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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI AMIT SHUKLA, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
O R D E R PER S. RIFAUR RAHMAN (AM)
These appeals are filed by assessee against different orders of Learned Commissioner of Income Tax (Appeals), Pune-11 [hereinafter in short “Ld.CIT(A)”] dated 30.01.2023 for the A.Ys. 2013-14 & 2014-15. & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., 2. Since the issues raised in both these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order.
ITA.NO. 767/MUM/2023 (A.Y. 2013-14)
Assessee has raised following grounds in its appeal: - “1. The learned assessing officer had erred in disallowing the claim of Rs.69,84,456/- under section 80IA(4) of Income Tax Act 1961 considering the activities carried out by the assessee as Works Contract and CIT (A), Pune 11 has confirmed the order of the assessing officer.
2. The appellant craves leave to add, amend, alter and vary any grounds of appeal either before or at the time of hearing of appeal.”
At the time of hearing, Ld. AR of the assessee brought to our notice that on similar facts on record in the case of holding company [M/s.Antony Waste Handling Cell Pvt. Ltd.,] which was decided by the Coordinate Bench of the Mumbai Tribunal in ITA.No. 2056 & 5566/Mum/2015 dated 04.12.2020 in favour of the holding company. In this regard he submitted that the issue involved in this appeal is exactly similar and brought to our notice Page No. 111 of the Paper Book and he brought to our notice the relevant ratio of the decision placed at Page No.133 of the Paper Book (Para No.9 of the order). Further, he also brought to our notice the Page No. | 2 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., agreement placed at Page No. 12 of the Paper Book and he took us through the various terms of agreement. He also compared the nature of services offered by the assessee which are similar to the services offered by the holding company.
On the other hand, Ld. DR heavily relied on the findings of the Ld.CIT(A) and he referred to Explanation c to section 80IA and submitted that Ld.CIT(A) has given a clear finding at Para No. 10.2 of the order. Therefore, he submitted that the case of the assessee will not fall u/s.80IA of the Act.
In the rejoinder, Ld. AR of the assessee submitted that “Explanation c” is relating to solid waste management which falls within the definition of “Explanation c” and he further submitted that the assessee has entered into agreement with three municipalities. In this regard he brought to our notice Page Nos. 79 and 90 of the Paper Book which defined the term “solid management” and he reiterated the facts in the present appeal that it is exactly similar to the facts in the case of the holding company. This issue is squarely covered in favour of the assessee.
Page No. | 3 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., 7. Considered the rival submissions and material placed on record, we observe that in the case of M/s. Antony Waste Handling Cell Pvt. Ltd., which is the holding company of the assessee, similar issue was considered and adjudicated by the Coordinate Bench in ITA.No. 2056 & 5566/Mum/2015 dated 04.12.2020 for the A.Ys. 2010-11 and 2011-12 respectively and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under: - “9. A perusal of the Manual on ‘Municipal Solid Waste Management’ by Central Public Health & Engineering Organization clearly indicates that an effective waste management system includes one or more of the following options : (a) Waste collection and transportation. (b) Resource recovery through sorting and recycling i.e. recovery of materials (such as paper, glass, metals) etc, through separation. (c) Resource recovery through waste processing i.e. recovery of materials (such as compost) or recovery of energy through biological, thermal or other processes. (d) Waste transformation (without recovery of resources) i.e. reduction of volume, toxicity or other physical/chemical properties of waste to make it suitable for final disposal. It is also stated therein that the activities associated with the management of municipal solid wastes from the point of generation to final disposal can be grouped into the six functional elements : (a) waste generation; (b) waste handling and sorting, storage, and processing at the source; (c) collection; (d) sorting, processing and transformation; (e) transfer and transport ; and (f) disposal.
10. A perusal of the Municipal Solid Waste (Management & Handling) Rules, 1999 stipulates inter alia organizing house to house collection of municipal solid wastes through any of the methods, like community bin collection (Central Bin), house to house collection etc.
