TaxTMI 
TaxTMI 
2018 (11) TMI 998
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CIT(A) ought to have considered that in view of the explanation to Sec. 80IA(13) as substituted by the Finance (No.2) Act, 2009 with retrospective effect from 01.04.2000, any undertaking or enterprise who executes works contract as a contractor does not qualify for deduction u/s 80IA of the IT Act. v. The Ld. CIT(A) ought to have further appreciated that the decision of the ITAT, Pune in the case of M/s B T Patel & Sons referred in the first appellate order is not applicable to the case of the assessee as the assessee has executed only works contract during the year and therefore, the profits derived from such works contract are not eligible for deduction u/s 80IA of the IT Act. vi. The appellant craves leave to add, substitute, amend, alter any of the grounds of the appeal as stated above. For these and other grounds of appeal that may be urged at the time of the hearing of appeal, it is prayed that addition made by the A.O on account of disallowance of deduction claimed by the assessee u/s 80IA be restored. 2. Brief facts of the case are that the assessee, a civil contractor, filed its return of income for the A.Y 2014-15 on 29.09.2014 admitting total income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e was considered at length in Tribunal's order for the A.Y 2010-11. The relevant paragraphs are reproduced hereunder for ready reference: 3. As far as the first effective grievance of the assessee in this appeal concerning disallowance of deduction under S.80IA is concerned, contained in ground No.2 above, we find that similar issue was considered by this Tribunal in assessee's own case for the assessment year 2005- 06 to 2007-08 in ITA Nos.269/Hyd/2009, ITA No.1165/Hyd/2009 and ITA No.1171/Hyd/2010 respectively vide order dated 16.3.2012. The Tribunal by the said order has decided the issue in the following manner- "31. Findings: We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have also gone through all the case laws cited by both the parties. We find that the provisions of Section 80IA (4) of the Act when introduced afresh by the Finance Act, 1999, the provisions under section 80IA (4A) of the Act were deleted from the Act. The deduction available for any enterprise earlier under section 80IA (4A) are also made available under Section 80IA(4) itself. Further, the very fact that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee is akin to works contract and he is not eligible for deduction under section 80IA (4) of the Act. 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. We find that 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 r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....per. 34. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word "contractor" is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word "contractor" is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor. 35. We find that the decision relied on by the learned counsel for the assessee in the case of CIT vs. Laxmi Civil Engineering works [supra] squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of a infrast....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0IA(4), after the amendment the section 80IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, prior to amendment the "or" between three activities was not there, after the amendment "or" has been inserted w.e.f. 1-4-2002 by Finance Act 2001. Therefore, in our considered view, the assessee should not be denied the deduction under section 80IA of the Act as the contracts involves, development, operating, maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract. In our opinion the contracts which contain above features to be segregated and on this deduction u/s. 80-IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 80IA(13), those work are not entitle for deduction u/s 80IA of the Act. The profit from such contracts which involves development, operating, maintenance, financial involvement, and defect correction and liability period is to be computed by assessing officer on pro-rata basis of turnover. The assessing officer is directed to examine and grant deduc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rused the entire record. The first issue of the appeal is regarding claim of deduction under section 80IA(4) of the Act. The case of the revenue is that the assessee is a 'works contractor' and not a 'developer' as stipulated under section 80IA(4) of the Act. The section 80IA(4) applies to any enterprise, which carries on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facilities, which fulfil all the above conditions. There cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 01.04.1995. From the assessment year 2000-01, deduction is available if the assessee is carrying out the business of any one of the above mentioned 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 infrastructure facility project, realize its cost? If the infrastructure facility, just after its development, is transfe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... executed a part of contracts of irrigation and water supply on 'build and transfer' basis and handed over them to contractee Governments, was eligible for deduction under section 80IA(4). 5. We have also taken a similar view in ITA No. 554/Meds/2010 in the case of East Coast Constructions & Industries Ltd v. DCIT vide order dated 13.09.2011 and relevant paras from 9 to 14 are reproduced hereunder: "9. After considering the rival submissions, we can safely say that the benefit of section 80IA is available only to a 'developer' who carries on business of 'developing of infrastructure facility'. A person who enters into contract with another person for executing 'works contracts' is not eligible for such a benefit. Explanation to section 80IA was inserted by Finance Act, 2007 with retrospective effect from 1.4.2000 which has further been amended by Finance (No.2) Act, 2009 with retrospective effect from 1.4.2000. The amendment in this Explanation was necessitated due to contrary judicial decision on this issue. Thus, we can unequivocally now say that any undertaking or enterprise which executes the infrastructure development project, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 80IA of the Act. Be that as it may, when we apply this provision in its letters and spirit, we find that this assessee is verily eligible for deduction u/s 80IA, as the assessee-company fulfils all the relevant conditions. The facts of this case