TaxTMI 
TaxTMI 
2015 (11) TMI 1665
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....am Weir Work Project, Ghatghar Dam Project, Kalwakurthy Lift Irrigation Project, Jogeshwari Vikhroli Link Road Project, Santacruz Chembur Link Road Project within the meaning of provisions of sec. 80IA(4) and is therefore entitled for deduction u/s 80lA in respect of profits and gains arising out of development of these projects." 3. "On the facts and circumstances of the case in Law, the Ld. CIT(A)'s has erred in holding that the assessee is a developer whereas the assessee is only a contractor of the Govt. of Maharashtra/Govt. of India/Govt. of Andhra Pradesh/Andhra Pradesh Power General Corporation/MMRDA etc. for executing the work of part of the project as per terms and conditions of the agreement." 4. "On the facts and circumstance of the case and in Law, the Ld. CIT(A)'s has erred in deleting the disallowance of Rs. 88,69,937/- made by the Assessing Officer u/s 14A." The assessee in its cross objection has taken the following grounds :- 1. On the facts and circumstances of the case and in Law, the Learned CIT(A) erred in confirming the order of the A.O. that the assessee is not entitled to claim for deduction u/s 80IA(4) in respect of the....
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....s Agreements with the various authorities. The A.O has pointed out that the Finance Act 2007 has amended section 80IA(4) retrospectively from A.Y 2000-2001, by inserting Explanation wherein it has been declared that nothing contained in the said section shall apply to a person who executes the works contract entered into with the undertaking or enterprise, as the case may be. The A.O has held that the assessee is only a contractor and that even in the earlier years the deduction claimed has been denied for the reason that the deduction is available only to a Developer. The A.O has referred to the orders of the CIT(A) for A.Y 2003-04 and 2004-05 where the disallowance as made has been upheld. In short, the A.O had denied deduction on the ground that the claim of deduction. under s. 80IA is available only to a Developer and not to a works contractor. The AO has further stated that in view of the fact that all the projects for which deduction is claimed have been discussed in earlier years are similar in nature and also in view of the Explanation inserted by the Finance Act 2007, the reasons for disallowing the deduction claimed under s. 80IA(4) in the earlier assessment years is foll....
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....ing and operating any infrastructure facility, which fulfils certain conditions. With effect from 1st April, 2000, by the Finance Act of 1999, certain changes were brought about. Sec. 80-IA and s. 80-IB were substituted for s. 80-IA. Subs. (9) of s. 80-IA of the Act provided that the section shall apply to any enterprise carrying on the business of (i) developing, (ii) maintaining and operating, or (iii) developing, maintaining and operating an infrastructure facility which fulfils -certain conditions The conditions provided for the ownership of the enterprise by a company or by a consortium of companies, registered in India and stipulated a requirement of on agreement with the Central and State Governments, a local authority or any other statutory body; the agreement being required to envisage the transfer of the facility after the period stipulated in the agreement. Subsequently, the requirement for the transfer of the facility to the Central or State Governments, or as the case may be, to the local authority or a statutory body came to be deleted. Sub-cl. (c) of cl. (i) of sub-s. (4) stipulated that the enterprise must have started operating. and maintaining the infrastructural ....
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.... entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. When the Legislature has provided that the income of the developer f the infrastructure project would be eligible for deduction, it presupposes that there can be income to develop, i.e. to the person who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if is paid for 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 therefrom, has no other source of recoupment of his cost of development. Considered as such, we note that the business activity of the nature of "BT" (build and transfer) also falls within eligible construction activity that is actively eligible for deduction under section 80-IA in a s much as more" development " as such and unassociated/unaccompanied with 'operate' and 'maintenance' also falls within such business activity as is eligible for deduction under section 80-IA. In the case of such a construction activity, which does not involve t....
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.... the assessee has to enter into an agreement with Govt./authority to develop, or operate and maintain, or develop, operate and maintain an infrastructure facility. In this regard it is to be stated that if the Govt./authority Wants to develop a particular infrastructure facility, it is but natural that the location of developmental and various other specifications will be laid down by the Govt., for eg. if a dam is to be constructed its location, size, height etc., would certainly be decided by the Govt. In the case of ABG Heavy Industry also the assessee therein deployed cranes, as per specifications at the container handling terminal of JI\IPT. Similarly, in the case of ACIT vs. Bharat Udyog Ltd. (2008) 24 SOT 412(Mum) and in the appellant's own case for the AX 2000-2001 in paragraph 47 it was held 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 the developer of infrastructure facility. 6.8 Another issue raised-bv the A.0 is whether the deduction is available only to contractors who develop....
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....roject work is executed. 6.9 Another question is to be decided is whether the appellant, as a contractor is engaged in the development of infrastructural facilities as defined in the Explanation to mean (a) A road including toll road, bridge or a rail system, (b) a highway project including housing or other activities being an integral part of the highway project; and (c) water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system (d) a port, airport, inland water way [inland port or navigational channel in the sea] 6.10 On a perusal of the contract documents it is seen that the Koyna, Srisailam, Ghatghar, Kalwakurty and Teesta Projects are Water Supply/Irrigation Projects as specified in clause (c) above. The Jogeshwari Vikhroli Link Road (JVLR) consists of constructing permanent residential tenant for project affected households. (PAP) at the junction of the Western Express High and is hence is a highway project. The Santacruz-Chembur Link Road project is for widening of existing carriageway, completion of Slip road for LBS flyover, and improvement of surrou....
