TaxTMI 
TaxTMI 
2020 (8) TMI 15
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Income-tax Act.1961 [hereinafter referred as to the "Act"] off Rs. 1,95,05,203/- made by the Assessing Officer on the alleged ground that the appellant is not eligible for deduction u/s.80IA(4) as the appellant is executing a works contract. The order passed by the Ld. CIT(A) is totally unjustified on facts as also in law and the disallowance of claim of deduction u/s.80IA(4) may kindly be directed to be allowed as per claim. 3.0 Your Honor's appellant craves leave to add, amend, alter or withdraw any or more grounds of appeal on or before the hearing of appeal." 3. The only issue raised by the assessee is that Ld. CIT(A) erred in confirming the disallowance made by the AO for Rs. 1,95,05,203/- on account of the deduction claimed by the assessee u/s 80IA(4) of the Act. 4. Briefly stated facts are that the assessee is a private limited company and engaged in the business of civil construction. The assessee is a Government approved "AA" class contractor. As such, it carries out the projects like construction of hospitals, roads, bridges, etc. for Government, semi-government and other institutions, etc. The assessee in the year under consideration was awarded an in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that it has complied all the conditions provided under section 80-IA of the Act for claiming the deduction. It was responsible for all set of the activities involved in the project right from the excavation of earth to the construction of street light poles on the developed road. The GIDC handed over the possession of the construction site to the assessee which was under the complete control of it till the delivery/ completion of the infrastructure facility. 6.1 Even after handing over the constructed infrastructure facility to GIDC, the assessee was responsible for defects which may arise subsequently after the completion of the work. 6.2 The assessee further claimed that it had supplied the materials used in the construction of the project. It was also liable to compensate the losses which might have occurred during the processing of construction activity. The assessee in support of its claim relied on the judgment of Hon'ble Bombay High Court in the case of CIT vs. Glenmark Pharmaceuticals Ltd. reported in 324 ITR 199. 6.3 Merely the term contractor has been used in the agreement with the GIDC does no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n shall apply in relation to a business which is in the nature of works contract executed by the undertaking. In view of the findings of the Hon'ble Jurisdictional High Court, it is held that the appellant is not entitled for deduction u/s.80IA(4). It is also necessary to mention that this decision was subsequent to the decision of the Hon'ble IT AT, Rajkot Bench or the decision of the CIT(A)-I, Rajkot relied upon by the appellant. If this decision was prior to the above decisions perhaps the outcome could have been different. It is therefore held that the position stands clarified by the decision of the Hon'ble High Court and there is no ambiguity about it. The main contention of the appellant that it had made a lot of investments by way of men, machinery and money making it a developer, also in my opinion, does not hold fort. A person executing a works contract would also have to invest in men, material and money as done by the developer. It would be difficult to assume that the Hon'ble High Court has not taken any cognizance of this particular factor. However, in its own wisdom, the Hon'ble High Court has not considered it necessary to make a differe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e the respective dates on which the Chief Mechanical Engineer or his authorised representative certifies each coach as having been built to his satisfaction". It is also apparent from the contract that the contractor has to complete two coaches each month after expiry of the first six months of the contract. It is also clear that the con tractor has to get payment by submitting running bill; on completion of the coaches every month. In the above context when clause 17 refers to a fictional completion or the building work on the date of certificate by the Chief Mechanical Engineer or his authorised representative there is no requirement for a further ritual of delivery or handing over to which reference made in clauses 15 and. ' 23 respectively. The work is undertaken in the Railway premises, people are admitted on gate passes for building the railway coaches on the under frames supplied by the Administration. Some materials such as electrical goods, were supplied by the Railway. Besides, there is cooperation of Railway's labour with the contractor's labour in construction of the coach the hand-rake arrangements in the Guard's compartment are also agreed to be done b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and labour. There may be many common features in both the contracts, some neutral in particular context and yet certain clinching terms in a given case may fortify a conclusion one way or the other. It will depend upon the facts and circumstances of each case. The question is not always easy and has for all time vexed jurists all over. In Commissioner of Commercial Taxes, Mysore v. Hindustan Aeronautical Ltd.