Infrastructure Projects Get Tax Relief From Supreme Court  
(Photographer: Prashanth Vishwanathan/Bloomberg)  

Infrastructure Projects Get Tax Relief From Supreme Court  

In a welcome relief for infrastructure projects, the Supreme Court has ruled that benefit of certain deductions will apply to both business and other income.

Under section 80-IA of the income tax law, companies engaged in infrastructure facilities like road or water supply or port, telecom services, industrial parks or SEZs, power sector, natural gas distribution, etc. can claim tax relief on profit/gain from such businesses. For such entities, 30-100% of the profit is allowed as deduction for 10 consecutive years.

So far, tax authorities have disallowed the claim and restricted the deduction to business income on the contention that the matter is sub-judice and pending before Supreme Court, Anita Basrur, partner at Sudit K Parekh & Co. LLP, pointed out.

“This led to huge tax demands, recovery proceedings and also adjustment of refunds against the demands thereby blocking funds of taxpayers,” she said.

The relief under section 80-IA was phased out by the government from April 2017. So, this ruling will benefit cases which are in the litigation pipeline and where companies have claimed a deduction on “other income” in the past but were denied by the tax department, experts told BloombergQuint.

Can’t Restrict Deduction To Only Business Income, Supreme Court Says

The case pertained to Reliance Energy Ltd. and the contention was the amount eligible for deduction under section 80-IA. The company had claimed deduction against business income as well as income from other sources. The tax department had denied the benefit on the latter.

The department argued before the apex court that profit-linked deduction for eligible business can be allowed against income of the same nature only i.e. business income and not other income. The deduction, it said, has to be computed as if income from the business is the only source of income for the company.

The court didn’t agree with this argument.

Pointing to the language of the section, it said that profit-linked deduction should be computed on the basis of net income from the eligible business. And that the section doesn’t limit the claim of deduction to the extent of business income.

The ruling will benefit companies that have a large interest income or incentives in the form of duty drawback scrips, marketable instruments under the foreign trade policy or let’s say advertising revenue for a road project company - there can be different streams of “other income” which could be substantial amounts, Samir Kanabar, partner at EY, pointed out.

There have been several contradictory rulings on this issue. The section says deduction is allowed against profit and gains of an undertaking. The apex court has interpreted it to say that an undertaking’s “other income” is also part of profit and gains on which deduction should be allowed. 
Samir Kanabar, Partner, EY

Based on this decision of the Supreme Court, taxpayers can file a rectification application for earlier assessment years where claim made by them has been denied, Basrur said.

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