TaxTMI 
TaxTMI 
2012 (3) TMI 504
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....ike HUDA, ICICI Park, HMWSSB, MWSSB, TNWSDB, TWAD etc. The claim of the assessee is that the company had been allotted the work of development of infrastructure and handed it over to the Government as an infrastructure after completion and hence it is to be allowed as deduction under section 80IA(4) of the Act. In this case, the assessee has undertaken infrastructure development activities either individually or in a consortium of companies which is developing, maintaining and operating and developing, maintaining and operating as under: 1. NALCO Captie Power Plant 2. NTPC Thermal Power 3. RITES Railway Lines 4. TATA Telecom 5. Reliance Inds In consortium with NIKO Resources of Canada Natural Gas The lower authorities were of the opinion that the assessee has not undertaken the infrastructure activities and it does not own the infrastructure itself and according to the assessing authority, the assessee only contractor carrying on construction of the infrastructure and therefore not eligible for deduction under section 80IA(4) of the Act. Accordingly, deduction under section 80IA(4) was den....
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.... or undertaking wholly engaged in the business referred to in sub-section (4) of section 80-IA or in a housing project referred to in sub-section (10) of section 80-18 will not be included in computing the total income. This will remove the requirement of consequential amendment in section 10(23G) as a result of any future change in section Bo-IA regarding infrastructure. 17.4 This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent assessment years. [Section 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 a....
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....ly amended to clarify that this would include services. Such services may include marketable services of operation and maintenance (O&M) in case of infrastructure facilities, marketable services for distribution of electricity and specified marketable services in telecom. Instead of the words "industrial undertaking" occurring in section 8O-IA, the word "undertaking" has also been substituted in the provision for the same reason. 47.6 These amendments will take effect from the 1st day of April, 2002, and will, apply in relation to the assessment years 2002-03 and subsequent years. On reading the above section and the notes on clauses/CBOT 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 80-IA." 4. From the above, he submitted that the ente....
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....ing the infrastructure facility, sub-clause (c) of sub-section (4) of section 80-IA was not applicable. [Para 8] Further, from the assessment year 2000-01, deduction under section 80-IA(4) is available if the assessee carries on 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 would be paid for the cost incurred by it; otherwise, how would 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. 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 on....
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....als) was correct. [Para 13]" 5. Further, he drew our attention to the decision of Bombay High Court in the case of CIT v. Glenmark Pharmaceuticals Ltd. [2010] 324 ITR 199/ 191 Taxman 455, the relevant extract of the head note reads as under: "By the Finance Act of 2009, which substituted the provisions of section 194C, the expression 'work' has now been defined in clause (iv) of the substituted Explanation. Clauses (a) to (d) are the same as clause (a) to (d) of the erstwhile Explanation III. However, the Explanation (e) has now been inserted. [Para 26] What has weighed in the introduction of clause (e) of the Explanation was ongoing litigation on the 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 langua....
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....f circulars of the CBDT and judicially in the judgments of the several High Courts. Consequently, the principles underlying the applicability of section 194C as construed administratively and judicially in decided cases, find statutory recognition in the Explanation. The Explanation, therefore, as the Memorandum explaining the clauses of the Finance Bill, 2009 states, was in the nature of a clarification. Where an explanatory provision is brought to remove an ambiguity or to clear a doubt, it is reflective of the law as it has always stood in the past, whereas, in the instant case, an Explanation is introduced statutorily to adopt an understanding of the law-both in the form 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. T....
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.... at the end of the above said period and as such the assessee is a developer and also operating the system for a certain period. Accordingly, the assessee is entitled for deduction under section 80IA of the Act. He submitted that the assessing officer ignored the fact in all the contracts handed over to the assessee for development of the infrastructure facility. In few cases, after operation for certain period, had to re-hand over back the entire site with the infrastructure facility developed to the owner. He drew our attention to the copies of agreement entered with the State Government. He drew our attention to para-5 of the assessment order where the assessing officer noted as follows: "5. In view of the aforesaid judicial pronouncements, "it can be held that deduction u/s 80-IA cannot be computed in respect those who only built the infrastructure facility but did not began to operate it, since in such cases, the computation provision of sub section (2) of section 80-IA fail. The harmonious construction of section 80-IA(2) and sub-clause (b) of clause (i) of sub-section (4) of section 80IA with other parts of section 80-IA is that the word 'developer' refer to....
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....ts undertaken by the assessee are on BOT/BOOT model. On the perusal of the nature of work done in these contracts, it is evident that none of the projects were conceived, designed and planned by the assessee. In none of the projects, the assessee has undertaken the operation and maintenance of the facilities built. Moreover, the assessee was not given the contract for building the entire facility. Only construction of part of the project was given to the assessee. These projects were not funded-by the assessee and the entire capital investment-was made by the Government/local authority/statutory body who awarded the contracts to the assessee. Hence it cannot be said that the assessee has entered into these contracts for developing an infrastructure facility in view of my discussion above where I have held that development of an infrastructure facility conceiving, designing, planning, financing, building and operating facility. 7.1 The Agreements entered by the assessee were for building or constructing the whole or part of the projects in which the entire investment was made by the Government and the assessee was paid on 'running bill to bill' basis. Hence, there w....