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....or participation in the development of infrastructure, section 80IA was enacted. Contemporaneously with the provisions which were made by Parliament in section 80IA of the Act, explanatory circulars issued in administrative capacity of Central Board of Direct Taxes held the field. These circulars gave expression to the scope and ambit of the concession that was provided by section 80IA of the Act. On August 14, 1995, Circular 717 (1995) 215 ITR (St.) 7091) was issued by the Central Board of Direct Taxes. The circular thus amplified both the rationale for the introduction of section 80IA of the Act and the nature and ambit of the concession that was provided by the provision. The circular clarified that the benefit of a deduction was available to an enterprise, which developed, maintained and operated any new infrastructure facility, such as inter alia a Port on a Build, Operate and Transfer (BOT) basis, or a Build Own, Operate and Transfer (BOOT) 'or similar other basis, where there was an ultimate transfer of the facility to a Government or a Public Authority. The circular also clarified the view of the Board that the tax holiday would be in respect of the income derived from ....
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..... c. Thereafter the Assessee had to undertake maintenance of the said infrastructure facility for a period ranging from 12 months to 24 months till the defect rectification period is over. d. The contractor was fully responsible for the adequacy, stability and safety of all site operations and decide on the program and the methods of construction. e. The Contractor is liable to remove/repair improper work and material at its own cost. f. The bidders who participate in the bid should have adequate experience financial capacity and technical capability to undertake the contract. They should have key equipments and key technical personnel to carry out the work, which cannot be removed/shifted/transferred from the work site till the development of the infrastructure facility is complete. g. In all the Water Supply and irrigation projects and the Rail project the Contractor takes geological risk, h. The Contractor has to furnish 'As Built" drawings for every component of work undertaken at its cost to the Employer after the completion of the works, i. The assessee has to insure the Temporary works, permanent works, Const....
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....ich could vary. No claim on account of variation in these levels was to be entertained. (Page 13). * "Contractor" means M/s. Patel Engineering Ltd., S. V. Road, Jogeshwari (W), Patel Estate, Mumbai. (Page 22). * "Employer" means the Government of Maharashtra. (Page 22). * "Works" shall include both permanent works and temporary works. Work or Works shall mean and include plant and materials to be provided and work to be done by Contractor under contract, including all the preliminary and ancillary works necessary for the fulfillment of the various items under the contract. (Page 22) * It is the responsibility of the Contractor to satisfy himself regarding the nature and location of the works in general and local conditions and particularly those having a bearing on transport, handling and storage of materials, disposal of spoils, availability of labour, weather conditions, river stages etc. (Page 85) * The Contractor took geological risk. (Page 14) * The Contractor is given possession of the site from the date of commencement of the development work to the completion of the Defect Liability Period (Page 43); as against the undev....
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.... ensure that the execution of work will not inconvenience the public or cause disruption of traffic. (Page 36) * The Contractor is liable to remove/repair of improper work and material at its own cost. (Page 41, 45) * The Contractor shall bear all costs and charges for -constructing roads to access the site. (Page 43)) * The work is treated as completed only when a Certificate of Final Completion in respect of all Works is issued. (Page 44) * The contract shall be considered as completed only on issuance of Maintenance certificate by the employer. (Page 58) * It is the responsibility of the Contractor to provide, at its own expenses, all tools, plant and equipments required for the execution of work and timely mobilization thereof (Page 48) * All construction plant, temporary works etc., when brought to the site will not be allowed to be removed till the work is completed. (Page 48) Alignment of HRT is tentative and may change in the final layout. No claims can be made by the Contractor in the event of any modification in respect of alignment of curves, section etc. (Page 342) * The Contractor has to give a Performance ....
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.... * Contractor is Patel Engineering Company J.td, S.V. Road, P.B. 8357, Jogeshwari (W), Mumbai 400 102. * Only companies having adequate experience/capacity and reputation in the construction of tunnels would prequalify for submission of tender. (Page 30, 141, 142, 144) * It is the responsibility of the tenderer to visit the site of work and ascertain for itself the conditions of work, namely the approach roads, accessibility, nature _of soil/rock, availability of material, electric power, water for work and drinking purposes etc. i.e. it should familarise itself fully with the conditions obtaining at site (Page 10, 46) and has to give a declaration to that effect. (Page 140) * It is not entitled to make any claims on account of variation in the strata of the rock (Page 63) and takes all geological risks. (Page 80) * It has to develop the undeveloped site handed over to it by the Employer and is in its possession till the work is completed and "taken over" by Railways. (Page 48) * it is responsible for sufficiency and accuracy of the bench mark, central line pegs and reference points set out by him. (Page 72) It is a/res....
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....ompleted within the stipulated time and maintained for a period of 6 months from the date of completion and that no defects have been noted. (Page 44) * It is liable to pay liquidated damages if the work undertaken by it is not as per specification. (Page 49) * The progressive payments made by the Employer would be interim payments liable for adjustments. (Page 69) * Failure of the contractor to draw the Engineer's attention for provision of temporary supports for underground excavated section resulting in loss will be borne by the Contractor. (Page 88) * It is entitled to mobilization advance against irrevocable Bank Guarantee; such advance will carry interest ia 18°). (Page 135) * Similarly, it is entitled to advance against security of machinery and equipment brought to site against another Bank Guarantee; such advance also would bear interest Caj 18% p.a. (Page 136) * The other financial and Technical details of the project are given on pages 8, 147-148, 252 and 258-260 of the paper book. 3) Srisailam Weir SRISAILAM LEFT BANK HYDRO ELECTRIC SCHEME- WEIR (DAM) PROJECT * The Agreement is for ....
