TaxTMI 
TaxTMI 
2012 (8) TMI 1010
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....Governments and public sector undertakings and corporations. The total income was returned at Rs. 8,87,25,877 whereas the income assessed is Rs. 14,86,40,590. The assessee had claimed deduction u/s. 80IA for an amount of Rs. 12,30,33,718 but during the course of assessment hearing, the assessee restricted the claim to Rs. 5,98,76,713. The said claim of the assessee u/s. 80IA was disallowed by the Assessing Officer. The Assessing Officer after going through the claim of the assessee, was of the opinion that the assessee is not entitled for deduction u/s. 80IA of the Act. On appeal, the CIT(A) confirmed the order of the Assessing Officer. Against this disallowance, the assessee is in appeal before us in ITA Nos. 141/Hyd/07. Similar is the grievance in assessee appeals in ITA No. 1312/Hyd/08, 1313/Hyd/08 and 465/Hyd/06. 3. The learned authorised representative of the assessee drew our attention to the provisions of section 80 IA (4) of the Act. He read before us the said section 80 IA(4)(i) of the Act and submitted that by the Finance Act, 2001 with effect from 1-4-2002 which was amended as follows:- "(i) developing or (ii) operating and maintaining or (iii) developing, operating an....
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....n 5(g)] Tax holiday for infrastructure rationalised 47.1 Under the provisions of section Bo-IA, roads, highways, bridges, airports, ports and rail systems are regarded as infrastructure facility and the enterprises engaged in developing or operating and maintaining or developing, operating and maintaining such infrastructure are entitled to a tax holiday for five years and a deduction of 30% of profits for the next five years. This benefit is applicable in respect of such specified infrastructural facility becoming operational on or after 1st April, 1995. The enterprise claiming such benefit has to enter into an agreement with the Central or State Government or a local authority or any other statutory authority, by which the enterprise which develops such facility, has to transfer such facility to the Government or public authority after the stipulated period. In other words, the required condition for availing of this benefit is that transfer under BOT (Build, Own, Transfer) or BOOT (Build, Own, Operate and Transfer) schemes has to be met. 47.2 Investments in infrastructure have to compete with investment in other sectors to be attractive. There is, in particular, a need to encou....
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....tion and the notes on causes/ CBDT Circular it is very clear ~ that with effect from 1- 4-2002 " the enterprises engaged in developing or operating and maintaining or developing, operating and maintaining such infrastructure are entitled to a tax holiday. Earlier to the above substitution there was no 'or' between the word M developing, (ii) maintaining and operating or (iii) developing, maintaining and operating, on entering into an agreement with Government would be eligible for deduction under section 801A." 5. From the above, he submitted that the enterprises engaged in developing or operating and maintaining or developing, operating and maintaining such infrastructure are entitled to a tax holiday. Earlier to the above substitution there was no word 'or' between the word developing, (ii) maintaining and operating or (iii) developing, maintaining and operating, on entering into an agreement with Government would be eligible for deduction under section 801A of the Act. He drew our attention to the decision of the Mumbai ITAT in the case of ACIT vs. Bharat Udyog Limited (118 ITD 336) wherein held that:- "The amendment in section 80-IA was brought about by ....
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....ent, is transferred to the Government, naturally the cost would be paid by the Government. If a person who only develops 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. When 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 who is carrying on the activity of only developing infrastructure facility. Obvious, as it is, a developer would have income only if he is paid for development of infrastructural facility, for the simple reason that he is not having the right/authorization to operate the infrastructure facility and to collect toll there from and has no other source of recoupment of his cost of development. Therefore, the business activity of the nature of build and transfer also falls within eligible construction activity, that is, activity eligible for deduction under section 80-IA inasmuch as mere 'development' as such and un-associated/un- accompanied with 'operate' and 'm....
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....he question as to whether TDS was deductible on outsourcing contracts. Clause (e) was introduced "to bring clarity on this issue" or, in other words, to remove the ambiguity on the question. Clause (e) as introduced contains a positive affirmation that the expression 'work' will cover manufacturing or supplying a product, according to the requirement or specification of a customer, by using material purchased from such a customer. Clause (e) has placed the position beyond doubt by incorporating language to the effect that the expression 'work' shall not include manufacture or supply of a product according to the requirement or specification of a customer by using material which is purchased from a person other than such customer. In other words, the circumstance that the requirements or specifications are provided by the purchaser is not regarded by the statute as being dispositive of the question as to whether a contract constitutes a contract of work or sale. What is of significance is whether material has been purchased from the customer, who orders the product. When the material is purchased from the customer who orders the products, it constitutes a contract of....
