TaxTMI 
TaxTMI 
2012 (8) TMI 633
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....of the assessee: 3. The counsel for the assessee submitted that in so far as the irrigation canals are concerned, they are the infrastructure facilities within the meaning of the explanation. According to the explanation the water supply project, water treatment system, irrigation project, sanitation and storage system, solid waste management system etc., form part of the infrastructure facility. The assessee also undertook the development of rail systems. Both the activities are development of infrastructure facility. The assessee claimed deduction u/s 80IA(4)(i) of the I.T. Act in respect of the infrastructure facilities developed by it. All the activities are entrusted to the assessee by government direct. He drew our attention to the Copies of the agreements entered into by the assessee which are placed on record. They show that the government entrusted the development to the assessee. 4. The counsel for the assessee submitted that the projects undertaken during the years under consideration executed between the assessee and the Superintending Engineer, HNSS Circle, Anantapur on 25-02-2005 and copies of certain portions of the agreements entered into with other government....
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....ntractor. e. The area required for conducting operation and development also is acquired by the assessee with the assistance of the government. f. The work of development of the project is undertaken by the assessee. g. All the required men, material and machinery is acquired by the assessee and the development of the project is undertaken with the help of the technical experts arranged by the assessee. h. The scope of work is already explained in the above paragraphs. i. The assessee shall be responsible for all the risks in the process of the development of the project. 6. On completion of the work, the developed infrastructure facility it is handed over to the government. Thereafter, the assessee has to maintain the facility for either 24 months or for a minimum of two kharif seasons. The above would clearly indicate that the assessee is converting the land into a useful infrastructure facility i.e. the irrigation canal. Therefore, it is developing the infrastructure after taking over the possession of the premises. 7. The assessee counsel submitted that in so far as the rail projects are concerned, the works involved are (a) taking over of the site from the....
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....se of the assessee. 12. He drew our attention to the Legislative history of the said provision as follows: i) Up to the assessment year 1995-96, Sec.80IA(4) was applicable to the business of any hotel for which the provisions of the said section were made applicable. The Finance Act, 1995 introduced another sub section 80IA(4A). According to the said sub section any enterprise carrying on the business of development, maintaining and operating any infrastructure facility was made eligible for deduction. In the said section, the words used are "business" of developing, maintaining and operating any infrastructure facility. Sub Section (4) continues to exempt the income derived from the business of a hotel. The deduction for an infrastructure development was for the first time made available by the Finance Act, 1995 w.e.f. the assessment year 1996-97. ii) The Finance Act, 1996 did not amend sub section (4) and continue the exemption available to infrastructure facility which develops, maintains and operates u/s 80IA(4) of the I.T. Act. Both the sub sections (4) and (4A) existed for the assessment year 1996-97. iii) The Finance Act, 1997 also did not modify the sub section ....
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....statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a mew infrastructure facility;) (c) It has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995. Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereinafter referred to in this section as the transferor enterprise) to another enterprise (hereinafter in this section referred to as the transferee enterprise) for the purpose of operating an maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. (Explanation - For the purpose o....
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....cture facility. "In order to encourage entrepreneurs within the country, the Central Government offered them certain incentives some of which are as follows: i) Total Custom Duty exemption on road building equipment not being produced in the country. 21 such items have been identified. ii) Income-Tax exemption for 10 years from NHDP earnings has been given. iii) In the Build-Operate-Transfer (BOT) Schemes, grant up to 40% can be given. iv) The NHAI Bonds have been exempted from Capital Gains". v) It is also explained by him that certain sections of the society have created an impression that the work of NHDP was being awarded to only foreigners and multi national firms. To dispel such impression, he mentioned the following: "Similarly, there are also some misgivings regarding the size of contracts. The details, as regards the number of ongoing contracts on March, 1, 2002, are as follows: Above Rs.500 crores 4 Above Rs.400-500 crores 5 Above Rs.300-400 crores 8 Above Rs.200-300 crores 25 Above Rs.100-200 crores 43 Above Rs.50-100 crores 38 Below Rs.50 crores 23 TOTAL 146 Thus, it can be seen that the contract pa....
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....ting and maintaining or development, operating and maintaining instead allowing deduction only to the enterprises engaged in activity covering all the three activities together. The provision extended to an enterprise carrying on any one of the three activities. It makes the matters more clear that the sub section (4) is amended again by the Finance Act, 2001 w.e.f.01-04-2002. The earlier provision which was reading as - "(i) any enterprise carrying on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely- was amended by the Finance Act, 2001 and the said provision reads as: "(i) any enterprise carrying on the business (of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining) any infrastructure facility which fulfils all he following conditions, namely". viii) The legislature specifically added the conjunction 'OR' between the words (developing), (operating and maintaining) (developing, operating and maintaining). It makes it clear that the provision would apply to any enterprise carrying on the....
