C. Dhanunjaya Rao Assessing Officer, A.M. — These two appeals by the assessee are directed against the consolidated order of the learned CIT(A)-III, Hyderabad, dated 13th Aug., 2003 pertaining to assessment years 2000-01 and 2001-02. As common issues are involved in both these appeals of the assessee, they are being disposed of by this common order for the sake of convenience.
2. The issue involved in these two appeals relate to deduction under section 80-IA/33AC of the Act on the income derived by the assessee from the business of operation and maintenance of ports. Originally, the assessee raised grounds which were narrative in nature. Subsequently, the assessee filed revised grounds of appeal on the same issue, which are reproduced below :
"1. The learned CIT(A) has erred in law and in the facts and circumstances of the case in confirming the disallowance of the claim of the assessee for deduction under section 80-IA of Rs. 2,96,09,123 on the income derived by it from the business of O&M of ports.
2(a) That the learned Assessing Officer and CIT(A) erred in law and in the facts and circumstances of the case in confirming the disallowance of the claim made by the. assessee for deduction under section 80-IA notwithstanding the fact that the assessee’s case is fully covered by the proviso to section 80-IA(4)(i) and, as such, the. assessee is eligible for deduction under the said section.
2(b) The learned Assessing Officer and CIT(A) ought to have appreciated that as provided in the said proviso, the developer of the infrastructure facility (port) has transferred or in other words handed over the infrastructure facility to the assessee for operating and maintaining the same on its behalf in accordance with the agreement with the specified authorities, and as such, the claim of the assessee for deduction under section 80-IA is perfectly justified and requires to be upheld.
3. That learned CIT(A) has erred in law and in the facts and circumstances of the case in confirming the disallowance of the claim of the appellant for deduction under section 33AC while computing the profits and gains of business.
4. That the learned CIT(A) has erred in holding that the appellant appears to be a private limited company, and that evidence of reserves created as required under section 33AC are not available.
5. That learned CIT(A) has erred in law in not providing adequate opportunity to clarify any issues or provide any information including books of account required to compute the deduction under section 33AC, ignoring the request of the appellant to provide such an opportunity and instead summarily confirming the observations of the Assessing Officer that it is impossible to find out the profits that arose out of the operation of tugs."
3. The brief facts leading to this issue are that the assessee-company is engaged in the business of operation and maintenance of ports, cargo services and other related services. During the year under consideration, the assessee derived income from cargo lighterage operations at Kakinada, income from operation and maintenance of deep-water port at Kakinada, income from operation and maintenance of new ports at Dahej and Jamnagar. For the relevant assessment years, the assessee-company filed its returns of income on 30th Nov., 2000 and 18th Oct., 2001 declaring total income at ‘nil’, after claiming deductions under section 80-IA to the tune of Rs. 2,84,01,650 and Rs. 2,96,09,123, respectively. The claim under section 80-IA was calculated at Rs. 3,16,15,016 and Rs. 4,16,25,384. However, the same was restricted to Rs. 2,84,01,650 and Rs. 2,96,09,123, respectively, for the assessment years 2000-01 and 2001-02, being the income available before claiming the above deduction. The assessments were completed under section 143(3) determining the total income of the assessee at Rs. 2,59,50,240 and Rs. 2,97,17,900 for these two years after disallowing the deduction claimed by it under section 80-IA of the Act.
4. On perusal of the orders of the Revenue authorities and the documents filed in the paper book, it is found that the assessee-company had entered into agreements in respect of development, operation and maintenance of the infrastructure facilities, viz., ports, with the developers thereof as under :
(i) Kakinada Port—Cocanada Port Co. Ltd.
(ii) Dahej Port—Dahej Harbour and Infrastructure Ltd.
(iii) Jamnagar Jetty—Reliance Ports and Terminals Ltd.
It would be pertinent to give a summary of the various agreements entered into by the assessee-company with the said developers of the ports.
(i) Reg. : Kakinada Port :
(a) International Seaports (P) Ltd. entered into a concession agreement with the Government of Andhra Pradesh on 19th March, 1999 for development, operation and maintenance of the Kakinada Deep Water Port.
(b) This concession was subsequently assigned in favour of Cocanada Port Company (P) Ltd. The said Cocanada Port Company (P) Ltd. changed its name to Kakinada Seaports Ltd. on 18th Sept., 2001.
(c) Kakinada Seaports Ltd. is a special purpose vehicle of International Seaports (P) Ltd., the awardees of the contract which was formed to execute the contract/concession agreement. As per the concession agreement, the project commencement was stated as 1st April, 1999, and the concession is valid upto March, 2019.
(d) As per this agreement, the concessionaire is allowed total freedom in operations and the services can be subcontracted as and where found necessary (refer to p. 16 of the paper book, second paragraph).
(e) Further, the concession agreement provided that on the expiry of the concession period, including any extension granted, the infrastructure facility, i.e., the Kakinada Port would be transferred or, in other words, handed over to the Government of Andhra Pradesh.
(f) In this background, marine operations and maintenance service contract was entered into vide contract dated 16th May, 2000 (including renewals), on an exclusive basis with the appellant-company and the same was renewed thereafter. The contract can be extended on expiry, for further period on mutually accepted terms and conditions. Under the operation and maintenance contract, the assessee was required to render the following services in connection with the operation and maintenance of the port (as per Cls. 1.1 to 1.9 of the agreement—pp. 2 to 4 of the paper book) :
(a) Pilotage
(b) Navigation
(c) Mooring services
(d) Standby for pollution containment
(e) Double banking operations
(f) Crew for tugs
(g) Crew for pilot-cum-mooring boat
(h) Voyages beyond Kakinada Port
(i) Dry dock maintenance/repairs, inspection, accidents, etc.
In support of the facts enumerated above, the following documents have been placed on record in the paper book filed by the assessee :
(a) Copy of agreement dated 16th May, 2000 between M/s Cocanada Port Company (P) Ltd. and the appellant-company, namely, Ocean Sparkle Ltd.—pp. 1 to 12.
(b) Evidence for change of name of Cocanada Port Company (P) Ltd. to Kakinada Seaports Ltd. w.e.f. 18th Sept., 2001—pp. 13 and 14.
(c) Confirmation dated 24th July, 2002 and 3rd December 2004 from Kakinada Seaports Ltd. regarding sub-contracting of operation and maintenance service contract to the appellant-company—pp. 15 and 16.
