2017 (6) TMI 776 - AT - Income Tax

Assessee qualifies for deduction under section 80IA as developer, not contractor. Tribunal upholds CIT-A decision.

Assistant Commissioner of Income-tax Versus M/s. Simplex Somdatt Builders

The Tribunal upheld the CIT-A's decision, determining that the assessee was a developer and not a works contractor, making them eligible for the deduction ... Eligibility to deduction u/s. 80IA - assessee is a AOP [Joint Venture] - whether assessee was not a works contractor as treated by the AO or a a developer as per CIT-A - Held that:- We find that the assessee stood successful in getting the bid for engineering, procurement and construction of elevated corridor project at Hyderabad awarded for such construction of elevated corridor project in Hyderabad by the HUDA. Thereby the assessee is a developer for the reason that the assessee involved in preparation of design, superintending the labour and technical assistance and responsible for safety and security of the project site. The assessee is also responsible in all respect for the care and risk of the works, materials, goods, equipments (heavy & light ) and labour etc. and also for procurement of licenses, promotion and execution of project work. The assessee is also responsible for the payment of supply of labour, water and electric charges for the project. The assess was responsible and was to pay the cost of strengthening any bridge or altering or improving any road communication necessary for smooth execution of works. The assessee is responsible for making all arrangements for and paying all charges in connection with supply of electricity and water. The assessee was to carry out tests in accordance with law. On perusal of the terms and conditions in the agreement, it is clear that the assessee was not a works contractor and was a developer and hence Explanation to section 80IA(13) does not apply. CIT-A was justified in directing the AO to allow the deduction u/s. 80IA of the Act as claimed by it. - Decided against revenue. Issues Involved:1. Whether the CIT-A was justified in allowing the claim of deduction of Rs. 41,17,810/- u/s. 80IA of the Act.Issue-wise Detailed Analysis:1. Allowance of Deduction u/s. 80IA:- The primary issue in this appeal is whether the CIT-A was justified in allowing the claim of deduction of Rs. 41,17,810/- u/s. 80IA of the Act.- The assessee, a Joint Venture (JV), filed its return of income for the assessment year 2011-12, declaring a total income of Rs. 8,09,230/- and claimed a deduction u/s. 80IA for the development of an infrastructure facility.- The AO disallowed this claim, treating the assessee as a 'works contractor' based on the receipt of Rs. 18,67,48,923/- as works contract receipt and net profit of Rs. 41,17,808/-, and added the same to the total income of the assessee.2. Assessee as a Developer vs. Works Contractor:- The CIT-A, after considering the submissions, held that the assessee was not a works contractor but a developer, and thus, the Explanation to section 80IA(13) does not apply.- The CIT-A relied on the earlier order dt. 18-06-2013 of the Kolkata Tribunal in the assessee’s own case for the assessment year 2007-08 and previous orders for AYs 2008-09, 2009-10, and 2010-11, allowing the deduction u/s. 80IA.- The Tribunal noted that the assessee was responsible for various development activities, including preparation of design, superintending labor, technical assistance, safety, and security of the project site, procurement of licenses, and execution of project work.3. Legal Precedents and Interpretation:- The Tribunal referred to the Bombay High Court case of CIT Vs. ABG Heavy Industries Limited, which clarified that to avail of a deduction, the assessee could either (i) develop, (ii) operate and maintain, or (iii) develop, operate, and maintain the facility.- The Tribunal also referred to the ITAT Hyderabad case of M/s. GVPR Engineers Ltd Vs. ACIT, which emphasized that the nature of the work undertaken by the assessee determines whether it is a developer or a works contractor.- The Tribunal found that the assessee's activities, including the procurement of materials and execution of development work, qualified it as a developer rather than a works contractor.4. Conclusion:- The Tribunal upheld the CIT-A’s decision, concluding that the assessee was a developer and not a works contractor, and thus eligible for the deduction u/s. 80IA.- The appeal filed by the revenue was dismissed, affirming the CIT-A’s direction to allow the deduction u/s. 80IA as claimed by the assessee.Order Pronouncement:- The order was pronounced in the open Court on 21-04-2017, dismissing the appeal filed by the revenue.