Belair Logistics Limited, Hyderabad vs Department Of Income Tax

These 5 appeals are preferred by the Revenue against the common order of Ld. CIT(A)-II, Hyderabad dated 14.05.2014 for A.Ys. 2006-2007 to 2010-2011 .

2. Ground Nos. 1 and 2 raised by the Revenue in all the appeals involve a common issue relating to the assessee's claim of deduction under section 80IA.

3. The assessee in the present case is a company which is engaged in the business of providing storage facilities and handling of cargo at Kakinada Sea Port. As per the Concession Agreement entered into with the Government of Andhra Pradesh on 19th March, 1999, M/s. International Sea Ports P. ltd., had agreed originally to develop, operate and 2 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

maintain the Kakinada Deep Water Port. This concession was subsequently assigned by the said company in favour of Kakinada Port Company P. Ltd., which changed its name to Kakinada Sea Ports Ltd., on 18th September, 2001. Thereafter, Kakinada Sea Port Ltd., on 01.12.2001 entered into sub-lease agreement with the assessee company to lease out 20.00 acres of land for a period of 20 years. This sub-lease agreement was duly approved by the Government of Andhra Pradesh vide Lr.No.11694/P1/2001 dated 15.12.2001. Out of the 20.00 acres of land taken on lease by the assessee company, part was utilized for construction of godowns for covering storage and the remaining part was used as a open yard for storage of goods like granite, iron ore and other dry bulk cargo. In the returns of income filed for all the 5 years under consideration, the assessee company claimed deduction under section 80IA in respect of profit derived from the business of providing storage facilities and handling on cargo as under :

A.Y. Amount of deduction 2006-07 Rs.22,52,369 2007-08 Rs.1,04,18,618 2008-09 Rs.96,83,107 2009-10 Rs.1,74,89,995 2010-11 Rs.1,64,69,823

3.1. During the course of assessment proceedings the claim of the assessee for deduction under section 80IA was examined by the A.O. and on such examination, he found the same to be not allowable mainly for the following reasons :

a. "Warehouse is included under the infrastructure facility but not the open land.

b. Even as per the certificate issued by the Port Authority, only the warehouse is infrastructure facility but not the open land.

3 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

c. The infrastructure facility shall be owned by the assessee company to claim 80IA(4) deduction in this case, rather it is taken on lease from M/s.KSPL.

d. That the assessee company did not enter into any agreement with Central Government or State Government or Local Authority or any

e. That such an agreement should be entered by the company availing deduction u/s.80IA whereas in the instant case, it is the KSPL which entered into agreement with the Government of Andhra Pradesh and not the assessee.

f. As per the proviso to section 80IA(4) the infrastructure is first to be developed by the transferor company and the same should be transferred to transferee company. Whereas in the instant case, M/s. KSPL entered into agreement with Government of Andhra Pradesh on 16.04.2001 and the same lease was transferred to the assessee company on 01.12.2001 (within 8 months). Therefore, there is a mere transfer of lease by M/s.KSPL and it is not the transfer of infrastructure facility, the infrastructure is developed by the appellant itself.)"

3.2. The disallowance made by the A.O. on account of its claim for deduction under section 80IA for all the 5 years under consideration was challenged by the assessee in the appeals filed before the Ld. CIT(A) and various submissions were made on behalf of the assessee to meet the objections raised by the A.O. while denying the deduction claimed by it under section 80IA. The said submissions, as summarized by the Ld. CIT(A) in his impugned order, were as under :

(a) "Storage of goods can be in covered godown or in the open yard as per the requirement of the customer. Certain goods like granite, iron-ore 4 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

etc. can be kept in open place.

(b) As per the circular no.793 23.06.2000 the structures at port, for storage, loading and unloading etc., will fall under the definition of "Port" for the purpose of section 10(23G) of the Income-tax Act.

(c) The Director of Ports has issued a certificate stating that infrastructure developed by the appellant company forms part of Deep Water Port, Kakinada.

(d) The meaning of structure for storage includes close-d yard, open yard which is capable of storing and handling the inbound and outbound cargo.

(e) The appellant relied on the decision of Ocean Sparkle Ltd. Vs. DCIT (2006) 155 Taxmann 133 (Hyd).

