TMI Blog2012 (5) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Even otherwise, the word "it" is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. Developer or mere works contractor - held that:- it is clear that from an un-developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA(4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The case of Laxmi Civil Engineering (P.) 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 Industries Ltd. (2010 -TMI - 75718 - BOMBAY HIGH COURT). - IT APPEAL NOS. 180 (HYD.) OF 2006, 167 & 168 (HYD.) OF 2008 AND 221 (HYD.) OF 2009 - - - Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 IA(4)(i) of the Act and submitted that by the Finance Act, 2001 with effect from 1-4-2002 which was amended as follows:- "( i ) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a mew infrastructure substituted (i) developing (maintaining or operating or (iii) developing, maintaining and operating." 3. He also drew our attention to the Circular No.14 of 2001 which reads as under:- Circular No.14/2001 Explanatory Notes Finance Act, 2001 - Explanatory Notes on provisions relating to Direct Taxes Definition of 'Infrastructure facility' in section 10(23G) to be same as that in section 80-IA(4) 17.1 Under the existing provisions contained in clause (23G) of section 10, any income of an infrastructure capital fund or an infrastructure capital company by way of interest, dividend (other than dividends referred to in section 115-0) and long term capital gains from investment made by way of equity or long-term finance in an approved enterprise wholly engaged in the business of (i) developing, (ii) maintaining and operating, or (iii) developing, maintaining and operating an infrastructure facility shall not be included in computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Transfer) or BOOT (Build, Own, Operate and Transfer) schemes has to be met. 47.2 Investments in infrastructure have to compete with investment in other sectors to be attractive. There is, in particular, a need to encourage investment in the area of surface transport, water supply, water treatment system, irrigation project, sanitation and sewerage system or solid waste management systems. With this in view, section Bo-IA has been amended to relax the existing two tier benefit to provide a ten year tax holiday. Keeping in view, their capital intensive nature, the higher allowances of depreciation in the initial years to such enterprises and the need for improved cash flows, an infrastructure facility in the nature of a road (including a toll road), bridge, rail system, highway project, water supply project, sanitation, sewerage and solid waste management system shall be allowed a ten year tax holiday in place of a two-tier tax holiday. Such an enterprise may avail of the tax holiday consecutively for any ten years out of twenty years beginning from the year in which the undertaking begins operating the infrastructure facility. 47.3 In the case of other infrastructure, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1A of the Act. He drew our attention to the decision of the Mumbai ITAT in the case of Asstt. CIT v. Bharat Udyog Ltd. [2009] 118 ITD 336 wherein held that:- "The amendment in section 80-IA was brought about by the Finance Act, 1995, with effect from 1-4-1996. By virtue of this amendment, the deduction under section 80-IA was provided to any enterprise carrying on the business of developing, maintaining and operating the infrastructure facility. Thus, to be eligible for this deduction, an assessee was required to carry out all the three activities, i.e., (i) to develop, (ii) to maintain and (iii) to operate. After the amendment effected in section 80-IA by the Finance Act, 1999 with effect from 1-4-2000, the deduction under section 80-IA(4) became available to any enterprise carrying on the business of (i) developing or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. [Para 7] Sub-clause (c) of section 80-IA(4) is applicable to an enterprise which is engaged in 'operating and maintaining' the infrastructure facility on or after 1-4-1995. It is not applicable to the case of an enterprise, which is engaged in mere ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity eligible for deduction under section 80-IA inasmuch as mere 'development' as such and unassociated/un-accompanied with 'operate' and 'maintenance' also falls within such business activity as is eligible for deduction under section 80-IA. Therefore, merely because the assessee was paid by the Government, for development work, it could not be denied deduction under section 80-IA(4). A person, who enters into a contract with another person, would be a contractor no doubt; and the assessee having entered into an agreement with the Government agencies for development of the infrastructure projects, was obviously a contractor; but that did not derogate the assessee from being a developer as well. The term 'contractor' is not essentially contradictory to the term 'developer'. On the other hand, rather section 80-IA(4) itself provides that the 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. Therefore, merely because, in the agreement for development of infrastruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the product. When the material is purchased from the customer who orders the products, it constitutes a contract of work, while, on the other hand, where the manufacturer has sourced the material from a person other than the customer, it would constitute a sale. What is significant is