2012 (9) TMI 1034 - AT - Income Tax

Assessee qualifies as developer under Income-tax Act, 1961

M/s. Bhooratnam Construction Co. Pvt. Ltd., Versus. Dy. CIT

The Tribunal found that the assessee qualified as a developer rather than a mere works contractor under Section 80IA(4) of the Income-tax Act, 1961. It ... Deduction u/s. 80IA(4) - Held that:- Before us the assessee filed certain copies of tenders suggesting nature of activity carried on by the assessee and argued that the issue is already decided by this Tribunal in favour of the assessee by various decisions cited supra. However, at this stage we are not in a position to express any opinion on the nature of activities carried on by the assessee. The lower authorities had no occasion to examine the nature of activities carried on by the assessee. It is appropriate to remit the issue back to the file of Assessing Officer for fresh consideration. While doing so, the Assessing Officer has to see whether the assessee carried on contract for sale or contract for work and the applicability of Explanation below section 80IA(13) of the Act. Issues Involved:1. Allowability of deduction under Section 80IA(4) of the Income-tax Act, 1961.2. Determination of whether the assessee is a developer or a mere works contractor.3. Application of Explanation below Section 80IA(13) of the Act.Issue-wise Detailed Analysis:1. Allowability of Deduction under Section 80IA(4):The primary issue is whether the assessee is entitled to a deduction under Section 80IA(4) of the Income-tax Act, 1961. The assessee claimed this deduction on the grounds that it was involved in developing infrastructural facility projects on a contract basis with various government bodies. The Assessing Officer disallowed this deduction, arguing that the assessee was only engaged in works contracts related to water pipelining, which did not qualify for the deduction.2. Determination of Whether the Assessee is a Developer or a Mere Works Contractor:The Tribunal examined whether the assessee was a developer or merely a works contractor. It referred to the case of M/s. Koya & Co. Construction (P) Ltd. v. ACIT, where it was held that an enterprise involved in developing, operating, and maintaining infrastructure facilities is eligible for deduction under Section 80IA(4). The Tribunal emphasized that the nature of the work undertaken by the assessee must be analyzed to determine if it qualifies as development work or merely a works contract. The Tribunal found that the assessee was responsible for developing infrastructure facilities, including designing, manufacturing, and laying pipes, constructing pump houses, and other related activities. The Tribunal concluded that such activities qualify the assessee as a developer, not a mere contractor.3. Application of Explanation below Section 80IA(13) of the Act:The Tribunal also considered the applicability of the Explanation below Section 80IA(13), which denies deduction to entities involved in mere works contracts. The Tribunal noted that the contracts undertaken by the assessee involved significant entrepreneurial and investment risks, including financial involvement, technical expertise, and responsibility for defect correction and maintenance. Therefore, these contracts could not be considered mere works contracts. The Tribunal directed the Assessing Officer to segregate the contracts involving development activities from those that are pure works contracts and grant deductions accordingly.Conclusion and Remand:The Tribunal remanded the case back to the Assessing Officer for fresh consideration. The Assessing Officer was instructed to examine the nature of the contracts, determine if they involved development activities, and apply the provisions of Section 80IA(4) and the Explanation below Section 80IA(13) accordingly. The Tribunal emphasized that the assessee must satisfy two conditions for claiming the deduction: investment in eligible projects and execution of the project by itself. The appeals were allowed for statistical purposes, and the Assessing Officer was directed to decide the issue in accordance with the law.Order Pronouncement:The order was pronounced in the open court on 7th September 2012.