THE PR COMMISSIONER OF INCOME TAX-3 vs. M/S INDIANOIL SKYTANKING PVT LTD

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 28TH DAY OF JANUARY, 2026 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE MR. JUSTICE K. V. ARAVIND

INCOME TAX APPEAL No. 574 OF 2023 C/W INCOME TAX APPEAL No. 573 OF 2023

IN ITA No. 574/2023

BETWEEN:

AND:

Digitally signed by VALLI MARIMUTHU Location: HIGH COURT OF KARNATAKA

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BANGALORE 560300, PAN: AABCI5709C.

…RESPONDENT (BY SRI T. SURYANARAYANA, SENIOR COUNSEL A/W MS. TANMAYEE RAJKUMAR, ADVOCATE)

THIS ITA / INCOME TAX APPEAL UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20/05/2022 PASSED IN ITA No.299/BANG/2020, FOR THE ASSESSMENT YEAR 2016-2017, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 20/05/2022 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEES CASE, IN APPEAL PROCEEDINGS IN ITA No.299/BANG/2020 FOR ASSESSMENT YEAR 2016-2017 (ANNEXURE-A).

IN ITA No. 573/2023

BETWEEN:

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AND:

…RESPONDENT (BY SRI T. SURYANARAYANA, SENIOR COUNSEL A/W MS. TANMAYEE RAJKUMAR, ADVOCATE)

THIS ITA / INCOME TAX APPEAL UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20/05/2022 PASSED IN ITA No.407/BANG/2020, FOR THE ASSESSMENT YEAR 2017-2018, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 20/05/2022 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEES CASE, IN APPEAL PROCEEDINGS IN ITA No.407/BANG/2020 FOR ASSESSMENT YEAR 2017-2018 (ANNEXURE-A).

THESE APPEALS COMING ON FOR ADMISSION THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: HON'BLE MR. JUSTICE S.G.PANDIT and HON'BLE MR. JUSTICE K. V. ARAVIND

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ORAL JUDGMENT

(PER: HON'BLE MR. JUSTICE K. V. ARAVIND)

Heard Sri Sushal Tiwari, learned Standing Counsel for Sri E.I. Sanmathi, learned Senior Standing Counsel for the appellants; and Sri T. Surayanarayana, learned Senior Counsel along with Ms. Tanmayee Rajkumar, learned counsel for the respondent. 2. These appeals arise out of a common order dated 20.05.2022 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, ‘the Tribunal’) in ITA Nos.407 and 299/Bang/2020, relating to the Assessment Years 2016–17 and 2017–18 respectively. 3. As common arguments have been canvassed, and the facts and substantial questions of law raised are identical, except for the difference in the Assessment Year, both appeals are disposed of by this common order. 4. The brief facts of the case are that the assessee is engaged in the business of operation and maintenance of a fuel farm and in providing plane services. The assessee claimed deduction under Section 80-IA of the Income-tax Act, 1961 (for

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short, ‘the Act’). The Assessing Officer disputed the eligibility of the assessee to claim deduction under Section 80-IA of the Act and accordingly called for a reply from the respondent- assessee. 4.1 The assessee submitted its reply contending that the fuel farm facility, being an essential and integral part of an airport, falls within the ambit of an “infrastructure facility” and, therefore, entitles the assessee to deduction under Section 80- IA of the Act. The Assessing Officer, however, held that the assessee had no agreement with the Central Government, the State Government, local authority or any other statutory body to develop, operate and maintain any infrastructure facility. On that premise, the claim for deduction under Section 80-IA of the Act was held to be not allowable. 4.2 The Assessing Officer further disallowed the interest payment on Hedge (Swap) transactions by treating the same as not being allowable as revenue expenditure. The assessment was completed on 09.12.2018 for the Assessment Year 2016– 17 and on 04.09.2019 for the Assessment Year 2017–18.

