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TaxTMI 
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2016 (11) TMI 75
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....o.1291/Kol/2013 for A.Y 06-07. The grounds raised by the Revenue per its appeal are as under:- a) That the order of the Ld. CIT(A) is bad in law as the same has been passed in the name of M/s Subhash Projects & Marketing Ltd while the name of the assessee has changed to M/s SPML Infra Ltd w.e.f. 12.04.2010, b) That the Ld. CIT(A) has served a copy of the Remand Report furnished by this office to the assessee but has not provided any opportunity to this office to offer its comments on the rejoinder filed by the assessee in response to the said Remand Report and, thus, has violated the principles of natural justice, c) That the Ld. CIT(A) has failed to appreciate that the definition of the term 'Works Contract' as occurring in Explanation below section 80-IA(13) has not been provided in the Income-tax Act and, hence, the same has to be imported from the related Acts. d) That the Ld. CIT(A) has failed to appreciate that the definitions of the term 'Works Contract' as per Central Sales Tax Act and West Bengal Value Added Tax Act, are applicable in the case of the assessee since the said Acts are applicable to the contracts executed by the assessee, e) That the ....
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....he case in directing to delete the disallowance of deduction u/s 80-IA to the tune of Rs. 7,79,20,811/-; and m) That the Department craves the right to add, delete, modify or abrogate the grounds of appeal during the course of hearing of the case." 4. The Revenue has raised several grounds of appeal but the only common issue arising is that Ld CIT(A) erred in providing deduction u/s. 80-IA(4) of the Act by treating the assessee as developer of infrastructure facility although assessee is executing a works contract. 5. The facts in brief are that assessee in the present case is a Limited Company and engaged in the business of development of infrastructure facility. During the year under consideration assessee has claimed deduction under section 80-IA of the Act in respect of the following projects:- Project name Deduction claimed (Rs) "Judhpur project 2,83,71.828/- Santaldih project 4,08,58,949/- Benihala LIS project 24,54,116/- Urbani LIS 27,18,977/- O&M Bangalore project 35,16,941/- 7,79,20,811/- The aforesaid projects were awarded by Central / State Government / Local Authority / Statutory Body on turnkey basis. The Assessing Officer, duri....
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.... u/s. 80-IA of the Act and considering the same, Ld CIT(A) deleted the addition made by AO by observing as under:- "5. I have considered the facts of the case. I have also perused the rival submissions made by the appellant as well as by the AO. I find that the facts of the present case and the legal issue involved in this appeal are similar to the facts and the legal issue involved in the case of the appellant for the assessment year 2009-10. Ground no 3 and 4 in the present appeal are directed against the action of the AO in disallowing the deduction u/s. 80IA as claimed by the appellant on the projects developed by it on the ground that the appellant is a mere works contractor and is therefore ineligible for deduction by virtue of the Explanation below sub-section (13) of section 80IA. I have dealt with this issue in detail in my appellate order dated the 18th March, 2013 in the case of the ape for the assessment year 2009-10 in Appeal No. 205/CCXXVIII/ CIT(A)C-I/11-12 wherein, after considering the facts of the case of the appellant and duly examining the legal position on section 80IA, I have held that the appellant is a 'developer' of infrastructure facilities as required un....
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....d to a substantial amount of risk by virtue of engaging his establishment in the infrastructure projects. In addition, the assessee was exposed to risk of non-completion of work within time, any damage caused to the works, site etc., increase in prices of materials, labour etc. beyond what the Government had agreed to compensate as per the agreement. Now, since the assessee is not of a works contractor simplicitor, it is clearly outside the purview of the Explanation to section 80-IA(13) of the Act. To substantiate the above attention is invited to the agreements with government authorities, which have been discussed in detail in the following paragraphs: I. Jodhpur Project: Rs. 2,83,71,828/- The agreement for the aforesaid project is enclosed at pages 1-60 of paper book. The following conditions listed in the agreement clearly establish that the assessee was a developer and not a mere works contractor: A. Scope of work: (i) Drawings and design: The assessee was responsible for the design of the work under the contract and was also responsible for accuracy of the said designs. (pg. 38, para 9.1) The assessee was to carry out preparatory works such as Topographic survey, soil ....
