ASCENDAS PANVEL FTWZ PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, WARD 14(1)(1), MUMBAI

For the sake of ready reference, the relevant chronology of dates and events are reproduced hereunder:- SI. No. Date Events 1 21.08.2007 Application filed by Arshiya Limited with the Government of India,

For Assessment Year 2018-19, the assessee filed its return of income on 29.11.2018 declaring total income of Rs. 26,45,480 after claiming deduction of Rs. 2,44,41,889 under section 80-IAB. Similar deductions were claimed in Assessment Years 2020-21 and 2021-22 amounting to Rs. 18,20,75,033 and Rs. 19,93,03,919 respectively. All three years were selected for scrutiny and the Assessing Officer disallowed the deduction under section 80-IAB in each year.

The learned counsel further submitted that the Assessing Officer also erred in alleging that there was no material to demonstrate whether the original developer, Arshiya Limited, had already claimed deduction under section 80-IAB. It was submitted that a categorical declaration from Arshiya Limited was placed on record confirming that no deduction under section 80-IAB had been claimed in respect of the six warehouses, inter alia because Arshiya had incurred losses in the relevant years. It was argued that the assessee, being a separate legal entity, could not be expected to furnish copies of Arshiya’s returns of income, particularly when such information was already within the domain of the Department. The learned counsel also addressed the objection relating to non-acceptance of approval conditions, submitting that the assessee had duly accepted the co-developer approval

With regard to Form 10CCB, the learned counsel explained in detail the technical architecture of the form, submitting that selecting “Yes” in clause 16(c) would mandatorily trigger clause 16(d), requiring details of deduction claimed by the original developer along with its Form 10CCB, which was not possible since the developer had not claimed any deduction. It was therefore submitted that due to systemic constraints, the assessee selected “No” in clause 16(c), and such a technical limitation of the electronic filing system could not be elevated to a substantive disqualification of an otherwise valid statutory claim.

The learned counsel further submitted that the learned CIT(A) committed a serious legal error by introducing entirely new conditions while interpreting the second proviso to section 80-IAB(2), namely, that the entire SEZ must be fully developed before any transfer of operation and maintenance could occur, and that there must be absolute extinguishment of rights by the original developer. It was submitted that none of these conditions find place in the statutory language and that the CIT(A) effectively legislated by adding words to the provision.

On ancillary issues, the learned counsel submitted that TDS credit of Rs. 76,63,837 was not granted in A.Y. 2018-19, that in A.Y. 2020-21 the assessed income under normal provisions was mechanically adopted as book profit under section 115JB without any adjustment and there was also a clear totalling error in the computation sheet, and that in A.Y. 2021-22 MAT credit under section 115JAA amounting to Rs. 4,58,998 was not granted. It was submitted that these were purely verifiable issues requiring correction.

The learned CIT-DR further submitted that the arrangements between Arshiya Limited and the assessee did not amount to transfer of operation and maintenance in the statutory sense but were merely internal arrangements within a group for administrative convenience, without absolute divestment of rights. It was also submitted that the assessee failed to produce cogent corroborative evidence to establish that the original developer had not claimed deduction earlier, and therefore the assessee failed to discharge the burden cast upon it.

It was thus submitted by the learned CIT-DR that both the Assessing Officer and the learned CIT(A) had correctly appreciated the statutory provisions and that the appeals deserved to be dismissed.

At this point for the sake of ready reference, the relevant provision of Section 80-IAB is reproduced hereunder:-

However, the term “developer” is not independently defined in section 80-IAB of the Act. However, the Explanation to section 80-IAB mandates that the meanings of “developer” and “Special Economic Zone” shall be the same as assigned under the SEZ Act, 2005.

In this context, it would be relevant to refer to the following provisions of the SEZ Act, 2005:

Ergo, it must be underscored that section 80-IAB is not an ordinary incentive provision inserted independently into and others Ascendas Panvel FTWZ Private Limited the Income-tax Act. It owes its very genesis to the SEZ Act, 2005. Section 27 of the SEZ Act, read with the Second Schedule thereto, expressly amends the Income-tax Act by introducing section 80-IAB. This legislative technique is of considerable significance: Parliament did not merely grant a tax incentive in abstract, but consciously embedded it within the SEZ statutory ecosystem, importing definitions, concepts, and operational realities from the SEZ Act into the Income-tax Act itself. This intent is made explicit by the Explanation to section 80-IAB, which mandates that the expressions “Developer” and “Special Economic Zone” shall have the meanings respectively assigned to them in clauses (g) and (za) of section 2 of the SEZ Act, 2005.