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....me- Tax Act. Therefore, the appellant humbly submits that an enterprise which develops the infrastructure facility is eligible for deduction u/s 80IA(4) of the I.T. Act. ii) There is no dispute with regard to the meaning of the infrastructure facility used u/s 80IA of the I.T. Act. An explanation is introduced below sub section (4) of Sec.80IA which reads as under; Explanation - For the purpose of this clause, "infrastructure facility" means - (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway or inland port; iii) Development of a road is development of infrastructure facility. Similarly, the water supply project or irrigation project are also called as infrastructure facility. Therefore, there cannot be any dispute with regard to the fact that the assessee herein is engaged in the activity of developing infrastructure facility. 6) Meaning of the word "Develop" i) The nex....
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.... 6 7 8 9 1. AMRP-Nalgonda-Earth work Excavation and formation of embankment from km 135.125 to km 136.150 leading channel to Musi Reservoir including excavation of Transitition & Diversion channel in km 134.000 to km 135.000 of AMRP. Govt. of AP, Irrigation & CAD Dept. Musi Reservoir Development 10.09.2004 Cl. At page 49. 18.03.2005 24 months Cl. at Page No. 28.03.2007 Cl. at page No. Nil All losses during the course of development including men and material are to the account of the assessee 2. SRSP-FFC-Earth work Excavation & forming embankment of Kakatiya Main Canal km. 336.00 to 337.00 I&CADD Govt. of AP Kakatiya Main Canal formation 01.4.2004 20.1.2005 24 months Cl. 9.1 at page No. 512 20.1.2007 Cl. at page No. 515 Nil -do- 3. SRSP-FFC-Earth work Excavation of flood flow canal from km 6.000 to km 7.000 of flood flow canal project from SRSP. -do- Flood flow canal Project from SRSP 5.8.2004 Cl. at page No. 480 4.8.2005 24 months Cl. 3.2 at page No. 476 4.8.2007 Cl. 21.1 at page No. 479 Nil -do- 4. SRSP-FFC-Earth work Excavation of flood flow canal from km 7.000 to km 8.000....
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....km 14.000 to km 15.000 of flood flow canal project from SRSP. -do- Flood flow canal Project from SRSP 9.3.2004 20.11.2004 24 months 20.11.2006 Nil -do- 13. Construction of New Pushkar Ghat near Lingalagattu on the Right Bank of Krishna River (LOA is there with 96 lacs) -do- Construction of Ghat 4.6.2004 31.10.2004 24 months 31.10.2006 Nil -do- 14. Construction of New Pushkar Ghat near Lower end Ropeway at Patalaganga and Renovation of existing Pushkar Ghat at Sri Sailam (Sivagiri) -do- Construction of Ghat 4.6.2004 31.10.2004 24 months 31.10.2006 Nil -do- 15. Construction of Ghat Road at EI+ 402 to 270M at leading to Patalaganga Pushkar Ghat at Sri Sailam (Sivagiri) on upstream of NSRS Project, in Kurnool (Di -do- Construction of Ghat Road 7.7.2004 31.10.2004 24 months Cl. No. 13.1 at page No. 517 31.10.2006 Cl. 21.1 at page No. 519 Nil -do- 16. Earthwork in formation for raising / widening of existing formation in layers including earthwork in cutting to make profile as per BG standard including strengthening/extension/rebuilding of minor bridges including constr....
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....side drain and other protection works from km 97.000 to km 97.800 (new chainages) between stations Migrendisa to New Haflong in connection with the Gauge conversion work between Lumding-Silchar (W No. 26 CA No. 700) -do- Gauge conversion work for NF Railway 19.2.2003 Cl. at page No. 216 2.7.2006 6 months Cl. at page No. 220 2.1.2007 Nil -do- 21. Construction of RBG Building of NF Railway (Between stations Migrendisa to New Haflong in connection with the Gauge conversion work between Lumding - Silchar (WO No. 13 dt. 3.2.2004) -do- Gauge conversion for NF Railway 3.2.2004 Cl.at page No. 221 10.7.2005 6 months Cl. at page No. 224 30.7.2007 Nil -do- 22. EPC Turnkey system: Investigation, preparation of hydraulic particulars, designs and drawings and Excavation of HNSS Main Canal from km 20.000 to km 42.000, including CM & CD works and distributory system to feed an ayacut of 2300 acres kharif I.C. (PK 24) & Investigation, preparation of hydraulic particulars, designs and drawings and Excavation of HNSS Main Canal from km 77.000 to km 100.000 including CM & CD works ayacut of 5100 acres kharif I.D. (package-27). Govt. of Irr....