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.... assessee was to bear all costs and charges for special/temporary rights of way which may be required for the work. (para 7.9 on page 36) (xii) Security of the site: The assessee was to provide adequate manpower and means for the security of the material, work-in-progress etc. It was responsible for keeping unauthorised persons off the site. (page 36 & 37, para 7.11) (xiii) Defects Liability period: Even after completion of works the assessee was responsible for correcting defects in the works for a period of 24 months from the date of issue of certificate for completion of works. (Pg. 42) (xiv) Operations & Maintenance: The project had an operation and maintenance period of 5 years.(page 3) B. Investment: In order to undertake the said project the assessee was to forward a sum of Rs. 41 lacs/ 1.63 crores as Earnest Money Deposit (see page 3 & 4). Further, it was to deposit an amount equal to 10% of the contract value towards security deposit in cash or in form of bank guarantee or by way of deduction from running bills. (see page 3 & 5). The said Deposit was to be released only after satisfactory completion of the maintenance period (pages 53 & 48). A perusal of Project Bala....
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.... conduct tests, at its own cost, as specified. (pg. 143, para 21.1) (iii) Labour: The assessee was required to make arrangements for labour required for the work (para 16.5, page 140. It was responsible for payment of wages and was required to observe that hours and conditions of labour are not unfavorable. (page 139, para 16.3). In addition to the above, the assessee was to deploy engineers and supervisory personnel required for work. [pg. 136, para (j)] Further it was responsible for providing accommodation and daily transport to its labour and other personnel. [pg. 135 paras (f) & (g)] (iv) Erection/Construction tools, Tackles and Machinery: The assessee was to provide all construction/erection machinery, tools, tackles and scaffolding required for work. (Pg. 144, para 22.10) (v) Insurance: The assessee was required to arrange, at its own cost, all insurance pertinent to the work. (highlighted portion on Pg. 116) (vi) Site office: The assessee had the responsibility of site office construction and approach rods as required. [page 136, para (k)]. Further it was to bear all expenses for special and temporary way leaves required in connection with access to the site. (pg. 144, ....
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....onsible for the development of the entire infrastructure facility. In order to do so, it deployed its various resources, materials, labour, supervisor, Engineers etc. It made substantial investments and exposed itself to various risks. Hence, it is clear that the assessee was a developer in the aforesaid project and hence is eligible for deduction u/s 80-IA. Ill. Urbani Lift Irrigation Scheme: Rs. 27,18,977/- The agreement between the assessee and Karnataka Neeravari Nigam Limited for the aforesaid project is enclosed at pages 149-237 of paper book. The following conditions listed in the agreement clearly establish that the assessee was a developer and not a mere works contractor: A. Scope of Work: (i) Drawings and designs: The assessee was responsible for the drawing and design of temporary works. It was required to submit the said drawings to the Engineers and obtain his approval before starting such work (Para 18.2 & 18.5 of page 184, 185) (ii) Materials required for the Project: The contractor was responsible for procurement of required quantity of pipes, special machinery, electrical items etc. (Pg. 198, para 18) (iii) Labour: The contractor was required to make its ow....
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....he assessee of all its responsibilities. The said guarantee could have been forfeited by the Nigam in order to recover any sums from the assessee. (see last para on page 213) (iii) The assessee was wholly responsible for any injury or damage to persons and properties, which may occur irrespective of any precautions he may take during the execution of the works. The assessee was to make good all claims and loss arising out of such accidents and indemnify the Employer from all such claims and expenses. (Para 2, page 199) (also see clause 19, page 226) D. Conclusion: From the aforesaid conditions, it is clear that the assessee was not merely responsible for supplying labour for the aforesaid project, but rather was responsible for the development of the entire infrastructure facility. In order to do so, it deployed its various resources, materials, labour, supervisor, Engineers etc. It made substantial investments and exposed itself to various risks. Hence, it is clear that the assessee was a developer in the aforesaid project and hence is eligible for deduction U/S 80-IA. IV. Benihala LIS Project: Rs. 24,54,116/- The agreement for the aforesaid project is enclosed at pages 244....
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....an sanitary facilities on the site for use of its employees. (para 7 on page 276) * Watching and lighting (page 278, para 15) (viii) Royalty etc.: All quarry fees, royalties and octroi dues levied by the State Government or any local body or authority and ground rent was to be paid by the assessee. (Clause 37(b) on page 312) (ix) Temporary diversion of roads: The assessee was to make at its own cost all necessary provision for the temporary diversion of roads, cart-tracks, footpaths, drains, water courses, channels etc. (para 12 on page 277) It was to pay customary vehicle license and permit fees for use of public roads. (para 10 on page 277) (x) Operation & Maintenance of the system: As per scope of work on page 245, the assessee was responsible for proper operation of the installations for 2 years. Further it was to maintain the system in good order for 1 yr [see page 290 clause (f)] B. Investment: In order to undertake the said project the assessee was to furnish an Earnest money deposit equal to 1 % and further security deposit equal to 6.5% of the cost of work for diligent and due fulfillment of all obligations under the contract (page 289). The said deposit was to be r....
