TMI Blog2012 (8) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is referred to as a contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a ‘developer’; nor will it debar the assessee from claiming deduction u/s 80IA(4). Disallowance of interest - assessee has made an investment in subsidiaries – Held that:- Assessee is not able to explain what were the business advantages assessee derived from these interest free advances to sister concerns and also not able to explain whether the amount advanced to sister concern was actually used for the business purposes or not - assessee has not shown the commercial expediency – In favor of revenue Applicability of provisions of section 40A(3) of the IT Act - assessee made a cash payment in excess of Rs. 20,000 – Held that:- Assessee could not show any reasonable cause for making the cash payment exceeding Rs. 20,000. The assessee also not brought on record any exceptions to make cash payments as provided in Rule 6DD of IT Rules, 1962 – In favor of revenue Disallowance of property tax - property tax paid on the property which was provided as a collateral security to the State Bank of India for obtaining the loan and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cilities developed by it. All the activities are entrusted to the assessee by government direct. He drew our attention to the Copies of the agreements entered into by the assessee which are placed on record. They show that the government entrusted the development to the assessee. 4. The counsel for the assessee submitted that the projects undertaken during the years under consideration executed between the assessee and the Superintending Engineer, HNSS Circle, Anantapur on 25-02-2005 and copies of certain portions of the agreements entered into with other government organizations including the railways are placed on record. In so far as the irrigation canals are concerned, he submitted that it is a turnkey agreement entered into with the Government of Andhra Pradesh. The project work included investigation, preparation of hydraulic particulars, designs, drawings and excavation of HNSS Main canal including CM and CD works and distributory system to feed an ayacut of 2300 acres in kharif. The detailed works involved as per the agreement entered into are as follows: a. Detailed investigation and preparation of HPs (wherever necessary) of Main Canal and its approval. b. Fixing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure facility it is handed over to the government. Thereafter, the assessee has to maintain the facility for either 24 months or for a minimum of two kharif seasons. The above would clearly indicate that the assessee is converting the land into a useful infrastructure facility i.e. the irrigation canal. Therefore, it is developing the infrastructure after taking over the possession of the premises. 7. The assessee counsel submitted that in so far as the rail projects are concerned, the works involved are (a) taking over of the site from the government, (b) developing the infrastructure facility by raising/widening of existing formation in layers including earthwork, (c) the work includes strengthening/extension/rebuilding of minor bridges including construction of side drains and other protection works. The works include gauge conversion from meter gauge to broad gauge. The premises is handed over by the Government to the assessee for developing into an infrastructure and the scope of work involves taking over of the site, developing the site, re-handing over of the site after due development. The assessee shall have to maintain the developed infrastructure facility for a certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructure facility . Sub Section (4) continues to exempt the income derived from the business of a hotel. The deduction for an infrastructure development was for the first time made available by the Finance Act, 1995 w.e.f. the assessment year 1996-97. ii) The Finance Act, 1996 did not amend sub section (4) and continue the exemption available to infrastructure facility which develops, maintains and operates u/s 80IA(4) of the I.T. Act. Both the sub sections (4) and (4A) existed for the assessment year 1996-97. iii) The Finance Act, 1997 also did not modify the sub section (4) of sec.80IA(4). The sub section (4) continues to apply to the business of a hotel or the business of a hotel located in a hill area or urban area or a pilgrimage centre. Sub-section (4A) continued to apply to the business of infrastructure facilities which develops, maintains and operates a new infrastructure facility. iv) The Finance Act, 1998 continued to provide exemption to the business of a hotel by virtue of the provisions of Sec.80IA (4) of the Act. Sub section (4A) allows deduction in respect of an enterprise carrying on the business of developing, maintaining and operating any infrastructure fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of operating an maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. (Explanation - For the purpose of this clause, infrastructure facility means- (a) a road including toll road, 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 or inland port) vii) From a reading of the section it is clear that the deduction is allowable to: (a) any company incorporated; (b) which entered into agreement with Government; or any government bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion