TaxTMI 
TaxTMI 
2018 (3) TMI 1154
X X X X Extracts X X X X
X X X X Extracts X X X X
....astructure Ltd and M/s Ho Hup Construction Company (India) Pvt Ltd. The said members entered into an agreement as per which they were to act in collaboration with each other for the purpose of participation and submission of Tender Bid to the National Highway Authority of India for construction of road. The assessee being a consortium of companies engaged in the business of development of infrastructure facility claimed deduction u/s 80IA of the Act. The assessee filed its return of income for the Asst Year 2010-11 disclosing total income of Rs. 43,80,800/- after claiming the deduction u/s 80IA of the Act of Rs. 1,11,75,715/-. The ld AO observed that the assessee had been awarded a contract for 'Rehabilitation and Upgradation of existing 2 lane road to 4/6 lane divided carriageway configuration of Kavali to Ongole, km 222 to km 291 of National Highway No. 5 in Andhra Pradesh vide letter of acceptance dated 6.7.2001. The assessee JV has been following the completed contract method of accounting as per erstwhile Accounting Standard (AS) - 7 issued by the Institute of Chartered Accountants of India (ICAI in short) . As per completed contract method, the total revenue and costs are req....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee as developer not contractor. 3. The Ld. CIT(A)-9, Kolkata has erred in not adhering to the explanation to Section 80IA (introduced by the Finance Act, 2007). 4. The department craves leave to add, alter or amend any ground of grounds before or at the time of hearing. 5. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the orders of the co-ordinate bench decision of this tribunal in the case of DCIT vs SPML Infra Ltd in ITA Nos. 1291-1292/Kol/2013 for Asst Years 2006-07 & 2009-10 dated 24.8.2016 on the similar issue, which has been rightly relied upon by the ld CITA. 6. We have heard the rival submissions. From the reading of provisions of section 80IA of the Act, we find that in order to avail deduction u/s 80IA of the Act, the following conditions should be satisfied by the assessee :- a) The assessee should be a company or consortium of companies. b) There should exist an agreement with the Central Government, State Government, Local Authority or any other Statutory Body and c) Pursuant to the said agreement, the company engages itself in any of the following activit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e were serious issues of delay in land acquisition, public interest litigations and problems in getting environmental clearances. Therefore, in order to encourage private sector participation, tax holiday u/s 80-IA was extended to infrastructure industry and consequently sub-section (4A) was introduced and inserted by the Finance Act of 1995 with effect April 1, 1996. Since then the legislative scheme has been liberalised progressively, in the interests of aiding the growth of infrastructure. 6.4 The above discussed legislative intent may be confirmed from the judgment of the Bombay High court in case of Commissioner of Income-tax v. ABG Heavy Industries Limited [322 ITR 323]. 6.5 In the background of the legislative intent behind insertion of sub-section (4) as discussed above, if we interpret the Explanation in a way that income from infrastructure development work undertaken under any contract with any person including the Central or State Government is not eligible for deduction U/S 80-IA, then the basic intention behind extension of said benefit will be defeated and Section 80IA( 4) shall become redundant. The same will negate the grant of benefit to infrastructure indus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ur of the contractor are included in the purview of "works contract". 6.8. It would be pertinent at this juncture to look into the observations of the Hon'ble Supreme Court in the case of Associated Cement Co. Ltd. vs. CIT [201 ITR 435], wherein the Hon'ble Court while interpreting the term 'work' u/s 194C held that: "We see no reason to curtail or to cut down the meaning of the plain words used in the section. "Any work" means any work and not a "works contract ", which has a special connotation in the tax law. Indeed in the sub-section, the "work " referred to therein expressly includes supply of labour to carry out a work. It is a clear indication of the Legislature that the "work" in the sub-section is not intended to be confined to or restricted to " works contract" The issue before the Supreme Court in the aforesaid case was whether the term "work" used in section 194C needs to be restricted to "works contract". The Apex Court laid out that the term "work" used in section 194C need not be restricted to "works contracts" (i.e. labour contracts) because the sub-section expressly includes supply of labour to carry out work. In other words, it implied t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k contracts, i.e. contracts involving merely labour (or mere execution of construction without making investments) are outside the purview of the provisions of section 80- IA. 6.12. Thus, the term "works contract" used in Explanation to section 80-IA(13) means a contract of developing infrastructure by merely employing labour and making no investments. Reliance in this regard is placed on the following judgements :- a) Co-ordinate Bench decision of Hyderabad Tribunal in the case of M/s GVPR Engineers Ltd vs ACIT reported in (2012) 51 SOT 0207 (Hyd) (URO), wherein it was held that :- "The next question to be answered is whether the assessee is a developer or mere works contractor. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. The Govern....
