TaxTMI 
TaxTMI 
TaxTMI 
2015 (11) TMI 1665
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....ift 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 Teesta Lower dam Project. 2. On the facts and circumstances of the case and i....
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.... 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 followed and accordingly the claim for the current year in a sum of Rs. 23.34 crores is also disallowed. The AO further observed that the assessee is a mere works contractor while the owners an....
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.... 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 facility on or often 1st April 1995. By the Finance Oct of 2007 the word 'or' came to be introduced after the word developing, to clarify in effect that the agreement between the enterprise and the a....
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.... 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 the 'operate' aspect, the question of an assessee engaged in such activity (of 'BT' carrying on only development) to recover his costs of construction of his own from the infrastructure project/facility its....
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....nts 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 the entire infrastructure facility and not only a part thereof. This issue, as well as the earlier deliberated issue have now been decided in a recent decision of the Pune Tribunal in B.T. Patil & Sons Belgaum Construction Ltd. where ....
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....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 surrounding road junctions, development substructure for LBS flyover and completion of super structure of flyover. In this regard attention is drawn to the circular issued by the CBDT in circular no. 4/2010 it has been stated as under:- "It has been decided that widening of an existing road by constru....
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....e 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 the use of the infrastructure facilities development of such enterprises. The infrastructure facility had to become operational on or after 1-4-1995. The provisions of Section 80IA(4) of the Act was introduced afresh by the Finance Act, 1999 and the provisions under section 801A(4A) of the Act were deleted from the Ac....
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....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, Constructional plant, equipments, etc. and also take third party insurance. j. The assessee has to give performance security, Bank guarantees and Retention money deducted becomes payable to the Contractor only after the defect liability period is over. k. The Contractor is liable to indemnify the Employer towards damage to equipments or property, or lives or persons or properties of othe....
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....g 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 undeveloped site handed over by the Government to the Contractor, the Contractor hands back the Developed Infrastructure facility to the Government. (page 44) * The Contractor has to construct and maintain all access and approach roads in the labour colony areci at its own cost. (Page 86) * Additional roads as required by the Contractor for completion of work has to be constructed by the Contractor at its own cost (Page 90) * From the commencement of the work until the completion of the whole of the work, the....
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....actor 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 Security which would be returned after a period of 15 months from the date of completion of the work. (Page 19) * Further Retention Money was to be deducted to form an additional security deposit and this amount would also be returned after a period of 15 month from the date of completion of the work. (Pages 19 and 20) * The Contractor is liable to indemnify the Employer against all losses and claims in respect of injuries or damage to any person or property. (Page 34) * The Contractor is liable to indemnify the Employer against all penalties and liabilities for breach of any applicable statute (Page 35) * The Contractor is liable to indemnify th....
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.... (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/responsible for the accuracy of the alignment, grades levels etc. (Page/ It is responsible for providing adequate lighting in the tunnel, ventilation etc. (Page 74 and 75) * It takes risk of poisonous gases and dust omission in the atmosphere while drilling tunnel. (Page 75) * It is solely responsible for the safety of the site from the date of commencement of work till the date of handing over" the developed site. (Page 78) * It is liable to remove all defects/damaged work at its own cost. (Page 123- 124) * The Development of tunnel is to be completed in 30 months. (Page 6) The Defect Liability Period is 6 months. (Page 44) * It has to decide on the method proposed by it for construction of the tunnel including details of all related activities, list of machineries to be deployed, progress plan etc. (Page 31-....
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....cal 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 development of one Weir (Dam) across river Krishna is with APGENCO. Hence, it is a Water Supply and Irrigation project. * The Contractor is required to construct and maintain, at its own cost, the roads inside the work area, approach road or access roads, to transport machineries and material. The lay out, designs, construction and maintenance etc. is also the responsibility of the Contractor. (Page 126) * The Contractor has to submit detailed design for the pipelines from the point of dragging to the disposal/storage area (Page 148) * To be eligible, the Contractor is required to have experience of under water concreting, reinforced cement concrete, reinforcement steel supply and fabrication (Page 90) and have liquid assets should be at least Rs, 30 Crores. (Page 90) * The Contractor has to satisfy itself regarding the location of work, general and local site conditions etc. having a bearing on the work. (Page 127) * The Contractor is expected, at its own cost, to inspect ....
