AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (5) TMI 1651
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....use' and admit these appeals for adjudication. 3. The common grounds raised by Revenue for AY 2012-13, 2013-14 & 2017-18 read as under:- 1. The order of the learned Commissioner of Income tax (Appeals)-19, Chennai is against facts and circumstances of the case. 2. The learned Commissioner of Income tax (Appeals)-19, Chennai has erred in deciding that the assessee is eligible for deduction u/s.80IA of the Income tax Act, 1961 without taking into consideration that the assessee has earned profit on percentage completion method, thus earning income and claiming deduction even before the whole work is completed and also it is to be noted that the assessee has not earned any income from operating an infrastructure facility. 3. On the facts and in the circumstances of the case, the ld.CIT(A) has failed to appreciate that the assessee is a mere "Contractor", but not a "Developer" without considering the findings of the assessing officer and thereby decided that the assessee is eligible for deduction u/s.80IA of the Income tax Act, 1961. 4. On the facts and in the circumstances of the case, the ld.CIT(A) has failed to appreciate that the intention of ....
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....cts awarded by Central and State Governments and Local Authorities. The assessee filed its return of income by claiming deduction u/s.80IA(4) of Rs. 4,11,08,393/- for the A.Y. 2013-14. 6. The core issue in the present batch of appeals relates to the disallowance of deduction claimed u/s.80IA of the Act made by the assessing officer primarily on the ground that the assessee was merely executing works contracts and did not satisfy the conditions stipulated u/s.80IA(4), specifically stating that the assessee did not operate and maintain the infrastructure nor undertook development under BOT/BOOT models by holding as under: "4. It is noticed that assessee has claimed deduction of Rs. 4,11,08,393/- under section 80IA(4), In connection with this claim written submission is filed stating the assessee is developing certain infrastructure projects income of which is claimed as deduction under section 80IA(4). Regarding the eligibility of the deduction the main claim of assessee is that all the jobs undertaken by the assessee clearly satisfies the requirements stipulated by section 80IA(4). It is further stated that assessee is not a works contractor' as defined in the explan....
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....n the judgements rendered in GVPR Engineers- Hyderabad Tribunal - (46 ITA No.347/Hyd/2008 and 17 others) and M/s Nagarjuna Construction Co. Ltd. (7 ITA No. 141/Hyd/2007 & Others). and Patel Engineering Ltd. Vs. DCIT 84 TTJ (Mum) 646. 6. On examining the facts of assessee's case it is noticed that assessee has carried out construction work and profits earned from this activity is being claimed as deduction under section 80IA(4). Sub-section (1) of 80IA provides for a deduction of an amount equal to hundred per cent of profits and gains derived from such business for ten consecutive assessment years. Further, sub-section (2) of section 80IA states that the deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or develops a special economic zone referred to in clause (iii) of sub-section (4) or generates power or commences transmission or distribution of power or u....
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....nty years beginning from the year in which the undertaking begins operating the infrastructure facility. In the case of other infrastructure, namely, for airport, port, inland port and inland waterways it is also proposed to relax the existing two tier fiscal incentive. The Bill proposes an identical ten year tax holiday that may be availed in a block of fifteen years. It is also proposed to do away with the mandatory requirement that such infrastructure facility shall be transferred to the Central Government, State Government local authority or any other statutory authority" (also ref. CBDT Circular no. 14/2001 dated 9/11/2001) Thus, as contained in the above clarification an assessee is entitled to deduction under section 80IA only after the infrastructure facility is developed and begins to operate. Further, as can be made out from the section the deduction will be in respect of income generated from operation of the infrastructure facility in the following specified years as mentioned in the section. Thus, it is clear that first an asset in the form of infrastructure facility has to come into existence, which may be a bridge, road, irrigation system, telecommu....
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....ome-tax Act, 1961. 11. Without prejudice to the facts discussed above assessee is claiming that it is a developer and not a works contractor and is therefore eligible for deduction under section 80IA(4). Even if it is held that assessee is a developer, only income earned from operating the developed infrastructure facility is eligible for deduction under section 80IA(4) r.w.s 80IA(2), Since assessee has not earned any income from operating any infrastructure facility the question whether assessee is a developer or contractor becomes immaterial/irrelevant. In the written submission filed during the reassessment proceedings assessee has referred to CBDT Circular dated 18/5/10 and has stated that the same mentions that the infrastructure developed and handed over to the Government is also eligible for deduction under section 80IA(4) of the Act. Also reference is made to the decision of the ITAT, Mumbai Bench in the case of Patel Engineering Ltd. Vs. DCIT 84 TTJ 646. The CBDT circular has been perused. The operating part of the Circular is reproduced below, "Section 80IA(4) (i) provides for a deduction to an undertaking engaged developing, or operati....