Once this statutory bridge is crossed, the controversy regarding the assessee’s status as a “co-developer” loses much of its supposed complexity. Section 2(g) of the SEZ Act defines “Developer” to mean a person granted a letter of approval under section 3(10) and expressly includes a “Co- Developer”. Section 2(f) defines “Co-Developer” as a person granted a letter of approval under section 3(12). Section 3(11) and section 3(12) together contemplate a structured statutory mechanism by which a person, after entering into an agreement with the Developer, is approved by the Central Government to provide infrastructure facilities or undertake authorised operations in the identified area of the SEZ and, upon such approval, assumes the legal character of a Co- Developer. The SEZ Act thus does not treat a co-developer as an inferior or peripheral participant; it statutorily assimilates and others Ascendas Panvel FTWZ Private Limited a co-developer into the category of “Developer” for all purposes of the Act. When section 80-IAB itself adopts this definition, there remains no legal room to contend that a co- developer stands excluded from its ambit. It is an undisputed fact that assessee has also been approved as co-developer by the Ministry of Commerce and Industry, Government of India and accordingly, for the purpose of Section 80-IAB assessee has to be treated as falling within the definition of “developer” because meaning assigned to word “developer” in SEZ Act, 2005 also includes co-developer. It is trite that Section 51 of SEZ Act 2005, the SEZ has an overriding effect of any other law including the Income Tax Act.

Thus, Assessing Officer’s reasoning, endorsed by the learned CIT(A), that section 80-IAB applies only to a “developer” and not to a “co-developer”, therefore collapses at the level of plain statutory interpretation. It proceeds on an artificial bifurcation which the statute itself does not recognise. More importantly, section 51 of the SEZ Act provides that the provisions of the SEZ Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. When the Income- tax Act, by deliberate legislative choice, incorporates SEZ Act definitions, the interpretative command becomes even more compelling: the meaning assigned under the SEZ Act must govern the construction of section 80-IAB.

We now turn to the heart of the controversy, namely the construction of sub-section (2) of section 80-IAB and, in and others Ascendas Panvel FTWZ Private Limited particular, the second proviso thereto. The substantive provision allows deduction of 100 per cent of profits derived from the business of developing a SEZ for ten consecutive assessment years out of a block of fifteen years beginning from the year in which the SEZ is notified. The second proviso addresses a specific contingency: where a Developer who develops a SEZ on or after 01.04.2005 transfers the operation and maintenance of such SEZ to another Developer, the deduction shall be allowed to the transferee Developer for the remaining period in the ten consecutive assessment years, as if the operation and maintenance were not so transferred.

The learned CIT(A) has read into this proviso two cumulative “legal tests”: first, that the entire SEZ must be fully developed before any transfer of operation and maintenance can be recognised; and second, that such transfer must involve absolute extinguishment or parting of rights by the original developer in favour of the transferee. With respect, we find no statutory warrant for either of these judicially introduced conditions.

The proviso does not employ the phrase “entire SEZ must be completely developed”, nor does it predicate the availability of deduction to the transferee upon completion of development in every parcel or phase of the SEZ. What it requires is that a Developer “develops a Special Economic Zone” and thereafter “transfers the operation and maintenance of such Special Economic Zone” to another Developer. The emphasis of the proviso is on continuity of the and others Ascendas Panvel FTWZ Private Limited incentive attached to the SEZ project and the period of eligibility, not on imposing an artificial temporal sequence between development and operation. To insist that development must reach a state of absolute completion before any transfer of operation and maintenance can be recognised is to insert words into the statute that Parliament has consciously not used.

The commercial and statutory realities of SEZ development further reinforce this conclusion. Development of a SEZ is not a monolithic, one-time event; it is inherently phased, incremental, and continuous. Warehouses, processing units, infrastructure facilities and utilities are developed, operationalised, and maintained in overlapping cycles. The SEZ Act itself recognises this reality by permitting approvals to co-developers under section 3(12) during the development phase. If the construction adopted by the Revenue were to be accepted, section 3(12) would be rendered largely otiose, as no co-developer could ever meaningfully operate or maintain any infrastructure until the entire SEZ stands completed in all respects. Such an interpretation would defeat, rather than advance, the legislative scheme.

