TaxTMI 
TaxTMI 
2026 (3) TMI 894
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....ondent is an assessee under the provisions of the said Act and the relevant assessment years are 2000-2001 and 2001-2002. 2. By the impugned orders, the appeals filed by the assessee were allowed by the ITAT. These appeals were admitted on the following substantial question of law:- a) The substantial question of law arises in the present appeal is regarding the correct interpretation of Section 80IA(4) of the Income-Tax Act, 1961 and whether in the facts and circumstances of the case and in law the Hon'ble Tribunal is right in holding that the assessee is a developer of infrastructure facilities and eligible for deductions of Rs. 80,47,09,510/- under Section 80-IA(4) in respect of the income derived by the assessee in respect of the two projects under consideration. 3. Income Tax Appeal No. 1146 of 2004 pertains to the Assessment Year 2000-2001 and Income Tax Appeal No. 934 of 2008 relates to the Assessment Year 2001-2002. Since these appeals arise from a similar set of facts, we have referred the facts only from Income Tax Appeal No. 1146 of 2004 herein below:- The assessee had filed the return of income for Assessment Year 2000-01 on 30.11.2000, declaring....
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....als on record clearly demonstrate that the assessee cannot be said to be a developer of the aforesaid two projects and therefore the Assessing Officer was justified in disallowing the deductions under Section 80-IA(4), which was confirmed by the CIT (A). 8. Learned counsel submitted that the ITAT erred in holding that the assessee fulfills all the requisite conditions prescribed under Section 80-IA(4) and thereby erred in deleting the disallowance of deduction of Rs. 80.47 Crores. Learned counsel has emphasised on the fact that the assessee was merely a contractor and the real developers were the respective State Governments, who have awarded the contract to the assessee. He submitted that the deduction under Section 80-IA(4) was meant to be provided to the developers of infrastructure projects because the Government did not have sufficient resources to meet the finance of the infrastructure projects and for further encouraging the participation of private sector in the development of infrastructure sector. The exemption under Section 80-IA(4) was provided to the persons who develop infrastructure projects by mobilizing their own resources. According to the learned Senior Advoca....
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....whereas the work of head race tunnel through construction shaft for 500 m length was awarded under an LCB contract, i.e. to other parties. Similarly, the work relating to access tunnel to emergency value tunnel, the adit to head race tunnel and the inter-adit to pressure shaft was also awarded under an LCB contract, i.e. given to other parties. According to learned counsel, this makes it very clear that the assessee is only one among the other contractors and what the assessee was carrying out was only the civil works on construction jobs in a small portion of the overall project. Therefore, the assessee had no control or domain over its areas of work or the project. The certificate issued by the Chief Engineer only stated that the water from Shivajinagar lake of Koyna Hydraulic Electric Project is utilized for water supply, irrigation etc. Learned counsel submitted that the Tribunal failed to appreciate the observations of the Assessing Officer in it's order that though the Koyna dam was constructed, it does not mean that it was constructed by the assessee. It is just that the facility claimed to have been developed by the assessee was on the last stage of the already developed pr....
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....ecuted by it and no financial risk was undertaken by the assessee, the assessee cannot be termed as a developer of the infrastructure. The various amounts expended by the assessee were in the nature of expenditure and not investment. (2) Under Section 80-IA of the Act, the enterprise should own the infrastructure for which such enterprise should enter into an agreement with the Central Government or State Government or other local authorities. (3) The infrastructure was not "transferred" to Central Government or State Government or local authority or any other statutory body by the assessee. (4) The assessee had not started operating and maintaining the infrastructures on or after 1st April, 1995. (5) The assessee had not developed any infrastructures as defined under Explanation to Section 80-IA(4) of the Act. (6) The assessee has only developed a part of the infrastructure and not the whole of it. (7) The assessee had merely carried out the works as per specifications laid down by the concerned Government or local authority. 17. Before proceeding any further, it would be apposite to refer to the relevant provisions of the s....
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....(ii) operating and maintaining or (iii) developing, operating and maintaining an infrastructure facility, would qualify for deduction under section 80-IA. The section offered deduction at 100% of the profit for ten consecutive assessment years out of twenty years to be selected by the assessee. 21. Post the amendment vide the Finance Act, 1999, the extract of section 80-IA of the Act, insofar as relevant to the present case, reads as under:- "Section 80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.- (1) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or an enterprise referred to in sub-section (4) (such business being hereinafter referred to as the eligible 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 from such profits and gains of an amount equal to hundred per cent of profits and gains derived from such business for the first five assessment years commencing at any time during ....