(ii) Re : Dahej Port
The assessee-company had entered into an agreement with M/s Dahej Harbour & Infrastructure Ltd. (DHIL) vide agreement dated 29th July, 1998 to carry out operation and maintenance services of the port at Dahej. The said DHIL had entered into an agreement with Gujarat Maritime Board vide agreement dated 11th August 1999 (in continuation with original agreement) to develop, maintain and operate the port facility at the jetty at Dahej. The aforesaid port facility has been notified by the CBDT as infrastructure facility under section 80-IA(4).
(iii) Re : Jamnagar Jetty
(a) Reliance Ports and Terminals Ltd. (RPTL) entered into an agreement with the Gujarat Maritime Board, a Board constituted under the Gujarat Maritime Board Act, 1981, on 28th July, 1999 to develop, maintain and operate the port infrastructure facilities located at Port Sikka, Jamnagar, on license basis on build, transfer, operate and maintain basis (copy of the agreement placed at pp. 18-47 of the paper book).
(b) In view of the above, the licensee, viz., RPTL subcontracted operations and maintenance services to the appellant-company as outsourcing is permissible under the port policy (confirmation of Gujarat Maritime Board dated 24th November, 2004 found placed at p. 57 of the paper book).
(c) Accordingly, the assessee-company entered into an agreement with Reliance Ports and Terminals Ltd. (RPTL) vide LOC No. RPTL/Jam/Mech/LOC/010, dated 24th June, 1999 and RPRL/Jam/Mech/LOC/0011, dated 1st July, 1999 to carry out various services of O&M of the jetty at Jamnagar developed by the aforesaid company (copy of pp. 48-52 and 53-55 of the paper book).
(d) Under the contract, the assessee was required to render the services of pilotage, mooring, radio operator, cleaning of hold, etc. in connection with the operation and maintenance of the port developed by Reliance Ports and Terminals Ltd.
(e) The said services have been certified to be essential part of the maintenance and operation of the port facilities by Reliance Ports and Terminals Ltd. (copy at p. 56 of the paper book).
(f) Further, the Gujarat Maritime Board vide letter No. GMB/CNO/Ahd/12/8754, dated 24th November, 2004 (copy at p. 57 of the paper book) has also certified that:
lUnder the license agreement between M/s Reliance Port Terminal Ltd. (RPTL) and Gujarat Maritime Board, the licensee has agreed to undertake operations, maintenance, administration and development of port infrastructure.
lIn view of the above, the licensee has sub-contracted operations and maintenance (O&M) services to M/s Ocean Sparkle Ltd. (OSL) as per the agreement between RPTL and OSL as outsourcing is permitted under the port policy.
lServices of pilotage, ownership/technical management of tugs and support crafts, mooring services, radio operators, fire and safety patrols, pollution control are essential services at the port under the operations and maintenance (O&M) services.
5. On the above facts, it was explained by the assessee to the Assessing Officer that the assessee-company had entered into agreement for operation and maintenance of infrastructure facilities, viz., ports with the developers thereof, who in turn had entered into agreements with specified authorities for the purpose of development, operation and maintenance of these ports. Further, these ports were required to be transferred or handed over to the specified authorities after the expiry of the period stipulated in the agreements with the respective authorities. The counter-parties to the agreements have also confirmed that the services rendered by the assessee-company are essential part of the operation and maintenance of the port facilities. Further, under the original agreement between the specified authorities and the developers of the port, the developers had the power to sub-contract the operation and maintenance of the port infrastructure as and where necessary. Accordingly, the operation and maintenance services were sub-contracted to the assessee-company in accordance with the original agreement with the specified authorities. As such, the assessee-company’s case being fully covered by the proviso to section 80-IA(4)( i), it is righteously entitled to deduction under section 80-IA of the Act.
6. The explanation and submission of the assessee were not found to be satisfactory to the Assessing Officer. According to him, for claiming deduction under section 80-IA(4)(i ) of the Act, all the conditions enumerated in the said section must be satisfied. The section does not provide that satisfying one or few conditions by the assessee will entitle it for claiming deduction under this section. The assessee is not in the development of any infrastructure facility. The assessee claims that it has maintained and operated various infrastructure facilities, more specifically the ports. Referring to sections 10(23G) and 80-IA(12)(ca) of the Act, the Assessing Officer commented that in the instant case the port refers to ‘physical structure’ like any other infrastructure, e.g., an airport, a railway station etc., the development or maintenance plus operation of port alone comes under the purview of section 80- IA. He further observed that the services or other activities rendered or the operations carried out at the port does not come under this ambit. The assessee-company merely entered into a contract for offering certain specialized services to other corporate entities, who are maintaining and operating the infrastructure facility. Referring to several agreements with the developers as mentioned above, the Assessing Officer alleged that the assessee has been paid compensation for the specific services rendered as per the contractual obligations for which TDS has been deducted treating the assessee as contractor. He further admitting (sic) that the assessee is offering certain specified professional/ contractual services at the ports, alleged that it is not the assessee who is maintaining and operating the port infrastructure. The assessee is assisting the above three companies in maintaining and operating of the infrastructure which is the responsibility of those companies under the agreements they have entered into with the Central Government/State Government/local authority/any other statutory body. According to the Assessing Officer further, the Government of AP has entered into agreements with the developer companies for the development and operation of the ports on operate and maintain, share and transfer terms. The scope of the assessee is very much restricted and limited to extending some specific services under contract and this will not tantamount to maintaining and operating port infrastructure. Therefore, the assessee has no direct agreement with the Government of AP which is an essential requirement for claiming deduction under section 80-IA of the Act. In regard to the claim of the assessee that its case is fully covered and hence entitled to deduction under the proviso to section 80-IA(4)(i) of the Act, the Assessing Officer, on p. 10 of his order has opined as under:
"As seen from the proviso, the intention of the legislature is very clear and obvious. A situation envisaged wherein a developer may come forward under an agreement with the Government/authority and after development and initial operation for some period may, for various reasons desire to quit the work so as to confer the same on some other enterprise, who will continue to operate and maintain under the same agreement and at the end of the period, the second enterprise would handover the infrastructure back to Government/authority."
On going through the observations of the Assessing Officer, it is thus evident that the primary objection of the Assessing Officer is that since the assessee is not required to hand over the infrastructure facility back to the Government/authority, its case is not hit by the said proviso. His other objection was that the assessee is not required to operate and maintain the entire infrastructure facility but only required to extend some specific services under the contract and this does not tantamount to maintaining and operating port infrastructure. To support his conclusion, the Assessing Officer exemplified the issue by a chart appearing on p. 11 of the assessment order. It is in this context that the Assessing Officer held that the claim of the assessee for deduction under section 80-IA for both the assessment years under appeal for operating and maintaining infrastructure facility does not hold good and thus rejected.