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....P Flood flow canal project from Sri Ram Sagar Project 15.10.2003 20.8.2004 24 months 20.8.2006 Nil All losses during the course of development includ8ing men and materials are to the account of the assessee. 2. Earth work excavation of flood flow canal from km 5.000 to km 6.000 of flood flow canal project from Sri Ram Sagar Project (Back to back sub contract from GVR & Co., Hyderabad). -do- -do- 15.10.2003 13.10.2004 24 months 13.10.2006 Nil -do i) For this purpose, the possession of the site is handed over to the assessee by the Government. The assessee takes possession and access to the property and thereafter it shall be the responsibility of the assessee to develop the said area into more useful infrastructure facility. In the process, every act required (whether mentioned in the agreement or not) in converting the area into more useful one shall be that of the assessee. The assessee has to undertake the responsibility of maintenance of the existing traffic and there should not be inconvenience to the regular traffic. The developed area after completion of the development of infrastructure is handed over to the Government. A....
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....which enters into a mere works contract either with any other enterprise or Government or Government corporation shall not be eligible for the deduction. v) It is made clear that any enterprise, which entered into development of infrastructure, would be eligible for deduction and not those enterprises, which enter into contract for executing works contracts. The assessee herein entered into agreement for development of infrastructure facility and not for a mere works contract. It is submitted that this explanation has to be read in the context of the application of the main provisions of Sec.80IA (4) of the Act. vi) The purpose of introduction; and the amendments brought in are already discussed in the earlier paragraphs. From a reading of Sec.80IA (4)(i) it is clear that the deduction is available for any company which enters into agreement with any government or government body. It is clear that the deduction is available not for any person but for those companies entering into agreement with the government or other Government bodies/corporations. It is also made clear that the deduction is available for the corporate bodies entering into agreement with the government organ....
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....e and the knowledge supplied by the contractee. Further, in a works contract, the risk is undertaken by the contractee and in case of development contract, the contractor undertakes the risks involved. In the case of the assessee, it was allotted a premises and the possession of the premises was handed over to the assessee. It was asked by the government to develop the said area into an infrastructure facility. All the activities necessary in the process of development and the losses suffered in the process, the material to be used including the expertise shall be of the assessee. The maintenance of the existing facility during the period of development also shall be of the assessee. Therefore, the assessee is a developer and not a works contractor. The assessee also submitted in detail the meaning of the word "development". The meanings given in the above mentioned paragraphs to the word "develop" would be - making some area of land more profitable or useful". The assessee is making the area more useful than it was earlier and, therefore, the activity carried by the assessee is akin to development and certainly not a works contract. iii) In this context, it may be necessary to ....
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.... would mean that the infrastructure should be owned by the company. The appellant submitted that the ownership mentioned in Sec. 80IA(4) refers to the enterprise carrying on the business of development and not to the infrastructure facility as presumed by the Assessing officer. a) According to AR the assessee herein is not carrying on the activity as mentioned in u/s 80IA (4)(i) r.w.s.80IA(4) (i) (c) of the said section. The Assessing Officer referred to the sub clause (c) which mentions that "it has started or starts operating or maintaining the infrastructure facility on or after first day of April, 1995" would mean that such deduction is allowable only for an enterprise which develops and operates and maintains infrastructure facility. b) The Assessing Officer is also of the view that the assessee is a mere contractor and not a developer. In view of the amendment brought in retrospectively by the Finance Act, 2007 the Assessing Officer came to the conclusion that the income from mere works contract would not be eligible for deduction u/s 80IA (4) of the I.T. Act. In the later assessment years, the Assessing officer also referred to the amendment brought in by the Financ....
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....nd a conclusion has to be drawn about the nature of the work undertaken by the appellant. The agreement entered into with the Government. or the Government body may be a mere works contract or for development of infrastructure. 16. It was submitted that it can be seen from the agreements entered into that the appellant was handed over the possession of the premises various projects till the development of infrastructure facility was complete and was handed over to the Government, it shall be the assessee's responsibility to do every act. The assessee has to develop the infrastructure facility in the premise handover to the assessee. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system, excavation of transition and diversion channel or may be construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work; it is for development of facility as a whole. The assessee is not entrust....
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....or" is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor. Therefore, the view taken by the authorities in this regard is not correct. The assessee's view is supported by the following decisions: 1) The decision of the ITAT, Pune Bench "A" vide order dated 8.6.2011 in the case of Lakshmi Civil Engineering Pvt. Ltd., Vs Addl CIT, Range-II, Kolhapur. wherein it is held that even if a person is a contractor, if all the conditions mentioned in Sec.80-IA(4) are fulfilled, the assessee becomes eligible for deduction. 2) The decision of the Hon'ble ITAT, Mumbai "F"-Bench in the case of Patel Engineering Ltd. Vs Deputy Commissioner of Income-Tax reported in 94 ITD 411 wherein it is held that the term "contractor" is not essentially contradictory to the term "developer". The Hon'ble Tribunal found that a person who has undertaken the contract for development is not only ....