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.... similar facts allowed the claim of the assessee u/s 80-IA. Now coming to the AO's contention that when the assessee executes a project with advances received from Government, the very purpose of private sector participation is defeated (ground j). In this regard it is clarified that advances (if at all any was received) were received against furnishing of bank guarantee (of an equal or higher amount) by the assessee. Further, a perusal of the project Balance Sheets (already discussed above) have already exhibited the funds deployed by the assessee in the given projects. Thus, the claim of the AO that no finance was provided by the assessee is factually incorrect. 8. We have heard rival contentions and perused the materials available on record. From the foregoing discussion we find that the provisions of Section 80-IA of the Act applies to the 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 9 or by an authority or a board or ....
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....as per the explanation to section 80- IA(13), the deduction is not available to him. According to the AO, the investments were made by the Government authorities because the assessee was receiving payments in progress of the works on measurement. Attention in this regard is firstly invited to the provisions of the Explanation of Section 80-IA of the Act as produced below: "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 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). " From a plain reading of the above it is clear that deduction u/s 80-IA does not apply to works contract. Now the relevant question arises before us for adjudication is that what constitutes a works contract. Section 80-IA nowhere defines the term "works contract", hence the natural meaning of the word shall apply. As per the Oxford dictionary the term "work" means application of effort to a purpose or use of energy. Thus going by the dictionary meaning we may say that a ....
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.... the sum credited to his account or paid to him in pursuance of the contract, but deduction is to be made out of payments made to the contractor." 8.2 We see no reason to curtail or to cut down the meaning of the plain words used in the section. ''Any work" means any work and not a "works contract'', which has a special connotation in the tax law. Indeed in the sub-section the "work" referred to therein expressly includes supply of labour to carry out a work. It is a clear indication of the Legislature that the "work" in the sub-section is not intended to be confined to or restricted to "works contract". The issue before the Supreme Court in the aforesaid case was whether the term "work" used in section 194C needs to be restricted to "works contract". The Apex Court laid out that the term "work" used in section 194C need not be restricted to "works contracts" (i.e. labour contracts) because the subsection expressly includes supply of labour to carry out work. In other words, it is implied that works contract means supply of labour to carry out work. Thus from the above we may say that a works contract constitutes a contract under which the contractor is merely emp....
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....ion 80-IA(l3) means a contract of developing infrastructure by merely employing labour and making no investments. We also find support from the following judgments: The Hyderabad bench of Tribunal in case of M/s. GVPR Engineers Ltd. Vs. ACIT (2012) 32 CCH 0296 HydTrib (2012) 51 SOT 0207 (Hyd) (URO). The relevant extract of the order is reproduced as under : "The next question to be answered is whether the assessee is a developer or mere works contractor. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. The Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's responsibility to do all acts till the possession of property is handed over to the Governm....
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....r and not a works contractor as presumed by the Revenue. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer." 8.3 It was also observed that "The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Similarly the Chennai Bench of Tribunal in case of R.R. Constructions, Chennai vs Department Of Income Tax 2013) 35 CCH 0547 Chen Trib (2015) 152 ITD 0625 (Chennai) held that "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" Thus, the memoran....
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....sessee as on 31.3.2009 and 31.3.2010 respectively, copies of which are furnished by the assessee at pages 21 and 66 of the paper-book. In this view of the matter, the reason given by the CIT(A) on this aspect for denying deduction to the assessee under S.80-IA is also not valid. Thus in light of the aforesaid decision of the Tribunal Hyderabad Bench, the contention of the AO is not valid. Further, merely because the assessee was receiving payments from the Government in progress of work it cannot be said that the projects were financed by Government. In this regard it is pointed out that under sub-section 4 of section 80-IA, deduction is available to a developer, i.e. if, an assessee, merely develops the infrastructure facility without operating and maintaining the same, it is entitled to deduction. The Bombay High court in case of Commissioner of Income-tax v. ABG Heavy Industries Limited [322 ITR 323] observed that "Parliament amended the provisions of section 80-lA of the Act so as to clarify that in order to avail of a deduction, the assessee could (i) develop ; or (ii) operate and maintain ; or (iii) develop, operate and maintain the facility. The condition as regards develop....
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....(4). The contention of the assessee finds strength from the following judgments: The ITAT (Mumbai) in case of ACIT v. Bharat Udyog Ltd. (2009) 123 TTJ 0689 : (2009) 23 DTR 0433 : (2009) 118 ITD 0336 : (2008) 24 SOT 0412 "After the amendment effected by Finance Act, 1999 w.e.f. 1st April, 2000, the deduction under s. 80-IA(4) has become available to any enterprise carrying on the business of (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Sub-cl. (c) of cl. (i) of s. 80-IA(4) is obviously applicable to an enterprise which is engaged in 'operating and maintaining' the infrastructure facility on or after 1st April, 1995. It is not applicable to the case of an enterprise which is engaged in mere 'development' of infrastructure facility and not its 'operation' and 'maintenance'. Therefore, the question of 'operating and maintaining' of infrastructure facility by such enterprise before or after any cut off date cannot arise. However, if the contention of the Departmental Representative is accepted, it would obviously/understandably lead to manifestly absurd results. When the Act provides for deduction undisp....