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.... prints showing location of stores, buildings, staff housing facility, road ways, unloading facility and storage yards, etc. will need to be furnished by the Contractor. (Page 111) * The Contractor shall procure all material required for the work on its own (Page 104) * The Contractor has to appoint professionally qualified technical staff (Page 106) and engage competent and skilled workers. (Page 132) * Scaffolding and gang wars, material and equipments, etc. required for the execution has to be procured by the Contractor (Page 108) * The Contractor has to provide, at its own cost, accommodation, drinking water supply, health and other arrangements for its staff (Page 109) * The Contractor shall properly cover up and protect the work and plant and machinery during development of infrastructure facility. (Page 117) * All materials, tools and plant of the Contractor brought on the site shall be deemed to be in possession of APGENCO to be used for that purpose only and shall not be removed without prior written permission of the Employer. (Page 117) * Contractor has to provide, at its own cost, all temporary structures, c....
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....age 106) * If, for any reason, the work gets dislocated due to site being not available for work, no compensation shall be paid to the Contractor. (Page 105) * If work is held up for want of construction drawings or due to any other reasons attributable to APGENCO, no compensation shall be payable (Page 106) * The Contractor has to indemnify APGENCO against claims. (Page 108) Earnest and/or, security deposit/retention money is liable to be forfeited in case of delay. (page 122) * The other financial and Technical details of the project are given on pages 8, 147-148, 252 and 258-260 of the paper book. 4) Ghatghar Dam GOVERNMENT OF MAHARASHTRA, IRRIGATION DEPARTMENT - GHATGHAR PUMPED STORAGE SCEHEME - DAMS/RESERVOIRS * The Agreement, for development of two dams/reservoirs in Roller Compact Concrete (RCC), is with Government of Maharashtra, Irrigation Department, Koyna project, * The upper dam will lead and supply water with the help of approach channel, intake structure and inclined pressure shaft to the underground power house (Volume 1, Page 13) from where the tail race tunnel will supply water to the lower res....
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....ure facility shall be handed over to the Contractor by the Government.. (Volume 1, Page 62) Possession of the developed infrastructure facility will be taken by the Government from the Contractor after Defect Liability Period is over and maintenance certificate is issued. (Volume 1, Page 81) * The Contractor shall take full responsibility for adequacy, stability and safety of all site operations and methods of construction. (Volume 1, Page 46) * The Contractor is responsible for the protection of the work for the safety and convenience of the public and others. (Volume 1, Page 49) * From the commencement till completion of the whole of the work, the Contractor shall take full responsibility for the care of the site. (Volume 1, Page 50) * It is the responsibility of the Contractor to promptly bring to the notice of the Engineer of the Government, any error or discrepancy in. the contract document. (Volume 1, Page 43) It is also the responsibility of the Contractor to promptly inform the Engineer of any error, omission, fault and other defect in the design or specifications for the works, which are discovered when reviewing the contract document or....
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.... be liable for any damages arising to the personnel on. this ground. (Volume 1, Page 35) * The Developer will set up a material testing laboratory at site. (Volume 1, Page 37) * The Contractor is responsible for the true and proper setting-out of the - works (Volume 1, Page 49) * The Contractor shall make his own arrangements for water supply and dewatering arrangements (Volume 1, Page 50) and arrangement for housing, sanitation, electric power for construction purposes, etc. and may construct and maintain additional roads as required at his own expenses while the work of development is in progress. (Volume 1, Page 104-108) * The Contractor shall provide operation and maintenance manuals for all mechanical, electrical and specialty equipments and systems supplied by the Contractor (Volume 2, Page 10) * The Developer is liable to pay liquidated damages in case of failure to achieve the targeted time for completion of the work. (Volume 1, Page 33, 65) * A Bid security has to be furnished, which is free of interest (Volume 1, page 23) * The Performance security (Retention. money) has to be furnished, which is free of inter....
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....er'/-Purchaser" shall mean the Project administrator and Superintending Engineer, J"/KLJ Circle-I, Maha boobri agar, Mahaboobriaga r District, Andhra Pradesh, India. 'Page 53) * The "Bidder" shall mean the Bidder whose tender shall be accepted by the Employer/Purchaser and shall include the tenderer's legal personnel representatives, successors and assigns in the agreement; a bidder has been referred to as "Contractor". (Page 54) * The Contractor should have experience in execution, pumping station/hydro power station. (Page 104) * Qucilcation and eligibility of the bidder is based on organization and managerial capability, financial capacity, supervisory personnel, equipment qualification, experience and past performance, existing and expected commitments, project implementation experience etc. (Page 123 & 124) * The Contractor, at its own cost, has to visit and examine the site of work and its surrounding area and obtain for itself, at its own responsibility, all information necessary for entering into contract. (Page 105) * It has to collect all infdrmution on availability of existing infrastructure like road, construction....
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....t department are to be obtained by the Government of Andhra Pradesh. (Page 66) * Land acquisition for the site will be done by the Government of Andhra Pradesh. (Page 66) * It has to train 8 engineers, 6 electrical engineers and 2 mechanical engineers proposed by the Employer for a period of 32 man months, at its own cost. (Page 102) * It shall furnish details of special precautions and instructions to be followed for erection, testing and commissioning of the plant and will furnish all required drawings, documentation etc., as also the time schedule for civil work. (Page 103) * It shall take, at its cost, transit cum storage cum erection, testing and commissioning insurance, as also insurance during the period of operation and maintenance. The Contractor will be liable to take third party insurance also. (Page 109 & 112) * The Bidder has to establish Quality assurance system. (Page 124) * The bidder shall guarantee satisfactory performance of .the plant. (Page 162) * Testing of equipments etc. is to be carried out at the cost of the Contractor. (Page 167) * On inspection of the work carried out by the Contract....
