COCOHIN INTERNATIONAL AIRPORT LTD V. DEPUTY COMMISSIONER OF INCOME TAX

ITA/163/2012

AI Insights

The case involves Cochin International Airport Ltd (CIAL) appealing against the decision of the Income Tax Appellate Tribunal, which had set aside the Commissioner of Income Tax (Appeals)'s decision allowing CIAL deductions under Section 80-IA of the Income Tax Act. The Tribunal had found that the agreements CIAL entered into with the Airports Authority of India did not constitute the agreements specified in clause (b) of sub-section (4) of Section 80-IA, which led to the appeal. The High Court examined whether these agreements met the statutory requirements for deductions under the specified section, focusing on the nature and timing of the agreements in relation to the operational status of the airport.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 700387 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 07-08-2017
• Assessment Year: misc
• Laws Referred To: Income Tax Act, Airports Authority of India Act, 1994, Aircraft Act, 1934
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: P K R MENON; JOSE JOSEPH
• Assessee Lawyers: M PATHROSE MATTHAI; SAJI VARGHESE; MARIAM MATHAI
• Keywords: Income tax appeal; Infrastructure facility; Airport Operation; Statutory Body Agreement
• Section: 12; 3; 80-IA; 80-IA; 80-IA(4); 2(e); 2(b); 2(d)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU MONDAY, THE 7TH DAY OF AUGUST 2017/16TH SRAVANA, 1939 ITA.No. 163 of 2012 ----------------------- AGAINST THE ORDER IN ITA 807/2008 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 04-05-2012 ---------- APPELLANT- RESPONDENT: ------------------------------ COCHIN INTERNATIONAL AIRPORT LTD 35, GCDA COMPLEX, MARINE DRIVE, KOCHI 682031 REPRESENTED BY ITS EXECUTIVE DIRECTOR (FINANCE) AND COMPANY SECRETARY BY ADVS.SRI.M.PATHROSE MATTHAI (SR.) SRI.SAJI VARGHESE SMT.MARIAM MATHAI RESPONDENT/APPELLANT: ------------------------------ DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1), ERNAKULAM BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-08-2017, ALONG WITH ITA. 169/2012 & CON. CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: 'CR' ANTONY DOMINIC & DAMA SESHADRI NAIDU, JJ. ------------------------------------------- I.T.A. Nos. 163, 169 & 176 of 2012 ( ) ------------------------------------------ Dated this the 7th day of August, 2017. JUDGMENT Antony Dominic,J. The common questions of law framed in these appeals for the consideration of this Court are the following: 1. Whether on the facts and in the circumstances of the case the Appellate Tribunal's decision that the agreement contemplated in clause (b) of Section 80-IA(4) is the agreement with the Government or Government bodies and not agreement with the Airports Authority of India the statutory body, is Airports Authority of India is erroneous and contrary to the said clause (b) specifically mentioning other statutory body for operating and maintaining a new infrastructure facility? 2. Whether on the facts and in the circumstances of the case the Tribunal erred in setting aside the decision of the Commissioner of Income Tax (Appeals) and holding that Annexure C agreement does not constitute the agreement specified in clause (b) of sub- section (4) and it relates only to facilities inside the Airport, ignoring that the said equipments and high-tech services provided by Annexure C are mandatory statutory requirements for operation and maintenance of an Airport? 3. Whether on the facts and in the circumstances of the case the Tribunal was right in law in interfering with the order of the Commissioner of Income Tax (Appeals)? 2. The appellant company has established an airport. In the assessment years 2005-2006, 2006-2007 and 2007-2008, the company claimed the benefit of deduction under Section80-IA of the Income Tax Act ('IT Act'). The Assessing Officer took the view that the I.T.A Nos.163, 169 & 176 of 2012 -2- assessee did not satisfy all the conditions specified in sub-section (4) of 80-IA and accordingly rejected the claim of the assessee. Appeals were filed before the Commissioner of Income Tax (Appeals) and the first appellate authority held that the MOU entered into by the assessee with the Airport Authority of India could be taken as an agreement as contemplated in clause (b) of Section 80-IA(4) of the IT Act. It was also agreed that the assessee satisfied clause (c) of sub- section (4). Accordingly, the Commissioner of Income Tax allowed the appeals and directed the Assessing Officer to allow deduction under Section 80(1)(A) of the IT Act. 3. Revenue filed I.T.A. Nos. 807/2008, 392/2010 and 375/2009 before the Tribunal and in the impugned common order, the Tribunal held that the agreements entered into between the assessee and the Airport Authority of India did not constitute agreements specified in clause (b) of sub-section (4) of Section 80-IA of the IT Act. Similarly, with respect to clause (c) of Section 80-IA(4) of the IT Act, the Tribunal took the view that the basic particulars are not borne out of the assessment order, nor was there any occasion for the assessing officer to verify those vital details. On that basis, the Tribunal set aside the order of the Commissioner and restored the matter to the file of the assessing officer for fresh examination of that issue. It is aggrieved by these orders, the assessee is in appeal before us. I.T.A Nos.163, 169 & 176 of 2012 -3- 4. We heard the learned Senior Counsel for the assessee and the learned Senior Counsel for the Revenue. 