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....as a developer and could not be construed as a mere contractor by holding as under: "14. A perusal of the section indicates that the conjunction used in the section is "or" and not "and" and there is merit in the argument of the appellant that cumulative satisfaction of the conditions is not mandated by the provisions of law. It is further relevant to observe that the intent of the legislature is to benefit those companies that are involved in creating the prescribed infrastructure facilities and hence if a restricted interpretation is drawn by the AO, it would make the beneficial provision otiose and ineffective. Thus it is clear from the provisions of the section and as supported by the afore-mentioned relevant judgments, deduction under section 80IA(4) is available, from A Y 2002-03 onwards even if a particular taxpayer/ assessee carries on any one of the three types of activities viz. (i) developing, (ii) maintaining or (iii) operating eligible infrastructure facility. The provisions as it stood in the relevant point in time do not mandate that the tax payer must adopt a model of BOT/BOOT and will have to necessarily maintain the infrastructure facility for particular ....
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....dertakes a project with a view to developing/constructing on its own responsibility and takes the attendant risks associated with the execution and development of the project. These responsibilities and risk would include the following broad features: (a) In a development contract" responsibility is fully assigned to the developer to do all acts for execution and completion of work right from designing/ synthesizing and modification of design relating to the project till finalization of the project and handing over to the authority concerned. It is noticed that the agreements are for developing bridge/ irrigation canal for a longer period of stretch as a whole. It is quite obvious that the ownership of land would continue to vest with the Government/Local authority even during the execution of the impugned project. However, the developer would exercise and maintain the site /land on which the project is executed during the period of agreement. It is quite possible that in certain situations, the Government would give broad design contour of the work; the developer would modify the design with the approval from the engineers of the Government agencies/ local author....
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....sons who are carrying out the business of developing or operating and maintaining or developing, operating and maintaining the infrastructure facility the infrastructure facility Whereas the contractors are those persons who merely execute Works. 29.1. As could be seen from 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 undertaking, 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 r,, 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. 30.in the backdrop of the above discu....
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....for the entire stretch as per the tender document including excavation of ground for foundation, earth work, concrete, reinforcement; fabrication of steel structure and laying of Storm water & sewerage system at Kolathur under Jawarharlal Nehru Urban Renewal Infrastructure Project where the appellant has undertaken the execution of storm water drain work for carrying excess rain water into nearby river; of formation of flood carrier canal at VCS Virthunagar site and KPM Nalathangal indicate that the appellant was entrusted with the task of formation of tank for irrigation purpose; and of LBB Lower Bhavani Shutter work when the appellant has provided Screw Gearing Shutters after designing in Lower Bhavani Project Main canal. As per the clauses, the appellant has entered into agreement with the respective authorities such as PWD, and Rural Roads Division of the Government of Tamilnadu, and Local authorities to carry out Irrigation projects and bridge work; that the appellant had to execute the work by mobilizing men, material; the appellant had to give Guarantee money; the appellant is under obligation to pay liquidated damages in case of default in quality for a stipulated period as....
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....vernment of Tamilnadu to carry out the eligible Irrigation projects and Sanitation and sewerage systems ; that the appellant had to execute the work by mobilizing men, material; the appellant had to give Guarantee money; the appellant is under obligation to pay liquidated damages in case of default in quality for a stipulated period as mentioned in the agreement. A perusal of the agreements entered into by the appellant with the agency that awarded the works indicates that the appellant is under an obligation to undertake risks relating to financial, technical and entrepreneurial and managerial risks associated with erecting/ developing the works /projects concerned. It is also to be noted that the appellant is fastened with a liability period for the works/contracts as per the terms and conditions mentioned herein. 35. The responsibility of the assessee is to develop the said area into more useful infrastructure facility. In the process, every act required (whether mentioned in the agreement or not) in converting the area into more useful one shall be that of the assessee. The assessee has to undertake the responsibility of developing bridges and Irrigation facilities and....
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....ion work indicates the risks undertaken. The appellant was under obligation to furnish a security deposit to the agencies and indemnify at the same time of any losses/damage caused to any property/life in course of execution of works. The assessee was responsible for the correction of defects arising in the works at its own cost for which the Government agency retained prescribed money payable to the appellant as ways and means to ensure the quality of the work and to make the appellant liable in case of defect, if any. 38. ln view of the above, there is considerable force in the argument of the appellant inasmuch as it is a developer in terms of the provision and it is not a works contactor for it had incurred significant financial, entrepreneurial, technical and managerial risks and qualifies for the impugned deduction by raising funds, undertakes work from inception to commissioning and beyond in the form of maintenance responsibility, risk of buying all the materials, transporting them, technical expertise, technical know-how, deployment of technical personnel, mobilizing the laborers, plant and machinery, supervision and coordination and control to complete the projec....
