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TMI Blog2012 (8) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... n canals are concerned, they are the infrastructure facilities within the meaning of the explanation. According to the explanation the water supply project, water treatment system, irrigation project, sanitation and storage system, solid waste management system etc., form part of the infrastructure facility. The assessee also undertook the development of rail systems. Both the activities are development of infrastructure facility. The assessee claimed deduction u/s 80IA(4)(i) of the I.T. Act in respect of the infrastructure facilities 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment. f. The work of development of the project is undertaken by the assessee. g. All the required men, material and machinery is acquired by the assessee and the development of the project is undertaken with the help of the technical experts arranged by the assessee. h. The scope of work is already explained in the above paragraphs. i. The assessee shall be responsible for all the risks in the process of the development of the project. 6. On completion of the work, the developed infrastructure 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 include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the business of any hotel for which the provisions of the said section were made applicable. The Finance Act, 1995 introduced another sub section 80IA(4A). According to the said sub section any enterprise carrying on the business of development, maintaining and operating any infrastructure facility was made eligible for deduction. In the said section, the words used are "business" of developing, maintaining and operating any infrastructure 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-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining the infrastructure facility on or after the 1st day of April, 1995. Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereinafter referred to in this section as the transferor enterprise) to another enterprise (hereinafter in this section referred to as the transferee enterprise) for the purpose 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng produced in the country. 21 such items have been identified. ii) Income-Tax exemption for 10 years from NHDP earnings has been given. iii) In the Build-Operate-Transfer (BOT) Schemes, grant up to 40% can be given. iv) The NHAI Bonds have been exempted from Capital Gains". v) It is also explained by him that certain sections of the society have created an impression 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 prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tters more clear that the sub section (4) is amended again by the Finance Act, 2001 w.e.f.01-04-2002. The earlier provision which was reading as - "(i) any enterprise carrying on the business of (i) developing, (ii) maintaining and operating or (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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is introduced below sub section (4) of Sec.80IA which reads as under; 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; 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" inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Page No. 28.03.2007 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 from km 8.000 to km 9.000 of flood flow canal project from SRSP. -do- Flood flow canal Project from SRSP 31.5.2004 Cl. at page No. 492 14.10.2004 24 months Cl. 3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. 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 including strengthening/extension/rebuilding of minor bridges including construction of side drain and other protection works from km 93.615 to km 94.500 between stations Migrendisa to New Haflong in connection with the Gauge conversion work between Lumding- Silchar (WO No. CA No. 804) NF Railway, Maligaon Gauge conversion for NF Railway 19.3.2004 Cl. at page No. 2081 10.7.2007 6 months Cl. 7 at page No. 205 10.1.2008 Nil -do- 17. Earthwork in formation 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 94.500 to km 95.780 between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esigns and drawings and Excavation of HNSS Main Canal from km 20.000 to km 42.000, including CM & CD works and distributory system to feed an ayacut of 2300 acres kharif I.C. (PK 24) & Investigation, preparation of hydraulic particulars, designs and drawings and Excavation of HNSS Main Canal from km 77.000 to km 100.000 including CM & CD works ayacut of 5100 acres kharif I.D. (package-27). Govt. of Irrigation & CAD Dept. AVR Handri Niva Sajala Sravanthi main canal 25.2.2005 Cl. 20 at page No. 270. work in progress 24 months Cl. 1 at page No. 306 Cl. 53.1 at page No. 279 Nil -do- 23. Earth work excavationand forming embankment of gravity canal from km 11.000 to km 13.000 of Kalwakurthy lift irrigation scheme, Mahabubnagar Dist. I &CADD Govt. of AP Gravit Canal Kalwakurthy Lift Irrigation Scheme. 