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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ ‘A’, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD सव�ी राजपाल यादव, �या�यक सद�य एवं �द�प कुमार के�डया, लेखा सद�य के सम� BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No.1088/Ahd/2015 (�नधा�रण वष� / Assessment Year: 2011-12)
The DCIT, Circle-4(1)(2), Zydus Infrastructure बनाम/ Ahmedabad Pvt. Ltd., Zydus Tower, Vs. Opp. Iskon Temple Satellite Cross Roads, Ahmedabad �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACZ0629H .. (��यथ� / Respondent) (अपीलाथ� /Appellant) अपीलाथ� ओर से / Appellant by : Shri Jigar M. Patel, A.R ��यथ� क� ओर से/Respondent by : Shri Dinesh Singh, Sr. DR
सुनवाई क� तार�ख / Date of Hearing 31/01/2018 घोषणा क� तार�ख /Date of Pronouncement 02/02/2018 आदेश / O R D E R PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax(Appeals)-4, Ahmedabad [CIT(A) in short] dated 13/02/2015 arising in the Assessment order dated 31.01.2014 passed by the A.O under section 143(3) of the Act relevant to assessment year 2011-12.
ITA No.1088/Ahd/2015 Zydus Infrastructure Pvt. Ltd. vs. DCIT,Cir-4(1)(2) Asst.Year – 2011-12 - 2 -
The solitary issue raised in the Revenue’s appeal is whether assessee being a developer of Special Economic Zone (SEZ) was eligible for deduction under section 80IAB in respect of income earned from operation and maintenance of (SEZ).
The assessee during the relevant assessment year has claimed deduction under section 80IAB amounting to Rs. 13,43,36,398/- which enter alia includes profit on business of operation and maintenance of (SEZ) amounting to Rs. 1,94,12,129/-. The A.O held that income derived from “operation and maintenance” activity of (SEZ) is not eligible for deduction under section 80IAB of the Act. The A.O accordingly denied deduction claim amounting to Rs. 1,94,12,129/- attributable to operation and maintenance activities.
In the first appeal against the action of the A.O. The CIT(A) reverse the action of the A.O by following its appellate order concerning preceding assessment years 2009-10 & 2010-11 where similar issue on similar facts was decided in favour of the assessee.
Aggrieved, the Revenue in appeal before the Tribunal.
ITA No.1088/Ahd/2015 Zydus Infrastructure Pvt. Ltd. vs. DCIT,Cir-4(1)(2) Asst.Year – 2011-12 - 3 - 6. We have careful considered the rival submissions. The sole issue for consideration is maintainability of deduction of income arising from operation and maintenance activity of (SEZ) under the umbrella of section 80IAB of the Act. We find that the issue is no longer res integra. The Co-ordinate bench of Tribunal in Revenue’s appeal relevant assessment year 2010-11 in ITA No. 2236/Ahd/2014 has dismissed the appeal of the Revenue and thus allowed the deduction claimed on operation and maintenance activity. While doing so Co- ordinate bench in turn relied upon the decision of the Co-ordinate bench of Tribunal in assessee’s own case relevant A.Y. 2009-10 reported in (2013) 72 taxman.com 199 (Ahmedabad). The relevant operative para of the order of the Co-ordinate bench is reproduced hereunder:- 4. We have given a thoughtful consideration to the orders of the authorities below and have carefully perused the decisions relied upon by both sides. The assessee carries on the business of development operation and maintenance of Special Economic Zone (SEZ). The assessee claimed deduction u/s. 80-IAB of the Act. During the course of the scrutiny assessment proceedings and on examining the claim of deduction u/s. 80- IAB of the Act, the A.O. was of the opinion that the assessee is not eligible for the claim of said deduction. The A.O. was of the firm belief that the second proviso to Section 80-IAB of the Act is specifically applicable in case of transferee developer and in case of a developer of SEZ. Relying upon the decision of the Hon’ble High Court of Gujarat in the case of Core Healthcare Ltd. 251 ITR 61. The A.O. dismissed the claim of deduction.