that the work of NHDP was being awarded to only foreigners and multi national firms. To dispel such impression, he mentioned the following: Similarly, there are also some misgivings regarding the size of contracts. The details, as regards the number of ongoing contracts on March, 1, 2002, are as follows: Above Rs.500 crores 4 Above Rs.400-500 crores 5 Above Rs.300-400 crores 8 Above Rs.200-300 crores 25 Above Rs.100-200 crores 43 Above Rs.50-100 crores 38 Below Rs.50 crores 23 TOTAL 146 Thus, it can be seen that the contract packages also, are being organized to ensure maximum participation of Indian entrepreneurs, while maintaining the quality of work. vi) He submitted that the government clearly mentioned that they provided the benefits as mentioned above to the Indian entrepreneurs by providing contract packages to the private enterprises. While providing benefits, the government specifically specified certain grants only to BOT Schemes. For the other schemes all the other benefits are made available. The classification provided cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (iii) developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely- was amended by the Finance Act, 2001 and the said provision reads as: (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 he following conditions, namely . viii) The legislature specifically added the conjunction OR between the words (developing), (operating and maintaining) (developing, operating and maintaining). It makes it clear that the provision would apply to any enterprise carrying on the business of developing or carrying on the business of operating and maintaining or carrying on the business of development, operating and maintaining the infrastructure facility. Therefore, there is no requirement that all the three activities should have been carried on by a single enterprise so as to enable it to claim deduction u/s 80IA(4) of the I.T. Act. This view is also supported by the decision of the Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd (322 ITR 323) . It mentioned clearly that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or inland port; iii) Development of a road is development of infrastructure facility. Similarly, the water supply project or irrigation project are also called as infrastructure facility. Therefore, there cannot be any dispute with regard to the fact that the assessee herein is engaged in the activity of developing infrastructure facility. 6) Meaning of the word Develop i) The next question is whether the assessee is developing the infrastructure facility or not. The word develop is not defined by the Income-Tax Act. It is necessary to depend upon the meaning assigned to it by various dictionaries. ii) As per the Accurate Reliable Dictionary, the meaning of the word develop includes the act of making some area of land or water more profitable or produce or useful iii). The meaning given to the word develop as per The Random House Dictionary of the English Language - The Unabridged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2007 Cl. at page No. Nil All losses during the course of development including men and material are to the account of the assessee 2. SRSP-FFC-Earth work Excavation forming embankment of Kakatiya Main Canal km. 336.00 to 337.00 I CADD Govt. of AP Kakatiya Main Canal formation 01.4.2004 20.1.2005 24 months Cl. 9.1 at page No. 512 20.1.2007 Cl. at page No. 515 Nil -do- 3. SRSP-FFC-Earth work Excavation of flood flow canal from km 6.000 to km 7.000 of flood flow canal project from SRSP. -do- Flood flow canal Project from SRSP 5.8.2004 Cl. at page No. 480 4.8.2005 24 months Cl. 3.2 at page No. 476 4.8.2007 Cl. 21.1 at page No. 479 Nil -do- 4. SRSP-FFC-Earth work Excavation of flood flow canal from km 7.000 to km 8.000 of flood flow canal project from SRSP -do- Flood flow canal Project from SRSP 31.5.2004 Cl. at page No. 486 20.10.2004 24 months Cl. 3.2 at page No. 482 20.10.2006 Cl. 21.1 at page No. 485 Nil -do- 5. SRSP-FFC-Earth work Excavation of flood flow canal fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SRSP. -do- Flood flow canal Project from SRSP 9.3.2004 20.11.2004 24 months 20.11.2006 Nil -do- 13. Construction of New Pushkar Ghat near Lingalagattu on the Right Bank of Krishna River (LOA is there with 96 lacs) -do- Construction of Ghat 4.6.2004 31.10.2004 24 months 31.10.2006 Nil -do- 14. Construction of New Pushkar Ghat near Lower end Ropeway at Patalaganga and Renovation of existing Pushkar Ghat at Sri Sailam (Sivagiri) -do- Construction of Ghat 4.6.2004 31.10.2004 24 months 31.10.2006 Nil -do- 15. Construction of Ghat Road at EI+ 402 to 270M at leading to Patalaganga Pushkar Ghat at Sri Sailam (Sivagiri) on upstream of NSRS Project, in Kurnool (Di -do- Construction of Ghat Road 7.7.2004 31.10.2004 24 months Cl. No. 13.1 at page No. 517 31.10.2006 Cl. 21.1 at page No. 519 Nil -do- 16. Earthwork in formation for raising / widening of existing formation in layers including earthwork in cutting to make profile as per BG standard i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for raising / widening of existing formation in layers including earthwork in cutting to make profile as per BG standard including strengthening/extension/rebuilding of minor bridges including construction of side drain and other protection works from km 97.000 to km 97.800 (new chainages) between stations Migrendisa to New Haflong