TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 528
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....the Ld. Counsel for the Assessee submits that the claim for deduction u/s 80IA(4) has been allowed by the Coordinate Bench of this Tribunal by sustaining the order of the Ld. CIT (Appeals) in ITA No.6605/Mum/2013 dated 18.11.2015 for the assessment year 2005-06 in the appeal proceedings against the assessment order passed u/s 143(3) of the Act. The Ld. Counsel referring to pg.37 to 40 of the order submits that the Assessee was held to be a developer and not a contractor and therefore eligible for deduction u/s 80IA(4) on the infrastructure facilities developed by the Assessee. Therefore, he requests that the same may be followed. 4. The Ld. DR placed reliance on the orders of the Assessing Officer. 5. We have heard the rival submissions, perused the orders of the authorities below and the decision of the Coordinate Bench in ITA No.6605/Mum/2013 dated 18.11.2015 and find that the Tribunal held that the Assessee is a developer, entitled for deduction u/s 80IA(4) in respect of the project. While holding so, it was observed as under : "6. Rival contentions have been heard and record perused. The Revenue has challenged the decision of the CIT(A) granting deduction u/s 801A(4) holding....
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....le for deduction in B.T. Patil& Sons Belgaum Construction Pvt. Ltd. After analyzing the terms of the contract, the CIT(A) reiterated that for all the projects, based on the investment, financial and technical risks undertaken by the contractor, the assessee is a developer of the respective projects. As regards the issue whether, to be eligible for deduction, the assessee has to develop the entire infrastructure facility and not only a part thereof, the CIT(A) relied on the CBDT circular no. 4/2010, the decisions of the ITAT in the assessee's own case, B.T. Patil& Sons Belgaum Construction Ltd. 34 Taxmann.com 97 and the Honbie Bombay High Court in ABG Heavy Industries Ltd. 8. We also found that the CIT(A) has dealt in great detail the scope of the work, risk and responsibilities undertaken by the assessee and after applying the proposition of law laid down in the following decisions arrived at the conclusion that assessee was a developer and not only a contractor :- i) Patel Engineering Ltd. v. OCIT 94 ITO 411; ii) B.T. Patil & Sons Belgaum Constructions (P.) Ltd. v. ACIT, 34 taxmann.com 97; iii) ACIT v. Patel KNR Joint Venture ITA 5230/M/2012; iv) CIT v. ABG Heavy Indu....
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....ard to disallowance u/s.14A, it was observed by the NO that assessee has invested funds in joint ventures, the income from which does not form part of the total income. The A.O was therefore of the view that the proportionate interest allocable to such funds on pro-rata basis has to be disallowed, The assessee objected to the said proposal stating that no capital amount has been invested in the joint venture and that with regard to the partnership firm only Rs,25,000!- has been contributed towards capital which is out of own funds. It was also stated before the A.O that as regards the debit balance outstanding with them, the same are not in the nature of investment in capital but mainly due to the company's share of profit and machinery hire charges lying with them, which is already reflected as income in the P&L A/c. Without prejudice, it was further stated before the A.O that the current account transactions are carried out from bank where sale proceeds of the assessee are deposited and also that the dues from JVs and Partnership firm on current-account are out of company's own fund and not out of borrowed funds. The AD rejected the said contention of the appellant statin....
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....s specifically pointed out to the A.O that the entire debit balance as shown above comprises of either amounts receivable by the appellant on account of hire charges of machinery from the JV or the appellant's share of profit in the JV firm. Factually it is stated that in Patel KNR JV, the debit balance of Rs. 9,01,67,275 as on 31 .3.2005, comprises of machinery hire charges received / receivable of Rs. 10,01,60,225 by the assessee from them and the share of profit of the appellant in the said JV aggregates to Rs. 8,24,05,845; both, together, aggregating to Rs.l0,25,66,070. Hence the debit balance the said JV is not on account of any funds invested by the assessee in such JV, In KNR Patel JV the debit balance of Rs. 7,49,10,863 as on 31,3,2005, comprise solely of machinery hire charges received / receivable of Rs. 12,69,86,836 by the appellant from them and the share of profit of the assessee in the said JV aggregates to Rs. 6,32,94,249; both, together, aggregating to Rs. 1 9,02,81084. Hence the debit balance in the said JV is not on account of funds invested by the assessee in such JV. In AHCL PEL, the debit balance of Rs. 6,03,90,869, as on 31 .3.2005, comprises of the share ....
