AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1164
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....o sub- clause (4) of the said section. It was submitted that it has satisfied the stated conditions - it is owned by a consortium of companies registered in India (being a Joint Venture), it has started operation after 01/04/1995 and it is working in pursuance of agreements with state government of Rajasthan (State Road Project Division, Rajkot) and a statutory body (the NHAI). Further it was submitted that in respect of the infrastructure facilities mentioned in sub-clause (a), (b) & (c) of clause (i) of sub-section (ii) of 80IA, they are covered by proviso and therefore, the words 'develops and begins to operate' are to be substituted by 'develop or operates and maintains or develops, operates and maintains' and accordingly profits derived in course of development shall be deductible without recourse to the activity of 'operation and maintenance'. 3. After considering the submissions of the assessee, the AO was of the view that deduction u/s 80IA could not be allowed to the assessee for the following reasons: "i) While the Sec. 80IA applies to a "developer", the assessee is not a "developer" but only a contractor as mentioned in the agreement between the assesse....
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....s specified, above by transforming the same into a new infrastructure facility under the National highway Development Programme, it shall be declared as eligible for deduction u/s 80IA in respect of the profits derived from the said eligible business. 5. After considering the submissions of the assessee, the CIT(A) elaborately discussed/analysed the issue with various case laws and confirmed the disallowance made by the AO. The relevant paras of CIT(A) are extracted below for the sake of clarity: 15. In the case of the assessee however, it is seen that the assessee has claimed deduction of Rs. 5,96,20,067/- u/s 80IA in respect of the profits from projects wherein it was only a contractor and had acted in that capacity for its employer, the NHAI. It never funded any of the projects so being developed by others but was getting only payments from government/statutory bodies/companies for undertaking the contract work. The assessee is therefore, simply carrying on the business of building the infrastructure as a contractor and not that of developing any infrastructure facility. It is also clear that none of the contracts or sub contracts taken by the assessee were of the BO....
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....ot entitled to deduction even on this account." 6. Aggrieved by the order of the CIT(A), the assessee is in appeal before us raising the following grounds of appeal, which are common in both the AYs under consideration: "1. On the facts and in the circumstances the order of the CIT(A) is erroneous in law and facts of the case. 2. The ld. CIT(A) erred in law and facts of the case in confirming the action of the AO in disallowing the claim of the assessee under section 80IA of the Income-tax Act, 1961 in respect of the new infrastructure facilities being highway projects under an agreement with National Highways Authority of India and Govt. of Gujarat." 7. Ld. AR submitted that the case under consideration is similar to the case of KMC Construction Ltd., vide order dated 28/10/2013 in ITA Nos. 1247 & 1248/Hyd/2012 and others and relied upon the Board's Circular No. 4/2010. He submitted that the AO has relied on departmental circular No. 717 dated 14/08/1995, which is prior to the amendment in section 80IA(4). He further submitted that section 80IA(4) was introduced in 01/04/2000 to encourage the infrastructure facilities and to give benefit to the private part....
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....ute is squarely covered by the decision of the coordinate bench of this tribunal in the case of M/s KMC Constructions Ltd. in ITA Nos. 996/Hyd/2003 and others, vide order dated 16/03/2012, the decision of which has been followed in the subsequent years in other cases also. The coordinate bench has elaborately discussed the issue as under: "44. 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 ....
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....yzed 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 and the Government. We find that the Government/Government body handed over the possession of the premises or the existing road to the assessee till the development of infrastructure facility. It is the assessee's responsibility to do any act till the possession of property is handed over to the Government. If the existing road is to be developed into a four lane road, the first phase is to take over the existing and developed road. Secondly, the assessee has to arrange for the traffic and shall facilitate the people to use the 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 fo....
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....ed as a contractor as he entered into a contract. But the word "contractor" is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word "contractor" is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor. Therefore, the first appellate authority rightly held that the assessee is eligible for deduction under section 80IA (4) for the assessment years 2000-01, 2001-02 and 2002-03. 48. We find that the decision relied on by the learned counsel for the assessee in the case of CIT vs. Laxmi Civil Engineering works [ITA No. 766/Pun/09 dated 8.6.2011] squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of infrastructure facility is an eligible activity for claiming deduction under section 80I....
