2013 (10) TMI 1411 - AT - Income Tax

Tribunal grants developer status under Section 80IA, allows deduction

The Tribunal allowed the appeals in favor of the assessee, determining that the assessee qualified as a developer under Section 80IA of the Income Tax ... Assessee is entitled for deduction under S.80IA of the Act on the profit computed by the Assessing Officer in respect of the project in Cauvery Basin, Trichy(Tamil Nadu) as the assessee is a developer and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80IA (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. Issues Involved:1. Disallowance of claim for deduction under Section 80IA of the Income Tax Act.2. Determination of whether the assessee is a developer or a contractor.3. Examination of financial participation and risks undertaken by the assessee.4. Evaluation of the maintenance of separate accounts for the project.5. Review of the supply of materials and machinery by the government.Detailed Analysis:1. Disallowance of Claim for Deduction under Section 80IA:The primary issue in these appeals is the disallowance of the assessee's claim for deduction under Section 80IA of the Income Tax Act by the Assessing Officer (AO), which was confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)]. The AO held that the assessee was not the owner of the project but merely a contractor executing work on behalf of the Government of Tamil Nadu. Additionally, the AO noted that the assessee did not develop the infrastructure facility and did not begin operation during the years in question. The CIT(A) upheld the AO's decision, citing that the assessee did not meet the criteria for being considered a developer.2. Determination of Whether the Assessee is a Developer or a Contractor:The CIT(A) and AO concluded that the assessee was a contractor, not a developer, based on several factors, including the provision of materials by the government and the lack of involvement in designing the project. The CIT(A) referenced previous Tribunal decisions, noting that the appellant did not conceive the project, was not involved in its design, and did not bear entrepreneurial and investment risks. The Tribunal, however, found that the assessee employed qualified engineers to prepare working plans and designs, indicating involvement beyond mere execution.3. Examination of Financial Participation and Risks Undertaken by the Assessee:The CIT(A) argued that the assessee's financial participation was insufficient due to the receipt of mobilization advances from the government. The Tribunal countered this by highlighting that the mobilization advance required a bank guarantee, which involved financial risk for the assessee. The Tribunal also noted significant interest payments and investments made by the assessee, demonstrating substantial financial involvement and risk.4. Evaluation of the Maintenance of Separate Accounts for the Project:The AO disallowed the deduction partly because the assessee did not maintain separate accounts for the project. The Tribunal found this reasoning invalid, noting that the Act did not require the project to be completed in the year the deduction was claimed. The Tribunal emphasized that as long as a separate audit was conducted and a certificate issued in Form 10CCB, maintaining separate accounts was not necessary.5. Review of the Supply of Materials and Machinery by the Government:The CIT(A) contended that the government supplied materials and machinery, which suggested the assessee was a contractor. The Tribunal reviewed the tender documents and found that the assessee was responsible for procuring its own materials and machinery, with specific standards and quality requirements. The Tribunal also noted that any government-supplied machinery was provided for hire, not free of cost, further supporting the assessee's role as a developer.Conclusion:The Tribunal concluded that the assessee met the criteria for being considered a developer, not merely a contractor. The Tribunal found that the assessee was involved in designing, financial participation, and undertaking risks associated with the project. Consequently, the Tribunal directed the AO to compute the income of the assessee, allowing the deduction under Section 80IA of the Act. The appeals were allowed in favor of the assessee.