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.... of the circulars of the CBDT and in judicial decision. The Parliament must be regarded as having intended to affirm that intent. In the instant case, the intent has held the field for over three decades. [Para 28) The fact that the specifications were provided by the assessee to the manufacturer/supplier would make no difference to the legal position. The agreement in the instant case was on a principal-to-principal basis. The manufacturer had his own establishment where the product was manufactured. The material required in the manufacture of the article or thing was obtained by the manufacturer from a person other than the assessee. The property in the articles passed upon the delivery of the product manufactured. Until delivery, the assessee had no title to the goods. The goods had an identifiable existence prior to delivery. [Para 31) The reason that a specification or requirement is enunciated by the assessee constitutes a matter of business expediency. A purchaser who desires to get the product, which he intends to sell under his brand name, or trademark, manufactured from a third party would be interested in ensuring the quality of the product. The trademark has associated ....
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....ii) Transporting, Laying and Joining of pipes conforming with specifications. The activity involves earth work excavation, trench excavation, hard rook blasting, lowering and laying of pipes, fitting of specials, fitting of rubber rings at the joints, testing pipe joints and pipeline. iii) Construction of pump house, providing and fitting of pump sets. Supply and fitting of submersible pumps, centrifugal pumps, turbine pumps, submersible motors, motors for turbines and centrifugal pump sets, transformer, generator, panel boards etc. iv) Design and construction of raw water pumping stations, water treatment plant, treated water pumping station, treated water transmission main, construction of surge tank and pipe connection arrangement, booster stations, internal transmission main and feeder mains, construction of service reservoirs and master reservoirs. v) Mobilisation of labourers, [preparation of plans technical expertise, supervision, co-ordination and control, set up manufacturing facility nearby the project site to manufacture project specific pipes as per the required specifications which requires well equipped machines, employment of skilled labour and technical experts, ....
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....od, the entire site with the infrastructure facility developed to the owner. He submitted that the lower authorities wrongly relied on the order of the Tribunal in the case of Patel Engineering Limited (94 ITD 411) wherein the Tribunal has not considered the retrospective amendment by Finance Act, 2007. According to the authorised representative, after amendment to section 80IA(4)(i)(b) M/s. which reads as " it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; the word 'it' means undertaking and 'develop' is independent of operating and maintaining or developing, operating and maintaining. For this purpose, he relied on the order of the ITAT, Mumbai larger third Member Bench in the case of B.T. Patil & Sons Belgaum Construction Pvt. Ltd. (126 TTJ (Mumbai) 577; 35 SOT 171, 32 DTR 1. He submitted that the assessee engaged in development of infrastructure facility by way of constructing irrigation canals and irrigation systems. In this connection, he drew our attent....
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....and such person mayor may not be a contractor. On the other hand, a contractor is stated to be a legal term whose rights and duties vis-a-vis contract are determined by way of legal document called the contract. He cited an example that if a contract to construct a highway from Mumbai to Delhi is given to a person he is contractor as well as developer. As against that a person who has been given a contract for painting or beautification is merely a contractor but not a developer. According to him, while developing a project, a developer has to make technological inputs, entrepreneurial inputs, etc. Besides, there is financial involvement in terms of deployment of man and machine as well as bank guarantees. He went on to explain that the developer undertakes the risk and reward of the project and is accountable to the authorities for the development work carried out by him. In his opinion, the assessee in the present case cannot be characterized anything other than a developer. 38. In the circumstance, the learned Departmental Representative submitted that the construction is a minor part of the development. According to him, development includes the works to be done relating to the....
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....ion 3 of the General Clauses Act, the definitions given in this Act shall have applicability in all the Central Acts unless a contrary definition is provided of a particular word or expression. On scanning section 3 of the General Clauses Act, we observe that neither the word 'contractor' nor 'developer' has been defined therein. Thus, the General Clauses Act is also of no assistance in this regard. Going ahead, when these words are neither defined in the Income-tax Act, 1961 nor in the General Clauses Act, the next question is that where from to find the meaning of such words. There is no need to wander here and there in search of answer which has been aptly given by the Hon'ble jurisdictional High Court in the case of Abdulgafar A. Nadiadwala v. Asstt. CIT [2004] 267 ITR 4881 (Bom.) wherein the Hon'ble High Court was looking into the meaning of the words 'goods' and 'merchandise', which are not defined under section 80HHC in the context of Income-tax Act, 1961. The Hon'ble High Court held that : "it is well-settled that in the absence of there being anything contrary to the context, the language of a statute should be interpreted accord....