ITA No.1088/Ahd/2015 Zydus Infrastructure Pvt. Ltd. vs. DCIT,Cir-4(1)(2) Asst.Year – 2011-12 - 4 -
The A.O. further restricted the claim of depreciation @ 60% on computer software license to 25%.
Assessee carried the matter before the ld. CIT(A) and was successful in getting the relief. While allowing the relief to the assessee, the ld. CIT(A) followed the order of his predecessor for A.Y. 2009-10. The relevant findings of the ld. CIT(A) reads as under:- My predecessor vide order No.CIT(A)XIV/Jt.CIT.R.8/2011-12 dated 30.04.201 2 in appellant's own case for A. Y.2009-1 0 held as under:
"I have carefully perused the assessment order and the submissions given by the appellant. The appellant has submitted that since the software involves rapid obsolescence, the claim of revenue expenditure should be allowed. I am not inclined to agree with the submission of the appellant. The appellant has bought software licenses which are valid for long term and -the expenditure incurred thereon is, therefore, not in the nature of revenue. Therefore, the plea of the appellant that expenditure is in the nature of revenue is dismissed.
However, the treatment of the software by the A. O. as intangible asset and allowing interest @ 25% is not justified as the computer software has been grouped as eligible to rate of depreciation @ 60% and, therefore, A. O. should' have allowed the depreciation @ 60% in place of 25% allowed by him. The appellant has also disputed the finding of the A. O. that the software were used for less than 180 days. The A. O. is directed to verify the claim from the facts available on record and allow the depreciation accordingly as per the provisions of the Act. The grounds of appeal are accordingly partly allowed."
I am inclined with appellant and ratio of my predecessor order. It is therefore A.O. is directed to allow rate of depreciation at 60% after verification of period for which such software put to use. The appellant gets part relief from the addition of Rs. 10,163/-. This ground being related to adoption of rate of depreciation, the same is treated as allowed since rate of depreciation is directed to be adopted at 60%.
ITA No.1088/Ahd/2015 Zydus Infrastructure Pvt. Ltd. vs. DCIT,Cir-4(1)(2) Asst.Year – 2011-12 - 5 -
5.4 Ground No. 4 is against the disallowance of deduction u/s 80IAB in respect of Rs. 3,25,07,625/- being income from operation & maintenance and Rs. 18,250/- being income from sale of scrap related to SEZ. The appellant relied on the appeal order dt. 30/04/2012 in the case of appellant for A.Y. 09-10 on this issue where Ld. CIT(A)XIV, Ahmedabad on similar facts & contention allowed such deduction.
My predecessor vide order No.CIT(A)XIV/Jt.CIT.R.8/2011-12 dated. 30.04.201 2 in appellant's own case for A. Y.2009-1 0 held as under: "I have carefully perused the assessment order and the submissions given by the appellant. The A. O. has disallowed the claim of income of the appellant by operation and maintenance of the SEZ as the section 80IAB mentions only the word 'developing'. The appellant has submitted that the claim is in accordance with the provisions of section 80IAB and should therefore be allowed. In order-to clearly understand the controversy, various provisions which are relevant are quote hereunder:
Section 80IAB of the I. T. Act. " (1) Where the gross total income of an assessee, being a Developer, includes any profits and gains derived by an undertaking or an enterprise from any business of developing a Special Economic Zone, notified on or after the 1st day of April, 2005 under the Special Economic Zones Act, 2005, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for ten consecutive assessment years" The word 'developer’ has further been defined in Explanation to Section 80IAB which reads as under:
"Developer shall have the meaning as assigned under clause (g) of Sec. 2 of the Special Economic Zones Act."
Further, section 2(g) of the SEZ Act has defined the term developer as under: Sec. 2(g) - "Developer" means a person who, or a State Government which, has been granted a letter of approval under sub-section (10) of Sec. 3 and includes an authority and a Co-Developer.
