Tax Deduction for Infrastructure Development Contracts Valid

The Division Bench of the Hon’ble High Court of Calcutta has delivered a significant ruling in the case of Principal Commissioner of Income Tax—1, Kolkata v. Bothra Shipping Services Private Limited, (ITAT/85/2024), dated September 25, 2024, clarifying the eligibility for tax deductions under Section 80IA (4) of the Income Tax Act, 1961. The Bench determined that an enterprise contracting with the assignee of a government-recognized concessionaire for infrastructure development can be granted tax deductions based on the specific facts and circumstances of the case.

Section 80IA of the Income Tax Act provides deductions for enterprises engaged in infrastructure development, provided they have an agreement with the Central or State Government, local authorities, or statutory bodies for developing, operating, or maintaining infrastructure facilities.

In this case, the respondent, Bothra Shipping Services, entered into a concession agreement with Kakinada Sea Port Limited (KSPL), a special project company formed by International Sea Ports Limited (ISPL), which had contracted with the Andhra Pradesh government for the development of the Kakinada Deep Water Port. Pursuant to the agreement, the development of specific infrastructure, was subcontracted to Bothra Shipping Services, which claimed tax deductions on the development of the same under Section 80IA (4) of the Income Tax Act.

The present case is an appeal against a decision by the Income Tax Appellate Tribunal (ITAT) that allowed the respondent to claim deductions. The Revenue Department argued that the respondent did not have an agreement directly with the government or even with the entity (KSPL) that held such an agreement.

The Division Bench highlighted that the Andhra Pradesh government had, in its agreements with ISPL, designated KSPL as the assignee of ISPL, thereby treating KSPL as the successor to ISPL’s rights, duties, and obligations under the concession agreement. Following this assignment, Bothra Shipping was engaged by KSPL to develop the Mechanized Port Handling System. The Bench noted that the Andhra Pradesh port authorities certified that the facilities developed by Bothra Shipping were integral to the Kakinada Deep Water Port. It further reinforced that Section 80IA (4) is designed to promote infrastructure development and stressed that interpretations of the provision should support its intended purpose rather than hinder it.

In its conclusion, the Bench referred to various terms of the contract, including ownership, delegation of maintenance obligations, and profit-sharing arrangements, to affirm that the ITAT was justified in allowing the respondent’s appeal.

This ruling is expected to have far-reaching implications for enterprises involved in infrastructure development, particularly those contracting with government-recognized concessionaires. By affirming the eligibility for tax deductions even when agreements are made with assignees of government entities. This has provided a more favorable framework for private sector participation in critical infrastructure projects across India.