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....a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management System; (d) a port, airport, inland waterway, inland ports or navigational channel in the sea;" 22. Thus, vide the aforesaid amendment to section 80-IA, the scope of the section was widened to include any enterprise which develops, or maintains and operates, or develops, maintains and operates an infrastructure facility, subject to satisfaction of all other conditions of the said section. 23. Simultaneously, section 10(23G) was also amended vide Finance Act 1999 to extend the benefit of exemption to the specified entities in respect of investment in enterprises wholly engaged in either (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating an infrastructure facility. 24. The Central Board of Direct Taxes ("CBDT") in its Circular No. 779 dated 14th September 1999 (in paragraph 11.2 thereof) also clarified the following in respect of amendment to secti....
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....t to avoid any confusion in this regard. The same is clarificatory in nature also because, the memorandum explaining the provisions of Finance Bill, 1999 itself, in the explanation with respect to modification of section 10(23G) of the Act, states that the exemption under the said section is sought to extend the benefit to enterprises engaged in (i) developing, maintaining and operating or (ii) developing, or (iii) maintaining and operating an infrastructure facility would now be eligible for the benefit. Clearly, therefore, by virtue of this amendment vide Finance Act 2001, the intention of the legislature was further fortified to the extent that any enterprise which is engaged only in development of an infrastructure facility is also eligible for deduction under section 80-IA of the Act. 29. Thereafter, vide Finance Act 2007 (with retrospective effect from 1st April 2000), an Explanation to section 80-IA of the Act was inserted to the effect that the deduction under section 80-IA of the Act would not be available to a person who executes a "works contract" entered into with the undertaking or enterprise. The Explanation read as follows: "For the removal of doubts, it ....
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....ue that the assessee is a contractor and not a developer for the purpose of Section 80-IA, it is seen that during the assessment year, the assessee was essentially engaged in the business of activity of development of construction of two projects i.e., Koyna Project executed pursuant to the agreement with the Government of Maharashtra, and Srisailam Project executed pursuant to the agreement with the Government of Andhra Pradesh. The Koyna dam was constructed with the purpose of irrigation and water supply in Konkan region and also with the intent to generate hydro-electricity. The Srisailam Project situated on Krishna river, is a multi-purpose project developed for the purpose of water supply, irrigation and generation of hydro-electric power. 34. Shri Dada submitted that the meaning of term "developer" means a person carrying out the action of development. We therefore find force in the submission of Shri Dada that development by its intrinsic nature means bringing something into existence by way of scientific structural planning, technical expertise and precise execution. As against that, a works contract means a contract executed as per the planning, design and direction of ....
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....as entrusted with the construction of the inlet tunnel up to the point of the powerhouse as part of a multipurpose project. It was submitted that the Assessee carried out a specialized underwater blasting operation, stated to be the first of its kind in Asia, and incurred substantial expenditure in acquiring the necessary technology for its execution in India. Learned counsel further submitted that the project was technical in nature and that the design, layout and execution methodology were prepared by the Assessee and provided to the Government of Maharashtra. It is stated that for the execution of the said project, the Assessee deployed approximately 25 engineers, 50 supervisory staff, about 250 skilled workers and around 750 unskilled workers and labourers. The Assessee also deployed several assets, including 6 excavators, 2 EOT cranes, crushing plants, pumps, blowers and control laboratory apparatus. The value of the machinery and assets deployed for the project was stated to be approximately Rs. 10 crores, including machinery worth about Rs. 4 crores purchased specifically for executing the project. 37. Further, it is pointed out that the assessee has borne and undertaken ....
