In the High Court of Judicature at Madras Dated: 28.10.2011 Coram The Honourable Mrs.JUSTICE CHITRA VENKATARAMAN Writ Petition No.11871 of 2011 & M.P. No.1 of 2011 M/s.K.A.Infrastructure Private Limited, rep. By its Director, Mr.Bharat Kumar Chordia .... Petitioner Vs 1. The Director (ITA-I) Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India, New Delhi – 110 001. 2. Income Tax Officer, Company Ward – II (1), 121, Nungambakkam High Road, Chennai – 600 034. .... Respondents PETITION under Article 226 of The Constitution of India praying for the issuance of Writ of Certiorarified Mandamus calling for the records in F.No.194/135/2009-ITA.I dated 11th April, 2011 on the file of the 1st respondent and quash the same and further directing him to accord approval under Section 10(23G) of the Income Tax Act. For Petitioner : Dr.Anita Sumanth For Respondents: Mr.J.Narayanasamy Standing Counsel for Income Tax O R D E R The assessee has sought for a Writ of Certiorarified Mandamus to quash the order of the Central Board of Direct Taxes dated 11th April, 2011. 2. It is seen from the documents placed before this Court that on an earlier occasion, the petitioner had approached this Court by filing a Writ Petition in W.P.No.21004 of 2010, challenging the order https://hcservices.ecourts.gov.in/hcservices/ of the first respondent rejecting the plea for approval under Section 10(23G) of the Income Tax Act. By order dated 30.9.2010, this Court set aside the order of rejection of the application made by the petitioner seeking approval under Section 10(23G) of the Income Tax Act on the ground of violation of the principles of natural justice, thereby remanded by the case back to the Central Board of Direct Taxes to reconsider the application after granting time to the petitioner for filing further reply and to pass orders. After granting sufficient opportunity to the petitioner, the Board has now passed the order, rejecting the application filed by the assessee. In so rejecting the prayer, the first respondent herein pointed out that there had been a substantial change in the project verification, number of projects as well as location of projects. Thus, by reason of fresh lease agreements entered into, which were not examined by the Board at the time of grant of approval originally for the period covered namely, 2000-01 to 2002-03, the Board came to the decision that there could be no renewal of the approval granted earlier. The Board pointed out that the assessee did not have any windmill on lease prior to the agreements dated 28.3.2003, 30.3.2003 and 16.3.2002. Hence, the question of considering the petitioner's case as one of renewal did not arise. The Board held that the claim of the assessee had to be considered on the basis of the lease agreements filed and the nature of title of the assessee in respect of the windmills. The Board further pointed out that the assessee had taken over the running windmill and the attached equipments on lease, which makes the project ineligible under Section 80IA of the Act. The Board pointed out that Section 80IA(4) sub-clause (4) does not have any provision to grant approval to an undertaking which is only operating and maintaining a power plant. Thus the assessee was ineligible to have the approval under Section 10(23G) of the Act. 3. Before going into the contentions raised by the petitioner challenging the said order, few facts have to be noted herein: The petitioner herein is a company engaged in the business of development, operation and maintenance of Wind Turbine Generators (WTG) and setting up and operation of wind electric farms. Admittedly, the petitioner had had the benefit of approval under order dated 07.12.2000 given under Section 10(23G) of the Income Tax Act for the assessment years 2000-2001, 2001-2002 and 2002-2003 in respect of the windmills set up at Perungudi Village, Radhapuram Taluk, Tirunelveli District. In the context of the upgradation and modernisation of technology, after getting expert opinion, the petitioner decided to go for a windmill project at Pazhavoor Village in the first phase and Karungulam Village in the second phase. 4. Under the financial lease method of funding, the petitioner undertaking entered into lease agreements on 28.03.2003, 30.03.2003 and 16.03.2002 with M/s.Khivraj Motors Ltd. and set up an undertaking to generate wind energy. The undertaking was in operation in https://hcservices.ecourts.gov.in/hcservices/ Pazhavoor and Karungulam Village, Radhapuram Taluk, Tirunelveli District. As per the terms of the lease agreement, the petitioner herein was given lease for operating the undertaking as a running mill to generate wind energy. The period of lease started from 21st October, 2001 and was to run upto the period of 20 years. 5. It is stated that the project at Pazhavoor Village was commissioned in October, 2001 and the one at Karunkulam Village, was commissioned on 30.03.2003. In terms of the lease thus entered into, the petitioner made an application on 2nd January 2003 in Form 56E for grant of approval under Section 10(23G) as an enterprise, wholly engaged in the business of developing, maintaining and operating any infrastructure facility and sought for renewal of the approval in intimating the changes in the project relating to the supply of the wind farm from Perungudi situated at Radhapuram Taluk to Pazhavoor and Karunkulam in Radhapuram Taluk; reduction in number of WTG from 4 to 3 and the increase in the capacity on generation of electricity. 