Enterprise Contracting With Assignee Of Govt Recognised Concessionaire For Developing “Infrastructural Facility” Can Claim Deduction U/S 80IA(4) Of Income Tax Act: Calcutta HC

The Calcutta High Court has held that an enterprise contracting with the assignee of a government recognised concessionaire for infrastructure development can, based on facts and circumstances of the case, be given the benefit of deduction under Section 80IA(4) of the Income Tax Act 1961.

The provision prescribes deductions in respect of enterprises engaged in infrastructure development. Sub-section (b) of the provision stipulates that the enterprise claiming deduction must have entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility.

In the case at hand however, the Respondent (assessee) had entered into agreement with Kakinada Sea Port Limited (KSPL), special purpose company of ISPL, which had in turn contracted with the Andhra Pradesh government for development of the Kakinada Deep Water Port.

In its appeal against an ITAT order allowing the assessee to claim deduction, Revenue claimed that assessee never had an agreement either with the Government or even with the entity having such an agreement with the Government.

After perusing all the agreements involved in the matter, the division bench of Chief Justice TS Sivagnanam and Justice Hiranmay Bhattacharyya pointed that Andhra Pradesh government had, in agreements with International Sea Ports Limited (ISPL), agreed that KSPL (formerly CPCL) would be the assignee of ISPL and shall be treated as successor to ISPL's rights, duties and obligations under the concession agreement.

It is only after this agreement, that the assessee was brought onboard by KSPL to develop the Mechanised Port Handling System.

Relevant observation of the HC in this regard is as follows, “Thus, a cumulative reading of all the terms and conditions more particularly in the primary concession agreement, it is clear that KSPL is the nodal agency formed for the purpose of carrying out the rights, duties and obligations under the concession agreements. These agreements provide for subrogation of rights to a body corporate with the consent of the Government of Andhra Pradesh and also with the prior approval of the shareholding pattern and in accordance with the said condition the special project company namely KSPL was setup which was recognised by the Government of Andhra Pradesh for all legal and operational purposes as successors of ISPLs rights duties and obligations under the agreements. In this sequence of events the assessee entered into an agreement dated 19.04.2012 with KSPL for establishment of the said infrastructural facility.”

Furthermore, the High Court pointed out that port authorities of the Andhra Pradesh government had certified that the infrastructural facilities developed by the assessee is part of the Kakinada Deep Water Port.

It observed, “benefit of deduction provided for under Section 80IA(4) of the Act is for a beneficial purpose, the purpose being to promote industrial undertakings or enterprises engaged in infrastructural developments etc. Therefore, the interpretation to be given to the said provision should advance the object for which the provision was introduced and not to frustrate it.”

The High Court also referred to various other terms of the contract, like ownership and delegation of maintenance obligations, profit sharing, etc. to conclude that the Tribunal was justified in allowing the assessee's appeal.

Appearance: Advocates Tilak Mitra and Soumen Bhattacharjee for Revenue; Sr Adv JP Khaitan and Advocates Arati Agarwal and Rosy Banerjee for Assessee

Case title: Principal Commissioner Of Income Tax – 1, Kolkata v. Bothra Shipping Services Private Limited 

Case no.: ITAT/85/2024

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