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....ench in the case of Cavinkare (P) Ltd., vs. ACIT reported in 16 DTR 322 held that separate books of account for each unit need not be maintained. However, it was submitted that the assessee has maintained separate books of account and can arrive at the profit for each of the unit. iii) The lower authorities for one of the assessment years are of the view that the deduction is allowable only when the assessee enters into agreement with Government and not with any other body corporate. The assessee in this regard humbly submits that the provisions of sec. 80IA(4) makes it clear that an agreement can be entered into by the assessee with either the Government or the Government organization or a statutory body. The Statutory body includes any corporation or corporate body incorporated by the Government. 21. On the other hand, the learned departmental representative submitted written submissions based on the arguments put forth before us. He relied on the orders of the lower authorities and submitted that to be eligible for deduction under section 80IA(4) of the Act, all the three conditions mentioned in the sub-section should be cumulatively fulfilled. According to him, the assess....
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....e commencing its activity of operating, maintaining the infrastructure facility on or after the first day of April, 1995 would only be eligible for deduction. Therefore, it applies to those enterprises which were earlier eligible for deduction under sub section (4A) and which will be continued to be eligible for deduction under sub-section (4). Such provision has no application to the case of the assessee, which became eligible for deduction under sub-section (4) of Sec. 80IA of the Act. Therefore, sub-clause (c) came into play only in respect of those concerns which claimed deduction for maintaining and developing the infrastructure facility and not for the assessee who only develops. The meaning of the word "developer" and the eligibility of the business to claim deduction meant for 'development of infrastructural facilities' within the meaning of section 80IA has to be seen in the context of the genesis and legislative history of the section as held by the Supreme Court in the case of CIT vs. N.C. Buddhiraja (204 ITR 412, 433) the provision as introduced by the Finance Act, 1991 as amended by Finance Act, 1996, Finance Act, 1999, Finance Act, 2001, up to Finance Act 2007 and Fin....
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....ith the employer. The only lawful entitlement of the assessee was to be paid for the measurement of work completed at rates agreed upon. The partial and sectional nature of the proposed work is immediately clear from this notice and it is also apparent from this that the section of the road proposed for improvement has no independent existence capable of satisfying the requirement of section 80 IA (2). Therefore, this project is incapable of commencement of operations by itself, or to quality the larger infrastructure facility of which it is a part. The assessee also gets mobilisation advance as well as interest-free advance for machinery purchase and there is no element of entrepreneurial initiative or financial participation of the contractor in this kind of a project. The successful bidder merely executes a Government contract and gets paid for it at mutually agreed rates and the nature of responsibilities assumed under the other contracts as per agreements. It is further stated that during the hearing, the authorised representative of the assessee was at pains to emphasise that the assessee undertook maintenance work and was hence in the same league as a developer. However, it ....
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.... Pune Bench in the case of Laxmi Civil Engineering Pvt. Ltd., vs. Addl. CIT Kolhapur (unreported/ITA No.766/Pn/09 dated 8-6-2011), it is submitted that these decisions supported the proposition that (i) the ITAT's decision in the case of B.T. Patil & Sons, Larger Bench (Mumbai) reported in 126 TTJ 577 is no longer good law, and (ii) the distinction between developer and contractor is no longer relevant in the context of changed law explained by the Mumbai High Court in the case of ABG Heavy Industries (supra) and followed within its jurisdiction by the Pune Bench of the ITAT in the case of Laxmi Civil Engg. (supra). It is submitted that such reliance is neither correct nor relevant in deciding the issues on hand. This position is elaborated in the following paras. In the case of Laxmi Civil Engg. Pvt. Ltd., the argument of the assessee that was accepted by the ITAT, Pune Bench is broadly- the assessee is a contractor, every contractor is a developer as per the Mumbai High Court decision in the case of ABG Heavy Industries and a developer need not operate and maintain the infrastructure facility, as held by the Mumbai High Court in the case of ABG Heavy Industries. It is submi....
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....far as the facts of the case are compatible. For the same reason, there can be no adverse implication for the precedent value of the B.T. Patil case. As submitted hereinabove, on immediate and necessary consequence of the retrospective amendment introduced by the Finance Act, 2009 inserting Explanation below section 80 IA(13), is that any business transacted in terms of a works contract stands disqualified from seeking deduction under section 80I(A(4). The decision of the Mumbai High Court in the case of ABG would have no application from this point of view also. Since the agreement in ABG was a BOLT agreement and not a works contract their Lordships had no occasion to consider the Explanation introduced in Finance Act, 2009 with effect from 1-4-2001. Even if it is assumed, hypothetically, that the agreement in ABG was in the nature of a works contract, or that every contractor was a developer, the decision of the Mumbai High Court without considering the Explanation cannot operate to overrule the ITAT's decision in the case of B.T. Patil where the Bench of the Tribunal considered the effect of the explanation and it was explained by the Hyderabad Bench of the Tribunal in the case ....