5. According to the learned Senior Counsel, the Memorandum of Understanding entered into between the assessee and the Airport Authority of India and the subsequent agreement between the parties, copies of which are Annexures C and K respectively in I.T.A No.163/2012, would show that the assessee had entered into an agreement as contemplated in clause (b) of sub-section (4) of Section 80-IA of the IT Act entitling the assessee for deduction under Section 80-IA of the Act. On the other hand, the learned Senior Counsel appearing for the Revenue contended that these documents did not qualify to be agreements as specified in clause (b) and that the agreement as contemplated in clause (b) is an agreement entered into with an airport which has already been established and is a functioning one. According to him, the assessee had entered into the agreements to make the airport operational and that therefore, the assessee is not entitled to claim the benefit of Section 80-IA of the IT Act. 6. We have considered the submissions made. Answer to the questions of law framed in these appeals would depend upon our understanding of Section80-IA of the IT Act. It is also to be considered whether Annexures C and K, the MOU and agreement respectively, satisfied the requirements of clause (b) of sub-section (4) I.T.A Nos.163, 169 & 176 of 2012 -4- of Section 80-IA of the IT Act. Section 80-IA(1) provides that where gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4), there shall, in accordance with and subject to the provisions of the Section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive assessment years. Sub-section (2) provides that the deduction in terms of sub-section (1) may, at the option of the assessee, be claimed by the assessee for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility referred to in clause (iii) of sub-section (4). 7. Sub-Section (4) provides that Section 80-IA would apply to any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the conditions specified therein. The first condition in clause (a) is that the infrastructure facility shall be owned by a company registered in India or by a consortium of such companies or by an authority or board or corporation or any other body established or constituted under the Central or State Act. As per clause (b), the second condition that is I.T.A Nos.163, 169 & 176 of 2012 -5- required to be satisfied is that the infrastructure facility should have entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (1) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility. The third condition specified in clause (c) is that the assessee should have started or starts operating and maintaining the infrastructure facility on or after 1st April, 1995. The explanation to sub-section (4) which enumerates the infrastructure facilities for the purposes of the provision includes an airport also. The aforesaid statutory provisions, therefore, would show that an airport is an infrastructure facility as contemplated in sub-section 2 of Section 80-IA of the IT Act entitled to the benefit of deduction as provided in sub-section (1), provided it satisfied the conditions specified in clauses (a), (b) and (c) of sub- section 4 thereof. 8. Turning to the case on hand, the fact that the airport is owned by a company registered in India as provided in clause (a) of sub- Section 4 is not disputed by the Revenue. The question whether it has started operation of the airport after 1st April, 1995 as specified in clause (c), is not an issue raised in these appeals. The dispute is centered around clause (b) and further on the question whether Annexures C and K, Memorandum of Understanding and the I.T.A Nos.163, 169 & 176 of 2012 -6- agreement respectively, would qualify to be an agreement with a statutory body as contemplated in clause (b) for “operating and maintaining” an infrastructural facility. 9. Annexures C and K are the Memorandum of Understanding and agreement with Airport Authority of India. The Airport Authority of India is a body constituted by the Government of India under Section 3 of the Airports Authority of India Act, 1994 and is, undoubtedly, a statutory body. Section 12 of the Act provides for the functions of the Authority. Section 12(1) provides that subject to the Rules, if any, made by the Central Government in this behalf, it shall be the function of the Authority to manage the Airports, the civil enclaves and aeronautical communication stations efficiently. Section 12(2) further provides that it shall be the duty of the Authority to provide air traffic service and air transport service at any airport and civil enclaves. The Authority is also empowered, among others, to plan, procure, install and maintain navigational aids, communication equipments, beacons and ground aids at the airports and at such locations as may be considered necessary for safe navigation and operation of aircrafts, vide clause (b) of sub-Section (3) of the Act. Airport has been defined in Section 2(b) as a landing and taking off area for aircrafts, usually with runways and aircraft maintenance and passenger facilities and includes aerodrome as defined in sub-section I.T.A Nos.163, 169 & 176 of 2012 -7- (2) of Section 2 of the Aircraft Act, 1934. The air transport service, which the Airport Authority is duty bound to provide under Section 12 (2), is defined in Section 2(e) as any service for any kind of remmuneration, whatsoever, for the transport by air of persons, mail or any other thing, animate or inanimate, whether such service relates to a single flight or series of flights. Similarly, air traffic service, which is also the duty of Airport Authority of India, is defined in Section 2(d) and it includes flight information service, alerting service, air traffic advisory service, air traffic control service, area control service, approach control service and airport control service. 