedies. It was in this context, the Court held that the activity
amounted to manufacturing article or thing. It also referred to outsourcing
of the work of rolling beedies as incidental and observed that whether the
assessee carries manufacturing itself or certain process gets done outside
would not make any difference. The Court relied on the observations of this
Court in the case of *CIT v. V.B.Narania & Co. , 252 ITR 884 (Guj.)* wherein
it was observed that the real test for deciding whether the contract is one
of employment is to find out whether the agreement is for the personal
labour and if so, the contract is one of employment, whether the work is
time-work or piece work, or whether the employee did the whole of the work
himself or whether he obtained the assistance of other persons also. It
was, therefore, observed that merely because the assessee gets the work
done through contract workers, in other words, enters into a contract with
the workers and pays them on per piece basis, the relief cannot be denied.
10. In the present case, the facts are very different. The assessee was not
involved at any stage of manufacture of an article or thing. Even the raw
material for preparation of the items was not procured and supplied by the
assessee. For any food preparation, raw material itself is of great
importance. In snack items under consideration, dough, oil, etc. would play
a major role in deciding its quality and taste. The assessee did not
involve itself even in procuring such basic material and the assessee's
stand that it was only the preparation work which was outsourced and the
assessee was all along involved in the manufacturing activity through
supervision cannot be accepted.
11. Learned counsel for the assessee relied on the report of the officer of
the Company who had reported that the manufacturing activity was undertaken
by one of the contractors in a satisfactory manner. In our opinion, this in
isolation would not be sufficient to establish that the assessee was
engaged in the manufacturing activity directly.
12. The Tribunal having come to a factual finding, we do not see any scope
of interference.
In the result, the Tax Appeal is dismissed.
--
Regards,
*Pawan Singla ,** LLB*
*M. No. 9825829075*
Kiran Grover, New Delhi vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'D' : NEW DELHI)
SHRI R.K. GUPTA, JUDICIAL MEMBER
and
BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER
ITA Nos.4413 to 4418/Del./2011
(Assessment Years : 2001-02 to 2006-07)
Ms. Kiran Grover, vs. DCIT, Central Circle 25, C/o Vinod Kumar Bindal & Co., New Delhi. Shiv Sushil Bhawan,
D-219, Vivek Vihar Phase - I,
New Delhi - 110 095.
(PAN : AEUPG1762K)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Sanjeev Bansal, CA
REVENUE BY : Shri D.K. Mishra, CIT DR
ORDER
PER B.C. MEENA, ACCOUNTANT MEMBER :
These six appeals filed by the assessee emanates from the order of CIT
(Appeals)-I, New Delhi dated 12.08.2011 for the Assessment Years 2001-02
to 2006-07.
2. The assessee is an individual and partner in M/s. Leela Enterprises and
M/s. Super Advertising Agency. A search and seizure operation was carried
out u/s 132 of the Income-tax Act, 1961 on 22.11.2006 at the residence of the
assessee. Certain documents / loose papers were found and seized. Notices
u/s 153A were issued and the assessee filed the return of income declaring 2 ITA Nos.4413 to 4418/Del./2011
additional income from business which was not disclosed in the original
return of income. The assessments were finalized at the income declared in
the returns of income filed u/s 153A of the Income-tax Act, 1961. The
penalty proceedings u/s 271(1)(c) were initiated for the additional income
declared in the return of income. The penalties u/s 271(1)(c) are levied for all
these years. The details of Assessment Year, Additional income declared,
Total income, Assessed income and amount of penalty levied u/s 271(1)(c)
for all these six Assessment Years are as below :-
Assessment Income Total Assessed Penalty u/s Year declared declared Income (Rs.) 271(1)(c) additionally income (Rs.)
(Rs.)