6. In respect of the application thus made, since there was no reply, it sent a reminder on 27.02.2003. Upon this, at the request of the Board, the petitioner submitted a new application with a detailed report. As regards the lease agreement entered into in respect of the windmill situated at Radhapuram, the Board sought for particulars as regards the lease and other details. The petitioner submitted the details, which are in terms of Rule 2E of the Income Tax Rules. The Board called for a report from the appellate authority. Based on this, the appellate authority sent an Inspector for a visit to the windmills location. After a protracted correspondence on not passing the order on the application, ultimately the Board passed an order on 14.7.2010, rejecting the plea for approval under Section 10(23G) for the assessment year 2003-04 to 2007-08, holding that the petitioner did not satisfy the condition of eligible business under Section 80IA(4)(iv), since the business is principally of operation and maintenance of windmill taken on lease. Further, the petitioner's case did not fall for consideration under Section 80IA(4)(i). Thus the approval request was rejected. Alleging non-application of mind and violation of the principles of natural justice, the petitioner approached this Court in W.P.No.21004 of 2010. On 30.09.2010, this Court passed an order in the said writ petition, setting aside the order dated 14.07.2010, with a direction to the Central Board of Direct Taxes to take up the application of the petitioner along with further reply and grant the petitioner an opportunity to place its objection and then pass orders. This Court directed the petitioner to make a fresh application within a period of four weeks from the date of receipt of a copy of the order and after giving an opportunity of hearing to the petitioner, to pass orders finally, within a period of six weeks thereafter. https://hcservices.ecourts.gov.in/hcservices/ 7. Immediately thereafter, the petitioner filed its representation enclosing the copy of the original application dated 13.03.2003 and reiterated its stand that there was no change in any of the applicable parameters for granting approval under Section 10 (23G). The petitioner pointed out that Section 80IA(iv) made no distinction between the owner and a lessee. There was no change in the provision of law under Section 80IA(iv) since the grant of the approval for the assessment years 2000-01 to 2002-03. The effect of the amendment to Section 80 IA with effect from 01.04.2002 was by way of substitution of the term 'industrial undertaking' as 'undertaking', which, in fact, widened the application of the benefit under Section 80 IA, that the relief under Section 80 IA is an undertaking oriented provision and not assessee oriented one. Thus, unlike in Section 80 IA(4)(i), the benefit considered under Section 80 IA(4)(iv) does not rest on ownership of the undertaking and considering the compliance of conditions under Section 80 IA, the petitioner sought for grant of approval under Section 10(23G). Comparing similar provisions under Section 15C of the 1922 Act, Section 84, later on substituted by Section 80J of the 1961 Act, which also stood removed from the statute with effect from 1.4.1989, the assessee submitted that being a beneficial provision and the relief industry-oriented, the approval for renewal be granted. 8. As already pointed out, the Central Board of Direct Taxes, however, rejected the said contention, on the premise that the petitioner had entered into three lease agreements dated 28.3.2003, 30.3.2003 and 16.3.2002, that the petitioner never had any windmill of its own, but had taken on lease only, a fact which was not there at all for any examination at the time when the original approval was granted for the assessment years 2001-02 to 2003-03. The Board pointed out that a reading of the lease agreement pointed out that the lessor had set up the undertaking at Karungulam Village, Tirunelveli District and the same is in operation. Hence, the argument that the petitioner had set up an undertaking for generation of power was not acceptable. The equipments installed by the petitioner were not new ones and were already in use by the lessor, which makes the claim ineligible under Section 80IA of the Income Tax Act. Thus the case of the assessee was not one of renewal of an existing facility when the renewal could be granted automatically on the same set of facts. 9. Learned counsel appearing for the petitioner, objecting to the reasoning of the Board, took me through the provisions of Sub- clause (iv) to sub-Section (4) of Section 80IA of the Income Tax Act and contrasted it with sub-clause (1), to point out that while under sub-clause (iv) to sub-section (4), the qualifying fact for deduction is "an undertaking engaged in generation or generation and distribution of power", sub Clause (i) restricted the application of Section 80IA to an enterprise carrying on business of developing, https://hcservices.ecourts.gov.in/hcservices/ maintaining and operating an infrastructure facility, owned by the company registered in India or a consortium of such companies. Sub- clause (v) is with reference to an undertaking owned by an Indian company and set up for re-construction or revival of a power generating plant. Thus unlike other sub-sections, sub-clause (iv) to sub-section (4) makes the deduction available to an "undertaking" set up in any part of India for "generation or generation