ASSISTANT COMMISSIONER OF INCOME TAX, C-1(1)(1), BANGALORE V. BANGALORE INTERNATIONAL AIRPORT LIMITED, BANGALORE

ITA 1108/BANG/2024

AI Insights

The case involves appeals by the Revenue against the order passed by the CIT(A) allowing deductions under section 80IA(4) of the Income Tax Act on various incomes including non-aeronautical operations and bank interest, and the disallowance of a concession fee payment to the Government. The Tribunal examined whether the income from non-aeronautical operations and other specified incomes were derived from the eligible business activities of the assessee, Bangalore International Airport Ltd., which operates the Kempegowda International Airport. The Tribunal also considered the issue of whether the guarantee commission received from BAHL was eligible for deduction under section 80IA(4). The Tribunal's decision was influenced by previous rulings in similar cases and the specific terms of the concession agreement between the assessee and the Government of India.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 112187 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Other Referred Cases: Cambay Electrical Supply Industrial Co. Ltd. vs. CIT, Sterling Foods vs. CIT, Pandian Chemical vs. CIT, Vellore Electric Corporation vs. CIT, Karnal Cooperative Sugar Mills Ltd. vs. CIT, SA Builders Ltd. vs. CIT, CIT vs. Brindavan Beverages (P.) Ltd, CIT vs. Reliance Industries Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NANDINI DAS
• Assessee Lawyers: T. SURYANARAYANA
• Keywords: Set aside; Opportunity of being heard; Proportionate interest; Commercial expediency; Wholly owned subsidiary
• Section: 22; 113; 13; 43B; 191; 80IA; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA Nos. 1108 & 1109/Bang/2024 Assessment Year : 2018-19 & 2020-21 The Assistant Commissioner of Income Tax, Circle – 1 (1)(1), Bangalore. Vs. M/s. Bangalore International Airport Ltd., Alpha 2, Administrative Block, Kempegowda International Airport, Devanhalli, Bangalore. Karnataka – 560 300. PAN: AABCB8973D APPELLANT RESPONDENT & C.O. No. 25/Bang/2024 (in ITA No. 1109/Bang/2024) (Assessment Year : 2020-21) (By Assessee) Assessee by : Shri T. Suryanarayana, Advocate Revenue by : Smt. Nandini Das, CIT-DR Date of Hearing : 23-01-2025 Date of Pronouncement : 16-04-2025 ORDER ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 2 of 26 . PER WASEEM AHMED, ACCOUNTANT MEMBER These are the appeals filed by the Revenue against the order passed by the ld. NFAC, Delhi dated 30/03/2024 and 31-03-2024 in ITBA/NFAC/S/250/2023- 24/1063708596(1) and ITBA/NFAC/S/250/2023-24/1063787095 for the AYs 2018-19 and 2020-21. The assessee is in the CO. in ITA No. 1109/Bang/2024 for the AY 2020-21. First, we take up ITA No. 1108/Bang/2024, an appeal by the Revenue for A.Y. 2018-19 2. The first issue raised by the revenue is that the learned CIT(A) erred in allowing the deduction under section 80IA(4) of the Act on the income from non- aeronautical operations, bank interest and other incomes. 3. The brief facts are that the assessee, in the present case, is a public company. The assessee company entered into concession agreement with Ministry of Civil Aviation Government of India dated 05-07-2004 to construct/develop the Kempegowda International Airport Bangalore. As per the agreement, the assessee was provided with the exclusive right and privilege to carry out the development, design, construction, commissioning, maintenance, operation and management of the Bangalore International Airport. In terms of the agreement, the assessee was required to operate and maintain the airport in accordance with good industry practices and standards, some of which include restaurants and eating facilities, general retail shops. Finally, the assessee constructed/developed and started the operation and maintenance of the said airport from 24th of May 2008. The assessee also entered into various JV with several parties for running restaurants, bars and other refreshment facilities as per the terms of which the assessee would get a revenue share in the business activities carried out by the third parties. ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 3 of 26 . 4. Further the assessee, following the provision of Airport Economic Regulatory Authority of India Act 2008 divided its revenue from its activities into 2 heads namely Aeronautical Revenue and Non-aeronautical Revenue which are detailed as under: i. Aeronautical Revenue Rs. 920.08 crores ii. Non-aeronautical Revenue Rs. 578.89 crores Total Rs. 1498.93 crores 5. Moreover, the assessee also showed income from bank interest, government grant, interest income tax refund, tender fee, misc. income etc. at Rs. 54,93,33,671/- under the head “Non-aeronautical Revenue”. There were 15 different subheads of income which are detailed at pages 7 to 8 of the assessment order. 6. The AO was of the view that the deduction under section 80IA of the Act is available for income derived from the eligible industrial undertaking and not income attributable to the eligible industrial undertaking. The phrase “derived from” has narrow meaning as defined by the Hon’ble Supreme Court in the case of Cambay Electrical Supply Industrial Co. Ltd. vs. CIT reported in 113 ITR 84. Therefore, only the income receipt from actual conduct of business will be covered under the income derived from and not the income incidental to the actual conducts of business. The AO further referred to the decision of Hon’ble Supreme in the case of Sterling Foods reported in 237 ITR 53 and Pandian Chemical reported in 262 ITR 278 to buttress his view that only the income which has direct nexus with eligible business activity of the industrial undertaking will be eligible for deduction under section 80IA of the Act. The AO, in view of the above, held that other income such as income from bank interest, government grant, interest income tax refund, tender fee, misc. income etc. amounting to Rs. 54,93,33,671/- will not be eligible for deduction under section 80IA of the Act as these do not fall under the category of income derived from the ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 4 of 26 . business of development, maintenance and operation of Infrastructure development i.e. airport. 