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4.3 The assessee preferred appeals before the Commissioner of Income-tax (Appeals) - 3 (for short, ‘the CIT(A)’). The CIT(A), by orders dated 20.02.2020 and 16.03.2020 relating to the Assessment Years 2016–17 and 2017–18 respectively, dismissed both the appeals. 4.4 Aggrieved thereby, the assessee preferred further appeals before the Tribunal. The Tribunal, following the judgment of this Court in The Principal Commissioner of Income-tax v. Menzies Aviation Bobba (Bangalore) (P.) Ltd. reported in [2021] 133 taxmann.com 458(Karnataka), wherein ‘cargo handling services’ were held to be part of an ‘airport’ and consequently entitled to deduction under Section 80-IA(4) of the Act, held that the fuel farm facility is an integral part of the airport and, therefore, eligible for deduction under Section 80IA of the Act. 4.5 Insofar as the disallowance of interest on Hedge (Swap) transactions is concerned, the Tribunal relied upon the judgment of the Hon’ble Supreme Court in Deputy Commissioner of Income-tax v. Core Health Care Ltd.

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reported in [2008] 167 Taxman 206 (SC) and allowed the deduction. 5. The Revenue has preferred these appeals by raising the following substantial questions of law: "1. "Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in law in setting aside disallowance of claim made under section 801A(4) of the Act though assesse has not satisfied conditions for availing benefit under said section since assesse has entered into agreement with a Corporate and not with authorities as prescribed in said Section and further activities carried on by assesse also do not fulfill the conditions set out in said section"? 2. "Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in law in setting aside disallowance made in respect of interest expenditure on hedge swap facility which assesse had availed from ICICI Bank to mitigate the risk of foreign exchange fluctuation on foreign exchange loan from Punjab National Bank objective of entering into this arrangement was to convert USD floating interest rate liability into INR fixed interest rate liability and mitigate the foreign exchange fluctuation risk and same is not allowable as per section 36 of the Act"? 3. "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside disallowance made under section 80IA of the Act and interest expenditure on hedge swap facility which assesse had availed from ICICI Bank to mitigate the risk of foreign exchange fluctuation on foreign

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exchange loan from PNB ignoring findings of assessing authority and first appellate authority"? 4. "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside disallowance made on account of interest expenditure on hedge swap facility which assesse had availed from ICICI Bank to mitigate the risk of foreign exchange fluctuation on foreign exchange loan from PNB as swapping of loan was not for business purpose"?"

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infrastructure facility. It is also contended that, in the absence of any specific statutory provision, the fuel farm facility cannot be treated as forming part of the airport. It is also contended that the fuel farm is neither a part of the airport nor an infrastructure facility within the meaning of Section 80-IA of the Act. 6.2 Insofar as the claim of interest on Hedge (Swap) transactions under Section 36(1)(iii) of the Act is concerned, learned counsel is unable to dispute that the issue is no longer res integra in view of the judgment of the Hon’ble Supreme Court in Core Health Care Ltd. (supra). 7. Sri T. Suryanarayana, learned Senior Counsel, along with Ms. Tanmayee Rajkumar, learned counsel appearing for the respondent–assessee, submits that the fuel farm facility is an integral part of the airport. It is contended that the term “airport” includes an aerodrome, and that an aerodrome, in turn, encompasses fuel management facilities. On that basis, it is submitted that the fuel farm facility is subsumed within the expression “airport”.

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7.1 Learned Senior Counsel further submits that an airport cannot function without a fuel farm and that the fuel farm facility is not merely an essential component but an integral part of the airport infrastructure. It is also submitted that M/s. Bangalore International Airport Limited (BIAL) has entered into agreements with the State Government and the Central Government for providing airport facilities, and that the fuel farm forms an integral part of such airport facilities. Consequently, it is contended that a separate or specific agreement with the authorities, as referred to by the Assessing Officer, is not a mandatory or requisite condition for claiming deduction under Section 80-IA of the Act. 7.2 Learned Senior Counsel further submits that this Court, while considering the scope of Section 80-IA of the Act in relation to cargo facilities in Menzies Aviation Bobba (Bangalore) (P.) Ltd. (supra), has held that BIAL is a statutory body and that providing cargo handling services under a build, operate and transfer scheme pursuant to a Service Provider Right Holder Agreement would fall within the expression “infrastructure facility” under Section 80-IA(4) of