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....y". When we further peruse the meaning of the word "infrastructure facility" as per Explanation, it is found to have been defined exhaustively by referring to a road project, airport, port, etc., a highway project, a water supply project and irrigation project, etc. Therefore, the use of word "developing" in juxtaposition to infrastructure facility indicates that what is eligible for deduction under this sub-section is the profits and gains derived from the development of infrastructure facility and not something de hors it. So in order to be eligible for deduction the development should be that of the infrastructure facility as a whole and not a particular part of it, as has been contended by the Id. AR. It may be possible that some part of development work is assigned by the developer to some contractor for doing it on his behalf. That will not put the doer of such work into the shoes of a developer. 11. Further, he relied on the judgment of Bombay High Court in the case of ABG Heavy Industries Limited 322 ITR 323 (Bom) wherein held that: "Section 80-IA of the Income-tax Act, 1961, was introduced to provide an impetus to the growth of infrastructure in the nation. A sound infra....
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....ecessary for a developer to operate and maintain the facility. In Bajaj Tempo v. CIT [1992]196 ITR 188, the Supreme Court emphasized that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. In the present case, the administrative circulars issued Central Board of Direct Taxes proceeded on that basis by adopting a liberal view of the scope and ambit of the provisions of section 80-IA of the Act. Parliamentary intervention endorsed the administrative practice. After section 80-IA was amended by the Finance Act of 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating; maintaining; or (iii) developing, operating and maintaining any infrastructure facility which fulfils certain conditions. Those conditions are ownership of the enterprise by a company registered in India or by a consortium (ii) an agreement with the Central or State Government, local authority of statutory body; and (iii) the start of operation and maintenance of infrastructure facility on or after April 1, 1995. The requirement that the operation and maintenance of the infrastructure facility should com....
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....ty of making the equipment available for operation for a minimum number of days as stipulated in the contract and became liable to pay liquidated damages for non- availability of the equipment after commissioning. After the expiry of the lease period of ten years, the assessee was liable to hand over the equipment to JNPT free of cost. Under the contract the assessee furnished an indemnity to JNPT towards damages that may be sustained to the equipment or to any property of the port trust or to the lives persons or properties of others. The assessee assumed other contractual obligations including amongst them, the liability to insure the equipment, to indemnify JNPT towards the claims of workers' compensation and for compliance with labour legislation. The assessee claimed special deduction under sec. 80-IA. The Assessing Officer rejected the claim but the Commissioner (A)) and Tribunal allowed it. On appeal to the High Court: Held, dismissing the appeal, that on May 31, 2004, JNPT issued a certificate confirming the award of contracts to the assessee on September 2, 1994 and October, 16, 1995 for supply, installation, testing, commissioning and maintenance of container handlin....
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....arned authorised representative 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). Further, he submitted that order of the Tribunal relied by the Departmental Representative in ITA No. 2932/Mumbai/2010 relating to the A.Y 2006-07 in the case of The Indian home Pipe Company has no application to the facts of assessee case. In the case before Mumbai Bench, the assessee was supplying, laying of pipelines and was only a works contract which is evident from para 3 of that order. On the contrary the assessee is engaged in development of water supply project as evident from the tender allotted by various authorities, project has been undertaken on turnkey basis. The project also includes operation and maintenance for a period one year to two year. As the assessee ....
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....m and it would be readily apparent from the agreement that 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 included in the paper book are similar. 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 it is to be treated as a developer. However, it is clear from the document as furnished in the paper book that the maintenance function was actually remedying of defects for a prescribed period. No separate charges have been collected and this cannot be seen as a maintenance function. 16. On these facts, having regard to the responsibilities assumed under the agreement, the assessee cannot be seen as a developer; instead he plays the role of an executor/contractor. Be that as it may, it was urged by the departmental representative in the reply that the issue whether the assessee was a developer for the....
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....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. 18. The DR submitted that the decision of the Pune Bench of the ITAT in the case of Laxmi Civil Engg. (supra) is of no help in deciding the issues in the impugned appeals for the reason that the terms and conditions of the contracts and the nature of obligations assumed there-under, by the business are not discussed in the said order. This is the factual fulcrum on which the decision of the ITAT (larger Bench) in B.T. Patil as well as the Mumbai High Court in ABG case was decided. Without such detail, there is no point of comparability between the Pune Bench decision and the other cases. The unanswered questions emerging there-from are - i) Can we assume that there was a BOLT contract or was it a works contract? ii) Can we assume that the assessee took ownership control of the asset created? iii) The circumstances under which the enterprise in ABG Heavy Industries became akin to a developer, and do they obtain in the ....