10. From the above, it is evident that in view of the provisions contained in the Airports Authority of India Act, 1994, providing of air traffic service and air transport service at any airport and civil enclaves in India is the duty of the Airport Authority of India, a statutory body established under Airport Authority of India Act, 1994. It shall also be the function of the Authority to manage the airports and the Aeronautical Communication Stations efficiently. It was in view of these statutory obligations of the Airport Authority of India, the sole repository of these duties in the country, that the assessee had entered into Memorandum of Understanding dated 07.06.1999 with the Authority, a copy of which is produced as Annexure C. The obligations that are undertaken by the Airport Authority of India are: I.T.A Nos.163, 169 & 176 of 2012 -8- 1. AAI would provide CNS equipment, install, test, flight calliberate and commission for operational use as required for facilitating safe aircraft operation at the airport. 2. The cost of the CNS equipment so provided by AAI including all pre-operative expenditure incurred towards installation, testing, flight calliberation, commissioning and any other associated incidental expenditure subject to a maximum of Rs.11 crores will be converted as AAI's equity in the share capital of CIAL. At the time of AAI and CIAL executing a formal agreement in this regard, if aforesaid expenditure exceeds Rs.11 crores, the excess amount shall be refunded in cash to AAI by CIAL. 3. In order to assess the viability of the project all relevant documents like feasibility reports etc. shall be provided by CIAL to AAI. 4. AAI will maintain CNS equipment in serviceable condition and would undertake periodical flight caliberation of Nav-aids as per the requirements and practice in vogue in AAI. The cost for flight caliberation will be borne by CIAL. 5. AAI would provide AIR Traffic Services, Aeronautical Information and Aerounatical Communication Services, Search & Rescue and other associated service as per the ICAO guidelines. 6. AAI would prepare all laid-down procedures, charts, etc as may be necessary for safe aircraft operation at the airport. 7. AAI would maintain an Anti-hijacking Control Center to deal with contingencies arising out of hijacking of aircraft or any such act. 8. AAI would maintain its administrative office at the airport as may be necessary to support its operational activities. 9. AAI would deploy manpower as considered necessary by it for providing the services as detailed above. 11. Although the MOU was to remain valid for a period of one year from the date of its execution and the parties were to enter into a I.T.A Nos.163, 169 & 176 of 2012 -9- formal agreement within the said period, it would appear that the parties carried on their activities on the basis of the MOU until they entered into Annexure K, a comprehensive agreement dated 25.02.2010, which is given effect to from 16.09.2006. The obligations of the Airport Authority as enumerated under the agreement read thus: OBLIGATIONS OF AAI 2.1 Operating and Future Commissioning Services 2.2 During the Operational and any Future Commissioning services for the facilities at Cochin International Airport, AAI shall, at its own cost: i. Take all steps necessary to integrate the AAI Equipment with any relevant air navigation and meteorological equipments and systems operated by AAI. ii. Carry out such calibration flights as are necessary to commission the AAI Equipment and, to the extent practicable, shall co-ordinate those flights with Cochin International Airport to enable CIAL to calibrate the CIAL Equipment at the same time. For the avoidance of doubt, AAI shall not be liable for the cost incurred by CIAL to calibrate the CIAL Equipment. iii.Where appropriate, assist DGCA in the performance of any checks and procedures, which are required to be performed for the optimum use of airport. iv.Prepare all such procedures, manuals and charts related to the AAI Services as are necessary in order to ensure the safe operation of aircraft at the Airport and in the airspace in the vicinity of the Airport. v. Mutually agree with CIAL the Operating Reporting Procedure and the Incident Reporting Procedure. I.T.A Nos.163, 169 & 176 of 2012 -10- vi.Provide CIAL and other agencies with such assistance as may be reasonably required during any trial operations at the Airport. 2.3 AAI shall, during performance of the AAI operating phase and future Commissioning phase provide such reasonable assistance as may be necessary to the Contractors to ensure that the AAI Equipment is adequately integrated with the CIAL Equipment. 2.4 Following performance of the AAI Services in accordance with Clause-2 and prior to the end of Future Commissioning Period, AAI shall confirm to CIAL in writing that the AAI Equipment is fully operational and integrated with the CIAL Equipment and that the AAI Equipment is such that AAI can perform the AAI Operative Services in accordance with the relevant standards prescribed in the relevant ICAO Annexes and documents (as amended from time to time). 2.5 AAI shall at all times (including twenty-four hours each day) in accordance with the relevant standards prescribed in the relevant ICAO Annexes and documents (as amended from time to time) and at its own cost. 2.5.1 Provide the CNS/ATM Services as defined in Schedule 3. 