41 u/s. 80-IA(4) – Infrastructure project – Deduction- A. Y. 2003-04 – Development of infrastructure facility – Effect of section 80-IA(4) – Person developing infrastructure facility and person operating it may be different – Both entitled to deduction u/s. 80-IA(4) on portion of gains received

Principal CIT vs. Nila Baurat Engineering
Ltd.; 399 ITR 242 (Guj):

The assessee was engaged in the business of
civil construction and installation of various infrastructure projects. For the
A. Y. 2003-04, the assessee had claimed deduction u/s. 80-IA(4) of the Act, and
the same was allowed by the Assessing Officer. Subsequently, the Assessing
Officer issued notice u/s. 148 for reassessment on the ground that after
completion of the construction work, the assesee had assigned the task of
maintenance and toll collection of the road to one RTIL and hence the deduction
u/s. 80-IA(4) had been granted erroneously. Accordingly, the deduction was
disallowed in the reassessment order. The Tribunal held that the assessee was
entitled to deduction u/s. 80-IA(4).

On appeal by the Revenue, the Gujarat High
Court upheld the decision of the Tribunal and held as under:

“i)  Under sub-section (4) of
section 80-IA of the Act, an enterprise carrying on the business of developing,
or operating and maintaining, or developing, operating and maintaining
infrastructure facility would be eligible for deduction. Thus, this provision
itself envisages that in a given project the developer and the person maintains
and operates may be different. Merely because the person maintaining and
operating the infrastructure facility is different from the one who developed
it, that would not deprive the developer of the deduction under the section on
the income arising out of such development.

ii)  By virtue of the operation
of the proviso, the developer would not be deprived of the benefit of deduction
under sub-section (1) of section 80-IA on the profit earned by it from its
activity of developing the infrastructure. The proviso does not operate to
deprive the developer of the benefit of the deduction even after the facility
is transferred for the purpose of maintenance and operation but the profit
element would be split into one derived from the development of the
infrastructure and that derived from the activity of maintenance and operation
thereof.

iii)  The assessee having
transferred the facility for the limited purpose of maintenance and operation
to RTIL, it would receive a fixed payment of Rs. 328 lakh per annum
irrespective of the toll collection by RTIL. This profit element therefore
would be relatable to the infrastructure development activity of the assessee
and would qualify for deduction u/s. 80-IA of the Act. RTIL would have a claim
for deduction on its profit arising out of maintenance and operation of
infrastructure facility which apparently would exclude the pay out of RS. 328
lakh to the assessee.”