7. The assessee went in appeal before the CIT(A). After considering the arguments advanced on behalf of the assessee and discussing in detail the observation of the Assessing Officer mentioned in the assessment order, the CIT(A), in a nutshell, observed as under:
(i) Ongoing through the agreements entered into by the appellant, it appears that the appellant-company has done, if not the entire O&M operation, at least a part of O&M operation, in respect of 3 ports and, therefore, prima facie, the appellant should be eligible for deduction under section 80-IA.
(ii) However, section 80-IA(4) stipulates other conditions and one of the conditions at (i )(b) is that the company should have entered into an agreement with the Central Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining the new infrastructure facility, subject to the condition that such infrastructure shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement.
(iii) I am not convinced by the argument of the Authorised Representative that the agreement entered by the promoter company with the Government should be treated as enough compliance. Since section 80-IA(4)(i)( b) very clearly states that the enterprise, which claims deduction under section 80-IA, should enter into an agreement with the Government, I am not able to buy the Authorised Representatives’ argument that the agreement that was entered into by the appellant-company and the Government. Therefore, I hold that the appellant has not satisfied this condition.
At the same time, the CIT(A) in para 2.15 of his order expressed his opinion on the issue in the following terms :
"Now, we have to see what happens if the O&M operation is sub-contracted and the original promoter does not claim deduction under section 80-IA, in respect of income from O&M operation, then, as per the proviso to section 80-IA(4)(i), the sub-contracting company would be eligible for deduction under section 80-IA, in respect of income derived from O&M operation. Otherwise, if the original company, which has developed the infrastructure facility and maintained the facility for some time, has sub-contracted the O&M operation to a sub-contractor, it is the original company which is doing the O&M operation and not the sub-contractor company. It is like a house built by its owner and it is only the owner, who is entitled for any statutory benefit and not the contractor/mason. The appellant-company is like a contractor of a house or a mason and the appellant-company cannot put in the shoes of the owner. In these circumstances, I hold that the appellant has not fulfilled another important condition for getting deduction under section 80-IA."
8. Finally, referring to the explanatory notes from Circular No. 779, dated 14th Sept., 1999 [(1999 ) 156 CTR (St) 17] with regard to amendment of section 80-IA, the CIT(A) held that it is clear that only when the enterprise which developed the infrastructure had handed over the operation and maintenance of that infrastructure to a transferee company like that of the appellant, say in the seventh year, and the original developer had claimed deduction under section 80-IA say, for six years, then for the remaining four years, the deduction under section 80-IA can be given to the O&M operator, provided the same deduction is not claimed by the original developer for those four years. According to the CIT(A), the assessee could not bring on record any evidence to show that the original promoters have not claimed deduction under section 80-IA for these years. On the above context, the CIT(A) held that the assessee has not satisfied the three conditions contained in section 80-IA and the Assessing Officer has rightly rejected the claim of deduction made by the assessee for these assessment years under appeal. Aggrieved, the assessee is in appeal before the Tribunal.
8.1 At the outset, the assessee’s learned counsel pointed out the points of agreement and disagreements by the CIT(A) on the claim of deduction under section 80-IA of the Act. He submitted that the assessee has complied with the requisite conditions specified in section 80-IA(4) and as such is entitled to deduction under the said section. Referring to proviso to section 80-IA(4)(i), he contended that the proviso to the said section carves out an exceptional situation where deduction under this section would still be available to an enterprise if the following conditions are fulfilled :
(i) The infrastructure facility is handed over or, in other words, transferred on or after 1st April, 1999.
(ii) by an enterprise which developed such infrastructure facility (hereinafter referred to as the ‘transferor enterprise’) to another enterprise (hereinafter referred to as the ‘transferee enterprise’)
(iii) for the purpose of operating and maintaining the infrastructure facility on its behalf
(iv) in accordance with the agreement with the Central Government, State Government, local authority or statutory body (hereinafter referred to as the ‘specified authority’)
(v) if all the aforesaid conditions are satisfied, then the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place.
According to the assessee’s learned Authorised Representative, the above proviso envisages a situation where an enterprise enters into an agreement with any of the specified authorities for developing, maintaining and operating a new infrastructure facility but after developing such facility transfers the same to another enterprise for the purpose of operating and maintaining it on its behalf in accordance with the agreement with the specified authority. In such a case, the proviso provides that the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. As such, the proviso aims at providing deduction to enterprises engaged in operating and maintaining an infrastructure facility developed and transferred by the third category of enterprise referred to in sub-clause (b) of section 80-IA(4)(i) (developer-cum-operator-cum-maintainer) for the unexpired period during which the latter would have been entitled to deduction, if the transfer had not taken place. In this regard, it is pertinent to note that the proviso requires the transferee enterprise to operate and maintain the infrastructure facility on behalf of the transferor enterprise, meaning thereby that originally the transferor enterprise was required to operate and maintain such facility after development in accordance with the agreement with the specified authority. Thus, the proviso aims at qualifying the transferee enterprise, as enterprise eligible for deduction under this section provided the other conditions be satisfied. In such a case, the proviso does not require any direct agreement between the transferee enterprise and the specified authority. However, it provides that there should be an agreement between the transferor enterprise and the specified authority for development, operation and maintenance of the infrastructure facility and after development, the transferor enterprise should hand over the infrastructure facility to the transferee enterprise for the purpose of operation and maintenance on its behalf in accordance with the terms of the original agreement between the transferor enterprise and the specified authority.
8.2 Referring to the observations of the Assessing Officer as well as the CIT(A), Shri S.K. Tulsiyan, learned counsel, pointed out that according to the CIT(A), in case the developer of the infrastructure facility has operated and maintained the facility for some time and thereafter subcontracted the O&M to a sub-contractor, it is the original company which is doing the O&M and not the sub-contractor company. The Assessing Officer’s views and interpretation of the applicability of the proviso to section 80-IA(4)(i) is just the opposite to that of the learned CIT(A). Again, the CIT(A) has chosen an inappropriate example of the owner of a house and contractor to justify his contention that the proviso to section 80-IA(4)(i) is not applicable to the appellant-company since it is not the owner of the infrastructure facility. The learned Authorised Representative pointed out that the proviso aims at granting deduction to enterprises engaged in the operation and maintenance of the infrastructure facility on behalf of the developers and not to the owners of the facility. He also submitted that the ownership of impugned infrastructure facilities, viz., ports, do not even vest with the developers thereof, since waterfront is the sovereign right of the Government. Under the said circumstances, going by the CIT(A)’s contention would mean that deduction under section 80-IA(4) cannot be claimed either by the developer or by the enterprise carrying on its operation and maintenance since none of them owns the infrastructure facility. Such an interpretation would defeat the very purpose of granting deduction to enterprises engaged in developing, or operating and maintaining a port infrastructure since, under the current economic scenario, the ownership of land and waterfront vests with the Government only.
