TaxTMI 
TaxTMI 
2014 (2) TMI 680
X X X X Extracts X X X X
X X X X Extracts X X X X
....il contracts. For the assessment year 2008-09, the assessee has filed company filed return of income declaring 'NIL' income. Assessment was completed by the Assessing Officer determining the total income at Rs.4,05,69,245, inter-alia rejecting the assessee's claim of Rs.2,98,76,544 under S.80IA of the Act, and by adding differential amount of Rs.1,06,92,701, estimating the income of the assessee at 10% of the gross contract receipts. 3. On appeal before the CIT(A), the assessee filed written submissions, contesting the disallowance of the assessee's claim under S.80IA of the Act. The CIT(A) called for a remand report from the Assessing Officer on such written submissions of the assessee. He thereafter forwarded the remand report to the assessee for his comments. The assessee furnished further elaborate written submissions in relation to the observations of the Assessing Officer in the remand report. After elaborate consideration of the comments of the Assessing Officer in the remand report and further submissions of the assessee thereon and in the course of further appellate proceedings before him, the CIT(A) after analyzing the conditions to be fulfilled under the provision of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on in the case of Sushee Tech Infrastructure Ltd. (ITA No.414/Hyd/2012 for assessment year 2008-09, the Tribunal vide its order dated 17.6.2013, held as follows- "3. As far as the first effective grievance of the assessee in this appeal concerning disallowance of deduction under S.80IA is concerned, contained in ground No.2 above, we find that similar issue was considered by this Tribunal in assessee's own case for the assessment year 2005-06 to 2007-08 in ITA Nos.269/Hyd/2009, ITA No.1165/Hyd/2009 and ITA No.1171/Hyd/2010 respectively vide order dated 16.3.2012. The Tribunal by the said order has decided the issue in the following manner- "31. Findings: We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have also gone through all the case laws cited by both the parties. We 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) itsel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 80IA (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. We find that the Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's responsibility to do all acts till the possession of property is handed over to the Government. The first phase 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contractor of the work and not a developer. 34. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word "contractor" is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word "contractor" 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. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....B.T.Patil cited supra is prior to amendment to sec 80IA(4), after the amendment the section 80IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, prior to amendment the "or" between three activities was not there, after the amendment "or" has been inserted w.e.f. 1-4-2002 by Finance Act 2001. Therefore, in our considered view, the assessee should not be denied the deduction under section 80IA of the Act as the contracts involves, development, operating, maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract. In our opinion the contracts which contain above features to be segregated and on this deduction u/s. 80-IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 80IA(13), those work are not entitle for deduction 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 asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssment year 2007-08 held as follows: "3. We have heard rival submissions and have carefully perused the entire record. The first issue of the appeal is regarding claim of deduction under section 80IA(4) of the Act. The case of the revenue is that the assessee is a 'works contractor' and not a 'developer' as stipulated under section 80IA(4) of the Act. The section 80IA(4) applies to any enterprise, which carries on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facilities, which fulfil all the above conditions. There cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 01.04.1995. From the assessment year 2000-01, deduction is available if the assessee is carrying out the business of any one of the above mentioned three types of activities. When an assessee is only developing an infrastructure facility project and is not maintaining nor operating it, obviously such an assessee will be paid for the cost incurred by it; otherwise, how will the person, who develops the inf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Engineering Ltd. vs. DCIT in ITA No.1221/Mum/2004 has gone to the extent of holding that the assessee, a civil contractor, having executed a part of contracts of irrigation and water supply on 'build and transfer' basis and handed over them to contractee Governments, was eligible for deduction under section 80IA(4). 5. We have also taken a similar view in ITA No. 554/Meds/2010 in the case of East Coast Constructions & Industries Ltd v. DCIT vide order dated 13.09.2011 and relevant paras from 9 to 14 are reproduced hereunder: "9. After considering the rival submissions, we can safely say that the benefit of section 80IA is available only to a 'developer' who carries on business of 'developing of infrastructure facility'. A person who enters into contract with another person for executing 'works contracts' is not eligible for such a benefit. Explanation to section 80IA was inserted by Finance Act, 2007 with retrospective effect from 1.4.2000 which has further been amended by Finance (No. 2) Act, 2009 with retrospective effect from 1.4.2000. The amendment in this Explanation was nec....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... person who enters into a contract with another person for executing works contract, will not be eligible for tax benefit u/s 80IA. It was clarified by the Circular No. 3 of 2008 dated 12.3.2008 that the provisions of section 80IA shall not apply to a person who executes only work contracts and only those who make the development work will be eligible for tax benefit u/s 80IA of the Act. Be that as it may, when we apply this provision in its letters and spirit, we find that this assessee is verily eligible for deduction u/s 80IA, as the assessee-company fulfils all the relevant conditions. The facts of this case go to prove that the assessee is a 'developer' of infrastructure facilities. The reasons for our above conclusion are given in the following paras. Firstly, the assessee-company not only designs but also creates new products. The assessee had undertaken four projects during the relevant year and executed, constructed, delivered and maintained by it. As per the definition of Advanced Law Lexicon [placed at page 533 of the paper book] "Developer" means - a person engaged in development or operation or maintenance of Special economic Zone, and also includes any person authoriz....