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....WAY, JOGESHWARI AX. 2005-06 * The project is for construction of permanent residential tenements for PAH at junction of JVLR and W.E. Highway under Murnbai Urban. Transport Project (MUTP), which is a defined infrastructure facility u/s. 80IA(4) being "Highway project" including housing or other activities being a integral part of the highway project. (Page 5) * The work includes construction and handing over of 1,032 residential tenements, 58 residential cam commercial tenements, 143 shops of various sizes as per specifications, 11 society of/ices, 11 Balwadis, 11 Welfare Centrse, 2 watchman cabins and compound wall as per the Slum Rehabilitation policy of the State Government. (Page 17) * Design, installation, adequacy and stability of formwork is the - responsibility of the Contractor. (Page 91) - * Internal lay out roads have to be developed by it. (Page 101) * It is the responsible to supply necessary equipments, installation, erection, - testing and commissioning of electric installation.. (Page 104) * It is the responsible to get the lift lay out plans with equipments on machine room approved from the concerned au....
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....s liable to pay liquidated damages. (Page 54) * Loss or damage to the Works or Materials to be incorporated in the Works on account of Contractor's acts or omissions between the Start Date and the end of the Defect Correction Period has to be remedied by the Contractor at its cost. (page 55) * It is responsible for protection of the Works and safety and convenience of the public and other. (Page 61) * It has to determine the installation sequence and time schedule to ensure that freshly concreted piles are not damaged due to installation of adjacent piles. (Page 86) * The Engineer reserves the right to reject any pile of deficient concrete strength. Such rejected piles has to be replaced by the Contractor at its own cost who shall also bear the additional cost of widening the pile caps resulting from the grouping of the piles as a result of replacement of piles. (Page 84) * The rejected pile shall be replaced or rectified with at the Contractor's risk and cost. (Page 87) * The Contractor, at its own cost, has to rectify any remedial measures required due to errors in piling. (page 87) * It has to decide the work....
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....ement for labour, housing, transport etc. and comply with all labour regulations. (Page 58) * It remains responsible for any sub contracted work, even if it is with the permission of the Employer. (page 60) * It will comply with all rules and regulations of appropriate authorities while constructing temporary structures required for the Work. (Page 62) * It is the responsible to construct and connect the Sewer lines and connect them with the main line with proper permission from the competent authority. (Page 72) * The scope of work comprises of furnishing of materials, plant, labour, equipment, services for complete and proper installation of foundations and pile caps. (Page 82) * The performance security given has to be kept valid for a period upto 28 days from the date of expiry of the Defect Liability Period. (Page 55) * In case the Contractor fails to give an early warning, it would not be entitled to additional cost. (Page 53) * * There is a provision for retention money out of the progressive bills, which will be paid partly on completion of whole of the Work and the balance when Defect Liability Period is over (....
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....en pre-qualified by NHPC, i.e. having technical, financial and commercial capabilities, are eligible to submit the tender. (Page 7) * It is the responsibility of the bidder to examine the site of works and its surroundings and obtain for itself on its own responsibility, all information that may be necessary to enable it to decide entering into a contract. (Page 14) * The Contractor is responsible to make its own assessment regarding hydrological/topographical/geological conditions of the site. (Page 15) * The entire Water Supply work has to be completed within 48 months of the award of work. (Page 7) * The Defect Liability Period is 12 months from the date of completion of the project. (Page 145) * It has to decide on the construction program, methodology, equipment deployment and other miscellaneous issues (Page 10) * It shall take full responsibility for adequacy, stability and safety of all it's operations, including site operations and methods of construction. (Page 127) It is fully responsible for the care of Works from the date of award of contract until the date of completion of Works and is also liable for any ....
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....he site. * It has to satisfy itself regarding data and the relevant drawings and in case of objection it has to inform the Owner immediately. (Page 285) * It shall be responsible for setting-out of the structures and slopes as shown on the construction drawing. (Page 303) * It is responsible for the timely and proper installation of the rock support and for checking and maintaining it until the final lining or the structure is placed. (Page 320) * The contracting equipment necessary for carrying out the work will be proposed by the Contractor. (Page 341) * It shall be solely responsible for the adequate design, construction and maintenance of any and all form work and false work required in works. (Page 434) * It is liable to rectify defect/damage to the works during the Defect- Liability Period which is 12 months from the date of completion of the work. (Page 145) * The bid security provided is liable for forfeiture. (Page 7) * The Contractor indemnifies the Owner against all claims for damage to property on account of fault/negligence on the part of the Contractor till the Defect Liability Period is over. (Pa....
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....ic. (Page 83) * It is responsible for supply of all traffic signal system equipments, its installation and testing and full maintenance during the defects liability period (Page 89) which is 12 months from the completion of the test on equipment. (Page 91) * It is fully responsible for design and installation to meet the requirements of the specification and provision of a fully working and effect traffic signal system. (Page 90) * It is responsible for the satisfactory quality, design and workmanship of the traffic control system. (Page 92) * It is responsible for shifting of utilities identified for relocation after prior approval of agencies in the shortest possible time to reduce inconvenience to the public. (Page 142) * It shall be responsible to co-ordinate with concerned authorities for shifting of utilities and removal of encroachments etc. and making the site unencumbered from the project construction area required for completion of work. (Page 158) No additional compensation is payable for the delay in shifting of utilities and removal of encroachments. (Page 158) * The "Contractor" is a person or corporate body whose ....