7. Likewise, the AO held that the part of the income under the head “non- aeronautical revenue” are also not falling under the category of income derived from the business of development, maintenance and operation of Infrastructure development i.e. airport. Those subhead of income under the category of “non- aeronautical revenue” are detailed as under: 1. Revenue share fee from Food & Beverages 2. Revenue share fee from Retail outlets 3. Taxi, Lemousine and car rentals (From taxi like Meru, Mega, Ola and car operator namely Akbar etc.) 4. License fee and Rentals (includes advertisement & promotion, rent offices, rental from cargo village, rent airport authority of India) 5. Information communication technology income 6. Landslide parking income 7. Revenue share from lounge area 8. Thus, the AO disallowed the claim of the deduction under section 80IA(4) of the Act for Rs. 207,99,58,356/- out of total claim of Rs. 778,46,96,003/- on account of other income and part of income under the head non-aeronautical revenue as discussed above. 9. The aggrieved assessee preferred an appeal before the learned CIT(A). 10. The assessee before the learned CIT(A) contended that it is engaged in the business of development, maintenance and operation of infrastructure facility namely airport. All the activity and revenue generated therefrom, whether classified aeronautical or non-aeronautical revenue are inextricably connected to the operation ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 5 of 26 . and maintenance of impugned infrastructure facility of airport. The assessee further contended that the interest income from income tax refund, interest on securities deposit and government grant of Rs. 4,42,46,535/-, Rs. 60,78,788/- and Rs. 11,10,03,421/- respectively which are included under the head other income was already excluded from the eligible income for deduction under section 80IA of the Act in the return of income. However, the AO wrongly disallowed the same again in the assessment order and added to the total income which amount to double taxation of the same amount. 11. The learned CIT(A) regarding disallowance of part of income under the head non-aeronautical found that identical disallowances made in own case of the assessee for A.Y. 2013-14 which reached to ITAT in ITA No. 191/Bang/2020. The ITAT vide order dated 14-06-2022 decided the issue in favor of the assessee by holding the revenue share from third parties for utilization of airport premises to provide services such retail outlets, restaurants and other agencies has direct nexus with assessee’s business for the operation of Airport. Following the finding of the Tribunal, the learned CIT(A) deleted the addition made by the AO. 12. Regarding the disallowances of claim of deduction on account of other income of Rs. 54,93,33,671/- the learned CIT(A) found that the impugned amount includes following income: (i) Interest on Income tax refund Rs. 4,42,46,535/- (ii) Government Grant Rs. 11,10,03,421/- (iii) Interest on security deposit Rs. 60,78,788/- (iv) Interest income Rs. 33,93,27,137/- (v) Tender fee Rs. 1,44,68,813/- (vi) Others Rs. 1,21,40,657/- ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 6 of 26 . 13. The learned CIT(A) found that interest income from security deposit & Income tax and the government grant which aggregate to Rs. 16,13,28,744/- was not claimed as deduction by the assessee. Therefore, the disallowance of the same by the AO amount to double taxation. Hence, the addition made for Rs. 16,13,28,744/- was deleted. 14. Regarding the interest income of Rs. 33,93,27,137/- the learned CIT(A) noted that the assessee company had borrowed funds from various banks and financial institutions for business purposes. As a precondition to such borrowing, the lenders required the assessee to adhere to a Trust and Retention Account (TRA) agreement, which involved placing funds in fixed deposits (FDRs) to ensure debt servicing. During the year, the company earned incidental interest income of Rs. 33,93,27,137/- from these deposits, while incurring an interest expenditure of Rs. 116,44,05,927/- on its borrowings. The ld. CIT(A) observed that there was a clear nexus between the interest income and the business-related borrowings, as the deposits were mandated under the loan terms. Citing case laws such as the rulings in Vellore Electric Corporation reported in 227 ITR 557 and Karnal Cooperative Sugar Mills Ltd. reported in 118 taxman 489, the ld. CIT(A) concluded that the interest income earned in such a manner is eligible for deduction under section 80IA, as it is intrinsically linked to the business activity of the assessee. 15. Likewise, the learned CIT(A) regarding the tender fee of Rs. 1,44,68,813/- and other income of Rs. 1,21,40,657/- held that these incomes are also relatable to the business of the assessee. Hence, the ld. CIT-A allowed the claim of the assessee under section 80-IA of the Act. 16. Being aggrieved by the order of the learned CIT(A), the revenue is in appeal before us. ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 7 of 26 . 17. The learned DR before us reiterated the findings contained in the assessment order and further prayed to restore the issue to the file of the AO for fresh adjudication. 18. On the other hand, the learned AR before us contended that the assessee had entered into a concession agreement with the Ministry of Civil Aviation, Government of India, for the development, design, construction, commissioning, maintenance, operation, and management of the Bangalore International Airport for an initial period of 30 years. This agreement granted the Assessee exclusive rights and responsibilities tied to the operation and performance of the airport. 19. In line with the concession agreement, the assessee was obligated to maintain the airport in accordance with industry standards to minimize inconvenience to users. Additionally, performance was monitored through passenger surveys, with consequences such as liquidated damages and even termination of the agreement in case of poor performance (as laid out in various clauses of the concession agreement). 20. The income generated from these activities was directly linked to the operation of the airport, and thus, the Assessee contended that such income formed an integral part of the eligible business under section 80IA of the Act. The facilities from which revenue was earned were enumerated in the agreement, reinforcing that the services rendered were part of the core infrastructural operation. Consequently, the assessee claimed deductions under section 80IA of the Act, asserting that the income was inextricably connected with the eligible business activities. 21. Furthermore, the learned AR submitted that the Tribunal in own case of the assessee for A.Y. 2013-14 has accepted the contention of the assessee and upheld the Assessee’s claim. ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 8 of 26 . 22. Both the ld. DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 23. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has developed Bangalore International Airport and now operating and maintaining the same in pursuance to concession agreement between the assessee and Ministry of Civil Aviation Government of India. In the process the assessee has generated various types of income which are classified as aeronautical and non- aeronautical revenue as well as other incomes. The income earned was claimed as deduction under section 80IA(4) of the Act as income derived from industrial undertaking engaged in the business of development, operation and maintenance of infrastructure development. The AO held that certain income classified under the head non-aeronautical revenue as well as other incomes are not the income derived from the eligible or directly linked to eligible business. The incomes which were held as not derived from eligible business are detailed somewhere in the preceding paragraph. However, on appeal the learned CIT(A) allowed claim of the assessee. 24. We first proceed to resolve the dispute with respect to income classified under the head non aeronautical revenue. At the outset, we note that the year under consideration is not the first year of claim of deduction under section 80IA of the Act. As such the assessee has claimed the deduction in the A.Y. 2013-14 also wherein the AO had disallowed the claim with respect to non-aeronautical revenue being share of revenue from retail outlets, restaurant, bar and other refreshment facilities etc. The disputed reached to this Tribunal in assessee’s appeal as well counter appeal by the revenue bearing ITA No. 191 & 374/Bang/2020. The ITAT vide order dated 14-06-2022 had decided the dispute in favor of the assessee by observing as under: 13. We have heard both the parties and perused material on record. Two issues arise for our consideration with regard to the income from revenue share of Food & Restaurants and Retail outlets being eligible for deduction u/s.80IA viz.: ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 9 of 26 . (i) Whether the Food & Restaurants and Retail outlets fall within the definition of ‘infrastructure facility’ under explanation to section 80IA(4); & (ii) Whether the income from revenue share of Food & Restaurants and Retail outlets is ‘derived from the business’ of airport operation to be eligible for deduction u/s.80IA. 21. We notice that as per Article 1.1 of the Concession Agreement entered into by the assessee with Ministry of Civil Aviation, Government of India, ‘ Airport’ and ‘Airport Activities’ are defined as under:- “Airport Activities\" means the provision, at or In relation to the Airport, of the activities set out at Schedule 3, Part 1 as amended from time to time, pursuant to ICAO guidelines, provided that any activities that are not materially similar to those contemplated in Schedule 3, Part 1 shall require the mutual agreement of the Parties. “Airport\" means the greenfield International airport comprising of the Initial Phase, to be constructed and operated by SIAL at Devanahalli, near Bangalore in the State of Karnataka and includes all Its buildings, equipment, facilities and systems and including, where the circumstances so require, any Expansion thereof, as per the master plan annexed hereto as Attachment-1. 14. Schedule 3 part 1 of the same agreement contains the list of ‘Airport Activities’ which includes: - General retail shops – BIAL to make investment for providing basic infrastructure facilities only. - Restaurants, bars and other refreshment facilities - BIAL to make investment for providing basic infrastructure facilities only. 15. From the above it is clear that the retail outlets and restaurants are part of the airport and hence would fall within the definition of ‘infrastructure facility’ under explanation to section 80IA(4) as reproduced below: Explanation.—For the purposes of this clause, \"infrastructure facility\" means— (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway, inland port or navigational channel in the sea; 16. With regard to the classification of income from retail outlets and restaurants as non- aeronautical activities, we are the view that the same is done as a disclosure as per the classification defined in the AERA Act and cannot be taken as a basis for denial of deduction u/s.80IA. For the purpose of claiming deduction u/s.80IA, as rightly observed by the CIT(Appeals), the relevant clauses of the Concession Agreement and whether the conditions specified in the said sections have been complied with are more relevant. Hence, we see no reason to interfere with the order of the CIT(Appeals) on this issue. 25. The next issue is whether the income from revenue share is ‘derived from the business’ of the assessee i.e., airport operation. The main contention of the revenue in this regard is that income from revenue share is not derived from the ‘Airport Activities’ which allows the assessee to make investment for providing basic infrastructure facilities only and that the income from revenue share is much more than what is derived from providing basic infrastructure facilities. As per the Concession Agreement, the assessee is granted the exclusive right and privilege to carry out the development, design, financing, construction commissioning, maintenance operation and management of the Airport. The assessee in order to provide amenities and facilities to the users of the airport, had entered into various agreements for establishing and operating retail outlets and restaurants. The assessee invites tender for granting rights for utilization of the premises by these third parties and the ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 10 of 26 . premises is allotted to the lowest bidder. The fact that the assessee is allotting only the “right to utilize the premises” to the third party is evidenced by the sample agreements i.e. Agreement with Bread Basket Private Limited dated 12/07/2012 and Agreement with Shoppers Stop Limited dated 19th September 2013. The consideration for such utilization of premises is in the form of revenue share. Clause 4.2.1 which reads as under:- “4.2.1 The Operator shall pay BIAL, a monthly minimum guaranteed revenue share as per Schedule A (the “Minimum Guaranteed Revenue Share”); or, a fee payable every month during the Term, as per Schedule B (the “Revenue Share”), whichever is higher, based on actuals, within five (5) days after each month end, throughout the Term. The Operator shall make the payments of the revenue share online, by way of Real Time Gross Settlement System (‘RTGS’) to provide for real time inter-bank payment, in favour of “Bangalore International Airport Limited”.” 