X X X X Extracts X X X X
X X X X Extracts X X X X
....05-2010, such activity is eligible for deduction under section 80IA (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer." The Hyderabad Tribunal had observed that the Explanatory Memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction u/s 80IA of the act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. 6.13. Similarly the Chennai Bench of Tribunal in case of R.R. Constructions, Chennai vs Department Of Income Tax 2013) 35 CCH 0547 Chen Trib (2015) 152 ITD 0625 (Chennai) held that "when the assessee makes investment and himself executes development work and carries out civil works he is e....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and of Rs. 9,35,78,373.00 for assessment year 2010-11, as seen from the Profit and Loss Account of the assessee for the relevant years ending on 31.3.2009 and 31.3.2010 respectively, copies of which are furnished by the assessee at pages 20 and 65 of the paper-book. Similarly, assessee has invested its own fund of Rs. 5,55,00,000.00 for assessment year 2009-10 and of Rs. 7,86,75,710.00 for the assessment year 2010- 11, as seen from the Balance Sheet of the assessee as on 31.3.2009 and 31.3.2010 respectively, copies of which are furnished by the assessee at pages 21 and 66 of the paper-book. In this view of the matter, the reason given by the CIT(A) on this aspect for denying deduction to the assessee under S.80-IA is also not valid. Thus in light of the aforesaid decision of the Tribunal Hyderabad Bench, the contention of the AO is not valid. Further, merely because the assessee was receiving payments from the Government in progress of work it cannot be said that the projects were financed by Government. In this regard it is pointed out that under sub-section 4 of section 80-IA, deduction is available to a developer, i.e. if, an assessee, merely develops the infrastructur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts hands. Thus, if deduction u/s 80-IA is denied on the ground that the assessee had received payments from Government, then an assessee who is only a "developer" (and not an operator) will never be entitled to deduction u/s 80-IA, which is clearly not the intention of legislature as discussed by the Bombay High Court in case of ABG Heavy Industries Ltd. Thus, merely because the assessee was paid by the Government for development work it cannot be denied deduction under section 80-IA(4). The contention of the assessee finds strength from the following judgments: The ITAT (Mumbai) in case of ACIT v. Bharat Udyog Ltd. (2009) 123 TTJ 0689 : (2009) 23 DTR 0433 : (2009) 118 ITD 0336 : (2008) 24 SOT 0412 "After the amendment effected by Finance Act, 1999 w.e.f. 1st April, 2000, the deduction under s. 80-IA(4) has become available to any enterprise carrying on the business of (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Sub-cl. (c) of cl. (i) of s. 80-IA(4) is obviously applicable to an enterprise which is engaged in 'operating and maintaining' the infrastructure facility on or after 1st Ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ided that the income of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer, 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 he is paid for development of infrastructure facility, for the simple reason that he is not having the right/authorisation to operate the infrastructure facility and to collect toll therefrom, and has no other source of recoupment of his cost of development. Considered as such, the business activity of the nature of build and transfer also falls within eligible construction activity, that is, activity eligible for deduction under s. 80-IA inasmuch as mere 'development' as such and unassociated/ unaccompanied with 'operate' and 'maintenance' also falls within such business activity as is eligible for deduction under s. 80-IA. Therefore, merely because the present assessee was paid by the Government for development work, it cannot be denied deduction under s. 80-IA(4). A person who enters into a contract with another person will be a contractor no doubt; and the assessee having ente....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it, obviously such an assessee will be paid for the cost incurred by it; otherwise, how will the person, who develops the infrastructure facility project, realize its cost? If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the transferee had paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing he infrastructure facility would be entitled to deduction under section 80IA(4), which is not the intention of the law. An enterprise, which develops the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. The legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction. It presupposes that there can be income to developer i.e. to the person who is carrying....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ility. Hence, it cannot be said that the contract with the Government was to carry out mere civil construction. Attention in this regard is invited to the following: (i) The ITAT (Ahmedabad) in case of Sugam Construction (P) Ltd. vs. ITO [56 SOT 45] held that "It is also gathered (a) That a developer is a person who undertakes the responsibility to develop a project. (b) That a developer is therefore not a civil contractor simplicitor. (c) That if we apply the commercial aspect, then a developer has to execute both managerial as well as financial responsibility. (d) That the role of a developer, according to us, is larger than that of a contractor. (e) That when a person is acting as a developer, then he is under obligation to design the project, it is another aspect that such design has to be approved by the owner of the project, i. e. the Government in the present case. (f) That he has not only to execute the construction work in the capacity of a contractor but also he is assigned with the duty to develop, maintain and operate such project. (g) That to ascertain whether a civil construction work is assigned on development basis or contract basis can only be decided on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e in course of execution of works. Further, it was responsible for the correction of defects arising in the works at it cost. Thus, it cannot be said that the assessee had not undertaken any risk. 8.7 From the above, it is clear that the contention of the AO that the assessee had not undertaken any entrepreneurial and investment risk is an incorrect interpretation of the facts. Lastly, with regard to the project O&M, Bangalore (on which a deduction of Rs. 35,16,941/- was claimed), it is submitted that it is an operation and maintenance project, to which Explanation to section 80-IA(13) does not apply. Explanation to section 80-IA(13) merely distinguishes between a developer and works contractor. It clarifies that a works contractor shall not be included in the category of 'developer' u/s 80-1A. Thus, the Explanation clearly does not apply to O&M projects. Hence, deduction of Rs. 35,16,941/- claimed for the aforesaid project u/s 80-IA cannot be denied by invoking the explanation to section 80-1A. 9. From the perusal of the terms and conditions in the agreement, it is clear that the assessee was not a works contractor simplicitor and was a developer and henc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....c. Take all reasonable steps to protect the environment. (Page 15, para 19.1) (vii) Defect Liability Period: Even after the completion of works the responsibility of the assessee did not end, it was correct defects arising therein at its own cost (page 28, para 49.3) The said period was 12 (Twelve) months and extension of defect liability period - 24 months (page 46). (viii) Performance Security: The performance security will be in the form of an unconditional and irrevocable Bank Guarantee in the amount 10 (ten) percent of contract price (page 45). Further, such performance Security was to be valid till successful completion of works and remedying of defects therein. (page 13, para 10.2) (ix) Retention Money: 10 (ten) percent of Interim payment certificate subject to 5 percent of total contract price. Upon issue of taking over certificate one half of retention money would be paid whereas the other half would be paid on expiration of the Defects Liability period. (Page 35, para 60.3) (x) The assessee was to ideminify the Employer against all losses and claims in respect of death or injury to any person or damage to any property (other than works)....