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The tax benefit was introduced for the reason that industrial modernization requires a passive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract. Accordingly, it is proposed to clarify that the provisions of section 80-IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80- lA. In contrast to this, a person who enters into a contract with another person (i.e., undertaking o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... we perused the above cited para-22 of the said judgment and for the sake of completeness, the said paragraph is reproduced as under:- "22. The submission which was urged on behalf of the Revenue is that Clause (iii) of sub-section (4A) of section 80-lA, one of the conditions imposed was that the enterprise must start operating and maintaining the infrastructure facility on or after 1st April, 1995. The same requirement is embodied in sub clause (1) of sub-clause (4) of the amended provisions. It was urged that since the assessee was not operating and maintaining the facility, he did not fulfil the condition. The submission is fallacious both in fact and in law. " That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1st April, 1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1st April, 1995. After Section 80IA was amended by the Finance Act, 2001, the section applies to an enterprise carrying on th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he case of the assessee, all the conditions referred to clause (i) of section 80IA (4) should refer to the conditions as applicable to the developer. In other words, the developer who is only developing the infrastructure facilities since he does not operate and maintain Infrastructural facilities, cannot be expected to fulfil the condition at sub clause (c) which is an impossibility and the requirements to fulfil the said condition shall amount to absurdity and therefore uncalled for. Therefore, we find requirement of harmonious reading of sub-clause (c) vis-à-vis of clause (i) of section 80IA (4) of the Act. Thus, the discussion in High Court's decision in paragraph-22 extracted above, is directly applicable to the facts of the case and eventually is entitled for the deduction under section 80IA (4) of the Act. Accordingly, the modified ground, which is common in all the four appeals is allowed in favour of the assessee." 12. Let us remind ourselves that the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd vs CIT, 196 ITR 188, has ordained that taxing statute granting incentives for promoting growth and development should be libe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, it would be eligible for this deduction. 14. Now, let us examine the facts of the given case. It is an undeniable fact that the assessee is engaged in the civil construction work like construction of flyover, bridge underpass, sewerage, water supply etc. for various local bodies, railways, Central/State Governments. In fact, as per the terms of agreement, even the initial proposals formulated by the Department which are stated to be tentative, the assessee has the liberty to make different proposals without detrimental to the general features of the Departmental proposal, like Road level/bottom of deck level, MFL, Sill level, Linear water way, width of the bridge etc. Right from the drawings to the work of construction has been done by this assessee and has borne the cost itself. The company has constructed, delivered and maintained and security is also maintained thereafter. So, this is a case of transfer of property in chattel and not a contract of service. A 'developer' as per the Advanced Law Lexicon means "a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorized for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t by the assessee to the authority. The handing over of the infrastructure facility/project by the developer to the Government or authority takes place after recoupment of the developer's costs whether it be "BT' or 'BOT' or 'BOOT' because in 'BOT' and 'BOOT' this recoupment is by way of collection of toll there from whereas in 'BT' it is by way of periodical payment by the Government/Authority. The land involved in infrastructure facility/project always belongs to the Government/Local authority etc., whether it be the case of 'BOT' or 'BOOT' and it is handed over by the Government/Authority to the developer for development of infrastructure facility/Project. The same has been the position in the given case as well. So, deduction u/s 80IA(4) is also available to this assessee which has undertaken work of a mere 'developer'. Rather, the statutory provision as contained in section 80IA which provides for deduction of infrastructure facility no way provides that entire infrastructure facility project has to be developed by one enterprise. Thus, as per section 80IA the assessee should develop the infrastructure facility as per the agreement with the Central/State Government/Local Autho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and himself executes development work and carries out civil works, he is eligible for tax benefit u/s 80IA of the Act. Accordingly, with the foregoing discussion, we hold that the assessee is entitled to deduction u/s 80IA(4) of the Act, and therefore, we order to delete the addition made in this respect." 6. Therefore, by following the above arguments and reasoning, we confirm the findings of the ld. CIT(A) and do not find any valid merit in the Revenue's appeal. Accordingly, the appeal stands dismissed. 39. In view of the above discussion, we are inclined to partly allow the ground relating to claiming of deduction u/s. 80IA.of the Act in all these appeals." 