High Court explains the meaning of term ‘enterprise’ appearing in section 80IA to means a project or an undertaking owned by a company registered in India
In a recent judgment, the High Court has held that the term ‘enterprise’ appearing in section 80IA means a project or an undertaking owned by a company registered in India.
ABCAUS Case Law Citation:
5171 (2026) (06) abacus.in HC
In the instant case, the Petitioner company had challenged notice issued under Section 148 of Income Tax Act, 1961 (the Act) along with Notice dated 15th March 2022 along with the Draft Assessment Order.
The Petitioner/company was incorporated as an Indian company as a consortium of different shareholders, two of which were a foreign company. The company was awarded a contract by the Indian Government to develop and manage a Container Terminal in accordance with the Major Port Trusts Act, 1963 and Guidelines. A License Agreement was executed between the Petitioner and Board of Trustees of the Port for the development and management of the Container Terminal.
Eight years from the agreement, the Petitioner became a 100% subsidiary of a Mauritius based company which in turn was entirely held by another Dubai based company.
The Petitioner Company had been claiming exemption u/s 80IA from the activity of development, operation and maintenance of the said infrastructure facility. In the course of assessment proceedings for its first claim u/s 80IA, after thoroughly examining the eligibility condition, the Petitioner had been found to be eligible for claiming the said deduction.
For the relevant Assessment year, in the notes to the financial statements, the Petitioner had interalia brought out that it was a wholly owned subsidiary of a foreign company which in turn was a wholly owned subsidiary of a Dubai based company.
For the relevant Assessment Year, The Petitioner had duly got its accounts audited u/s 44AB of the Act. Further, in accordance with the provisions of Section 80-IA(7), the Petitioner obtained an audit report from a Chartered Accountant reflecting the enterprise or undertaking which qualified for deduction under Section 80-IA, its ownership status, description of the eligible business and quantum of deduction to be claimed. Since the Petitioner had entered into international transactions with its associate enterprises, the said fact was duly reflected in the Audit Report obtained in Form 3CEB as per Section 92E of the Act. The return of income also disclosed that the Petitioner was a wholly owned subsidiary of a foreign company.
For the relevant Assessment year, the return of income was picked up for scrutiny. By Assessment order passed u/s 143(3) of the Act, the Petitioner’s business was accepted to be that of managing, developing and maintaining the container terminal at Port and also its claim for deduction under u/s 80IA was also accepted.
Thereafter, the Petitioner received a notice alleging that AO had reason to believe that its income chargeable to tax for said AY had escaped assessment. As per the reasons recorded for reopening it was alleged that the Petitioner (referred to as an “enterprise”) was owned by a foreign company being not a company registered in India, thereby violating the condition in sub- clause (a) of clause(i) of sub-Section (4) of Section 80-IA of the Act which requires that the enterprise carrying on the eligible business should be owned by a company registered in India.
The objections of the Petitioner company to the reopening were rejected by the AO by the impugned order which was followed by issue of notices u/s 143(2) and 142(1) and finally the AO issued the impugned show cause notice annexing a Draft assessment order seeking to deny the Petitioner’s claim for deduction under Section 80-IA of the Act.
The main line of contentions by the Revenue was that the enterprise, (the Petitioner company), was formed by a company registered outside India which is in violation of the condition that the enterprise is owned by a company registered in India. Further, it was submitted that another condition for claiming deduction under Section 80IA(4) is that the Petitioner shall develop or operate and maintain a new infrastructure facility. Whereas, the Petitioner was engaged in maintaining, managing and operating the existing container terminal at Port handed over to it by Port Trust and no new infrastructure facilities were brought into existence by the Petitioner.
The Hon’ble High Court observed that the first reason given for re-opening the assessment was that the Petitioner was an enterprise and that it was owned by a foreign company being not a company registered in India, and, hence, the Petitioner had committed a breach of Section 80-IA(4) and is not entitled to a deduction under Section 80-IA.
The Hon’ble High Court opined that the reasoning given by AO was incorrect and the AO had made the mistake of equating the Petitioner Company with an enterprise. The High Court noted that the Concise Oxford English Dictionary defines enterprise as “enterprise” as a project or undertaking, a business or company. Therefore, the primary meaning of an enterprise is a project or an undertaking.
The Hon’ble High Court held that in the present case, the enterprise was the Port which was an undertaking owned by the Petitioner which was a company registered in India. The revenue erred in equating the Petitioner as the ‘enterprise’ and, consequently, holding that it was owned by a foreign company which was not a company registered in India.
The Hon’ble High Court held that without doubt, the Petitioner fulfilled the requirement of being registered as a company in India and owning the relevant enterprise which is carrying on the eligible business.
With regard to the contention that Petitioner was not a developer, the Hon’ble High Court noted that Petitioner had set up 7 Quay gantry cranes (QCs) and 22 Rubber tyred gantry cranes (RTGs) facility at the Dock and had incurred substantial expenditure.
The Hon’ble High Court further held that even if the reasons given by the Revenue were to be assumed to be correct, the assessment of the Petitioner could not have been re-opened as there was no failure on the part of the Petitioner to disclose fully and truly all material facts necessary for the assessment as all the information relied upon by the Revenue was disclosed in the Annual Report, Tax Audit Report Form 3CEB and in the Income Tax Return of the Petitioner. Thus, the Petitioner had disclosed all the material facts.
Accordingly, the Hon’ble High Court allowed the Petition and the impugned order along with the impugned show cause notice and Draft assessment order was quash and set aside.
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