go to prove that the assessee is a 'developer' of infrastructure facilities. The reasons for our above conclusion are given in the following paras. Firstly, the assessee-company not only designs but also creates new products. The assessee had undertaken four projects during the relevant year and executed, constructed, delivered and maintained by it. As per the definition of Advanced Law Lexicon [placed at page 533 of the paper book] "Developer" means - a person engaged in development or operation or maintenance of Special economic Zone, and also includes any person authorized for such purpose by any such developer. The "works contract" means an agreement in writing for the execution of any work relating to construction, repair, or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory, workshop, powerhouse, transformers or such other works of the State Governmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 a person makes the investment and himself executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80- lA. In contrast to this, a person who enters into a contract with another person (i.e., undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80- IA. This amendment will take retrospective effect from April I, 2000 and will accordingly apply in relation to the assessment year 2000-01 and subsequent years." It is made abundantly clear that the prescription of section 80- IA shall not apply to a person who executes work contracts entered into with an undertaking or enterprise. Thus, in a case where a person who makes investment and himself executes development works and carries out civil works, will be eligible for tax benefit under section 80- IA of the Act. In contrast to this, a person who enters into a contract with another person for executing works contrac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....After Section 80IA was amended by the Finance Act, 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility' which fulfils certain conditions. Those conditions are (I) ownership of the enterprises by a company registered in India or by a consortiums; (II) an agreement with the central or State Government, local authority or statutory body; and (III) the Start of operation and maintenance of the infrastructure facility should commence after 1st April, 1995. The requirement that operation and maintenance of the infrastructure facility should commence after 1st April, 1995 has to be harmoniously construed with the main provision under which deduction is available to an assessee who develops or operates and maintains, or develops, operates and maintains an infrastructure facility". A harmonious reading of the provisions in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops, or operates and maintains; or (iii) develops, maintain and operates that infrastructure facility. However....
X X X X Extracts X X X X
X X X X Extracts X X X X
....liberally construed. 13. Now, the question arises as to whether the term 'contractor' is not essentially contradictory to the term 'developer'. In fact, in every development the term 'developer' will definitely be a 'works contractor' but every works contractor may not be a 'developer'. A 'developer' is a specific kind of works contractor to be eligible for deduction u/s 80IA(4) who fulfils all the conditions namely, if the assessee develops the infrastructure facility if it operates the infrastructure facility and if it maintains the infrastructure facility or to put it in simpler terms, the harmonious reading of the provisions in its entirety would lead to the conclusion that this deduction is available to an enterprise who - develops or operates and also maintains; or develops, maintains and operates that infrastructure facility. The provision for giving the impugned incentives has been examined, re-examined, modified and amended after giving conscious and deliberate discussions by the concerned law makers. To our great chagrin even after this conscious exercise an entity who executes the works contract entered into betwee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch purpose by any such developer". In the case of ACIT vs Bharat Udyog Ltd, 'F' Bench of ITAT Mumbai, has concluded that any assessee who is engaged in developing the infrastructure facility and also operating and maintaining the same, is entitled to the benefit of deduction u/s 80IA(4). A copy of this decision is enclosed at page 139 of the paper book. In the case of Patel Engineering Ltd vs Dy. CIT, 84 TTJ (Mumbai) 646 [copy enclosed at page No. 145 of the paper book], it has been held that a person, who enters into a contract with another person will be treated as a 'contractor' undoubtedly; and that assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor but does not derogate the assessee from being a 'developer' as well. The term 'contractor' is not necessarily contradictory to the term 'developer'. On the other hand, rather section 80IA(4) itself provides that assessee should develop the infrastructure facility as per the agreement with the Central Government, State Government or a Local Authority. So, entering into a lawfu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0IA the assessee should develop the infrastructure facility as per the agreement with the Central/State Government/Local Authority. Entering into a lawful agreement and thereby becoming should, in no way be a bar to the one being a 'developer'. In this regard, as we have already stated, the decision of ACIT vs Bharat Udyog Ltd, 118 ITD 336 and Patel Engineering Ltd vs Dy. CIT, 84 TTJ 646, are relevant. As per Circular No. 4/2010[F.No. 178/14/2010-ITA-I] dated 18.5.2010, widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80IA(4)(i) . The assessee is not required to develop the entire road in order to qualify for deduction u/s 80IA as has been held by the Hon'ble Bombay High Court in the case of CIT vs ABG Heavy industries Ltd, 322 ITR 323. The newly inserted Explanation 2 to section 80IA vide Finance Act, 2007, does not apply to a works contract entered into by the Government and the enterprise. It applies to a work contract entered into between the enterprise and other party 'the sub-contractor'. The amendment aims at denying deduction to the sub contractor who executes a work contract with the enterprise as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs 2000-01 and 2001-02, whereby deduction under S. 801A(2) of the Act have been allowed by the. Tribunal, complying with the following directions of Hon'ble Bombay High Court in ITXA No. 1307 of 20ll 2000-01 and for 1640 of 2011 for assessment year 2001-02. "1. Since the Tribunal has recalled the impugned order dated 23.03.2011, the appellant is withdrawing its appeal. 