2013 (7) TMI 952 - AT - Income Tax

Enterprises engaged in infrastructure development - Deduction u/s 80IA(4) - Assessee is engaged in development of infrastructure facilities and has carried out certain contract works allotted by State Governments. He claimed deduction u/s. 80IA. AO concluded that assessee is not the owner of the infrastructure facilities and has executed the work merely as contractor. Accordingly the deduction claimed u/s. 80IA was disallowed. - HELD THAT - There is an intrinsic difference between developing an infrastructure facility and executing a works contract and deduction under said section would not be available in case of execution of works contract. If the assessee utilised its funds its expertise its employees and takes the responsibility of developing the infrastructure facilities it cannot be considered as a mere works contract but has to be considered as a development of infrastructure facilities. Relying on the judgement of - NCC-ECCI (JV) VERSUS INCOME TAX OFFICER WARD 6 (3) HYDERABAD 2013 (6) TMI 737 - ITAT MUMBAI it was said that the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facilities on behalf of the Government is a contractor . The principal idea behind granting deduction was to achieve rapid growth in infrastructure development with private participation thus AO was ordered to re-examine the facts. Decision in the cases of - COMMISSIONER OF INCOME-TAX VERSUS RADHE DEVELOPERS 2011 (12) TMI 248 - GUJARAT HIGH COURT and M/S. SUSHEE HITECH CONSTRUCTIONS P. LTD. (NOW KNOWN AS SUSHEE INFRA P. LTD.) VERSUS INCOME-TAX OFFICER WARD 3(2) HYDERABAD 2013 (6) TMI 599 - ITAT HYDERABAD relied upon.

Summary

Issues Involved:
Denial of deduction under section 80IA(4)(i) of the Income-tax Act, 1961 on the profit derived from the business of developing new infrastructure facilities.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80IA(4)(i):
The core issue in these appeals is the denial of deduction under section 80IA(4)(i) of the Income-tax Act, 1961. The assessee, a company engaged in civil works and turnkey execution of effluent treatment plants and sewerage treatment plants, claimed deductions for developing infrastructure facilities such as water supply systems, sanitation, sewerage systems, and solid waste management. The Assessing Officer (AO) required the assessee to furnish project details and, upon examination, concluded that the assessee was merely a contractor and not a developer, thus disallowing the deduction claim.

2. Conditions for Deduction under Section 80IA(4)(i):
The AO noted that to qualify for deduction under section 80IA(4)(i), an enterprise must:
a) Be owned by a company registered in India or a consortium of such companies.
b) Have an agreement with the Central Government, State Government, Local Authority, or any other statutory body for developing, operating, and maintaining a new infrastructure facility.
c) Start operating and maintaining the facility on or after April 1, 1995.

3. Examination of Contracts:
The AO examined the eligibility of various projects executed by the assessee and concluded that the assessee was only a contractor executing works allotted by respective State Governments. Consequently, the AO disallowed the deduction claim, which was upheld by the CIT(A).

4. Assessee's Argument:
The assessee argued that it was engaged in the development of infrastructure facilities and thus entitled to the deduction under section 80IA. The assessee relied on several judgments, including those of M/s. GVPR Engineers Ltd., M/s. Koya and Company Construction Pvt. Ltd., M/s. KMC Constructions Ltd., and others, to support its claim.

5. Department's Argument:
The Department argued that to be eligible for deduction under section 80IA(4), all conditions must be cumulatively fulfilled. The Department emphasized that the assessee should be engaged in both development and maintenance of infrastructure facilities, not just development. The Department referred to various court decisions, including CIT vs. ABG Heavy Industries Ltd., to support their stance that the assessee was not a developer but merely a contractor.

6. Tribunal's Analysis:
The Tribunal noted that the AO had not examined the contracts in their entirety and had drawn conclusions based on selective clauses. The Tribunal referred to the case of NCC-ECCI (JV) vs. ITO, where it was held that the assessee would be entitled to deduction under section 80IA(4) if it could demonstrate that it had undertaken the development of infrastructure facilities, including activities like design, development, engineering, construction, maintenance, financial involvement, and defect correction.

7. Remand for Fresh Examination:
The Tribunal remanded the issue back to the AO for a fresh examination. The AO was directed to consider the contract documents as a whole and any other evidence submitted by the assessee to demonstrate that it had developed the infrastructure facilities. If the assessee could establish these facts, it would be entitled to the deduction under section 80IA(4).

Conclusion:
The Tribunal set aside the CIT(A)'s order and remanded the matter back to the AO for a fresh examination, directing the AO to decide the issue afresh by considering the entire contract documents and other relevant evidence. The appeals were allowed for statistical purposes.