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....BOLT contracts by CBDT Circulars, which were any way binding on the IT authorities. In the case of the present case, it is not even claimed by the assessee that the work was carried out under a BOT/BOLT contract, or that it was not a works contract. It is further submitted that the distinction between business of development operation/maintenance and development/operation/maintenance was removed with the change in law effective from 1-4-2002, and that this was explained by the decision of the Mumbai High Court in the case of ABG Heavy Industries is fallacious for the following reasons: "The Mumbai High Court decision was rendered in the context of a BOLT contract, which was in any case clarified by the Board Circular to qualify for the deduction under section 80IA. It was noticed by their Lordships that the subsequent changes in the law effective from 1-4- 2002 merely mirrored this liberalised outlook. That is not the same thing as saying that a business in the nature of a works contract qualified for the deduction in spite of not operating/maintaining the facility. The decision of the larger Bench in the case of B.T. Patil was not un-ware of the change in law effective from 1-4....
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....dertaking or enterprise develops, begins to operate any infrastructure facility or starts providing telecommunication system. Therefore, he is of the view that unless operation of the infrastructure facility is also undertaken; the assessee would not be eligible for deduction. It is submitted that this section provides for an option to the assessee to choose to claim deduction for any 10 years out of 15 years commencing from the date of commencement of the maintenance and operation. For that limited purpose of facilitating an assessee who becomes eligible for deduction under section 80IA(4) in choosing the period of 10 years, the said provision was introduced. This cannot be considered as applicable to every enterprise eligible for deduction under section 80IA. This would apply to an enterprise which requires choosing the period of 10 years during which deduction is to be claimed. Only when the assessee has to exercise the choice, this section comes to operation. Other-wise this section would not operate. 29. The learned Departmental Representative referred to the Finance Bill, 1995 and the Circular No.717 dated 14.8.1995 reported in 215 ITR 70 (statutes). The said circular expl....
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....ready submitted in the above mentioned paragraphs that any enterprise carrying on either the business of developing or business of maintaining and operating or the business of developing, maintaining and operating would be eligible for deduction. Out of such enterprises if any enterprise has undertaken the work of maintenance and operation, sub clause (c) of Sec.80IA would apply. The words used in sub clause (c) "started" or "starts" operating and maintaining infrastructure facility on or after first of April, 1995 would apply only to the second type of enterprise who undertakes the work of "maintaining and operation". It would not apply to a person who is engaged in developing infrastructure facility as the word "developed" is not used in the said sub clause. Further, this is analysed by various courts. It is held clearly that such a provision i.e. Clause (c) would apply only to such enterprises engaged in maintaining and operating the infrastructure. The Bombay High Court in the case of CIT Vs ABG Heavy Industries Ltd. observed that the requirement that the operation and maintenance of the infrastructure facility come after first of April, 1995 has to be harmoniously considered w....
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....infrastructure facility and not for the assessee who only develops. v) The DR relied upon sub section (2) of Sec.80IA of the I.T. Act. Sub section (2) is already extracted above. The learned DR's view is that the deduction under sub section (1) would be available for a period of 10 consecutive assessment years out of 15 years beginning from the year in which an undertaking or enterprise develops, begins to operate any infrastructure facility or starts providing telecommunication system. Therefore, the learned DR is of the view that unless operation of the infrastructure facility is also undertaken; the assessee would not be eligible for deduction. It is also argued by the learned DR that the computation of deduction under sub section (1) cannot be made and the computation provision would fail to operate. vi) The DR submitted that this section provides for an option to the assessee to choose to claim deduction for any 10 years out of 15 years commencing from the date of commencement of the maintenance and operation. For that limited purpose of facilitating an assessee who becomes eligible for deduction u/s 80IA(4) in choosing the period of 10 years, the said provision was intr....
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....or the provisions of the law as were existing up to the assessment year 1999-2000 can be applied for the purpose of determining the allowability of deduction u/s 80IA(4) claimed by the assessee herein. xi) The DR referred to the Circular reported in 240 ITR 32 (statutes). In the said circular it is clarified by the CBDT that the benefit in the amended provisions of Sec.80IA(4) would extend to those undertakings which develop, operate and build, operate and transfer. It is only a clarificatory circular. As submitted earlier, Sec.80IA(4) and Sec.80IA (4A) were in statute. Sub section (4A) dealing with the deduction in respect of business of development, operation, maintenance was deleted. Sub section (4) which was applicable to Hotels was substituted by another provision which allow deduction to an enterprise which develops or operates and maintains or develops, operates and maintains. At that stage an explanation was needed to be provided to mention that earlier sub section (4A) is re-introduced as a part in sub section (4) in a different shape. Therefore, a clarification was necessary and the said clarification was issued. xii) The DR also relied upon explanation brought in b....
