Dmt 1 wp744-11 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGNAL CIVIL JURISDICTION WRIT PETITION NO. 744 OF 2011 M/s. Silver Land Developers Pvt. Ltd., & Ors. .. Petitioners. versus The Empowered Committee & Ors. .. Respondents. ..... Mr. Aspi Chinoy, Sr. Adv. with Mr. Vinay Sonpal and Mr. B.R. Vishwakarma for the Petitioners. Mr. B.M. Chatterjee with Mr. Rajinder Kumar and Ms. Anamika Malhotra for R. Nos. 1 & 2. Mr. Suresh Kumar for Respondent Nos. 3 & 4. ...... CORAM : DR.D.Y.CHANDRACHUD & A. A. SAYED, JJ. 16 November 2011. Dmt 2 wp744-11 ORAL JUDGMENT : (PER DR. D. Y. CHANDRACHUD, J.) An order has been passed by the Empowered Committee on 21 February 2011 holding that the Petitioners are not entitled to the benefit of the Industrial Park Scheme 2002. The Scheme has been notified by the Central Government in exercise of powers conferred by clause (iii) of Sub-section (4) of Section 80-IA of the Income Tax Act, 1961. The Petitioners in these proceedings under Article 226 of the Constitution question the legality of the order of the Empowered Committee. 2. Sub-section (1) of Section 80-IA provides that where the gross total income of an assessee includes profits and gains derived by an undertaking or an enterprise from a business referred to in sub-section (4), the assessee would be allowed, in accordance with the provisions, in computing the total income, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. Under sub-section (2) the Dmt 3 wp744-11 assessee has an option to claim the deduction for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops an industrial park. Sub-section (4) of Section 80-IA contains a description of the undertakings or enterprises to which the provision applies. Clause (iii) of sub-section (4) as it stood during the material period to which the controversy relates was to the following effect : (iii) any undertaking which develops, develops and “ operates or maintains and operates an industrial park notified by the Central Government in accordance with the scheme framed and notified by that Government for the period beginning on the 1st day of April, 1997 and ending on the 31st day of March, 2006.” 3. Under Section 80-IA (4) (iii) the Central Government was empowered to notify a scheme. The Central Government Dmt 4 wp744-11 has notified schemes from time to time. The Scheme to which the present dispute relates is notified on 1 April 2002 and is called the Industrial Park Scheme, 2002. Para 3 of the Scheme provides for the period of operation and is to the following effect : 3. “ Period of operation of the scheme This – scheme shall be applicable for any undertaking which develops, develops and operates or maintains and operates an Industrial Park for the period beginning on the 1st day of April, 1997 and ending on the 31st day of March, 2006. In a case, where an undertaking develops an Industrial Park on or after the 1st day of April, 1999 and transfers the operation and maintenance of such Industrial Park to another undertaking (transferee undertaking), the benefits shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years in a manner as if the Dmt 5 wp744-11 operation and maintenance were not so transferred to the transferee undertaking. Para 4 defines the objectives of an industrial park which includes, inter alia, in sub-para (b) an industrial park for “ development of infrastructural facilities or built-up space with comon facilities in any area allotted or earmarked for the purposes of industrial use . The Scheme provides two modes ” for the grant of approval; (i) automatic approval and (ii) non- automatic approval. The case of the Petitioners is admittedly governed by the non-automatic approval route. In such cases para 7 of the Scheme stipulated that all applications which were not eligible for automatic approval shall require the approval of the Empowered Committee constituted by the Central Government. The Empowered Committee was required to consider each application on a case to case basis subject to its complying with the statutory requirements as prescribed by the Ministry of Finance under the Income Tax Act, 1961 and other statutory rules/obligations. Para 9 of the Scheme lays Dmt 6 wp744-11 down certain general conditions and is to the following effect : 9. “ General conditions.