The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that an Indian-incorporated company providing ground and cargo handling services at an airport is entitled to a deduction under Section 80IA of the Income Tax Act. Such services are considered integral to the operation of an airport and fall within the definition of an ‘infrastructure facility’.
The ITAT clarified that the requirement of an agreement with the central government is satisfied if the agreement is with a statutory body (like BIAL) that has been granted concession rights by the government. Further, the condition that the enterprise be owned by an Indian company is met if the taxpayer itself is an Indian company, irrespective of its shareholders being foreign entities.
The Tribunal also explained that the proviso to Section 80IA(4), which limits the deduction period upon transfer of a facility, is not applicable unless it is demonstrated that the cumulative period of deduction claimed by the transferor and transferee exceeds the statutory limit.
The Division Bench comprising Satbeer Singh Godara (Judicial Member) and Naveen Chandra (Accountant Member) observed that the issue of whether cargo handling facilities qualify as an ‘infrastructure facility’ for the purpose of Section 80-IA is no longer res-integra. It held that the AO erred in giving a restrictive interpretation to the scope of ‘developing, operating and maintaining’ an airport.
The Bench explained that an airport is a facility for transporting passengers and/or cargo, and its functionality arises from all facilities that add utility, including cargo handling, ground handling, security, and baggage management. These activities are incidental or supplemental to the core function of transportation and are covered within the meaning of the Explanation to Section 80-IA.
The Tribunal noted that the GOI had granted BIAL exclusive rights for the development, operation, and maintenance of the Bangalore airport through a Concession Agreement, which also authorized BIAL to grant ‘service provider rights’ to other persons. The approval of the Cabinet for the formation of the JV company, as communicated by the Ministry of Aviation, amounts to an approval of the incorporation of the taxpayer.
Thus, the Tribunal concluded that BIAL had delegated authority from the GOI, and the agreement with BIAL, a statutory body, fulfilled the condition of having an agreement as required under Section 80IA(4)(i)(b) of the Income Tax Act.
The Bench found that the taxpayer company did not come into existence by a mere reconstitution of the prior unincorporated JV. Instead, its formation was initiated by the GOI, with Cabinet approval for setting up a joint venture company incorporated under the Companies Act, 1956. Therefore, the allegation that the conditions of Section 80-IA(3) were violated was incorrect.
Regarding the AO’s objection that one of the owners (SATS Ltd.) is a foreign company, the Tribunal observed that Section 80IA(4)(i)(a) requires the enterprise to be owned by a company registered in India. The taxpayer itself is a company incorporated in India and owns the infrastructure facility. Since there is a distinction between the company and its shareholders, the provision of Section 80IA(4)(i) does not require that the shareholders of the Indian company must also be Indian companies.
The Tribunal further observed that since the taxpayer is entitled to a deduction under Section 80IA, any increase in income due to the disallowance under Section 40(a)(ia) would also be eligible for the 80IA deduction, rendering the issue academic. On merits, it noted that the provision for concession fees was an estimate, reversed in the subsequent year when actual invoices were received and TDS was duly deducted. The Tribunal held that no income had accrued to BIAL when the provision was made, and thus no tax was deductible at that stage.
Briefly, the respondent/ taxpayer company was incorporated as a joint venture between SATS Ltd., Singapore, and Air India Ltd. (AIL) to provide ground and cargo handling services at Indian airports. This incorporation followed a Joint Venture Agreement and was based on a Cabinet approval. Previously, these services were carried out by an unincorporated joint venture (AI-SATS) formed by AIL and SATS. The business of the unincorporated JV, including all assets and liabilities, was transferred to the newly incorporated respondent company on a slump exchange basis, effective from 1st August 2010, as per a ‘business transfer confirmation agreement’.
The dispute arose when the respondent claimed a deduction under Section 80IA of the Income Tax Act, amounting to Rs. 23.90 Crores for the Assessment Year 2011-12, for developing, operating, and maintaining an infrastructure facility. The Assessing Officer (AO) disallowed this claim on several grounds, namely: (i) the business of ground and cargo handling is not an ‘infrastructure facility’ under Section 80IA(4); (ii) the respondent did not have a direct agreement with the Government of India (GOI), but with Bengaluru International Airport Limited (BIAL); (iii) the respondent company was formed by the reconstitution of an existing business, violating Section 80-IA(3); and (iv) the ownership condition was not met as one of the JV partners (SATS Ltd.) was a foreign company.
Additionally, the AO disallowed a sum of Rs. 3.82 crores, which was a provision for concession fees, under Section 40(a)(ia) of the Act on the grounds that tax was not deducted at source (TDS) on this provision. On appeal, the Commissioner of Income-tax (Appeals) deleted the disallowances.
Appearances:
CIT-DR Monika Singh, for the Appellant/ Revenue
Senior Advocate Percy Pardiwalla, Advocate Ananya Kapoor, and CA Divesh Dhawan, for the Respondent/ Taxpayer
