Air India SATS Entitled To Tax Benefits On Ground & Cargo Handling Income: ITAT Delhi

On 26 February, the New Delhi Income Tax Appellate Tribunal (ITAT) held that Air India SATS Airport Services Pvt. Ltd.'s income from airport ground handling and cargo handling operations qualifies for tax incentives available to eligible infrastructure-related service providers.

A Bench of Judicial Member Satbeer Singh Godara and Accountant Member Naveen Chandra heard the Revenue's appeal, which challenged the deduction claimed by Air India SATS under Section 80-IA of the Income Tax Act on income derived from airport ground handling and cargo handling operations.

The Bench held:

“...in light o f the fact that the Revenue has nothing more to say than to place reliance on the Assessing Of ficer's assessment findings. We thus uphold the assessee's section 80IA deduction claim in principle in very terms.”

Section 80-IA of the Income Tax Act, 1961, provides a 100% tax deduction on profits for businesses engaged in developing, operating, or maintaining eligible infrastructure facilities, such as roads, highways, power plants, ports, and industrial parks.

The case arose from Air India SATS's claim of Section 80-IA deduction on profits earned from providing ground handling and cargo handling services at Indian airports. The company was incorporated pursuant to a joint venture between Air India Ltd. and SATS Ltd., Singapore, following Cabinet approval and regulatory clearances. The business of ground and cargo handling, previously carried out through an unincorporated joint venture, was transferred to the incorporated entity on a going-concern basis.

The Assessing Officer disallowed the deduction on multiple grounds, including that the taxpayer was merely a reconstitution of an earlier joint venture, that one shareholder was a foreign company, that the activities constituted only utility services and not infrastructure development, and that there was no direct agreement with the Central Government. An additional disallowance was also made under Section 40(a)(ia) in respect of year-end provision for concession fees.

On appeal, the Commissioner (Appeals) deleted both disallowances. Earlier coordinate benches of the Tribunal had consistently upheld the CIT(A)'s view.

Subsequently, the High Court remanded the matter to the Tribunal for limited consideration of the applicability of the proviso to Section 80-IA(4), as that aspect had not been specifically examined earlier.

Section 80-IA(4) provides a 100% tax deduction on profits derived from developing, operating, or maintaining specific infrastructure facilities, including roads, highways, water projects, sanitation, telecommunication services, and power generation/distribution.

In the second round, the Tribunal held that the core issue of eligibility under Section 80-IA had already attained finality in favour of Air India SATS. The Bench stated:

"the purport of the said proviso is to restrict the impugned section 80IA deduction to the maximum specified period; inclusive of that claim by the transferor as well as the transferee enterprise, as the case may be."

The Tribunal noted that ownership by an Indian company is satisfied where the taxpayer itself is an Indian incorporated company, irrespective of the nationality of its shareholders, and that agreements entered into through airport concessionaires authorised by the Government satisfy the statutory condition of an agreement with the Government.

On the applicability of the proviso to Section 80-IA(4), the Tribunal found no material to show that the taxpayer's deduction exceeded the maximum permissible period, and rejected the Revenue's reliance on the proviso.

Accordingly, the Tribunal dismissed all three appeals filed by the Revenue and upheld Air India SATS's entitlement to deduction under Section 80-IA, as well as the deletion of the disallowance under Section 40(a)(ia).

For Appellant: Senior Advocate, Percy Pardiwalla, Advocate, Ananya Kapoor and CA, Divesh Dhawan

For Respondent: CIT-DR, Monika Singh