-(1) In case the commencing of the Industrial Model Town or Industrial Park or Growth Centre gets delayed by more than 1 year from the date indicated in the application, fresh approval may have to be obtained to get the benefits under the Act. This condition also applies to the existing approvals under the Industrial Park Scheme, which envisages commissioning of the Parks, latest by March 31, 2002. (2) The tax benefits under the Act can be availed only after the number of units indicated in the application, are located in the industrial park.” 4. The Petitioners initially applied to the Government of Maharashtra on 14 June 2005 for the registration of their Dmt 7 wp744-11 project at Jogeshwari (West) Mumbai as a private Information Technology Park under a resolution of the State Government. The State Government issued a letter of intent on 8 July 2005. On 27 September 2005 the Directorate of Industries of the State Government drew the attention of the Petitioners to the Industrial Park Scheme of 2002 notified by the Union Government under Section 80-IA(4)(iii). On 27 December 2005 the Petitioners submitted an application to the Union Ministry of Commerce and Industry for approval of their Information Technology Park under the Scheme. The proposed area of the Park was stated to be 8261-56 sq.mt. and it was proposed that the total number of industrial units would be eight. The expected date of commencement of the Industrial Park was stated to be 15 March 2006. The proforma provided by the Union Government clarified that the expected / actual date of commencement would denote the date when all the infrastructural facilities for the proposed number of industrial units have been provided. Dmt 8 wp744-11 5. The Union Government in the Ministry of Commerce and Industry conveyed the approval of the Government to the proposal of the Petitioners for setting up of an industrial park in terms of the Industrial Park Scheme, 2002 on 24 July 2006. According to the approval, the expected date of commencement was to be 15 March 2006. Para 3 stipulates that the Industrial Park should be in operation during the period for which the benefits under Section 80-IA (4)(iii) are to be availed of. Para 5 (ii) of the letter which was in terms of para 9 of the Scheme then contains the following stipulation : (ii) In case the commencement of the Industrial Park is delayed by more than one year from the date as indicated in Para 1 (xi) of this approval letter, fresh approval shall be required under the Industrial Park Scheme, 2002, for availing benefits under Sub-Section 4 (iii) of Section 80-IA of the Income Tax Act, 1961. Dmt 9 wp744-11 6. On 26 October 2006 the Petitioners addressed a communication to the Union Ministry of Commerce and Industry stating that the project would require a likely period of two months for completion. The Petitioners stated that in view of the then existing circumstances they would be able to accommodate three units in the I.T. Park and consequently sought a change in the number of units allowed from eight to three. The proposed area of the I.T. Park was maintained at 8261.56 sq. mt. and similarly there was no change in the proposed allocable area. The expected date of completion was set back from 15 March 2006 to 31 March 2006. 7. On 8 March 2007, the Petitioners submitted an application for the grant of an occupation certificate. The Municipal Corporation of Greater Mumbai issued an occupation certificate on 2 June 2007. On 17 April 2007 the Union Ministry of Commerce and Industry sought a status report from the State Directorate of Industries on a number of issues Dmt 10 wp744-11 including the status of the development of the project and the date of commencement. In a response dated 29 May 2007 a status report was forwarded. The State Directorate of Industries clarified to the Empowered Committee that the Municipal Corporation of Greater Mumbai had found that the Architects had submitted a building completion certificate on 8 March 2007 after completion of the work at site. The view of the State Government on the actual completion of the work was as follows :- “ The Municipal Corporation of Greater Mumbai concludes that the Building under reference was completed on 08/03/2007 and thereafter, issued OC on 02/06/2007 on the basis of application filed by the applicant on 08/03/2007 considering completion of Building on 08/03/2007. In this case, as per the confirmation report given by Brihanmumbai Mahanager Palika (now Dmt 11 wp744-11 MCGM) Applicant / Developers have completed building work on 08/03/2007, and thereby complied with norms of Industrial Park Scheme, 2002. Hence, it is recommended to consider the request of applicant under the said scheme.” 8. On 10 July 2007 an intimation was addressed to the Petitioners by the Union Ministry of Commerce and Industry in the following terms : “The date of commencement of your park is 15-03-2006. With one year grace period the park should start functioning before 14-03-2007. However, the State Government report indicated that construction work is at final stage of Completion & Occupation Certificate is awaited. 