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The Assistant Commissioner of Income Tax, Business Circle –III, Chennai Versus Shri. B. Dhanasekaran,

2016 (1) TMI 715 - ITAT CHENNAI

Allowability of deduction u/s.80IA(4) - Held that:- It is mandatory for the assessee to first satisfy sub-section clause i(a), then (b) then (c), then proviso and so on. In case the concerned assessee fails in any one of the clauses, even if it satisfies the other part of the sub-section, the claim has to be rejected. Now we proceed to decide as to whether the assessee proprietorship concern satisfies sub-section 4(i) of the “Act” or not. For the said subsection, a reading of the provision makes .....

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the nature of proprietorship nowhere finds mention in the mandate of the legislature.

So far as catena of the judgments submitted by the AR of the assessee, we notice that they only pertain to section 80IA(4)(i)(b) i.e. regarding the issue of contractor viz-a-vis developer. Hence, we do not deem it appropriate to decide on the said issue since the assessee does not fulfill the condition enumerated in the first part of the statutory provision. - Decided against assessee - ITA Nos.620 .....

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th regard to allowability of deduction u/s.80IA(4) of the Act. Since the issue in these appeals are common in nature, these appeals are clubbed, heard together, and disposed of by this common order for the sake of convenience. 3. The facts narrated in the case of ITA No.620/Mds/2013 for the assessment year 2009-10 is considered for adjudication. 4. The brief facts of the case are that the return of income for the assessment year 2009-10 was filed on a total income of F28,83,467/-. The case was s .....

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ted u/s.80IA(4) of the Act. The section 80-IA(4) applies to any enterprise, which carries on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facilities, which fulfill all the above conditions. From the assessment year 2000-01, deduction is available if the assessee is carrying out the business of anyone of the above mentioned three types of activities. When an assessee is only developing an infrastructure facility .....

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no enterprise carrying on the business of only developing the infrastructure facility would be entitled to deduction u/s. 80 IA(4), which is not the intention of the Law. An enterprise who develop the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. The legislature has provided that the income of the developer of the infrastructure project would be eligible for .....

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s infrastructure facilities, the assessee would be regarded as '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 sections 80 IA(4)(i)(a) of the act. It is 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 .....

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tries Limited vs. DCIT vide order dated 13.09.2011. The deduction u/s 80 lA (4) is available to an enterprise which develops or operates and maintains, or develops maintains and operates that infrastructure facility after 01.04.1995. A 'developer' is a specific kind of works contractor to be eligible for deduction u/s.80IA (4) who fulfills all the conditions viz., if the assessee develops the infrastructure facility if it operates the infrastructure facility and if it maintains the infra .....

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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 instant case as well. So deduction u/s 80 IA(4) is available to the assessee who has un .....

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Bombay High Court in the case of CIT Vs. ABG Heavy Industries Limited 332 ITR 323. The newly inserted Explanation 2 to Section 80 lA vide Finance Act 2007, not apply to a work contract entered into by the overnment and the Enterprise. It applies to a work contract entered into between the enterprise and other party 'the Sub Contractor'. The amendment aims at denying deduction to the sub contractor who executes a work contract with the enterprise as held by the ITAT Jaipur 'A' Ben .....

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ctor. Similar view has been taken by the Chennai Bench of the Tribunal in the case of ACIT Vs. Smt.C.Rajini in which the difference between works contractor and a developer has been examined in detail. The main thrust of the decision is that a developer need not be the owner of the land on which development is made. The incentive provisions allowed to the assessee, the construction should be liberally given as held by the Supreme Court rendered in the case of Bajaj Tempo Ltd. Vs. CIT 196 ITR 198 .....

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ssee has wrongly disallowed the deduction u/s 80lA. The AO has proceeded to the compute the income from the total income admitted by the assessee before claiming the deduction u/s 80lA and again disallowed the deduction u/s 80lA and thus the addition has been made twice in the order resulting in excess disallowance to the extent of F18,45,450/-. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to verify the computation of income of the assessee and if the contention of ld. .....

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ng own funds. Rather it executed the work contracts awarded by the clients involved in construction of infrastructure related projects. Merely by executing the contracts relating to infrastructure projects assessee cannot be treated as developer of infrastructure. 6.1 Further according to the ld. Departmental Representative the provisions of 80IA(4) applies to any enterprise which is owned by a company registered in India or by a consortium or a corporation or any other body established or const .....

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e is common for all the assessment years under appeal. He dealt with the introduction and changes made by the legislature to Section 80IA(4) of the Act till date. The said section is meant for allowing deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development. The assessee claimed deduction as it is engaged in development of infrastructure and as it satisfied all the conditions mentioned therein. The provisions of Section 80IA(4)( .....

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ssued by the Government of India, Ministry of Roads, Transport and High Ways in August, 2001. He has taken support from the aforesaid brochure. In the said brochure, the Government of India extracted some of the decisions taken by it to bring in the development of infrastructure facility in the country. He pointed out that the Government provided the benefits to the Indian entrepreneurs by providing contract packages to the private enterprises. While providing benefits, the government specifical .....