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....de, at its own cost, all temporary structures, cement godown, workshops, shelter etc. (Page 119) * The Contractor shall provide, at its expense, all templates, pillars, stakes, equipments, materials and labour for establishing the grid lines and pillars and shall be responsible for their maintenance during the whole period of construction. (Page 119) * The Contractor shall be responsible for the correctness of all measurements and level. (Page 120) * The Contractor has to commit sufficient plant, equipment and labour to ensure timely progress and completion of the work (Page 121) * All material required for the contract, necessary licenses, plant or machinery etc. has to be procured by the Contractor. (Page 124) * The Contractor has to make arrangements and obtain permissions from authorities for transportation of equipments etc. on public roads/bridges (Page 126) * The Contractor has to make arrangements, at its own cost, for water supply and power. (Page 128) * The Contractor has to submit the list of plant, equipments and personnel to be committed at the construction site (Page 133) and is not allowed to remove any plant and other equipments without the prior appro....
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....on. Hence, this is a Water Supply and an Irrigation project. (Volume 1, Page 13) * The Scheme involves supplying/transferring of water; alternatively between the upper reservoir and lower reservoir with a vertical distance of more than 400 meters between. them. (Volume 1, Page 96) * The Contractor, at his own cost, will have to construct and maintain approaches to each element of work from the main roads. (Volume 1, Page 104) * The term "Contractor" means the person or persons, firm or company whose tender has been. accepted by the employer and includes the contractor's personnel representative, successors and permitted assigns. (Volume 1, Page 40). * The term "Employer" means the Government of Maharashtra (Volume 1, page 40). * "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 the contractor under contract, including all the preliminary and ancillary Works necessary for the fulfillment of the various items under the contract (Volume 1, page 40). * To be eligible for award of the contract, the Bidder has to provide evidence of eligibility and adequacy of ....
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....per has to maintain the facility and acquaint the Government's personnel in the operation of - infrastructure facility is one year from the date of completion of the work. (Volume 1, Page 33 and 18) * Detailed method statement setting out cycle times, equipment and manpower allocation, qualification and experience of key personnel for administration and execution of contract - both on and off site need to be furnished at the bidding stage (Volume 1, Page 17) * Based on the tentative drawings, the Contractor has to bid for the work, which offer will be valid for all the final designs and drawing incorporated for actual execution and the Contractor will have no claim for the details added later on. (Volume 1, Page 35) The Developer has to prepare necessary construction drawings (Volume 1, Page 47) * The Contractor has to submit to the Government, a general lay out plan of construction, plant and equipment and drawings or print showing location of major plant and other facilities which he proposes to put up at the site. (Volume 1, Page 44) * The selection of construction plant and equipments and their timely mobilization will be the responsibility of the Contractor. (Vol....
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....sed for this work. * The Contractor shall be liable to indemnify the principal against damage to persons and properties (Volume 1, Page 51) and shall adopt every reasonable means to prevent highway/bridges from being damaged. (Volume 1, Page 55) * All interim payment shall be regarded as payment by way of advance _ against the final payment only and not as payments for the work actually done and completed and shall not be considered as admission of due performance of the contract. (Volume 1, Page 76, 121) Work will be considered as complete only when the final payment certificate is issued. (Volume 1, Page 81) * Interest bearing loan (.?_,-I)' 14% p.a. can be obtained by the Contractor against- the cost of mobilization (Volume 1, Page 79) * The other financial and Technical details of the project are given on pages 8, 147-148, 252 and 258-260 of the paper book. 5. Kalwakurtu Lift Irrigation Project Kalwakurthy Lift Irrigation Scheme Lift -1 (Government of Andhra Pradesh) * The Contract Value is: For EPC Turnkey Development Contract - Rs. 480.99 crores For Operation and Maintenance of the Plant for three years - Rs. 14.20 Crores. (Page 699) * Hence, the agreeme....
