2012 (7) TMI 729 - AT - Income Tax

Tribunal directs reassessment for tax deduction eligibility based on contract type under Section 80IA.

The Tribunal allowed the appeal in part, directing the Assessing Officer to re-examine the contracts to determine whether the assessee qualified as a ... Decline of claim of deduction u/s 80IA(4) - the assessee was a Contractor and not developer - Held that:- After amendment by the Finance Act, 2002 for claim of deduction u/s 80IA(4) infrastructure facility is only required to be developed and there is no condition that assessee should also operate the same - after amendment, when assessee undertakes to develop the infrastructure facility only, it is the Government who will make payment to assessee in respect of infrastructure facility developed by it in terms of agreement so entered with Government. Thus no case of infringement of conditions for claim of deduction u/s 80IA(4) when the Government has made payment to the assessee in respect of the project of infrastructure development undertaken by it in terms of respective agreement entered into with Government - it appears that the AO has not minutely examined the terms of the agreement executed with Government Department - restore this appeal back to the file of AO with a direction to examine the terms and conditions of each and every contract - as per the amended law of deduction u/s 80IA(4) w.e.f. assessment year 2002-03. The relevant assessment year under consideration is also assessment year 2002-03 for which amended provisions of law is applicable - in favour of assessee. Issues Involved:1. Decline of claim of deduction under Section 80IA of the Income Tax Act, 1961.2. Determination of whether the assessee is a developer or a contractor.3. Examination of the terms and conditions of contracts to ascertain the nature of work undertaken.Detailed Analysis:Issue 1: Decline of Claim of Deduction under Section 80IAThe primary grievance of the assessee is the denial of the deduction under Section 80IA of the Income Tax Act, 1961, for infrastructure projects. The Assessing Officer (AO) concluded that the assessee was merely executing a works contract funded by the government and not mobilizing its own resources. Consequently, the AO held that the assessee was not entitled to the deduction under Section 80IA(4) as it was executing works contracts awarded by the government.Issue 2: Determination of Whether the Assessee is a Developer or a ContractorThe CIT(A) upheld the AO's decision, noting that the assessee was awarded contracts through tenders for upgrading, repairing, and maintaining old roads, which did not amount to creating new infrastructure facilities. The CIT(A) also emphasized that the payments were made step-by-step by the government, indicating that the assessee relied on government funds and acted as a work contractor. The CIT(A) cited several cases, including Asstt. CIT v. Indore Linings (P) Ltd, to support the view that the benefit of Section 80IA is available only to a developer and not a contractor.Issue 3: Examination of the Terms and Conditions of ContractsThe assessee argued that it undertook the development of new roads and the widening of existing roads, converting single lanes to double lanes, which should qualify as infrastructure development. The assessee relied on Circular 4 of 2010, which states that widening existing roads by constructing additional lanes is considered a new infrastructure facility under Section 80IA(4)(i). The assessee also contended that it was under a legal obligation to maintain these roads for several years, indicating that the contracts were for development work and not merely works contracts.The CIT DR countered that the assessee was not the owner of the infrastructure facilities and merely executed contracts as per government specifications. The CIT DR referenced the decision in B.T. Patil & Sons Belgaum Construction (P.) Ltd., which held that the infrastructure facility should be owned by the company to qualify for the deduction under Section 80IA.Judgment:The Tribunal noted that the relevant provisions of Section 80IA(4) were amended by the Finance Act, 2002, effective from the assessment year 2002-03. The amended law requires the infrastructure facility to be developed, maintained, and operated. The Tribunal observed that the assessee's claim for deduction should be examined in light of the amended provisions.The Tribunal concluded that the main reason for the AO's denial was the classification of the assessee as a contractor rather than a developer. The Tribunal emphasized that the development of infrastructure facilities, as per the amended law, does not require the assessee to operate the facility. Therefore, payments made by the government for development work do not disqualify the assessee from claiming the deduction.The Tribunal directed the AO to re-examine the terms and conditions of each contract to determine whether the assessee acted as a contractor or a developer of the entire infrastructure facility. The appeal was allowed in part for statistical purposes, and the case was remanded to the AO for a detailed examination of the contracts.Conclusion:The Tribunal's judgment highlights the importance of examining the specific terms and conditions of contracts to determine the nature of the work undertaken by the assessee. The decision underscores that, under the amended provisions of Section 80IA(4), the development of infrastructure facilities qualifies for the deduction even if the assessee does not operate the facility, provided the entire project is developed by the assessee. The case was remanded to the AO for a thorough review of the contracts to ascertain the correct classification of the assessee's work.