30.4.2005 Cl. 8 at page No. 526 25.6.2006 24 months Cl. 9.1 at page No. 526 25.6.,2008 Cl. 25.1 at page No. 529 Nil -do- 24. Restoration to design standards of B.M. Drain from km 0.00 to 16.000 and B.M. Drain left arm from km 0.00 to 16.00 and BM Drain left arm from km 0.00 to 10.00 in Guntur Dist. -do- Drain work 21.4.2005 Cl. at page No. 524 14.8.2005 24 months 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the responsibility of maintenance of the existing traffic and there should not be inconvenience to the regular traffic. The developed area after completion of the development of infrastructure is handed over to the Government. After handing over, the assessee shall maintain the infrastructure for a period of 48 months and any defects are to be rectified. ii) From the above facts it is clear that the assessee is converting the area entrusted to it into more useful and more profitable area and handing over the developed one to the Government. Therefore, the activity of the assessee is " to develop" an existing two lane road into four lane road thereby making the road more useful and profitable. 8) Explanations introduced by the Finance Act 2007 and 2009: i) The next question to be considered is whether the explanation introduced either by Finance Act, 2007 or by Finance Act, 2009 retrospectively would debar the assessee from claiming the deduction u/s 80IA(4). The explanation introduced by the Finance Act, 2007 reads as under: "Explanation - For the removal of doubts it is hereby declared that nothing contained in this section shall apply to a person who executes a works contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g into agreement with the government or other Government bodies/corporations. It is also made clear that the deduction is available for the corporate bodies entering into agreement with the government organizations. Therefore, the main provision makes it clear that the deduction is available to companies entering into agreement with government bodies or Government vii) Therefore, it is not correct to read the explanation to mean that the government body is eligible for deduction u/s 80IA and the company entering into agreement with such government body is not eligible for deduction. viii) The explanation newly introduced clearly indicates that the companies registered in India or a consortium of such companies as is referred to sub section (4) are eligible for deduction. There is no mention in the explanation that the government bodies or the government corporations are only eligible for deduction. They may also be eligible for such deduction along with the other private companies, provided they themselves undertake development of infrastructure facility. All that the said explanation excludes are the contracts entered into by a company which are in the nature of works contract . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a more useful than it was earlier and, therefore, the activity carried by the assessee is akin to development and certainly not a works contract. iii) In this context, it may be necessary to refer to the Circular No.4 of 2010 dt.18-05-2010 (after introduction of the explanation by the Finance Act, 2009) which is extracted below: "References have been received by the Board as to whether widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80-IA(4)(i) of the Income-Tax Act, 1961. Section 80-IA(4)(i) provides for a deduction to an undertaking engaged in developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility subject to satisfaction of the conditions laid down in the section. The Explanation to sub section 80-IA(4)(i) states that for the purpose of this clause, infrastructure facility means inter alia:- "(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". The issue has been examined by the Board. It has been decided that widening of an existing road by construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be eligible for deduction u/s 80IA (4) of the I.T. Act. In the later assessment years, the Assessing officer also referred to the amendment brought in by the Finance Act, 2009 retrospectively. iv) The learned Commissioner of Income-Tax (Appeals) for the assessment years confirmed the view taken by the Assessing officer. 14. The AR further submitted his arguments as follows: i) Whether the assessee needs to be the owner of the infrastructure facility or not : The AR submitted that the word "owned" in sub clause (a) of clause (1) of sub section (4) of Sec.80IA refer to the enterprise. It is clear from a reading of the section that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is explained in sub clause (a). Therefore, the word "ownership" is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction u/s 80IA(4) and not any other person like individual, HUF, Firm etc. This view is supported by the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as agreed to in the agreement or not. The agreement is not for a specific work; it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality; and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds initially, its expertise; its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 48 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntially contradictory to the term "developer". The Hon'ble Tribunal found that a person who has undertaken the contract for development is not only a contractor but is also a "developer" eligible for deduction u/s 80IA(4) of the I.T Act. 3) Decision of the Mumbai Bench of the Hon'ble ITAT in the case of ACIT Vs Bharat Udyog Ltd. reported in (2008) 24 SOT 412 wherein it is held that an assessee engaged in development of infrastructure but not in maintaining and operating the same would be eligible for deduction u/s 80IA (4) though he is described as a contractor and was paid by the Government. 