in connection with the Gauge conversion work between Lumding-Silchar (W No. 26 CA No. 700) -do- Gauge conversion work for NF Railway 19.2.2003 Cl. at page No. 216 2.7.2006 6 months Cl. at page No. 220 2.1.2007 Nil -do- 21. Construction of RBG Building of NF Railway (Between stations Migrendisa to New Haflong in connection with the Gauge conversion work between Lumding Silchar (WO No. 13 dt. 3.2.2004) -do- Gauge conversion for NF Railway 3.2.2004 Cl.at page No. 221 10.7.2005 6 months Cl. at page No. 224 30.7.2007 Nil -do- 22. EPC Turnkey system: Investigation, preparation of hydraulic particulars, designs and drawings and Excavation of HNSS Main Canal from km 20.000 to km 42.000, including CM CD works and distributory system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 93.400 by providing rail biling, stone concrete BR No. 507 dated 24.7.06 CA No. SE/143 dated 20.6.2006 -do- -do- 20.6.2006 15.7.2007 6 months 15.1.2008 Nil -do- Claimed for which the assessee is not eligible as they are sub-contract works 1. Earth work excavation of flood flow canal from km 4.000 to km 5.000 of flood flow canal project from Sri Ram Sagar Project (Back to back sub contract from GVR Co., Hyderabad). I CADD Govt. of AP Flood flow canal project from Sri Ram Sagar Project 15.10.2003 20.8.2004 24 months 20.8.2006 Nil All losses during the course of development includ8ing men and materials are to the account of the assessee. 2. Earth work excavation of flood flow canal from km 5.000 to km 6.000 of flood flow canal project from Sri Ram Sagar Project (Back to back sub contract from GVR Co., Hyderabad). -do- -do- 15.10.2003 13.10.2004 24 months 13.10.2006 Nil -do i) For this purpose, the possession of the site is handed over to the assessee by the Government. The assessee takes po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks contracts by entering into agreements with the enterprises or with the government or government organizations. The said amended explanation reads as under: For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government ) and executed by the undertaking or enterprise referred in sub section (1) . iv) It can be seen from the above explanation that any enterprises which enters into a mere works contract either with any other enterprise or Government or Government corporation shall not be eligible for the deduction. v) It is made clear that any enterprise, which entered into development of infrastructure, would be eligible for deduction and not those enterprises, which enter into contract for executing works contracts. The assessee herein entered into agreement for development of infrastructure facility and not for a mere works contract. It is submitted that this explanation has to be read in the context of the application of the main provisions of Sec.80IA (4) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livery. The contract entered into by the assessee was not a contract for carrying on any work within the meaning of section 194C. The Revenue was not justified in treating the assessee, as an assessee in default. . ii) The activity carried on by the assessee is not one which can be said to be a works contract. The Bombay High Court made it clear that in a works contract, the contractee would provide the material and all other requirements in the process of manufacture/production. The contractor merely carries on the work with the material supplied by the contractee and the knowledge supplied by the contractee. Further, in a works contract, the risk is undertaken by the contractee and in case of development contract, the contractor undertakes the risks involved. In the case of the assessee, it was allotted a premises and the possession of the premises was handed over to the assessee. It was asked by the government to develop the said area into an infrastructure facility. All the activities necessary in the process of development and the losses suffered in the process, the material to be used including the expertise shall be of the assessee. The maintenance of the existing facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly claimed such deduction in the returns of income filed for the assessment years 2000- 2001 and onwards. 10. The views of the lower authorities mentioned herein below is contary to the true spirit of the provisions of section: i) While completing the assessments in the Assessing officer rejected the claim made by the appellant on the ground that the assessee is not the owner of the infrastructure facility. According to the Assessing officer, Sub section (4) which reads It is owned by the company registered in India or by a consortium of such companies . would mean that the infrastructure should be owned by the company. The appellant submitted that the ownership mentioned in Sec. 80IA(4) refers to the enterprise carrying on the business of development and not to the infrastructure facility as presumed by the Assessing officer. a) According to AR the assessee herein is not carrying on the activity as mentioned in u/s 80IA (4)(i) r.w.s.80IA(4) (i) (c) of the said section. The Assessing Officer referred to the sub clause (c) which mentions that it has started or starts operating or maintaining the infrastructure facility on or after first day of April, 1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cility. 