Page No. | 4 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., 11. An examination of the agreement entered into by the assessee with the various authorities such as Municipal Corporation of Greater Mumbai, Navi Mumbai Municipal Corporation etc. extracted at length hereinabove clearly indicate that the assessee is required to collect wet and dry garbage and debris from individual household as well as co-operative societies and dispose off the same at the designated site. The garbage is collected through primary collection method such as use by handcraft, tricycle etc. The assessee is also required to deploy dustbins in different capacities of 240 litres, 660 litres etc. as specified in the agreement. The assessee is further required to utilize specified hydraulic vehicles for the purpose of collection, transportation and disposal of solid waste. The assessee has been claiming deduction u/s 80IA(4) of the Act on the income earned by it from the activity of solid waste management. There is no dispute that ‘Solid Waste Management System’ is one of the infrastructure facilities as defined in Explanation to the section 80IA(4) of the Act, which entitles the assessee to claim deduction for the consecutive period of 10 years. Functional elements of a ‘Municipal Solid Waste Management System’ as drawn in the ‘Manual on Solid Waste Management’ by Central Public Health & Engineering Organization is enclosed herewith as Annexure – 1. In M.O.H. Uduman and Ors. v. M.O.H. Aslum, AIR 1991 SC 1020, the Hon’ble Supreme Court has held that : “It is settled canon of construction that a contract of partnership must be read as a whole and the intention of the parties must be gathered from the language used in the contract by adopting harmonious construction of all the clauses contained therein. The cardinal principle is to ascertain the intention of the parties to the contract through the words they have used, which are key to open the mind of the makers. It is seldom that any technical or pedantic rule of construction can be brought to bear on their construction. The guiding rule really is to ascertain the natural and ordinary sensible meaning to the language through which the parties have expressed themselves, unless the meaning leads to absurdity.” C 12. In ABG Heavy Industries Ltd. (supra), relied on by the Ld. counsel, the assessee was a company registered in India, which had started its operations after 1-4-1995. It had entered into two contracts on 2-9-1994 and 16-10-1995 with a local authority i.e., a port for supply, installation, testing, commissioning and maintenance of the cranes on lease for a period of ten years at the container Page No. | 5 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., terminal of said port. The assessee claimed that as it was operating infrastructure facility at port, it would be entitled to claim deduction under section 80-IA and, therefore, book profits were required to be reduced by the profits derived from the aforesaid industrial undertaking in terms of the provisions of clause (vi) of the Explanation to section 115JA. The Assessing Officer however, rejected the claim of the assessee under section 80-IA observing that the said cranes did not constitute port and also for the reason that the said cranes were not being operated by the assessee. According to him, the assessee was only providing the said cranes to the port on lease basis. He, therefore, did not reduce the deduction under section 80-IA while computing book profit under section 115JA. On appeal, the Commissioner (Appeals) held that the assessee had entered into an agreement with the port under the BOLT scheme, i.e., built, own, lease and transfer scheme in respect of the said cranes supplied to the port. In holding so the Commissioner (Appeals) had relied on the Circulars No. 793 dated 3-62000, in which it has been clarified that structures at ports for storage, loading and unloading etc. will be included in the definition of Port for the purpose of section 10(23) and section 80-IA provided such structures have been built under BOT or BOLT scheme and at the expiry of the lease agreement such equipment would be transferred to the port authorities. The Commissioner (Appeals) thus, held that supply, commissioning and operation of cranes/equipment by the assessee were done under the BOLT scheme and accordingly, directed the Assessing Officer to allow deduction under section 80- IA and reducing it from book profit under section 115JA. On Revenue’s appeal, the Tribunal held that:- “The issue for consideration in the instant case was as to whether the agreement entered into between the assessee and the port for the supply, installation, testing, commissioning and maintenance of the cranes on lease for a period of ten years at the container terminal of said port was an infrastructure facility operated by the assessee entitled for the claim of deduction under section 80-IA. The term ‘infrastructure facility’ is defined under section 80-IA(12)(ca). Applying the definition of ‘infrastructure facility’ as defined under section 80-IA(12)(ca) to the facts of the instant case it was found that ‘port’ and the facilities provided at port were covered by the definition of infrastructure facility. Reading the section 80-IA in harmony, it transpired that the assessee in order to be entitled to the claim deduction under section 80- 1A had to fulfil the following conditions:
Page No. | 6 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., (a) whether it was an infrastructure facility falling within the definition provided in section 80-1A(12)(ca); (b)whether the operations had started on or after 1-4-1995; (c)whether the assessee had entered into an agreement with Central / State Govt., local authority for the development, maintenance and operation of any new infrastructure facility; In the facts of the instant case, the assessee was a company registered in India, which had started its operations after 1- 4-1995. The assessee had entered into an agreement with a local authority, i.e., the port in question for the development, maintenance and operation of infrastructure facility being a Port. The definition of ‘Port’ for the purpose of section 80-IA has been enlarged by the Circular No. 793 dated 23-6-2000 issued by the CBDT. As per said circular structures at ports for storage, loading and unloading etc. would fall under the definition of ‘Port’ for the purposes of sections 10(23G) and 80-IA, if the following conditions are fulfilled: (a )the concerned port authority has issued a certificate that the said structures form part