1. Major issue involved in both the appeals filed by the Department is common. We therefore find it convenient to dispose of both the appeals by a consolidated order.
On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in: 1. directing the Assessing Officer to deduct a sum of Rs. 13,15,01,864/- being deduction Under Section 80IA by holding that the assessee has carried on the business of developing, maintaining and operating any infrastructure facility while calculating the Book Profits Under Section 115JAoftheAct.
2. ignoring the statement recorded Under Section 132(4) of Shri Saket Agarwal, Managing Director, wherein he admitted that no operation of infrastructure facility was carried on by the assessee for the purpose of deduction Under Section 80-IA of the Act.
3. holding that the business of leasing of assets of the assessee tantamount to carrying on the business of developing, maintaining and operating any infrastructure facility and thereby eligible for the purpose of deduction Under Section 80IA of the Act.
4. failing to appreciate the terms of the tender whereby JNPT was to operate the equipment while the assessee was to maintain them and in holding that the assessee has carried on business of developing, maintaining and operating any infrastructure facility for the purpose of deduction Under Section 80-IA.3. The assessee, a public limited company, has reported, in its Annual Accounts, its operational income from three sources. Its main source of operational income is Charter Hire of Plant & Machinery. Other two comparatively much smaller sources of operational income are (i) Erection/Construction Contract Receipts; and (ii) Service Charges including Crane Mobilisation Charges. Return of income for the year under consideration was filed on 28.11.1997 declaring loss of Rs. 9,71,24,731/-. However, book profit of Rs. 1,94,00,996/- was declared under Section 115JA. In the computation of income for the purpose of determining book profit Under Section 115JA, the assessee reduced Rs. 9,72,01,758/- from the net profit to arrive at the book profit on the ground that the aforesaid amount represented profits derived from the business of developing, maintaining and operating infrastructure facility as defined Under Section 80-IA(12) of the I-T Act. According to the assessee, all the conditions for availing the deduction Under Section 80-IA stood satisfied and therefore book profits were required to be reduced by the profit derived from the aforesaid industrial undertaking in terms of the provisions of Clause (vi) of the Explanation to Section 115JA. Therefore, the short issue before us is whether the assessee is engaged in the business of developing, maintaining and operating infrastructure facility Under Section 80IA(12) of the Income-tax Act.
4. The assessee has entered into two contracts with Jawaharlal Nehru Port Trust ("JNPT" in short), a statutory body constituted under the Major Port Trusts Act, 1963. First contract, which is for Stream-I of the Container Terminal, is contained in letter bearing Reference No.JNP/SM(CT)/CHE/AUG/94/2114 dated 02/03.09.1994 issued by the JNPT for "supply installation, testing, commissioning, and maintenance of 1 no.
Rail Mounted Quay Crane, 3 nos. Rubber Tyred Gantry Cranes and 1 no.
Rail Mounted Gantry Crane on lease for a period of 10 years at the Container Terminal of Jawaharlal Nehru Port Trust" on the terms and conditions mentioned therein. A copy of the said letter has been placed at pp. 06-21 of the paper book submitted by the assessee. Lease charges have been quantified at pages 2 and 3 of the said letter for each item under two options, namely, Option "A" detailing lease charges inclusive of operation and maintenance; and, Option "B" detailing lease charges inclusive of maintenance only (operation to be carried out by JNPT).
JNPT has reserved the right to exercise the option to request the assessee to carry out both operation and maintenance of the cranes during the lease period or to carry out maintenance only while the operation is done by JNPT at the lease rates specified in the said letter. The actual option required by JNPT was required to be intimated within 90 days prior to the arrival of equipments in port. Supply, installation, testing and commissioning of all the five equipments was required to be completed on or before 16th June 1995. The said letter also contained terms and conditions regarding certification by an Inspection Agency, performance guarantee, minimum availability of equipments in terms of number of days per annum, liquidated damages, power supply for the equipments, time frame for payment of lease charges to the assessee, retention of equipment on expiry of lease period, working hours, payment of taxes, indemnity, third party insurance, insurance of equipment during lease period, workmen's compensation, income-tax deduction, dispute between the contractor and the employer, labour laws, transfer of contract, termination of contract, Force Majeaure, etc. The role of the assessee, as per the said letter, is that of a contractor while the role of the JNPT is that of an employer. Second contract, which is in respect of second stream of the Container Terminal, is contained in letter bearing Reference no.
JNP/SM(CT)/CHE/AUG/S. stream/95/2415 dated 16.10.1995 issued by the JNPT for supply, installation, testing, commissioning, operation and maintenance of 1 no. Rail Mounted Quay Crane, 3 nos. Rubber Tyred Gantry Crane and I no Rail Mounted Gantry Crane on lease for a period of 10 years on terms and conditions mentioned therein which are broadly similar to those in the first contract.