that in using the words which clause (e) uses in the Explanation, the Parliament has taken note of the position that was reflected in the circulars issued by the CBDT since 29-5-1972. The judgment of the Supreme Court in Associated Cement Co. Ltd. v. CIT [1993] 201 ITR 435/ 67 Taxman 346 gave an expansive definition to the expression 'work' and rejected the attempt of the assessee in that case to restrict the expression 'work' to works contract. Both before and after the judgment of the Supreme Court, the expansive definition of the expression 'work' co-existed with the revenue's understanding that a contract for sale would not be within the purview of section 194C. The revenue always understood section 194C to mean that, though a product or thing is manufactured to the specifications of a customer, the agreement would constitute a contract for sale, if (i ) the property in the article or thing pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty would be interested in ensuring the quality of the product. The trademark has associated with it an assurance of the quality of the goods which are marketed and are traceable to the origin of the goods. Associated with the trademark is the goodwill and reputation which is associated with the mark. This is particularly so in the case of a pharmaceutical product where the ultimate consumer is legitimately entitled to ensure that her health is not prejudiced by the consumption of a product not meeting prescribed standards. The owner of a mark, therefore, introduces specifications to ensure that the product meets the standards justifiably associated with the reputation of the mark. The specification ensures the observance of standards. Similarly, a clause relating to exclusivity is not inconsistent with a transaction of sale. Here again much depends upon the nature of the product. Restrictive covenants of this kind are intended to protect the intellectual and other property rights of a party which markets its goods by requiring a manufacturer to observe norms of specifications and exclusivity. The law is, therefore, consistent with the transaction being regarded as a transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter operating it for few years, the deduction u/s 80-IA will be allowed to the developer till the date of transfer and thereafter it will be availed by the transferee enterprise operating and maintaining such facility for the remaining period out of the period of ten consecutive years. If such interpretation is applied, none of the provisions of section 80-IA would become redundant in any situation." 7. He submitted that the above observation of the assessing officer is factually incorrect as it can be seen from the agreements and contracts the site if handed over back to the employer after development of the entire facility and in few cases after operation and maintenance for a period specified therein. According to the authorised representative of the assessee, the assessee has undertaken the construction of the entire infrastructure facility as envisaged by the respective Central or State Government in the agreements. The assessee has entered into agreement with Central or State Government thereby satisfying the conditions envisaged in section 80IA of the Act. He also submitted that the following observation at paras 7, 7.1 is incorrect which reads as follows:- "7. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Approach Channel, M.S. Manifold Electrical Works, EOT cranes etc., Construction of all C.d. Works, Approach Roads, Deviation Roads, Cleaning and Trimming of Existing Natural Nalla to the required length, Service roads etc., complete. Supply of Spare Parts and/tools including operation of System for two years after the date of completion and commissioning on Turnkey Basis." 8. He drew our attention to all the various agreements which were carried out by the assessee in these assessment years. 9. He submitted that out of the above agreements the contracts which are undertaken as turnkey projects entitled for deduction u/s 80IA:- 10. According to the authorised representative, all the contracts of the site which was handed over by the Government to the assessee for development of the infrastructure facility and on completion, in few cases after operation for certain period, the entire site with the infrastructure facility developed to the owner. He submitted that the lower authorities wrongly relied on the order of the Tribunal in the case of Patel Engg. Ltd. v. Dy. CIT [2005] 94 ITD 411 (Mum.) wherein the Tribunal has not considered the retrospective amendment by Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of infrastructure facility, it does not satisfy the other condition of its transfer for operating and maintaining on its behalf for the obvious reason that there is no transfer at all of any infrastructure facility from the assessee, much less for operating and maintaining on its behalf 37. Be that as it may it remains to be examined as to whether the assessee can be called as 'developer' within the meaning of section 80IA(4). The learned counsel submitted that the work done by the assessee made it a developer entitled to deduction. Shri Vijay Mehta, the learned counsel for the intervener contended that the "works contract" has not been defined in the context of section 8o-IA and, hence, in the absence of assignment of any definition by the statute, its meaning should be understood in the common parlance. According to him, a developer is a person who develops the facility and such person mayor