Adani Ports tax dispute resolved by ITAT ruling on Section 80-IA deductions for infrastructure operators

Adani Ports tax dispute resolved by ITAT ruling on Section 80-IA deductions for infrastructure operators

ITAT decision on tax benefits for operators and maintainers of infrastructure facilities under Section 80-IA

The Income Tax Appellate Tribunal Ahmedabad Bench, in a recent ruling, has clarified the scope of tax benefits under Section 80-IA of the Income Tax Act, 1961, for entities that operate and maintain infrastructure facilities. The decision is significant for businesses involved in infrastructure operations, offering clarity on their eligibility for deductions, even when they are not the original developers of such facilities. This article delves into the key aspects of the ruling involving Mundra International Container Terminal Pvt Ltd., Adani Ports, and the Gujarat Maritime Board.

The Dispute Between Mundra International Container Terminal and the Tax Department

Mundra International Container Terminal Pvt Ltd. has been embroiled in a dispute with the Income Tax Department over claims for substantial tax deductions under Section 80-IA for the Assessment Years (AY) 2017-18 and 2018-19. MICTPL, which operates and maintains a container terminal at Mundra Port, sought deductions under Section 80-IA(4)(i), which offers tax benefits to businesses involved in the development or operation of infrastructure facilities.

Tax Department's Denial of Deductions

The tax department had initially denied MICTPL’s claims for tax deductions, arguing that the company was not eligible under Section 80-IA because it was not the original developer of the port facility. The department had also contended that the company did not meet the specific conditions laid out in the provision. However, MICTPL contended that its role as an operator and maintainer of the port’s infrastructure qualified it for the tax benefit, even though it was not the original developer. The case, therefore, hinged on the interpretation of the eligibility criteria for tax deductions under Section 80-IA.

Key Highlights of the ITAT’s Decision

The tribunal, comprising Vice-President, Dr. B.R.R. Kumar and Judicial Member, Siddhartha Nautiyal ruled in favour of Mundra International Container Terminal Pvt Ltd. thereby offering significant insights into the interpretation of Section 80-IA. Below are the key takeaways from the ruling:

Eligibility of Operators and Maintainers for Section 80-IA Deductions

The tribunal emphasized that the benefit of Section 80-IA is not restricted to the original developers of infrastructure facilities. According to the tribunal, businesses that operate and maintain such facilities are also eligible for tax deductions. This aligns with a precedent set by the Madras High Court in the case of CIT vs. A.L. Logistic Pvt Ltd. (2014), which clarified that the scope of Section 80-IA extends beyond the developers of infrastructure facilities to those who operate and maintain them as well. The tribunal’s reasoning is grounded in the fact that the proviso to Section 80-IA allows a transferee or a contractor, duly approved and recognized, to claim the tax deduction as though the transfer had not occurred. Therefore, MICTPL’s agreement with Adani Ports and its role as the operator of the infrastructure facility qualified it for the deductions under Section 80-IA.

Sub-Concession Agreement Validates Tax Deduction Claim

The ruling highlighted that MICTPL’s sub-concession agreement with Adani Ports and Special Economic Zone Ltd. which in turn had a concession agreement with the Gujarat Maritime Board, was a legitimate structure that allowed MICTPL to be recognized as the operator and maintainer of the port facility. The tribunal found that this contractual framework enabled MICTPL to meet the criteria for claiming deductions under Section 80-IA(4)(i).

Dismissal of the Tax Department’s Appeals on Deductions

The tribunal’s decision resulted in the dismissal of the tax department’s appeal to disallow tax deductions of over Rs 383 crore for AY 2017-18 and nearly Rs 389 crore for AY 2018-19. The tribunal upheld the earlier ruling of the Commissioner of Income Tax (Appeals), which had found in favour of MICTPL.

Other Key Issues Addressed by the Tribunal

While the tribunal ruled in favour of MICTPL on the 80-IA deductions, it also addressed other related matters:

Disallowance Under Section 14A: The tribunal upheld the disallowance of Rs 24 lakh under Section 14A, which pertains to the deduction of expenses related to exempt dividend income. Both MICTPL and the revenue’s appeals regarding this matter were dismissed.

Depreciation on Intangible Assets: The tribunal allowed MICTPL’s claim for depreciation on intangible assets, particularly an 'infrastructure usage facility', which had been consistently allowed since Assessment Year 2004-05.

Landmark Ruling for Infrastructure Operators

The ITAT’s ruling brings clarity to the interpretation of Section 80-IA, particularly concerning the eligibility of businesses that operate and maintain infrastructure facilities but are not the original developers. The decision establishes that such companies are entitled to tax deductions under the provision, providing a significant boost for infrastructure operators in India.

This ruling is expected to have wider implications for companies involved in the infrastructure sector, as it extends the scope of Section 80-IA to include operators and maintainers, thereby ensuring that they can also benefit from tax incentives. By dismissing the tax department’s appeal, the tribunal has reinforced the principle that tax deductions under Section 80-IA are available to a wider range of stakeholders involved in infrastructure development and maintenance, paving the way for a more inclusive approach to tax benefits in the sector.