5. Another factor worth mentioning about annual lease charges is that JNPT had, during the course of fmalization of tenders, noticed that the assessee had quoted one price for both the alternatives, namely, Option "A" and Option "B" whereas the tenderers were required to quote separately for equipments under both the aforesaid options, i.e., price schedule for lease/hire of equipments inclusive of both the operation and maintenance (Option "A") as also for maintenance alone but exclusive of operation (Option "B"). Therefore, JNPT, vide its letter dated 24.11.1993, called upon the assessee to indicate the reduction in the offer for lease charges with only maintenance being carried out by the assessee. In reply, the assessee, vide its letter dated 24th November 1993 and 25th November 1993 agreed to a reduction of Rs. 40 lakhs from the total hire charges of Rs. 16.35 for the first year with 8% escalation for the consecutive years as per tender. The assessee has been paid @ Rs. 15.95 crores (i.e., Rs. 16.35 crores - Rs. 40 lakhs) in the first year. In other words, the assessee has been paid for option "B", i.e., maintenance only and not for maintenance and operation.
6. The Department carried out a search operation Under Section 132 of the I-T Act, at the premises of various entities of the group of the assessee on 3.8.1958. During the course of search, the issue regarding fulfillment of conditions under Section 80-IA was also raised. In the course of search, Shri Saket Agarwal, Managing Director of the assessee-company admitted in his statement that the assessee was not operating the cranes at JNPT and further that the conditions Under Section 80-IA of the I-T Act were not satisfied. He also stated that the certification of return of income was inadvertently done. He further assured in his statement that he would withdraw the claim for the said deduction for the relevant assessment years. By his letter dated 10.8.1999 submitted to the Investigation Wing of the Income-tax Department, Mumbai, he confirmed that benefits of deduction on the amount of profit derived from infrastructure facility-were not available to the assessee and he therefore offered to withdraw the claim of deduction in this regard. On the basis of legal advice subsequently received, the assessee retracted from the aforesaid statement on the ground that there could not be any estoppel against law.
7. Apart from taking note of the aforesaid facts, the Assessing Officer also made the enquiries from JNPT to find out as to whether the cranes supplied and installed by the assessee at the port were also operated by the assessee or by the JNPT in terms of the contracts. He has reproduced the reply submitted by JNPT, vide its letter dated 3.8.1999, at page 18 of the assessment order. In the said letter, the JNPT confirmed that the equipments supplied by the assessee were being operated by JNPT and that the assessee was only maintaining the equipments for which the assessee was being paid in accordance with Option "B" of the work order, i.e., letters containing the terms and conditions of the contract. The Assessing Officer, after considering the factual aspects of the case, rejected the claim of the assessee for deduction Under Section 80IA mainly for the reason that the said cranes could not be equated with the "port" and also for the reason that the assessee itself was not operating the said cranes. According to him, the assessee was merely engaged in providing the cranes/equipments to JNPT on lease basis and not in the development,) maintenance and operation of the port. The Assessing Officer has summarized his findings in paragraph 22 (pp.23-24) of the assessment order, which for the sake of brevity, are not being reproduced here.
8. On appeal, the ld. CIT(A) allowed the claim of the assessee for the reasons given in para 5 of his order. According to him, investment made by the assessee in cranes/equipments including their leasing to JNPT as also the maintenance and operation of the cranes at JNPT amounted to development, maintenance and operation of the infrastructure facilities at the port. He has also held that the assessee has entered into an agreement with JNPT which is in the nature of build, own, lease and transfer (BOLT) in respect of the cranes/equipments. Ld. CIT(A) has also relied upon Circular no. 793 dated 23.06.2000 issued by the Central Boardof Direct Taxes in which it has been clarified that structures at ports for storage, loading and unloading etc. will be included in the definition of port for the purposes of Section 10(23G) and 80-IA of the I-T Act provided the concerned port authority has issued a certificate that such structure would form part of the port and that such structures have been built under BOT or BOLT scheme and there is an agreement that the same would be transferred to the port authority on the expiry of the time stipulated in the agreement. He has also held that the supply, commissioning and operation of cranes/equipments by the assessee were done under the BOLT scheme. In view of the aforesaid, the ld. CIT(A) has directed the Assessing Officer to allow deduction as claimed by the assessee Under Section 80-IA against which the Department is now in appeal before this Tribunal.
9. In support of the appeal, the learned Departmental Representative took us through the factual aspects of the case brought out in the assessment order and also through the relevant provisions of Section 80IA. According to him, the assessee was engaged merely in the supply, installation, commissioning and maintenance of cranes being container handling equipments and not in the development, maintenance and operation of the port. Inviting our attention to the definition of "infrastructure facility" given in Section 80IA(12)(ca)(i), he submitted that the cranes installed by the assessee at JNPT were neither a port nor a public facility of similar nature notified by the Central Board of Direct Taxes and hence the assessee did not satisfy the basic requirement of being an "infrastructure facility" within the meaning of the aforesaid provisions. His second line of reasoning was that the cranes were taken by JNPT on lease under Option "B" which was inclusive of maintenance only and specifically exclusive of operation which was carried out by the operators of JNPT. According to him, the assessee could not therefore be said to have operated the cranes in view of the stipulations under Option "B" of the agreement.
10. In reply, the learned senior counsel for the assessee supported the order passed by the learned CIT(A). According to him, the assessee had satisfied all the conditions stipulated for availing the deduction Under Section 80IA in as much as the enterprise was owned by a company registered in India, the assessee had entered into an agreement with JNPT for supply, maintenance and operation of container handling systems at the port with the condition that the cranes would be transferred to JNPT at the end of 10 years and that the cranes required to be commissioned under both the contracts were commissioned and put to operation after 1st April 1995.