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....e development of an infrastructure facility. Further, it was the argument of the Revenue that the assessee therein was not operating and maintaining the facility and was therefore not eligible for deduction under Section 80-IA of the Act. This Court in para 24 held that upon harmoniously reading the provisions, along with the law as amended by Finance Act, 2001, it can be concluded that deduction is available to an assessee who either (i) develops; or (ii) operates and maintains; or (iii) develops, maintains and operates that infrastructure facility. Therefore, we find favour with the submission of the assessee that the condition of operating and maintaining the infrastructure facility is not necessary in order to be eligible for deduction under Section 80-IA of the Act, and an assessee engaged only in development of infrastructural facility is also eligible for deduction under Section 80-IA of the Act. 40. It is also profitable to note the decision of the Gujarat High Court in PCIT Vs. Montecarlo Construction Ltd., Ahmedabad (2024) 161 taxmann.com 222 (Gujarat High Court). The assessee therein was engaged by the State Government bodies for construction and infrastructure projec....
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....ligible for deduction under section 80-IA of the Act. The Court held that the assessee had undertaken the financial and entrepreneurial risk to qualify as a developer and is therefore eligible for deduction under Section 80-IA of the Act. 43. Let us deal with the next submission of Shri Dada. That the deduction claimed by the assessee is in line with the legislative intent. The legislative intent of introducing the provision of Section 80-IA of the Act was to address the deficiency faced by the country in respect of infrastructure such as expressways, highways, airports, ports, etc., which needed additional resources. With that intent, a five-year tax holiday was originally introduced by Finance Act, 1995 to any enterprise which builds, maintains and operates any infrastructure facility such as roads, highways or expressways or new bridges, airports, ports and rapid rail transport systems on BOT or BOOT or similar other basis, as is explained in Memorandum explaining the provisions of Finance Bill, 1995. The Government, upon realizing that a lot of assessees could actually have expertise only either in developing the infrastructure project, or only in operating and maintaining a....
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....the project is merely a works contractor and not a developer and, is therefore, not entitled to deduction under Section 80-IA of the Act. Further, the Government, in the tenders, is bound to specify the specifications of the project and also the payment terms, particularly when the entity is merely developing the project. If, just because the Government specifies its needs from the particular project and provides for a periodic payment, the assessee is treated as a contractor instead of a developer, then no assessee would ever be able to claim the deduction under Section 80-IA of the Act. 47. In our considered opinion, the argument of the Revenue that the project belongs to the Government and, therefore, the assessee is not a developer, also leads to an absurd result, because no public project, especially like roads, expressways, dams, etc. could belong to a private participant and are bound to be a part of the Government's initiative. This contention of the Revenue does not appeal to us because the Section itself mandates that the deduction is available to an assessee only if it has entered into an agreement with the Central Government or a State Government or a local authority....
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....e was paid at each stage of work executed by it. It is also contended by the Revenue that the assessee has been paid periodically and it can therefore be construed to be works contract and not development by the assessee. 53. It is further submission of the assessee that the test of periodicity of payment cannot be relevant to determine as to whether it is a works contract or project as a developer. We find that the distinction between works contract and a developer is quite significant. A useful reference could be made to the decision of this Court in CIT Vs. Glenmark Pharmaceuticals Ltd. (2010) 324 ITR 199 (Bombay High Court) which determine the distinction as to whether a particular contract is a works contract or a contract of sale. This Court, in the context of TDS applicability on works contract under Section 194C, drew reference from Section 5 of the Sale of Goods At, 1930. This Court observed that the distinction between contract of sale and works contract is elucidated by the Sale of Goods Act, 1930, where under Section 5(1) thereof, the contract may provide for immediate delivery of the goods or immediate payment of the price or postponement of delivery or payment of t....
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.... of the underlying land remains with the Government. The Court also clarified that merely describing the assessee as a "contractor" in the agreement or the deduction of TDS under the relevant provisions would not determine its status, and that ownership of the infrastructural facility is not a requirement for claiming deduction under section 80-IA. 56. Shri Dada further contended that the Revenue's argument that the assessee is not eligible for deduction because it developed only a part of the projects and not the projects in their entirety is equally untenable. In this regard, reliance was placed on the judgment of the Bombay High Court in CIT v. ABG Heavy Industries Ltd. (supra), wherein the Court held that an assessee need not develop the entire infrastructure facility to qualify for deduction under section 80-IA. It was recognized that even where the assessee undertakes specific components of an infrastructure facility, such as installation, commissioning, operation, and maintenance of port equipment, it would still qualify as a developer eligible for the deduction. 57. Let us deal with the submission of learned counsel for the Revenue that there is no transfer of infrast....