4) The decision of the ITAT in the case of Metal Infra Projects Ltd., vs. CIT reported in 26 DTR 359, wherein it is held that simply because the agreement mentioned the assessee as contractor, he would not cease to be the developer. 18. It can be seen from the above that the word "contractor" used in the agreements entered into would not debar the assessee from being a developer. In fact the assessee entered into agreement for development of infrastructure facility and therefore, he is a contractor. Therefore, the authorities are not justified to hold that the assessee is not a developer si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act, all the three conditions mentioned in the sub-section should be cumulatively fulfilled. According to him, the assessee should have been engaged in development and maintenance of infrastructure facility. According to him, a mere developer is not eligible for deduction under section 80IA (4) of the Act. In this regard, he referred to sub-section (2) of Sec.80IA (4) and also sub clause (c) of the section 80IA(4) (i). 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 "maintaining and operation". It would not apply to a person who is engaged in developing infrastructure facility as the word "developed" is not used in the said sub clause. Further, this is analysed by various courts. It is held clearly that such a provision i.e. clause (c) would apply only to such enterprises engaged in maintaining and operating the infrastructure. The Bombay High Court in the case of CIT Vs ABG Heavy Industries Ltd.,[supra] observed that the requirement that the operation and maintenance of the infrastructure facility came after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced by the Finance Act, 1991 as amended by Finance Act, 1996, Finance Act, 1999, Finance Act, 2001, up to Finance Act 2007 and Finance Act, 2009 and as explained by Circular 794 dated 9-8-2000 Circular 779 dated 14-9-1999 (240 ITR st. 32), Circular 794 dated 9-8-2000, Circular 779 dated 14-98-1999 (240 ITR st. 32), Circular 794 dated 19-8-2000, Circular 14/2001 (252 ITR st. 98) and Circular 3/2008 dated 12-03-2008 (168 Taxman St. 12,54) brings out the objectives of the statute and expectations of the law-makers in bringing the enactment. The statutory provisions as would be apparent from the Circulars and Explanatory Notes referred to herein-above seek to incorporate a quid pro quo between introduction of investment and entrepreneurial resources from the private sector and a tax deduction from the government to enable recoupment of expenditure incurred. The BOT/BOOT models seek to augment infrastructural assets in addition to governmental spending and not simply feed on government expenditure. The deduction under section 80IA is, therefore, available to the former, and not to the latter forms of business. The deduction claimed under section 80IA of the Act as prescribed in sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at pains to emphasise that the assessee undertook maintenance work and was hence in the same league as a developer. However, it is clear from the document as furnished in the paper book that the maintenance function was actually remedying of defects for a prescribed period. No separate charges have been collected and this cannot be seen as a maintenance function. 23. The ld. DR submitted that on these facts, having regard to the responsibilities assumed under the agreement, the assessee cannot be seen as a developer; instead it plays the role of an executor/contractor. The contracts in question are in the nature of works contracts, the explanation inserted below section 80IA (13) of the Act with retrospective effect from 1-4-2000 has over-riding influence and debars the assessee's claim. The law on the subject of application of a retrospective amendment is clear from the special Bench decision of the Tribunal in the case of Aquarius Travels P Ltd. Vs. ITO (111 ITD 53). Such provisions should be applied in pending proceedings, even when they have not been involved earlier. As matters stand, therefore, the most important question for examination on facts is whether the business agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and maintain the infrastructure facility, as held by the Mumbai High Court in the case of ABG Heavy Industries. It is submitted that the decision of the Pune Bench of the ITAT in the case of Civil Engg. (supra) is of no help in deciding the issues in the impugned appeals for the reason that the terms and conditions of the contracts and the nature of obligations assumed there-under, by the business are not discussed in the said order. This is the factual fulcrum on which the decision of the ITAT (larger Bench) in B.T. Patil as well as the Mumbai High Court in ABG case was decided. Without such detail, there is no point of comparability between the Pune Bench decision and the other cases. The unanswered questions emerging