TaxTMI 
TaxTMI 
2016 (8) TMI 995
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.... the assessee company was incorporated on 01.11.2089 as a civil contractor. A work order was allotted to the appellant company on 30.11.2006 for provision of rain water harvesting reservoir No. 1-Ordinance Factory Nalanda, Rajgir (Bihar) Package LXXX by Defence Research & Development Organization (DRDO) under the work order No. CCE(R&D)C/OFN/8311/JO/CA-88 dated 30th November, 2006 for Rs. 11,53,91,745/-. The assessee company filed its return of income on 10.11.2007 declaring total income of Rs. 3,82,56,335/-. The case was selected for scrutiny and statutory notices were issued. During the course of scrutiny proceedings, the ld. AO noticed that the assessee company has claimed deduction u/s. 80IA(4) of the IT Act, 1961 (hereinafter referred to as 'the Act') of Rs. 2,47,75,170/-. On being asked to justify the genuineness of the claim of deduction under the above section, the appellant submitted detailed reply and stated that the assessee company was engaged in the civil works and during this year, he has completed works of Rs. 10,57,95,700/- for construction of Water Supply reservoir and related civil works. The appellant submitted the details showing that the total turnover was Rs. ....
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.... and maintaining - OLT Type (iii). Developing, operating and maintaining - BOLT Type 5. The case of the appellant clearly falls within the boundaries of category (i) above. He submitted that the appellant was carrying out development of rain water harvesting reservoir project (infrastructure facility). Necessary documentary evidences regarding allotment of project, satisfactory execution thereof and finally transfer of project to Ministry of Defence were submitted before the lower authorities. The profit & loss account and balance sheet was separately prepared which is at page No. 22 & 23 of the paper book. Calculation of indirect expenses of project and indirect expenses of Head Office, have been calculated on the proportionate basis as placed at paper book page No. 24 & 25. Form No. 10CCB was submitted duly signed by the Chartered Accountant before the Assessing Officer which itself is a certificate from a highly competent professional of accounting and is enough to justify the compliance of the conditions referred to in section 80IA(4). The ld. AO has objected only on the report of CA that each page of Form No. 10CCB has not been signed. He has not rejected the said form N....
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....s a civil contractor for the above project. In this regard, it will be convenient to reproduce the provisions of the section of 80IA(4)ofthel.T. Act, 1961 as under:- "(4) This section applies to- (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely:- (a) it is owned by a company registered in India or by a consortium of such companies [or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;] (b) 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 or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;] (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facil....
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.... to as the transferee undertaking), the deduction under sub-section (1) shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking: [Provided further that in the case of any undertaking which develops, develops and operates or maintains and operates an industrial park, the provisions of this clause shall have effect as if for the figures, letters and words "31st day of March, 2006", the figures, letters and words "31st day of March, [2011]" had been substituted;] (iv) an [undertaking] which,- (a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, [2011]; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, [2011]: Provided that the deduction under this section to an [undertaking] under sub-clause (b) s....
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....s hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (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)." 3.3. In the case under consideration the project was owned by the DRDO. The project was being developed by the DRDO. The appellant company was neither owner of the said project nor developer of the project nor maintaining the new infrastructure facility. It was simply given a contract to undertake civil and earth work of the project in the capacity of a contractor. It was not the developer of the project. Developer is one who takes the initiative and who takes the responsibility of the risk. Thus, profit or loss whatever it may be is taken by the developer. But the contractor is not concerned with the profit and loss of the project. A contractor is interested only in the receipt of amount given in the contract. In order to claim a deduction u/s 80IA (4), an enterprise should be carrying on the business of developing, operating or maintaining any infrastructure facility w....
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....l 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-IA. 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 the tax benefit under section 80-fA. This amendment will take retrospective effect from 1st April, 2000 and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. [Clause 22]." It is clear from the explanatory memorandum that the purpose of section 80IA was to encourage private participation by way of investment in development of infrastructure sector and not for the persons who merely execute the civil construction work or any other work contract. The Explanation specifically mentions that the provisions of section 80IA shall not apply a person who executes a work contracts. It further explains that the benefit will be avai....
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....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 Incometax( 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 assessee is eligible for deduction u/s.80IA of the Act and against this, the Revenue is in appeal before us. 4. The ld. DR relied on the judgment of the Gujara....
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....s 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 proposed to amend the Explanation to clarify that nothing contained in the section shall apply in relation to a business which is in the nature of a works contract executed by an undert....
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.... 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 subsection( 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 subsection (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 assessment year 2004-05 (supra) and vide order dated 29-07-2010 has held as under : "++ the law stands now in the light of retrospective insertion of Explanation below to Section 80IA(13), the assessee is no....
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....n 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-IA. Therefore this decision has no application to the facts of the present case. 12. In view of the above facts and circumstances of the case and the statutory provisions, the appeal filed by the Revenue has to be allowed and we do....
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....' and not to persons who simply executes 'workscontracts'. 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 this, a 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....
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....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 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 s....
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....astructural 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 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 1s1 April, 1995. After Sectio....
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....eloping 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 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 liberal....
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....duction. 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 such purpose by any such developer". In the case of ACIT vs Bharat....
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....ructure 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 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 Authority. Entering into a lawful agreement and thereby becoming should, ....
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....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 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 incurs expenditure on its own for purchase of materials and towards labour....
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....erred 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 activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system (d) a port, airport, inland waterway, inland port or navigat....
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....e 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 who does only mere works contract or sub-contract as distinct from the developer. This is clear from the express intention of the parliament while introducing the Explanation. The explanatory memorandum to Finance Act 2007 states that the purpose of the t....
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....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 correct position of law. 7.2 Further, Mumbai Bench 'I' of this Tribunal in the case of CIT v. Pramod H. Lele (47 SOT 363), held that the decision, which was rendered in ignorance of the terms of a statute or rule, having no statutory force.....
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....ontractors, who undertakes only business risk. 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 word "or" between three activities was not there and after the amendment "or" has been inserted w.e.f.1-4-2002 by Finance Act 2001. Therefore, in our considered opinion that the entities who carry out any of the above activities shall be entitled to claim deduction under this section. Now, it has to be decided whether the assessee in the present case has acted as a developer, as claimed by assessee, or not. In the decision of Hon'ble ITAT Chennai Bench, it has been categorically opined that the deduction under section 80IA of the Act is available to such developers who undertake entrepreneurial and investment risk and not for the contractors, who undertake only the business risk. It is also opined by the Chennai Bench that the contracts, which involves design, development, operating and maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduc....
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.... these payments periodically. Therefore, it is a matter of enquiry whether the assessee has engaged any of its own financial risk in the project so as to ascertain the assessee to be a developer or a works contractor. The periodic huge receipts of payments by the assessee were relatable to development work or civil construction works, has not been examined by the authorities below in terms of agreements entered into between the parties. As also observed by ITAT, Chennai Bench in the aforesaid order, the developers who undertake entrepreneurial and investment risk are entitled for deduction under section 80IA(4) of the Act. Meaning thereby one of the distinction between a works contract and an infrastructure development is the element of risk which is necessary for a developer. Hon'ble ITAT also observed that if the contracts involve design, development, operating and maintenance, financial involvement and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction u/s. 80IA of the Act. As per section 80IA(4), the appellant should be engaged in the eligible business as defined in the section. For this, it was also to be....