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....provisions as they exist in the Act. A plain reading of the provisions of sec. 80IA (4) does not indicate that the assessee to be eligible for deduction should have introduced its own funds. Therefore, the learned DR is not correct in this regard. In the following cases, various courts have held that the provisions allowing relief should be read liberally and nothing can be added to the words used in the Act so as to disentitle an assessee for the relief. (1) Decision of the Supreme Court in the case of CIT Vs Clive Insurance Co. Ltd. reported in 113 ITR 636 (2) Decision of the Delhi High court in the case of CIT Vs Vasavi Pratap Chand reported in 255 ITR 517 (3) Decision of the Madras High Court in the case of CIT Vs Eastern Chemicals and Minerals Pvt. Ltd. reported in 192 ITR 423 (4) Decision of the Supreme Court in the case of Central Board of Direct Taxes and others Vs Aditya V. Birla reported in 170 ITR 137 (5) `Decision of the Supreme Court in the case of CIT Vs Vegetable Products Ltd. reported in 88 ITR 192 (6) Decision of the Supreme Court in the case of CIT Vs Strawboard Manufacturing Co. Ltd. reported in 177 ITR 431 (7) Decision of the Supreme Court i....
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....as per the notification. The question in the said case is taxability of the item manufactured. Therefore, the said question is to be construed strictly. In the case of the assessee, the question to be considered is whether a particular deduction is allowable from the gross total income determined. A reading of the decision of the apex court will make it clear that the said decision has no application to the facts of the assessee's case. xvi) The DR argued that the assessee did neither invest nor undertook risk: The Income-tax Act in Section 80-IA simply stated that a company which entered into an agreement with either Government or a Government organization and develops infrastructure facility is eligible for deduction. The exception provided in the explanation is when a simple works contract is entered into by any person with an enterprise carrying on the activity of development of infrastructure facility or with the Government or Government organization, when the development of infrastructure is carried on by such Government or body. There is no such mention in the Act that the assessee, to be eligible for deduction, should have invested his own funds in the development act....
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.... The DR is also of the view that the maintenance undertaken by the assessee as per the contract is only as a sort of warrantee and not the maintenance as mentioned in Sec.80-IA(4) of the I.T. Act. In this regard it is submitted that the assessee is claiming deduction as a person developing the infrastructure facility and not as a person maintaining such infrastructure facility. Further, the said clause was mentioned only to show that the assessee has undertaken a job of developing the entire infrastructure facility at the premises allotted to it and handed it over with a condition that it should be maintained by the assessee for a certain specified period. This only indicates that a composite agreement is entered into for development of the infrastructure facility with a clause to maintain the said infrastructure facility for a certain period. xxi) The DR mentioned that the assessee was not paid for any maintenance. It is true that there is no payment for maintenance but still the assessee has to undertake maintenance of the infrastructure facility for a period as mentioned in the agreement. This would clearly indicate that the assessee is a developer and not a mere engaged in w....
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....correct. Further it is submitted that all the works were not entrusted by the NHAI alone. It can be seen from the list annexed that some of the works were entrusted by the Government of Karnataka, Government of Assam, Railways, Government of Rajasthan, Ministry of Road Transport, Government of India directly and Government of Gujarat directly to the assessee. In view of the above, it is not correct for the learned DR to mention that NHAI is the developer and not the assessee. If the argument of the learned DR were to be correct the Legislature should have clearly mentioned that the authority which is responsible for development would be eligible for deduction u/s 80-IA (4) of the I.T. Act. Such a mention is not there in the Act and on the other hand, it is mentioned that any company is eligible for deduction. Therefore, this view of the learned DR is not correct. xxv) The learned DR referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. N.C. Budharaja & Co., reported in 204 ITR 412. The learned CIT DR discussed the object of amendment made to Sec.80IA by the Finance Act, 1995. The assessee humbly submits that the decision of the supreme Court referred to....
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.... and undertakes the development work on its own with all the risks involved. Therefore, the circular supports the claim of the assessee that it is a developer. xxix) The DR referred various circulars and mentions that the enterprises which carry on the activity under the concept of BOT and BOLT alone will be eligible for deduction. In this regard, the assessee humbly submits that the provisions of Sc.80IA(4) makes the matters clear that a person who develops or operates and maintains or develops, operates and maintains would be eligible for deduction. The provision itself is very clear. It is applicable to any enterprise carrying on any one activity. The Bombay High Court in the case of ABC Industries clarified that all the three activities need not be done and the assessee would be eligible for deduction if it carried on even a single activity out of the above three activities. Therefore, the presumption that the assessees which carry on BOT/BOLT alone are eligible for deduction is not correct. There is no mention in the enabling sections that an assessee to be eligible for deduction should have been engaged in BOT/BOOT/BOLT schemes. xxx) The DR mentions that the meaning of ....
