TaxTMI 
TaxTMI 
2017 (3) TMI 1050
X X X X Extracts X X X X
X X X X Extracts X X X X
....at assessee in the present case is a Limited Company and engaged in the business of contract work as observed from the assessment order. During the year under consideration, assessee has claimed deduction u/s 80-IA of the Act in respect of the following projects:- Sl. No Contract No. Name of the party for whom the assessee worked Description of project Amount of deduction claimed u/s. 80IA 1 C2067-2068 Kolkata Municipal Corporation Sewerage Rs.3,04,74,858/- 2 C2094-2104 Govt. of Assam Flyover Rs.17,08,66,992/- 3 C2130 Executive Engineer (Project), Bangalore Construction of flyover Rs.44,59,568/- 4 C2137 Haldia Dock Complex Construction of one multipurpose berth within the impounded dock basin with heavy duty pavement, concrete road and drainage network at Haldia Dock Complex Rs.22,29,536/- 5 C2175 Paradip Port Trust Creation of additional facilities for oil jetty at Paradip Port Rs.54,67,876/- 6 C2115 Airport Authority of India Airport Rs.11,66,613/- 7 C2124 National Highways Authority of India Widening & strengthening to 4-lane of existing signal/intermediate lane c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eeded for construction to bring into existence an infrastructure facility. Further it was exposed to various risks like risk of damage of property, risk of accidents etc. therefore, having regard to the fact, and emerging legal position, in my view, the Assessing Officer was not justified in holding that the appellant company was merely executing works contract and therefore it was not entitled for the tax holiday benefit under section 80-IA(4) of the Act. It my also be noted here that in the case of Patel Engineering Ltd. V. CIT [2004] 84 TTJ (Mum) 646, the Mumbai Bench of the Tribunal has held that the enterprise must carry on the business of (a) developing, or (b) maintaining and operating or (c) developing, maintaining and operating any infrastructure facility. It is not necessary that the entire infrastructure project is to be developed by one enterprise. In another case of CIT v. Bharat Udyog Ld. [2008] 24 SOT 412 (Mum), it has been held that if an assessee is engaged in developing infrastructure facility (i.e road) but not engaged in "operating and maintaining" said facility, it can claim the benefits of deduction under section 80-IA. The ratio laid down in the reported c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly :- (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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 works contract is a contract which involves effort or in other words labour of the contractor. Further as per the Black's Law Dictionary, the term "work" means labour or in other words physical and mental exertion to attain an end esp. as controlled by and for the benefit of the employer. Thus as per Blacks's Law also a works contract is a labour contract under which the contractor merely employs his labour as per the directions of the contractee. Further, attention is invited to relevant extracts of section 194C of the IT Act: "(iv) "work" shall include- (a) Advertising; (b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) Carriage of goods or pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 employing his efforts or labour. Under such a contract, the contractee provides the material and other requisites (a complete infrastructure) needed to carry out the desired work to the contractor who by applying his labour to the said material turns the material into a desired product. Further, attention is invited to 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-lA, 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 indust....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l 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 memorandum explaining the provisions in the Finance Bill, 2007, further strengthens the contention of the assessee that a works contract is a contract which involves mere labour of the contractor. However, if under a contract, the contractor employs his capital and enterprise in addition to labour, then the said contract does not constitute a works contract under the Explanation to section 80-IA(l3) and the contractor shall be eligible for deduction U/S 80-IA. Now coming to the facts of the case, it is submitted that the assessee was not mere works contractor, who had merely employed its labour under the projects from the various government authorities. The assessee was a developer. In addition to e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 development, operation and maintenance of an infrastructure facility was contemporaneously construed by the authorities at all material times, to cover within its purview the development of an infrastructure facility under a scheme by which an enterprise would build, own, lease and eventually transfer the facility. " "This was perhaps a practical realisation of the fact a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. Parliament when it amended the law was obviously aware of the administrative practi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 undisputedly for an enterprise who is only 'developing' the infrastructure facility, unaccompanied by 'operating and maintaining' thereof by such person, there cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 1st April, 1995. Since the assessee is only a developer of the infrastructure project and it is not maintaining and operating the infrastructure facility, sub-cl. (c) of cl. (i) of sub-s. (4) of s. 80-IA is not applicable. The interpretation of Revenue is absurd also in view of the rationale of the provisions of s. 80-IA(4)(i). From the asst. yr. 2000-01, deduction is available ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see 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 agreement and thereby becoming a contractor should, in no way, be a bar to the one being a developer. Therefore, merely because in the agreement for development of infrastructure facility, assessee is referred to as contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a developer; nor will it debar the assessee from claiming deduction under s. 80-IA(4). Therefore, an assessee who is only engaged in the developing the infrastructural facility i.e., road and not engaged in the 'operating and maintaining' the said facility is entitled to the benefits of the deduction under s. 80-IA(4).-Patel Engineering Ltd. v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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, after amendment by the Finance Act, 2002 for claim of deduction u/s 80IA(4) infrastructure facility is only required to be developed and there is no condition that assessee should also operate the same. Thus, after amendment, when the assessee is not required to operate the facility, the payment for development of such infrastructure is required to be made by the Government only. "After amendment, when assessee undertakes to develop the infrastructure facility only, it is the Government who will make payment to assessee in respect of infrastructure facility developed by it in terms of agreement so entered with Government. Thus, we do not find any infringement of conditi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 domain over the land or the project. That a developer is not expected to raise bills at every step of construction but he is expected to charge the cost of construction plus mark-up of his profit from the assignee of the contract. (k) That a developer is therefore expected to arrange finances and also to undertake risk. (I) That in contrast to the rights of a "contractor" a "developer" is authorized to raise funds either by private placement or by financial institutions on the basis of the project. These are few broad qualities of a developer through which the character of a developer can be defined. " (ii) ITAT(Hyderabad) in case of Koya and Co. Construction (P) Ltd.....