AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 89
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....thereon is as to whether the interest income of Rs. 5,12,928 was to be set off against the interest expenditure and the net income was to be excluded for the purpose of calculation of deduction u/s 80IA of the Act and also the apportionment of expense of the expenses of Head Office is to be appropriated against the expenses towards the project for the purpose of calculation of deduction u/s 80IA of the Act. 4. The brief facts of this issue is that the assessee is a company engaged in the business of construction of roads, boundary walls, underground sewerage and drainage system etc. The return of income for the Asst Year 2010-11 was filed by the assessee company on 29.9.2010 disclosing total income of Rs. 2,59,70,453/- after claiming deduction u/s 80IA of the Act to the tune of Rs. 80,39,696/- . The ld AO during the course of assessment proceedings asked the assessee to furnish the copy of contract for which the claim of deduction u/s 80IA was made by the assessee. The assessee furnished the copy of contract. From perusal of the said contract, the ld AO observed as under:- i. The contract was awarded by the public works department, the government of West Bengal. ii. The Wo....
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....al risk or involvement of the assessee in the project. The assessee's return from doing work was guaranteed. The operation and maintenance of the B.T. Road Project was not to be done by the assessee but by the Government. Accordingly the ld AO issued a questionnaire dated 18.10.2012 to the assessee seeking for explanation as to why the claim of deduction u/s 80IA of the Act should not be disallowed. 5. The assessee in reply letter dated 8.11.2012 gave a detailed explanation and the gist of the explanation is as under:- The assessee: is engaged in the business of construction of roads, bridges, boundary wells, underground sewerage and drainage system since 2000. During the assessment year 2010-1.1 the assessee has undertaken the project for Improvement of B. T. Road involving widening of existing road from 4 lanes to 6 lanes and developing the existing road by putting additional layers or bituminous mix in pursuant to a tender floated by Public Works Department, Government of West Bengal since December 2007, The assessee has claimed benefits u/s 801A4(i) as the assessee has fulfilled the main conditions besides fulfilling other procedural conditions as laid down in the I....
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....asked to complete the work as per the terms of contract. Accordingly the ld AO held that the assessee is merely a works contractor and not developer and hence not eligible for deduction u/s 80IA of the Act in view of the Explanation inserted with retrospective effect from 1.4.2000 thereon. 6.1. The ld AO also observed the following in his order :- 4.1.25 Without prejudice to the above contention that the assessee is not eligible to claim the deduction u/s 80IA, if at any appellate stage it is held that the assessee is eligible for deduction u/s 80IA, in that case, the claim of deduction u/s 80IA may be restricted subject to the following:- a) Claim of deduction on account of ineligible receipts That the ld AO observed that the assessee is not eligible for claim of deduction u/s 80IA of the Act on account of interest receipts of Rs. 5,12,928/- as the same was not derived from the undertaking. By placing reliance on certain decisions in this regard, the ld AO held that even if the said interest income is held to be income from business, still the same is not eligible for deduction u/s 80IA of the Act as it is not derived from the eligible undertaking. b) Apportio....
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.... 2455 280 Printing & Stationery 59223 6746 Tender Expenses 55905 6368 Sales Promotion 205525 23411 Telephone Charges 64411 7337 Travelling & Conveyance 136624 15562 Interest on cash credit 2351999 267908 Interest on Equipment Finance 152482 17369 Interest on Unsecured Loan 1237907 141006 Interest on Others 102563 11683 Bank Charges 1689902 192491 Bank Guarantee Commission 225336 25667 The ld AO observed that accordingly the profits of B.T.Road project was overstated by the assessee by Rs. 8,84,703/- which is to be reduced while granting deduction u/s 80IA of the Act. c) Claim of depreciation on B.T.Road project as per IT Act The ld AO observed that the assessee had debited depreciation as per Companies Act and had arrived at the profit of B.T.Road project at Rs. 80,39,696/- instead of debiting income tax depreciation. The ld AO arrived at the depreciation attributable to B.T.Road Project on proportionate basis at Rs. 9,15,098/- as per IT Act. Accordingly he held that the assessee claim of deduction u/s 80IA of the Act would be further reduced by Rs. 1,00,505/- ....
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....evelops 35[***] a special economic zone referred to in clause (iii) of sub-section (4)] or generates power or commences transmission or distribution of power 36[or undertakes substantial renovation and modernisation of the existing transmission or distribution lines 37[ 37a [or lays and begins to operate a cross-country natural gas distribution network]]] : 38 [Provided that where the assessee develops or operates and maintains or develops, operates and maintains any infrastructure facility referred to in clause (a) or clause (b) or clause (c) of the Explanation to clause (i) of sub-section (4), the provisions of this sub-section shall have effect as if for the words "fifteen years", the words "twenty years" had been substituted.] 39 [(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), the deduction in computing the total income of an undertaking providing telecommunication services, specified in clause (ii) of sub-section (4), shall be hundred per cent of the profits and gains of the eligible business for the first five assessment years commencing at any time during the periods as specified in sub- section (2) and thereafter, thirty per....