there-from are- i) Can we assume that there was a BOLT contract or was it a works contract? ii) Can we assume that the assessee took ownership control of the asset created? iii) The circumstances under which the enterprise in ABG Heavy Industries became akin to a developer, and do they obtain in the case of LCE? Such as 10 year ownership; retransfer; assumption of assured responsibility regarding operational readiness, etc., noticed in ABG Heavy Industries are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered the effect of the explanation and it was explained by the Hyderabad Bench of the Tribunal in the case of Hyderabad Chemicals Supplies Limited (ITA No.352/Hyd/2005 and 6 others appeals dated 21-1-2011, in the context of an apparent conflict between a Special Bench (Ahmedabad) decision of the ITAT and Madras High Court at para-15 on page-8 as follows:- "Further, judgment of High Court though not of the jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench of the Tribunal, however, where the judgment of the non jurisdictional High Court, though the only judgment on the point, has been rendered without having been informed about certain statutory provisions that are directly relevant, it is not to be followed." 26. Without prejudice to the argument that the stand that the Mumbai High Court's order in ABG runs on completely different facts, it is respectfully pointed out that this decision cannot be a binding precedent, in any case, for the above-cited reason also and this issue can be seen in another perspective. There is nothing in the case of ABG Heavy Industries that supports the view that the 'developer' has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the larger Bench in the case of B.T. Patil was not un-ware of the change in law effective from 1-4-2002 as would be evident from para 36 of the order. The change making the conditions of development/operation/maintenance non cumulative was not relevant since the case related to pre 1-4-2002 period. In the case of B.T. Patil, the larger Bench enunciated certain tests to determine whether the business was one of a 'developer' or a mere 'contractor'. The briefly stated facts are as follows: The distinction between creation of product vs. Rendering of service (para -40), owner vs. Executor of owner's plan with reference to project specification (para-42), vesting of property, subject to re-transfer if need be (para 46) and need for interpretation to avoid absurd results (para 50)." 27. In view of the terms of the relevant contract, it was possible to give a finding that the business was not one of 'development' per se. Therefore, the changes in law after 1-4-2002 were not even called into play in the case of B.T. Patil. It is further submitted that the Mumbai High Court's decision in the case of ABG Heavy Industries not only runs on different facts, it does not even refer to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Circular No.717 dated 14.8.1995 reported in 215 ITR 70 (statutes). The said circular explained that an enterprise which is engaged in the business of develops, operate and maintain infrastructure facility alone was eligible for deduction. An enterprise which only develops infrastructure facility was not eligible for deduction up to the assessment year 2000-01. The provisions of Sec.80IA (4A) were made applicable only to the enterprise which develop, maintain and operates infrastructure facility. The assessee did not claim deduction under section 80IA (4A) of the Act. Therefore, neither the circulars issued up to that date nor the provisions of the law as were existed 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. The learned 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, Section 80IA (4) and Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infrastructure facility come after first of April, 1995 has to be harmoniously considered with the main provision under which deduction is available to the assessee which develops or operates, maintains and develops or operates and maintains infrastructure facility. iii) There is significance for Clause-(c) in so far as the enterprises carrying on business of developing and maintaining and operating infrastructure facility are concerned. As submitted in the earlier paragraphs, the deduction was available for such undertakings from the assessment year 1996-97 onwards under sub section (4A) of Sec.80IA. While introducing the provisions by the Finance Act, 1995, it is necessary to explain the period for which or from which the deduction is applicable. It is explained that such deduction is applicable to the enterprises starting operating and maintaining the infrastructure facility on or after 01-04-1995. To be eligible for deduction under sub section (4A), any enterprise has to commence its operation on or after 01-04-1995. This clarified that any enterprise commencing its operations prior to the said date, but continuing to do the said activity for the assessment years 1996-97 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction u/s 80IA(4) in choosing the period of 10 years, the said provision was introduced. This cannot be considered as applicable to every enterprise eligible for deduction u/s 80IA. This would apply to an enterprise which requires