2. You are requested to furnish the following details to this Department at the earliest for further Dmt 12 wp744-11 processing your case : a. Whether the park has become function? If so, b. How many units have been located in your park as on 14-03-2007? (emphasis supplied) The communication, significantly refers to the fact that the I.T. Park, as stated in the application, should have been completed by 15 March 2006 and notes that a one year grace period would entail that the park should have started functioning before 14 March 2007. Queries were accordingly addressed to the Petitioners to clarify as to when the park had actually become functional. In a reply dated 25 July 2007, the Petitioners stated that as on 14 March 2007 three units were located in I.T. Park, namely, (1) M/s. Tata Consultancy Services Ltd., (2) M/s. Polaris Software Lab Ltd. and (3) M/s. Bharti Airtel Ltd. Dmt 13 wp744-11 9. On 3 August 2007, the Union Government sought a No Objection Certificate from the land owner to the effect that only the Petitioners shall claim benefit under Section 80 IA. The NOC was furnished on 14 August 2007. On 21 September 2007 the Petitioners addressed a communication to the Union Government stating that subsequently an additional unit, namely, of M/s. Citigroup Global Services Ltd. had been located in the I.T. Park and permission was sought. On 12 November 2007 the Petitioners stated that they had anticipated that they will be allotted three industrial units. However, they were in a position to accommodate five units for which an amendment in the approval was sought. 10. On 25 August 2008, the Union Government in the Ministry of Commerce and Industry rejected the application of the Petitioners on the ground that since the expected date of commencement of the Industrial Park is after 31 March 2006, the application was not covered by the Industrial Park Scheme of 2002. The Petitioners were accordingly advised to apply to Dmt 14 wp744-11 the appropriate authority under the subsequent Scheme of 2008. On 6 January 2009, an order was passed by the Union Government in the Ministry of Commerce and Industry reiterating that since the expected/actual date of commencement of the Industrial Park was 15 February 2007 as reflected in the application dated 19 November 2008, the application was not covered by the Scheme of 2002. The view taken was that the Industrial Park Scheme, 2002 was applicable only to Industrial Parks set up between 1 April 1992 and 31 March 2006. 11. The initial order dated 6 January 2009 was set aside by a Division Bench of this Court on 16 June 2009 on the ground that an opportunity of being heard was not granted to the Petitioners and the matter was referred back to the Empowered Committee for a fresh decision. Upon remand, a hearing took place before the Empowered Committee on 7 September 2009 during the course of which the Committee noted that the most crucial element here is the date of “ Dmt 15 wp744-11 completion of the building. The Empowered Committee ” noted the submissions of the Petitioners that the date of the completion of the building should be reckoned from the date of the application, for the grant of an occupation certificate and not from the date of the issuance thereof. Accordingly, it was decided that the matter should be referred to the State Government to take a report from the Municipal Corporation about (i) The date of the application for issuance of a completion certificate; (ii) The date of the completion of the building as per law. Following this reference, on 20 November 2009, a report was submitted by the State Government clarifying that according to the Municipal Corporation the building under reference was completed on 8 March 2007 and that an occupation certificate was issue on 2 June 2007 on the basis of the application considering the completion of the building as on 8 March 2007. The Directorate of Industries of the State Government recommended in the report that since the Petitioners had completed the work of the building on 8 March 2007, they should be regarded as having complied with Dmt 16 wp744-11 the norms of the Industrial Park Scheme, 2002. 