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....ofile of the bid document and satisfy itself about their adequacy. (Page 113) * It will be handed over the undeveloped site by the Government on which it has to develop the infrastructure facility, operate and maintain it for 5 years. Upon completion of the Operation and Maintenance period, acceptance test shall be carried out before the project is "Handed over" to the Employer. (Page 175) * Being a Turnkey Contract, the Contractor shall take full responsibility for - Designing, Engineering and Execution of the project. (Page 112), However, the preliminary designs, drawings of various components of the project are given by the employer in Volume II, III and IV of the bid) (113) * The designs and drawings submitted by the Contractor have to be approved by the Engineer of the employer. (Page 690) * It shall submit drawings, data and descriptive literature as required in the specifications to enable evaluation of the bid as to the soundness, reliability, serviceability and efficiency. (Page 102) * The development has to be completed in 46 months. (Page 708) * The Defect Liability Period is 12 months from the date of completion of the project. (Page 714) * It has to giv....
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....ntenance of the project. (Page 173) * It shall obtain and maintain Industrial All Risk Insurance for the project providing full coverage on replacement value basis during the period of Operation and Maintenance. (Page 174) * It has paid Earnest money deposit, which is liable to forfeiture. (Volume - Corrigendum) * There are penalties for delays beyond the stipulated date of completion of each unit of work. (Page 55) * The Employer will make 12% interest bearing recoverable advance payment against bank guarantee for an equivalent amount. (Page 56) * All progressive payments made are interim payments which shall be reviewed on quarterly basis. (Volume Page 60) * The Security deposit furnished by the Contractor is liable to forfeiture. (Volume 5) * No enhancement of prices for whatever reasons will be allowed once the contract is entered into. (Page 114) * It has to quote for the entire package on a single source responsibility basis. (Page 119) * It shall indemnify the Employer against all action, suits, claims, costs or expenses, damages or injury to any person or property on account of the negligence of the Contractor or is associates. (Page 169) * It shall re....
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....anagement personnel to be deputed for administration and execution of the contract is laid down (Page 36) * It is the bidders own responsibility to visit and examine the site of works and its surroundings and obtain all information that it considers necessary for entering into a contract for construction of works. (Page 23) * The entire work site will be in its possession from the date of commencement of works. (Page 49) * It is the responsible to obtain Commencement Certificate, Amended plan approval, if required and other statutory approvals from Local Authorities including Building Completion Certificate from the Competent Authority. Charges and deposits etc. for obtaining all the above approvals are to be paid by it. (Page 17) * It is the responsible to obtain Occupation Certificate and the Building Completion Certificate from the Competent Authority. (Page 17) and other certificates from various authorities as required by law and shall obtain electric supply for the tenements. (Page 56) * It is responsible to obtain amended approvals from SRA and other concerned authorities for any changes that are required. (Page 17) * It has to obtain certificate from MCGM and wa....
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.... activities on the site from the date of commencement of work till the site is handed back by the Contractor to the Employer on completion of the Work. (Page 49) * All risks of loss of or damage to physical property and of personal injury and damage which arise during and in consequence of the performance of the Contract is the responsibility of the Contractor. (Page 48) * It has to take insurance, including Third Party Insurance from the start date to the end by the Defect Liability Period for the loss or damage to the Works, plant and machinery, equipment, damage to property, personal injury or death. (page 48) * It has to construct and install the works in accordance with the specifications and drawings (Page 48) * It is the responsibility of the Contractor to draw the attention of the Engineer to specific likely future events or circumstances that may affect the work or cost of the project. Defects found are to be rectified by the Contractor free of cast during development of the infrastructure facility and upto the end of defect liability period. Any defect got -rectified by the Employer directly will have to be paid by the Contractor (Page 50 - 51) * All materials o....
