2013 (9) TMI 228 - AT - Income Tax

Tribunal confirms assessee's eligibility for tax deduction as developer under Section 80IA

Asst. Commissioner of Income tax Versus M/s. Koya Constructions Pvt. Ltd.,

The Tribunal upheld the CIT(A)'s decision to grant relief to the assessee under Section 80IA of the Income Tax Act, based on previous orders supporting ... Deduction u/s 80IA - Nature of the business - developer versus Work contract - ownership - Held that:- The word 'it' cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word 'it' is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an un-developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. Following the decision in The Deputy CIT, Hyderabad Versus M/s. Koya & Company Constructions Pvt. Ltd. [2012 (5) TMI 158 - ITAT HYDERABAD ] and M/s. Sushee Hitech Constructions P. Ltd. (Now known as Sushee Infra P. Ltd.) Versus Income-tax Officer, Ward 3(2), Hyderabad [2013 (6) TMI 599 - ITAT HYDERABAD] - Decided against Revenue. Issues Involved:1. Granting of relief to the assessee by the CIT(A).2. Direction by the CIT(A) to the Assessing Officer for fresh verification.3. Consideration of entrepreneurial risk and investment by the assessee.4. Eligibility of works contracts for deduction under Section 80IA.Detailed Analysis:1. Granting of Relief to the Assessee by the CIT(A):The primary issue revolves around the CIT(A)'s decision to grant relief to the assessee by allowing the deduction under Section 80IA of the Income Tax Act. The CIT(A) based his decision on the precedent set by the Tribunal's order dated 22.3.2012 for the assessment years 2003-04 to 2006-07, and the CIT(A), Vijayawada's order for the assessment year 2007-08. The Tribunal observed that the issue was covered in favor of the assessee by these previous orders and consistently upheld the allowance of deduction under Section 80IA. The Tribunal found no merit in the Revenue's grievance against the CIT(A)'s action in allowing the relief claimed by the assessee.2. Direction by the CIT(A) to the Assessing Officer for Fresh Verification:The Revenue contended that the CIT(A) erred in law by directing the Assessing Officer to make a fresh verification and take a decision, which they argued amounted to a set-aside beyond the CIT(A)'s powers. However, the Tribunal clarified that the CIT(A) had directed the Assessing Officer to follow the Tribunal's earlier decision and allow the deduction under Section 80IA, without overstepping his jurisdiction. The Tribunal found no merit in the Revenue's argument on this point.3. Consideration of Entrepreneurial Risk and Investment by the Assessee:The Tribunal examined whether the assessee undertook entrepreneurial risk and investment, which is a critical factor for eligibility under Section 80IA. The Tribunal noted that the assessee was responsible for developing infrastructure facilities, which involved significant financial and operational risks, including the deployment of technical personnel, machinery, and expertise. The Tribunal concluded that the assessee was a developer and not merely a works contractor, thus eligible for the deduction under Section 80IA.4. Eligibility of Works Contracts for Deduction under Section 80IA:The Tribunal discussed the distinction between a developer and a works contractor, emphasizing that a developer who undertakes the entire project, including financial and operational risks, is eligible for deduction under Section 80IA. The Tribunal cited several cases, including the decision in M/s. Sushee Hitech Constructions P. Ltd., where similar issues were adjudicated in favor of the assessee. The Tribunal reaffirmed that the assessee's activities went beyond mere works contracts and involved substantial development work, making them eligible for the deduction.Conclusion:The Tribunal upheld the CIT(A)'s orders, allowing the deduction under Section 80IA for the assessee and rejecting the Revenue's grounds. The Tribunal confirmed that the CIT(A) acted within his powers and that the assessee's activities qualified for the deduction under the relevant provisions of the Income Tax Act. Consequently, both appeals of the Revenue were dismissed.