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....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 of Hyderabad Chemicals Supplies Limited (ITA No. 352/Hyd/2005 and 6 others appeals dated 21-1-2011, in the context of an apparent conflict between a Special Bench (Ahmedabad) decision of the ITAT and Madras High Court at para-15 on page-8 as follows:- "Further, judgment of High Court though not of the jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench of the Tribunal, however, where the judgment of the non jurisdictional High Court, though the only judgment on the point, has been rendered without having been informed about certain statutory provisions that are directly relevant, it is not to be followed." 20. Without prejudice to the argument that the stand that the Mumbai High Court's order in ABG runs on completely different facts, it is respectfully pointed out that this decision cannot be a binding prece....
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....ly 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. Patel was not un-ware of the change in law effective from 1-45-2002 as would be evident from para 36 of the order. The change making the conditions of development/operation/maintenance non cumulative was not relevant since the case related to pre 1-4-2002 period. In the case of B.T. Patel the larger Bench enunciated certain tests to determine whether the business was one of a 'developer' or a mere 'contractor'. The briefly stated facts are as follows: "The distinction between creation of product vs. Rendering of service (para -40), owner vs. Executor of owner's plan with reference to project specification (para-42), vesting of property, subject to retransfer if need be (para 46) and need for interpretation to avoid absurd results (para 50)". 21. The DR submitted that in view of the terms of the relevant contract, it was possible to give a finding that the business was not one of 'development' per se....
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....o 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 sub-clause (a) of clause (1) of sub section (4) of Section 80IA of the Act refer to the enterprise. By reading of the section, it is clears that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word "ownership" is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA (4) and ....
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....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 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 assesse....
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....lso 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 the aforesaid amendment, an Explanation was inserted in Section 80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80IA of the Act. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the parliament would have simply reversed the Amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only mere works contact or sub-contract as distinct from the developer. This is clear from the expr....
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....ipes to laying sites, equipment to lift and lowering of pipes at the excavated sites, provide qualified and experience engineer for each project site etc to bring in to existence an infrastructure facility. Manufacturing of pipes to sites, excavation under various conditions of soil and rock, lowering and laying of pipes, jointing and testing of pipe joint and pipe line as a whole, construction of pump houses, storage tank/collection well, treatment plants, distribution plants etc and all these together develop in to a new infrastructure water supply facility. 30. Further, the order of Tribunal in the case of 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. 31. Accordingly, the assessee is entitled for deduction under section 80IA of the Act on the projects which involve above activities. Therefore, in our considered view, the assessee should not be den....
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.... on pro rata basis of turnover. The Assessing Officer is directed to examine the records, accordingly, and grant deduction on eligible turnover. 24. In the case of KMC Construction Ltd. v. ACIT, 51 SOT 214 (Hyd) (URO) wherein the Tribunal has taken the same view. 25. In the case of Sushee Hi-Tech Constructions Pvt. Ltd. vs. DCIT, in ITA Nos. 269 & 1165/Hyd/2009 and ITA No. 1171/Hyd/2010 dated 16th March, 2012 wherein the Tribunal held as follows: " ... 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 off....
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....itted that the assessee claimed a bad debt of Rs. 1,68,79,143 and the same was allowed by the Assessing Officer without verification. Out of the above amount Rs. 62,19,596 was claimed in respect of Tamil Nadu Housing Board (TNHB). The assessee company completed the construction of 560 flats under agreement with TNHB and it was paid a sum of Rs. 64,21,67,483. The final bill of Rs. 13,44,482 was not paid by the TNHB and bank guarantee was invoked to the tune of Rs. 62 lakhs. Further TNHB demanded payment of Rs. 36,56,954 towards excess payment on 12.8.1997. Further there was a demand for payment by TNHB on 18.9.1997 for Rs. 16,99,702. The dispute was referred to arbitration wherein the assessee claimed an amount of Rs. 75,44,482 and the TNHB claimed an amount of Rs. 1,28,94,517. The Tribunal directed the assessee to pay a sum of Rs. 53,50,035 to TNHB. The said award was not accepted by the assessee and the assessee filed an appeal before the Madras High Court and claimed an amount of Rs. 62,19,596 as bad debt. This was noticed by the CIT(A) and the same was disallowed by him which resulted in enhancement of income. 33. We have heard both the parties on this issue. As noticed by the ....