may not be a contractor. On the other hand, a contractor is stated to be a legal term whose rights and duties vis-a-vis contract are determined by way of legal document called the contract. He cited an example that if a contract to construct a highway from Mumbai to Delhi is given to a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is not defined in the Act. It is a settled legal position that ordinarily the meaning or definition of a word used in one statute cannot per se be imported into another as has been held by the Hon'ble Supreme Court in the case of Union of India v. R.C. Jain [1981]2 SCC 308. Therefore, the meaning of the words 'developer' and 'contractor', as put forth before us by the rival parties from other legislations, be they State or Central enactments, cannot be automatically applied in the present context. In order to ascertain the meaning of a word not defined in the Act, a useful reference can be made to the General Clauses Act, 1897. If a particular word is not defined in the relevant statute but has been defined in the General Clauses Act, such definition throws ample light for guidance and adoption in the former enactment. According to section 3 of the General Clauses Act, the definitions given in this Act shall have applicability in all the Central Acts unless a contrary definition is provided of a particular word or expression. On scanning section 3 of the General Clauses Act, we observe that neither the word 'contractor' nor 'developer' has been defined therein. Thus, the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the two is thick and unbreachable. When the person acting as developer, who designs the project, also executes the construction work, he works in the capacity of contractor too. But when he assigns the job of construction to someone else, he remains the developer simpliciter, whereas the person to whom the job of construction is assigned, becomes the contractor. The role of developer is much larger than that of the contractor. It is no doubt true that in certain circumstances, a developer may also do the work of a contractor but a mere contractor per se can never be called as a developer, who undertakes to do work according to the pre-decided plan. 41. Further it is relevant to note that the word "developing" used in sub-section (4) is with reference to "infrastructure facility". When we further peruse the meaning of the word "infrastructure facility" as per Explanation, it is found to have been defined exhaustively by referring to a road project, airport, port, etc., a highway project, a water supply project and irrigation project, etc. Therefore, the use of word "developing" in juxta-position to infrastructure facility indicates that what is eligible for deduction under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 80 IA. Parliament amended the provision of section 80 IA of the Act so as to clarify that in order to avail of a deduction, the assessee (i) develop, (ii) operate and maintain or (ii) develop, operate and maintain the facility. The condition as regards development, operation and maintenance of an infrastructure facility was contemporaneously construed by the authorities at all material times, to cover within its purview the development of an infrastructure facility under a scheme by which an enterprise would build, own, lease and eventually transfer the facility. This was perhaps a practical realisation of the fact that a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed. Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. In Bajaj Tempo v. CIT [1992]196 ITR188, the Supreme Court emphasized that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. In the present case, the administrative circulars issued Central Board of Direct Taxes proceeded on that basis by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enance of the cranes. By the terms of the agreement, JNPT agreed to pay lease charges in a total sum of Rs. 215.50 crores over a period of ten years. The contract envisaged two options. Under the first option, operation and maintenance was to be carried out by the assessee. Under the second option only maintenance was to be carried out by the assessee. Under the contracts, JNPT reserved the right to exercise the option to request the assessee to carry out both operation and maintenance during the lease period or to carry out only maintenance while operation was done by JNPT. The contracts stipulated, inter alia, the submission of a performance guarantee bond representing 10 per cent of the average annual contract value computed with reference both to maintenance and operation. The assessee assumed the responsibility of making the equipment available for operation for a minimum number of days as stipulated in the contract and became liable to pay liquidated damages for non-availability of the equipment after commissioning. After the expiry of the lease period of ten years, the assessee was liable to hand over the equipment to JNPT free of cost. Under the contract the assessee furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a BOLT basis under the contract with JNPT. On the fulfilment of the lease of ten years, there was a vesting in the JNPT free of cost. The finding that the assessee had developed the infrastructure facility and that it was engaged in operating the cranes was, therefore, based on the material on record. The fact that the assessee was also maintaining the cranes was not disputed. The facility was commenced after April 1, 1995. The assessee was entitled to the special deduction under section 80-IA". 