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.... 42) * * It is the responsible to construct and install the Works. (page 42) * * It is the responsible to warn the Employer at the earliest opportunity of * specific likely future event or circumstances that may be adversely affect * quality of work, etc. (Page 45) * It has to rectify defects at its °Loa cost. (Page 45) * It takes the risk of bearing the loss on account of difference in the final quantity of work done as compared to the bill of quantities. (Page 46) * Loss or damage to the Works between the start date and the end of the defect liability period has to be remedied by the Contractor at its own cost. (Page 50) * The Employer shall issue a Defect Liability Certificate and certify the final payment due after adjusting all interim payments made during the progress of the Work. (Page 51) * All materials on the site, plant, equipment, Temporary works and Works are deemed to be the property of the Employer, if the contract is terminated because of the Contractor's default. (Page 52) * It will appoint its own staff and labour and comply with all labour regulations. (Page 54) ....
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....r-book. 6.13 From the above synopsis it is apparent that the bidders who participate in the bid should have adequate experience, financial capacity and technical capability to undertake the contract. They should have key equipments and key personnel to carry out the work and for the purpose of general planning, site management and plant operations, during the whole period of contract execution. The above clauses in the Bids do indicate that the Contractor who is bidding should be highly experienced and the entire responsibility and risk is vested with the contractor. The preparation of Bid which includes technical and financial aspects shows that a simple contractor would not be qualified to carry out such extensive operations. Various preconditions laid down in the clauses of the bids indicate that the contract to be awarded is not a simple contract for work, but it is towards development of infrastructure facility. 6.14 It has to be mentioned that section 80lA does not define the word "developer" "contractor" or the phrase "in the nature of works contract". As per the dictionary meaning (Chambers 21st Century Dictionary) 'contractor' means a person or a ....
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....o the respective owners. The details regarding advance received by the employers can be observed on page 261 of the paper book; from the said detail it is observed that substantial amounts received are interest bearing. It is a duty of the appellant to rectify the defects in the completed work during the defect liability period which varies from 12 months to 24 months, during which period it is the duty of the appellant to rectify at its own cost, the defect if any, to the infrastructural facility developed. The appellant has to take insurance not only in the joint name of the employer but also third party insurance. The appellant is not to move any of the machinery, equipment from the site till the defect liability period is over. Thus, it can be observed that the appellant involves right from planning till completion of the project and carries out numerous activities which are not that of a contractor simplicitor. A perusal of each of the contract document would indicate that the Agreements are entered into not for a specific work but for the development of the infrastructure facility as a whole. The govt./authority does not provide any material; the contract entered into by them....
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....d down in the agreement and also securing by Bank guarantee. As the assessee has fulfilled the said conditions is evident as discussed above. Practically, the opinion of the Third Member of the Hon'ble Tribunal has been overruled by the Hon'ble Bombay High Court that even a contractor is a developer and further interpretation of the amendments by Finance Act 2009 and the conditions to be fulfilled by an assessee to be termed as developer for the purpose of section 80IA has been followed by various Tribunals. 10. In view of the above, we find that law as interpreted by the Third Member of the Hon'ble Tribunal is no longer good law. More specifically in light of the observations made by the Hon'ble Bombay High Court in the case of ABG Heavy Industries Limited and while giving the effect as per provisions 255(4) of the Act the Hon'ble Tribunal clearly directed to consider the said decisions and allow the deduction u/s. 80IA of the Act for all the projects undertaken by the assessee. Other judicial pronouncements which have considered the controversy regarding "developer" vs. "contractor" and held that the Explanation does not apply to Developer ar....
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.... The assessee has undertaken the work on Back Agreement concept under sub contract form Patel Engineering Company Limited (hereinafter referred to as PEC) vide subcontract Agreement dated 15.10.1992 for construction of Tunnel which supplies the water from River Koyna and makes it available to Power House. In fact the assessee and PEC had proposed a joint venture. to the releuant authorities for the Execution of the said project. As the project was being financed by World Bank the relevant authorities forwarded the proposal to World Bank. World Bank however did not accept" the proposal but they suggested that M/s. Patel Engineering Company Ltd., may employ the assessee company as sub contractor. It was at the suggestion of World Bank that the assessee companies name was included as a sub contractor instead of forming of a joint venture. The project authorities including World Bank have approved and certified [he assessee as a sub- contractor for the above said work after thorough scrutiny and detail description of the Agreement entered into between the employer and PEC as sub contractor for Koyna Project Works by Project Authorities. In fact the Government of Maharashira has entered....
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....t to apply to the appellant as it is a developer and also following other Tribunal decisions it is held that the appellant is eligible for deduction under s. SOIA(4) on the Udhampur project also. 6.18 As per section 80IA(4)(i), an enterprise which is engaged in developing any defined infrastructure facility is eligible for deduction when the conditions laid down therein are fulfilled. As per clause (a), it should be owned by a company registered in India or by a consortium of such companies etc. The word "owned" here does not mean that the infrastructure facility has to be owned by a company. The word "it" means "the enterprise". The condition is that the enterprise has to be owned by a company, Hence, this condition is fulfilled. The 2nd condition is that it has to enter into an agreement with Central Government or State Government or local authority or any other statutory body for developing or operating and maintaining or developing, operating arid maintaining a new infrastructure facility. In the present case, the appellant contends that in each of the case, it has entered into an agreement with the Government/Authority for developing a specified infrastructure facilit....