15. The next contention of the Assessing Officer is that the assessee is not a developer but is only a works contractor. The authorities below relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the appellant herein is not eligible for deduction u/s 80IA (4) of the I.T Act. In this regard an analysis has to be made by the authorities as to whether a particular work undertaken by the assessee herein is a mere works contract or in the nature of development. 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 appellant. The agreement entered into with the Government. or the Government body may be a mere works contract or for development of infrastructure. 16. It was submitted that it can be seen from the agreements entered into that the appellant was handed over the possession of the premises various projects till the development of infrastructure facility was complete and was handed over to the Government, it shall be the assessee s responsibility to do every act. The assessee has to develop the infrastructure facility in the premise hando ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard, the assessee may be permitted to refer to the provisions of the Act. it is mentioned that to be eligible for deduction u/s 80IA (4) of the I.T. Act, a person being a company has to enter into an agreement with the Government. 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. Therefore, the view taken by the authorities in this regard is not correct. The assessee s view is supported by the following decisions: 1) The decision of the ITAT, Pune Bench A vide order dated 8.6.2011 in the case of Lakshmi Civil Engin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities are of the view that separate books of account were not maintained for each of the work. In this regard it is submitted that proper accounts were maintained separately for each work except for the head office expenditure. Further, it is held by the Honourable ITAT in the case of Patwa Kinariwala Electronics Vs. IAC reported in 51 TTJ 280 , wherein it is held that maintenance of separate books is not fatal. A similar decision is taken by the Honourable ITAT in the case of Shoghi Communications Ltd., Vs. DCIT reported in 9 SOT 489 . The Honourable ITAT, Chennai Bench in the case of Cavinkare (P) Ltd., vs. ACIT reported in 16 DTR 322 held that separate books of account for each unit need not be maintained. However, it was submitted that the assessee has maintained separate books of account and can arrive at the profit for each of the unit. iii) The lower authorities for one of the assessment years are of the view that the deduction is allowable only when the assessee enters into agreement with Government and not with any other body corporate. The assessee in this regard humbly submits that the provisions of sec. 80IA(4) makes it clear that an agreement can be entered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was removed with effect from the assessment year 2000-01 by the Finance Act, 1999. A new sub section (4) was introduced by the said Finance Act. Sub section (4) extended deduction to such enterprises which develop infrastructure or which maintain and operate infrastructure facility or which develops, maintains and operates an infrastructure facility. It is clarified by the Board that sub section (4A) was deleted and the deduction earlier available continues in lieu of sub section (4) of Section 80IA. Therefore, the condition mentioned in sub section (4A) that an enterprise commencing its activity of operating, maintaining the infrastructure facility on or after the first day of April, 1995 would only be eligible for deduction. Therefore, it applies to those enterprises which were earlier eligible for deduction under sub section (4A) and which will be continued to be eligible for deduction under sub-section (4). Such provision has no application to the case of the assessee, which became eligible for deduction under sub-section (4) of Sec. 80IA of the Act. Therefore, sub-clause (c) came into play only in respect of those concerns which claimed deduction for maintaining and developin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and is incapable of becoming operational without reference to the rest of the project, of which it is only a part. It is evident from the agreements filed by the asessee that the assessee undertook to execute the work on NHAI s specifications, at rates agreed upon, subject to measurement, within a period of 36 months of commencement. 22. He submitted that agreement filed by the assesee in the paper book wherein the details of rate analysis, Bill of quantities etc., make it clear that the assessee had no autonomy in matters of design and specification which completely vested with the employer. The only lawful entitlement of the assessee was to be paid for the measurement of work completed at rates agreed upon. The partial and sectional nature of the proposed work is immediately clear from this notice and it is also apparent from this that the section of the road proposed for improvement has no independent existence capable of satisfying the requirement of section 80 IA (2). Therefore, this project is incapable of commencement of operations by itself, or to quality the larger infrastructure facility of which it is a part. The assessee also gets mobilisation advance as well as int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of IPCA Laboratory Limited vs. DCIT (SC) 266 ITR 521 that when there is no ambiguity, provisions cannot be interpreted