11. The learned senior counsel for the assessee relied heavily on the following facts to establish that the case of the assessee fell squarely within the purview of "infrastructure facility" as defined in Section 80IA(12(ca): (i) Container handling cranes were integral part of port facilities and hence a modern port without having the cranes like those supplied, installed and maintained by the assessee, would be incomplete, nonfunctional and unworkable.
(ii) Cost of the cranes of each stream is about Rs. 65 crores. Such huge investment constituted a very significant part of port infrastructure. It was claimed that the assessee had spent Rs. 1,39,97,857/- to meet the operational expenses on the deployment of the aforesaid seven cranes.
(iii) It was claimed that supervision of and responsibility for operation of cranes was more important as maintenance of cranes was the exclusive responsibility of the assessee. Any negligence by the crew in operating the cranes would have rendered the assessee liable to heavy maintenance expenses as well as heavy penalties in terms of the agreement with JNPT. It was therefore not possible for the assessee to sleave the operation of the cranes to the operators of JNPT or leave the cranes unmanned.
(iv) Cranes were highly specialized and sophisticated equipment costing over Rs. 125 crores. Therefore highly qualified and trained mechanical engineers were deployed for the operation of the cranes to produce desired results.
(v) Agreement with JNPT required the assessee to develop, maintain and operate the cranes. Engagement of JNPT operators as crane drivers did not therefore dilute the responsibility of the assessee from operating the cranes.
(vi) The assessee was liable to pay workmen compensation for any injury in operating the cranes under the Workmen's Compensation Act.
It was submitted that though operators were deputed by JNPT to operate the cranes for which the assessee was paying Rs. 40 lakhs p.a., the assessee was nevertheless involved in the operation and maintenance of container handling equipments.
(vii) Relying on the guidelines captioned as "Investment Opportunities in the Infrastructure Sectors in India" issued by the Ministry of Surface Transport, it was submitted that the Government was keen to encourage private participation in the development of ports through, inter-alia, leasing of equipment for port handling from private sector. The aforesaid Guidelines alleged to have been issued by the Ministry of Surface Transport do not however carry any reference/file no. or date. They seem to have been downloaded from the website of the aforesaid Ministry.
(viii) He also placed reliance upon a certificate dated 31.03.1999 issued by the Chairman, JNPT certifying that the equipments supplied by the assessee had helped the port to record the highest throughput in container handling among the major ports in the country.
(ix) He invited our attention to letter dated 27.03.2000 issued by JNPT to and at the instance of the assessee. It is mentioned in the said letter that (i) the sum of Rs. 40 lakhs p.a. offered by the assessee to JNPT comprised of salaries, wages and other emoluments of the operators provided by JNPT, (ii) it was the responsibility of the assessee to ensure the operational availability of the equipments on round the clock basis as per contractual obligations, (iii) the assessee was responsible for all repairs during the period of break down of the equipments, (iv) the insurance towards workmen's compensation as well as compliance with labour laws during maintenance and operation of the equipment was the responsibility of the assessee, (v) the assessee carried overall responsibilities to ensure round the clock operation and guarantee the minimum availability of the equipment as per contract.
12. He further submitted that the cranes supplied and installed by the assessee were "infrastructure facility" within the framework of its definition as given in Section 801A(12)(ca). According to him, the supply, installation, maintenance, etc. of the cranes by the assessee at the port was integral part of the port facilities without which a port could neither be developed nor maintained nor operated. He stressed that the assessee was involved in the development, maintenance and operation of the port through the cranes supplied, installed and maintained by it round the clock at the port. According to the assessee, the very use of the phrase "infrastructure facility" in Section 801A(12) would suggest that any facility, like the supply, erection, installation, maintenance, etc. of the cranes, would answer the description of "infrastructure facility' and thus entitle the assessee to claim the relief Under Section 801A. The assessee supported its submission by referring to the definition of "port" as given in the Indian Ports Act, 1908 according to which a "port" would include any part of the river or channel in which the said Act was for the time being in force. Section 4 of the said Act was also referred to which provided that Ports Act could be extended to include piers, jetties, landing places, wharves, quays, docks and other works made on behalf of the public for convenience of traffic, for safety of vessels, or for improvement, maintenance or good government of the port. Referring to Chapter V ("Works and services to be provided at ports") of the Major Port Trusts Act, 1963, he submitted that the provisions contained in the said Chapter empowered the Board to provide moorings and cranes, scales and all other necessary means and appliances for loading and unloading vessels. It was also submitted that the term used in Section 80IA was "infrastructure facility" and not infrastructure and hence the facility of cranes provided by the assessee was in the nature of infrastructure facility. He supported the order of the learned CIT(A) in relying upon Circular no. 793 dated 23.06.2000 issued by the Central Board of Direct Taxes.