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...., Ghatghar, Kalwakurthy, .Jogeshwari- Vikhroli Link Road, Srisailam Weir and Santracruz-Chembur Link Road projects. The deduction in respect of Teesta Lower Dam is negated. 6.22 Ground 1 is allowed in part." 6. Rival contentions have been heard and record perused. The Revenue has challenged the decision of the CIT(A) granting deduction u/s 80IA(4) holding the assessee to be a developer of the infrastructure facilities (projects) and also that deduction is available to the assessee even when it has developed only a part of the project. We found that the CIT(A) has elaborately dealt with the contention of the AO at page 5 & 9 of his appellate order, as reproduced above. The CIT(A) has gone through the terms and conditions of each and every contract and at page 19 para 6.6 of her order, the CIT(A) held that the contract documents show that the projects executed were highly technical and specialized and involved huge risk; the assessee has also deployed people, plant and machinery, technical expertise, knowhow and financial resources; moreover, all sums received till the final completion certificate is issued on completion of the defect liability period, are considered inte....
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.... 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 Industries Ltd. 322 ITR 323; v) DClT v. V.R.M. (India) Ltd. ITA 811/Del/2008; vi) KCL BEL Tarmat JV v) ITO, ITA 111/Rjt/2010. As regards the clarificatory Explanation inserted in section 80lA by the Finance Acts 2007 and 2009, we place our reliance on the following decisions: i) B.T. Patil& Sons Belgaum Constructions (P.) Ltd. v. ACIT 34 taxmann.com 97; ii) ACIT v. Pate I KNR Joint Venture ITA 5230/M/2012; iii) DClT v. V.R.M. (India) Ltd. ITA 811/Del/2008; iv) KCL BEL Tarmat JV v, ITO ITA 111/Rjt/2010; v) GVPR Engineers Ltd. v. ACIT 21 Taxmann.com 25 (Hyd); vi) KMC Constructions Ltd. v. ACIT 21 Taxmann.com 138 (Hyd). 9. With regard to contention of ld. CITDIR that assessee is a contractor, insofar as assessee ....
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....interest rate of 12.5% as charged by the bank on CC Account. Accordingly, a sum of Rs. 88,69,937/- has been disallowed and added back to the total income. 13. Before the CIT(A), the assessee submitted that the addition is not warranted since the same has been made on the basis of presumptions, conjectures and surmises. It is stated that the during the course of assessment the A.O had called for details of the balances in various joint ventures/partnership firm wherein the assessee is the member/partner. It was explained that the debit balances in various JV/firm as on 31.03.2005 are as under - * Pate I KNR JV Rs. 9,01,67,275 * KNR Patel JV Rs. 7,49,10,863 * Patel Michigan JV Rs. 84,229 * AHCL PEL Rs. 6,03,90;870 14. By the impugned order, the CIT(A) deleted the disallowance made u/s.14A after observing as under :- "7.3 I have considered the matter. From the facts of the case it is apparent that the amounts treated by the A.O as loans and advances outstanding are in fact debit balances i.e. amounts receivable by the appellant either on account of hire charges in respect of machineries leased to JV or the share of profit of the appel....
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....y the appellant from such integrated joint venture AOP is chargeable to tax in terms of provisions of section 167B r.w.s. 86 of the Act. A further without prejudice submission is that the company has substantial own funds by way of capital reserves aggregating Rs. 12,936 lacs which is more than 5.50 times of the balance in such JV/partnership firm. The sale proceeds of the appellant are deposited in the cash credit account and the debit balance are presumed to have been company's own funds and not from borrowed funds. The appellant relies on the following decisions: * ACIT vs. Bombay Samachar Limited 74 ITR 723 (Born). * Wimco Seedlings Ltd. vs. OCIT 107 ITO 267 (Del.) It was further pointed out that the facts of following decisions are distinguishable from the facts of the appellant's case: * ACIT v. Citicorp Finance (India) Ltd. 108 ITD 457 * Everplus Securities & Finance Ltd. v. DCIT 101 ITD 151 * DCIT v. SG Investments & industries Ltd. 89 ITD 44 17. We have considered rival contentions and found that a clear finding has been given by the CIT(A) to the effect that amount was receivable on account of hire charges on mach....
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....and held that, on facts, such income should now be taxed in the hands of the assessee on substantive basis. 21. As per ld. AR though in the JV's case, the Ahmedabad Tribunal held that the income is taxable in the assessee's hand and not in the hands of the JV, the said decision has not attained finality and hence it should be continued to be taxed in the hands of the assessee on protective basis. 22. We have considered rival contentions and perused the record. The ITAT Ahmedabad Bench in the case of LGE & C-Patel JV, ITA Nos.3178 to 3180/Ahd/2007, has held that income is assessable in the hands of the assessee on substantive basis. Respectfully following order of the Tribunal, we do not find any infirmity in the order of CIT(A) for taxing assessee's share of income in assessee's hand on substantive basis rather than on protactive basis. Accordingly, we dismiss the ground of assessee. 23. While computing assessee's income the A.O attributed certain expenses incurred by the assessee to the projects eligible for deduction under s.80IA(4). The A.O has stated, without prejudice to the stand earlier taken that the assessee is not eligible to claim deduction under s.80IA ....
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....s of turnover while computing the deduction under s. 80IA(4). The said ground is held against the appellant." 25. Rival contentions have been heard and record perused. From the record we found that while claiming deduction u/s.80IA(4), the assessee apportioned the head office expenses to the Section 80IA profits of each infrastructure facility and calculated the profits and gains derived therefrom after deducting HO expenses based on which the claim of deduction u/s.80IA(4) of Rs. 23,34,38,103/- was made. As per the AO the Panvel workshop and the USA office expenses has to be allocated to 80IA(4) projects to arrive at the correct amount of the deduction u/s 80IA(4). Accordingly, he allocated, site wise, the expenses attributable to the Panvel workshop and the USA office at an aggregate amount of [1] 2,77,53,627 being column D in the table at page 17 of his order. Hence, he was of the view that, as in the earlier years, if the appellate authorities hold that the assessee is eligible for the said deduction, the deduction allowable should be Rs. 20,56,84,476 (23,34,38,103 - 2,77,53,627) only. The CIT(A), on pages 71-73 para 9, upheld the view of the AO. The assessee is in further a....
