TaxTMI 
TaxTMI 
2019 (3) TMI 477
X X X X Extracts X X X X
X X X X Extracts X X X X
....n I.T.A. No. 2441/Kol/2017, for assessment year 2013-14, have been taken into consideration for deciding the above appeals en masse. 3. All the grounds raised by the Assessee and Revenue were carefully perused by us. Most of the grounds according to us are either of academic or contentious nature. However, to meet the ends of Justice, we confine ourselves to the Core of Controversy, that is, whether the assessee is a developer or mere works contractor and not eligible for deduction u/s 80IA(4)(i) of the Act. 4. The brief facts qua the issue are that during the assessment proceedings, the Assessing Officer noted that the assessee in its return of income had claimed deduction for Rs. 70,07,818/- under section 80IA(4)(i) of the Income Tax Act relating to water treatment system plant. During the assessment proceedings, the assessee company was asked to explain as to why it is eligible for deduction under section 80IA(4)(i) of the Act. In response, the assessee company filed the following necessary details and evidences in order to claim its contention regarding applicability of deduction under section 80IA(4)(i) of the Income Tax Act, 1961. i) Copy of the audit report in form No. 10....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to it by by the Government of West Bengal. The Assessing Officer also noted from form No. 3CD, vide the audited report dated 24.06.2013, wherein it had stated the nature of business of the assessee company as ' civil contractor'. Therefore, the Assessing Officer was of the view that the assessee is only engaged in the execution of 'work contract' construction of surface water treatment plant awarded to it by the Government of West Bengal. 6. However, the assessee company further filed a letter before the Assessing Officer stating that the assessee company has been carrying out its activity in the projects in different parts as per the copy enclosed with form No. 10CCB. The assessee company also claimed that it fulfilled all the conditions of section 80IA(4)(i) of the Act. Apart from this, the assessee company relied its contention in the case of CIT vs. J.K. Hosiary Factory [1986] 159 ITR 85(SC), Mysore Minerals Ltd. [1999] 239 ITR 775 (SC), CIT vs. Radha Devi Poddar [1991] 185 ITR 544 (Cal) etc. However, the above justification and contentions of the assessee regarding its claim for deduction under 80IA (4)(i) of the Act were rejected by the Assessing Officer. The Assessing O....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fits 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 eligibles 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. (4) This section applies to- i) any enterprise carrying on the business 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 or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act; (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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing the amount on which tax is deductible under that section. It would be evident from a plain reading of the very beginning of the Explanation, which states, 'For the purposes of this section'. Therefore, the definition of "Work" mentioned in the Explanation to section l94C can not be used for the assessee under consideration for the purpose of section 80IA(4)(i) of the Act. Moreover, just because the assessee has deducted TDS while making some payment or received amount after deducting TDS as per provisions of section 194C, does not make the assessee to be engaged in execution of 'works contract'. This makes it amply clear that the above definition is relevant for the purpose of section l94C only. The definition of work, for the purpose of section 194C, excludes the manufacturing or supplying a product according to the requirement of specification of a customer by using material purchased from a person, other than such customer, because for the purpose of section 194C, it is necessary to determine the amount on which tax is to be deducted under that section. The reason as to why clause (e) has been incorporated in the Explanation which has been clarified in the explanato....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to the assessee. We note that on examining the various projects awarded to the assessee, the scope of the work allotted to the assessee company are as follows: i. The scope of work includes planning, design, drawing and construction of civil works with foundation for the various units of the plant, planning, design, drawing, manufacture, supply, delivery at site and erection of all mechanical and all other electrical and electrical equipment as per detail technical specification. ii. The agreement is not for a specific work, it is for development of facility as a whole. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Govt. does not provide any material to the assessee. It provides the works in packages and not as a works contract. iii. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Govt. on completion of the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly to the enterprise, carrying on the business which would mean that only companies are eligible for deduction under section 80IA (4) and not any other person like individual, HUF, Firm etc. We also find that according to sub-clause (a), clause (i) of sub section (4) of 80-IA the word 'it' denotes the enterprise carrying on the business. The word 'it' cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail- system, Highway project, Water treatment system, Irrigation project, a port, an airport or an inland port which cannot be owned by any one. Even otherwise, the word 'it' is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility." We note that the assessee company is the owner of the enterprise carrying out the business of developing infrastructure for the West Bengal and is eligible for deduction under section 80-IA (4) (i) of the Act, on his income derived from the enterprise as held by the Coordinate Bench in the case of M/s. Simplex Somdatta Builders (supra). (v). The A.O in his order has stated t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le for deduction u/s 80IA(4), subject to fulfilment of other conditions. If, an enterprise which only develops the infrastructure facility, would not receive the money from the Central Government or a State Government or local authority, its entire investment in development would be a loss because it could not transfer the facility developed by it to any other enterprise for maintenance and operation to recover its investment. Therefore, in the cases where an enterprise has only developed the infrastructure facility as per contract and receive the money in one go or in phases from the government for executing the work, it cannot be said that such an enterprise was only a contractor who has executed the works contract in lieu of money from the government or local authority etc. The assessee, therefore, is eligible for 80IA(4)(i) deduction as he fulfils all conditions for 'developer' of infrastructure facilities as per the Act. 14. We note that the A.O. in his order had relied on the Apex Court's decision in the case of CIT vs NC Budhiraja & Co. [204 ITR 412] in support of his contention that the assessee was not entitled to deduction u/s 80IA(4). However, this decision of the Apex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....perator) 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 April, 1995. It is not applicable to the case of an enterprise which is engaged in mere 'development' of infrastructure facility and not its 'operation' and 'maintenance'. Therefore, the questi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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/authorization 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 entered into an agreement with the Government agencies for development of the infrastructure projects, is obviously a contractor but that does not derogate the assessee from being a developer as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cility, 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 on the activity of only development infrastructure facility. Ostensibly, a developer would have income only if he is paid for the development of infrastructure facility, for the simple reason that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....struction (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 the basis of the terms and conditions of 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Swathi Construction (P) Ltd. (supra) held that "Further reason given by the ld. CIT(A) for denying deduction under S.80IA to the assessee is that the assessee has not undertaken any risks. The observations of the ld. CIT(A) in this behalf are also not valid and correct. It was clearly mentioned in the agreement that the assessee shall execute and furnish indemnity bond for a period of four years, indemnifying the Government against any loss or expenditure incurred, to repair any defect noticed due to faulty working done by the contractor or substandard material used by the contractor. Further, it is also mentioned in the contract agreement that the assessee shall not claim for any loss due to foreseen circumstances, including suspension of work due to cause. It is also provided that in the event of accident to people employed by the assessee resulting in compensation to be paid as per the Workmen's Compensation Act the same shall be paid by the contractor, viz. the assessee only. In view of the various specific clauses in the agreement fastening the risks to be undertaken by the assessee, discussed above, it cannot be said that the assessee has not undertaken any risk. 8.7....