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....ne Permanent road and intermediate link access road and Bailey bridge has to be constructed by the Contractor. (Page 13) * * All drains, cross drainage works, culvert etc. have to be developed by the Contractor. (Page 14) * * It may have to build, if required, and maintain various haulage roads around the project site and quarry locations at its own cost. (Page 14) * "Contractor" shall mean Patel Engineering Ltd. having its registered office at Patel Estate, Jogeshwari (W), Mumbai 400 102 and its legal representatives, successors and permitted assignee. (Page 119) * "Owner" shall mean the National Hydroelectric Power Corporation Ltd. (A Government of India Enterprise), having its registered office at NHPC Office Complex, Sector - 33, Faridabad - 121 003 (Haryana) India and shall include its successors and assigns. (Page 11911) * "Site" shall mean the land and other places on, under, in or through which the Permanent Works or Temporary Works of the Contract are to be executed including any other lands or places which may be provided by the Owner for work space or for any other purpose, for the performance of the Contract. (Page 120) * Only bidders who have been pre-quali....
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....art of the Permanent Work will be new. (Page 13) * It shall procure/arrange all construction materials except cement, steel and explosives. (Page 134) * Materials, appliances, equipments and spares forming part of the Works shall become the property of the Owner on the issue of Certificate of Completion. (Page 156) * Selection of plant and equipments and the timely mobilization will be the responsibility of the contractor. (Page 157) * It shall be solely responsible for protection of environment during the work at the construction site. (Page 167) * On the completion of the Works, the Contractor shall furnish "as constructed" drawings for every component of the work at its own cost to the Owner (Page 157) * It has to set up laboratory at site for material testing. (Page 176) * It has to design, furnish, set up, maintain and operate at the site all Temporary Works, Site installations and Contractor's equipment. (Page 270) * It shall be responsible for the safety around road related to the 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 responsib....
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....truction of 6 lane SCLR from Mithi River Bridge upto Amur Mahal. The length of project road under section I is 2.00 km. The work includes construction of 6 lane concrete road with 3.0 meters wide footpath on either side and central divider, construction of 527 meters long flyover along with 7.5 meters wide service roads & 3.0 meters footpath on either side, replacement of existing steel bridge with new one, road on Arnar Mahal side and construction of junctions at Amarmahal with EEH and S.G. Barve Marg and improvement on the surrounding road network. (Pages 26, 27) * Hence, it is a "Road Project" * The Contractor has to prepare traffic diversion plan at various stages of work, as required and has to maintain liaison with the traffic police/authorities so as to ensure smooth flow of traffic at all stages of the work without causing inconvenience to the traffic. (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 ....
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.... Works was to be completed in 24 months (Page 6). * * The Defect Liability Period is 12 months from the date of certification of the completion of the Works. (Page 29) * * From the date of commencement of work till the defect liability period is over, the Contractor has to insure the Works, plant, materials, equipments and other properties, employees and also take Third party insurance. (Page 29) * * It has to employ key personnel to carry out the functions of development of Works. (Page 41) * * All risks of loss or damage to vehicle, property and of personal injury and death which arise during and in consequence to the performance of the contract, except employer's risks, is the responsibility of the Contractor. (Page 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 bil....
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....payments certified by the Engineer under the Contract. (Page 33) * The performance security will be by way of unconditional Bank Guarantee. (Page 33) * Non compliance with certain key conditions would result in the breach of contract for which the Contractor is liable to pay damages @ 20% of the cost of incomplete work, (Page 34) * The payment of liquidated damages does not release the Contractor from its liabilities. (Page 49) * The other financial and Technical details of the project are given on pages 8, 147-148, 252 and 258-26C) of the paper-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 aspe....