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the Act. It is contended that, in view of the said judgment, the fuel farm facility, being similarly situated, would also qualify as an infrastructure facility eligible for deduction under Section 80- IA of the Act. 7.3 Learned Senior Counsel further submits that, insofar as the claim for deduction under Section 36(1)(iii) of the Act in respect of interest paid on Hedge (Swap) transactions is concerned, the issue is squarely covered by the decision of the Hon’ble Supreme Court in Core Health Care Ltd. (supra). Lastly, learned counsel submits that no substantial question of law arises for consideration in the present appeals. 8. Having considered the submissions of learned counsel for the parties, we notice that the respondent–assessee has established a fuel farm facility at the Bangalore International Airport. It is also borne out from the record that the respondent has entered into an agreement with BIAL for developing, operating, and maintaining the aviation fuel facility. 8.1 The Government of India has granted BIAL the exclusive right and privilege to undertake the development,

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design, financing, construction, commissioning, maintenance, operation, and management of the airport. In terms of the Concession Agreement, BIAL, in the exercise of its functions and activities, is empowered to grant service provider rights to any person for the purpose of carrying on any activity or business in connection with, or related to, the various services at the airport. 8.2 Pursuant thereto, BIAL has entered into a Service Provider Right Holder Agreement with the respondent–assessee for developing the aviation fuel facility at the Bangalore International Airport, which is in accordance with the authorization granted by the Government of India. One of the grounds on which the claim for deduction under Section 80-IA of the Act has been rejected is that the respondent has not entered into any agreement directly with the Central Government or a statutory body, as allegedly required under Section 80-IA of the Act. The second ground is that the fuel farm facility is not an essential or integral part of the airport and, therefore, cannot be treated as an infrastructure facility of the airport.

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8.3 Insofar as the first issue is concerned, this Court, in Menzies Aviation Bobba (Bangalore) (P.) Ltd. (supra), has held as under: "…… Thus, from close scrutiny of Section 80- IA(4)(i)(b) of the Act, it is evident that the assessee must be engaged in the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility which fulfills the following conditions, namely (a) it is owned by a Company, (b) it has entered into an agreement with Central Government or a State Government or a local authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility. 9. Sofar as the requirement of entering into a statutory body is concerned, the same is no longer res integra as a Bench of this Court in M/s. FLAMINGO DUTYFREE SHOPS PVT. LTD. has already held that BIAL is a statutory body. Thus, the assessee has complied with the aforesaid condition. It is pertinent to mention here that the Special Leave Petition against the aforesaid decision has been disposed of by order dated 16.09.2016. Thus, the view taken by this Court in M/s. FLAMINGO DUTYFREE SHOPS PVT. LTD. holds the field. In view of aforesaid enunciation of law, it is evident that the assessee has complied with the condition of entering into an agreement with the statutory body. 10. Now, we may deal with the issue whether the activity of the assessee in providing cargo handling services is covered under the

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expression 'infrastructure development'. The Commissioner of Income Tax (Appeals), vide order dated 11.06.2012, inter alia has held that from perusal of the layout map of the airport, it is evident that the cargo complex is connected to other infrastructure facilities by airside service road running parallel to the main runway. The aforesaid road serves the isolation bay, fire station, cargo complex, fuel farm and maintenance area as per Clause 4 of the concession agreement between the BIAL and Government of India. It has further been held that cargo handling services have been classified as material but competitive by AERA by an order dated 16.08.2011 in the assessee's own case. It has also been held that the expression 'aerodrome' as defined in Section 2(2) of the Aircraft Act is an inclusive definition and uses the expression 'includes'. It has further been held that large amount of non-passenger cargo is being uploaded to the commercial aircraft in addition to passenger's luggage and therefore, location of cargo handling area is linked with critical airside service road and partaking of statutory infrastructure relating to security, customs, x-rays, etc. within its own operations, indicates that this service is part of commercial operations undertaken by air cargo operators and other air transporters whose equipment and machinery are also integrated in to the definition of aerodrome as per Section 2(22) of the Aircraft Act, 1934. Thus, it has been held by the Commissioner of Income Tax (Appeals) that cargo handling services are located within the airport and are critical infrastructure facilities and are deemed to be part of the airport. 11. The Appellate Authority has also taken note of the fact that SPRH agreement gives rights for design, construction, financing, testing, commissioning, management and operation of the facility for a total period of 20 years to the

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assessee and the concession is on built, operate and transfer basis. Therefore, it has been held that every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor. In CHETTINAD LIGNITE TRANSPORT SERVICES P. LTD., supra, it has been held that proviso intends to extend the benefit of deduction under Section 80IA of the Act even to a transferee or a contractor who is approved and recognized by the concerned authority and undertakes the work of development of infrastructure facility or only operates or maintains the same."