2.5.2 Maintain the AAI Equipment including carrying out periodic flight calibration of the AAI Equipment and other tests at its own cost. 2.5.3.Upgrade the AAI Equipment from time to time at its own cost (i) as a minimum to comply with the relevant provisions contained in the relevant ICAO Annexes and documents (as amended from time to time) and (ii) as a result of expansion/upgradation of the airport required by it. 2.5.4 Purchase at its own cost such equipment as may be the requirement from time to time to enable AAI to provide the CNS/ATM Services at the Airport. 2.5.5 Procure meteorological facilities and services for provision of CNS/ATM Services at the Airport in accordance with the I.T.A Nos.163, 169 & 176 of 2012 -11- practices established or recommended from time to time pursuant to the Chicago Convention or as notified by Govt. of India from time to time. 2.5.6 Relocate AAI Equipment at its own cost and in co- ordination with CIAL for its operative convenience provided such relocation does not affect the CIAL obligations and or smooth operation of the airport. 2.5.7 AAI shall provide at its own cost all the communication lines/facilities, telephone lines, internet services, broadband service etc. for the smooth functioning of the CNS/ATM services. 2.5.8 AAI shall provide at its own cost the vehicles required for the transportation of men and materials for the operation, maintenance, installation, testing, commissioning and calibration of CNS/ATM equipments. 2.5.9 AAI shall provide at its own cost the residential accommodation required for the AAI staff posted at Cochin International Airport for the CNS/ATM Services (operation, maintenance, commissioning, testing, installation, calibration etc.) 2.6 ATM -En-route and other services 2.6.1 If AAI requires, it may at its own cost, subject to receiving the prior consent of CIAL, which will not be unreasonably withheld, situate at the Airport or on the Site any radars, equipment, buildings, works or facilities necessary for the provision of enroute air navigation services. In situating such radars, equipment, buildings, work or other facilities at the Airport, AAI shall take appropriate measures to avoid any disruption to the normal operation of the Airport. 2.7. Calibration of Equipments and Self-Insepction of Equipments and Facilities. 2.7.1 AAI has to conduct calibration of equipments as per the requirements. 2.7.2 Periodical Self-Inspection of equipments and facilities is to be carried out by AAI at required intervals. I.T.A Nos.163, 169 & 176 of 2012 -12- 12. From the provisions of Annexure-C and Annexure-K, which contain the obligations of the Airports Authority of India, it is clear that the Airport Authority of India was only undertaking to discharge its functions as provided under Section 12 of the Airports Authority of India Act, 1994 for the operation and maintenance of the airport which was developed by the Cochin International Airport Limited. Such an agreement between the Airports Authority of India and the assessee would qualify to be an agreement entered into with a statutory body for “operating and maintaining the infrastructure facility”, viz the airport. 13. It was argued by the Senior Counsel for the Revenue that to qualify for the benefit of deduction under Section 80-IA of the IT Act, the agreement with the statutory body should have been entered into by an airport which is already operational. According to him, the provisions of Annexure-C and Annexure-K would show that the obligations undertaken by the airport were, for making the airport operational, which according to the counsel, was a part of development of the airport. Having read clause-(b) of sub-section (4) of Section 80- IA, we are not persuaded to think that to satisfy the requirement of clause-(b), the agreement should be one entered into by an airport which is already functional. An airport to be operational require the facilities that are agreed to be provided by the Airport Authority vide I.T.A Nos.163, 169 & 176 of 2012 -13- Annexure-C and Annexure-K. It is only on installation and operation of such equipments can the airport be operated and maintained. Such an agreement would be an agreement for operating and maintaining the infrastructure facility viz the airport and for the purpose of Section 80- IA, the statute does not contemplate that the airport should already be on stream and that the agreement should be entered into thereafter. 14. Further, this argument of the revenue would also militate against sub-section 2 which provides that the assessee would be entitled to the benefit of deduction from the year in which the undertaking or enterprise develops or begins to operate any infrastructure facility. Necessarily, therefore, the agreement and the installation of the equipments for the operation of the airport should precede the commencement of operation of the infrastructure facility to avail the benefit of deduction. The statutory provision and the agreement being as above, we cannot uphold the conclusion of the Tribunal that both the agreements could not constitute agreements specified in clause-(b. Accordingly, the findings of the Tribunal with reference to clause-(b) of sub-section (4) of Section 80-IA are set aside. 15. The matter will stand remitted to the Assessing Officer for fresh examination as ordered by the Tribunal in paragraph 7 of its order. I.T.A Nos.163, 169 & 176 of 2012 -14- In the result, answering the questions of law framed in favour of the assessee and against the Revenue, these appeals are disposed of. ANTONY DOMINIC, JUDGE DAMA SESHADRI NAIDU, JUDGE rv & kns "