2001-02 4,65,827 6,66,130 6,66,130 1,63,507 2002-03 53,171 2,48,870 2,48,870 16,270 2003-04 13,98,032 16,57,160 16,57,160 4,51,404 2004-05 2,61,629 5,35,840 5,35,840 88,989 2005-06 1,28,519 4,39,100 4,39,100 39,328 2006-07 7,32,063 9,96,930 9,96,930 2,24,014
3. Against this order, assessee is before us in appeal in all these years.
The CIT (A) has confirmed the penalty by holding as under :-
"7. I have gone through the submission filed by the appellant and the main contention of the appellant are that the provisions of Explanation 5 to section 271(1)(c) are not applicable in a search carried out between 1.06.03 to 31.05.07 and secondly the said explanation is applicable only in respect of assets representing undisclosed income found in search and not on undisclosed income declared on the basis of entries recorded in those documents/papers found during the search.
8. The contention of the appellant that Explanation 5 had no application between the period 01.06.03 to 31.05.07 is not acceptable because the appellant has ignored this fact that the 3 ITA Nos.4413 to 4418/Del./2011
case of the appellant falls within the general provisions of section 271 (1)( c) as well as Explanation 5 to this section. The appellant has nowhere in his submission has able to rebut the fact that its case does not fall within the general provisions of section 271 (1)(c).
9. The fact that the income surrendered by the appellant was on the basis of the documents / papers found during the search is not in dispute. In such a situation, not withstanding the fact that such income is declared by him in any return of income furnished on or after the date of the search, he shall for the purposes of section 271 (1)( c), be deemed to have concealed the particulars of his income or furnished in accurate particulars of such income except in cases were such transactions resulting in such income are recorded in the books of accounts maintained by him before the date of search. In order to avoid falling within the provisions of section 271 (1)( c) the appellant not only has to establish that Explanation 5 is not applicable to the facts of this case, but he has also to establish that he does not fall within the entire provisions of section 271 (1)(c). In Pradip Chandulal Patel v. P.G.Karode [(1992) 197 ITR 385, 398 (Guj), it has been held that, in passing an order under section 132(5), the Officer was right in coming to the conclusion that, independently of the said Explanation 5, penalty was imposable under section 271(1)(c).
10. The appellant has further stated in para 4.4 that the appellant has furnished new returns and the old assessments stand cancelled and because filing of due returns mandatory the income shown in such return filed u/s 153A cannot be regarded as such kind of admission on part of the appellant. This contention of the appellant does not absolve it of concealment of income and furnishing inaccurate of income. In the return filed u/s l53A the income shown is a result of the search which the appellant shows on the basis of the documents found during the search. Thus the disclosure cannot be regarded as voluntary or suo-mota. "In CIT v Aboo Mohmed [(2000) 160 CTR (Karn) 128, 129, 130], the Tribunal has been held not right in law in holding that the assessee has not concealed particulars of income, as concealment has to be considered with reference to the return of income filed by the assessee, when the assessee has filed the return of income after seizure of cash from the assessee 4 ITA Nos.4413 to 4418/Del./2011
by the Customs and Central Excise and its seizure by the I.T Department u/s132A. This is so because the assessee has himself failed to prove the source and the acquisition of the that money and ultimately has offered the amount for taxation. " Reliance is also placed on the following judgements;
1. In the case of Sangam Enterprises v. Commissioner of Income-tax (Alld) 288 ITR 396 where the court held that if concealment is discovered during search penalty can justifiably be levied. The Allahabad High Court pointed out that Explanation 1 to section 271 (1)(c) was applicable even in the case where search has been carried out.
2. In the case of M.Shahul Mameed Batcha v. Income- tax Officer (Mad) 292 ITR 585, the assessee filed revised returns before the issue of notice U/S 148 of the I T Act, which was accepted by the Assessing Officer, but the Assessing Officer levied penalty on the ground that the assessee filed the revised return only after the search took place and in this case both the Hon'ble Tribunal as well as Hon'ble High Court confirmed the penalty.
3. In the case of Commissioner of Income-tax v. Mahabit Prasad Bajaj (Jharkhand) 298 ITR 109, the Hon'ble High Court confirmed the penalty after the appellant had filed a revised return as a consequence of the search carried out by the Income Tax Department.