and distribution of power" etc. Thus in the context of the marked difference in the language used, learned counsel submitted that there is a fundamental fallacy in the reasoning of the Board as regards the scope of Section 80 IA(4)(iv). Referring to Section 10(23G), she submitted that given the fact that Section 10(23G) contemplated exemption even to a case of an infrastructure capital company, meaning thereby, such company which makes investments by way of acquiring shares or providing long-term finance to any enterprise or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or sub-section (3) of Section 80-IA, there being no restriction to a business taking a power generation plant on lease, the purport of Section 80IA must be given full effect to, thereby approval should have been granted on the renewal application under Section 10(23G). In the circumstances, she submitted that the Board had committed a serious error in ignoring the provisions of the Act to come to a conclusion that the lease taken by the petitioner company stood in the way of granting the claim under Section 80IA and that there was changed circumstances from the one that was considered earlier. 10. On notice, the respondents have filed their counter affidavit. The sum and substance of the contention of the Revenue is that at the time when the assessee was granted approval under Section 10(23G) for the assessment years 2000-01, 2001-02 and 2002-03, there was no issue at all as to the assessee taking on lease, the windmill. The issue as regards the assessee taking on lease the windmill already in operation and located in a different places, surfaced only subsequently in the years under consideration. On the admitted fact that the assessee had taken the windmill on lease, which was already in use, the question of granting any relief under Section 80IA, or for that matter, for approval under Section 10(23G), does not arise. 11. Learned Standing Counsel appearing for the Revenue pointed out to sub-clause (iv) and submitted that the Section is concerned about setting up of an undertaking for the generation or generation and distribution of power and hence, has no relevance to the assessee taking up the power plant already in existence. Pointing out to sub- clause (ii) to sub-section (3) that the benefit of Section 80IA will not be available to an assessee if it is formed by the transfer to a new business, of machinery or plant previously used for any purpose, on the admitted fact that the windmill was already in use at the hands of the lessor, the assessee would not be justified in making the claim under Section 80IA read with Section 10(23G) of the Income https://hcservices.ecourts.gov.in/hcservices/ Tax Act. Thus the change in circumstances necessarily warranted rejection of the application. Hence, no exception could be taken to the order passed by the Board. 12. Heard learned counsel appearing for the petitioner and the learned Standing Counsel appearing for the respondents and perused the materials placed before this Court. 13. Chapter VI A of the Income Tax Act is a Chapter on deduction providing for straight deduction from the total income itself, thus making tax calculation comparatively easy. Part A (Section 80A to 80B) contains general provisions on deduction applicable to the whole of the Chapter and the definition of certain terms and expression occurring in the Chapter. Part B containing Section 80C to 80GGC provide for deduction in respect of certain payment made by the assessee in the computation of total income. Part C (Sections 80 H to 80 RB as of today) deals with deduction in respect of certain income in computation of total income. Part D (Section 80 U) deals with other deductions. A reading of the deductions and rebates shows that there have been periodical changes in Chapter VIA with new reliefs, apart from the relief already given, extended or removed. 14. The deduction in respect of newly established industrial undertakings and hotels, was originally considered under 1922 Act under Section 15C. With the introduction of 1961 Act, Section 84 was introduced, that an assessee deriving profits from a newly set up industrial undertaking and an Indian Company deriving profits from a hotel or a ship satisfying certain conditions was entitled to a rebate of tax on such profits upto certain percentage of capital employed in the undertaking for a specified number of years. The said provision was omitted by Finance No.2 Act of 1967, with effect from 1.4.1968. The provisions contained in the Section was incorporated in Section 80J of Chapter VIA. Section 80J was subsequently omitted by Finance No.2 Act 1996 with effect from 1.4.1989. A reading of Section 80J shows that it seeks to give a fillip to the industrial undertakings by granting the deduction at 6% per annum of the capital employed from the profits of the new industrial undertakings. The deduction under the said Section is available in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or operates its cold storage plant or a ship is first brought into use, etc. The deduction is available for four assessment years immediately succeeding the initial assessment year. A reading of the provision thus shows that the deduction contemplated therein is to encourage the said member of a new industrial undertaking by offering tax incentives. Thus, in consonance with the object of the said provision, the provision was interpreted in a broad sense and in the context of the purposes in consonance with the aim and object, so as to render effective, the exemption sought to be provided, without doing violence to the language employed. Thus, the emphasis herein https://hcservices.ecourts.gov.in/hcservices/ is on the establishment of the undertaking and not on the person who establishes or acquires the same afterwards. 