2. Further, while considering the matter afresh, the Tribunal will take into consideration all decisions including the decision of this court in the matter of CIT V Is. ABG Heavy Industries Ltd. reported in 322 ITR page 323. All contentions are kept open. 3. The appeal is dismissed in above terms." Admittedly, in the case ofBT Patil & Sons Belgaum Constructions Ltd. (supra) decided by the Division Bench while giving effect to the Third Member decision, it was held as follows (for the sake of clarity full order has been extracted): "Background of the case is that the Assessing Officer passed an assessment order disallowing the assessee's claim for deduction uls.80IA(4) of the Act. The CIT(A) confirmed the order of the Assessing Officer. Matter was carried before the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n given by the Third Member of the Tribunal. Meanwhile the appeal filed by the assessee against the order of the Tribunal dismissing the appeals of the assessee in limine, before the Hon'ble Bombay High Court came up for hearing on 24/0112013. In the course of hearing before the Hon'ble Bombay High Court the Counsel of the assessee brought to the notice of the Hon'ble High Court the fact that the Tribunal in the Miscellaneous Application filed by the assessee had recalled its order and the said matter was now fixed for hearing on 15/02/2013. As such the assessee requested to withdraw the said appeal. The assessee also drew attention of the Hon'ble High Court to the decision of ABG Heavy Industries and requested the Hon'ble Bombay High Court to direct the Tribunal to consider the ABG Heavy Industries decision on the issue while giving effect to the opinion of the Third Member as per the provisions of section 255(4) of the Act. 5. The Hon'ble Bombay High Court permitted the Counsel of the assessee to withdraw the said appeals. While passing the order the Hon'ble High Court has kept all the contentions open and further directed the Tribunal to cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etween developing and maintaining & operating i.e. developing or Maintaining & operating. In case of ABO Heavy Industries Ltd. & others (supra), the Hon'ble Bombay High Court has observed as under: "With effect from Ist April, 2000, by the Finance Act of 1999, certain changes were brought about. Section 80-IA & 80-IR were substituted for section 80-lA. Sub-section (4) of section 80-IA of the act provided that the section shall apply to any enterprise carrying on the business of (i) developing, (ii) Maintaining & operating, or (iii) developing, maintaining and operating an infrastructure facility which fulfils certain conditions. By the Finance Act of 2001, the word 'or' came to be introduced after the word developing, to clarify in effect that the agreement between the enterprise and the authority of the central or the state Oovt. or, as the case may be, a local authority or a statutory body may provide for (i) Developing, or (ii) Maintaining & operating, or (iii). Developing, maintaining & operating a new infrastructure facility. It was further held that the requirement of operation & maintenance of infrastructure facility should commence after 1st April, 1995....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l Member that assessee fulfilled the conditions of being a developer as subsequently interpreted by the Hon'ble Bombay High Court. With regard to clariflcatory amendment to sub-section (13) of section 80IA by Finance Act 2007 & 2009 whereby the assessee is not held eligible for deduction u/s 80IA(4A). In this regard, we find that the amendment of 2007 debars the sub-contractor from availing benefits u/s. 80IA(4A) . The amendment of 2009 is not applicable in the case where the assessee executes the work by shouldering Investment & technical risk by employing team 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 follo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement with the relevant amhorities makes the assessee a party to the main contract work itself and which clearly shows that the assessee on their own right are comractors and not just sub contractors as normally understood. The assessee is the contractor vis-a-vis the portion allotted to them and not only subcontractors, i.e. a direct party to the main agreement. The assessee has entered into a main agreement, in their own right, can claim t:le benefit of section 80IA. As the assessee being directly under contract to the concern for the work done and are also directly dealing with the Government on whose behalf the assessee are doing the work. they can be considered as main contractors alongwith PEC and are not simply sub contractors vis-a-vis the work undertaken by them. As such. the assessee is otherwise fulfilling all the conditions they are entitled to deduction under the provisions of section 80IA. Similar view has been taken by ITAT Indore in the case of Ayush Ajay Construction Ltd. vs Income Tax Officer, 79 ITD 213, wherein the entire project was assigned by the party getting the tender to another company. In such circumstances the ITAT Indore, has held as under: "I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omic growth of the country, the plenitude of exemption should not be whittled down, by laying stress on ambiguity here and there. Ifit was proved that, the assessee-company had obtained the status of a tenderer by virtue of a valid assignment, it should not be denied the benefit of deduction provided by the Central Government through introduction of sub-section (4A) of section 80 IA. The action of "A" and the assessee could only be termed as a valid tax planning which was permissible under the law. Therefore, the assessee had fulfilled the requirements provided in section 80IA (4A)(ii) for claiming deduction, and, therefore, the Assessing Officer should have allowed the deduction claimed by the assessee company." 13. It was further clarified on behalf of the assessee that with regards to Bhima Sina Link Tunnel project, the Original Agreement is between the owner and Joint Venture from consisting of the assessee company and Mis. Swapnali Constructions which was formed to Share the work in 60% & 40%. M/s. Swapnali Constructions expressed their inability to undertake the work and had transferred their share of 40% of work to the assessee company on Back to Back Agreement basi....