13. Referring to the aforesaid facts, the learned senior counsel submitted that it was the overall responsibility of the assessee to ensure round the clock availability and operation of the cranes as it was the assessee who was bound by the contractual obligations to maintain and operate the cranes notwithstanding the obligation of JNPT to provide operators for operating the cranes. He submitted that technical experts needed to operate the cranes were deployed by the assessee at the port for which payments were made to them by the assessee and hence it could not be said that the cranes were not operated by the assessee.
14. We have heard the parties and considered their submissions.
Jawaharlal Nehru Port was commissioned in May 1989 in Navi Mumbai. Its land area is about 6000 acres. It has container terminal, bulk terminal, storage, bagging and dispatch facilities, multi purpose berths, facility for car carriers, pilotage, container freight station, buffer yard, etc. The port is run by the Jawaharlal Nehru Port Trust constituted under the Major Port Trusts Act, 1963, which is an Act making provision for the constitution of port authorities for certain major ports in India and to vest the administration, control and management of such ports in such authorities and for matters connected therewith. The JNPT is thus a statutory body entrusted with the task of running and managing the Jawaharlal Nehru Port. In order to accomplish the role of running and managing the port, the JNPT procures certain materials and services from various sources. It is in pursuance of this requirement that the JNPT procured the services of the assessee-company for "supplying, installing, testing, commissioning, and maintaining" certain cranes at the port to facilitate the loading/unloading of cargo.
15. Provisions of Section 801A were amended with effect from 1st April 1996 to provide for tax holiday for enterprises engaged in infrastructure development. Benefit of deduction Under Section 80IA was made available with effect from AY 1996-97 to an assessee whose gross total income included any profits or gains derived from any business, inter alia, of "developing maintaining and operating any infrastructure facility", which fulfilled all the conditions laid down in that behalf in Sub-section (4A) of Section 80IA. Circular No. 717, dated 14th August 1995 issued by the Central Board of Direct Taxes elaborates the scope and effect of the aforesaid amendments. It is stated in para 34.3 of the aforesaid Circular that "a ten year concession including a five year tax holiday has been allowed for any enterprise which develops, maintains and operates any new infrastructure facility such as roads, highways, expressways, bridges, airports, ports and rail systems or any other public facility of similar nature as may be notified by the Board on BOT or BOOT or similar other basis (where there is ultimate transfer of the facility to a Government or public authority)." It is thus clear that deduction Under Section 80IA is available to an enterprise, which develops, maintains and operates, inter-alia, a port or, alternatively, a public facility of similar nature as may be notified by the CBDT.16. The phrase "infrastructure facility" is defined in Clause (ca) of Sub-section (12) of Section 80IA. In the present case, we are concerned with the definition of "infrastructure facility" as given in Sub-clause (i) of Section 801A(12)(ca) which reads as follows: "infrastructure facility" means "a road, highway, bridge, airport, port, rail system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette...."The aforesaid definition has thus two limbs. While first limb covers the infrastructure as specified in Section 801A(12)(ca)(i) itself which are roads, highways, bridges, airports, ports and rail systems, second limb covers any other public facility of a similar nature as may be notified by the Central Board of Direct Taxes in this behalf in the Official Gazette. The distinction between the aforesaid two limbs lies in the fact that while first limb specifies the infrastructure per se, the second limb leaves it to the CBDT to notify any other public facility of a similar nature as infrastructure facility. First limb covers only the specified categories of infrastructure but the second limb covers any public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette The case of the assessee, which has found favour with the learned CIT(A), is that it is engaged in the business of development, maintenance and operation of cranes at Jawaharlal Nehru Port at Navi Mumbai, which were in the nature of infrastructure facility. Learned CIT(A) has also relied upon Circular No. 793 dated 23.06.2000 issued by the Central Board of Direct Taxes to support his conclusion. The case of the Department, on the other hand, is that the benefit Under Section 80IA is available only when the enterprise itself develops, maintains and operates the port and NOT to an assessee who merely provides certain services at the port. It is stressed by the Department that it is the development, maintenance and operation of the port itself, which alone entitles an enterprise to claim deduction Under Section 80IA and not the mere development, maintenance and operation of certain services/facilities, like cranes at the port. The issue before us, in short, is whether the assessee is engaged in the business of developing, maintaining or operating a port within the meaning of first limb or any other public facility of a similar nature as notified by the CBDT in terms of the second limb of Section 80IA(12)(ca)(i).
17. It is evident from the aforesaid analysis that the assessee must, in order to successfully claim the deduction Under Section 80IA, establish that it is engaged in the business of developing, maintaining, and operating either a (i) port, or (ii) any other public facility of similar nature as may be notified by the CBDT. We shall therefore first examine whether the supply, installation, maintenance, etc. of the cranes at the port as undertaken by the assessee can be said to amount to developing, maintaining and operating a port under the first limb of the definition and thereafter we shall also examine to see as to whether the aforesaid activities of the assessee can be said to be a public facility of similar nature as notified by the CBDT under the second limb of the definition as given Under Section 80IA(12)(ca)(i).
