By TIOL News Service

AHEMDABAD, NOV 08, 2017: THE ISSUE IS - Whether once having set up the Park and invested therein, it would be against the spirit of the Section 80IA to postpone the benefit of claiming deductions till the whole park with all Units start functioning, when in effect the existing units have come up and working with an eye on claiming the benefit of the option to claim deductions under 80IA. YES is the verdict.

Facts of the case:

The Assessee is a closely held limited company. By an application, it applied for approval for setting up an industrial park at village Piplaj, Dist. Ahmedabad. This application was made for claiming and availing deduction u/s 80IA(4)(iii). After having acknowledged the application so made, the Ministry of Commerce and Industry, New Delhi returned the application advising the Assessee to apply under the Industrial Park Scheme, 2008. Accordingly, the Assessee did the same in the prescribed form IPS-I. According to Assessee, it had completed the development of the park much before the date envisaged under the Scheme. The case of the Assessee was that even according to the Scheme framed by the State Government, for setting up an industrial park, the State had examined the infrastructural development of the project and granted subsidy of Rs.92,63,000 to such park. The Gujarat Industrial Development Corporation had appointed one MARS Planning and Engineering Services for assessing the third party quality assurance vis-a-vis the project of Assessee. Such agency had supervised the entire development work of the industrial park and had submitted a progress report from time to time finally giving a completion report. Based on this material, the Assessee sought approval from the CBDT requesting that since the park was duly developed before the specified date, a notification be issued so that Assessee could claim deduction u/s 80IA(4). That application was however rejected by the CBDT. When the Assessee approached this court, it was examined as to whether the CBDT was right in holding that the factual aspect of the matter on the basis of the availability of the evidence that Assessee's project was completed before March 31, 2011. Having examined the Scheme, this Court observed that in its opinion, the CBDT had brought in the element of completion of industrial units on the proposed industrial park instead of completion of project. According to the Court, the insistence of the CBDT to proceed on the basis that AUDA, which was the local authority had not given any clear certificate that the industrial park was completed with constructed units by March 31, 2011, was impermissible.

It is in this background that the CBDT issued a notification granting permission to the Assessee with an option to claim deduction u/s 80IA(4)(iii) for any ten consecutive assessment years out of fifteen years beginning from the assessment year relevant to the date of commencement of industrial park mentioned in the notification. The Assessee on receipt of such notification granting the benefit of deduction w.e.f Sep 05, 2010 as stipulated in condition no. 7 of the said notification, approached CBDT for request of a rectification in the notification. Rectification was sought in condition no. 7 of the notification on the ground that the development of the industrial park was initiated from the year 2008-09. The project was launched in 2009 for setting up 182 units. Between April 2009 and March 2011 as many as 135 units were booked, allotment was processed, possession of land was handed over to them. Sale deed was executed and consideration was also received by them. The date of commencement of Sep 05, 2010 would postpone the benefit of option of deduction to A.Y 2010-11. According to Assessee, once the tax returns and the financial statements were filed establishing the location of the minimum number of 30 units in the A.Y 2010-11, the benefit of the option of deduction ought to have been given to Assessee from the A.Y 2009-10 and not A.Y 2011-12 by recording a condition in the notification of the date of commencement. This application for rectification was rejected giving rise to the present petition.

High Court held that,

++ we need to consider whether Assessee's contention that the notification granting the benefit of availing deduction of taxes u/s 80IA(4)(iii) from the date of commencement i.e. 5/09/2010 is valid. The question is whether such benefit has to be granted to Assessee's project from the date of commencement as notified or allow the claim of deduction under clause (iii) of sub-section(4) of Section 80IA of the Income Tax Act beginning from the A.Y of development of Industrial Park begun, as prayed for by the Assessee. The Assessee's case is that it applied for approval for the Industrial Park under the Industrial Park Scheme, 2008 on Jan 27, 2009 to claim deduction u/s 80IA(4)(iii). An agency known as MARS Planning & Engineering Services Pvt Ltd, a consultant agency appointed on behalf of GIDC, supervised the development work and submitted a progress report stating that the entire project was completed on Sep 5, 2010 i.e. before March 31, 2011, the date relevant before which the project had to be established as per the Scheme. The State, based on the facts recorded in the meeting of the State Level Approval committee, granted a subsidy of Rs 92,63,000/- Therefore the Assessee's project had been completed before the statutory date of March 31, 2011. As per the application, a total of 182 units were to be located at the Park. However, as is evident from the schedule of requirements vis-a-vis the implementation furnished, that as per the scheme 34 Units were located in the park in the Financial Year 2009-2010. In the first round in Assessee's case, the CBDT had rejected the application for approval. According to the CBDT, since the number of agreements in respect of industrial units executed as on Sep 5, 2010 is 99 only, this would not necessarily mean that units were were actually ready for possession since agreements can be made for unconstructed and under constructed units. Therefore according to the Board this document does not prove completion of the project by Sep 5, 2010. CBDT observed that what definitely emerges is that the project was actually completed in 2013 and not before Mar 31, 2011 as claimed;

