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TMI Blog2012 (12) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract entered into by such other person. Similarly he noticed for the purpose of claiming deduction under Section 80HHBA the essential condition was that the assessee should have derived profits from the execution of a housing project awarded to him on the basis of a global tender and such project should have been aided by the World Bank. These conditions, according to the assessing officer were not satisfied in the assessee's case. Though the assessee was engaged in the business of engineering and technical consultants for roads, bridges, highways, airports and other infrastructure projects under contract with the Ministry of Surface Transport, National Highway Authority of India (NHAI), State PWD, Highways and other government departments both in India and abroad, its work merely involved ensuring that the construction of the road or bridge was undertaken in an economical and efficient manner in accordance with the contract conditions and this itself did not mean that the profits were derived from the "execution" of the foreign project or the housing project. According to the assessing officer, the limited obligation of the assessee was to provide supervisory and consultan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not extend physical activity of putting up a super-structure, machinery or plant etc. This view, according to the CIT(Appeals), was opposed to the law laid down by the Supreme Court in Continental Construction Ltd. vs. Commissioner of Income Tax (1992) 195 ITR 81 SC, which was brought to the notice of the Assessing Officer in the course of the assessment proceedings. The CIT(Appeals) felt that the assessee's case was squarely covered by the observations of the Supreme Court in the judgment cited supra where it was held that the expression" business of execution of a foreign project" and the expression "the profits derived from the business" take in all the aspects of the business and all activities, commitments and obligations ancillary and incidental thereto. Therefore, the profits flowing from all these activities would qualify for deduction under Section 80HHB/80HHBA. In this view of the matter, the CIT (Appeals) accepted the assessee's contentions and directed the assessing officer to allow the deductions under both the sections. 3. The revenue preferred an appeal to the Tribunal in ITA 1592/Del./2004 and the ground urged was that the CIT (Appeals) failed to appreciate the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which was not an integral part of the execution of the project inasmuch as the day-to-day work of the contractor was to be executed under the strict supervision of the assessee as engineers. It may be mentioned that the Hon'ble Supreme Court in the case of Continental Constructions Ltd. 195 ITR 81 (SC) while dealing with the Section 80HHB has observed as under : "The definition cannot restricted to the mere physical activity of putting up a 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.................... 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......" The Tribunal further noted that the revenue had accepted the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch profits and gains at a percentage thereof, as prescribed in the Section. The deduction was taken away from the assessment year 2005-06. The grant of the deduction depended on certain conditions prescribed in the section. There is no dispute about the fulfillment of these conditions. The dispute centers around the scope of the expression "the execution of a foreign project" and "the execution of any work undertaken by him and forming part of a foreign project". 7. Section 80HHBA provides for deduction in respect of profits and gains from housing projects in certain cases. The deduction is available to a resident-assessee. If the gross total income of such an assessee includes any profits and gains "derived from the execution of a housing project awarded to the assessee on the basis of global tender and such project is aided by the World Bank", the assessee would be entitled to a deduction from the profits at the prescribed percentage thereof. This Section was introduced by the Finance (2) Act, 1998 w.e.f. 1.4.1999 and was removed from the assessment year 2005-06. The Explanation to sub-section 4 defined a housing project in the following manner: (a) "housing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provision of consultancy services or the provision of technical services, cannot qualify for the deduction. 10. It is difficult to accept the view point of the revenue, having regard to the judgment of the Supreme Court cited above. The assessee is engaged in the business of engineers, technical consultants and engineering supervisor for the execution of projects for construction of roads, highways, bridges, airports etc. both in India as well as abroad. The agreements entered into by the assessee for the execution of the projects, some of which were placed before the CIT (Appeals), have been examined by him and the finding recorded is that the assessee was not merely providing consultancy services, but was also providing engineering services to the projects namely, construction, supervision and other engineering services in the execution of highway projects. From a specimen agreement entered into with NHAI for the Bihar state road project, it was found that the NHAI had entered into two contracts, one with a contractor (other than the assessee) for supply of material equipment and labour and the other contract was with the assessee as engineers to the project. While the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al projects have been detailed in this letter. Even the Assessing Officer accepted that it was the duty of the assessee to ensure that the construction of the project is undertaken in an economical and efficient manner in accordance with the conditions of the contract, technical specifications and engineering drawings and any amendments thereto, to optimize the use of the available resources and to minimize the cost, maximize the quality of the work, to expedite the construction so as to meet the completion deadlines, to ensure that there is no cost over-run etc. This can be ensured by the assessee only by an active involvement in execution of the project. As already pointed out, the supply of material and labour which constitute the physical aspects of the project cannot by itself ensure the execution or completion of the project; it has to be complemented by an equally important aspect of the supply of the designs, drawings and such other technical or technological inputs as well as supervisory and engineering services rendered by the assessee company. Both the physical as well as technical aspects of the project are equally important and one cannot be separated from the other. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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