14. The term "port" has not been defined in the Income-tax Act. Section 3(4) of the Indian Ports Act, 1908 provides an inclusive definition of a "port" so as to include "also any part of a river or channel in which this Act is for the time being in force." Section 2(q) of the Major Port Trusts Act, 1963 defines, unless the context otherwise requires, a "port" as "any major port to which this Act applies within such limits as may, from time to time, be defined by the Central Government for the purposes of this Act by notification in the Official Gazette, and, until a notification is so issued, within such limits as may have been defined by the Central Government under the provisions of the Indian Ports Act". This definition does not help us as it defines a port with reference to any-major port to which the Major Port Trusts Act is made applicable by the Central Government. We shall therefore turn to the definition of "port" as given in the Dictionaries and Law Lexicons. In "The New Shorter Oxford English Dictionary", the word "Port" has been assigned, as relevant for us, the meanings as follows: "1. A place by the shore where ships can shelter from storms, or load and unload; a harbour, a haven (lit. and fig.). OE. 2. A town or place possessing a harbour where ships load or unload, or begin or end their voyages, or at which passengers embark or disembark, esp. on departure from or arrival in a country; spec, such a place where charges may be levied under statute on ships making use of the facilities. Also (more fully inland port), any point or place inland recognized or functioning as a port." In Tomlin's Law Dictionary, a "port" has been defined to mean: "A harbour or place of shelter, where ships arrive with their freight, and customs for goods are taken. At Page 1181 of Black's Law Dictionary (Seventh Edition), a port has been defined to mean "1. A harbor where ships load and unload cargo. 2. Any place where persons and cargo are allowed to enter a country and where customs officials are stationed." It is quite clear from the aforesaid definitions that a "port" is a harbour or place where ships arrive for shelter, loading and/or unloading of their cargo or passengers and where customs for goods are taken. A port is thus not a set of equipments or a set of cranes or a set of labour force deployed to facilitate the management of the port but a harbour where ships arrive for shelter, loading/unloading their cargo and passengers and where customs for goods are taken.
15. On a bare reading of both the letters issued by JNPT containing the terms and conditions of the contact, it is clear that both the contracts were awarded by JNPT to the assessee for "supply, installation, testing, commissioning, and maintenance" of a specified number of cranes on lease for a period of 10 years at the Container Terminal of Jawaharlal Nehru Port Trust. There is nothing in the aforesaid letters to indicate that the JNPT ever asked the assessee to develop, maintain and operate the port. The mere supply, installation, testing, commissioning, and maintenance of cranes are one thing and development, maintenance and operation of a port are a quite different thing. Supply, installation, testing, commissioning, and maintenance of cranes by the assessee cannot, in our view, be said to amount to the development, maintenance and operation of the port. Cranes are not ports and ports are not cranes either. At the most, cranes are equipments deployed to facilitate the operations at a port. Learned CIT(A) says that equipments supplied by the assessee are parts of the port and hence treats them as a port without realizing that even hands or other limbs in a human body are also parts of human body but such limbs or parts are not human beings by themselves. Parts can never be treated as whole of which they are parts. Parts cannot mean whole. When the legislative emphasis is on the "port", we find it difficult to hold that the cranes deployed by the assessee at the port are a "port" by themselves. Apart from the letters (supra) issued by the JNPT, we further find from the Annual report of the assessee for 1997 that it is not its business either to develop, maintain and operate the ports. In fact, it is the exclusive and statutory responsibility of the JNPT and of none else to run and manage the port. All the three facets, namely, development, maintenance and operation of the port are well entrenched in the running and management of the port by the JNPT. The assessee is a mere service provider to the JNPT by supplying, installing, testing, commissioning, and maintaining certain cranes at the port. Besides, the terms of the contracts as contained in the aforesaid letters issued by the JNPT as also the fact that the contract has been awarded under Option "B" make it further clear that the contracts are for mere "supply, installation, testing, commissioning, and maintenance" of the cranes and not for operating the cranes. This position has also been confirmed by JNPT in its own letter dated 3.8.1999, cited supra. In this view of the matter, we are in agreement with the AO that the assessee is merely engaged in the business of "supplying, installing, testing, commissioning, and maintaining" the cranes at the port and not in the business of developing, maintaining and operating a port. The case of the assessee does not fall within the first limb of the definition of "infrastructure facility" as given in Section 80IA(12)(ca)(i).
16. We shall now turn to the second limb of the definition as given Under Section 80IA(12)(ca)(i) which provides that any other "public facility" of a similar nature can also be treated as "infrastructure facility" provided it is so notified by the Central Board of Direct Taxes in the Official Gazette. The assessee has not been able to place before us any Notification issued by the Central Board of Direct Taxes in the Official Gazette notifying the "supply, installation, testing, commissioning, and maintenance" of the cranes at the port as a "public facility" so as to constitute "infrastructure facility" under the second limb of Section 80IA(12)(ca)(i). In the absence of such a Notification by the CBDT, we are unable to hold that the activities undertaken by the assessee are a notified "public facility" under the second limb of the definition.
17. The learned senior counsel has, however, referred to Circular No.793 dated-23.06.2000 (161-CTR (St.) 121) issued by the Central Board of Direct Taxes, which reads as under: The Board has received various representations seeking clarification whether structures at ports for storage, loading and unloading, etc., will fall under the definition of "port" for the purposes of Sections 10(23G) and 80-IA of the Income-tax Act, 1961.