11.1 The learned counsel for the assessee placed reliance on two decisions- Mumbai High Court in the case of ABG Heavy Industries Ltd. ( supra ) and ITAT Pune Bench in the case of Laxmi Civil Engineering (P.) Ltd. v. Addl. CIT [IT Appeal No. 766 (Pn) of 2009, dated 8-6-2011]. It was urged by the learned authorised representative that these decisions supported the proposition that (i) the ITAT's decision in the case of B.T. Patil Sons Belgaum Construction (P.) Ltd. ( supra ), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because part of the infrastructure facility has not existence independent of the whole. A certain number of kilometres of a highway or irrigation canal has no existence by itself, 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 enclosures that the assessee undertook to execute the work as per agreed specifications, at rates agreed upon, subject to maintenance, within a period of 24 months of commencement. 13. The subsequent parts of the paper book details in the 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 80IA(2). Therefore, this project is incapable of commencement of operations by itself, or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in question can be termed a works contract or not. If the answer is in affirmative, nothing else matters because the Explanation takes over. If not, the other nuances such a development/operation etc., and other specified conditions become relevant. Reliance was placed in this regard on the decision of the Mumbai High Court in the case of Glenmark Pharmaceuticals Ltd. ( supra ) which digests the case law for ascertainment of whether facts of the agreement would amount to a contract for work or for sale. 16. The ld. DR placed reliance on the decision of jurisdictional High Court in the case of Dr. (Mrs.) Renuka Datla v. CIT [1999] 240 ITR 463/107 Taxman 143 (AP), that provisions granting exemptions have to be strictly construed. It was held by the Supreme Court in the case of IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521/135 Taxman 594 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. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IA(4)(i) was never a material fact. This was so not only because the impugned appeals related to pre 1-4-2002 period, but also because the matter was deci9ded on the preliminary issue 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. 18. According to the DR, 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 Sons Belgaum Construction (P.) Ltd. ( supra ). Therefore, it can be said that the decision of the Mumbai High Court in the case of ABG Heavy Industries Ltd. ( supra ) will be binding in its jurisdiction for infrastructure contract cases, only insofar 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 80IA(13), is that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which included not only supply and installation of the cranes but also testing, commitment of operational readiness for a period of ten years on the pain of liquidated damages and eventual re-transfer after such period. In the case of ABG Heavy Industries Ltd. ( supra ), the creation of certain standalone parts of the part complex qualified for being termed on infrastructure project 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complements, not contradicts the larger Bench's distinction between a developer and contractor simpliciter, as noted hereinabove. It would be wrong and therefore to suggest that the case of B.T. Patil has been impliedly over-ruled by the High Court's decision. The departmental representative also places reliance on another decision of the Mumbai Bench of the Tribunal in the case of Indian Hume Pipe Co. Ltd. v. Dy. CIT [IT Appeal No. 5172/Mum/2008, dated 29-7-2011] for assessment year 2004-05. This decision pronounced after the Pune Bench decision in the case of Laxmi Civil Engineering (P.) Ltd. (supra) . considers the Tribunal decision of B.T. Patil Sons Belgaum Construction (P.) Ltd. ( supra ) 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. 21. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of the infrastructure facility. 23. The next question is to be answered is whether the assessee is a developer or mere works contractor. The Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 80IA(4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. 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 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 project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80IA(4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. 24. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. 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. 25. We find that the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know- how, expertise and financial resources. Further, the order of Tribunal in the case of B.T. Patil Sons Belgaum Construction (P.) Ltd. cited ( supra ) is prior to amendment to sec 80IA(4), after the amendment the section 80IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, prior to amendment the "or" between three activities was not there, after the amendment "or" has been 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 if the contracts involves design, development, operating maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction u/s 80IA of Act. In our opinion the contracts which contain above features to be segregated 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(1 ..... 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