(l) a bench of five Judges of this Court to which my learned brother was a party had to deal with a works contract With regard to manufacture and supply of railway coaches. This Court after consideration of all the facts In that case and the salient features of the contract came to the conclusion that it was a pure works contract with Court further held that the case was in line with the decision in State of Gujarat v. Kailash Engineering Co.(2). Indeed Kailash Engineering's case (supra) was relied upon by the respondent before us. It was held in that case that as the terms of the contract indicate that the respondent was not to he the owner of the ready railway coaches and that the property in those bodies vested in the Railway even during the process of construc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d no right to dispose of or disposal over these materials and spares. These had to be regulated by the procedure envisaged in the agreement between the parties. The test by which these transactions should be judged in deciding whether this was a works contract or a contract of sale of any part of the material has been emphasised in several decisions of this Court. Some of these principles have been reiterated in the decision of M/s Hindustan Aeronautics Ltd. vs. State of Karnataka in Civil Appeal Nos. 1386-91 (NT) of 1977 of this Court.(l) As emphasised by this Court, there is no rigid or inflexible rule applicable alike to all transactions which can indicate distinction between a contract for sale and a contract for work and labour. But the tests indicated in the several decisions of this Court merely focused on one or the other aspect of the transaction and afforded some guidance in determining the question, but basically and primarily, whether a particular contract was one of sale or for wofk and labour depended upon the main object of the parties in the circumstances of the transactions. In a contract for sale, the main object of the parties is to transfer property in and deliv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issioner of Sales Tax, M.P. v. Ratna Fine Arts Printing Press, 56 STC 77. In our opinion, in each case the nature of the contract and the transaction must be found out. And this is possible only when the intention of the parties is found out. The fact that in the execution of a contract for work some materials are used and the property/goods so used, passes to the other party, the contractor undertaking to do the work will not necessarily be deemed, on that account, to sell the materials. Whether or not and which part of the job work relates to that depends as mentioned hereinbefore, on the nature of the transaction. A contract for work in the execu- tion of which goods are used may take any one of the three forms as mentioned by this Court in The Government of Andhra Pradesh v. Guntur Tobaccos (supra). In our opinion, the contract in this case is one, having regard to the nature of the job to be done and the confi- dence reposed, for work to be done for remuneration and supply of paper was just incidental. Hence, the entire price for the printed question papers would have been entitled to be excluded from the taxable turnover, but since in the instant case the deemed note....
X X X X Extracts X X X X
X X X X Extracts X X X X
....permit the claim of the assessee for repairing and maintenance of the existing infrastructure then this provision would be subjected to misuse and unscrupulous contractors would claim benefit of 80IA, who were into redeveloping, repair or re-plaster the existing houses. In our understanding the same cannot be permitted as it would be beyond the scope of Section 80IA of the Act. Further there is a distinction between the widening of the existing road by constructing additional lanes as part of the highways project ITA.545, 546, 1130 & 1131/Bang/2018 Page - 25 vis-a-vis, improving, maintaining, refurbishing the existing road. Circular No,4 of 2010 of the CBDT only provides the scope of section 80IA to include within its ambit the widening of the existing road, but the road which exists or the infrastructure which is existing cannot form part of the development of the infrastructure because the infrastructure which is already developed is incapable of being developed again. Hence the assessee is not entitled to any relief pertain to disallowance relating to existing four lanes 28 km to 67kms." 5. Yoiaka Marine Pvt. Ltd. Bs. Assistant Commissioner of Income-tax, Circle 1(1), M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....business of developing an infrastructure facility. The Tribunal held that the assessee had entered into a contract for executing works contract and therefore the benefit of deduction under section 80IA would not be available to it. We find that the facts of the cited case are identical to that of the present case and are therefore of the view that the assessee is not eligible for being allowed deduction under section 80IA of the Act." 3. In view of the above decisions which are applicable to the present appeal, the assessee is not entitled to deduction u/s 80IA(4). 9. The Ld. DR vehemently supported the order of the authorities below. 10. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the AO has denied the deduction claimed under section 80-IA(4) of the Act to the assessee by holding that the assessee is acting as a work contractor in the projects of housing development as per explanation attached below section 80-IA (13) of the Act. At this juncture, it is pertinent to refer the provisions of the Explanation attached below section 80-IA of the Act as reproduced below:....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r under takes the complete responsibility of the manpower to be used in developing the infrastructure facility. (d) The assessee has to utilize its expertise, experience including its technical knowhow in the development of the project. (e) That a developer has to execute financial responsibility. A developer is therefore expected to arrange finances either by private placement or from financial institutions for the proper development of the project at its own risk. Thus the developers is the one who undertakes entrepreneurial and investment risk besides the business risk. (f) That a developer is required to bring the qualitative material. The Government does not provide any material to the assessee. (g) That a developer is required to bring plant and machineries to be utilized in the project. (h) Any loss caused to the public or the Government in the process of developing the project would be the responsibility of the developer. The Government shall not take any responsibility for any such kind of loss except where it is responsible. (i) That a developer stands as guarantor for the project developed by it and in the event of an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....In the backdrop of the above discussion, we proceed to analyse the facts of the present case to find out whether the assessee is acting as a developer or contractor. 10.5 At this juncture, we find it important to refer the letter issued by GIDC for awarding the contract to the assessee which is placed on page 10 of the paper book and reproduced as under: "By R.P.A.D. To, M/s. Patel Infrastructure Pvt. Ltd., Corporate office Patcon House, 80 Ft Road, Near Indira Gandhi Statue Anand - 388001 Sub: Tender for the work of providing infrastructure in Housing Phase -IV at GIDC Ankleshwar Dear Sir, Your tender for the above mentioned work at Rs. 40,38,38,599.40 i.e. 3.252% Above against the estimated cost at Rs. 39,11,16,000.00 is approved by competent Authority subject to the following conditions: A) No extension will be granted on account of non-availability of materials required for the work and the contractor shall have to bring the total quantum of material on site of works for timely completion of the works as stipulated in the tender. B) You are, therefore, requested to pay....
X X X X Extracts X X X X
X X X X Extracts X X X X
....py of the financial statements is placed on record. 10.11 On the detailed analysis of the above project, we find that the assessee meets the criteria laid down for the developer as discussed above. Thus, the fact that the assessee deploys its resources (material, machinery, labour etc.) in the construction work clearly exhibits the risks undertaken by the assessee. Further, the assessee in the tender documents as discussed above has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the Government and indemnify at the same time of any losses/damage caused to any property/life in course of execution of works. Further, the assessee was responsible for the correction of defects arising in the works at its own cost. For that purpose the Government retained the money payable to the assessee as a measure to ensure the quality of the work and to make liable the assessee in the event of the defect, if any. Thus, it cannot be said that the assessee had not undertaken any risk. Thus on perusal of the terms and conditions in the agreement, it is clear that the assessee was not a works contractor simplicitor but a developer and hence E....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion under section 80-IA and same is applicable in case of work allotted by Government corporation/Government bodies also. 10.15 We also extend the support and guidance from order of Mumbai Tribunal in the case of Bhinmal Contractors Property and Land Developers (P.) Ltd. Vs. ACIT/DCIT reported in 93 taxmann.com 296 wherein it was held that merely because, in the TDS certificate tax at source was deducted u/s. 194C being applicable to a contractor cannot be the reason for treating a genuine developer as a contractor. The same cannot detract the assessee from the position of being a developer; nor should it debar the assessee from claiming deduction under section 80-IA(4) of the Act. Therefore, the assessee, who is only engaged in developing the infrastructural facility, i.e., road, is entitled to the benefits of the deduction under section 80-IA(4) of the Act. 10.16 Further, it may be worthwhile to mention that judiciary has time and again held that beneficial provision, as in the instant case, should be given liberal interpretation so as to benefit the assessee. The cardinal rule for interpretation of any provision relating to exemption, allowance, deduction, rebate or relie....