12. Upon receipt of the report of the State Government, a further hearing took place before the Empowered Committee on 21 December 2009. During the course of the hearing, a representative of the Central Board of Direct Taxes contended that an industrial park which commences operation after 31 March 2006 and before 31 March 2009 shall be governed by the Scheme of 2008. Hence, according to the CBDT, since the Petitioners had commenced operation of the industrial park after 31 March 2006 and even after allowing the grace period of upto one year that should not extend later than 31 March 2006. The Empowered Committee took the view that the issue of the grace period should be resolved first before the CBDT, the Department of Revenue and the Department of Industrial Policy and Promotion and a fresh meeting of the Committee should be convened thereafter. 13. On 7 July 2010 the Empowered Committee came to Dmt 17 wp744-11 the conclusion that the Petitioners should not be granted the benefit of the Industrial Park Scheme, 2002. In taking this view the Committee noted that it had obtained the views of the Revenue Department and the Department of Legal Affairs. According to the clarification issued by CBDT on 2 June 2008 para 9 (1) of the Scheme only provided a condition of re- notification of the Industrial Park in case there was a delay in completion of the park by more than one year. According to the the Empowered Committee, this only meant that if there was a delay of less than one year, there was no need of re- notification but that would not extend the operation of the Scheme beyond 31 March 2006. The Committee took the view that when the Scheme of 2002 was notified on 1 April 2002, Section 80-IA (4) (iii) only applied to undertakings which were to commence operation by 31 March 2006. Hence, it was held that Para 9(1) of the Scheme should not be interpreted in a manner which would extend the scope of exemption beyond what was intended in the main statute. In sum and substance the view of the the Empowered Committee was that Dmt 18 wp744-11 since the Petitioners had not commenced the industrial park by 31 March 2006, they were not entitled to the benefit of the Scheme. 14. This second order of the the Empowered Committee was set aside by a Division Bench of this Court on 18 October 2010 in a Writ Petition under Article 266 of the Constitution on the ground that the Committee had relied upon material which was not disclosed to the Petitioners. Following the second order of remand, the Empowered Committee convened fresh hearings and thereafter rejected the application of the Petitioners for the benefit of the Scheme of 2002 by an order dated 21 February 2011. 15. The impugned order dated 21 February 2011 of the the Empowered Committee takes note of the legal opinion of the Department of Legal Affairs and of the view of the Revenue Department according to which any industrial park which commences after 31 March 2006 is not eligible to be Dmt 19 wp744-11 considered under the Industrial Park Scheme, 2002 and that the one year grace period cannot extend beyond 31 March 2006. The claim of the Petitioners has been consequently rejected on the ground that since the industrial park was not completed on or before 31 March 2006, they were not eligible for approval under the Scheme of 2002. 16. The learned Senior Counsel appearing on behalf of the Petitioners urged the following submissions in assailing the order of the the Empowered Committee : (i) Section 80-IA (4) (iii) does not mandate that development of an industrial park should be completed by 31 March 2006. Several schemes have in fact been notified by the Central Government from time to time and the intent to give the benefit of a deduction for developing infrastructural facilities continues to exist until date; Dmt 20 wp744-11 (ii) Under Section 80-IA (4) (iii) a benefit is available to (i) either an assessee who is a developer; or (ii) an assessee who develops and operates an industrial park; or (iii) an assessee who maintains and operates an industrial park in accordance with the Scheme notified by the Central Government. Para 9(1) of the Scheme does contemplate a situation where the commencement of the industrial park is delayed by more than one year from the date indicated in the application in which case a fresh approval has to be obtained to get the benefit under the Act. This condition has been also applied to existing approvals under the Industrial Park Scheme which had envisaged the commissioning of the park, latest by 31 March 2002. Clause 5 (2) of the letter of approval that was granted to the Petitioners was inserted specifically with reference to the expected date of completion of 15 March 2006 and was in terms of Para 9 of Dmt 21 wp744-11 the 2002 Scheme; (iii) The subsequent scheme which has been framed by the Central Government in 2008 has liberalised the provisions even further by merely requiring that the undertaking shall begin