8.4 It has been held that M/s. Bangalore International Airport Limited (BIAL) is a statutory body. Upon perusal of the layout map of the airport, the cargo complex has been held to constitute an infrastructure facility. It has been further held that the establishment of the cargo complex and the fuel farm is in accordance with the Concession Agreement entered into between BIAL and the Government of India. By referring to sub-section (2) of Section 2 of the Aircraft Act, 1934, it has been held that the cargo complex forms part of the aerodrome. 8.5 In the light of the above discussion, the contention of the Revenue that the respondent has no agreement with any statutory body, as one of the requisite conditions for claiming deduction under Section 80-IA of the Act, is unsustainable.

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BIAL has been held to be a statutory body, and the agreement entered into between the respondent–assessee and BIAL satisfies the requisite conditions contemplated under Section 80-IA of the Act. 9. The second contention of the Revenue that the fuel farm facility does not form part of the airport is also not acceptable. An airport is held to be an infrastructure facility in terms of Explanation 2 to Section 80-IA of the Act. The term “airport” is not defined under the Act. However, the expression “aerodrome” is defined under the Aircraft Act, 1934. The same reads as under: (2) "aerodrome" means any definite or limited ground or water area intended to be used, either wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds, vessels, piers and other structures thereon or appertaining thereto;

9.1 The expression “aerodrome” includes any ground or water area intended to be used, either wholly or in part, for the landing or departure of aircraft, and also includes all buildings, sheds, vessels, piers, and other structures thereon or

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appertaining thereto. All such facilities are incidental or integral to the landing or departure of aircraft. 9.2 We have no hesitation in holding that the supply of fuel to aircraft is an integral part of airport operations, without which an airport cannot function. The fuel farm is, therefore, an indispensable component of airport activity. Under the Concession Agreement entered into between the Government of India and BIAL, BIAL has been expressly authorised to enter into agreements for developing aviation fuel facilities within the airport through oil companies. This, in our considered view, clearly indicates that the fuel farm is an integral part of the airport facility. The finding of this Court in Menzies Aviation Bobba (Bangalore) (P.) Ltd. (supra), though rendered in the context of cargo handling services, applies to the fuel farm facility with equal force and for the very same reasons. 10. We hold that the substantial questions of law raised with regard to the entitlement of the respondent–assessee to deduction under Section 80-IA of the Act are wholly covered by the judgment of this Court (supra). The findings recorded by the Tribunal, being based on the said judgment of this Court,

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do not give rise to any substantial question of law warranting consideration by this Court. 11. Insofar as the other question relating to the allowance of deduction under Section 36(1)(iii) of the Act in respect of interest on Hedge (Swap) transactions is concerned, the said issue has been answered by the Tribunal by following the judgment of the Hon’ble Supreme Court in Core Health Care Ltd. (supra). The Revenue is not in serious dispute with regard to the applicability of the said judgment to the facts of the present case. 12. We hold that the said issue is squarely covered by the judgment of the Hon’ble Supreme Court in the case referred to supra. The Tribunal has correctly followed the said judgment of the Hon’ble Supreme Court. The order of the Tribunal does not give rise to any substantial question of law warranting consideration by this Court. 13. At this stage, learned counsel for the Revenue submits that the judgment of this Court in Menzies Aviation Bobba (Bangalore) (P.) Ltd. (supra) is the subject matter of Civil Appeal No. 4667 of 2024 pending before the Hon’ble

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Supreme Court. In the absence of any contrary order by the Hon'ble Supreme Court, the order of this Court continues to operate the field. 14. The order of the Tribunal, which has answered the issues by following the judgment of this Court on the question of deduction under Section 80-IA of the Act, does not warrant interference. 15. For the aforesaid reasons, both appeals stand dismissed.

Pending interlocutory application if any, stands disposed of.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (K. V. ARAVIND) JUDGE

DDU List No.: 1 Sl No.: 6