to confer a benefit upon the assessee. The provision is incapable of application to the facts of the assessee s case because the assessee is only an executor of a contract, which is in turn, part of a larger project undertaken by the Government, or its agency. By referring to the two decisions relied upon by the learned counsel for the assesee, Mumbai High Court in the case of CIT vs. ABG Heavy industries Limited reported in 322 ITR 323 and ITAT Pune Bench in the case of Laxmi Civil Engineering Pvt. Ltd., vs. Addl. CIT Kolhapur (unreported/ITA No.766/Pn/09 dated 8-6-2011) , it is submitted that these decisions supported the proposition that (i) the ITAT s decision in the case of B.T. Patil Sons, Larger Bench (Mumbai) reported in 126 TTJ 577 is no longer good law, and (ii) the distinction between developer and contractor is no longer relevant in the context of changed law explained by the Mumbai High Court in the case of ABG Heavy Industries (supra) and followed within its jurisdiction by the Pune Bench of the ITAT in the case of Laxmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of whether the assessee was a developer or not in the first place. vi) Some of the attributes of a developer were discussed in the case of B.T. Patil, none of whom were absent in the case of ABG Heavy Industries. 25. The decision of the Mumbai High Court, though later in time was different in facts that there was no occasion even to refer to the ITAT s decision in the case of B.T. Patil. Therefore, it can be said that the decision of the Mumbai High Court in the case of ABG Heavy Industries will be binding in its jurisdiction for infrastructure contract cases, only in so far as the facts of the case are compatible. For the same reason, there can be no adverse implication for the precedent value of the B.T. Patil case. As submitted hereinabove, on immediate and necessary consequence of the retrospective amendment introduced by the Finance Act, 2009 inserting Explanation below section 80 IA(13), is that any business transacted in terms of a works contract stands disqualified from seeking deduction under section 80I(A(4). The decision of the Mumbai High Court in the case of ABG would have no application from this point of view also. Since the agreement in ABG was a BOLT agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t because the Board Circular 793 dated 23-6-2000 clarified that part of the project would qualify if so certified by the Port Authorities. The container handling cranes assembly was certified to be an integral part of the Port Complex by the Port Authority. This is contextually very different from parts of the running length of a highway or irrigation canal being executed on a rate contract. The Department s argument that the assessee did not actually operate or maintain the facility in question was not upheld because the benefits of the section were held to be available to BOT/BOLT contracts by CBDT Circulars, which were any way binding on the IT authorities. In the case of the present case, it is not even claimed by the assessee that the work was carried out under a BOT/BOLT contract, or that it was not a works contract. It is further submitted that the distinction between business of development operation/maintenance and development/operation/maintenance was removed with the change in law effective from 1-4-2002, and that this was explained by the decision of the Mumbai High Court in the case of ABG Heavy Industries is fallacious for the following reasons: The Mumbai High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision in the case of Laxmi Civil Engg. considers the Tribunal decision of B.T. Patil as well as its jurisdictional High Court decision in the case of ABG and goes on to hold that the assessee is not entitled to the deduction under section 80IA (4) in view of the Explanation introduced with retrospective effect. 28. The learned Departmental Representative relied upon subsection (2) of Sec.80IA of the Act and submitted that the deduction under sub-section (1) would be available for a period of 10 consecutive assessment years out of 15 years beginning from the year in which an undertaking or enterprise develops, begins to operate any infrastructure facility or starts providing telecommunication system. Therefore, he is of the view that unless operation of the infrastructure facility is also undertaken; the assessee would not be eligible for deduction. It is submitted that this section provides for an option to the assessee to choose to claim deduction for any 10 years out of 15 years commencing from the date of commencement of the maintenance and operation. For that limited purpose of facilitating an assessee who becomes eligible for deduction under section 80IA(4) in choosing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR submitted as follows: ii) According to DR, the assessee should have been engaged in development and maintenance of infrastructure facility. According to him a mere developer is not eligible for deduction u/s 80IA (4) of the I.T Act. In this regard the learned DR referred to sub section (2) of Sec.80IA (4) and also sub clause (c) of Sec.80IA(4) (i). In so far as sub clause (c) of Sec.80IA(4) is concerned, the assessee already submitted that it would apply only to those enterprises carrying on the business of maintaining and operating the infrastructure facility. The assessee already submitted in the above