choosing the period of 10 years during which deduction is to be claimed. Only when the assessee has to exercise the choice, this section comes to operation. Other-wise this section would not operate. Even without this provision, the deduction u/s 80IA(i) can be worked out. Therefore, it is only a supplementary provision facilitating the assessee in choosing the period for which a deduction under the said section can be claimed. Therefore, the argument of the learned DR is not correct in his argument. vii) The DR referred to the Finance Bill 1995 and the Circular No.717 dated 14.8.1995 reported in 215 ITR 70 (statutes). The said circular explained the provisions of sub section (4) and sub section (4A) as they existed at the relevant point of time. At the relevant point of time, an enterprise which is engaged in the business of develops, operate and maintain infrastructure facility alone was eligible for deduction. An enterprise which only develops infr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was issued. xii) The DR also relied upon explanation brought in by the Finance Act 2007 and the Finance Act 2009 which the assessee already explained in detail in the above paragraphs. The assessee humbly submits that the said explanation have no application to the facts of the assessee's case, as the assessee is engaged in the development of infrastructure facility. xiii) The DR also mentioned that the development and risk are not undertaken by the assessee. This is not factually true. The assessee placed before the Honourable ITAT, a copy of the agreement entered into. It can be observed that the assessee took possession of the undeveloped area and handed over the developed area. In the process, he has undertaken every activity including the risks involved in the process. It has to reimburse losses suffered by any one including the government and the people, if any one suffers the loss. It can also be seen that any loss caused because of the natural calamities also has to be made good by the assessee only. It had to undertake the maintenance of the existing road, while the process of development is on. It can neither stop the traffic nor stop the work. In the process, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in 177 ITR 431 (7) Decision of the Supreme Court in the case of Broach Dist. Co-op. Cotton Sales Ginning and Pressing Society Ltd. reported in 177 ITR 418 (8) Decision of the Supreme Court in the case of Bajaj Tempo Ltd. Vs CIT reported in 196 ITR 188. (9) Decision of the Madras High Court in the case of J.K. Abdul Jabbar Vs CIT reported in 237 ITR 389. (10) Decision of the Supreme Court in the case of CIT Vs South Arcot District Co-op. Marketing Society Ltd. reported in 176 ITR 117. (11) The decision of the Supreme Court in the case of CIT Vs U.P. Co-operative Federation Ltd. reported in 176 ITR 435. In the following cases, various courts have held that it is not open for the Department to read what is not there either in the documents or in the statutory provision: (1) Decision of the Orissa High Court in the case of CIT Vs Orissa State Warehousing Corporation reported in 201 ITR 729 (2) Decision of the Delhi High Court in the case of CIT Vs Bansal Credits Ltd. reported in 259 ITR 69 (3) Decision of the Supreme Court in the case of Federation of Andhra Pradesh Chambers of Commerce land Industry and Others reported in 247 ITR 36 (4) Decision of the Gauhati High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds in the development activity. The assessee mentioned the definition of the word "develop" as provided by various dictionaries which clearly mention that any premises can be considered as developed if it can be put for more useful or profitable purposes. A person who converts the existing premises to a more useful and profitable one, it has to be called as "development of infrastructure facility". When there is no specific requirement in the Act that the assessee has to invest, the entire fund required for developing infrastructure, this view of the learned DR is not correct. xvii) Without prejudice to the above, the assessee the AR submitted that the assesee has introduced huge money its business. This would mean that the appellant invested its own funds in process of development of the infrastructure facility. The assessee has to wait for a period of 56 days/28 days for the payment after submission of the bill. Further, as submitted in the earlier paragraphs, the Government of India obtained the finance from outside the Country for the purpose of development of infrastructure facility. xviii) The assessee utilized the funds either of its own or borrowed from others for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mere engaged in works contract. In works contract, the personal undertaking the work would not be responsible for any loss suffered during the period of work; he would not be responsible for maintenance of the infrastructure facility during the course of development; he would not be liable for maintaining the work afterwards also. The assessee, on the other hand, is made responsible for all such activities. xxii) The DR finally mentions that it is a simple case of works contract and not an agreement for development of infrastructure facility. He is