15. After the deletion of Section 80J, Section 80IA and Section 80IB were substituted under Section 80 IA under the Finance Act, 1999 with effect from 1.4.2000. The said provision has undergone series of changes thereafter also. 16. Before going into the rival contentions, the provisions under Section 10(23G) and Section 80IA(1), (3), (4)(iv) of the Income Tax Act, need to be seen, which read as follows: " 10(23G)- Any income by way of dividends, other than dividends referred to in section 115-O, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company or a cooperative bank from investments made on or after the 1st day of June, 1998 by way of shares or long-term finance in any enterprise or undertaking wholly engaged in the business referred to in sub section (4) of section 80-IA or a housing project referred to in sub-section (10) of section 80-IB or a hotel project or a hospital project and which has been approved by the Central Government on an application made by it in accordance with the rules, made in this behalf and which satisfies the prescribed conditions. Explanation 1 ... Explanation 2 ... " " Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub- section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. (2) ... (3) This Section applies to an undertaking referred to in clause (iv) of sub section (4) which fulfils all the following conditions, namely:-- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: https://hcservices.ecourts.gov.in/hcservices/ Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, re- construction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation I.-- For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely:-- (a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the assessee. Explanation 2. -- Where in the case of an undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. (4) This section applies to— (i) ... (ii) ... (iii) ... (iv) an undertaking which,— (a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March,2006; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period https://hcservices.ecourts.gov.in/hcservices/ beginning on the 1st day of April, 1999 and ending on the 31st day of March, 2006: Provided that the deduction under this section to an undertaking under sub-clause (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution." 17. Section 80 IA, appearing in Chapter VA, deals with straight deduction to be made in computing total income. A reading of the provisions of Section 80IA of the Income Tax Act shows that it grants deduction from the total income of the assessee, an amount equal to 100% profit and gains derived from the business engaged in the infrastructure development for ten consecutive assessment years. Sub-section (3) gives the qualification of the undertakings which are eligible to have the benefit under Section 80IA. 18. A reading of the said provision shows that the benefit under Section 80IA available to industries, covered under sub clause (iv) of sub section (4), is not available to companies, which are formed by splitting up, or the re-construction, of a business already in existence and new business, which is formed by the transfer of the plant and machinery already in use for any purpose. Explanation (1) thereunder states that machinery used outside India by any person other than the the assessee shall not be regarded as machinery or plant previously used for any purposes, subject to the stated conditions. We are not concerned about this in the present case before us. Sub-clause (iv) to sub-section (4) of Section 80IA is a specific provision on enterprises engaged in generation or generation and distribution of power. Sub-clause (iv) contains two sub- divisions, the first of which is as regards the undertaking set up for the generation or generation and distribution of power; the undertaking has to begin its operation as early as 1993 ending 2006 amended periodically, which is now amended and extended to 31st March, 2011. Sub Clause (b) of Clause (iv) of Sub Section (4) of Section 80 IA is with reference to laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on 31st March, 2011. The proviso states that the deduction under sub-clause (b) would be available only in relation to the profits derived from laying of such network of new lines for transmission or distribution. The third clause relates to renovation and modernisation of the existing network. 19. A reading of the above-said clauses thus makes it clear that as far as deduction under Section 80IA with reference to undertakings which are there for generation and generation and distribution of power is concerned, the qualification is generation or generation and distribution of power. Read with Sub section (3), the undertaking is https://hcservices.ecourts.gov.in/hcservices/ not formed by splitting up or the reconstruction of a business already in existence or formed by the transfer of plant and machinery used for any purpose to a new business. Thus an enterprise which is engaged in the generation or generation and distribution of power, qualifies for a deduction, subject to satisfying sub-clauses in the Section. Considering the fact that