(f) The A.R. also submitted agreement between Government of A.P. & KSPL, lease deed between KSPL and the appellant and the judicial precedents on issues raised in grounds of appeal etc."

3.3. The Ld. CIT(A) found merit in the above submissions made by the assessee and directed the A.O. to allow the claim of the assessee for deduction under section 80IA for all the five years under consideration for the following reasons given in paragraph Nos. 4.8.3 to 4.8.5 of his impugned order :

"4.8.3. As per the proviso to section 80IA(4) the transferee company becomes entitled to 80IA(4) deduction if transferee company operates and maintains the infrastructure facility in accordance with the agreement entered into by the transferor company with the government. From careful reading of proviso to section 80IA(4) mentioned at para 4.2, one can understand that the agreement with the Central Government / State Government / 5 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

local authority has to be entered by the transferor because as per the explanation of the same section, 80IA(4), "infrastructure facility" means road, rail, bridge, highway projects, water supply projects, irrigation projects, sewerage system, airport, seaport etc., all these facilities are owned by sovereign states not by private parties. In order to develop any infrastructure of these types, the person has to first enter into an agreement or an understanding with the state. Therefore, to my understanding, it company which has to enter an agreement with the state, thereafter it can develop the infrastructure, thereafter, it can transfer the same to some other company for operating and maintaining. In .he instant case, M/s. KSPL entered into an agreement with Government of Andhra Pradesh for developing infrastructure and Government of Andhra Pradesh has leased out the land for the same purpose. This land was sub- leased to many companies to develop the infrastructure. One of the companies is the appellant company - M/s. Belair Logistics Ltd. Such sub-lease to the appellant had the approval of Government of Andhra Pradesh vide its letter No.11694/B-1/2001 dated 15.12.2001, m effect, the condition that there should be agreement with government is complied with though indirectly.

4.8.4. It is evident from the information on record that the entire land leased out to M/s. KSPL, including the land sub-leased to the appellant will go back to the Government of Andhra Pradesh at the end of the lease period along with the infrastructure developed on it. Para 9.1 of agreement between Government of Andhra Pradesh and International Seaports PTE Ltd. Singapore, dated 19.03.1999 reads as under:

On the expiry of the Concession period, including any extension granted all land leased (including submerged land), all existing improvements, structures, buildings, at the Premises whether permanent or semi-permanent, constructed by or belonging to CONCESSIONIAIRE or their sub- contractors, sub-lessees and assignees free from all encumbrances and liabilities shall automatically become the property of GOAP 6 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

without any obligation to reimburse therefor.

4.8.5 It was explained by the Authorised Representative that M/s. KSPL is claiming 80IA benefit on lease rentals received by it from lessees including the appellant. Whereas, the appellant is claiming 80IA deduction on the lease rentals received by it from various parties who availed godowns and open yard developed by it which includes M/s. Reliance Industries and Transocean Offshore Deepwater Drilling Inc. etc. In any case, the land is always owned by the Government of Andhra Pradesh. The KSPL has got lease rights which were sub-leased to the appellant. However, the infrastructure developed or sub-leased land belongs to appellant till it reverts back to government. The CBDT vide its Circular No. 793 dated 23.06.2000 had amply clarified that the structure and ports for storage, loading, unloading etc., fall under the definition of 'port' for the purpose of 80lA, if a certificate is issued by Port Authority stating that such structures form part of the Port and are operated under BOT or BOLT Schemes. If there is an agreement that the said structure is transferred to such an authority after expiry of time stipulated in the agreement.

Therefore, all the conditions laid down in section 80IA(4) mentioned at para 4.3 are fulfilled. The only issue is, the proviso to section 80lA(4) reads that, in case the infrastructure developed is transferred to the transferee company then the transferee company would be entitled to 80lA deduction. The Assessing Officer took the objection that, in the instant case, the transferor (KSPL) did not develop infrastructure rather it is the transferee which developed infrastructure. Therefore, 80lA deduction is not allowable to the assessee. However, I consider the spirit of the section is to allow deduction to the companies who are making investments in infrastructure. Whether transferor develops infrastructure or the transferee: develops the infrastructure is not a materially important. Moreover, it is the settled principle that the sections which are beneficial to the assessees have to be interpreted liberally to serve the purpose for which the section is intended to. The Hon'ble Supreme Court in the case of Bajaj 7 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