of the view that NHAI is the developer and not the assessee herein. xxiii) The AR submitted the Government of India authorized the NHAI to call for the tenders for the work. The Govt. of India received a loan from Overseas Economic Co-operation Fund, towards the cost of development. Accordingly, a tender was issued by the NHAI. Sec. 31 of the NHAI Act empowers the Central Government to temporarily divest the NHAI from development by handing it over to any person authorized for the purpose. The NHAI is authorized by the Government to entrust the duty of development of project to any other eligible person. In the process, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to by the learned DR relates to the deduction allowable for the Assessment Years 1974-75 to 1977-78 and the learned DR also discussed the amendment by the Finance Act, 1995. The claim of the assessee is for the Assessment Year 2000-01 and afterwards. The judgement of the Supreme Court was deciding the issues as per the provisions existed at the relevant point of time which are not applicable to the years under consideration. Therefore, the reliance of the DR on the said decision is misplaced. xxvi) The learned DR also referred to the Circular No.779 dated 14- 09-1999. The said circular was issued only to clarify that the enterprises which were earlier eligible for deduction u/s 80IA (4A) up to the assessment year 1999-2000 would continue to be eligible for deduction u/s 80IA (4) for the Assessment Year 2000-01 and onwards. This clarification does not indicate that the deduction u/s 80IA(4) is allowable only in respect of the enterprises carrying on the activity of operating and maintaining. The Circular No.794 dated 09-08-2000 referred to by the learned DR clearly mentions that the benefits u/s 80IA(4) were extended to water treatment and solid waste management system in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord "developer" can not be ascertained from the I.T. Act. He relied on the decisions reported in 196 ITR 149, 200 ITR 401 and 155 ITR 548 to mention that the interpretation must be in consonance with the purpose of the statute. The assessee submits that the interpretation has to be in consonance with the purpose of the Act. The assessee already submitted the changes made to the provisions of the law and also discussed various amendments brought in by the legislature. It can be understood from the above and from the reading of the provisions of Sec.80IA (4)(i) that an assessee who enters into an agreement with Government for the purpose of development of infrastructure facility is eligible for deduction. In such circumstances, the mention by the learned DR that the entire infrastructure facility should be invested by the assessee and that it should be maintained by the assessee clearly shows that the interpretation provided by the learned DR is not in consonance with the provisions of law and, therefore, the said decisions favour the assessee and not the department. xxxi) The DR also referred to the observations made by the Special Bench of the ITAT in the case of B.T. Patil and so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) of clause (1) of sub section (4) of Section 80IA of the Act refer to the enterprise. By reading of the section, it is clears that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word "ownership" is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA (4) and not any other person like individual, HUF, Firm etc. 32. We also find that according to sub-clause (a), clause (i) of sub section (4) of Section 80-IA the word "it" denotes the enterprise carrying on the business. The word "it" cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word "it" is used to denote an enterprise. Therefore, there is no requiremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, 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 pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, an Explanation was inserted in Section 80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80IA of the Act. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the parliament would have simply reversed the Amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only mere works contact or sub-contract as distinct from the developer. This is clear from the express intension of the parliament while introducing the Explanation. The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely execute the civil construction work or any other work contract has been encouraged by giving tax benefits. Thus the provisions of section 80IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the section but where a person makes the investment and himself executes the development work, he carries out the civil construction work, he will be eligible for the tax benefit under section 80IA." 36. The above order was followed in subsequent assessment years 2007-2008 & 2008-09 in ITA Nos. 1312 & 1313/Mds/2011 vide order dated 18.11.2011 in the case of the same assessee. Further, in similar circumstances, this Tribunal in the case of M/s. GVPR Engineers Ltd. Hyderabad in ITA No. 347/H/08 & others vide order dated 29th February 2012 has taken similar view and granted deduction under section 80IA of the act. 37. Further, we make it clear