8.3 In this connection, the assessee’s learned counsel further contended that section 80-IA(4) does not provide that the infrastructure facility should be owned either by the enterprise developing the infrastructure facility or by the enterprise operating and maintaining the said facility. Our attention was drawn to the order of the Mumbai Tribunal in the case of Patel Engineering Co. Ltd. v. Commissioner Of Income-Tax (Central), Bombay. No. 1221/Mum/2004 [reported at (2004 ) 84 TTJ ( Mumbai) 646—Ed.j (copy of the order placed at pp. 129-166 of the paper book) in which the Tribunal has categorically held that the enterprise need not be the owner of the infrastructure facility in order to claim deduction under section 80-IA(4). It has been held that sub-clause (a) of clause (i) of section 80-IA(4) requires ‘the enterprise’ and not ‘the infrastructure facility’ to be owned by a company registered in India. In the instant case, the assessee is a limited company registered in India. As such, the enterprise operating and maintaining the port infrastructure is owned by a company registered in India. As regards the contention of the Assessing Officer that the assessee is not operating and maintaining the entire infrastructure facility, but only rendering certain specific service under the contract, it was submitted that the services rendered by the assessee-company are essentially in the nature of operation and maintenance of the port infrastructure. This fact is corroborated by the confirmations received from the counter-parties to the agreements who have certified that the services rendered by the assessee are essential part of the maintenance and operation of the port facilities. These confirmations are placed at pp. 15, 16, 56 and 128 of the paper book. According to the learned counsel section 80-IA(4), inter alia, qualifies an enterprise engaged in the business of operating and maintaining an infrastructure facility, for deduction under the said section and this is exactly the nature of the assessee’s business. Even the learned CIT(A) at para 2.12 of the appellate order has admitted that the assessee has done, if not the entire operation and maintenance, at least a part of O&M in respect of the 3 ports, and, therefore, prima facie, the appellant should be eligible for deduction under section 80-IA. section 80-IA nowhere requires that the entire operation and maintenance of an infrastructure should be done by only one enterprise. All that the said section requires is that the enterprise should be engaged in business of operation and maintenance of infrastructure facility, which does not mean that the deduction would be restricted only to those enterprises which undertake the entire operation and maintenance of the infrastructure facility. Even though the assessee may not have carried out the entire operation and maintenance of the port infrastructure, but that does not alter the nature of services rendered by it. The nature of services rendered by the assessee-company essentially consists of technical services such as pilotage, handling of floating vessels, mooring services etc. which services, by industry standards and practices, constitute operation and maintenance of ports. As such, the assessee is entitled to deduction under section 80-IA. Reliance was placed in the case of Sirius Shipping Company Ltd. v. Asstt. CIT (2002) 257 ITR 38 (Chennai )(AT) which are placed at pp. 196 to 211 of the paper book.
8.4 Regarding the transfer of infrastructure facility to the specified authority at the end of the period stipulated in the agreement, it is argued that the section only requires that the infrastructure facility should be ultimately transferred to the Central Government, State Government or local authority or such other statutory body, as the case may be, within the period stipulated in the agreement. Here, reference is to the original agreement between the transferor/developer enterprise and the specified authority. This agreement should provide for the ultimate transfer of the infrastructure facility to the specified authority. As far as the transferee enterprise is concerned, it is only required to operate and maintain the infrastructure facility on behalf of the transferor enterprise subject to condition that at the end of the period stipulated in the original agreement, the transferor or the developer enterprise would transfer or in other words hand over the infrastructure facility to the specified authority. In this connection, reference was made to the Circular No. 779, dated 14th Sept., 1999 (Expl.) (F.A. 1999). It was, therefore, contended that the CIT(A)s’ contention that since the appellant-company is not required to transfer the infrastructure facility to the specified authority and thus it is not entitled to deduction under section 80-IA(4), is misconceived. In this connection, the learned counsel invited our attention to the Boot policy of the Gujarat Maritime Board placed at pp. 58 to 75 of the paper book and also the agreement between the Gujarat Maritime Board and Reliance Ports & Terminal Ltd. placed at pp. 17-47 of the paper book. Finally, it was submitted that on perusal of the facts of the case, it would be evident that the assessee has complied with all the conditions specified in section 80-IA(4) in respect of the O&M business of Kakinada Port and Jamnagar Jetty and as such there is no reason why deduction under the said section should be denied to the assessee. In the alternative, the deduction under section 33AC is allowable.
8.5 The learned Departmental Representative, on the other hand, placed reliance on the orders of the Revenue authorities and submitted that the claim of the assessee for deduction does not come under the purview of section 80-IA(4)(i) of the Act and hence the same has rightly been denied. He has taken us through the provisions of section 80-IA of the Act to submit that legislative intention was to allow the benefit to only those persons who fulfil all the conditions and even if, per chance, some of the conditions are fulfilled, it cannot be said that such an assessee is entitled to claim deduction. He submitted that the proviso is subservient to the main section and the clauses thereof and thus the conditions mentioned in the proviso cannot be read in isolation. In other words, the onus is on the assessee to prove that the principal company has not claimed deduction as otherwise it would amount to double deduction. He also mentioned that the decision in the case of Patel Engg. (supra) in particular and the other decisions relied upon by the counsel are distinguishable on facts. He further submitted that in the case of Patel Engg. (supra) the company has directly entered into an agreement with the Government. He thus strongly supported the orders of the authorities below.
9. In the rejoinder, the learned counsel submitted that the legislature intended to extend the benefit to companies which have merely undertaken to operation and maintenance, which implies that a sub-contractor would also be eligible for deduction under the scheme of the Act, on a conjoint reading of the clauses of section 80-IA and the proviso thereof. He also strongly placed reliance upon the Circular No. 779 issued by CBDT (supra).