Tempo Ltd. Vs. CIT 196 ITR 188 held that the a provision in taxing statute granting incentives for promoting growth and development should be construed liberally. Further, the Hon'ble Supreme Court in the case of Collector Land Acquisition Anantnag ANR. Vs Mst. Katiji and Others 1987 AIR 1353 held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice has to be preferred. Similar view was held in the case of M/ s.Mahalakshmi Real Estates Vs. ITO in ITA No. 991/Hyd/2009. It is also pertinent to mention that the Hon'ble ITAT, Hyderabad 'A' Bench in the case of Ocean Sparkle Ltd. V. DCIT (2006) 155 Taxmann 133 (Hyd.) (Mag.) where the facts of the case were identical, where the Ocean Park had entered into an agreement with Kakinada Seaports for operation and maintenance of infrastructure facility, after in depth analysis, the Hon'ble Hyderabad Tribunal had allowed 80IA deduction. Having considered all the relevant factors and going by the judicial precedents section 80IA(4) is allowable to the appellant. Therefore, the grounds of appeal on 80lA (4) for all the years i.e., 2006-07, 2007-08, 2008-09, 2009- 10 & 2010-11 are allowed."

3.4. Aggrieved by the order of the Ld. CIT(A) allowing the claim of the assessee for deduction under section 80IA, the Revenue has raised this issue in the present appeals filed before the Tribunal.

4. We have heard the arguments of both the sides and also perused the relevant material on record. As agreed by the learned representatives of both the sides, the common issues involved in these appeals of the Revenue relating to the assessee's claim of deduction under section 80IA is squarely covered in favour of the assessee inter alia by the decision of Hon'ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd., 322 ITR 323 wherein a similar claim of assessee for deduction under section 80IA was allowed by the 8 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

Hon'ble Bombay High Court relying inter alia on Circular Nos. 793 dated 23.06.2000 and 10/2005 dated 16.12.2005 issued by the CBDT. The said circulars, copies of which are placed on record before us by the Ld. Counsel for the assessee, read as under :

"Circular: No. 793, dated 23-6-2000.

CLARIF1CATION ONE

1. Reference is invited to Board's Circular No. 793, dated 23-6-2000 and amendment in section 80-lA by the Finance Act, 2001.

2. "Port" for the purposes of sections 10(23G) and 80-IA of the Income-tax Act, 1961, includes structures at the ports for storage, loading and unloading etc., 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 structure have been built under the 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.

This definition is applicable to assessment year 2001-02 and any earlier assessment year.

3. However, for and from assessment year 2002-03 onwards, structures at the ports for storage, loading and unloading etc. will be -included in the definition of "port" for the purpose of sections 10(23G) and 80-IA of the Income-tax Act, 1961, if the following condition is fulfilled: the concerned port authority has issued a certificate that the said structures form part of the port."

4.1. In the judgment passed in the case of ABG Heavy Industries Ltd., (supra) the relevance of the aforesaid two 9 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

circulars issued by the CBDT was considered and discussed by the Hon'ble Bombay High Court as under :

"15. The importance of the circular, insofar as the subject-matter of these proceedings is concerned, lies in the fact that the Board noted that it was in receipt of representations seeking a clarification on whether structures at ports for storage, loading and unloading etc. would fall within the definition of a port inter alia for the purposes of s. 80-IA of the Act. The Board clarified that such structures would be included in the definition of 'port' for the purposes of s. 80-IA of the Act, subject to the fulfillment of the condition that the port authority must issue a certificate that the structures form a part of the port; that such structures had been built either under a BOT or BOLT Scheme and there was an agreement for the transfer of the structure to the authority after the fulfillment of the stipulated period. The circular, therefore, clearly postulated a concession being given in respect of a particular facility at a port namely a facility involving storage, loading and unloading.