that where the assessee has carried out the development of infrastructure work in Consortium and not as a sub-contractor, then also the assessee is entitled for deduction u/s 80IA of the Act. The same is applicable in case of work allotted by Government Corporation/Government B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of only development infrastructure facility. Ostensibly, a developer would have income only if he is paid for the development of infrastructure facility, for the simple reason that he is not having the right/authorization to operate the infrastructure facility and to collect toll there from, has no other source of recoupment of his cost of development. While filing the return, the assessee had made claim under section 80IA(4) of the Act. 4. The assessee has also produced all six agreements regarding six projects undertaken before the Assessing Officer, whose copies are available before us also. It is a fact that even after taking a contract from the Government, if the assessee develops infrastructure facilities, it would be regarded as a 'developer' and not as a 'works contractor'. The assessee firm has carried on entire construction/development of the infrastructure facilities and satisfy all the conditions of section 80IA(4)(i)(a). It is undeniable fact that the assessee has taken development of infrastructure facility agreement from the State Government/local authority. A contractor who develops the infrastructure facility becomes a developer to claim exemption under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in question, as it stands today, reads as under: "Explanation - For the removal of doubts, it is hereby declared that nothing contained in this section(i.e. 80IA) shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be." In contrast to this, a person who enters into a contract with another person (i.e., undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80- IA. 10. We have found that the assessee-company is a works contractor, who has entered into agreement with the local bodies to execute certain part of the work awarded to it through contract for infrastructure facility. It is true that where a person who makes infrastructure and himself executes development work and carries out civil work will be eligible for tax benefit u/s 80IA 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 tax benefit u/s 80IA. It was clarified by the Circular No. 3 of 2008 dated 12.3.2008 that the provisions of section 80IA shall not apply to a person who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the related activities performed either through unified operation or common control by any person or persons for a common business purpose. The mens legis with reference to developer of infrastructure facility can be gathered from the memorandum explaining the provisions in the Finance Bill, 2007, reported in [2007] 289 ITR (St.) 292 at page 312, which reads as under : "Section 80-IA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and special economic zones. The tax benefit was introduced for the reason that industrial modernization requires a passive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract. Accordingly, it is proposed to clarify that the provisions of section 80-IA shall not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he answer to these question are provided by the judgment of the Bombay High Court in the case of ABG Heavy Engg Ltd (supra). In this regard, we perused the above cited para-22 of the said judgment and for the sake of completeness, the said paragraph is reproduced as under:- "22. The submission which was urged on behalf of the Revenue is that Clause (iii) of sub-section (4A) of section 80-1A, one of the conditions imposed was that the enterprise must start operating and maintaining the infrastructure facility on or after 1st April, 1995. The same requirement is embodied in sub clause (1) of sub-clause (4) of the amended provisions. It was urged that since the assessee was not operating and maintaining the facility, he did not fulfil the condition. The submission is fallacious both in fact and in law. " That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1st April, 1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1st April, 1995. After Section 80IA was amended by the Finance Act, 2001, the section a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0IA (4) should refer to the conditions as applicable to the developer. In other words, the developer who is only developing the infrastructure facilities since he does not operate and maintain Infrastructural facilities, cannot be expected to fulfil the condition at sub clause ( c) which is an impossibility and the requirements to fulfil the said condition shall amount to absurdity and therefore uncalled for. Therefore, we find requirement of harmonious reading of sub-clause (c) vis-à-vis of clause (i) of section 80IA (4) of the Act. Thus, the discussion in High Court's decision in paragraph-22 extracted above, is directly applicable to the facts of the case and eventually is entitled for the deduction under section 80IA (4) of the Act. Accordingly, the modified ground, which is common in all the four appeals is allowed in favour of the assessee." 