2. The Board has considered the matter and it has been decided that such structures will be included in the definition of "port" for the purposes of Sections 10(23G) and 80-IA of the Income-tax Act, 1961, if the following conditions are fulfilled: (a) the concerned port authority has issued a certificate that the said structures form part of the port, and (b) such structures have been built under BOT and BOLT schemes and there is an agreement that the same would be transferred to the said authority on the expiry of the time stipulated in the agreement.
18. It is quite evident from the aforesaid Circular that structures at ports for storage, loading and unloading, etc. alone have been notified by the CBDT for inclusion in the definition of "port" for the purposes of Section 10(23G) and 80IA of the Income-tax Act subject to the fulfillment of certain conditions specified therein. Cranes supplied, installed and maintained by the assessee at the port are not structures for storage, loading and unloading, etc. and hence the benefit of the aforesaid Circular cannot be extended to the activities undertaken by the assessee. In fact, the aforesaid Circular makes it quite clear that a conscious decision has been taken by the CBDT to restrict the benefit of Section 10(23G) and 80IA to either a port or the structures built at the port for storage, loading, unloading, etc. In our view, learned CIT(A) was not justified in enlarging the scope of that Circular so as to treat cranes as ports or as structures built at the port for storage, loading, unloading, etc. Neither the Circular issued by the CBDT nor the statutorily defined or commonly understood meaning of the term "port" suggests such an interpretation by which the cranes installed by the assessee at the port can be taken to be a port or a notified public facility.
19. The learned CIT(A) has relied upon the aforesaid Circular on the ground that it is a benevolent Circular the spirit of which is applicable to all pending proceedings. Dealing with a similar situation in the context of Section 80HHC, the Hon'ble Supreme Court has held in IPCA Laboratories 266 ITR 521 (SC) as under: We are unable to accept the submission of Mr. Dastur. Undoubtedly Section 80HHC has been incorporated with a view to providing incentive to export houses. Even though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wording of this section. If the wordings of the section are clear then benefits, which are not available under the section, cannot be conferred by ignoring or misinterpreting words in the section....
20. As already observed earlier, the term "port" is commonly as well as /judicially understood as a harbour where the ships arrive for shelter, loading/unloading of their cargo/passengers and where the customs for goods is taken. There is no authority for the proposition that cranes deployed at a port are port by themselves. When the legislature has used the term "port" in the sense in which it is widely known in business as well as judicial circles, it is not open to us to dilute the meaning of the term "port" just in order to give the benefit to the assessee which is otherwise statutorily restricted, inter-alia, to a port under the first limb of the definition or a public facility notified by the CBDT in the Official Gazette in terms of the second limb of the definition. As the meaning of the term "port" is plain, unambiguous and admits of only one meaning, the need for altering the said meaning does not arise. Inconvenience or hardship to the assessee cannot alter the meaning of the term 'Port' employed by the legislature in Section 80-IA(12)(ca)(i) as the meaning of the term 'Port' is quite well established and clear on its face. It is not our function to rewrite a statute and exercise legislative power so as to treat the cranes deployed at a port as port or notified public facility even in the absence of such a notification.
21. In view of the foregoing, we hold that the cranes deployed by the assessee at JNPT are neither a port under the first limb of the definition nor a public facility notified by the CBDT in the Official Gazette under the second limb of the definition. Besides, the terms of the contract as also the rates at which the assessee is being paid by JNPT make it amply clear that the assessee is not being paid for the operation of the cranes but for supply, installation, testing, commissioning and maintenance of the cranes. In this view of the matter, the order of the ld. CIT(A) in this behalf is reversed and that of the Assessing Officer is restored. Ground nos. 1 to 4 stand allowed.
22. Ground Nos. 5 and 6, which revolve around the interpretation of Clause (i) of Explanation to Section 115JA, read as under: On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in: 5. directing the Assessing Officer to deduct a sum of Rs. 2,12,05,842/-being excess depreciation returned back in the accounts by holding that the proviso to Clause (i) of Explanation Under Section 115JA was not applicable while calculating the Book Profits Under Section 115JA of the Act.
6. directing the Assessing Officer to deduct a sum of Rs. 4,32,60,545/-being lease equalization credit to the P & L account by holding that Clause (i) of Explanation Under Section 115JA was applicable while calculating the Book Profits Under Section 115JA of the Act.