++ in the notification and the impugned order would indicate that the CBDT is of the opinion that unless the Park develops and begins to operate i.e. unless the entire Park is set up with all the units in place, as applied for and undertaking their manufacturing activities, such project cannot be said to be completed. It is in this context that the date of commencement is notified as Sep 5, 2010. Whereas the Assessee would suggest that they had begun development of the Industrial Park during the year 2008-2009 after purchasing the land in earlier years. As required under the Scheme, particularly under Clause 4 thereof, they had 30 units located in the Park in the FY-2009-2010 which were the minimum number required under the Scheme for the Criteria of Approval. According to the General Conditions in sub clause (2) of Clause 5 of the Scheme, tax benefits under the Act will be available to the undertaking only after minimum number of thirty units are located in the Industrial Park. According to Assessee, once the minimum number stipulated for the scheme were located, benefit of claiming deductions would be available without waiting for the entire Park to have all the Units applied for being functional and working. Once having set up the Park and invested therein, it would be against the spirit of the Section 80IA to postpone the benefit of claiming deductions till the whole park with all Units start functioning when in effect the existing units have come up and working with an eye on claiming the benefit of the option to claim deductions under 80IA. It is in this context that the Assessee wants the Court to read the Circular dated 15/2/2016 which according to it stipulates that the deduction u/s 80IA can be claimed by the assessee at his option, for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking commences operation, begins development or starts providing services etc as stipulated therein;

++ the the Board opined that it is abundantly clear from sub-section (2) that the assessee has the option to choose the initial/first year from which it may desire the claim of deduction. The 'initial assessment year' therefore would mean the first year opted for by the assessee for claiming deduction under Section 80IA. It need not necessarily mean the year of commencement/operation. The deduction once claimed would be for a maximum of ten years. In other words, once the Park is set up, the assessee can opt to claim deductions either from the first year itself or opt to wait for a few years and begin claiming such deductions once there are enough profits ploughed in, subject to the maximum available for a period of ten years. Therefore, what the Circular does is only clarify the misconception that the AO harboured regarding the starting point of the option to claim deduction u/s 80IA. It nowhere suggests the interpretation of the question of "date of commencement" as stipulated in the Scheme and the Section. The language of the Circular therefore may not be of assistance to Assessee. Except for clarifying and extending the concept of "initial assessment year" to that of the year opted for claiming deductions which not necessarily being the year of commencement,the circular goes no further. Section 80IA provides the extent and the scope of deductions available to undertakings involved in the business of infrastructure development. The intention behind this provision is to give a fillip of deduction against the total income of the assessee derived from the infrastructure project as the entire cost of the infrastructure was being borne by the assessee. What is evident from the purpose of introduction of Section 80IA in the Act, is that it was with a view to provide impetus to the growth of infrastructure. The concession is to attract private investment is such sector. Rule 18C of the Income Tax Rules provide that if such an Industrial Park is begun to develop, developed or operated and maintained any time during the period beginning on the 1st day of April 2006 and ending on 31st March 2011 shall be eligible for the benefits u/s 80IA(4)(iii). According to Section 80IA(2), the assessee may at his option claim deduction for a period of ten consecutive assessment years beginning from the year in which the undertaking or enterprise develops and begins to operate any infrastructure facility. The Scheme, though defines the date of commencement in 2(f) to mean the date of obtaining the completion certificate or occupation certificate from the relevant local authority, the criteria for the approval suggests that it will be approved when there shall be a minimum of thirty units located in a industrial park;

++ considering the scheme of industrial parks in context of pharmaceutical parks under the scheme of 2002, the court first considered clause 9(2) of the General Conditions, which when read, were similar to the present clause (2) of General Conditions of the Scheme of 2008. On facts, the Court found that the minimum number stipulated was 30 and the Park had 32 units located. According to the Court, the duty and responsibility of Assessee was to ensure that the industrial activity is facilitated on the industrial park so developed by it. It was not the responsibility to ensure that the industries do in fact set up their units and commence production. The scheme envisaged that the scheme fulfills all requirements to avail tax benefits i.e. locate the units as per condition 5(2). Admittedly as is clear from the facts, the Assessee had, in the FY 2009- 2010, 34 plots located in the Park. It was therefore fulfilling the requirement of availing tax benefits as it had the minimum number of plots located as per the Scheme to avail such Tax Benefits. Therefore before the last date of the Scheme the Park had provided the infrastructure facilities. The Industrial Park had been set up with a purpose that the Units allocated therein once set up, the Park could get its option for availing of tax deductions u/s 80IA(4)(iii). Once the minimum number of units are located, to expect the Park to postpone benefit of claiming deductions till the entire Park is set up and all the units are located, would be to leave the Park at the vagaries of uncertainty. Keeping the basic objective in mind to give a fillip to infrastructure development it would be counter productive to the purpose of such a scheme if the deductions u/s 801A(4)(iii) are postponed till the entire project is set up which cannot be said to be the intention of the scheme. Once the minimum number of units, 30 in number are located, the Park can at its choosing, opt for availing the deductions u/s 80IA from the date of its first year or choose a subsequent year as its "initial assessment year". As a result of a specific finding that Assessee is deemed to have been eligible for availing tax deduction u/s 80IA(4)(iii) from the F.Y 2009-2010, the order rejecting the Rectification Application deserves to be set aside.

(See 2017-TIOL-2333-HC-AHM-IT)