TaxTMI 
TaxTMI 
2016 (7) TMI 315
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....ments. For the purpose, the assessee had entered into contract with the State/Central Governments and local authorities to execute the infrastructural works as per the contract agreement made and claimed deduction u/s.80IA for the construction of above infrastructural works. During the current year, the assessee has claimed deduction u/s.80IA in respect of profits earned out of three projects, viz., 1. Modi Under pass 2. Kumbakonam, 3. Thiruvallur Kadambatur During the course of scrutiny proceedings, it was noticed that the assessee has not made any suitable development agreement with the Central/State Government, local body or any other statutory body for the purpose of developing infrastructure facility as required under the provisions of the Income Tax Act. Accordingly, the disallowed the claim of the assessee u/s.80IA of the Act by applying the Explanation to sec.80IA of the Act. Against this, the assessee went in appeal before the Commissioner of Income-tax(Appeals), who following the earlier order of the Tribunal in assessee's own case for the assessment year 2004-05 in ITA No.544/Mds/2010 dated 13.9.2011 allowed the claim of the assessee, by observing that the as....
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....nged to besides others, a road including toll road instead of the hitherto existing expression road ; and (iii) that the requirement of transferring the infrastructural facilities developed by the enterprise to the Central or the State Government or the local authority within the time stipulated in the agreement was done away with. These changes, however, would not alter the situation vis-a-vis the Explanation. The basic requirement of the enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining infrastructure facility was not done away with. Even as amended with effect from April 1, 2002, section 80-IA(4) could be construed as not including execution of works contract as one of the eligible activities for claiming deduction. In 2007, the Explanation below sub-section (13) of section 80-IA came to be added which clarified that nothing contained in the section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be. However, this was not found to be sufficient. With a view to preventing such misuse of the tax holiday under section 80-IA , it was p....
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....it has not executed the work contract by producing relevant material to contradict the finding given by the Assessing Officer. We, therefore, hold that the assessee is a works contractor. 7. Now the only issue before us for consideration is whether the works contractor is eligible for deduction under section 80- IA(4) of the Act or not. It is pertinent to mention here that the Finance (No.2) Act, 2009 added an Explanation to sub-section(13) of Section 80-IA with retrospective effect from 1-04-2000, which reads as under : "Explanation.- For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in subsection (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1)." 8. As per the above Explanation to sub-section (13), works contractor is not eligible for deduction u/s 80-IA(4) of the Act. The very same Explanation was considered by the Tribunal, "I" Bench Mumbai in ITA No. 5172/Mum/2008 in the case of The Indian Hume Pipe Co. Ltd. v. DCIT for the a....
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....Bench of this Tribunal in the case of The Indian Hume Pipe Co. Ltd. (supra), we reverse the order passed by the learned CIT(Appeals) and restore the order passed by the Assessing Officer. 11. Insofar as the case law relied on by the learned counsel for the assessee in the case of ABG Heavy Industries Limited (supra) is concerned, the Hon'ble Bombay High Court has not at all considered the issue, whether works contractor is eligible for the deduction under section 80-IA(4) or not. The only issue before the Hon'ble Bombay High Court was whether the assessee has to develop the entire Port in order to qualify for deduction under section 80-IA. Therefore, the Hon'ble Bombay High Court never discussed anything with regard to the works contractor or such contractor is eligible for the deduction under section 80-IA(4) of the Act. The case before the Hon'ble Bombay High Court was that of an assessee who was a developer and the only dispute was whether the assessee was to develop the entire Port or not. In those circumstances the Hon'ble Bombay High Court has held that it is not necessary for an assessee to develop the entire port in order to qualify for deduction under section 80-I....