23. Facts giving rise to the dispute raised in Ground No. 5 are that the assessee has written back a sum of Rs. 2,12,05,840/- being excess depreciation provided in earlier years, in its accounts. The aforesaid sum has been shown in the Profit & Loss Account as income under the head "Other income". It was the case of the assessee before the AO that excess depreciation to the aforesaid extent was provided for in earlier years and thus formed part of the provision for depreciation which was written back during the year under appeal. The assessee pleaded before the AO that its case fell within Clause (i) of the Explanation to Section 115JA ("Clause (i)" in short) and hence the amount withdrawn from the provision for depreciation and credited to the Profit & Loss Account ought to be reduced from the book profit. The AO however rejected the claim of the assessee for the reason that the requirements of the proviso to the said Clause (i) were not fulfilled. On appeal, the ld. CIT(A) allowed the claim of the assessee following the decision of the Tribunal in PSI Data System, 69 ITD 7 (Cochin) with the following observations: 6 ...Section 115JA was introduced in the statute with effect from 1.4.97. According to the proviso under clause I of the explanation the amount withdrawn from reserve created or provisions made in a previous year relevant to the assessment years commencing on or after 1-4-1997 shall not be reduced from the book profits unless the book profits of such year has been increased by this reserves or provisions out of which the said amount was withdrawn under this explanation. The Assessing Officer held that the proviso to the Clause (i) implied that withdrawal of excess depreciation written back during the present assessment year were permissible only if during an assessment year commencing on or after 1-4-97 the section was applicable to the assessee and the book profit has been increased by these reserves or provisions out of which the said amount has been withdrawn. The Assessing Officer held that the appellant was hit by the provisions of the proviso as there has been no corresponding enhancement of the book profit in any other relevant assessment year. For this reason, the Assessing Officer has not accepted the contentions of the appellant. The appellant's argument is that the proviso is not applicable to it because the provisions were made in the AY 1996-97 and the earlier assessment years. In my view, the arguments of the appellant are correct because the provisions made were much before the assessment year commencing on 1-4-97. Therefore the proviso would not be applicable to the case of the appellant as has already been held in the case of P.S.I. Data System, a decision of the Cochin Bench of the IT AT. The Assessing Officer is therefore directed to allow a relief of Rs. 2,12,05,842/- to the appellant.
24. Facts giving rise to the dispute raised in Ground No. 6 are that the assessee has credited a sum of Rs. 4,32,60,545/- to the Profit & Loss Account for the year under appeal as "Lease Equalisation" under the head "operational Receipts". Note No. 6 to Accounts states: "Consequent upon adoption of recommended accounting practice, as per the guidance note on accounting for lease issued by The Institute of Chartered Accountants of India from current year, Company has taken credit towards lease equalization amounting to Rs. 8,78,83,930/- (including Rs. 4,32,60,545/- for previous Year) for the plant and machinery given on long term charter/lease." It is thus clear that a sum of Rs. 4,32,60,545/- relates to the excess depreciation provided in earlier years which the assessee has sought to equalize by crediting the aforesaid amount to the Profit & Loss Account. To put, in brief, lease equalization represents the difference between the capital recovery included in the lease rentals and statutory depreciation as provided in the books of a company. We shall now elaborate this aspect.
In case of lease transactions, the lessor is entitled to receive lease rent. The amount of lease rent comprises of (i) annual lease charges, which is against the recovery of the cost of asset; and (ii) finance income. Entire lease rental received is credited to the Profit & Loss Account and shown as income. Statutory depreciation is provided in the Accounts on the original cost of the asset or written down value of the asset, as per rates prescribed under Schedule XIV of the Companies Act, 1956 for each year. The objective of the Guidance Note issued by the ICAI is that the Annual Lease Charge, which represents recovery of cost of asset and is credited to the Profit & Loss Account as income, should be equal to the statutory depreciation provided as expense in the Profit & Loss Account, on the basis of the Matching Principle, by making suitable adjustments to achieve equalization. If the amount of annual lease charge is more than the statutory depreciation provided in the books, then Lease Equalisation Account is debited and shown as expenditure in the Profit & Loss Account and Lease Adjustment Account is credited and shown in the Balance Sheet by reducing the book value of the asset under lease. If the amount of Annual Lease Charge is less than the statutory depreciation provided in the books, then Lease Adjustment Account is debited and shown in the Balance Sheet by adding to the book value of the asset under lease and Lease Equalization Account is correspondingly credited and shown as income in the Profit & Loss Account. In the case before us, the amount of lease charge was lesser in the preceding years than the statutory depreciation provided in the books and hence the assessee has shown the difference as income in the Profit & Loss Account. The assessee sought to exclude the aforesaid sum of Rs. 4,32,60,545/- on the ground that it was a mere book entry passed on the basis of Guidance Note circulated by the ICAI.It was also the case of the assessee before the Assessing Officer that the aforesaid sum did not pertain to the year under consideration and hence the same should be excluded while computing the tax liability Under Section 115JA of the IT Act. The Assessing Officer, however, rejected the claim of the assessee mainly for the reason that there was no specific provision in Clause (i) of the Explanation to Section 115JA in this behalf.
25. On appeal, the ld. CIT(A) allowed the claim of the assessee following the decision of the Tribunal in Sipani Automobiles Ltd. 46 ITD 280, with the following observations: I have considered the facts of the case and the arguments of the appellant There is no doubt that the amount credited to the profit and loss account is a fictitious income and had arisen due to the lease equalization which was made out of the provision for depreciation in the accounting year relevant to AY 1996-97.
Therefore, in accordance with Clause (i) to explanation to 115JA the amount of Rs. 4,32,60,545/- has to be deleted from the income for the purpose of Section 115JA of the Income-tax Act. The Assessing Officer is therefore directed to amend his orders accordingly.
26. Thus, the learned CIT(A) has accepted both the claims of the assessee under Clause (i) of the Explanation to Section 115JA following the aforesaid decisions of this Tribunal.