17. As per the above clause, the assessee is entitled for a minimum guaranteed revenue share which is a fixed amount as contained in Schedule A of the agreement or the percentage as agreed in Schedule B of actual sale generated, whichever is higher, i.e., the consideration for the utilization of the premises will either be a fixed amount or the share of revenue, whichever is higher. This clause makes it clear that the entire amount payable by the third party to the assessee either in the form of a fixed amount or a variable sum as a percentage of actual sales is fully attributable towards the utilization of the premises. The nomenclature used as ‘revenue share’ does not change the nature of payment towards which it is made. As per Schedule 3 part 1, the assessee is entitled to run the airport activity of providing basic infrastructure facilities to retail outlets and restaurants and any revenue generated has a direct nexus to the business of the assessee of airport operation. Hence, in our considered view, the entire income earned by the assessee in the form of revenue share towards utilization of premises is derived from the business of the assessee and eligible for deduction u/s.80IA. This ground is allowed in favour of the assessee and ground raised by the revenue in this regard is dismissed. 25. Before us no material brought on record suggesting that above finding of the Tribunal in the own case of the assessee for A.Y. 2013-14 was overturned by the higher authority or there is any change in the facts and circumstances. Hence, respectfully following the finding of the Tribunal in the own case of the assessee, we uphold the order the learned CIT(A) and direct the AO to delete the addition made by him with respect to income under the head non-aeronautical Revenue. 26. Coming to the issue of addition with respect to interest income on Income Tax Refund, Security deposit and Government Grant aggregating to Rs. 16,13,28,744/-, we note that the learned CIT(A) had given categorical findings that the impugned incomes were not claimed as deduction under section 80IA of the Act. No material brought on record by the revenue contrary to the finding of the learned CIT(A). Thus, it is established that the assessee has not claimed impugned income as deduction, therefore the addition/ disallowance made by the AO amounts to ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 11 of 26 . double taxation which is not desirable under the provision of the Act. Therefore, we do not find any reason to interfere in the finding of the learned CIT(A). Hence the ground of revenue’s appeal to this extent is hereby dismissed. 27. Now coming to dispute regarding the claim of deduction on interest income from fixed deposit of Rs. 33,93,27,137/-, in this regard, we find that the learned CIT(A) has given categorical finding that the assessee has availed borrowing for its project from financial institutions. As a precondition to such borrowings and to adhere to the “Trust & Retention Account” (TRA), the agreement required to place certain fund in fixed deposit as debt service reserve amount on which the assessee has incidental earned interest income of Rs. 33,93,27,137/- only. At the same time, the assessee has incurred interest expenditure on the borrowing for Rs. 116,44,05,927/- which is considered as part of business carried on by the assessee. Hence, in our considered there is a direct nexus of impugned interest income with the business of the assessee i.e. running and maintenance of infrastructure facility being airport. Therefore, the learned CIT(A) has rightly allowed the claim of the assessee, and we do not find any reason to interest in the finding of the learned CIT(A) in this regard. 28. Moving to dispute regarding receipt of tender fee of Rs. 1,44,68,813/- and other income of Rs. 1,21,40,657/-, in this regard, we find that the identical dispute was also there in the own case of the assessee for AY 2013-14 and the coordinate bench of the Tribunal in appeal bearing ITA No. 191/bang/2020 set aside the issue to file of the AO with the following direction: 6. The ratio emanating from the various judicial pronouncement discussed in the case of Odisha Power Generation Corporation Ltd (supra) is that if there is direct nexus between income earned / expenses incurred to the business of the assessee then the net profits and gains after considering those incomes / expenses are ‘derived from the business’ of the assessee and therefore would be eligible for deduction u/s. 80IA. Therefore in the given case of the assessee, the important factor to be checked for determination ‘Other Income’ to be eligible for deduction u/s.80IA is, whether the income is inextricably linked and is having direct and proximate connection/nexus with the Assessee’s business of operation and management of the Bangalore International Airport. We therefore remand the issue to the AO for factually verifying the ‘Other Income’ earned by the assessee and its nexus with the ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 12 of 26 . business of the assessee in order to decide the eligibility for deduction u/s.80IA of the Act as per law. The AO is directed accordingly, after giving reasonable opportunity of being heard to the assessee. 29. Hence respectfully following the order this Tribunal in own case of the assessee as discussed above, we hereby set aside the issue of claim of deduction on account of receipt of tender fee and other income to the file of the AO who will decide the issue in the light of the above direction and as per law. In view of the above, the ground of appeal of the Revenue is hereby partly allowed for statistical purposes. 30. The last issue raised by the revenue is that the learned CIT(A) erred in deleting the proportionate disallowance of interest expenses under section 36(1)(iii) of the Act. 31. The relevant facts are that the assessee has given interest free loan & advances to its subsidiary company, namely M/s Bangalore Airport Hotels Limited (hereafter BAHL) for an amount of Rs. 232,80,37,678/- only. On the other hand, the assessee also claimed finance cost of the Rs. 146.87 crores. 32. During the assessment proceeding, the assessee explained that the interest free loan to BHAL was given out of business expediency. The assessee claimed that as per concession agreement with civil aviation ministry of India it (assessee) was duty bound to develop the international standard airport having all the facilities. Accordingly, it requires premium business hotels and conferences center to serve the passengers which was built through subsidiary company BAHL. Therefore, the advances given were for the purpose of business. The assessee further claimed that the advance was given out of own fund. Therefore, no disallowances of proportionate interest is required to be made as per the provisions of section 36(1)(iii) of the Act. ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 13 of 26 . 33. However, the AO disagreed with the explanation furnished by the assessee. The AO found that the advance amount was given as security deposit for lease of land property from Karnataka State Industrial and Infrastructure Development Corporation. Therefore, the AO held that the impugned amount of loan cannot be considered for the purpose of business expediency. The AO also held that the assessee has not provided any justification regarding the business expediency for giving such interest free loan. Hence, the AO by taking the average rate of interest paid by the assessee on secured loan which stands at 8.45% computed the proportionate amount of interest at Rs. 19,67,19,183/- and added to the total income by disallowing the same. 34. The aggrieved assessee preferred an appeal before the learned CIT(A) who deleted the disallowances made by the AO by observing as under: 5.15 While denying the deduction u/s.80IA, the Assessing Officer further added a sum of Rs.19,67,19,183/- towards the disallowance being the pro-rata interest which he held to be relatable to the non-interest bearing advance made by the assessee company towards its wholly owned subsidiary, the Bangalore Airport Hotels Ltd. (BAHL). The Assessing Officer has quantified the amount of disallowance of interest for Rs.19,67,19,183/-. In the computation of total income worked out by the Assessing Officer, it is seen that the disallowance of the amount u/s.36(1)(iii) of the Act was made by reducing the claim of deduction u/s.80IA and not separately adding it in the computation. The assessee submitted that as per the concession agreement in Schedule 3, Part 2 for non-airport activity, the assessee was allowable to establish a hotel within the airport premises. To achieve this objective the assessee company had invited tenders for construction of the hotel. The contract was awarded to a consortium to whom the assessee provided the operator rights to construct the hotel. Such consortium formed a company named Bangalore Airport Hotels Ltd. with the single objective of construction of the hotel). However, due to unavoidable circumstances, the consortium was not able to complete the contract and the assessee company ultimately had to buy out shares of BAHL to complete the project and thus BAHL became a wholly owned subsidiary company of the assessee. Being holding company the assessee advanced certain amount for immediate utilization in the business of the subsidiary, which was fully refundable but interest free. The initial lending was for Rs.76,50,00,000/-. However, because of continuous funding from year to year, the balance outstanding at the end of the current Financial Year the outstanding amount increased to Rs.232.80 crores. 5.16 Under the above factual matrix, the assessee claimed that such advance was made entirely for commercial expediency and it was not made for any other motive. 5.17 I find that an identical situation had been dealt by the Hon’ble Apex Court in its landmark decision given in the case of SA Builders Ltd. reported in 158 Taxman 74. In such decision, the Hon’ble Court gave the ruling that if the holding company advanced borrowed money to a subsidiary and the same is used by the subsidiary for business purposes, the said holding company will ordinarily be entitled to deduction of interest on its borrowed fund. Respectfully following such rule laid down by the Hon’ble Apex Court, I find no justification in ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 14 of 26 . disallowance of the interest, or the reduction of claim u/s.80IA on this ground. This part of the appeal is also decided in favour of the assessee. 35. Being aggrieved by the order of the learned CIT(A), the revenue is in appeal before us. 36. The learned DR before us submitted that the interest-bearing fund has been diverted for non-commercial purposes and therefore, he supported the order of the AO. 37. On the other hand, the learned AR before us submitted that the assessee was entrusted with the responsibility to develop, maintain, and operate the airport in accordance with international standards, specifically monitored under IATA Global Airport Monitor Standards. To enhance user experience and fulfill these obligations, the assessee invited tenders for the construction of a hotel, eventually forming Bangalore Airport Hotels Limited (BAHL), which later became a wholly-owned subsidiary. The assessee had advanced funds to BAHL for business purposes without interest, which were refundable. Hence, the same was for the purpose of business. 38. The learned AR further argued that the Assessee used its own surplus funds and no nexus was established between borrowed funds and the advances to BAHL. Hence, no disallowance should arise, and placed reliance placed on CIT v. Brindavan Beverages (P.) Ltd ([2017] 88 taxmann.com 477). 39. We have heard the rival contentions of both the parties and perused the materials available on record, including the detailed reasoning provided by the learned CIT(A). The issue under consideration pertains to the disallowance of interest under section 36(1)(iii) of the Act, in respect of interest-free advances made by the assessee to its subsidiary, Bangalore Airport Hotels Ltd. (BAHL). ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 15 of 26 . 40. It is a well-established principle that advances made by a holding company to its subsidiary can be considered for the purpose of business expediency, provided the same is substantiated. In the present case, it is evident from the concession agreement with the Ministry of Civil Aviation that the assessee, being the developer of an international airport, was mandated to provide world-class amenities, including premium hotels and conference centers, for the benefit of air passengers and related stakeholders. 41. To fulfill this obligation, the assessee initially facilitated the formation of a consortium, which subsequently formed BAHL for the sole purpose of constructing the hotel. When the consortium could not complete the project, the assessee acquired full ownership of BAHL to ensure timely and quality execution. Hence, the advances made to BAHL were clearly in line with the assessee’s business objectives and obligations, and were not made with the intention of earning interest or for any extraneous purpose. 