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....find that the provisions of Section 80IA (4) of the Act when introduced afresh by the Finance Act, 1999, the provisions under section 80IA (4A) of the Act were deleted from the Act. The deduction available for any enterprise earlier under section 80IA (4A) are also made available under Section 80IA (4) itself. Further, the very fact that the legislature mentioned the words (i) "developing" or (ii) "operating and maintaining" or (iii) "developing, operating and maintaining" clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-Tax Act. We find that where an assessee incurred expenditure for purchase of materials himself and executes the development work i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80 IA of the Act. In contrast to this, a assessee, who enters into a contract with another person including Government or an undertaking or enterprise referred to in Section 80 IA of the Act, for executing works contract, will not be eligible for the tax benefit under section 80 IA of the Act. We find that the word "owned" in....
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....ase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works i....
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....e Government is a contractor. 35. We find that the decision relied on by the learned counsel for the assessee in the case of CIT vs. Laxmi Civil Engineering works [supra] squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of a infrastructure facility is an eligible activity for claiming deduction under section 80IA of the Act after considering the Judgement of the Mumbai High Court in the case of ABG Heavy Engineering [supra]. The case of ABG is not the pure developer whereas, in the present case, the assessee is the pure developer. We also find that Section 80IA of the Act, intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to such entities. The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 80IA of the Act, which ultimately culminated into Amendment under section 80IA of the Act, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT. We also find that, to avoid misuse of ....
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....eduction u/s 80IA of the Act. The profit from such contracts which involves development, operating, maintenance, financial involvement, and defect correction and liability period is to be computed by assessing officer on pro-rata basis of turnover. The assessing officer is directed to examine and grant deduction on eligible turnover as directed above. It is needless to say that in similar circumstances, similar view has been taken by the Chennai Bench of the Tribunal and deduction u/s. 80IA was granted in the case of M/s. Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287/Mds/06 order dated 27th July, 2007 for the assessment year 2004-05. Later in ITA No. 1179/Mds/08 vide order dated 26th February, 2010 the Tribunal has taken the same view by inter-alia holding as follows: "7. Moreover, the reasons for introducing the Explanation were clarified as providing a tax benefit because modernisation requires a massive expansion and qualitative improvement in infrastructures like expressways, highways, airports, ports and rapid urban rail transport systems. For that purpose, private sector participation by way of investment in development of the infrastructure sector and not....
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....ning nor operating it, obviously such an assessee will be paid for the cost incurred by it; otherwise, how will the person, who develops the infrastructure facility project, realize its cost? If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the transferee had paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing he infrastructure facility would be entitled to deduction under section 80IA(4), which is not the intention of the law. An enterprise, who develop the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. The legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer i.e. to the person ....
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....on was necessitated due to contrary judicial decision on this issue. Thus, we can unequivocally now say that any undertaking or enterprise which executes the infrastructure development project, as referred to in sub-section(4) as a works contract awarded by any person including the Central or State Government, is not eligible for tax benefit u/s 80IA(4). Having said that, now we examine the facts of this case. The assessee-company was given this benefit in assessment year 2003-04 by the Department on identical facts after considering the Explanation and amendment thereto. To trace the history of this deduction, we find that originally, in the provision of section 80IA, there was no mention of any development of 'infrastructure facility'. It is only with effect from 1.4.2000, this section was divided into two portions 80IA and 80IB. Section 80IA(4) prescribes about the deduction available to a developer who develops infrastructure facilities. In view of the amendment inserted by the Finance Act, 2007, with retrospective effect from 1.4.2000, the deduction u/s 80IA is available to those assessees who are 'investing and developing infrastructure facility' and not to persons who simply....
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....al, reservoir, tank, lake, road, well, bridge, culvert, factory, workshop, powerhouse, transformers or such other works of the State Government or public undertakings as the State Government may be by notification, specify in this behalf at any of its stages entered into by the State Government or by an official of the State Government or public undertaking and includes an agreement for the supply of goods or material and all other matters relating to execution of any of the said works. The case of ACIT vs Indwell Lianings Pvt. Ltd (supra), on which the Assessing Officer has placed reliance is also relevant and we extract certain relevant portion of this decision for ready reference: Vide Finance Act, 2007, an Explanation was inserted with retrospective effect from April, 2000 after sub-section (13) of section 80- IA, which reads as under : "For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be." According to Attorney's Pocket Dictionary, in relation to a corporation or business, the term "undertaking" denotes its whole....
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....her person for executing works contract will not be eligible for the tax benefit under section 80-IA of the Act. In the present case, we find that the assessee was doing only contract works of in situ cement lining for water supply project of the Gujarat Water Supply and Sewerage Board. As such, the benefit of section 80-IA cannot be extended to the assessee. The decisions relied upon by the assessee were rendered prior to the amendment and as such not relevant for deciding this issue. We, therefore, restore the order of the Assessing Officer and reverse the order of the Commissioner of Income-tax (Appeals)." 11. To further elaborate the discussion on this issue, paras 5 & 6 of the decision of ITAT Pune Bench rendered in the case of Laxmi Civil Engg. P. Ltd vs Addl. CIT, order dated 8.6.2011 are being extracted herein below: 5. We heard both the parties and perused the orders of the revenue. The contentious issues before us are (i) whether the contractor is synonymous with the developer within the meaning of section 80IA (4)(i) of the Act; (ii) whether the condition placed in clause (c) is applicable to the case of a developer, who is not carrying on business of operating ....