27. We have heard the parties and considered their submissions including the judicial authorities referred to by them. Section 115JA has been inserted in the Income-tax Act by the Finance (No. 2) Act 1996 with effect from the assessment year under appeal, i.e., AY 1997-98 with a view to levy a minimum tax on companies which are having book profits and paying dividends but an not paying any taxes. Section 115JA seeks to bring a part of the "book profit" of a company to the charge of income-tax. "Book profit" is defined by Explanation to Section 115JA, as it stood at the relevant time, to mean the net profit as shown in the profit and loss account for the relevant previous year prepared under Sub-section (2), as adjusted in terms of the provisions contained in the said Explanation. Explaining the basis for computation of tax liability Under Section 115J, which is mutatis mutandis applicable to Section 115JA, the Hon'ble Supreme Court has observed in Apollo Tyres Ltd. v. CIT 255 ITR 273 (SC) as under: Therefore, we are of the opinion, the Assessing Officer while computing the income under Section 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section.
To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J.28. Therefore, the basis for computation of liability Under Section 115JA is the net profit shown in the profit and loss account for the relevant previous year prepared under Sub-section (2), as adjusted in terms of the provisions contained in the said Explanation. In the present appeal, we are concerned with the adjustment provided in Clause (i) of the said Explanation. Clause (i) requires the book profit to be reduced by the amount withdrawn from any reserves or provisions if any such amount is credited to the Profit and Loss account. However, the aforesaid adjustment is subject to the conditions laid down in the proviso to Clause (i) according to which the amount withdrawn from reserves created are provisions made in a previous year relevant to the assessment year commencing on or after 01.04.1997, shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions out of which the said amount was withdrawn under the said Explanation.
29. The case of the learned senior counsel for the assessee is that the impugned entries in the books were made to comply with the "Guidance Note on Accounting for Leases" issued by the Institute of Chartered Accountants of India effective from 1.4.1996, i.e., the assessment year under appeal replacing similar Guidance Note issued by the ICAI in 1988. He submits that the excess depreciation provided in the books in earlier years is in the nature of reserve and hence any amount withdrawn from such a reserve and credited to the profit and loss account is eligible for reduction from book profit under Clause (i). He relies upon the decision of the Hon'ble jurisdictional High Court in CIT v. Protos Engg. Co. (P) Ltd. 207 ITR 831, 839 (Bom.) to support his submission that any excess provision for depreciation is reserve. He has also invited our attention to the following observations made by the Cochin Bench of this Tribunal in PSI Data Systems Ltd. v. DCIT 69 ITD 7 (Cochin): The term "provision" is defined in Clause 7 of Part III of Schedule VI to the Companies Act, 1956 as under: (a) The expression "provision" shall, subject to Sub-clause (2) of this clause mean any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy.
The definition of provision in Part III of Schedule VI is quite relevant in considering the meaning of "book profit" for the purpose of Section 115J as the starting point for computation of "book profit" is the net profit as shown in the P & L account prepared in accordance with the provisions of Parts II and III of schedule VI to the Companies Act. The definition in Clause 7 of Part III is, therefore, quite significant in preparing the profit and loss account in accordance with Parts II and III of Schedule VI. Any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, is included in the definition of "provision" and so the excess amount of depreciation provided for in the earlier years would qualify under Clause (i) of the Explanation to Section 115J, for reduction as the amount withdrawn from reserves provision if any such amount is credited to the profit and loss account.
30. The decision in PSI Data Systems (supra) is directly in the context of Clause (i) of Explanation to Section 115J which is similar to Clause (i) of the Explanation to Section 115JA. We are in respectful agreement with the observations made in the aforesaid case. Learned senior counsel is quite right in placing reliance on the aforesaid decision.
We, therefore, hold that the excess depreciation provided in the books in earlier years is in the nature of provision or reserve for the purposes of Clause (i). However, that per se will not entitle the assessee to get the benefit of reduction unless the assessee also satisfies the conditions laid down in the proviso to Clause (i). It is the case of the AO that the decision in PSI Data Systems is not an authority for the applicability of the proviso to Clause (i) in a given case. Our perusal of the decision in PSI Data Systems also shows that the issue of applicability of the said proviso was neither involved nor considered nor adjudicated upon in that case. Learned CIT(A) has also not examined as to whether the proviso is applicable to the assessee.
In this view of the matter, we set aside the order of the learned CIT(A) and restore the issue raised in Ground Nos. 5 and 6 to the file of the CIT(A) with the direction to examine the claim of the assessee in the light of the proviso to Clause (i) and dispose of the matter accordingly after giving a reasonable opportunity of hearing to both the parties. The other decision relied upon by the learned CIT(A), namely, Sipani Automobiles Ltd., 46 ITD 280 is also not applicable as it does not deal with the issue arising under the proviso to Clause (i). Ground Nos. 5 and 6 are treated as allowed for statistical purposes.
31. Ground Nos. 7 and 8 are general and hence do not call for adjudication.
33. Ground Nos. 1 to 4 taken by the Department in the aforesaid appeal for AY 1998-99 are similar to those taken by it in AY 1997-98.
Following our order in the Department's appeal for AY 1997-98, we allow the appeal filed by the Department.