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....has no other source of recoupment of his cost of development. Considered as such, the business activity of the nature of build and transfer also falls within eligible construction activity, that is, activity eligible for deduction under s. 80-IA inasmuch as mere 'development' as such and unassociated/ unaccompanied with 'operate' and 'maintenance' also falls within such business activity as is eligible for deduction under s. 80-IA. Therefore, merely because the present assessee was paid by the Government for development work, it cannot be denied deduction under s. 80-IA(4). A person who enters into a contract with another person will be a contractor no doubt; and the assessee having entered into an agreement with the Government agencies for development of the infrastructure projects, is obviously a contractor but that does not derogate the assessee from being a developer as well. The term "contractor" is not essentially contradictory to the term "developer". On the other hand, rather s. 80-IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a local authority. So, entering into a lawful agre....
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....cture facility. If the interpretation done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing he infrastructure facility would be entitled to deduction under section 80IA(4), which is not the intention of the law. An enterprise, which 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. 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 development infrastructure facility. Ostensibly, a developer would have income only if he is paid for the development of infrastructure facility, for the simple reason that he is not having the right/authorization to operate the infrastructure facility and to collect toll there from, has no other source of recoupment of his cost of development. The Indore Bench of the Tribunal in case of Sanee Infrastructure Pvt. Ltd. vs. ACIT [138 ITD 433] held that "As per our considered view, a....
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....agerial as well as financial responsibility. (d) That the role of a developer, according to us, is larger than that of a contractor. (e) That when a person is acting as a developer, then he is under obligation to design the project, it is another aspect that such design has to be approved by the owner of the project, i. e. the Government in the present case. (f) That he has not only to execute the construction work in the capacity of a contractor but also he is assigned with the duty to develop, maintain and operate such project. (g) That to ascertain whether a civil construction work is assigned on development basis or contract basis can only be decided on the basis of the terms and conditions of the agreement. Only on the basis of the terms and conditions it can be ascertained about the nature of the contract assigned that whether it is a "work contract" or a "development contract". (h) That in a development contract" responsibility is fully assigned to the developer for execution and completion of work. (i) That although the ownership of the site or the ownership over the land remains with the owner but during the period of development agreement the developer exercise complete d....
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....hat the assessee shall execute and furnish indemnity bond for a period of four years, indemnifying the Government against any loss or expenditure incurred, to repair any defect noticed due to faulty working done by the contractor or substandard material used by the contractor. Further, it is also mentioned in the contract agreement that the assessee shall not claim for any loss due to foreseen circumstances, including suspension of work due to cause. It is also provided that in the event of accident to people employed by the assessee resulting in compensation to be paid as per the Workmen's Compensation Act the same shall be paid by the contractor, viz. the assessee only. In view of the various specific clauses in the agreement fastening the risks to be undertaken by the assessee, discussed above, it cannot be said that the assessee has not undertaken any risk. 8.7 From the above, it is clear that the contention of the AO that the assessee had not undertaken any entrepreneurial and investment risk is an incorrect interpretation of the facts. Lastly, with regard to the project O&M, Bangalore (on which a deduction of Rs. 35,16,9411- was claimed), it is submitted that it is an op....
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....ontract' as per Central Sales Tax Act and West Bengal Value Added Tax Act, the assessee-company is simply a contractor who merely executed works contract and hence not entitled to the deduction u/s 80lA within the scope of Explanation below section 80-IA(13) of the Act f) That the Ld. CITCA) has failed to interpret the legislative intent of the provisions of section 80-IA to the extent spelt out in CBDT's Circular No. 3 of 2008 dated 12.03.2008, which states that the incentive of deduction u/s 80-IA has all along been intended to benefit developers who undertake entrepreneurial risk and investment risk and not contractors who only undertake business risk, g) That the Ld. CIT(A) has failed to understand the difference between the 'Development Agreement' and 'Construction Contract' where in the former's case, there is no commitment in terms of revenue to be generated while in the case of the later, there is always a fixed commitment of revenue, h) That the Ld. CIT(A) has failed to appreciate that when an assessee execute a contract against a pre-determined amount of revenue, it cease to undertake any entrepreneurial risk and investment risk and thus ....