2008 (6) TMI 281 - AT - Income Tax

Allowability of deduction under s. 80-IA - work on contract basis - Allowability of employer s contribution to ESI payment - Paid beyond the due date but before the date of filing the return of income. Allowability of deduction under s. 80-IA - work on contract basis - insitu lining for water supply project and anti-corrosive lining - Ex consequenti notice u/s. 148 issued and the deduction claimed u/s 80-IA was denied - CIT(A) reversed the order of the AO - Contractor and developer - HELD THAT - Contractor and developer are two different terms. As per the Oxford Advanced Learner s Dictionary developer is a person or company that designs and creates new projects whereas contractor is a person or company that has a contract to do work or provides services or goods to another - It is made abundantly clear that the prescription of s. 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 u/s. 80-IA of the Act. In contrast to this a person who enters into a contract with another person for executing works eon tract will not be eligible for the tax benefit u/s. 80-IA of the Act - Thus the assessee was doing only contract works of insitu cement lining for water supply project of the Gujarat Water Supply and Sewerage Board. As such the benefit of s. 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 - the order of the AO restored and the order of the CIT(A) reversed - In the result the Revenue s appeal stands allowed. Allowability of employer s contribution to ESI payment - Paid beyond the due date but before the date of filing the return of income - HELD THAT - The Hon ble Supreme Court in the case of CIT vs. Vinay Cement Ltd. 2007 (3) TMI 346 - SC ORDER held that the assessee was entitled to claim the benefit of s. 43B for that period particularly in view of the fact that he has contributed to the provident fund before filing of the return. Respectfully following the precedent we decide this issue in favour of the assessee and against the Revenue. In the result the cross-objection filed by the assessee stands partly allowed.

Summary

Issues:
1. Allowability of deduction under Section 80IA of the IT Act, 1961.
2. Allowability of employer's contribution to ESI payment.
3. Allowability of depreciation in respect of plant and machinery used for the development of infrastructural facility project.

Issue 1: Allowability of deduction under Section 80IA:
The appeal revolved around the eligibility of the assessee for deduction under Section 80IA of the IT Act, 1961. The assessee claimed the deduction based on engaging in the business of developing infrastructure facilities. However, the Department contended that the assessee, being a work contractor, did not qualify as a developer. The Tribunal highlighted the distinction between a 'developer' and a 'contractor,' emphasizing that the benefit of Section 80IA is exclusively for developers deriving income from infrastructure development. The Tribunal noted that the assessee only undertook contract work for the Gujarat Water Supply and Sewerage Board, not developing infrastructure independently. Referring to legislative amendments, the Tribunal concluded that the assessee did not meet the criteria for Section 80IA deduction, overturning the CIT(A)'s decision and favoring the Department.

Issue 2: Allowability of employer's contribution to ESI payment:
In the cross-objection, the only ground pressed related to the allowability of the employer's contribution to ESI payment made after the due date but before filing the income tax return. Citing a Supreme Court precedent in CIT v. Vinay Cement Ltd., the Tribunal ruled in favor of the assessee, allowing the benefit of Section 43B for the period in question due to the timely contribution to the provident fund before filing the return. Consequently, the Tribunal partly allowed the cross-objection filed by the assessee.

Issue 3: Allowability of depreciation for plant and machinery:
The third issue in the appeal concerned the allowance of depreciation for plant and machinery purportedly used for infrastructural facility project development. Given the Tribunal's earlier decision that the assessee did not qualify for Section 80IA relief due to its contractor status, the Tribunal upheld the AO's order and reversed the CIT(A)'s decision, disallowing depreciation for the plant and machinery. Consequently, the Revenue's appeal in this regard was allowed.

In conclusion, the Tribunal's judgment addressed the issues of deduction under Section 80IA, employer's contribution to ESI payment, and depreciation for plant and machinery. The decision emphasized the distinction between developers and contractors for Section 80IA eligibility, upheld the benefit of Section 43B for the timely ESI payment, and disallowed depreciation due to the assessee's contractor status.