ITA No.1088/Ahd/2015 Zydus Infrastructure Pvt. Ltd. vs. DCIT,Cir-4(1)(2) Asst.Year – 2011-12 - 6 -
Section 3(10) of the SEZ Act provides that the Central Government shall on receipt of communication by the Board, grant a letter of approval on such 'terms and conditions' and obligations and entitlements as may be approved by the Board to the Developer, being the person or the State Government concerned. A combined reading of the provisions of section 80IAB of the Income Tax Act with Section 2(g) and Section 3(10) of the Special Economic Zone Act show that a person would be considered as a developer in accordance with the grant of letter of approval on the basis of terms and conditions and obligation and entitlement as may be approved by the Board who is approving the setting up of the SEZ. Therefore, if the approval has been granted for developing, operating and maintaining the SEZ, the term 'developer' would include operation and maintenance also.
Further an examination of the letter of approval bearing no. F.2/44/2005- EPZ, dated 21st June, 2006, issued by the Central Government in favour of the appellant as the Developer show that the very first condition under which the approval is granted states that "the Developer shall develop, operate and maintain the Special Economic Zone in terms of the Special Economic Zones Act, 2005 and the Rules made there under." Thus, it is clear from the letter of approval that development, operation and maintenance of the Special Economic Zone are an integral part of the terms and conditions and obligations and entitlements granted to the Developer. Therefore, in view of the preceding discussion, the word 'developer' also includes the activities of operation and maintenance of the SEZ in the case of the appellant.
The interpretation by the A. O. that operation and maintenance are different to that of development and legislature were fully aware of this fact and, therefore, the words 'operation and maintenance' have not been intentionally omitted is not justified. A harmonious interpretation of the provisions of various Acts, as discussed above, clearly show that in the case of the appellant, the deduction is available for operation and maintenance also in accordance with the terms and approval.
The observations of the A. O. that the second proviso to section 80IAB where the Act provides for deduction in respect of profits and gains
ITA No.1088/Ahd/2015 Zydus Infrastructure Pvt. Ltd. vs. DCIT,Cir-4(1)(2) Asst.Year – 2011-12 - 7 -
derived from operation and maintenance activities in the hands of transferee developers, if .any developer after developing a SEZ transfers the operation and maintenance of such SEZ to another developer is also, in my opinion, not justified. The activity of development, operation and maintenance are continuous in nature. Once a person takes up the work of development of a facility and starts allotting or selling plots in the SEZ, it is not possible that all the plots will be sold simultaneously and further it is also not possible that all the persons who have purchased plots will start functioning after complete sell out of the SEZ. It is therefore most likely that the activity of development, operation and maintenance will go on simultaneously. It is a different fact that once all the plots are- developed and sold, the operation and maintenance can be transferred to some other party and for this purpose, the proviso to section 80IAB has been incorporated. In the case of the appellant, the approval given is for all the activities.
It would not be out of place to mention here that the provisions of section 80IA(4) initially had the words developing, maintaining and operating or developing, maintaining and operating. However, once the difficulty or anomaly in implementation of the language was observed, the provisions were subsequently amended from 01/04/2001 and the words or were introduced to take the work of development or development and operation or development operation and maintenance for entitlement of deduction. In view of the preceding discussion, I am of the considered opinion that the appellant is entitled for deduction u/s. 80IAB for the income earned from operation and maintenance, as the activities are covered by the letter of approval and accordingly make the appellant entitled for deduction.
The appellant has further claimed deduction on miscellaneous income of Rs.91,000/- from sale of scrap. It is noted that the income has been generated from sale of scrap of iron and steel which was used for infrastructure development. The appellant has relied on the decision of Hon'ble Gujarat High Court in the case of DCIT Vs. Core Healthcare Ltd. [308 ITR 263]. Considering the judgment of Hon'ble Gujarat High Court, I am of the opinion that sale of scrap of iron and steel which is generated from the activity of construction of the infrastructure facility should be
ITA No.1088/Ahd/2015 Zydus Infrastructure Pvt. Ltd. vs. DCIT,Cir-4(1)(2) Asst.Year – 2011-12 - 8 -
treated as derived from the activity and, therefore, the appellant is entitled for deduction on the same.