10. We have heard the parties and considered their rival submissions. We have also carefully perused the orders of the Revenue authorities and several documents placed by the assessee in the paper book. We shall first address on the issue concerning deduction under section 80-IA. The facts of the issue have been elaborately discussed above in this order and hence we proceed to consider the issue on the undisputed facts as found by the tax authorities and wherever necessary, we shall clarify the specific facts Before proceeding with the issue raised by both the parties, it may be necessary to reproduce the relevant section 80-IA which reads as under:
"80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.
(4) This section applies to—
(i) any enterprise carrying on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely :
(a) it is owned by a company registered in India or by a consortium of such companies;
(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government-, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement;
(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995 :
Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility ( hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. (Emphasis supplied)
Explanation : For the purposes of this clause, ‘infrastructure facility’ means,—
(a) a road, bridge, airport, port, inland waterways and inland ports, 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;
(b) a highway project including housing or other activities being an integral part of the highway project; and
(c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system."
11. Now on perusal of the order of the CIT(A), we find that the CIT(A) has not disputed the following facts and arguments canvassed by the assessee in support of its claim of deduction under section 80-IA(4)(i) :
(i) That "the assessee has done, if not the entire operation and maintenance, at least a part of O&M in respect of the 3 ports, and, therefore, prima facie, the appellant should be eligible for deduction under section 80-IA." (para 2.12 of the appellate order).
(ii) That the ports operated and maintained by the assessee are infrastructure facilities as contemplated by the Explanation to section 80-IA(4)(i).
(iii) That the counter-parties to the agreements with the assessee had in turn entered into agreement with the authorities specified under sub-clause (b) of section 80-IA(4)(i) for the purpose of developing, operating and maintaining the said infrastructure facility, viz., port.
(iv) That the said agreements between the developers and the specified authorities provided that the infrastructure facility would be transferred to the latter within the period stipulated in the agreement.
However, the learned CIT(A) has denied the deduction to the assessee mainly on the following grounds :
(i) That the appellant has not entered into an agreement with the Government.
(ii) That the appellant has not transferred the infrastructure facility to the Government.
(iii) That it is not ensured that two persons are not getting deduction under section 80-IA for maintenance of the same facility.
As per section 80-IA(4)(i), three conditions are required to be satisfied for claiming deduction under the said section. There is no dispute about the first condition that the assessee is a company registered in India. There is also no dispute about the third condition about the date of starting of operating and maintaining the infrastructure facility. However, the second condition is that it has to enter into an agreement with the Central or State Government or specified authority for (i ) developing, (ii) maintaining and operating; or (iii) developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Government or specified authority within the stipulated period mentioned in the agreement. According to the Revenue authorities, this condition has not been fulfilled in the instant case. But if we go through the proviso below section 80-IA(4)(i), we see some exception in case where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise (transferor) which developed such infrastructure facility to another enterprise (transferee) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Government and/or specified authorities and in that case the provisions of this section shall equally apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the un-expired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. In the instant case, it is not disputed that the infrastructure facility in respect of Kakinada Port and Jamnagar Jetty were transferred after 1st April, 1999, and hence the proviso to this section is clearly applicable to the case of the assessee. The arguments advanced by the assessee’s learned Authorised Representative is in conformity with the said proviso to section 80-IA(4)(i). It is clear that the proviso requires the transferee enterprise to operate and maintain the infrastructure facility on behalf of the transferor enterprise, meaning thereby that originally the transferor enterprise was required to operate and maintain such facility after development in accordance with the agreement with the specified authority. Thus, the proviso aims at qualifying the transferee enterprise, as enterprise eligible for deduction under this section provided the other conditions be satisfied. In such a case, the proviso does not require any direct agreement between the transferee enterprise and the specified authority. However, it provides that there should be an agreement between the transferor enterprise and the specified authority for development, operation and maintenance of the infrastructure facility and after development, the transferor enterprise should hand over the infrastructure facility to the transferee enterprise for the purpose of operation and maintenance on its behalf in accordance with the terms of the original agreement between the transferor enterprise and the specified authority. Therefore, the objections raised by the CIT(A) that the assessee-company had not entered into an agreement with the Government and that it has not transferred the infrastructure facility to the Government and hence deduction of claim under section 80-IA is not eligible-to it, are beyond the aims and spirit provided in the said proviso to section 80-IA(4)(i). Our above view also gets support from Circular No. 779, dated 14th September, 1999 (Expl.) (F.A. 1999), the relevant portion reads as under:
"39.5 Concession for infrastructure facility and industrial parks may be availed of by persons operating and maintaining it
39.5.1. The provisions of section 80-IA provide that an infrastructure facility developed by an enterprise has to be ultimately transferred to the Central, State Government or local authority or such other statutory body, as the case may be within the stipulated period. To further encourage private sector participation, it is now provided in the newly inserted proviso to clause (i ) of sub-section (4) of section 80-IA that any person other than a developer (i.e., the O&M Contractor) may undertake operation and maintenance, before handing such facility to the Central Government, State Governments or statutory body, if the terms of the agreement so provide. The benefits and concession under section 80-IA in such cases, for the remaining period out of the period of ten consecutive years, may be availed by the undertaking operating and maintaining such facility. Other conditions would remain the same in the amended provision."
On reading of the above, it would be evident that with a view to encourage private sector participation, proviso to section 80-IA(4)(i) was inserted. It says that O&M contractor may undertake operation and maintenance before handing over such facility to the Government or statutory body in the agreement if so provided and in such case, the benefits and concession under section 80-IA for the remaining period out of the period of ten consecutive years may be availed by O&M contractor.
12. In the proviso it is said "provided that where an infrastructure facility is transferred". The proviso to section 80-IA(4)(i) only provides for an intermediary phase between the development of the infrastructure facility by the developer and its ultimate transfer to the specified authority. It is during this period that an O&M contractor (assessee) may step in for the purpose of operation and maintenance of the infrastructure facility on behalf of the developer before the ultimate transfer of the infrastructure facility to the specified authority and claim deduction in respect of profit earned from such activity under section 80-IA. Here, in our considered view, the term ‘transfer’ should not be construed in a conservative manner so as to mean the transfer of ownership of the infrastructure facility to the specified authority. As stated earlier, the ownership of ports do not even vest with the developers of the port since waterfront is the sovereign right of the Government only and as such, there is no question of transfer of ownership to the specified authority. The term ‘transfer’ only means the handing over of the infrastructure facility to the specified authority at the end of the concession/license period. In the case of Patel Engineering Ltd. (supra), the Mumbai Tribunal has ruled that the handing over of the possession of the developed infrastructure facility/project is the transfer of infrastructure facility/project by the developer to the Government/authority. Here, in this case; the developer is required to transfer the infrastructure facility to the specified authority within the period stipulated in the original agreement between the developer and the authority. As such, the learned CIT(A)’s contention that since the appellant-company is not required to transfer the infrastructure facility to the specified authority, it is not entitled to deduction under section 80-IA(4) is, in our opinion, misunderstood.