16. On 16th Dec., 2005, Circular No. 10 of 2005 [(2005) 199 CTR (St) 97] was issued by the CBDT. The circular made a reference to the earlier circular dt. 23rd June, 2000 and clarified that the definition of the expression 'port' for the purposes of s. 80-IA of the Act so as to include structures at ports for storage, loading and unloading etc., subject to the fulfillment of the conditions already noted earlier, would apply to the asst. yr. 2001- 02 and any earlier assessment year. However, from asst. yr. 2002-03 onwards, the condition requiring that the structure should have been completed under a BOT or BOLT Scheme and that there should be an agreement for transfer of the facility to the competent authority on the expiry of the stipulated period was deleted. In other words, the conditions which were prescribed by CBDT's Circular dt. 23rd June, 2000 were liberalized by the subsequent circular dt. 16th Dec., 2005. By the subsequent circular it was clarified that the conditions that were spelt out in the earlier circular dt. 23rd June, 2000 would continue to operate in respect of assessment years prior to and culminating with asst. yr. 2001-02. With effect from asst. yr. 2002-03 all that was necessary was a certificate issued by the port authority that the structure in question forms a part of the port. Hence, the 10 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

evolution of s. 80-IA would show a progressive liberalisation of the legislative scheme, in the interests of aiding the growth of infrastructure. The administrative circulars issued by CBDT in implementation of s. 80-IA similarly liberalised the scheme, consistent with the Act."

4.2. After taking note of the relevance of the two Board Circulars issued by the CBDT as well as the certificate issued by the concerned port i.e., JNPT, the Hon'ble Bombay High Court allowed the claim of the assessee for deduction under section 80IA in the case of ABG Heavy Industries Ltd., (supra) by observing as under :

"On 31st May, 2004, JNPT issued a certificate confirming the award of contracts to the assessee on 2nd Sept., 1994 and 16th Oct., 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. 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. The obligations which had been assumed by the assessee under the terms of the contract were obligations involving the development of an infrastructure facility. Sec. 80-IA 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 s. 80-IA. 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 11 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

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. The finding that the assessee had developed the infrastructure facility and that it was engaged in operating the cranes was, therefore, based on the material on record. The fact that the assessee was also maintaining the cranes was not disputed. The facility was commenced after April 1, 1995. The assessee was entitled to the special deduction under section 80-IA."

4.3. In the present case, the concerned port namely Kakinada Deep Water Port has also issued a certificate to the assessee (copy placed at page 28 of the paper book) which reads as under :

"GOVERNMENTOFANDHRAPRADESH PORT DEPARTMENT **** 0/0. the Port Officer, Kakinada.

Dated: 08-04-2005

TO WHOM SO EVER IT MAY CONCERN This is to certify that the infrastructure facilities developed for storage of cargoes and other facilities constructed and owned by M/s. Belair Logistics Limited, Kakinada are part of infrastructural facilities of the Kakinada Deep Water Port. The same has been put into use from 1st April, 2005.

Sd/-

PORT OFFICER KAKINADA To, M/s. Belair Logistics Limited Kakinada."

4.4. Keeping in view the certificate dated 08.04.2005 issued by the Kakinada Deep Water Port in the light of CBDT Circular Nos. 793 dated 23.06.2000 and 10/2005 dated 16.12.2005, we are of the view that the issue involved in the present case relating to the claim of the assessee for deduction under section 80IA is squarely covered by the decision of Hon'ble Bombay High Court in the case of ABG Heavy 12 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

Industries Ltd., (supra) and this position is not disputed even by the learned D.R. We therefore respectfully follow the decision of Hon'ble Bombay High Court in the case of ABG Heavy Industries Ltd., (supra) and uphold the impugned order of the Ld. CIT(A) allowing the claim of assessee for deduction under section 80IA. Ground Nos. 1 and 2 of the Revenue's appeals are accordingly dismissed.

5. As regards ground No.3 raised in the appeals of the assessee, it is observed that although this ground is raised by the Revenue in all its 5 appeals for A.Y.2006-07 to 2010- 2011, the issue involved therein relating to deletion by the Ld. CIT(A) of the disallowance made by the A.O. on account of expenditure incurred by the assessee towards loan processing charges and rates and taxes for loan documentation is involved only in A.Y. 2010-2011 as agreed even by the learned D.R. The issue involved in ground No.3 of the Revenue's appeal thus is not arising from the impugned order of the Ld. CIT(A) for A.Y. 2006-07 to 2009-2010 and accordingly ground No.3 raised by the Revenue in its appeal for the said years is liable to be dismissed as not arising from the impugned order of the Ld. CIT(A). We accordingly dismiss ground No.3 of the Revenue's appeal for A.Ys. 2006-07 to 2009-2010.