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....ssue in favour of the Assessee. 13. The Ld. DR placed reliance on the assessment order. 14. This aspect of the matter has been considered by the Coordinate Bench and the Coordinate Bench following the decision of the ITAT Pune Bench in the case of Kirloskar Brothers Ltd. allowed the claim of the Assessee u/s 80IA(4) in respect to the Teesta Lower Dam project observing as under : 37. In Cross Objection, the assessee has taken a ground against denial of deduction u/s.801A(4) in respect of NHPC project. The AO declined the deduction in respect of profit from NHPC on the plea that NHPC is a Government of India Enterprise but that does not make it a Government of India or State. 38. Ld. AR placed reliance on the decisions of the Hon'ble Apex Court in Som Prakash Rekhi v. UOl &Anr. 19131, AIR 212 and Pradeep Kumar Biswas &Ors. v. Indian Institute of Chemical which have been referred to in the decision of the Honbie Pune Tribunal, in the context of section 801A(4), in Kirloskar Brothers Limited v. DCIT ITA 657/PN/2010 (CLPB 112 para 17). 39. We had carefully gone through the decision of Kirloskar Brothers Limited (supra), wherein the Tribunal has held as under :- "7. At the out....
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....as 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 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 wo....
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....or a board or a corporation or any other body established or constituted under any Central or State Act. Sub- clause (b) provides that the enterprise carrying on the eligible business should have entered into an agreement with the Central Government or 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. Sub-clause (c) prescribes that the enterprise should start operating and maintaining the infrastructure facility on or after the 1st day of April, 1995. Ostensibly, the aforesaid three conditions are required to be fulfilled before an enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility is eligible for deduction u/s 801A(1) of the Act. 10. Now, the first and the foremost objection taken by the Revenue is that the assessee does not fulfill the condition prescribed in sub-clause (b) of clause (I) to sub-section (4) of section 801A of the Act. In terms of the said objection, the Revenue contends that assessee has entered into a work....
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....e arguments of the assessee are two-fold. Firstly, it has referred to the judgements of the Hon'ble Supreme Court in the case of (i) Som Prakash Rekhi vs. Union of India & Anr., 1981 AIR 212; and, (ii) Pradeep Kumar Biswas & Ors. vs. Indian Institute of Chemical dated 06.04.2002, copies of which have been placed on record. On the basis of the aforesaid judgements, it is canvassed that an entity, like SSNNL, is liable to be considered as an instrumentality or an agency of the Government, and thus, it qualifies to an entity specified in section 801A(4)(i) of the Act. Secondly, it is sought to be made out that having regard to the background and peculiar features of SSNNL, the said concern is executing Governmental functions and is not engaged in any commercial activities. A reference has also been made to the Memorandum and Articles of Association of SSNNL, placed in the Paper Book at pages 26-27 to say that SSNNL functions under the direction and control of Government of Gujarat and further that it was essentially carrying out functions, which are otherwise carried out by the Government, for example, rehabilitation and resettlement of population affected by acquisition of land f....
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....unal are also required to be complied by SSNNL. 13. The other objects, inter-a/ia, include undertaking resettlement and rehabilitation of the population affected by the Sardar Sarovar project; to construct, operate and maintain hydro power generation stations along with canal system, transmission lines, etc.. The objects also include promoting schemes in the State of Gujarat for flood control in the Narmada river basin and schemes for irrigation and water supply in the State for utilization of water from Sardar Sarovar. In sum and substance, the objects to be pursued by SSNNL are pre-dominantly functions which are ordinarily performed by Government. 14. On this point, we may refer to the decision of the Ahmedabad Bench of the Tribunal in the case of JCIT vs. Sardar Sarovar Narmada Nigam Ltd., (2005) 93 lTD 321 (Ahd). Though the said decision has been rendered in a different context, but what is of relevance for us is the discussion made by the Bench which brings out the background and the manner in which SSNNL came to be incorporated by the Government of Gujarat. As per the discussion in the case of Sardar Sarovar Narmada Nigam Ltd. (supra) and the other material placed in th....