The claim of deduction on professional income on account of receipt of plan approval fee collected by the appellant also has a direct nexus with the activity of the appellant business. Therefore, the appellant is also entitled for the deduction on that income.
The claim regarding prior period income of Rs.23,09,372/- has been disallowed by the A. O. on the ground that the income pertained to earlier year and only the income of current year can be considered for deduction. The appellant has submitted that it had started recovering the raw water charges from the current Financial Year, and the charges for earlier years were also collected. Therefore, the same should be allowed as the appellant was allowed deduction in earlier years also. It is noted that the appellant has commenced the billing process for the water services from the present year. The raw water charges have been billed and collected in the current' assessment year itself and, therefore, the income has crystallized and has become due in the current assessment year itself. Therefore, the appellant has correctly shown the income in the current assessment year and the same should be treated as income of the current year. The reliance is placed on the judgment of Hon'ble High Court o'f Guj'arat in the case of Saurashtra Cement and Chemicals Industries Limited [80 Taxman 61]. The claim of deduction is, therefore, allowable and A. O. is directed accordingly."
The A.O. in the impugned assessment order considered the total claim of appellant of deduction u/s 80IAB for Rs. 5,65,36,415/-. At para 6.3 of the impugned order, the rental income of Rs. 3,45,000/- comprised in total claim was allowed by A.O.. Further, Misc. income of Rs. 77,000/- which was comprised of Rs. 59,138/- as interest from M/s UGVCL and Rs. 18,250/- as scrape vide para 6.14 of impunged order, A.O. did not considered Rs. 59,138/- being same were offered by appellant as income from other sources, while, Rs. 18,250/- was disallowed. It is therefore out of Rs. 5,65,36,415/- claim, the A.O. disallowed claim of Rs. 3,25,07,625/- being income from operation & maintenance of SEZ and Rs. 18,250/- being receipt from scrape sale related to SEZ. I am inclined with appellant that on similar issue and similar facts, my predecessor vide
ITA No.1088/Ahd/2015 Zydus Infrastructure Pvt. Ltd. vs. DCIT,Cir-4(1)(2) Asst.Year – 2011-12 - 9 -
order dt. 30/04/2012 considered the similar contention of A.O. on these issue and after considering the appellant's contention and legal proposition allowed the claim of appellant u/s 80IAB for these two receipts. Respectfully following the same, the A.O. is directed to allow the claim of appellant for deduction u/s 80IAB of the Act of Rs. 3,25,07,625/- and Rs. 18.250/- and delete the addition so made. The appellant gets relief accordingly. This ground is treated as allowed.
The order of the First Appellate Authority for A.Y. 20090-10 was confirmed by the Tribunal in ITA No. 1464/Ahd/2012. The relevant findings of the Co- ordinate Bench reads as under:- 23. Now coming to the main issue about the allowability of deduction u/s 80-IAB for the income earned from operation and maintenance, we find that provisions of section 80-IAB is self-explanatory which reads as under: —
'[Deductions in respect of profits and gains by an undertaking or enterprise engaged in development of Special Economic Zone.
80-IAB. (1) Where the gross total income of an assessee, being a Developers, includes any profits and gains derived by an undertaking or an enterprise from any business of developing a Special Economic Zone, notified on or after the 1st day of April, 2005 under the Special Economic Zones Act, 2005, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.