of the port, and (b )such structures have been built under BOT or BOLT schemes 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. Thus, in order to be considered as ‘port’, the assessee had to fulfil the above conditions as mentioned in the circular. In the instant case, the port had issued a Certificate dated 31-5-2004 confirming that it had entered into an agreement dated 2-9- 1994 and another agreement dated 16-10-1995 with the assessee for the supply, installation, test, commissioning and maintenance of container holding equipment i.e., 1 No. rail mounted quay crane, rubber tyres gantry cranes, and rail mounted gantry crane, on lease for a period of ten years. The certificate further specified that the agreement with the assessee was under the BOLT Scheme and on the expiry of ten years contract period in accordance with the terms of the agreement, the said cranes would be transferred to the port. The BOLT Scheme has been clarified by Circular No. 733 dated 31-1-1996, which provided that one of the conditions to be fulfilled by the enterprises is that it should develop, maintain and operate a new infrastructure facility, which shall be Page No. | 7 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., transferred to the Central Govt./State Govt./local authority within the period stipulated in the agreement. Taking into consideration the definition of ‘infrastructure facility’ provided under section 80-IA and the conditions to be fulfilled under sub-section (4A) to section 80IA it was clear that the assessee was an ‘infrastructure facility’ and the operations carried out by the assessee fell within the extended definition of ‘Port’ as provided by the CBDT Circular No.
The assessee entered into an agreement with the port for the supply, installation, testing, commissioning and maintenance of the cranes under the BOLT Scheme, wherein it had been agreed upon by the parties that on the expiry of term of agreement, i.e., period of ten years, the said cranes would be transferred to the port at no extra cost. In the Certificate dated 31-5-2004, the port had admitted that the said cranes after its erection and installation, formed an integral part of the port and the contracts were under BOLT Scheme, under which the cranes would be transferred to the port at no cost on the expiry of ten years contract period. One of the clause of the Agreement dated 2-9-1994 provided that the equipment would be operational round the clock and the staff shall be deployed by the assessee round the clock for the maintenance of the equipment. In the indemnity clause, it had been provided that in case any damage occurs to the existing structures due to assessee’s operation, the same would be made good by the assessee at its risk and cost. The Insurance for maintenance and operation was to be provided by the assessee. One of the clause (xxix) of the agreement stipulated the assessee to comply with all the provisions of labour laws, with regard to the employees deployed for erection, testing, commissioning, operation and maintenance of the equipment. The assessee had also filed the list of personnel deployed at port for overall operation and maintenance of the infrastructure facilities during the assessment year 1997-98. The perusal of the said list provided that the assessed had employed the senior manager (operations), manager (operations), asstt. manager (operations) and five deputy manager (operations), in addition to the assistant engineers employed by the assessee and officer (technical) and operators-cum-technicians with checker-cum-helper and trainees. During the course of assessment proceedings, in reply to a query raised by the Assessing Officer, the assessee had submitted the copy of letter issued by the port, wherein the port clarified that the assessee was having overall
Page No. | 8 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., responsibility for ensuring round the clock operations as per the contract conditions. In the said letter the port had also confirmed that a consideration of Rs. 40 lakhs per annum, which included salary, wages and other emoluments of the operators provided by the port. The said letter also provided that assessee was having the overall responsibility for ensuring round the clock operations. It was clear from the list of employees provided by the assessee that the control and operations was under the supervision of the assessee though operators were provided by the port at a cost. The provisions of the Act does not talk of the extent of operation and control required. In these circumstances, it was fair and reasonable to hold that the assessee was entitled to the relief in the light of the circular No. 793 which was binding on the departmental authorities. Accordingly, the assessee was a ‘infrastructure facility’ entitled to the claim of deduction under sub-section (4A) of section 80-IA . The said such deduction under section 80-IA would be considered while calculating the book profits under section 115JA.” It is apposite to mention here the following obssrvation of the Tribunal in the above case:- 29. The Mumbai bench of Tribunal in Patel Engg. Ltd. v. Dy. CIT [2004] 84 TTJ (Mum.) 646 had held that the statutory provision as contained in section 80-IA provides for ‘development of infrastructure facility, but it nowhere provides that the entire infrastructure project is to be developed by one enterprise’. It has been further held in the facts of that case that the assessee had developed the infrastructure facility for part of the project and is entitled the claim of deduction under section 80-IA(4) of the Act, so long as the nature of development falls within the ambit of ‘infrastructure facility’. [Emphasis, by underlining, supplied by us] On appeal by the Revenue, the Hon’ble Bombay High Court held: “15. At this stage, it would be necessary to note that on 31st May 2004, JNPT issued a certificate confirming the award of contracts to the assessee on 2nd September 1994 and 16th October 1995 for supply, installation, testing, commissioning and maintenance of Container Handling equipment on lease for a period of ten years for loading and unloading of containers at the Port and that the cranes that were to be supplied by the assessee form an integral part of the Port. Page No. | 9 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., JNPT clarified that the contracts have been executed under the BOLT Scheme and in accordance with its directions, the cranes would be transferred to the Port Trust at no cost on the expiry of a period of ten years of the commencement of the contract.