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.... the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. (4) This section applies to- (i) any enterprise carrying on the business 47[of (i) developing or ( ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely :- (a) it is owned by a company registered in India or by a consortium of such companies 48[or by an authority or a board or a corpora-tion or any other body established or constituted under any Central or State Act;] 49[( b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;] (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infras....
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....ch special economic zone, as the case may be, to another undertaking (hereafter in this section referred to as the transferee undertaking), the deduction under sub-section (1) shall be allowed to such transferee undertaking for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee undertaking : 60 [Provided further that in the case of any undertaking which deve-lops, develops and operates or maintains and operates an industrial park, the provisions of this clause shall have effect as if for the figures, letters and words "31st day of March, 2006", the figures, letters and words "31st day of March, 60a[ 2011]" had been substituted;] (iv ) an 61[undertaking] which,- (a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 62[ 2011]; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of Apr....
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....n; (d ) it has started or starts operating on or after the 1st day of April, 2007; and (e ) any other condition which may be prescribed. Explanation.-For the purposes of this clause, an "associated person" in relation to the assessee means a person- (i ) who participates directly or indirectly or through one or more intermediaries in the management or control or capital of the assessee; (ii ) who holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the assessee; (iii ) who appoints more than half of the Board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of the assessee; or (iv ) who guarantees not less than ten per cent of the total borrowings of the assessee.]] (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessme....
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....fits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. 75 [Explanation.-For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market.] (9) Where any amount of profits and gains of an 76[undertaking] or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading "C.-Deductions in respect of certain incomes", and shall in no case exceed the profits and gains of such eligible business of 76[undertaking] or enterprise, as the case may be. (10) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the ....
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....rprise which is a Company registered in India and is developing, operating and maintaining or developing, operating and maintaining any infrastructure facility is eligible for deduction if the said enterprise has entered into an agreement with Central Government, State Government and or local authority or Statutory body on or after 01.04.1995. The explanation to the said clause states that the meaning of "infrastructure facility" for the purposes of the said clause means a road, toll road, bridge, rail system etc. Further the explanation to the said section also states that nothing contained in this section shall apply in relation to a business referred to in sub- section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1) 80IA of the Act. We find that the assessee is a company and during the year under consideration reported a turnover of Rs. 72.31 crores and declared a net profit of Rs. 3.52 crores. The assessee was enjoying credit facility from various banks and NBFC for cash credit, loans on lien of Fixed Deposits and Equipment finance. The t....
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....lassifiable as a new infrastructure facility for this purpose. The said Circular is reproduced below for the sake of convenience: "CIRCULAR NO.4 OF 2010 DT. 18TH MAY, 2010 Widening of existing road-Definition of a new infrastructure facility- Clarification regarding 18/05/2010 DEDUCTIONS SECTION 80-IA(4) References have been received by the Board as to whether widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80-IA(4)(i) of the Income-tax Act, 1961. Section 80-IA(4)(i) provides for a deduction to an undertaking engaged in developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility subject to satisfaction of the conditions laid down in the section. The Explanation to sub-section 80- IA(4)(i) states that for the purpose of this clause, infrastructure facility means inter alia:- "(a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; The issue has been examined by the Board. It has been decided that ....
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....r Blacks's Law also, a works contract is a labour contract under which the contractor merely employs his labour as per the directions of the contractee. Further, attention is invited to relevant extracts of section 194C of the IT Act: "(iv) "work" shall include- (a) Advertising; (b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) Carriage of goods or passengers by any mode of transport other than by railways; (d) Catering; (e) Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer." 9.3.2. Thus as per section 194C of the Act also, "works contract" does not include a contract wherein, the contractor in addition to employing labour, procures material from a third party. Thus, contracts involving mere labour of the contractor are included in the purview of "works contract". We find that the Hon'bl....
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....aid material turns the material into a desired product. We find further that the memorandum explaining the provisions in the Finance Bill, 2007, reported in (2007) 289 ITR (St.) 292 at page 312 reads as under: "Section 80-lA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and special economic zones. The tax benefit was introduced for the reason that industrial modernization requires a passive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been {or encouraging private sector participation by way of investment in development of the infrastructure sector and not {or the persons who merely execute the civil construction work or any other works contract." Accordingly, it is proposed to clarify that the provisions of section 80- IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where ....