12. Let us remind ourselves that the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd vs CIT, 196 ITR 188, has ordained that taxing statute granting incentives for promoting growth and development should be liberally construed. 13. Now, the question arises as to whether the term 'contractor' is not essentially contradictory t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he civil construction work like construction of flyover, bridge underpass, sewerage, water supply etc. for various local bodies, railways, Central/State Governments. In fact, as per the terms of agreement, even the initial proposals formulated by the Department which are stated to be tentative, the assessee has the liberty to make different proposals without detrimental to the general features of the Departmental proposal, like Road level/bottom of deck level, MFL, Sill level, Linear water way, width of the bridge etc. Right from the drawings to the work of construction has been done by this assessee and has borne the cost itself. The company has constructed, delivered and maintained and security is also maintained thereafter. So, this is a case of transfer of property in chattel and not a contract of service. A 'developer' as per the Advanced Law Lexicon 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". In the case of ACIT vs Bharat Udyog Ltd, 'F' Bench of ITAT Mumbai, has concluded that any assessee who is engaged in developing the infrastructure facility an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether it be "BT' or 'BOT' or 'BOOT' because in 'BOT' and 'BOOT' this recoupment is by way of collection of toll there from whereas in 'BT' it is by way of periodical payment by the Government/Authority. The land involved in infrastructure facility/project always belongs to the Government/Local authority etc., whether it be the case of 'BOT' or 'BOOT' and it is handed over by the Government/Authority to the developer for development of infrastructure facility/Project. The same has been the position in the given case as well. So, deduction u/s 80IA(4) is also available to this assessee which has undertaken work of a mere 'developer'. Rather, the statutory provision as contained in section 80IA which provides for deduction of infrastructure facility no way provides that entire infrastructure facility project has to be developed by one enterprise. Thus, as per section 80IA the assessee should develop the infrastructure facility as per the agreement with the Central/State Government/Local Authority. Entering into a lawful agreement and thereby becoming should, in no way be a bar to the one being a 'developer'. In this regard, as we have already stated, the decision of ACIT vs Bharat Ud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to deduction u/s 80IA(4) of the Act, and therefore, we order to delete the addition made in this respect." 6. Therefore, by following the above arguments and reasoning, we confirm the findings of the ld. CIT(A) and do not find any valid merit in the Revenue's appeal. Accordingly, the appeal stands dismissed. 39. In view of the above discussion, we are inclined to partly allow the ground relating to claiming of deduction u/s. 80IA.of the Act in all these appeals. 40. The next ground in ITA No. 1171/Hyd/2010 is with regard to disallowance of interest. Brief facts of the issue are that assessee has made an investment in subsidiaries as under: (1) IT Serve (Global) (Inc) - Rs. 46,44,000 (2) Sushee Hi Tech Developers - Rs. 58,20,364 (3) ZVS Ratna Sushee JV Rs. 2,39,390 Total Rs. 1,07,03,754 41. The Assessing Officer noted that the assessee had not admitted any interest income on the loans so advanced, contending that those were interest free. On the other hand, the assessee had debited interest liability of Rs. 26,30,685 on borrowed funds. Even though the assessee was required to explain as to why the interest expenditure attributable to the loans given to subsidiaries, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 6DD of IT Rules, 1962. In these circumstances, we do not find any infirmity in the order of the CIT(A) and the same is confirmed on this issue. 45. The next ground in ITA No. 269/Hyd/09 is with regard to disallowance of property tax paid by the company, though the property tax paid on the property which was provided as a collateral security to the State Bank of India for obtaining the loan and it was necessary for the assessee to incur such expenditure so as to retain the security provided by Shri K. Anil Reddy and Shri Ramakrishna Reddy. 46. We have heard both parties and perused the material on record. Admittedly, the property on which the property tax was paid was not owned by the assessee. The liability of payment of property tax on the property is on the owner of the property and not on any other person. In view of this, we do not find any infirmity in the order of the CIT(A) and the same is confirmed. 47. The next ground in ITA No. 269/Hyd/09 is with regard to disallowance of expenditure of Rs.1,89,250 incurred on increasing the share capital. Alternatively, the assessee claimed to allow this expenditure as a deduction u/s. 35D of the IT Act. 48. We have heard both th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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