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....oyee against Bharat Petroleum. A preliminarily objection arose as to whether the Writ Petition was maintainable against MIs Bharat Petroleum as it was neither a statutory corporation and nor a Government department. The Court examined whether it was a State within the meaning of Article 12 of the Constitution of India. The Hon 'ble Supreme Court laid down certain tests in this context and the relevant portion of the Head notes of judgement is as under:- "2. Some of the tests laid down by this Court for deciding whether a body is State within the meaning of Article 12 are: (I) If the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the corporation is an instrumentality or agency of the Government. (ii) A finding of State financial supports plus an unusual degree of control over the management and policies might lead, one to characterize an operation as State action. (iii) The existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality. (iv) Whether the corporation enjoys monopoly status which is State conferred or State protected is a r....
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....e Directors of the SSNNL are drawn from the officials of the Government of Gujarat. The next test is the existence of deep and pervasive State control. In this context emerges that the Board of Directors of SSNNL are appointed by the Gujarat Government and it consists of the Government employees of the rank of Secretary/Additional Secretaries. The next test is whether the corporation enjoys monopoly status which is otherwise conferred on a State. The objects to be pursued by the SSNNL, the powers conferred on it, as revealed by the Memorandum of Association clearly suggest that SSNNL is in the activity of executing, operating and maintaining the Sardar Sarovar project comprising of a dam across river Narmada, a canal system, the Sardar Sarovar power houses at the foot of the said dam, etc.. All these aspects clearly show that SSNNL is involved in carrying out State monopoly functions, like operation of Airports, Ports, Railways, etc.. The next test is whether the functions performed are important public functions related to governmental functions. In the case of SSNNL, it is quite obvious that apart from executing, operating and maintaining the Sardar Sarovar project it is also inv....
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....y the Government of India. We have considered the said judgements and find that the ratio decided therein has no relevance to the issue in dispute before us. In the case of Steel Authority of India Ltd. (supra), dispute related to certain commercial transactions between a private company and SAIL and no issue arose as to whether Steel Authority of India Ltd. was special purpose vehicle carrying out State functions or not. It may also be important to note that Steel Authority of India Ltd. is in the business of sale and manufacturing of steel which perhaps cannot be looked upon as a State monopoly function as distinct from the activities of SSNNL, which is the subject-matter for consideration before us. 22. In the case of Heavy Engineering Mazdoor Union (supra) also the emphasis was again with respect to the functions of commercial corporation, though wholly owned by the Government. In the case before us, i.e. SSNNL, it is clear that SSNNL is not a commercial corporation, but it has been formed with the intent and purpose for carrying out essentially governmental functions which are otherwise a monopoly or an obligation of the Government. For all these reasons, the facts in the c....
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..... Having regard to the scope of work executed by the assessee, it is difficult to comprehended that assessee was merely acting as a contractor. In common parlance, a contractor is understood as a person who carries out the assigned work as per the directions given by the contractee. In the present case, the assessee has used own-developed technology and its own resources to conceptualize, design, erect, commission, test and operate the 'Saurashtra Branch Canal Pumping Scheme'. Therefore, in our view, assessee is to be understood as a 'developer', and distinct from a 'contractor' qua the impugned contract awarded by SSNNL. The Chennai Bench of the Tribunal in the case of ACIT vs. lndwel Lingins (P) Ltd., 122 TTJ 137 (Chennai) has noted that a developer is a person who designs and creates new projects whereas a contractor is a person who has a contract to do work. In the present case, as the scope of work shows, assessee did not merely carry out a contract to do work but was responsible for conceptualizing, designing, erecting, commissioning and operating the water pumping scheme. On the above aspect, the judgement of the Hon'ble Bombay High Court in the c....
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....re facility but did not operate the same. This aspect of the controversy has been clearly answered by the Hon'ble Bombay High Court in the case of ABC Heavy Industries Ltd. (supra). Even an enterprise which is engaged only in development of an infrastructure facility has also been held to be eligible for section 801A benefits. Therefore, the said objection of the Revenue is not justified. In any case, it has also been pointed out before us that assessee has operated the infrastructure facility for a period of two years. Be that as it may, we find no justification in the aforesaid objection, which is dismissed. 30. It is also a plea of the Revenue that the infrastructure facility is to be owned by the assessee for the purposes of claiming benefit u/s 801A of the Act. In our view, the aforesaid objection of the Revenue is devoid of any statutory support from the provisions of section 801A(4)(i) of the Act. The same is therefore rejected. 31. One of the objections of the Assessing Officer was that the entire investment in the infrastructure project has not been made by the assessee and that 80% of the project cost has been received from SSNNL. Therefore, according to the Rev....