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ure facility. With a view to provide the exemptions to the entrepreneurs carrying on such activity, the legislature introduced the amendment to Section 80IA(4) in the Finance Bill 1999 to be effective for and from the assessment years 2000-01 and onwards to fulfil the objective of the Prime Minister. The provisions of Sec. 80IA(4) are made applicable to "any enterprise carrying on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating o .....

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ted with effect from 01-04-2000, but is incorporated in section 80IA(4) of the Act. It is clear that the enterprises which were developing, operating and maintaining and developing, operating and maintaining were only eligible for such deduction up to the assessment year 1999-2000 by virtue of the provisions of Section 80IA(4A). With the introduction of the new Section 80IA(4) amending the sub section (4) of Section 80IA and deleting the sub section (4A), the legislature provided deduction for a .....

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rom 01-04- 2002.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 act .....

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eduction under section 80IA(4) of the Act. The Mumbai Bench of the ITAT in the case of Asstt. CIT v. Bharat Udyog Ltd. [2009] 118 ITD 336/[2008] 24 SOT 412(Mum.) also held that after the amendment of Section 80IA(4) it is applicable to enterprises who are engaged in developing infrastructural facility. Earlier, the Mumbai Bench in the case of Patel Engg. Ltd., v. Dy. CIT [2005] 94 ITD 411 also observed that the civil contractors who are developing the infrastructure facility is eligible for dedu .....

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g and operating the infrastructure facility. 7.3. It was submitted by counsel for assessee that, as per the agreement, the possession of the site is handed over to the assessee by the Government. The assessee takes possession and access to the property and thereafter it shall be the responsibility of the assessee to develop the said area into more useful infrastructure facility. In the process, every act required (whether mentioned in the agreement or not) in converting the area into more useful .....

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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. The ld. Authorised Representative for assessee further submitted that as per the explanation introduced by the Finance Act, 2007, any assessee who entered into a contract with the enterprise mentioned in Sub- Section (4) would not be eligible fo .....

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ssee. The explanation introduced by the Finance Act, 2009 added that those enterprises undertaking simple works contracts by entering into agreements with the enterprises or with the government or government organizations. As per this explanation, any enterprises which enter into a mere works contract either with any other enterprise or Government or Government corporation shall not be eligible for the deduction. It is made clear that any enterprise, which entered into development of infrastruct .....

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ters into agreement with any government or government body. It is clear that the deduction is available not for any person but for those companies entering 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 .....

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) wherein held that in a works contract, the contractee would provide the material and all other requirements in the process of manufacture/production. The contractor merely carries on the work with the material supplied by the contractee and the knowledge supplied by the contractee. Further, in a works contract, the risk is undertaken by the contractee and in case of development contract, the contractor undertakes the risks involved. In the case of the assessee, it was allotted a premises and t .....

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relied on the Circular No. 4 of 2010 dated 18-05-2010, which is after introduction of the explanation by the Finance Act, 2009, for the proposition that widening of existing road is an infrastructure facility and any enterprise carrying on the activity of widening of an existing road would be eligible for deduction under section 80IA(4) of the Act. 7.5 The ld. Authorised Representative for assessee submitted that as per Circular No.4/2010, dated 18.5.2010 wherein the Central Board of Direct Taxe .....

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y Infrastructure Ltd vs. DCIT in ITA No.472/Hyd/09 dated 17.07.2013 8. 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 when introduced afresh by the Finance Act, 1999, the provisions under section 80IA(4A) of the Act were deleted from the Act. The deduction available for any enterprise earlier un .....

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n its own for purchase of materials and towards labour charges and itself executes the development work i.e., carries out the civil construction work, it will be eligible for tax benefit under section 80 IA of the Act. In contrast to this, a assessee, who enters into a contract with another person including Government or an undertaking or enterprise referred to in Section 80 IA of the Act, for executing works contract, will not be eligible for the tax benefit under section 80 IA of the Act. At t .....

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in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. (2) ………………….. (2A) ………………… (3) ………………….. (4) This section applies to- (i) any enterpris .....

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ent or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining 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 (hereafter referred to in this .....

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ns 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 purposes 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, irrigatio .....

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(including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1). *It introduced by Finance (No.2) Act, 2009 w..e.f. 1.4.2000 A perusal of the statutory provisions makes it clear that it does not provide a blanket deduction i.e. in order to succeed in a claim of deduction; the concerned assessee has to derive profits and gains from any business referred to in sub-section 4. Further, sub-section 4 prescribes applicability of clause i.e. the .....

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first satisfy sub-section clause i(a), then (b) then (c), then proviso and so on. In case the concerned assessee fails in any one of the clauses, even if it satisfies the other part of the sub-section, the claim has to be rejected. Now we proceed to decide as to whether the assessee proprietorship concern satisfies sub-section 4(i) of the Act or not. For the said subsection, a reading of the provision makes it unambiguous that the concerned claimant has to be an enterprises carrying on the busin .....

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hough it was emphasized from the definition of the word body in the Law Lexicon which reads as follows: Statutory definition, includes partnership, Financial Services and Markets Act, 2000 (c.8), S. 367(2) (Stroud, 6th Edn., 2000, Supplement, 2003). It also includes group of bodies, partnership of enterprise card on by one or more persons or bodies and a body which is substantially the same at or successor, to, another body, Government Resources and Accounts Act, 2000 (c.20), S. 17(7) (Stroud, 6 .....

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