42. It is further brought on record that the assessee possessed sufficient own funds during the relevant assessment year. The Hon’ble Supreme Court in the case of CIT v. Reliance Industries Ltd. [(2019) 410 ITR 466 (SC)] held that where the assessee had mixed funds (i.e., both interest-bearing and interest-free) and the interest-free advances are less than or equal to the assessee’s own funds, it must be presumed that such advances were made out of own funds and not borrowed funds. In the present case, the assessee has established the availability of substantial own funds well in excess of the advances made to BAHL. Therefore, in the absence of any specific nexus established by the AO between borrowed funds and interest-free advances, no disallowance under section 36(1)(iii) of the Act is sustainable. 43. The ld. CIT(A) has rightly relied on the binding precedent of the Hon’ble Supreme Court in the case of SA Builders Ltd. v. CIT [2007] 288 ITR 1 (SC), where it was held that if a holding company advances funds to a subsidiary as a measure of ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 16 of 26 . commercial expediency, interest on borrowed capital should be allowed as a deduction. The Apex Court clarified that commercial expediency must be assessed from the point of view of the businessman, not the revenue authorities. 44. In the instant case, considering the strategic importance of the hotel project within the airport premises, the advance to BAHL satisfies the test of commercial expediency laid down in SA Builders. 45. The AO’s contention that the amount was in the nature of a security deposit for land lease from the Karnataka State Industrial and Infrastructure Development Corporation is misconceived. Even if the transaction involved land, it was for enabling the hotel development project—a business necessity under the concession agreement. Thus, the advance still retains its character as made for commercial purposes. 46. In light of the above discussion we hold that the advances to BAHL were made for fulfilling the assessee’s business obligation under a statutory concession agreement and the assessee had sufficient own funds, thereby rebutting any presumption that borrowed funds were used. There exists no justification for proportionate disallowance under section 36(1)(iii) of the Act. Accordingly, we uphold the order of the ld. CIT(A) and direct the AO to delete the addition of ₹19,67,19,183/- made by him. Hence the ground of appeal of the revenue is hereby dismissed. 46.1 In the result appeal of the Revenue is hereby partly allowed for statistical purposes. ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 17 of 26 . Coming to ITA No. 1109/Bang/2024, an appeal by the Revenue for A.Y. 2020-21 47. The first issue raised by the revenue is that the learned CIT(A) erred in allowing the deduction under section 80IA(4) of the Act on the income from non- aeronautical operations, bank interest and other incomes. 48. At the outset, we note that the issues raised by the Revenue in its grounds of appeal for the AY 2020-21 is identical to the issue raised by the Revenue in ITA No. 1108/Bang/2024 for the assessment year 2018-19. Therefore, the findings given in ITA No. 1108/Bang/2024 shall also be applicable for the assessment year 2020-21. The appeal of the Revenue for the A.Y. 2018-19 has been decided by us vide paragraph Nos. 23 to 29 of this order wherein we have partly allowed the revenue’s grounds of appeal for statistical purposes. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2018-19 shall also be applied for the assessment year 2020-21. Hence, the ground of appeal filed by the Revenue is hereby partly allowed for statistical purposes. 49. The last issue raised by the revenue is that the learned CIT(A) erred in deleting the proportionate disallowance of interest expenses under section 36(1)(iii) of the Act. 50. At the outset, we note that the issue raised by the Revenue in its grounds of appeal for the AY 2020-21 is identical to the issue raised by the Revenue in ITA No. 1108/Bang/2024 for the assessment year 2018-19. Therefore, the findings given in ITA No. 1108/Bang/2024 shall also be applicable for the assessment year 2020-21. The appeal of the Revenue for the A.Y. 2018-19 has been decided by us vide paragraph Nos. 39 to 46 of this order against the revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2018-19 ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 18 of 26 . shall also be applied for the assessment year 2020-21. Hence, the ground of appeal filed by the Revenue is hereby dismissed. 50.1 In the result appeal of the Revenue is hereby partly allowed for statistical purposes. Coming to CO. No. 25/Bang/2024 by the assessee in ITA No. 1109/Bang/2024 for A.Y. 2020-21. 51. The first objection raised by the assessee is that the AO and the learned CIT(A) erred in disallowing the claim of expenditure of payment of concession fee to the Government. 52. The relevant facts are that the assessee entered into a concession agreement with Ministry of Civil Aviation of India dated 05th July 2004. As per the said agreement the assessee was granted exclusive right and privilege by Government of India to carry out the development, design, financing, construction, commissioning, maintenance, operation and management of Bangalore International Airport. In lieu of granting of such exclusive right and privilege, the assessee was required to pay a concession fee @ 4% of gross revenue to the Government of India. Furthermore, the concession fee for the first 10 financial years was payable in 20 equal half-yearly installments starting from 11th year after commencement of the operation. 53. Therefore, the assessee made provision on account of concession fees payable for each year starting from A.Y. 2010-11 and accordingly made provision in the year under consideration at R. 53.55 crores. The provision in the respective assessment years were claimed as expenditure and accordingly the amount of Rs. 53.55 crores claimed as expenditure in the year under consideration. Furthermore, the 10-year period expires, and the assessee started making actual payment from ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 19 of 26 . the year under consideration and thereby made actual payment in the year under consideration amounting to Rs. 88.54 crores. 54. The AO disallowed the claim of the assessee by invoking the provision of section 43B of the Act. The AO held that the concession fee payable to the Government is covered by the provision of section 43B of the Act which states any sum payable by way of tax, duty, cess or fee, by whatever name called shall be allowed as deduction on actual payment basis. The assessee is required to pay the impugned concession fee in certain installments starting from 11th year, hence the same cannot be allowed as deduction. Furthermore, the liability created in the books only represents the provision and provision created for future liability cannot be allowed as expenses. Thus, the AO disallowed the claim of the assessee for Rs. 53.55 crores and added to the total income. 