TMI Blog2008 (1) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... see company had claimed deduction under s. 80HHB of Rs. 1,33,54,593 and under s. 80HHBA of Rs. 70,52,819. The AO further observed that while computing the deduction under s. 80HHB and deduction under s. 80HHBA, the assessee company had computed the deduction on the basis of profit as shown in the P L a/c for these consultancy projects. The assessee was, therefore, asked to explain as to why the deduction under s. 80HHBA should be allowed to the assessee since the company was only providing the services which are of supervisory and consultancy nature. The assessee in its reply submitted that s. 80HHBA(1) has used the term "execution" of a housing project and the term "execution" is in relation to the "housing project". The assessee further contended that the execution of the housing project intend to include all the activities necessary for the execution and completion of the project, survey and design, engineering supervision of the construction work. It was further emphasized by the assessee that the design consultancy and engineering supervision are the most important parts of the execution of the project as to ensure the optimal design and cost effectiveness. The assessee emphas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vital in the projects which the company has handled and emphasized on the duties and responsibilities of engineers in the agreement of several projects in general and agreement of National Highway Authority of India (NHAI). The AO has, thus, observed that these agreements also show that the limited obligation of the company is to provide supervisory and consultancy services. Thus, it is clear that the assessee has to provide the services which are design reviewing, supervision of construction, effectiveness of work and adherence of time schedule, submission of reports, relocation of services, material survey, etc. The AO has referred to the dictionary meaning of the word "execution" as per the Oxford Dictionary is, "the action of doing a piece of work, performing a duty or putting a plan design, etc., into effect." Thus, he has held that it is evident that the assessee's role in the above works are of consultancy and supervisory nature which cannot be treated as an integral part of execution of any project. The consultancy and supervisory services may be treated as an essential aid in the modern age of advance technology but it cannot be an essential and integral part of any proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l conclusion, assessee company was integral part of the project. Thus, the AO erred grievously in misunderstanding the nature of assessee company's job. The assessee has further submitted that making the work cost effective is contractor's job and not of consultant. The main work of the assessee company is day-to-day supervision of contractor's work so that work progresses as per design and technical specifications approved by the employer, namely NHAI. Even if it is assumed that one of the duties of the assessee is to make the work cost effective, it is for the benefit of the client i.e., Government and not the contractor. But for the engineer's involvement in the project the contractor can always delay the project and claim the benefit of cost overruns. 4. The assessee has further submitted that from a detailed reading of the agreements, the following facts would be observed very clearly; (a) that the construction contractor has to work under the superintendence and control of the engineer and all his activities relating to the project are subject to the final supervision/approval of the engineer who can even stop work on the project execution if he is not satisfied with the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction, supervision and other engineering services in the execution of highway projects. With reference to a specimen agreement with NHAI (NH-2 Bihar Road Project), I find that for execution of the said project for construction of NH-2 highway, the NHAI entered into two contracts. One contract was with contractor for supply of material, equipment and labour and the other contract was with the appellant company as engineers to the project. While the contractor was to carry out the physical activities of supply of labour, material and equipment (as approved by the appellant as engineers) for construction of the highway. the appellant company was to provide engineering and technical inputs for such construction of the highway. Besides, the day-to-day work of contractor was to be executed under strict supervision of appellant company as engineers. Taking the said agreement for the above project as a specimen, it is seen that the appellant was involved on day-to-day basis in the execution of foreign projects and the World Bank aided projects. The agreement, besides. detailing the nature of appellant's services also gives comprehensive details of the specific services to be rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice in its submissions during the course of assessment proceedings. Obviously therefore, the AO has decided the issue without taking into consideration the above landmark decision, which has been rendered with reference to the provisions of s. 80HHB. I find that the appellant's case is squarely covered by the observations of the Hon'ble Supreme Court in the case of Continental Construction Ltd., wherein it has been clearly held with reference to s. 80HHB that the expressions 'business of execution of a foreign project' or 'the profits derived from the business' take in all aspects of a business involving the activities referred to in sub-s. (2) (b) of s. 80HHB together with all activities commitments and obligations ancillary and incidental thereto and the profits flowing therefrom. The Supreme Court has further held that 'the definition cannot be restricted to the mere physical activity of putting up superstructure, machinery or plant but should be understood to take within its fold all utilisation of technical knowledge or rendering of technical services necessary to bring about the construction, assembly and installation'. The Hon'ble Court has clearly observed that it is possi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HBA provides that an Indian company or non-corporate assessee resident inIndiashall be entitled to a deduction of such percentage as specified in sub-s. (1) of s. 80HHBA of the profits and gains derived from the business of execution of housing projects aided by the World Bank and undertaken by the assessee in pursuance of a contract floated on the basis of a global tender. To claim this deduction the assessee shall have to transfer such percentage of the profit and gains as is referred to sub-s. (1) from the business of housing project, to a housing project reserve account. This amount shall have to be utilized during a period of 5 years for the purpose of business other than for distribution by way of dividends or profit. If the money is utilized for any non-business purpose, then the income of the year in which deduction was allowed would be recomputed after withdrawing deduction so allowed. The Explanation to s. 80HHBA explains the meaning of the expression of "housing project" as under: "Explanation: For the purposes of this section-(a) 'housing project' means a project for- (i) the construction of any building, road, bridge or other structure in any part ofIndia; (ii) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the strict supervision of the assessee as engineers. It may be mentioned that the Hon'ble Supreme Court in the case of Continental Construction Ltd. vs. CIT while dealing with the s. 80HHB has observed as under: "The definition cannot be restricted to the mere physical activity of putting up a superstructure, machinery or plant but should be understood to take within its fold all utilization of technical knowledge or rendering of technical services necessary to bring about the construction, assembly and installation........ it is perhaps possible to envisage cases where while undertaking a foreign project, separate contracts are entered into for two different sets of activities involved viz. (i) construction of works and assembly or installation of plant and machinery and (ii) the transfer of rights and know-how, the imparting of technical knowledge or information and the rendering of technical services." 9. The Revenue has accepted the claim of the assessee under s. 80HHBA for earlier years has not been disputed by the Revenue. Moreover, the Revenue is not in appeal in respect of direction of CIT(A) to allow the claim of the assessee under s. 80HHB, where the job of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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