In the present case, the factual position emerging from the record is that the SEZ was duly notified on 04.05.2009, well within the period contemplated by section 80-IAB; that development commenced long prior to 01.04.2017; and that six warehouses forming part of the FTWZ were fully developed, fully equipped and operational before being

The second limb of the learned CIT(A)’s reasoning, namely the requirement of “absolute extinguishment” of rights by the original developer, fares no better. The proviso speaks of “transfer of operation and maintenance”; it does not employ the language of transfer of ownership, title, or complete divestment of all rights. In the SEZ regulatory framework, ownership of land, regulatory control, and development rights may continue to vest with the original developer, while operation and maintenance of specified infrastructure is lawfully entrusted to a co-developer under long-term arrangements. The statute recognises and legitimises such arrangements. To import concepts of absolute conveyance drawn from property law into a provision dealing with operational transfer within a regulated SEZ environment is to misconstrue the legislative intent.

In this context, the lease agreement dated 03.02.2018 assumes significance. As placed on record, it evidences a and others Ascendas Panvel FTWZ Private Limited long-term arrangement whereby six fully operational warehouses were leased to the assessee for an initial period of thirty years, renewable for a further thirty years at the assessee’s option, against substantial consideration running into hundreds of crores. The assessee assumed full responsibility for operation and maintenance of these warehouses. Such an arrangement cannot be dismissed as a mere revocable or cosmetic delegation. It constitutes, in substance and in law, a transfer of operation and maintenance rights in respect of the specified SEZ infrastructure for a substantial and enduring period.

The objection regarding Form 10CCB, particularly the response in clause 16(c), also does not advance the Revenue’s case. The assessee has explained, with specificity, the technical design of the electronic form, whereby selection of “Yes” in clause 16(c) mandatorily activates clause 16(d), requiring particulars and audit report of the original developer. Where the original developer has not claimed deduction at all, the form design itself creates a compliance impasse. A technical limitation of an electronic utility cannot be elevated into a substantive statutory disqualification, especially when the underlying facts regarding transfer of operation and maintenance and non-claim by the original developer are otherwise placed on record.

Similarly, the insistence that the assessee must furnish copies of the return of income of the original developer ignores practical and legal realities. The assessee is a separate

We also cannot lose sight of the broader interpretative principles governing incentive provisions. While it is true that deductions are matters of legislative grace, it is equally settled that provisions enacted to promote economic growth and infrastructure development must be construed in a manner that advances, rather than frustrates, their object, so long as the express statutory conditions are satisfied. Courts and tribunals are not at liberty to add conditions under the guise of strict construction. The repeated emphasis in judicial precedent that words cannot be read into a statute when they are not there applies with full force to the present controversy.

Viewed thus, we are of the considered opinion that the assessee satisfies the substantive requirements of section 80- IAB. It is a co-developer approved under the SEZ Act, statutorily included within the definition of “Developer”; it derives profits from authorised operation and maintenance of and others Ascendas Panvel FTWZ Private Limited infrastructure within a duly notified FTWZ; the SEZ was notified within the eligible period and development commenced prior to the cut-off date; and the arrangement by which operation and maintenance was entrusted to the assessee falls within the ambit of the second proviso to section 80-IAB(2). The disallowance of deduction on grounds extraneous to the statutory text cannot be sustained.

Accordingly, the deduction claimed by the assessee under section 80-IAB for Assessment Years 2018-19, 2020-21 and 2021-22 is directed to be allowed, subject to arithmetical verification of the quantum and the eligible period within the framework of section 80-IAB(2).

Turning to the ancillary issues, the grievance regarding short grant of TDS credit for A.Y. 2018-19 is purely factual and verifiable from departmental records. The Assessing Officer is directed to verify the claim with reference to Form 26AS and grant due credit in accordance with law. For A.Y. 2020-21, the grievance regarding erroneous adoption of assessed income under normal provisions as book profit under section 115JB, as also the pointed-out totalling error in the computation sheet, is likewise directed to be rectified after verification. For A.Y. 2021-22, the Assessing Officer shall verify and grant MAT credit under section 115JAA as claimed, in accordance with law. Consequential interest shall be recomputed on the revised tax effect.