55. The aggrieved assessee preferred an appeal before the learned CIT(A) 56. The learned CIT(A) following the order of his predecessor for A.Y. 2017-18 held that the provision for concession fee for Rs. 53.55 crores shall not be allowed as deduction as per section 43B of the Act. However, the assessee will get the benefit of Rs. 88,54,47,988/- on actual payment basis which has been paid during the year under consideration. 57. Being aggrieved the order of the learned CIT(A), the assessee is before us through cross objection. 58. The learned AR before us submitted that, as per the terms of the concession agreement, the fee was paid for the rights and privileges under the concession agreement and not in the nature of a tax or duty as envisaged under section 43B of the Act. During the relevant assessment year, the assessee paid ₹53.55 crores towards concession fees. The learned AR reiterated that the concession fee was paid ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 20 of 26 . in exchange for the exclusive grant to carry out the development, design, construction, operation, and management of the airport, and hence does not fall under the nature of tax, duty, or levy as contemplated in section 43B of the Act. The AR further relied on a precedent in the assessee’s own case for AY 2013-14, where the Tribunal had held that the concession fee was not in the nature of a levy falling under section 43B of the Act and thus should be allowed as a deduction. Therefore, it was submitted that the disallowance made by the AO was not justified and the entire amount of concession fee claimed as expenditure should be allowed as a deduction. 59. On the other hand, the learned DR vehemently supported the order of the authorities below. 60. We have heard the rival contentions of both the parties and perused the materials available on record. The primary issue under consideration pertains to the disallowance of concession fee of ₹53.55 crores claimed by the assessee as an expenditure on accrual basis, which was disallowed by the AO by invoking the provisions of section 43B of the Act. The assessee contends that the concession fee is not covered under the purview of section 43B of the Act, and hence the deduction is allowable on accrual basis. 61. It is an undisputed fact that the assessee had entered into a concession agreement with the Ministry of Civil Aviation dated 5th July 2004, under which it was granted the exclusive right to design, develop, finance, construct, operate, and maintain the Bangalore International Airport. In consideration of these rights, the assessee was obligated to pay a concession fee to the Government of India at 4% of its gross revenue. As per the agreement, such concession fee was payable in 20 equal half-yearly instalments starting from the 11th year of commencement of operations. Accordingly, the assessee made a provision of ₹53.55 crores during the ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 21 of 26 . year under consideration and also made an actual payment of ₹88.54 crores, as the 11-year deferment period had concluded. 62. The AO invoked section 43B of the Act, which mandates that any sum payable by way of tax, duty, cess, or fee shall be allowed as a deduction only on actual payment basis. Relying on this provision, the AO disallowed the provision amount on the ground that it represented a future liability and had not been actually paid during the year. This view was upheld by the learned CIT(A), who followed the order of his predecessor for Assessment Year 2017-18. 63. However, we note that in the assessee’s own case for Assessment Years 2010-11 and 2012-13, the learned CIT(A) had held that concession fee is not covered under the provisions of section 43B of the Act. Importantly, the Revenue did not prefer any appeal against those orders, thereby accepting the position taken by the CIT(A). Furthermore, in a subsequent decision of the Tribunal in the assessee’s own case for Assessment Year 2013-14 in ITA No. 191/Bang/2020, it was categorically held that the concession fee payable by the assessee does not fall within the ambit of section 43B of the Act, and the deduction was therefore allowable on accrual basis. 64. Considering the above judicial precedents in the assessee’s own case and the fact that the nature of the concession fee and the agreement terms remain unchanged, we find that the issue is squarely covered in favour of the assessee. Respectfully following the earlier orders of the Tribunal, we hold that the claim made by the assessee for ₹53.55 crores towards concession fee is allowable as deduction on accrual basis, and the same does not attract the restriction under section 43B of the Act. 65. However, since the matter also involves actual payment of ₹88.54, therefore a verification of the actual quantum of expenditure pertaining to the year under ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 22 of 26 . consideration is required to be made. Therefore, we direct the AO to verify the correctness of the amount and allow the deduction accordingly. In view of the above, the assessee succeeds on this ground. 66. The next objection raised by the assessee is that the learned CIT(A) erred in confirming the disallowance of claim of deduction under section 80IA of the Act on account of receipt of guarantee commission of Rs. 1.8 crores. 67. The necessary facts are that the wholly owned subsidiary of the assessee namely M/s Bangalore Airport Hotels Limited (BAHL) raised funds through borrowing for which the assessee has extended guarantee. In consideration, the assessee during the year received guarantee commission of Rs. 1.8 crores from BHAL which was included in the eligible amount of deduction under section 80IA of the Act. However, the AO held that the impugned income was not derived from or directly linked to eligible business of the operation and maintenance of Infrastructure facility (Airport). Hence the AO disallowed the claim of deduction on the said amount. 68. On appeal by the assessee the learned CIT(A) also confirmed the disallowances made by the AO by observing as under: 5.11 In the third component of guarantee commission for Rs. 1,80,00,000/- such guarantee commission was received from wholly owned subsidiary Bangalore Airport Hotel Ltd. (BAHL), where the assessee company stood as guarantor for raising of fund for business of the said entity. I find that in the A.Y. 17-18, in the appellate order, the issue of close nexus of lending by the assessee to its wholly owned subsidiary BAHL was thoroughly analysed and accepted. In that appellate order disallowance of interest expense on the prorata amount relatable towards lending to BAHL was deleted. The said entity BAHL is a wholly owned subsidiary company of the assessee. 