mentioned paragraphs that any enterprise carrying on either the business of developing or business of maintaining and operating or the business of developing, maintaining and operating would be eligible for deduction. Out of such enterprises if any enterprise has undertaken the work of maintenance and operation, sub clause (c) of Sec.80IA would apply. The words used in sub clause (c) started or starts operating and maintaining infrastructure facility on or after first of April, 1995 would apply only to the second type of enterprise who undertakes the work of maintaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntaining the infrastructure facility on or after the first day of April, 1995 would only be eligible for deduction. Therefore, it applies to those enterprises which were earlier eligible for deduction under sub section (4A) and which will be continued to be eligible for deduction under sub section (4). Such provision has no application to the case of the assessee, which became eligible for deduction under sub-section (4) of Sec. 80IA of the Act. iv) Therefore, sub clause (c) come into play only in respect of those concerns which claimed deduction for maintaining and developing the infrastructure facility and not for the assessee who only develops. v) The DR relied upon sub section (2) of Sec.80IA of the I.T. Act. Sub section (2) is already extracted above. The learned DR s view is that the deduction under sub section (1) would be available for a period of 10 consecutive assessment years out of 15 years beginning from the year in which an undertaking or enterprise develops, begins to operate any infrastructure facility or starts providing telecommunication system. Therefore, the learned DR is of the view that unless operation of the infrastructure facility is also undertaken; th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he enterprises which develops, maintains and operates any new infrastructure facility such as roads, highways, express ways etc. in BOT or BOOT or similar other places. At the time of issue of the said circular by the Board, 80IA(4) was applicable only to hotels and not the infrastructure facility. The provisions of Sec.80IA(4A) as mentioned above were made applicable only to the enterprises which develops, maintains and operates infrastructure facility. x) The assessee did not claim deduction u/s 80IA(4A) of the I.T. Act. Therefore, neither the circulars issued up to that date nor the provisions of the law as were existing up to the assessment year 1999-2000 can be applied for the purpose of determining the allowability of deduction u/s 80IA(4) claimed by the assessee herein. xi) The DR referred to the Circular reported in 240 ITR 32 (statutes). In the said circular it is clarified by the CBDT that the benefit in the amended provisions of Sec.80IA(4) would extend to those undertakings which develop, operate and build, operate and transfer. It is only a clarificatory circular. As submitted earlier, Sec.80IA(4) and Sec.80IA (4A) were in statute. Sub section (4A) dealing with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn money in the process. This argument of the learned DR is also not correct. There is no such mention in the provisions of sec. 80IA(4) that the assessee should invest its own money in the process of development. The only requirement is that the enterprise should be a company and such enterprise should be in the business of development of infrastructure facility. How the funds are pooled for the purpose is not mentioned in the Act. The assessee humbly submits that the Departmental authorities cannot introduce words into the Act to give a different meaning. They have to read the provisions as they exist in the Act. A plain reading of the provisions of sec. 80IA (4) does not indicate that the assessee to be eligible for deduction should have introduced its own funds. Therefore, the learned DR is not correct in this regard. In the following cases, various courts have held that the provisions allowing relief should be read liberally and nothing can be added to the words used in the Act so as to disentitle an assessee for the relief. (1) Decision of the Supreme Court in the case of CIT Vs Clive Insurance Co. Ltd. reported in 113 ITR 636 (2) Decision of the Delhi High court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e held that when a question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. It is submitted that the reference to the said decision is misplaced. The said decision is rendered in connection with the Central Excise duty. The issue involved is whether a particular item manufactured is governed by the exception or is taxable as per the notification. The question in the said case is taxability of the item manufactured. Therefore, the said question is to be construed strictly. In the case of the assessee, the question to be considered is whether a particular deduction is allowable from the gross total income determined. A reading of the decision of the apex court will make it clear that the said decision has no application to the facts of the assessee s case. xvi) The DR argued that the assessee did neither invest nor undertook risk: The Income-tax Act in Section 80-IA simply stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch requirements are fulfilled. Therefore, the learned DR is not correct in this regard. xix) The assessee undertook all the risks involved in the activity