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.... are enumerated. In the Ministry of Power, Government of India work allocation is made for NHPC, including in respect of Jammu & Kashmir; co-ordination, forwarding of returns to Prime Minister's office, Ministry of Home Affairs and other Departments, concerning power issues of J & K. in sum and substance, the objects to be pursued are ordinarily performed by Government Thus, assessee's contract with NHPC fulfills the condition prescribed in section 801A(4)(i)(b) of the Act as it performs functions akin to state. 41. Applying the text laid down by the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra) as well as the proposition of law laid down by the coordinate bench in the case of Kirloskar Brothers Ltd. (supra) to the facts of the instant case, we do not find any reason to disallow assessee's claim for deduction uls.801A(4) in respect of project awarded by NHPC. We found that assessee's contracts with NHPC fulfills all the conditions prescribed u/s,801A(4)(1)(b) of the Act as it performs functions akin to estate. Accordingly, the AO is directed to allow deduction u/s.801A(4) in respect of project awarded by NHPC." 15. Respectfully following the s....
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....echnology etc. and that the Panvel Workshop is used for storing new machinery till they are dispatched to the sites and for repairs and services. It is pointed out that since the expenditure with regard to the US branch has no bearing/ nexus with eligible infrastructure project, it is not a cost center. The expenses incurred on the Panvel workshop has no bearing/ nexus with the eligible infrastructure project, it/s not a cost center. In view of the above, it/s requested that the allocation of such expenditure to the infrastructure projects be deleted. 24. By the impugned order the CIT(A) confirmed the action of the AO after observing as under :- "9.3 I have carefully considered the matter. I am unable to concede to the contention of the appellant that the reallocation of expenses with reference to the USA branch and Pan vel workshop is not called for since it has no bearing/ nexus with the eligible infrastructure project. As stated by the appellant himself the activity of USA branch is to monitor the emerging trends in the infrastructure industry while that of the Pan vel workshop is with reference to storage of equipment and material. As stated by the A.O these are cost center....
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....ses are reduced from the revenues. The courts have held that the term "income derived from" is narrower than "income attributable to" and accordingly it is submitted that the expenses incurred at the USA branch and the Panvel workshop cannot be reduced while computing "income derived from" the project though such expenses may be attributable to the infrastructure facility. Reliance was placed on the decision of the coordinate bench of the Tribunal in DCW Ltd. v. Additional CIT 37 SOT 322 (Mum), wherein it was held that indirect expenses not directly relatable to the unit cannot but be ignored while computing income "derived from", Further reliance was placed on decision of the Hon'ble Apex Court in Liberty India v. (IT 317 ITR 218 (SC), wherein the Hon'ble Court explained that "the words "derived from" are narrower in connotation as compared to the words "attributable to". In other words, by using the expression "derived from", Parliament intended to cover sources not beyond the first degree. 27. In view of the above, Id. AR contended that no reallocation of expenses is required. It was further submitted by Id. AR that on page 17, in column C, the AO has made errors in men....
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....en the income is offered to tax. The appellant requires credit of Rs. 2,73,73,1621/- deducted from the advances received. It has been pointed out by the A. 0 that TDS on advance have regularly been disallowed in the earlier years and the appellant is on further appeal. Consistent with the stand taken in earlier years the A.O has not allowed credit with respect to the TDS on advances. However,, the A.O has himself agreed that the corresponding income for TDS advances amounting to Rs. 1,44,41,2621/- has been offered as income during the current year. Hence to the said extent, appellant is eligible for grant of credit of TOS as per law. The A.O will grant credit, subject to the same not having been granted in the earlier years." 32. We have considered rival contentions and found that in terms of the contract agreement, the assessee receives advances / loans on which the payer deducts tax at source. Such loans and advances can broadly be classified as (i) Site Mobilisation loan granted to enable the assessee to mobilise the work site i.e. create access roads, mobilise men, equipments, establish and set up site office, etc., (ii) Machinery Mobilisation loan granted to enable the asses....