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....ied on the order of the ITAT, Mumbai larger Bench in the case of B.T. Patil & Sons Belgaum Construction (P.) Ltd. v. Asstt. CIT [2010] 35 SOT 171. 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 attention to the order of the Tribunal in the case of B.T. Patil & Sons Begaum Censtruction (P.) Ltd. cited (supra) specifically to paras 36 to 41 which reads as follows: "36. Here it is important to mention that the Legislature inserted the word 'or' between (i) and (ii) with effect from 1-4-2002, which is applicable to assessment year 2002-03. So with effect from the assessment year 2002-03, not only the enterprise (i) developing, (ii) operating and maintaining the infrastructure facility shall be entitled to deduction, but also the enterprise which is only (i) developing or (ii) operating and maintaining the infrastructure facility. From such year onwards the enterprise which only develops the infrastructure facility and thereafter transfers it to someone else for operating and maintaining on behalf of transferee shall also be covered for the ....
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....uthorities 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 planning, designing, engineering and financing, etc., of the project. He relied on the judgment of the Hon'ble Supreme Court in the case of Hindustan Aeronautics Ltd. v. State of Orissa [1984) 55 STC 327in which it has been observed that in a contract for work, the person producing has no property in the thing produced as a whole, even if part or whole of the material used by him may have been his property earlier. He also relied on another judgment of the Hon'ble Supreme Court in the case of Tamil Nadu v. Anandam Vishwanathan [1989) 1 SCC 613 in which it was held that the nature of contract can be found only when the intention of parties is found out. The fact that in the execution of the works contract some material are used and the property in the goods so used passes to the other party, the contractor unde....
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....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 according to the plain dictionary meaning of the terms used therein". Similar view has been expressed by the Hon'ble Supreme Court in the case of CWT v. Officer-In-Charge (Court of Wards) [1976] 105 ITR 133in which it was held that the ordinary dictionary meaning of a word cannot be disregarded. 40. Coming back to our point of ascertaining the meaning of the words 'contractor' as well as 'developer', which have neither been defined in the Act nor in the General Clauses Act, we fall upon Oxford Advanced Learner's Dictionary to find out their meaning. According to this dictionary, "developer" is a person or company that designs and creates new products, whereas "contractor" is a person or a company that has a contract to do work or provides services or goods to another. The New Shorter Ox....
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....actor 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 CIT v. ABG Heavy Industries Ltd. [2010] 322 ITR 323/ 189 Taxman 54wherein 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 infrastructure is a sine qua non for economic development. Absence of infrastructure poses significant barriers to growth and development. A model which relied exclusively on the provision of basic infrastructure by the State was found to be deficient. Section 80-lA was an instrument of legislative policy, conceived with a view to provide an impetus to private sector participation in infrastructural projects. Contemporaneously, with the provisions which were made by Parliament in section 80-IA of the Act, explanatory circulars issued in an administrative capacity by the Central Board of Direct Taxes held the field. These circulars gave expression to the scope and ambit of the concession was provided by section 80-lA. The evolution of section 80-lA would show a progressive libe....
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....lity 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 commence after April 1, 1995 has to be harmoniously construed with the main provision under which a deduction is available to an assessee who develops; or 'operates and maintains; or develops, operates and maintains an infrastructure facility. Unless both the provisions are harmoniously construed, the object intent underlying the amendment of the provision by the Finance Act of 2001 would be defeated. A harmonious reading of the provision in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops; or (ii) operates and maintains; or (iii) develops maintains and operates that infrastructure facility. However, the commencement of the operation and maintenance of the infrastructure facility should be after April 1....
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....he 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 handling equipment on lease for a period of ten years for loading and unloading of containers at the port and that the cranes that were to be supplied by the assessee formed an integral part of the port. JNPT clarified that the contracts had been executed under the BOLT scheme and in accordance with its directions; the cranes would be transferred to the port trust at no cost on the expiry of a period of ten years of the commencement of the contract. The obligations which had been assumed by the assessee under the terms of the contract were obligations involving the development of an infrastructure facility. Section 80-IA of the Act essentially contemplated a deduction in a situation where an enterprise carried on the business of developing, maintaining and....
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....g 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 v. N.C. Budharaja & Co. [1993] 204 ITR 412/ 70 Taxman 312the 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 Finance Act, 2009 and as explained by Circular 794 dated 9-8-2000 Circular 779 dated 14-9-1999 (240 ITR st. 32), Circular 794 dated 9-8-2000, Circular 779 dated 14-98-1999 (240 ITR st. 32), Circular 794 dated 19-8-2000, Circular 14/2001 (252 ITR st. 98) and Circular 3/2008 dated 12-03-2008 (168 Taxman st. 12,54) brings out the objectives of the statute and expectations of the law-makers in bringing the enactment. The statutory provisions as would be apparent from the Circulars and Explanatory Notes referred to herein-above seek to incorporate a quid pro quo between introduction of investment and entrepreneurial resources from the private sector and a tax deduction from the government to enable recoupment of expenditure incurred. The BOT/BOOT models seek to augment infrastructural assets in addition to governmental spending and not....
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....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. 15. 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 purposes of section 80IA after the changes in law w.e.f. 1-4-2002 is not material for adjudication of the grounds in the impugned appellate orders. This is because in ....
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....G Heavy Industries Ltd. (supra) 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 Ltd. (supra). 17. The DR submitted that the decision of the Pune Bench of the ITAT in the case of Laxmi Civil Engineering (P.) Ltd. ( 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 & Sons Belgaum Construction (P.) Ltd. (supra )as well as the Mumbai High Court in ABG Heavy Industries Ltd. (supra) 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 Ltd. (supra) b....
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.... 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 & Sons Belgaum Construction (P.) Ltd. (supra) 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 Ltd. (IT Appeal No. 352 (Hyd) of 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." 19. Without....
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.... 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. 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 retransf....
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....g, 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 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....
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....re 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 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 u....
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....gh Court in the case of ABG Heavy Industries Ltd. (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 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 wa....