from the commencement date till the date of taking over. The agreement also mentions that loss or damage happens to the work, or any part thereof or materials or plant shall be the responsibility of the assessee. It also mentions that the assessee shall be responsible for death or injury to any person or loss or damage to any property which may arise in consequence of the execution and completion of the works. Therefore, the assessee is liable for risks. xx) The DR is also of the view that the maintenance undertaken by the assessee as per the contract is only as a sort of warrantee and not the maintenance as mentioned in Sec.80-IA(4) of the I.T. Act. In this regard it is submitted that the assessee is claiming deduction as a person developing the infrastructure facility and not as a person maintaining such infrastructure facility. Further, the said clause was mentioned only to show that the assessee has undertaken a job of developing the entire infrastructure facility at the premises allotted to it and handed it over with a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee steps into the role of the NHAI for Development of the project, which the work of development is entrusted to it. xxiv) The DR mentioned that tax was deducted at source by the Government under sec. 194 C of the Act and therefore, the work undertaken is only a works contract and not development. In this regard the assessee submits that the provisions of sec. 194 C make it clear that deduction of tax has to be made from payments made in respect of any works . The work any work denotes the work of development of infrastructure facility also. Therefore, the observation of the learned DR is not correct. Further it is submitted that all the works were not entrusted by the NHAI alone. It can be seen from the list annexed that some of the works were entrusted by the Government of Karnataka, Government of Assam, Railways, Government of Rajasthan, Ministry of Road Transport, Government of India directly and Government of Gujarat directly to the assessee. In view of the above, it is not correct for the learned DR to mention that NHAI is the developer and not the assessee. If the argument of the learned DR were to be correct the Legislature should have clearly mentioned t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. carrying out the civil construction work. In contrast to this, a person who enters into a contract with any other person for executing the works contract will not be eligible for the tax benefits u/s 80IA. It is humbly submitted that the assessee makes the investment on its own in so far as the works are concerned and itself executes the development work. The circular clarified that the execution of the civil work is equal to development. This makes it very clear that the assessee is eligible for deduction u/s 80IA of the I.T. Act as the assessee invested its own finance in the process of development and undertakes the development work on its own with all the risks involved. Therefore, the circular supports the claim of the assessee that it is a developer. xxix) The DR referred various circulars and mentions that the enterprises which carry on the activity under the concept of BOT and BOLT alone will be eligible for deduction. In this regard, the assessee humbly submits that the provisions of Sc.80IA(4) makes the matters clear that a person who develops or operates and maintains or develops, operates and maintains would be eligible for deduction. The provision itself is ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mselves in all the three activities alone would be eligible for deduction under sec. 80IA of the Act. In the earlier paragraphs, the assessee s counsel submitted in detail that it is a developer and not engaged in the works contract alone and that for the purpose of being eligible for deduction under sec. 80IA of the Act, one need not carry on all the activities of Develop; operate and maintain. 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 legislature mentioned the words (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining clearly indicates that any enterprise which carried on any of these three activities would become eligible fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project; provision of way for the cattle and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 infrastructure facility is an eligible activity for claiming deduction under section 80IA of the Act after considering the Judgement of the Mumbai High Court in the case of ABG Heavy Engineering [supra]. The case of ABG is not the pure developer whereas, in the present case, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deduction on eligible turnover as directed above. It is needless to say that in similar circumstances, similar view has been taken by the Chennai Bench of the Tribunal and deduction u/s. 80IA was granted in the case of M/s. Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 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 Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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, as referred to in sub-section(4) as a works contract awarded by any person including the Central or State Government, is not eligible for tax benefit u/s 80IA(4). Having said that, now we examine the facts of this case. The assessee-company was given this benefit in assessment year 2003-04 by the Department on identical facts after considering the Explanation and amendment thereto. To tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly 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 Government or public undertakings as the State Government may be by notification, specify in this behalf at any of its stages entered into by the State Government or by an official of the State Government or public undertaking and includes an agreement for the supply of goods or material and all other matters relating to execution of any of the said works. The case of ACIT vs Indwell Lianings Pvt. Ltd (supra), on which the Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contract will not be eligible for the tax benefit under section 80-IA of the Act. In the present case, we find that the assessee was doing only contract works of in situ cement lining for water supply project of the Gujarat Water Supply and Sewerage Board. As such, the benefit of section 80-IA cannot be extended to the assessee. The decisions relied upon by the assessee were rendered prior to the amendment and as such not relevant for deciding this issue. We, therefore, restore the order of the Assessing Officer and reverse the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the commencement of the operation and maintenance: of the infrastructure facility should be after 1" April, 1995. In the present case the assessee clearly fulfilled this condition ". Before the amendment that was brought about by parliament by Finance Act, 2001 we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to S. 80-IA(4) of the Act, set the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were not intended to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 between local authority/Central or State Government and makes a development of an infrastructure has not been excluded from the scope of this provision. And rightly so, because what infrastructure is required in public domain is the outlook/duty of a local authority or of a Central/State government. When a certain infrastructure is needed, the concerned authorities have a broader picture in their mind aiming at acquiring certain facility for which infrastructure development is required. So, to say, when any assessee/enterprise agrees under a contract to develop such an infrastructure facility, it cannot straight away be dubbed as not the brainchild of that enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rashtra 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 lawful agreement and thereby becoming a contractor should in no way be a bar to the one being a developer . The assessee has developed infrastructure facility as per the agreement with Maharashtra Government/APSEB, therefore, merely because in the agreement for development of infrastructure facility the assessee is referred to as a contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a developer ; nor will it debar the assessee from claiming deduction u/s 80IA(4). The facts of the present case are exactly identical to the facts of that case rendered by ITAT Mumbai Bench in which under identical facts and circumstances, the assessee has been held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wly 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 held by the ITAT, Jaipur A Bench in the case of Om Metal Infra projects Ltd vs CIT-I, Jaipur, in I.T.A. No. 722 723/JP/2008 dated 31.12.2008. The reliance by the ld. CIT(A) on the decision of ITAT, Chennai Bench in the case of ACIT vs Indwell Lianings Pvt. Ltd, 313 ITR(AT) 118, has been enlarged in its finding by the ITAT, Mumbai F Bench in its decision rendered in the case of ACIT vs Bharat Udyog Ltd , by holding that such a deduction is only to be denied to a sub-contractor and not a mini contractor. Similar view has been taken by the ITAT Chennai Bench in the case of ACIT vs Smt. C. Rajini (supra) in which both of us constituted the Bench. In this decision the definition and difference between works contractor and a developer has been examined in detail. The main thrust of the decision is that a developer nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and disallowed interest attributable to investments of Rs. 13,37,969. On appeal the CIT(A) confirmed the action of the Assessing Officer. 42. We have heard both the parties on this issue. The learned AR relied on the judgement of Supreme Court in the case of SA Builders vs. CIT (288 ITR 1) wherein held that when the amount advanced to the sister concerns free of interest on account of commercial expediency, interest on such borrowings is allowable as business expenditure. However, in the present case the assessee is not able to explain what were the business advantages assessee derived from these interest free advances to sister concerns and also not able to explain whether the amount advanced to sister concern was actually used for the business purposes or not. In these circumstances, it is not possible to us to blindly follow the judgement of Supreme Court to allow the claim of the assessee. In our opinion, as the assessee has not shown the commercial expediency, we are inclined to confirm the orders of the lower authorities and reject the ground taken by the assessee. 43. The next ground in ITA No. 1171 is with regard to confirming the action of the Assessing Officer in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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