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....the agreement. Only on the basis of the terms and conditions it can be ascertained about the nature of the contract assigned that whether it is a "work contract" or a "development contract". (h) That in a development contract" responsibility is fully assigned to the developer for execution and completion of work. (i) That although the ownership of the site or the ownership over the land remains with the owner but during the period of development agreement the developer exercise complete domain over the land or the project. That a developer is not expected to raise bills at every step of construction but he is expected to charge the cost of construction plus mark-up of his profit from the assignee of the contract. (k) That a developer is therefore expected to arrange finances and also to undertake risk. (I) That in contrast to the rights of a "contractor" a "developer" is authorized to raise funds either by private placement or by financial institutions on the basis of the project. These are few broad qualities of a developer through which the character of a developer can be defined. b) Co-ordinate Bench of Hyderabad Tribunal in the case of Koya and Co. Construction (P) Ltd....
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....tor. 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 Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the w....
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....ion, the assessee could (i) develop ; or (ii) operate and maintain ; or (iii) develop, operate and maintain the facility. The condition as regards development, operation and maintenance of an infrastructure facility was contemporaneously construed by the authorities at all material times, to cover within its purview the development of an infrastructure facility under a scheme by which an enterprise would build, own, lease and eventually transfer the facility. "This was perhaps a practical realisation of the fact a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. Parliament when it amended the law was obviously aware of the administrative practice resulting in the circulars of the Central Board of Direct Taxes. The fact that in such a scheme. An enterprise would not operate the facility itself was not regarded as being a statutory bar to the entitlement to a deduction under section 80-IA of the Act. " 9.5. From the above it is clear that even if an assessee is merely developing the ....
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....ot arise. However, if the contention of the Departmental Representative is accepted, it would obviously/understandably lead to manifestly absurd results. When the Act provides for deduction undisputedly for an enterprise who is only 'developing' the infrastructure facility, unaccompanied by 'operating and maintaining' thereof by such person, there cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 1st April, 1995. Since the assessee is only a developer of the infrastructure project and it is not maintaining and operating the infrastructure facility, sub-cl. (c) of cl. (i) of sub-s. (4) of s. 80-IA is not applicable. The interpretation of Revenue is absurd also in view of the rationale of the provisions of s. 80-IA(4)(i). From the asst. yr. 2000-01, deduction is available if the assessee carries on the business of any one of the three types of activities. When an assessee is only developing an infrastructure facility project and is not maintaining nor operating it, obviously such an assessee will be paid for the cost incurred by it; otherwise, how will the person who develops the infrastru....
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....-IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a local authority. So, entering into a lawful agreement and thereby becoming a contractor should, in no way, be a bar to the one being a developer. Therefore, 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 a developer; nor will it debar the assessee from claiming deduction under s. 80-IA(4). Therefore, an assessee who is only engaged in the developing the infrastructural facility i.e., road and not engaged in the 'operating and maintaining' the said facility is entitled to the benefits of the deduction under s. 80-IA(4).-Patel Engineering Ltd. vs. Dy. CIT (2004) 84 TTJ (Mumbai) 646 followed. Provisions of sub-cl. (c) of cl. (i) of s. 80-IA(4) are inapplicable to the assessee which is engaged in mere developing of the infrastructure facility and, therefore, an assessee who is only engaged in developing the infrastructure facility and not in 'operating and maintain....
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....tractor simplicitor and was a developer and hence Explanation to section 80IA(13) of the Act does not apply to the assessee. Further, in addition to developing the infrastructure facility, the assessee was even operating and maintaining the same. Thus, clearly the assessee is eligible for deduction u/s 80IA of the Act. In our considered view, we do not find any reason to uphold the order of ld. CITA. We therefore hold that the assessee was entitled to deduction u/s 80IA of the Act. 9.7. With respect to the interest income of Rs. 5,12,928/- , the same represents interest on fixed deposits. We have examined the audited accounts and found that the Fixed Deposits are utilized to provide bank guarantees for the work undertaken by the assessee. Thus it is clear that there is a direct nexus of the fixed deposit with the development activity of the assessee. We also find that the ld AO in the assessment order has pointed out that there were interest expenses incurred by the assessee on cash credit, equipment finance and unsecured loans. The total of the interest paid including bank charges (which are as per Section 2(28A) of the Act are also considered to be interest) for the BT Road pr....
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....ght on record, the Learned Commissioner (Appeals)-4, ought to have granted full relief to the appellant against the addition made by the Ld. Assessing Officer of Rs. 10,22,504/- on account of excess depreciation claimed on commercial vehicles. " 10.2. We have heard the rival submissions. We find from page 50 of the paper book that the total contract value undertaken by the assessee includes a sum of Rs. 89,97,573/- towards removal of earth from working site including loading, unloading and carriage within a distance of 2 km over pacca road. For this purpose, the commercial vehicles of the assessee had been used for execution of the development project undertaken by the assessee. Hence it could be safely concluded that the vehicles were used for the purpose of business for transportation of goods of running them on hire as admittedly the total contract value includes hire charges (in different nomenclature) and accordingly entitled for higher rate of depreciation @ 30%. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs M/s Ripley & Company Ltd in ITAT No. 231 of 2010 dated 10.1.2011 for Asst Year 2006-07 had decided the issue in favour of the assessee by ho....