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....nd that certain expenditure incurred by Panvel workshop and the USA office was attributed by the AO to the eligible units, consequently profit claimed as deduction was reduced. The contention of ld. AR was that these expenses were not directly incurred for earning the income which is liable to deduction u/s.80IA(4). However, it has not been brought on record by lower authorities to show that expenses incurred at Panvel workshop and USA office was incurred directly for assessee's projects eligible for deduction u/s.80IA(4). Respectfully following the decision of coordinate bench directly on the issue reported at 37 SOT 322 and the decision of Hon'ble Supreme Court in case of Liberty India (supra), we do not find any merit for reducing the profit of eligible undertaking by these expenses. Accordingly, we direct the AO not to reduce the profit eligible for deduction u/s.80IA(4). We direct accordingly. 30. The AO did not allow credit of TDS in respect of advances received. 31. By the impugned order the CIT(A) confirmed the action of the AO after observing as under :- 11.1 On a consideration of this ground no relief can be afforded to the appellant since credit for TDS wi....
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....he head Contractee advances as a liability. Such loan can never be the income of the assessee, neither in present or in future; deduction of such loan advance from running bills is only a practical and convenient way to recover the loan. Such mobilisation loan being a capital receipt, there was no legal obligation on the part of the contractee to deduct tax at source u/s 194C. If tax has been deducted at source, the credit for such TDS has to be allowed in the year of deduction itself. In ACIT v. Peddu Srinivas Rao ITA 324/Vizag/2009 mobilisation advance was received and on identical facts it was held that credit for such TDS should be given in the year of deduction of TDS itself. This decision was followed in Zelan Projects Pvt. Ltd. v. DClT ITA 1361/Hyd/2013 fel::pBlS~ee]. Similarly, in Arvind Murjani Brands (P.) Ltd.v. ITO 21 Taxmann.com 131 (Mum) E, it was held that where tax is deducted at source on an amount which is not at all chargeable to tax, command of section 199 will have to be harmoniously and pragmatically read as providing for allowing credit for tax deducted at source in the year of receipt of amount, in which the tax was deducted at source. 33. In respect of ad....
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....me of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.] ..................... (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park [or develops] a special economic zone referred to in clause (iii) of subsection (4)] or generates power or commences transmission or distribution of power [or undertakes substantial renovation and modernisation of the existing transmission or distribution lines] : [Provided that where the assessee de....
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....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 or inland port;]" 8. Pertinently, section 80IA(1) of the Act prescribes for a deduction with respect to the profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) of section 80IA of the Act. The claim of the assessee before us is that it has undertaken a business referred to in sub-section (4) of section 80IA of the Act while undertaking and executing the contract with SSNNL pertaining to the 'Saurashtra Branch Canal Pumping Scheme'. The eligible business for the present purpose is referred in clause (i) of sub-section (4) of section 80IA of the Act. The claim of the assessee is that it is carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining the infrastructure facility referred to as 'Saurashtra Branch Canal Pumping Scheme', and therefore such business qualifies to be an eligible business for the purposes of section 80IA(4) benefits. As per the....
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.... section 80IA(4)(i) of the Act. As per the Revenue, SSNNL is a company registered under the Companies Act, 1956 and does not fall within the prescription of sub-clause (b) of section 80IA(4)(i) of the Act. As per the Revenue, though the entire share capital in the said company is owned either by the Central or the State Government, yet it can only be called a 'Government company' but it does not come within the purview of the entities specified in sub-clause (b) of clause (i) of section 80IA(4) of the Act. The Revenue has supported its plea by referring to the judgement of the Hon'ble Supreme Court in the case of Steel Authority of India Ltd. vs. Shri Ambica Mills Ltd. & Ors., AIR 1998 SC 418. In terms of the said judgement, it is sought to be canvassed that although capital of SAIL was entirely owned by Government of India, but by virtue of its incorporation under the Companies Act, 1956 its personality was held to be distinct than that of the Government of India. Similarly, reliance has been placed on the judgement of the Hon'ble Supreme Court in the case of Heavy Engineering Mazdoor Union vs. State of Bihar, AIR 1970 SC 82 for the proposition that in the absence of statutory pro....
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....nnot be owned by private owners. So however, for an efficient execution and handling of such infrastructure facilities, the governments form a Special Purpose Vehicle (SPV) in the form of separate entity registered under the Companies Act, 1956. It was, therefore, contended that even if such like entities are incorporated under the provisions of the Companies Act, 1956 still having regard to the functions performed, they have to be considered as mere extensions of the Government. By referring to the features of SSNNL, the learned counsel has sought to demonstrate that the tests laid down by the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra) and Pradeep Kumar Biswas & Ors. (supra) are fulfilled and SSNNL is liable to be considered as a 'statutory body' falling within the meaning of section 80IA(4)(i(b) of the Act. 12. Before we proceed further, it would be appropriate to briefly refer to the salient features and objects of SSNNL. In this regard, we have perused the Memorandum and Articles of Association of SSNNL, a company incorporated under the provisions of the Companies Act, 1956. The main object of the said company is to execute, operate and maintain the....