The assessee has filed Boot policy of the Gujarat Maritime Board which throws light on this issue. Pages 33 and 39 of the Boot policy state as under :
Page 33
"Government will grant licence/concession to private developer to build, own, operate and manage port facilities for a specific period. The Government will permit the developer to create a mortgage/hypothecation of real estate as a security for lenders to the project. This permission will be limited to BOOT period, after which the assets will be transferred back to the Government. The ownership of the land and waterfront will always vest with the Government." (Emphasis supplied)
Page 39
"(III) Ownership rights of different parties
1. Ownership rights of the Government : The Government is vested with sovereign rights as owner, overseer and conservator of the waterfront and licensor to the contract.
2. Ownership rights and responsibilities of the developer : The ownership rights of the developer would include. The right to mortgage, hypothecate or to execute such covenants as may be required for effectively vesting a charge on the port assets in favour of a lender.
lThe right to sell, convey or transfer to another entity, the right title and interest and concession vested in the developer, on the request of a lender to the project, subject to contractual documents. The new developer will be selected by the lender in consultation with the GMB, and if necessary, the terms and conditions of the concession agreements may be re-negotiated."
On a perusal of the Boot policy, of the Gujarat Maritime Board, as stated above, the following conclusions can be arrived :
(i) Waterfront is the sovereign right of the Government. The developer shall have only limited ownership rights as stated supra.
(ii) The developer is permitted under the Boot policy of the GMB to sub-contract operation and maintenance services to a sub-contractor provided it continues to remain responsible to the Government for due performance under the contracted terms and conditions.
13. To reiterate, under the agreement with the developers, the assessee was required to operate and maintain the infrastructure facility on behalf of the developers, i.e., originally the developers were required to operate and maintain the infrastructure facility in accordance with the agreement with the specified authorities. This implies that actually the assessee was required to fulfil the developer’s obligation pertaining to operation and maintenance of ports as laid down under the original agreement between the developers and specified authorities and this is exactly the situation which has been contemplated by the proviso to section 80-IA(4)(i). Although the assessee may not have undertaken the entire operation and maintenance of the port infrastructure, the services rendered by it is an integral and inseparable part of operation and maintenance of the port infrastructure. In our opinion, therefore, the assessee. has complied with the requisite conditions specified under the proviso to section 80-IA(4)(i) of the Act and entitled to deduction. In this connection, it would not be out of the context to refer to the decision of Hon’ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC) wherein it has been held that the deduction provisions should be construed liberally. It has been further held as under :
"A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it."
14. The other objection raised by the CIT(A) is that it is not ensured that two persons are not getting deduction under section 80-IA for maintenance of the same facility. This objection also has no basis to stand on. As stated above and admitted by the CIT(A) himself that at least a part of operation and maintenance in respect of infrastructure facility of three ports was being done by the assessee entitling it for deduction under section 80-IA. The assessee’s claim was restricted to its performance of job and it was concerned with that only. Therefore, this objection of the CIT(A) is not acceptable.
15. As noticed earlier, the observations of the Assessing Officer and the CIT(A) are somewhat contradictory. In his appellate order, the CIT(A) has discussed the issue on the ownership basis by putting an example of a landlord. It is true that the assessee-company is not owner of the infrastructure facility. But section 80-IA(4) does not provide that the infrastructure facility should be owned either by the enterprise developing the infrastructure facility or by the enterprise operating and maintaining the said facility. Proviso aims at granting deduction to enterprises engaged in the operation and maintenance of the infrastructure facility on behalf of the developers and not to the owners of the facility. Further, the ownership of impugned infrastructure facilities, viz., ports, do not even vest with the developers thereof, since waterfront is the sovereign right of the Government. Under the said circumstances, going by the CIT(A)’s contention would mean that deduction under section 80-IA(4) cannot be claimed either by the developer or by the enterprise carrying on its operation and maintenance since none of them own the infrastructure facility. Such an interpretation would defeat the very purpose of granting deduction to enterprises engaged in developing, or operating and maintaining a port infrastructure. Reliance was placed by the assessee on the Tribunal’s decision in the case of Patel Engg. Co. Ltd. (supra) wherein it has been held that the enterprise need not be the owner of the infrastructure facility in order to claim deduction under section 80-IA(4). It has been held that sub-clause (a) of clause (i) of section 80-IA(4) requires ‘the enterprise’ and not ‘the infrastructure facility’ to be owned by a company registered in India. In the instant case, the assessee is a limited company registered in India. As such, the enterprise operating and maintaining port infrastructure is owned by a company registered in India.
16. We further find that the Assessing Officer in his order has alleged that the assessee is not operating and maintaining the entire infrastructure facility, but only rendering certain specific service under the contract. Against this our attention was drawn by the Authorised Representative to pp. 15, 16, 56 and 128 of the paper book wherein the confirmations from the counter-parties to the agreements admitting that the services rendered by the assessee-company are essentially in the nature of operation and maintenance of the port infrastructure. Sec. 80-IA(4), inter alia, qualifies an enterprise engaged in the business of operating and maintaining an infrastructure facility for deduction under the said section and this is exactly the nature of the assessee’s business and hence, in our considered opinion, the assessee is eligible for deduction in terms of proviso to section 80-IA(4)(i) of the Act. Hence, we direct the Assessing Officer to compute the deduction allowable under section 80-IA(4) in respect of the profits pertaining to Kakinada Port and Jamnagar Jetty Port.
17. Since we have accepted the main contention of the assessee with regard to the profits earned on account of Kakinada Port and Jamnagar Jetty, the alternative contention of the claim of deduction under section 33AC need not be considered. However, with regard to the income from Dahej Port operation, the case falls outside the proviso of section 80-IA(4) since O&M of infrastructure facility has commenced prior to 1st April, 1999. It may not be out of place to mention that the deduction under section 80-IA with regard to the profits from other two ports was also based upon proviso which is applicable only to cases where the O&M is sub-contracted after 1st April, 1999. Hence, the learned counsel restricted his contentions for deduction under section 33AC in respect of Dahej Port only.