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....andikhol Section of National Highway No.5 in the State of Orissa. The said work is financed by : Overseas Economic Co-operation Fund, Japan to the Government of India. The Government of India authorized to get the work done by Invitation of Tender. The source of funds as mentioned in the tender (herein Document after referred to as "the Fund") : The Government of India has received a loan from the Overseas Economic Cooperation Fund towards the cost of Widening to four lanes and strengthening of existing two lane carriageway in km. 27.80 to km 61.00 in Jagatpur-Chandikhol Section of NH-5 in the State of Orissa, and intends to apply part of the proceeds of this loan to eligible payments under the contract (hereinafter referred to as the "Contract) for which the notice inviting tenders has been issued by the employer, as authorized by the Government of India. Payment by the Overseas Economic Cooperation Fund(OECF) will be made only at the request of the Government of India and upon approval by the Bank in accordance with the terms and conditions of the loan agreement. Except as the Bank may specifically otherwise agree, no party other than the borrower shall derive a....
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....ur considered view, the assessee should not be denied the deduction under section 80IA of the Act as the contracts involve development/construction, operating/maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract. In our opinion the contracts which contain above features are to be segregated and on these contracts deduction u/s. 80-IA has to be granted and the other agreements which are in the nature of pure works contracts hit by the explanation to section 80IA(13), those works are not entitle for deduction u/s 80IA of the Act. The profit from such is to be computed by assessing officer on pro-rata basis of turnover. The assessing officer is directed to examine accordingly and grant deduction on eligible turnover as directed above. It is needless to say that deduction u/s 80IA was granted in similar case by the Chennai Bench of the Tribunal and deduction u/s. 80IA was granted in the case of M/s. Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287/Mds/06 order dated 27th July, 2007 for the assessment year 2004-05. Later in ITA No. 1179/Mds/08 vide order dated 26th February, 2010 the T....
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....ng the infrastructure facility on or after 01.04.1995. From the assessment year 2000-01, deduction is available if the assessee is carrying out 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 will be paid for the cost incurred by it; otherwise, how will 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. Therefore, merely because the transferee had paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure 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, who develop the infrastructure facility is not paid by the Government, the entire cost of ....
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....ct with another person for executing 'works contracts' is not eligible for such a benefit. Explanation to section 80IA was inserted by Finance Act, 2007 with retrospective effect from 1.4.2000 which has further been amended by Finance (No. 2) Act, 2009 with retrospective effect from 1.4.2000. The amendment in this Explanation was necessitated due to contrary judicial decision on this issue. Thus, we can unequivocally now say that any undertaking or enterprise which executes the infrastructure development project, as referred to in sub- section(4) as a works contract awarded by any person including the Central or State Government, is not eligible for tax benefit u/s 80IA(4). Having said that, now we examine the facts of this case. The assessee-company was given this benefit in assessment year 2003-04 by the Department on identical facts after considering the Explanation and amendment thereto. To trace the history of this deduction, we find that originally, in the provision of section 80IA, there was no mention of any development of 'infrastructure facility'. It is only with effect from 1.4.2000, this section was divided into two portions 80IA and 80IB. Section 80IA(4) prescribes abo....
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....son engaged in development or operation or maintenance of Special economic Zone, and also includes any person authorized for such purpose by any such developer. The "works contract" means an agreement in writing for the execution of any work relating to construction, repair, or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory, workshop, powerhouse, transformers or such other works of the State Government or public undertakings as the State Government may be by notification, specify in this behalf at any of its stages entered into by the State Government or by an official of the State Government or public undertaking and includes an agreement for the supply of goods or material and all other matters relating to execution of any of the said works. The case of ACIT vs Indwell Lianings Pvt. Ltd (supra), on which the Assessing Officer has placed reliance is also relevant and we extract certain relevant portion of this decision for ready reference: Vide Finance Act, 2007, an Explanation was inserted with retrospective effect from April, 2000 after sub-section (13) of section 80- IA, which reads as under ....
