The Ahmedabad Bench of Income Tax Appellate Tribunal, in a recent ruling held that Section 80IAB covers income from “operation and maintenance”. The Tribunal observed that though the provision expressly provides for “developing”, a plain reading of provisions of section 80IAB of the Income Tax Act with Section 2(g) and Section 3(10) of the Special Economic Zone Act would show that the same includes “operation and maintenance”.
The assessee, in the present case, is a private limited company engaged in the business of development, operation and maintenance of Pharma Special Economic Zone (SEZ). Return of income for Asst. Year 2009-10 was filed on 16.09.2009 disclosing income at Rs.73,88,600/-. The Assessing Officer completed the assessment by finding that the income from operation and maintenance is not eligible for deduction u/s 80IAB and added it back to the income of the assessee. Along with this addition ld. Assessing Officer also disallowed Rs.22,000/- u/s 14A of the Act, Rs.84,841/- u/s 41(1) of the Act and disallowing software expenses at Rs. 80,959/-. Ld. Assessing Officer also denied deduction u/s 80IAB of the Act for Rs.23,09,372/- being prior period income received in relation to rawwater charges.
On appeal, the submissions of the assessee was partly allowed by the CIT(A). Thereafter, the matter was brought before the Appellate Tribunal on appeal by both the assessee and the Revenue.
The Tribunal, confirmed the order of the CIT(A) which deleted Rs. 84,841/=. Regarding the decision of allowing depreciation for software charges, it was observed that “It is almost a settled issue that software application which are having validity for long term period are basically system software on which computer hardware runs and it is impossible to use computer without having such software installed on it and, therefore, such licensed software are subject to depreciation @ 60%”. In the present case, the appellant has bought software licenses which are valid for long term and the expenditure incurred thereon is, therefore, not in the nature of revenue. Therefore, the plea of the revenue, I.e, expenditure was in the nature of revenue was dismissed by the Court and decided the issue in favour of the assessee.
The third issue was regarding the claim of income of the appellant by operation and maintenance of the SEZ. It was contended on behalf of the Revenue that the same cannot be allowed as the section 80IAB mentions only the word ‘developing’. It was further contended that the words “operation and maintenance” are intentionally omitted by the legislature. Since the legislative intent was to allow deduction only for “developing”, the claim of deduction by the assessee in the instant case is liable to be disallowed. The appellant has submitted that the claim is in accordance with the provisions of section 80IAB and should therefore be allowed. The CIT(A) allowed the same by accepting the plea of the assessee.
The Tribunal, after analyzing the relevant provisions, opined that“combined reading of the provisions of section 80IAB of the Income Tax Act with Section 2(g) and Section 3(10) of the Special Economic Zone Act show that a person would be considered as a developer in accordance with the grant of letter of approval on the basis of terms and conditions and obligation and entitlement as may be approved by the Board who is approving the setting up of the SEZ. Therefore, if the approval has been granted for developing, operating and maintaining the SEZ, the term ‘developer’ would include operation and maintenance also”.Further, the assessee has also obtained a letter of approval from the Central Government. The Tribunal found that development, operation and maintenance of the Special Economic Zone are an integral part of the terms and conditions and obligations and entitlements granted to the Developer. Therefore, the word ‘developer’ also include the activities of operation and maintenance of the SEZ in the case of the appellant.
The Tribunal further observed that “The interpretation by the A. O. that operation and maintenance are different to that of development and legislature were fully aware of this fact and, therefore, the words ‘operation and maintenance’ have not been intentionally omitted is not justified. A harmonious interpretation of the provisions of various Acts, as discussed above, clearly shows that in the case of the appellant, the deduction is available for operation and maintenance also in accordance with the terms and approval”.
Read the full text of the order below.
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