5.12 The business of establishment of a hotel is found to be a non-airport activity as per schedule 3 of the concession agreement. It is agreed that advancement of any non-interest bearing loan to a wholly owned subsidiary who was engaged in such non-airport activity, was essential for the overall business of the assessee but standing guarantee against independent borrowing of such wholly owned subsidiary for such non-airport activity and earning guarantee commission out of such action, cannot be treated as part of airport activity. Therefore, to the extent of disallowance of Rs. 1.80 crores on receipt of guarantee commission, it cannot be claimed to be earned out of airport activity and therefore to that extent the action of the Assessing Officer is held to be correct and the ground of appeal to that extent is denied. ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 23 of 26 . 69. Being aggrieved by the order of the learned CIT(A) the assessee is before us through cross objection. 70. The Learned AR for the assessee before us submitted that the assessee was mandated to develop, maintain, and operate the airport in accordance with international standards. In order to meet this requirement, the assessee was also required to establish facilities such as a hotel. Initially, a consortium was granted the rights to construct the hotel; however, due to unavoidable circumstances, the consortium could not complete the project. Consequently, the shares of Bangalore Airport Hotel Ltd. (BAHL) were transferred to the assessee, making BAHL its wholly owned subsidiary. To ensure the successful completion of the hotel project, the assessee extended a corporate guarantee to BAHL. It was argued that this action was taken in the larger interest of the assessee’s business, and since the development and maintenance of the airport to international standards necessitated the hotel’s establishment, the guarantee was intrinsically linked to the core airport operations. Therefore, the guarantee commission earned in this context should be considered as part of the eligible business under section 80IA(4) of the Act. Accordingly, it was prayed that the Tribunal should dismisses the Revenue's appeal and allows the cross-objection raised by the assessee, in the interest of justice and equity. 71. On the other hand, the learned DR before us vehemently supported the order of the authorities below. 72. We have heard the rival contentions of both the parties and perused the materials available on record. The core issue under dispute is the eligibility of deduction under section 80IA of the Act in respect of guarantee commission income amounting to ₹1.80 crores received by the assessee from its wholly owned subsidiary, Bangalore Airport Hotels Limited (BAHL). ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 24 of 26 . 73. The assessee was granted the responsibility to develop, maintain, and operate the airport in accordance with international standards. As part of fulfilling this mandate, the assessee was required to provide world-class infrastructure, which included the development of a hotel within the airport premises. Initially, the hotel was to be constructed by a consortium that was awarded the contract. However, due to unavoidable circumstances, the consortium was unable to complete the project. As a result, the assessee acquired the shares of BAHL, making it a wholly owned subsidiary, and took over the responsibility of completing the hotel project. 74. In order to facilitate BAHL in raising funds for the construction of the hotel, the assessee extended a corporate guarantee. The guarantee commission received in return was subsequently claimed as eligible income under Section 80IA(4) of the Act, on the premise that it was intrinsically connected to the development and maintenance of the airport facility, which falls within the definition of infrastructure facility under the said section. 75. The AO, however, disallowed the claim on the ground that the guarantee commission income was not derived from the core operations of the airport infrastructure facility and hence, was not eligible under section 80IA of the Act. This view was upheld by the ld. CIT(A), who noted that although the loan and guarantee were extended in furtherance of the assessee’s overall business, the hotel activity itself was classified as a “non-airport activity” under schedule 3 of the concession agreement. Consequently, the income from guarantee commission could not be said to arise directly from the operation and maintenance of the airport infrastructure facility. 76. Upon evaluating the entirety of the matter, we are inclined to agree with the view taken by the lower authorities. While it is not disputed that the hotel may support the broader objective of providing world-class airport infrastructure, the receipt of guarantee commission is a distinct and independent transaction between ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 25 of 26 . the assessee and its subsidiary, BAHL. The concession agreement specifically excludes hotel activities from the ambit of \"airport operations\", and the guarantee commission, being a financial return on a guarantee extended for such a non-airport activity, lacks the direct nexus required under section 80IA(4) of the Act. 77. Therefore, even though the extension of the guarantee may serve the larger business interests of the assessee, it cannot, in substance, be regarded as an income derived from the eligible infrastructure facility, i.e., the airport, within the meaning of section 80IA(4) of the Act. We accordingly uphold the disallowance of deduction claimed in respect of the guarantee commission income of ₹1.80 crores. The cross-objection of the assessee is thus dismissed, and the orders of the lower authorities are confirmed. 78. In the result, the cross objection of the assessee is hereby partly allowed. 79. In the combined result, both the appeals of the Revenue are hereby partly allowed for statistical purposes whereas the CO of the assessee is hereby partly allowed. Order pronounced in the open court on 16th April, 2025. Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore, Dated, the 16th April, 2025. /MS / ITA Nos. 1108 & 1109/Bang/2024 & C.O. No. 25/Bang/2024 Page 26 of 26 . Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order Assistant Registrar, ITAT, Bangalore "