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....ncement of the operation and maintenance: of the infrastructure facility should be after 1" April, 1995. In the present case the assessee clearly fulfilled this condition ". Before the amendment that was brought about by parliament by Finance Act, 2001 we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to S. 80-IA(4) of the Act, set the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were not intended to be cumulative in nature 6. The above judgment of the Hon'ble High Court is delivered in the case of ABG Heavy Engg Ltd (supra), who is a contractor for the INP Trust and that contactor, assessee is found to be an eligible developer for making claim of deduction u/s section 80IA (4) of the Act. From the above, it is evident that the person who only develops the infrastructure do not have the occasion to operate and maintain the infrastructure. It is further evident that the harmonious reading is necessary and mandatory in view of High Court's judgment in the case of an enterprise carrying on business or developing which is the c....
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.... been excluded from the scope of this provision. And rightly so, because what infrastructure is required in public domain is the outlook/duty of a local authority or of a Central/State government. When a certain infrastructure is needed, the concerned authorities have a broader picture in their mind aiming at acquiring certain facility for which infrastructure development is required. So, to say, when any assessee/enterprise agrees under a contract to develop such an infrastructure facility, it cannot straight away be dubbed as not the brainchild of that enterprise, but only of the authority in question. Therefore, again this provision in so far as the conditions required to be fulfilled to be eligible for this incentive had to be provided by the juridical forums dealing with this issue. After in-depth deliberations, discussions and examination of these provisions, finally, it has been resolved that if an enterprise even after entering into a contract with a local authority or the Governments, may be Central or State, in case it constructs the infrastructure facility, operates it and also maintains the same, it would be eligible for this deduction. 14. Now, let us examine the fa....
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....ty as per the agreement with Maharashtra Government/APSEB, therefore, merely because in the agreement for development of infrastructure facility the assessee is referred to as a 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 80IA(4). The facts of the present case are exactly identical to the facts of that case rendered by ITAT Mumbai Bench in which under identical facts and circumstances, the assessee has been held to be eligible for deduction u/s 80IA(4). Section 80IA(4)(i)(b) requires development of infrastructure facility and transfer thereof as per agreement and it cannot be disputed in view of the material on record that the assessee has transferred the infrastructure facility developed by it by handing over the possession thereof to the concerned authority as required by the agreement. The handing over of the possession of developed infrastructure facility/project is the transfer of the infrastructure facility/project by the assessee to the authority. The handing over of the infrastructure facility/project by the developer to th....
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....Ltd, 313 ITR(AT) 118, has been enlarged in its finding by the ITAT, Mumbai 'F' Bench in its decision rendered in the case of ACIT vs Bharat Udyog Ltd , by holding that such a deduction is only to be denied to a sub-contractor and not a mini contractor. Similar view has been taken by the ITAT Chennai Bench in the case of ACIT vs Smt. C. Rajini (supra) in which both of us constituted the Bench. In this decision the definition and difference between works contractor and a developer has been examined in detail. The main thrust of the decision is that a developer need not be the owner of the land on which development is made. Although that decision was rendered in the context of a developer of buildings and the deduction was in respect of 80IB(10), but the definition of 'developer' given in that case is also relevant for this purpose. Moreover, we are in agreement that in incentive provisions, the construction should be liberally given as held by the Hon'ble Supreme Court rendered in the case of Bajaj Tempo Ltd vs CIT, 196 ITR 188. Thus, when the assessee makes investment and himself executes development work and carries out civil works, he is eligible for tax benefit u/s 80IA of the Ac....
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....r the amount advanced to sister concern was actually used for the business purposes or not. In these circumstances, it is not possible to us to blindly follow the judgement of Supreme Court to allow the claim of the assessee. In our opinion, as the assessee has not shown the commercial expediency, we are inclined to confirm the orders of the lower authorities and reject the ground taken by the assessee. 43. The next ground in ITA No. 1171 is with regard to confirming the action of the Assessing Officer in applying the provisions of section 40A(3) of the IT Act. It was found by the Assessing Officer that the assessee made a cash payment of Rs. 3,53,570 on various dates in excess of Rs. 20,000. Accordingly, the Assessing Officer invoked the provisions of section 40A(3) disallowing 20% of the above payment which works out at Rs. 70,714. The CIT(A) confirmed the disallowance as the assessee has not shown any reasonable cause for making cash payment in exceeding Rs. 20,000. Against the assessee is in appeal before us. 44. We have heard both the parties and perused the material on record. Even before the assessee could not show any reasonable cause for making the cash payment excee....