4. In the case of P.Rajaswamy v. Commissioner of Income-tax (Kerala) 323 ITR 527 , the Hon'ble High Court observed while dismissing the appeal, that the declaration for the purposes of avoiding penalty should be voluntary and before detection of the concealed income by the Department.
11. From the above discussion and the citation of the various judgments it is observed that penalty u/s 271 (1 )( c) can be levied if the concealed income is detected by the Department as a consequence of the search. In this case the appellant had filed the return U/S 153A only after the department had discovered the concealed income during the search. The case of the 5 ITA Nos.4413 to 4418/Del./2011
appellant falls within the general provisions of section 271(1)(c) as well as within the Explanation 5, therefore, the penalty of Rs.16,270/- imposed by the Assessing Officer is legally correct and the same is upheld."
4. The grounds of appeal in all the appeals are as under except the
difference in the amount of penalty levied for a particular year :-
"1. The Ld. Appellate Authority erred in law and on fats in confirming the penalty of Rs.1,63,507/- (ITA No.4413/Del/2011) levied u/s 271(1)(c) on additional income offered in the return of income filed by the appellant in response to the notice u/s 153A of the Act, while ignoring that such penalty cannot be imposed on the basis of entries in the books of account or documents / loose papers seized in a search carried between 1/6/03 to 31/5/07 neither within the general provision of section 271(1)(c) nor in terms of Explanation 5. Thus, the penalty so levied should be cancelled."
5. While pleading on behalf of the assessee the ld. AR submitted that this
issue is squarely covered by the decision of ITAT in ITA No.4702/Del/2010
for Assessment Year 2004-05 in the case of Shri Prem Arora dated
09.03.2012. The ld. AR also submitted that in the case of Prem Arora, the
search was also conducted on 22.11.2006 and the facts are also similar,
therefore, the issue in the present case is covered by this decision.
6. Ld. DR relied on the orders of the CIT (A) and also on the decision of
ITAT, 'F' Bench, Mumbai in the case of Harish P. Mashruwala vs. ACIT
reported in (2011) 9 ITR (Trib) 0752.
6 ITA Nos.4413 to 4418/Del./2011
7. In the rejoinder, the ld. AR submitted that the facts of decision of
Harish P. Mashruwala are completely different. Since there is a direct
judgment of the coordinate Bench of ITAT, Delhi on the same issue and the
facts are same, the assessee should be granted the relief. The levy of penalties
deserves to be deleted.
8. We have heard both the sides on the issue. In this case, search was
carried out on 22.11.2006. Certain documents / loose papers were seized.
Additional income from business was disclosed in the return of income filed
u/s 153A of the Act. In the case of Prem Arora's case also, search was
carried out on 22.11.2006 at the residence and business premises. Loose
papers containing incriminating documents were seized. Additional income
was declared in the return of income. Penalty was levied u/s 271(1)(c) on this
additional income. ITAT had deleted the penalty. In view of this, we find
that the facts of the case are similar to the assessee's case. ITAT in the case
of Prem Arora, cited supra, has decided the issue in respect of the levy of
penalty u/s 271(1)(c) where additional income is declared and the searches
were conducted prior to 1st June, 2007. The date of the search was the same
as of the assessee. The ITAT has decided the issue as under :-
"29. We also find that the Finance Act, 2007 has inserted words "search initiated under sec. 132 before the first day of June, 2007" in Explanation 5 of sec. 271(1) of the Act. Further Explanation 5A was inserted in the Statute by the Finance Act, 2007 in respect of a search initiated under section 132 on or after the 1st day of June, 2007. Thus Explanation 5 will not be 7 ITA Nos.4413 to 4418/Del./2011
applicable in respect of a search initiated on or after 1.6.2007. Further the words "search initiated under sec. 132 before the first day of June, 2007" have been inserted by the Finance Act, 2007 w.e.f. 1.6.2007. In our considered opinion the amended provisions of Explanation 5 will be applicable only for assessment year 2008-09 if any money, bullion, jewellery or other valuable article or thing is found from the possession of the searched person in respect whom searches are initiated on or after 1.4.2007 to 31.05.2007.