Now, it is in the background of the evolution of the law that the controversy in the present case would have to be considered. The contention of the Revenue is that the assessee was not engaged in developing the facility at all and that under the Contract that was entered into between the assessee and JNPT all that the assessee was required to carry out was to supply and install cranes at the Port. The submission cannot be accepted. The expression 'development' has not been artificially defined for the purposes of Section 80IA of the Act and must, therefore, receive its ordinary and natural meaning. Under the terms of the contract between the assessee and JNPT, the assessee undertook an obligation for supplying, installing, testing, commissioning and maintenance of Container Handling equipment namely, the cranes in question. JNPT has a dedicated Container Handling Terminal. The case of the assessee is that the only activity at the Terminal consists of the loading, unloading and storage of containers. Under the contract, the assessee was obligated to provide the equipment in question in an operable condition. The contract envisaged two different options; the first being one under which the assessee would carry out operation and maintenance of the equipment while the second consisted of an option to JNPT to carry out operations. The terms of the contract however made it clear that it was the obligation of the assessee to make the equipment available for operation for a stipulated minimum number of days during the year and made the assessee liable to liquidated damages in the event that this was not possible. JNPT by its letter dated 27th March 2000 clarified that the difference between the two options that had been given to the assessee consisted of a payment of Rs.40,00,000/- which was to be retained by JNPT in the event that the operators were provided by the Port for operating the cranes. At the same time, JNPT clarified that it was the responsibility of the assessee to guarantee the availability of the equipment; to ensure that the equipment is in operation on a round the clock basis; to provide for repairs and to ensure the operation and availability of the equipment in accordance with the terms of the contract.
Page No. | 10 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., 17. The obligations which have been assumed by the assessee under the terms of the contract are obligations involving the development of an infrastructure facility. Section 80IA of the Act essentially contemplated a deduction in a situation where an enterprise carried on the business of developing, maintaining and operating an infrastructure facility. A Port was defined to be included within the purview of the expression infrastructure facility. The obligations which the assessee assumed under the terms of the contract were not merely for supply and installation of the cranes, but involved a continuous obligation right from the supply of the cranes to the installation, testing, commissioning, operation and maintenance of the cranes for a term of ten years after which the cranes were to vest in JNPT free of cost. An assessee did not have to develop the entire port in order to qualify for a deduction under Section 80IA. Parliament did not legislate a condition impossible of compliance. A port is defined to be an infrastructure facility and the circular of the Board clarified that a structure for loading, unloading, storage etc. at a port would qualify for deduction under Section 80IA. The condition of a certificate from the Port Authority was fulfilled and JNPT certified that the facility provided by the assessee was an integral part of the port. The assessee developed the facility on a BOLT basis under the contract with JNPT. On the fulfillment of the lease of ten years, there was a vesting in the JNPT free of cost.” [Emphasis, by underlining, supplied by us] 12.1 In the light of the ratio laid down in the above decision, we are of the considered view that the assessee is entitled to claim of deduction u/s 80IA(4) of the Act. We may mention here that in view of the above decision of the Hon’ble Bombay High Court, the instant case is distinguishable from the decision in Antony Motors (P.) Ltd. (supra) relied on by the Ld. DR. Another distinguishing feature is that in Antony Motors (P.) Ltd. (supra), we come across the following observations by the Tribunal:- “During the previous year relevant to the year under consideration, the Company appears to have entered into an agreement (renewal) with the Municipal Corporation for removal and transportation of solid waste generated on sea beaches at Mumbai.” In the present case, deduction has been allowed for all the earlier assessment years and the AO has now sought to disallow the deduction for the last two years, whereas the deduction u/s 80IA(4) is allowable for a consecutive period of 10 assessment years. Page No. | 11 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., In the instant case, as there in no change in the fact, if deduction has been allowed in the initial assessment years, the same cannot be withdrawn in the subsequent years without making disallowance in the initial assessment years as held in Paul Brothers (supra), Western Outer Interactive Pvt. Ltd. (supra) and Simple Products Food Pvt. Ltd. (supra). 