2008 (6) TMI 225 - AT - Income Tax

Tribunal Denies Late Provident Fund Deduction, Affirms Infrastructure Tax Relief for Developers Under Amended Rules.

The Tribunal partially allowed the revenue's appeal. It disallowed the deduction under Section 43B for belated provident fund contributions, following the ... Deduction u/s 80-IA - assessee is mere a contractor or developer of infrastructural facility and not engaged in operating and maintaining the infrastructural facility - HELD THAT:- A person, who enters into a contract with another person will be a contractor no doubt; and the assessee having entered into an agreement with the Government agencies for development of the infrastructure projects, is obviously a contractor but that does not derogate the assessee from being a developer as well. The term 'contractor' is not essentially contradictory to the term 'developer'. On the other hand, rather section 80-IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a local authority. So, entering into a lawful agreement and thereby becoming a contractor should, in no way, be a bar to the one being a developer. Therefore, merely because, in the agreement for development of infrastructure facility, assessee is referred to as contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a developer; nor will it debar the assessee from claiming deduction u/s 80-IA(4). The judgment of Patel Engineering Ltd. [2004 (6) TMI 245 - ITAT BOMBAY-F] is also relevant for Interpretation, which contained adequate discussion on the applicability of sub-clause (c) to a case of an enterprise which is engaged in only developing of a infrastructural facility. This interpretation was taken after considering the Apex Court judgment in the case of K.P. Verghese v. ITO [1981 (9) TMI 1 - SUPREME COURT]. Therefore, an assessee who is only engaged in the developing the infrastructural facility, i.e., road and not engaged in the 'operating and maintaining' the said facility is entitled to the benefits of the deduction u/s 80-IA(4). The provisions of sub-clause (c) of clause (i) of section 80-IA(4) are inapplicable to the assessee, who is engaged in mere developing of the infrastructure facility as defined in Explanation to said clause (i). Considering all the facts and circumstances of the assessee's case and in the light of the above discussed decisions and interpretations, we are of the considered opinion that the assessee is entitled to deduction u/s 80-IA(4)(i). Accordingly, ground 2 is dismissed. In the result, appeal of the revenue is partly allowed. Issues Involved:1. Deduction under Section 43B for belated payments towards the Employer's contribution to provident fund.2. Deduction under Section 80-IA for an enterprise engaged in developing infrastructural facilities but not operating and maintaining them.Detailed Analysis:1. Deduction under Section 43B for Belated Payments Towards Employer's Contribution to Provident Fund:The revenue contested the CIT(A)'s decision to allow a deduction of Rs. 14,020 under Section 43B for belated payments towards the Employer's contribution to the provident fund. The payments were made beyond the grace period but before the due date for filing the return of income. The assessee relied on the Apex Court's judgment in CIT v. Vinay Cements Ltd. [2007] 166 Taxman 62, which allowed such deductions. Conversely, the Departmental Representative (DR) cited the jurisdictional High Court's decision in CIT v. Pamwi Tissues Ltd. [2008] 215 CTR 150 (Bom.), which held that contributions paid beyond the due dates are not allowable under Section 43B.Upon reviewing the submissions and relevant judgments, it was noted that the jurisdictional High Court's decision in Pamwi Tissues Ltd. took precedence. The High Court had considered the Supreme Court's dismissal of the special Leave Petition in Vinay Cements Ltd. and concluded that it did not constitute a law declared by the Supreme Court. Consequently, the Tribunal followed the jurisdictional High Court's ruling, allowing the revenue's ground and disallowing the deduction under Section 43B.2. Deduction under Section 80-IA for Developing Infrastructural Facilities:The second issue involved the CIT(A)'s decision to allow a deduction of Rs. 22,88,860 under Section 80-IA. The assessee, engaged in developing roads, claimed this deduction. The Assessing Officer (AO) denied the deduction, arguing that the assessee was merely a contractor and not engaged in operating and maintaining the infrastructural facility, as required by sub-clause (c) of clause (i) of sub-section (4) of Section 80-IA.The CIT(A) allowed the deduction, noting that subsequent amendments by the Finance Act, 1999, and the Finance Act, 2001, effective from 1-4-2002, made the deduction available to enterprises solely developing infrastructural facilities. The CIT(A) relied on the Mumbai Bench's decision in Patel Engineering Ltd. v. Dy. CIT [2005] 94 ITD 141, which held that enterprises involved in Build and Transfer (B&T) projects were entitled to the deduction.The revenue, dissatisfied with the CIT(A)'s decision, argued that the conditions specified in sub-clauses (a), (b), and (c) of clause (i) of Section 80-IA(4) must be fulfilled for the deduction. The revenue also contended that the Patel Engineering decision pertained to a pre-amendment period and was not applicable post-amendment.The Tribunal reviewed the amendments and the relevant legal interpretations, noting that the Finance Act, 1995, initially required enterprises to develop, maintain, and operate infrastructural facilities to qualify for the deduction. However, the Finance Act, 1999, amended Section 80-IA(4) to allow deductions for enterprises engaged in any one of these activities-developing, maintaining, or operating infrastructural facilities.The Tribunal observed that the provisions of sub-clause (c) of clause (i) of Section 80-IA(4) applied only to enterprises operating and maintaining infrastructural facilities, not to those solely developing them. This interpretation was consistent with the legislative intent and avoided absurd results. The Tribunal also referred to the Apex Court's judgment in K.P. Verghese v. ITO [1981] 131 ITR 597, which supported a rational construction of statutory provisions to avoid absurdity.Therefore, the Tribunal concluded that the assessee, engaged solely in developing infrastructural facilities, was entitled to the deduction under Section 80-IA(4). The provisions of sub-clause (c) were inapplicable to the assessee. Consequently, the revenue's ground was dismissed, and the CIT(A)'s decision to allow the deduction was upheld.Conclusion:The appeal of the revenue was partly allowed, disallowing the deduction under Section 43B but upholding the deduction under Section 80-IA for the assessee engaged in developing infrastructural facilities.