18. The learned counsel has filed written submission on this issue wherein he has highlighted the objections of the Assessing Officer, as well as CIT(A) and also the reasons from the point of view of the assessee-company as to why the claim of deduction under section 33AC is in accordance with law. The case of the learned counsel as per his written submissions are as under :
"Without prejudice to the above, it is alternatively argued that the assessee should be granted deduction under section 33AC of the IT Act, 1961, in respect of its business of operation of ships The Assessing Officer rejected the claim of the assessee on the following alleged grounds :
(1) Notwithstanding the above, the assessee’s main business object is not ‘carrying on the business of the operation of ships’ The assessee is engaged in various port operations under contractual obligations as stated above. It is true that assessee is using ships in his business but it is not the operation of ships that is yielding revenue. Rather ships are used partly, otherwise than different port operations
(2) The books of account and records are not maintained in such a way to ascertain the profits derived from the operation of the ships. Hence, for the reasons stated above, the claim under section 33AC is rejected as not maintainable.
In regard to the above, it is humbly submitted that the assessee has complied with all the conditions specified under section 33AC of the IT Act, 1961. The said deduction is available in case of an assessee, being a Government company or a public company formed and registered in India with the main object of carrying on the business of operation of ships In such cases, the section provides that a deduction of an amount not exceeding fifty per cent of profits derived from the business of operation of ships shall be allowed as is debited to the P&L a/c of the previous year in respect of which the deduction is to be allowed and credited to a reserve account, to be utilized in the manner laid down under sub-section (2) of the said section. Further, the second proviso to section 33AC(1) provides 100 per cent deduction in respect of profits earned from operation of ships for five assessment years commencing on or after the 1st day of April, 2001, and ending before the 1st day of April, 2006.
The primary objection of the Assessing Officer is that the assessee is engaged in various port operations and that although the assessee is using ships in its business but operation of ships is not yielding revenue. In this regard, it is pertinent to note that the assessee has never denied that it is engaged in port operations. Rather, the assessee-company’s engagement in the business of port operation and maintenance is the very basis for claiming deduction under section 80-IA. This, however, does not alter the fact that the assessee is also engaged in the business of operation of ships (i.e., tugs), which forms an integral and inseparable part of its business of port operation and maintenance. Operation of ports without tugs cannot be conceived. Reference was made to object-clause of the memorandum of the assessee-company at pp. 194 to 195 of the paper book, in particular clause (3) of the main objects of the company, p. 195 and submitted that operation of ships is one of the main objects of the company. As such, the assessee has complied with the first part of sub-section (1) of section 33AC which qualifies a public limited company with the main object of carrying on the business of operation of ships for deduction under the said section.
Regarding the business of operation of ships, it may be noted that the Assessing Officer himself has admitted to the fact that the assessee has used ‘ships’ in its business. The assessee’s contentions in this regard are that it has not only used ships in its business, but is actually engaged in the business of operation of ships and has also earned profits from such business. For instance, for the years under appeal, the assessee had entered into an agreement with Reliance Port and Terminals Ltd. for technical management of 5 tugs belonging to Reliance Port and Terminals Ltd. vide agreement dated 24th June, 1999 (copy enclosed at pp. 48-52 of the paper book). The scope of work included all the activities connected with the operation and maintenance of tugs The assessee claims that the profit earned from the operation of such tugs constitutes profits from its business of operation of ships In this regard reliance is being placed on the judgment of the Hon’ble Madras Tribunal in the case of Sirius Shipping Co. Ltd. v Asstt. CIT [2002] 257 ITR 38 (Chennai)(AT), the facts of which case are similar to that of the present case of the assessee (copy of the order is enclosed at pp. 196 to 211 of the assessee’s paper book). In the aforesaid case, the assessee namely, Sirius Shipping Co. Ltd., had entered into an agreement with Reliance Industries Ltd. whereby the assessee had been appointed technical manager for the management of a ship so as to ensure its efficient running and maintenance Including provision of the necessary personnel. The assessee claimed deduction under section 33AC of the IT Act, 1961, for the assessment year 1995-96 but this was rejected on the ground that the assessee-company did not own any ship. The CIT(A) dismissed its appeal.
Held,
(i) that the normal rule of construction is that the intention of the legislature is primarily to be gathered from the words used in the statute. A careful analysis of section 33AC shows that the deduction contemplated under section 33AC is related not to the asset possessed at the time of claiming of this deduction by the assessee but to the total income debited to the P&L a/c and credited to the special reserve in the relevant previous year. Thus, it can be seen that the deduction is only income based and not asset related. Further, clause (b) of sub-section (2) of section 33AC gives a licence to the assessee to utilise the amount credited to the special reserve for the purposes of the business of the assessee other than for distribution of dividends or profits or for remittance outside India as profits or for creation of any asset outside India until the acquisition of a new ship as contemplated in clause (a) of sub-section (2) of section 33AC. Thus, the assessee is entitled and empowered by clause (b) of sub-section (2) of section 33AC to utilise the profits credited to the special reserve for the purposes of its business (other than for acquiring the ship) until the acquisition of a new ship except by way of distribution of dividends or profits or for remittance outside India as profits or for creation of any asset outside India. In other words, except the prohibited items in clause (b) of sub-section (2) the assessee is free to use the amount credited to the special reserve for the general purposes of the business of the assessee till it acquires a new ship. Thus, it can be seen that it is not a pre-condition at the threshold level that the assessee should own a ship for claiming the deduction under section 33AC, but the assessee should be a Government company or a public company with the main object of carrying on the business of operation of ships Whenever the legislature wanted to insist on the ownership of an asset it has specifically mentioned so, as in sections 32, 32A, 32AB, 33 and 33A. As nothing is mentioned in section 33AC about the ownership of ships, the legislature was not intending to make the ownership of ship a pre-condition at the threshold level for claiming deduction under section 33AC. Even in the circulars issued by the CBDT, namely, Circular No. 554 of 13th Feb., 1990 and No. 636 of 31st Aug., 1992, wherein certain amendments of section 33AC have been explained, the Board has been silent about the ownership of ship by the assessee at the threshold level. Unlike in section 36(1)(viii), in section 33AC there is a licence given to the assessee to utilise the amount credited to the reserve for the general purpose of the business till the assessee acquires a ship. There is no restriction in section 33AC to the number of assessees who could claim such deduction and further the deduction under section 33AC is with reference to the profit or income of each and every assessee and not linked to any particular turnover like in section 80HHC.