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.... section 80- IA shall not apply to a person who executes work contracts entered into with an undertaking or enterprise. Thus, in a case where a person who makes investment and himself executes development works and carries out civil works, will be eligible for tax benefit under section 80- IA 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 the tax benefit under section 80-IA of the Act. In the present case, we find that the assessee was doing only contract works of in situ cement lining for water supply project of the Gujarat Water Supply and Sewerage Board. As such, the benefit of section 80-IA cannot be extended to the assessee. The decisions relied upon by the assessee were rendered prior to the amendment and as such not relevant for deciding this issue. We, therefore, restore the order of the Assessing Officer and reverse the order of the Commissioner of Income-tax (Appeals). " 11. To further elaborate the discussion on this issue, paras 5 & 6 of the decision of ITAT Pune Bench rendered in the case of Laxmi Civil Engg. P. Ltd vs Addl. CIT, order dated 8.6.2011 are being extra....
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....lable to an assessee who develops or operates and maintains, or develops, operates and maintains an infrastructure facility". A harmonious reading of the provisions in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops, or operates and maintains; or (iii) develops, maintain and operates that infrastructure facility. However, the commencement of the operation and maintenance: of the infrastructure facility should be after 1" April, 1995. In the present case the assessee clearly fulfilled this condition ". Before the amendment that was brought about by parliament by Finance Act, 2001 we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to S. 80- IA(4) of the Act, set the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were not intended to be cumulative in nature . 6. The above judgment of the Hon'ble High Court is delivered in the case of ABG Heavy Engg Ltd (supra), who is a contractor for the INP Trust and that contactor, assessee is found to be an....
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....d operates that infrastructure facility. The provision for giving the impugned incentives has been examined, re-examined, modified and amended after giving conscious and deliberate discussions by the concerned law makers. To our great chagrin even after this conscious exercise an entity who executes the works contract entered into between local authority/Central or State Government and makes a development of an infrastructure has not been excluded from the scope of this provision. And rightly so, because what infrastructure is required in public domain is the outlook/duty of a local authority or of a Central/State government. When a certain infrastructure is needed, the concerned authorities have a broader picture in their mind aiming at acquiring certain facility for which infrastructure development is required. So, to say, when any assessee/enterprise agrees under a contract to develop such an infrastructure facility, it cannot straight away be dubbed as not the brainchild of that enterprise, but only of the authority in question. Therefore, again this provision in so far as the conditions required to be fulfilled to be eligible for this incentive had to be provided by the juridi....
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....or' is not necessarily contradictory to the term 'developer'. On the other hand, rather section 80IA(4) itself provides that assessee should develop the infrastructure facility as per the 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'. The assessee has developed infrastructure facility as per the agreement with Maharashtra Government/APSEB, therefore, merely because in the agreement for development of infrastructure facility the assessee is referred to as a 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 u/s 80IA(4). The facts of the present case are exactly identical to the facts of that case rendered by ITAT Mumbai Bench in which under identical facts and circumstances, the assessee has been held to be eligible for deduction u/s 80IA(4). Section 80IA(4)(i)(b) requires development of infrastructure facility and transfer thereof as per agreement and it cannot be disputed in view of t....
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....tered into between the enterprise and other party 'the sub-contractor'. The amendment aims at denying deduction to the sub contractor who executes a work contract with the enterprise as held by the ITAT, Jaipur 'A' Bench in the case of Om Metal Infra projects Ltd vs CIT-I, Jaipur, in I.T.A. No. 722 & 723/JP/2008 dated 31.12.2008. The reliance by the ld. CIT(A) on the decision of ITAT, Chennai Bench in the case of ACIT vs Indwell Lianings Pvt. Ltd, 313 ITR(AT) 118, has been enlarged in its finding by the ITAT, Mumbai 'F' Bench in its decision rendered in the case of ACIT vs Bharat Udyog Ltd , by holding that such a deduction is only to be denied to a sub- contractor and not a mini contractor. Similar view has been taken by the ITAT Chennai Bench in the case of ACIT vs Smt. C. Rajini (supra) in which both of us constituted the Bench. In this decision the definition and difference between works contractor and a developer has been examined in detail. The main thrust of the decision is that a developer need not be the owner of the land on which development is made. Although that decision was rendered in the context of a developer of buildings and the deduction was in respect of 80IB(10)....