AIRPORTS AUTHORITY OF INDIA vs. COMMISSIONER OF INCOME TAX DELHI I

ITA - 433 / 2008HC Delhi16 December 201127 pages

For Petitioner: O.P.SAPRA

AI SummaryPartly Allowed

What did the High Court hold?

The High Court addressed two main issues. Regarding the provision for removal of encroachments, the Court noted that while the Tribunal had found no scheme presented by the assessee, it allowed deductions based on actual payments made, referencing the Supreme Court's decision in Bikaner Gypsum (supra). For the proforma invoices, the Court held that the Tribunal was incorrect in treating the entire amount as income merely because a small sum was received. Applying the 'real income' theory, as accepted in State Bank of Travancore vs. CIT, the Court ruled that no income accrued to the assessee from government agencies that never made any payment. The matter was restored to the Assessing Officer to examine the taxability of proforma invoices, distinguishing between parties who made partial payments and accepted liability, and those who made no payments. The Court directed the Assessing Officer to determine taxability accordingly, not taxing proforma invoices from agencies that never paid.

What were the facts?

The Airport Authority of India (AAI), the assessee, is a statutory authority responsible for managing airports. The appeals concern multiple assessment years. Two primary issues arise: first, the disallowance of provisions made for the expenditure to be incurred in removing encroachments around airport technical areas, necessitated by safety and security concerns. The AAI argued this was a revenue expenditure to secure existing assets. Second, the addition of amounts raised in proforma invoices as income. These invoices were issued to government agencies occupying space at airports, who did not pay license fees, on the advice of the Comptroller and Auditor General (CAG). The Assessing Officer treated these as income under the mercantile system of accounting, a view upheld by the Tribunal.

What were the issues?

1. Whether on the facts and circumstances of the case and in law, the ITAT erred in holding that the appellant was not entitled to deduct the amount provided under the mercantile system of accounting towards the liability on account of expenditure to be incurred in removal of encroachments in and around the technical area of the Airport, which was necessitated out of safety and security considerations in the normal course of business of the authority enjoined with the responsibilities of maintenance and operation of airports all over India? (Section 37 of the Income Tax Act, 1961 is implicitly relevant here). 2. Whether on the facts and circumstances of the case and in law, the ITAT was justified in treating the amount raised in proforma invoices as income relying on its order for the assessment year 1998-99? (Section 5 of the Income Tax Act, 1961 is implicitly relevant here). Assessee's Contentions: For Issue 1: The expenditure on removal of encroachments was revenue in nature as it was to secure existing assets, not create new ones. As the assessee followed the mercantile system, it was necessary to account for this liability. Reliance was placed on Bharat Earth Movers Ltd. vs. CIT. Revenue's Contentions: For Issue 1: The revenue argued that the provision was not for a real liability as no scheme for removal was produced, and the expenditure was capital in nature. For Issue 2: The revenue contended that the proforma invoices represented accrued income under the mercantile system, even if not realized, and that some government agencies had indeed paid the amounts.

Which sections of the Income-tax Act were involved?

Section 37

AI-generated summary — verify with the full judgment below

2011:DHC:11916-DB

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