(ii) that the phrase ‘running and maintenance’ is nothing but ‘operation of ships’, as envisaged by section 33AC. The nomenclature found in the agreement, namely ‘technical manager’, could not change the nature of the business done by the assessee-company in the operation of ships. So long as the assessee had not contravened the provisions of section 33AC(2)(b), the assessee could not be denied the claim of deduction under section 33AC. In this case since the assessee had not contravened the provisions of section 33AC(2)(b) and had already bought a new ship within the specified period of eight years, it was entitled to the deduction under section 33AC.’
As such, as per the express ruling of the Hon’ble Madras Tribunal in the aforesaid case, the assessee would be entitled to deduction under section 33AC even in respect of profit earned by it from the business of operation of ships belonging to another company and further, the nomenclature ‘technical manager’ used in the agreement will not change the nature of business done by the assessee-company in the operation of ships. The learned CIT(A) has, however, opined that the appellant-company was formed to carry on O&M operations in ports and during such O&M operations, the appellant-company has to run some tugs, but operating the tugs cannot be equated with operation of ships. In this regard, it is submitted that the term ‘ship’ per se has not been defined in the IT Act, 1961. However, ‘ship’ has been defined under Appendix I to r. 5 of the IT Rules, 1962 as under :
‘IV. Ships
(1) Ocean-going ships including dredgers, tugs, barges, survey launches and other similar ships used mainly for dredging purposes and fishing vessels with wooden hull.
(2) Vessels ordinarily operating on inland waters, not covered by sub-item (3) below.
(3) Vessels ordinarily operating on inland waters being speed boats.’
As such, tugs, are also ships in accordance with the express definition provided under Appendix I to r. 5 of the IT Rules, 1962, and profits earned from operation of tugs will qualify for deduction under section 33AC of the Act. Further, the assessee is also operating its own tugs at the Dahej Port and the Kakinada Port. These tugs have been registered as ships under section 34 of the Merchant Shipping Act, 1958 (copy of certificate of Indian Registry is at pp. 212 to 214 of the paper book). As such, it is confirmed that both under the IT Rules, 1962 and under the Merchant Shipping Act, 1958, tugs are considered as ships.
Again, as per the requirement of section 33AC(1), the assessee-company has also transferred a sum of Rs. 2 crores each for assessment years 2000-01 and 2001-02 out of the profits earned from the business of operation of ships to a reserve account viz. ‘fleet reserve account’ and these reserves have been utilized by the assessee in the manner laid down under sub-section (2) of section 33AC of the Act. As such, the assessee is entitled to deduction at the rate of 50 per cent of the profits earned from operation of tugs for assessment year 2000-01 and 100 per cent of such profits for assessment year 2001-02 for all the three ports, viz. Dahej, Kakinada and Jamnagar subject to the amount transferred to ‘fleet reserve account’. In the unlikely event that deduction under section 80-IA(4) is not allowed to the assessee, it is prayed that the assessee-company may alternatively be allowed to claim deduction under section 33AC of the Act to the extent of profit earned from the business of operation of tugs.
Further, in the case of Dahej Port, since the operation and maintenance of port was handed over to the assessee prior to 1st April, 1999, profits earned from the operation and maintenance of this port falls outside the purview of the proviso to section 80-IA(4)(i). As such, it is prayed that profits from operation of tugs in Dahej port may kindly be allowed as deduction under section 33AC of the Act. Here, it is pertinent to note that out of Rs. 600 lakhs being the operation and maintenance charges of Dahej Port, Rs. 510.71 lakhs is on account of operation of tugs alone (refer to clause 4 of the agreement between Birla Copper and the assessee-company enclosed at p. 113 of the paper book).
Here, it is pertinent to mention that the assessee-company has been allowed deduction under section 33AC in respect of profits earned from the operation of port tugs in the past. The assessment order under section 143(3) along with the return filed and computation of total income for the assessment year 1998-99 has been placed in the paper book. As such, it was argued that since deduction under section 33AC has been allowed to the assessee in the past years, there is no reason why the said deduction should be denied to the assessee for the assessment years under appeal.
Again, the learned CIT(A) has also misguided himself in denying deduction under section 33AC of the Act on the ground that the appellant-company is a private limited company. Nothing much needs to be said in this regard. The name of the appellant-company, viz., ‘Ocean Sparkle Ltd.’ itself suggests that it is a public limited company and not a private limited company. The allegation of the CIT(A) is baseless and without taking into consideration the factual aspects of the case.
Another ground taken by the Assessing Officer in denying the assessee’s claim under section 33AC is that the books of account and records are not maintained in such a way to ascertain the profits derived from the operation of ships. In this regard, it is most humbly submitted that no opportunity of being heard was given to the assessee. The business of operation of tugs is a part of the assessee’s business of port operation and maintenance and as such, the overall profit from port operation was depicted in the P&L a/c of the company. However, the manner of presentation of profits in the P&L a/c cannot form a basis of denying deduction under section 33AC of the Act. It is prayed that if an opportunity is given to the assessee, it is in a position to clarify the issue and work out the profits from the business of operation of ships and its claim under section 33AC of the Act".
19. On the other hand, the learned Departmental Representative relied upon the orders of the authorities below.
20. It may be noted that in the preceding assessment year, the Assessing Officer has allowed similar claim of the assessee under section 33AC and it was also not disputed that the tugs are also considered as ships. In other words, the allowability of deduction under section 33AC is not seriously challenged but merely contended that the provisions are not fulfilled.
21. We have carefully considered the rival contentions and perused the record. Admittedly similar claim was allowed in the previous year, but in the years under consideration the Revenue did not consider the alternative claim of the assessee for deduction under section 33AC. Learned CIT(A) disallowed the claim mainly on the ground that the tugs are not ships and the assessee-enterprise is not a public company, overlooking the fact that the assessee is a public company under the Companies Act and, in the absence of the definition of ‘ship’ in the Act, the meaning assigned to the term ‘ship’ under r. 5 of the IT Rules should be considered. However other conditions such as creation of reserve etc., are required to be satisfied. We therefore, direct the assessee to submit the relevant details/records in respect of Dahej Port and to establish the creation of the reserve as stipulated under section 33AC. Hence, we set aside this issue to the file of the Assessing Officer to recompute the deduction eligible under section 33AC in respect of Dahej Port.
21. In the result, the appeals of the assessee are partly allowed.
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