12.2 To recapitulate, an examination of the agreement entered into by the assessee with the various authorities such as Municipal Corporation of Greater Mumbai, Navi Mumbai Municipal Corporation etc. extracted at length hereinabove clearly indicate that the assessee is required to collect wet and dry garbage and debris from individual household as well as co-operative societies and dispose of the same at the designated site. The contract work also includes positioning/ deployment of HDPE dustbins having capacity of 240 litres, 660, litres & 1100 litres as specified in the tender. The said work also includes use of Refuse Compactors, Hook, Container/Dumper Place/Side Loader as well as use of Hydraulic vehicle of a compact body having capacity of 1 to 1.5 ton. Again to recapitulate in brief, in the agreement dated 08.10.2008 entered between the assessee and Amritsar Municipal Corporation, it is stated that : “A. The Ministry of Environment and Forests (MoEF), Government of India (Gol), has formulated the Solid Waste (Management and Handling) Rules 2000, which makes it mandatory for every Municipal Authority to implement a scientific solid waste management system in conformity with the above rules wherein the Municipal Solid Waste is duly collected, processed to recover all biodegradable components and the inert process remnants to be disposed in an Engineered Sanitary Land Fill. B. Amritsar Municipal Corporation is responsible for providing municipal and civic services, which includes the collection, transportation and disposal of Municipal Solid Waste generated in the city. AMC is required to undertake the MSW management as per the MSW Rules 2000.” The fact that the contract has been awarded by respective Municipal Authorities does not make the assessee ineligible for claim of deduction u/s 80IA of the Act, as substantial work of ‘Solid Waste Management’ is carried out by the assessee and not the Municipal Authorities. Further section 80IA(4)(i)(b) of the Act requires the Page No. | 12 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., assessee to enter into an agreement with the Government for carrying out such an activity and, therefore, the assessee fulfils all the conditions of section 80IA of the Act to be eligible for deduction under the said section. The assessee has been claiming deduction u/s 80IA(4) of the Act on the income earned by it from the activity of solid waste management. There is no dispute that ‘Solid Waste Management System’ is one of the infrastructure facilities as defined in Explanation to the section 80IA(4) of the Act, which entitles the assessee to claim deduction for the consecutive period of 10 years.
In seeking the purpose of a contract, one should treat the contract as a whole. A contract is an integrative framework. Its different parts are entwined. Its different parts are intermingled. In interpreting a contract, one should view it holistically, as a whole. One should evaluate the connections between its various parts in an attempt to arrive at parties’ joint intent. In view of the factual matrix and position of law delineated at para 8 to 12 hereinabove, we hold that the assessee is eligible for deduction u/s 80IA(4) of the Act. Thus the order of the Ld. CIT(A) is set-aside. Facts being identical, our decision for AY 2010-11 applies mutatis mutandis to AY 2011-12.
In the result, the appeals are allowed.”
Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in the case of holding company, we allow the appeal filed by the assessee. Ground raised by the assessee is allowed.
In the result, appeal filed by the assessee is allowed.
Page No. | 13 & 768/MUM/2023 (A.Ys: 2013-14 & 2014-15) KL Envitech Pvt. Ltd., ITA.NO. 768/MUM/2023 (A.Y. 2014-15)
Coming to the appeal relating to A.Y. 2014-15, since facts in this case are mutatis mutandis, therefore the decision taken in A.Y. 2013-14 is applicable to this assessment year also. Accordingly, this appeal is allowed.
In the result, appeal filed by the assessee is allowed.
To sum-up, appeals filed by the assessee are allowed.
Order pronounced in the open court on 23rd August, 2023.