6. As regards A.Y. 2010-2011, it is observed that the assessee company in its profit and loss account filed along with the return of income for A.Y. 2010-2011 had debited loan processing charges of Rs.23,73,014 and rates and taxes on loan documents amounting to Rs.3,01,180. According to the A.O., any processing charges or other expenses incurred prior to taking a loan, whether for operational requirement or otherwise, were liable to be capitalized since the same were 13 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

incurred for raising the loan, a capital item. He therefore disallowed the expenses claimed by the assessee on account of loan processing charges as well as rates and taxes for loan documents. On appeal, the Ld. CIT(A) deleted the said disallowance made by the A.O. after discussing the relevant case laws cited on behalf of the assessee in para 5.1 of his impugned order as under :

"5.1. The appellant submitted that the loan from UCO Bank was borrowed for the purpose of business, therefore, the above expenses are to be allowed. It is a fairly settled proposition that irrespective of whether the loan taken was used for capital or revenue purpose, expenses paid for loan processing is revenue expenditure. In the case of India Cements Vs. CIT (1966) 60 ITR 52 the Hon'ble Supreme Court held that there is no distinction between the interest on loan and expenditure incurred on obtaining loan, both are allowable. The object for which the loan is obtained was considered as irrelevant by the Hon'ble Supreme Court. Further, the Hon'ble Supreme Court in the case of DCIT vs. Gujarat Alkali Chemicals (2008) 299 ITR 85 held that finance charges paid by assessee in connection with the loan taken for expansion of business was allowable. Similarly, the Hon'ble Supreme Court in the case of Akkamamba Textiles Ltd. (1997) 227 ITR 464 held that the guarantee commission paid to the bank and to the insurance company for purchase of machinery was revenue expenditure. Further, the Hon'ble ITAT, Pune Bench in the case of Chintamani Hatcheries Ltd. Vs. DCIT (2000) 68 TTJ (Pune) 47 held that once the business has started, the fact that the loan was obtained for acquisition of capital asset is immaterial.

Bank evaluation fee for sanctioning loan was considered as allowable. Therefore, in view of the above judicial precedents, the Assessing Officer is directed to allow the loan processing 14 ITA.No.1377 to 1381/Hyd/2014 M/s. Belair Logistics Ltd., Hyderabad.

expenses of Rs,23,72,014/- and stamping charges of Rs.3,01,180/- which were paid for mortgaging the property in favour of the bank for obtaining the loan. Therefore, these grounds of appeal are allowed."

7. We have heard the arguments of both the sides and also perused the relevant material on record. Although the learned D.R. has strongly relied on the order of the A.O. in support of Revenue's case on this issue, the learned Counsel for the assessee has relied on the definition of "Interest" given in section 2(28A) of the Act which provides that 'interest' means, interest payable in any manner in respect of any monies borrowed or debt incurred and includes any service fee or other charge in respect of the monies borrowed or debt incurred. Processing charges and other expenses incurred by the assessee in connection with the loan borrowed, thus, are to be considered in the nature of interest as per the definition given in section 2(28A) and the Ld. CIT(A) in our opinion, was fully justified in allowing the same as deduction as claimed by the assessee. We, therefore, uphold the impugned order of the Ld. CIT(A) on this issue and dismiss ground No.3 of the Revenue for A.Y. 2010-2011.

8. In the result, all the five appeals of the Revenue are dismissed.

Order pronounced in the open Court on 24.04.2015.

Sd/- Sd/- (SMT. P. MADHAVI DEVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 24th April, 2015.

VBP/- 15 ITA.No.1377 to 1381/Hyd/2014

M/s. Belair Logistics Ltd., Hyderabad.

Copy to

1. The Deputy Commissioner of Income Tax, Circle 1(3), 4th Floor, Aayakar Bhavan, Hyderabad.

2. M/s. Belair Logistics Ltd., 8-2-418, 3rd Floor, Meenakshi House, Road No.7, Banjara Hills, Hyderabad - 500 034.

3. CIT(A)-II, Hyderabad

4. CIT-I, Hyderabad.

5. D.R. I.T.A.T. "B" Bench, Hyderabad.