30. In case of a search initiated on or after 1.6.2007 as provided in Explanation 5A, the assessee will be liable for penalty/s 271(1)(c) both in respect of assets as well as any income based on any entry in any books of account or other documents or transactions. But no such provision relating to entries was in existence in Explanation 5 prior to insertion of Explanation 5A in section 271(1) of the Act. Hence the scheme of assessment till insertion of Explanation 5A and section 271AAA by the Finance Act, 2007 gave immunity to the assessees in respect of undisclosed income based on entries recorded in seized material. Explanation 5A substituted by the Finance Act, 2009 w.r.e.f. 1.6.2007 is reproduced as under:
"Explanation 5A.-- Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of--
(i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or
(ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year,
which has ended before the date of search and,-- 8 ITA Nos.4413 to 4418/Del./2011
(a) where the return of income for such
previous year has been furnished before the said date but such income has not been declared
therein; or
(b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return,
then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income."
31. From above discussion it is clear that the provisions of Explanation 5 are applicable in the cases where during the course of search initiated on or before 1.6.2007 any money, bullion, jewellery or other valuable article or thing is found in the possession or under control of the assessee. In the case of the assessee the search was conducted on 22.11.2006 and cash of Rs. 1,11,45,350/- was found from the possession of the assessee. The assessee had undisclosed commission income as well as purchases and sales as seen from the statement of affairs made by the assessee based on seized material. The assessee had drawn cash flow statement for the entire period of six years in order to determine undisclosed income based on seized material for each of six assessment years. Explanation 5 to section 271(1) of the Act cannot be invoked in assessment year 2004-05 merely on presumption that the assessee might have been in possession of cash throughout the period covered by search assessments. The income offered to tax u/s 153A for assessment year 2004-05 is based on entries recorded in the seized material. Unlike provisions of Explanation 5A, the provisions of Explanation 5 cannot be invoked in assessment year 2004-05 in respect of entries recorded in seized material. Thus invoking of Explanation 5 in assessment year 2004-05 is based on presumptions, surmises and conjectures. It is settled law that suspicion howsoever strong, it cannot take place of actual evidence and hence the contention of the Revenue that 9 ITA Nos.4413 to 4418/Del./2011
assessee was in possession of cash throughout the period of six assessment years has to be rejected. In view of above discussion we are of the considered opinion that even the amended provisions of Explanation 5 cannot be applied in assessment year 2004-05. Consequently penalty u/s 271(c) cannot be imposed by invoking Explanation 5 of the Act in assessment year 2004-05 in respect of cash found in previous year relevant to assessment year 2007-08.
32. Now coming to the decisions relied by Ld CIT (DR) in the case of Ajit B Zota (supra) and in Kirit Dahyabhai Patel (Ahd)(supra) we find that these decisions are distinguishable on facts and hence not applicable.
33. In view of above discussions it is held that penalty u/s section 271(1)(c) is not imposable on the facts and in the circumstances of case discussed in detail as above. Explanation 5 is not applicable for the reasons mentioned above in our decision. Therefore, ld. CIT(A) was not justified in confirming the penalty u/s 271(1)(c) of the Act. The assessing officer is, therefore, directed to delete the penalty."
Facts being the same, we consider these appeals of the assessee as covered by
the decision of ITAT in the case of Pawan Arora. Keeping these facts in
view, we set aside the orders of the authorities below for levying the penalty
and allow the ground in all the years.
9. In the result, all the six appeals filed by the assessee are allowed.
Order pronounced in open court on this 31st day of July, 2012.
Sd/- sd/- (R.K. GUPTA) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : the 31st day of July, 2012
TS
10 ITA Nos.4413 to 4418/Del./2011
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT (A)-I, New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.
__._,_.___
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