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....cial test, establishes it own laboratory on the site and prepares drawings which are submitted to the Govt/authority. It is the responsibility of the appellant to do the soil testing, earth filling, makes its own arrangement for quarry, site office, installation of crusher, concrete plan etc. The appellant undertakes investments financial and technical risks and indemnifies any loss of life or property to the respective employer. The appellant only receives interim payments till the infrastructure is completely developed and handed over to 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 an....
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....to sub-section (13) of section 80IA by Finance Act 2007 & 2009 whereby the assessee is not held eligible for deduction u/s. 80IA(4). In this regard, we find that the amendment of 2007 debars the sub-contractor from availing benefits u/s. 80IA (4). The amendment of 2009 is riot applicable in the case where the assessee executes the work by shouldering investment & technical risk by employing ream of technically & administratively qualified persons and it is liable for liquidated damages if failed to fulfill the obligation laid 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....
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....nt has claimed deduction under s.80IA(4) in the impugned assessment year, has been held to be eligible for deduction under the said section in B. T. Patil and Sons Belgaum Construction Pvt. Ltd. where in paras 11 and 12 of that order, it was held that :- 11. The assessee company has been included in as a sub contractor for all the other projects either the contracts are directly in the name of assessee company or in the name of joint venture enterprises. 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 Ba....
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....d not to it as it was a developer, my predecessor held that the said contract was a works contract and hence not eligible for deduction. However, in the light of the legal position presently prevailing, especially in view of the decision in B.T. Patil and Sons Belgaum Constructions Pvt. Ltd. as discussed above, wherein it was held that the Explanation inserted by the Finance Act, 2007 applies only to subcontractors, the same is held not 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 ....
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....nt may argue that it undertakes all the functions of the Central Government of India, it is not equivalent to being the State or Central Government. Such corporation fully owned by the Government, are only the arm of the Govt. and not the Government itself. 6.21 In view of the facts and legal position as enumerated in 'the above paragraph, the AO is directed to allow deduction on Koyna, Udhampur, 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....
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....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 Hon'ble 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 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. ....
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....tating that from a summary of the current account it could be observed that funds have flown out of the current account on which the assessee had paid interest. In these circumstances, the A.O disallowed the proportionate interest on the current account applying the 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 t....
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....it of - the appellant in the firm for A.Y. 2004-05 of Rs. 5,0 1,57,164. 16. The alternate contention of assessee was that the provisions of section 14A cannot be applied to the appellant since the share of profit received by 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....
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....d already been taxed in the hands of the AOP, the AO assessed the assessee's share therein on a protective basis. The ClT(A) discussed this on pages 70-71 of her order 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 eligi....
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....O was correct in apportioning the said expenses to the eligible units on the basis of turnover. The AO will apportion the said expenditure on the basis 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 shou....
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....80IA(4) in column C. 28. On the other hand, ld. DR relied on the order of lower authorities. 29. We have considered rival contentions and found 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 afte....
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....ranted against bank guarantee. In the balance sheet, such contractee advance mobilisation loan is reflected as loan funds under the 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 cre....
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....elevant portion of section 80IA is reproduced hereinafter:- "80-IA. [(1) Where the gross total income 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 th....
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....an integral part of the 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 ....
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....IA(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 provisions, a ....
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....rivate 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 Sardar Sarovar project c....
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....d 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. 16. The aforesaid background of the manner in whi....
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....mentality 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 us is that SSNNL complies with all the tests laid down by the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra). First test ....
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....while 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 the purview of section 80IA(4)(i) of the Act is unfounded. In-fact, the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra) specifica....
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....e 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 has also been pointed out by the assessee that it developed certain new technologies in the course of executing the project, namely, Siphon Technology, and the same was got patent....
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....rastructure 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 Godavari Lift Irrigation scheme. In so far as the profits relating to the project of Godavari Lift Irrigation scheme is concerned, the benefits of section 80IA has been allowed to the assessee an....
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....l 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 purpose of formation of NHPC. We found that Articles of Association (AA) of NHPC so submitted show that the appointment of Chairman of the company, its vice chairman, board of directors, managers, etc. are by the President of India an....