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....r 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 executes 'works-contracts'. Explanation in question, as it stands today, reads as under : "Explanation - For the removal of doubts, it is hereby declared that nothing contained in this section (i.e. 80IA) shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be." In contrast to this, a person who enters into a contract with another person (i.e. undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80-IA. 10. We have found that the assessee-company is a works contractor, who has entered into agreement with the local bodies to execute certain part of the work awarded to it through contract for infrastructure facility. It is true that where a person who makes civil work will be eligible for tax benefit u/s.80IA of the Act. In contrast to t....
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.... 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 enterprise and the word 'enterprise' connotes all the related activities performed either through unified operation or common control by any person or persons for a common business purpose. The mens legis with reference to developer of infrastructure facility can be gathered from the memorandum explaining the provisions in the Finance Bill, 2007, reported in [2007] 289 ITR (St.)292 at page 312, which reads as under: "Section 80-IA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and special economic zones. 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 b....
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....sues 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 and maintaining the infrastructural facilities. In our opinion, the answer to these question are provided by the judgment of the Bombay High Court in the case of ABG Heavy Engg Ltd (supra). In this regard, 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 1 st April, 1995. The same requirement is embodied in subclause (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 fulfill the condition. The submission is fallacious both in fact and in law. " That the assessee was maintaining the facili....
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....erson 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 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 fulfill the condition at subclause (c) which is an impossibility and the requirements to fulfill 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 fo....
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.... 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 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 contr....
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....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 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 therefrom 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 facilit....
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....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 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. 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) 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 ....
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....s 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 (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and 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 purposes 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 a....
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....Act. Admittedly, the assessee is a limited company and it satisfies this condition. 6.2 In our opinion, sec.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 in Circular Nos.779 dated 14.9.1999 and 794 dated 9.8.2000 clarified that pure developer should also be eligible to claim deduction under sec.80IA of the Act, which ultimately culminated into Amendment under sec.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 sec.80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under sec.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....
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....tion to sec.80IA(13) was not in the present form and being so, the Tribunal took a note of earlier Explanation to sec.80IA(13) of the Act and decided the issue in favour of the assessee. More so, the judgment of the Gujarat High Court in the case of Katira Construction Ltd. cited supra, was not available before the Tribunal as well as before the lower authorities, for consideration, which was delivered on 28.3.2013. Further, neither the AO nor the CIT(Appeals) have gone through each agreement of the contract entered into by the assessee to carry out the projects. 7.1 It is also pertinent to note that in the case of CIT v. Hi Tech Arai Ltd. (321 ITR 477) the jurisdictional High Court held that simply because a Co-ordinate Bench of the Tribunal had taken a different view, the Tribunal on this occasion also ought to have followed the same, having no merit. When it is found that the Tribunal has applied a law correctly in the impugned order, there is no gainsaying that there was an earlier order by the Coordinate Bench and, therefore, for that reason, this time also the Tribunal should have blindly followed its earlier decision even if such earlier decision did not reflect the corre....
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....ue expenditure. Accordingly, ITA Nos.560 & 561/Mds/13 are partly allowed. CO Nos.85 to 88/Mds/2013: 12. The first common ground in all the cross objections is in supportive of the order of the CIT(Appeals) regarding the deletion of addition made u/s.80IA of the Act. 13. Since, we have adjudicated this ground in Revenue's appeal, this ground of cross objection is allowed for statistical purposes. 14. The next ground in CO No.86/Mds/2013 is with regard to restriction of disallowance u/s.14A of the Act. 15. This issue is already decided in favour of the assessee in ITA No.559/Mds/13, while adjudicating the Revenue's appeal by holding that the disallowance sustained by the CIT(Appeals) at 2% is justified and placed reliance on the judgment of Madras High Court in the case of Simpson & Co. Ltd. vs. DCIT in TC(A) No.2621 of 2006 dated 15.10.12. Accordingly, this ground of cross objection is also dismissed as infructuous in CO No.86/Mds/2013. 16. The next ground raised by the assessee in CO No.87/Mds/13 is as follows: "The objections raised by the Department in grounds 3 to 3.4 is not correct as the merits has already been considered in the order of the CIT(A) w....