(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which a Special Economic Zone has been notified by the Central Government :
Provided that where in computing the total income of any undertaking, being a Developer for any assessment year, its profits and gains had not
ITA No.1088/Ahd/2015 Zydus Infrastructure Pvt. Ltd. vs. DCIT,Cir-4(1)(2) Asst.Year – 2011-12 - 10 -
been included by application of the provisions of sub-section (13) of section 80-IA, the undertaking being the Developer shall be entitled to deduction referred to in this section only for the unexpired period of ten consecutive assessment years and thereafter it shall be eligible for deduction from income as provided in sub-section (1) or sub-section (2), as the case may be :
Provided further that in a case where an undertaking, being a Developer who develops a Special Economic Zone on or after the 1st day of April, 2005 and transfers the operation and maintenance of such Special Economic Zone to another Developer (hereafter in this section referred to as the transferee Developer), the deduction under sub-section (1) shall be allowed to such transferee Developer for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee Developer.
(3) The provisions of sub-section (5) and sub-sections (7) to (12) of section 80-IA shall apply to the Special Economic Zones for the purpose of allowing deductions under sub-section (1).
Explanation.—For the purposes of this section, "Developer" and "Special Economic Zone" shall have the same meanings respectively as assigned to them in clauses (g) and (za) of section 2 of the Special Economic Zones Act, 2005.]'
From going through the proviso (2) of section 80-IAB of the Act as referred above, which says that if the work of operation and maintenance of SEZ is transferred from one developer to another then the deduction allowable in sub-sec. (1) of sec. 80-IAB will be allowed to transferee developer for the remaining period of the remaining of consecutive 10 years. This proviso gives a very clear picture that when the transferee is eligible for deduction u/s 80-IAB for the income from operation and maintenance of SEZ then certainly transferor i.e. developer is eligible for deduction u/s 80-IAB from operation and maintenance.
Further from going through the letter issued by Government of India Ministry of Commerce & Industries dated 21st June, 2006 to the assessee for setting up of a sector specific Special Economic Zone for
ITA No.1088/Ahd/2015 Zydus Infrastructure Pvt. Ltd. vs. DCIT,Cir-4(1)(2) Asst.Year – 2011-12 - 11 - Pharmaceuticals at Ahmedabad, we find that in clause (ii) under the main clause (III) referring to general condition it reads that operation and maintenance of the facilities will be met as per the standard in the specific manner and proposition of the user.
In view of our above discussion as well as observation made by Id. CIT(A), we are of the view that assessee being a developer of SEZ is eligible for deduction u/s 80-IAB for income earned from operation and maintenance of SEZ. In the result ground no. 3 (a) of Revenue is dismissed.
Insofar as the claim of depreciation is concerned, the relevant findings of the Co-ordinate Bench is as under:- 15. It is almost a settled issue that software application which are having validity for long term period are basically system software on which computer hardware runs and it is impossible to use computer without having such software installed on it and, therefore, such licensed software are subject to depreciation @ 60% and Id. CIT(A) has done so. We find no reason to interfere with the order of Id. CIT(A) on this issue. This ground of Revenue is dismissed.
Respectfully following the findings of the Co-ordinate Bench, we decline to interfere. Appeal of the Revenue is accordingly dismissed.
Before parting, the reliance was placed on the judgment of the Hon’ble Supreme Court in the case of Prakash Nath Khanna (supra) by the ld. D.R. is misplaced as in the case in hand, the assessee has claimed deduction u/s. 80-IAB of the Act wherein the language is unambiguous and requires no interpretation then what is coming out from the relevant provisions.
ITA No.1088/Ahd/2015 Zydus Infrastructure Pvt. Ltd. vs. DCIT,Cir-4(1)(2) Asst.Year – 2011-12 - 12 - Further, the Co-ordinate Bench has considered all the issue raised by the revenue and has decided in favour of the assessee.
In parity with the view taken by the Co-ordinate bench in assessee’s own case in the preceding assessment years. We decline to interfere with the order of the CIT(A).
In the result, appeal of the Revenue is dismissed.
This Order pronounced in Open Court on 02/ 02/2018
Sd/- Sd/- (राजपाल यादव ) (�द�प कुमार के�डया) �या�यक सद�य लेखा सद�य (RAJPAL YADAV) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 02/02/2018 आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-5, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation .. 17.1.18