to develop an industrial park; (iv) In the present case the entire project was completed by 8 March 2007. The Empowered Committee in the course of its hearing also noted that the crucial date was 14 March 2007. (v) In the circumstances, the view which has been taken on Para 9 (1) of the Scheme by the the Empowered Committee is unduly technical and would defeat the public purpose underlied Section 80-IA (4). An infrastructural project requires investment of considerable amount of time, effort Dmt 22 wp744-11 and money and if the interpretation which has been placed by the the Empowered Committee were to be adopted, the benefit of the provision would be denied to several projects where approvals were granted within a period of one year prior to 31 March 2006 when the Scheme was to expire. In the present case itself, approval was granted to the project on 24 July 2006. As a matter of fact, queries under the Right to Information Act have revealed that approvals have been granted to at least fifty projects as late as April 2007. This would suggest that it has been the consistent stand of the the Empowered Committee that the completion of the project on or before 31 March 2006 has not been regarded as an inviolable condition for availment of benefits. 17. On the other hand, learned Counsel appearing on behalf of the Revenue submitted that : Dmt 23 wp744-11 (i) Para 3 of the Scheme of 2002 postulates that the development of the facility has to be completed by 31 March 2006; (ii) The Scheme cannot override the provisions of Section 80-IA (4) (iii); (iii) Para 9 of the Scheme would apply only to those cases where there is a delay in the commencement of the project of the industrial park but when the commencement does not fall back beyond 31 March 2006; (iv) In the present case occupation certificate was granted only on 2 June 2007 and even if a grace period of one year were to be granted, that would also expire on 15 March 2007 being the date on which a period of one year would expire from the Dmt 24 wp744-11 expected date of completion; and (v) The number of units for which approval is sought constitutes an essential requirement. The Petitioners sought to reduce the number of units for which approval was taken from eight to three and thereafter to five. 18. The rival submissions now fall for determination. The object and purpose of Section 80-IA is to grant a deduction, while computing the total income of the assessee of an amount equal to hundred per cent of the profits and gains derived from an eligible business for ten consecutive assessment years out of fifteen years beginning from the year in which inter alia the assessee develops an industrial park or facility. The eligible businesses to which the provisions are attracted are specified in sub-section (4) of Section 80-IA. The object and purpose of Section 80-IA was to provide an impetus to the growth of infrastructure in the country. Clause (iii) of Dmt 25 wp744-11 sub-section (4) of Section 80-IA makes eligible an undertaking which (i) develops; or (ii) develops and operates; or (iii) maintains and operates an industrial park notified by the Central Government in accordance with the Scheme framed for the period beginning on 1 April 1997 and ending on 31 March 2006. An undertaking is eligible if it has either developed; or developed and operated; or operated and maintained an industrial park in accordance with the Scheme. The first aspect of the matter which needs emphasis is that clause (iii) of Section 80-IA (4) requires that the Scheme has to be notified for the period between 1st April 1997 and 31 March 2006. The statutory provision does not contain a specific requirement to the effect that the industrial park had to be developed on or before 31 March 2006. The requirement is that the industrial park has to be developed in accordance with the Scheme framed by the Central Government for the period between 1 April 1997 and 31 March 2006. The Scheme which was framed by the Central Government stipulated the requirement for the grant of approval in those cases which did not fall in the Dmt 26 wp744-11 automatic approval route. Para 3 of the Scheme lays down the period of operation of the Scheme. Under Para 3 the Scheme is to be applicable to any undertaking which develops, develops and operates or maintains and operates an Industrial Park for the period beginning on 1 April 1997 and ending on 31 March 2006. Therefore, undoubtedly it was as a result of Para 3 that a requirement to the effect that the undertaking should develop an industrial park for the period commencing on 1 April 1997 and ending on 31 March 2006 came to be