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....80IA of the Act which ultimately culminated into Amendment under section 80IA of the Act, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT. The afore-mentioned Explanation was inserted in Section 80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80IA of the Act. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the parliament would have simply reversed the Amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only mere works contact or subcontract as distinct from the developer. This is clear from the express intension of the parliament while introducing the Explanation. The explanatory memorandum to Finance Ac 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 deduction under section 80IA of the Act is available to developers who un....
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....ering book depreciation. The total book depreciation of Rs 9,14,44,735/- was considered to arrive at the profit before tax both for 80IA projects and Non- 80IA projects. ft is mandatory to adopt depreciation as per the Act to work out the eligible deduction and hence the IT depreciation relatable to the 80IA projects needs to be worked out on the basis of ratio of apportionment as direct operating cost for 80IA projects bears to the total direct operating cost for both 80IA projects and other projects as per the returns. The depreciation as per the IT Act claimed as per the return of income is Rs 10,06,86,503/-. Thus, the depreciation for the afore-mentioned eligible 80IA projects for the AY under consideration in the present appeal as per the above ratio works out to Rs. 2,81,92,221/-. Thus the profit before tax for the 80IA projects, after factoring depreciation as per the Act is Rs. 3,83,80,455/-. Thus the AO is directed to restrict the deduction u/s.80IA of the Act to Rs. 3,83,80,455/- as against the appellant's claim of Rs. 4,11,08,393/-. 46. In view of the foregoing discussions with reference to the facts of the case of the appellant and in view of the decisions ....
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....ee had entered into a contract to carry out the scope of the work and the nature of activity carried out by the assessee are only in the nature of contract. The Ld. DR drew our attention to the relevant pages of the Paper book filed at the time of hearing. Further, the ld.DR canvassed that whether the contracts executed by the assessee are in the nature of work contract or not and whether the assessee qualifies as a 'developer' or acts merely as a 'works contractor'. The AO has referred to the amendments introduced by the Finance Acts of 2007 and 2009, which clarified that where an assessee undertakes activities in the nature of a 'works contract,' the benefit of deduction u/s.80IA(4) of the Act shall not be available. These amendments, with retrospective effect from 1.4.2000, restrict the tax benefit u/s.80IA(4) for projects executed as works contracts. Thus, a clear distinction between a 'developer' and a 'contractor' is crucial. The nature of the assessee's work, discerned through a detailed analysis of agreements, scope of work, and conduct during execution, determines whether the assessee is a 'developer' or 'works contractor.....
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....n years", the words "twenty years" had been substituted.][ Substituted by Act 14 of 2001, Section 44, for the proviso (w.e.f. 1.4.2002).] The Ld. AR further submitted that the ld.CIT(A) had rightly observed that the provisions in Section 80IA of the Act clearly mentions eligibility for deductions to entities involved in either (i) developing, (ii) operating and maintaining, or (iii) developing, operating, and maintaining infrastructure facilities and argued that the cumulatively meeting these conditions is not mandatory under the Act and the assessee being a developer simpliciter is eligible for deduction u/s.80IA(4) of the Act. 13. Further, in support of the above arguments the ld.AR relied on the following judicial precedents: i) Judgement of Hon'ble Madras High Court dated 07.03.2019 in the case of PCIT Vs VA Tech Wabag P.Ltd. in TCA Nos.196 - 201 of 2019. ii) Judgement of Hon'ble Madras High Court dated 12.03.2019 in the case of CIT Vs Chettinad Lignite Transport Services P. Ltd.(107 taxmann.com 362) iii) Judgement of Hon'ble Bombay High Court dated 15.02.2010 in the case of CIT Vs ABG Heavy Industries Ltd. (189 taxman 54). iv) Judgemen....
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....that satisfying all conditions cumulatively is not necessary. It is equally pertinent to note that the legislative intent was to extend the benefit of deduction to entities engaged in the development, maintenance, or operation of prescribed infrastructure facilities. A restrictive construction, as sought to be placed by the Assessing Officer, would render the beneficial provision otiose and defeat the very object sought to be achieved by the legislature. The legislature's intent was to promote companies involved in infrastructure development, and a narrow interpretation would nullify this benefit. We find that the judgements rendered by various Hon'ble Courts have been relied on by the ld.CIT(A) which have been captured in Page No.14 and 15 of the impugned order had interpreted that the conditions need not be cumulatively satisfied especially in view of the usage of the terminology 'or' as against 'and'. Therefore, respectfully following the judicial precedents, we are of the considered view that there is no prerequisite to satisfy all the conditions cumulatively to be eligible for deduction u/s.80IA of the Act. Hence, the argument of the revenue that the assessee should have e....