9. As for the decision of the Tribunal relied upon by the Learned Departmental Representative in the case of B.T. Patil & Sons Belgaum Constructions Pvt. Ltd., Belgaum V/s. ACIT Circle 2, Kolhapur (126 TTJ 577(tm)= 1 ITR 730)(Trib)(Mum.) has been overruled by the Division Bench in ITA No.1408 & 1409/PN/2003 for assessment years 2000-01 and 2001-02, whereby deduction under S.80IA(2) of the Act have been allowed by the Tribunal, complying with the following directions o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lf of the assessee. The assessee moved a Miscellaneous Application before the Tribunal to recall the said order. While the said Miscellaneous Application was pending before the Tribunal, by way of abundant precaution the assessee filed appeals before the Hon'ble Bombay High Court being appeal number ITXA 1307 of 2011 for A.Y. 2000-01 and 1640 of 2011 for A.Y. 2001-02 raising various contention regarding the allowance of deduction u/s. 80IA(4) of the Act. 3. While the said appeal was sub judice before the Hon'ble Bombay High Court the Tribunal recalled its order dismissing the appeals of the assessee in limine and gave a fresh date of hearing to the assessee. 4. While the said appeals are pending before the Hon'ble Tribunal to give effect to the opinion of the Third Member as per the provisions of section 255(4) of the Act, the Hon'ble Bombay High Court in the case of ABG Heavy Industries Ltd., passed an order granting deduction to the said assessee u/s. 80IA(4) of the Act. The said jurisdictional order is contrary to the opinion given by the Third Member of the Tribunal. Meanwhile the appeal filed by the assessee against the order of the Tribunal dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....other decisions, we can consider the said judgments of ABG Heavy Industries and also the other judgments for allowing the deduction u/s. 80IA(4) of the Act while giving effect to the opinion of the Third Member as per the provisions of section 255(4) of the Act. Following the directions of the Hon'ble Bombay High Court being the Jurisdictional High Court, the Tribunal is bound to follow the directions and we do accordingly. 7. Stand of assessee before us is that issue at hand is covered by the decision of the Hon'ble Bombay High Court in the case of ABG Heavy Industries Ltd. & others (supra). In view of the amendment to section 80IA(4A) by Finance Act, 1999 effective from 01.04.2000 to avail the deduction under such section for the A.Ys. 2000-01 & 2001-02, assessee should carry on all three activities i.e. developing, maintaining & operating cumulatively. By developing the infrastructure facility and transferring it to another person for maintaining and operating, the benefit can be availed only from the A.Y. 2002-03. In view of the amendment to section by Finance Act, 2001 where in 'or' is inserted between developing and maintaining & operating i.e. developing or M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch indicates that the infrastructure facility should be owned by a company so as to be entitled to deduction under this section. The work done by the assessee is not owned by it, it does not satisfy sub clause (a) of section 80IA(4)(i). The infrastructure facility should be owned by the assessee is not correct interpretation. It is evident from section itself as clarified by the jurisdictional High Court in ABG Heavy Industries (supra) inter alia held that the assessee has shouldered out Investment & technical risk in respect of the work executed and it is liable for liquidated damages if failed to fulfill the obligation laid down in the agreement. The liability which has been assumed by the assessee under terms of the contract are obligations involving the development of an infrastructure facility. The assessee has also in its employment technically and administratively qualified team of persons and therefore it is not correct to say that assessee is merely a contractor & not a developer. The assessee is eligible for benefit u/s 80-1 A even if part of the Infrastructural Project work is executed. 9. It was found by the erstwhile Judicial Member that assessee fulfil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e relevant authorities forwarded the proposal to World Bank. World Bank however did not accept the proposal but they suggested that M/s. Patel Engineering Company Ltd., may employ the assessee company as sub contractor. It was at the suggestion of World Bank that the assessee companies name was included as a sub contractor instead of forming of a joint venture. The project authorities including World Bank have approved and certified the assessee as sub-contractor for the above said work after thorough scrutiny and detail description of the work to be undertaken by the assessee company. The assessee company name is included in Main contract Agreement entered into between the employer and PEC as sub contractor for Koyna Project Works by Project Authorities. In fact the Government of Maharashtra has entered in Tripartite Agreement with the assessee company and PEC. Works completion certificate has been issued in favour of the assessee company for the execution of the Work. Power of Attorney is given by Prime Contractor to Sub Contractor and accepted and exceeded by Project Authorities. 12. The fact that the assessee has a tripartite agreement with the relevant authorit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e had rejected the claim of the assessee for the simple reason that the assessee had never entered into any contract with the State Government and the assessee-company was nothing but a colourable device to evade tax. It is a settled position of law that the company is a juristic entity and it should be considered independent from the shareholders or the directors. The action of the assigning and the work of construction undertaken by the assessee was recognised by the State Government and a tripartite agreement was executed between the assessee 'A' and the State Government through which the State Government had recognised that the assessee had stepped into the shoes of 'A' and notified authorising the assessee to collect the toll tax for a particular period. Since the assessee company had rectified all act and deeds of its promoter 'U'' and owned all the assets and liabilities of its promoter through an agreement of assignment executed between the assessee and 'A' after obtaining approval from the State Government, the assessee should be deemed to have undertaken the construction work since 1-4-1995. Since the Government had provided this deduction in order to encourage economic g....