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....be constructed by the Government of Gujarat and the water was to be shared amongst the three States of Gujarat, Madhya Pradesh and Rajasthan. For erection of the dam, the Government of Gujarat set up a department called Narmada Development Department (NDD). NDD functioned as a Government Department and started erection work of the dam. In around 1988, the Government of Gujarat was advised that for efficient administration, execution and accountability the work may be carried out by a Nigam (i.e. a corporate body). Accordingly, the Government of Gujarat passed a resolution No. NMD/1073(86)33/(2)H dated 21.03.1988 which converted NDD into a fully owned Government company, namely, SSNNL. Accordingly, a corporate entity was incorporated by the Government of Gujarat under the provisions of the Companies Act, 1956 for execution of Sardar Sarovar project. Subsequently, the Government of Gujarat vide a resolution dated 31.08.1988 transferred the entire staff and officers working under the control of the Narmada Development Department to SSNNL. The Gujarat Government also transferred the assets of the Sardar Sarovar project to SSNNL vide a G.R. No. COR-1488-H dated 27th October, 1988. ....
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....is transferred to a corporation, it would be a strong factor supportive of the inference that it is an instrumentality of the State (vii) Where the chemistry of the corporate body answers the test of State if comes within the definition of Article (viii) Whether the legal person is a corporation created by a statute, as distinguished from under a statue is not an important criterion although it may be an indicium." 18. As per the Hon'ble Supreme Court, if the aforesaid tests are fulfilled by an entity, it would qualify to be understood as an instrumentality of State. As per the Hon'ble Supreme Court, the aforesaid tests provide an aid to determine whether a particular body is a State within meaning of Article 12 of the Constitution of India. Emphasizing the import of the aforesaid tests, the Hon'ble Supreme Court noted that true test is not how the legal entity in question was created but why it was created. The Hon'ble Supreme Court also observed that all the tests may not be applicable or satisfied in a given case, but one will have to arrive at a conclusion based on the cumulative effect of the said tests. 19. The claim of the assessee before ....
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....SSNNL. The next test is if a Department of a Government is transferred to a corporation. In this context, it is quite clear that the erstwhile Narmada Development Department consisting of its employees as well as the assets of Sardar Sarovar project were transferred enbloc by the Government of Gujarat to SSNNL. The next test is as to whether the chemistry of the concerned body answers the test of a State. In our view, the said test is also fulfilled in the face of the fact that the incorporation of SSNNL, its ownership, management, control as well as the powers have a unmistakable stamp of a Government. 20. In view of the aforesaid discussion, in our view, the tests laid down by the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra) are fulfilled in the present case and it would be appropriate to deduce that SSNNL is an instrumentality or an agency of the State. Therefore, SSNNL is to be understood as an entity akin to those specified in sub-clause (b) of clause (i) to sub-section (4) of section 80IA of the Act. Therefore, the objection of the Revenue that SSNNL was a company incorporated under the provisions of the Companies Act, 1956 and is therefore outside ....
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.... of Gujarat carrying out governmental functions can be understood as an entity qualifying for consideration u/s 80IA(4)(i)(b) of the Act. The objection of the Revenue in this context is thus rejected. 24. The second objection taken-up by the Revenue is that assessee was not a 'developer' so as to be eligible for deduction u/s 80IA(4) of the Act. As per the Revenue, assessee was merely awarded a contract for execution of work by SSNNL. As per the Assessing Officer, assessee has executed a works contract and therefore, it was merely a 'contractor'. 25. On this aspect, it would be appropriate to refer to the scope of work carried out by the assessee. Notably, assessee was awarded the work of 'Saurashtra Branch Canal Pumping Scheme' to be executed on turnkey basis. In the course of execution of the project, assessee was required to conceptualize, design, engineering, manufacture, erect, test and commission and also operate five pumping stations. It has also been pointed out by the assessee that the pumping scheme carried out one of the largest irrigation scheme, which irrigated about 5.4 lakh hectares of land and provided drinking water to 4620 towns and villages. It ....
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.... the container handling equipment, namely, the cranes. JNPT was owing the dedicated container handling terminal. The stand of the Revenue was that assessee was not a developer of the infrastructure facility but had only supplied and installed the container handling cranes at the JNPT port. Therefore, it was contended by the Revenue that assessee was not eligible for the benefits of section 80IA of the Act. The Hon'ble High Court has negated the stand of the Revenue and held that the contract executed by the assessee for supply, installation, testing, commissioning and maintenance of container handling cranes at the JNPT terminal tantamounted to development of an infrastructure facility within the meaning of section 80IA of the Act. In our considered opinion, the said judgement of the Hon'ble High Court clearly covers the case of the assessee of being a 'developer' and not merely a 'contractor' for the purposes of section 80IA(4) of the Act. 27. Remaining on this objection, it has also been asserted by the assessee before us that the scope of work assigned by the SSNNL was identical to the scope of work assigned by the Government of Andhra Pradesh to the assessee for its Go....
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....CIT vs. Bharat Udyog Ltd., 118 ITD 336 (Mum) noted that the business activity of the nature 'build and transfer' also falls within the eligible activities for deduction u/s 80IA of the Act. The Mumbai Bench of the Tribunal has made the aforesaid observations in the context of objection raised before it regarding the claim u/s 80IA of the Act on the ground that assessee was paid by the Government for the development work. The aforesaid objection was negated by the Tribunal and the claim of deduction was allowed u/s 80IA of the Act. Thus, we do not find any justification to deny the claim of deduction u/s 80IA(4) of the Act merely because the cost of the project executed by the assessee was not fully funded by the assessee itself. 32. In view of the aforesaid discussion, we therefore hold that assessee is eligible for the claim of deduction u/s 80IA of the Act amounting to Rs. 40,02,10,981/- in respect of the profits derived from development of infrastructure facility for SSNNL. The order of the CIT(A) is set-aside and the Assessing Officer is directed to allow the deduction." 40. From the record we found that the Memorandum of Association (MA) of NHPC brings out the purp....