TMI Blog2013 (7) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... was said that the contractor and the developer cannot be viewed differently. Every contractor may not be a developer, but every developer developing infrastructure facilities on behalf of the Government is a contractor . The principal idea behind granting deduction was to achieve rapid growth in infrastructure development with private participation, thus AO was ordered to re-examine the facts. Decision in the cases of - COMMISSIONER OF INCOME-TAX VERSUS RADHE DEVELOPERS [ 2011 (12) TMI 248 - GUJARAT HIGH COURT] and M/S. SUSHEE HITECH CONSTRUCTIONS P. LTD. (NOW KNOWN AS SUSHEE INFRA P. LTD.) VERSUS INCOME-TAX OFFICER, WARD 3(2), HYDERABAD [ 2013 (6) TMI 599 - ITAT HYDERABAD] , relied upon. - ITA No. 472 to 475/Hyd/2009 & ITA No. 1906/Hyd/2011, & ITA No. 1668/Hyd/2011 - - - Dated:- 17-7-2013 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER For the Appellant: Sri Samuel Nagadesi For the Respondent: Sri D. Sudhakar Rao O R D E R PER CHANDRA POOJARI, AM: All the above appeals by the assessee are directed against different orders of the CIT(A)-IV, Hyderabad and CIT(A), Guntur for assessment years 2003-04 to 2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. c) The enterprise should start operating and maintaining the facility on or after 1st April, 1995. 3.4 Referring to Circular No. 14/2001, he noted that the required condition for availing the said benefit is that transfer under BOT (build, own, transfer) and BOOT (build, own, operate and transfer) schemes have to be met. He noted that the amendments envisaged were to take effect from 1.4.2002 i.e., in relation to assessment years 2002-03 onwards. Accordingly, he noted that as per the provisions of sec. 80IA and the said circular, to qualify for deduction u/s. 80IA for an infrastructure facility, the enterprise of the assessee has to satisfy the following conditions: a) It has to enter an agreement with Central Government or State Government or local authority or any other statutory body for (a) developing, (b) operating and maintaining and (c) developing, operating and maintaining a new infrastructure facility; and b) The infrastructure facility should be a new one and that the specified infrastructure facilities are road, highway project, water supply project, water treatment system, irrigation project, sanitation and sewerage system, solid waste management sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Zone No. III of Hassan City. Karnataka Urban Water Supply and Drainage Board, Hassan. 10. Earth work excavation, lining of canal and construction of structures of Nitchenametla and Chennampalli major, minor and sub minors in Block No. 12 of SRBC. CAD (PW) Dept., Nandyal, A.P. 11. Providing and constructing 6 MLD capacity sewerage treatment plant (STP) Maharashtra Jeevan Pradhikaran Works Division No. 2, Nanded, Maharashtra. 12. Improvement to Sangareddy, Narsapur, Toopran road from km 0/0 to 7/0 in Medak Dist. S.E. (R B), Nizamabad Circle, Nizamabad. 13. Upgradation of six roads in Warangal District. Panchayatiraj Engineering Dept., Hyderabad. 14. Upgradation of rural roads in Karimnagar Dist. Panchayatiraj Department, Karimnagar. 15. Upgradation of 7 rural roads in Warangal Dist. Panchayatiraj Department, Warangal. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons Pvt. Ltd. vs. ITO, ITA No. 414/Hyd/2012 dated 17.6.2013 5. The learned DR filed detailed written submissions and also he relied on the orders of the lower authorities. According to the DR to be eligible for deduction under section 80IA(4) 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cilities within the meaning of section 80IA has to be seen in the context of the genesis and legislative history of the section as held by the Supreme Court in the case of CIT vs. N.C. Buddhiraja (204 ITR 412,433) the provision as introduced 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 spendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment contract and gets paid for it at mutually agreed rates and the nature of responsibilities assumed under the other contracts as per agreements. It is further stated that during the hearing, the authorised representative of the assessee was 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. 7. 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 overriding 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 Trav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the assessee that was accepted by the ITAT, Pune Bench is broadly- the assessee is a contractor, every contractor is a developer as per the Mumbai High Court decision in the case of ABG Heavy Industries and a developer need not operate 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 Laxmi 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 the case of 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 circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the agreement in ABG was in the nature of a works contract, or that every contractor was a developer, the decision of the Mumbai High Court without considering the Explanation cannot operate to overrule the ITAT s decision in the case of B.T. Patil where the Bench of the Tribunal considered 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. 10. Without prejudice to the argument that the Mumbai High Court s order in ABG runs on completely different fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ips that the subsequent changes in the law effective from 1-4-2002 merely mirrored this liberalised outlook. That is not the same thing as saying that a business in the nature of a works contract qualified for the deduction in spite of not operating/maintaining the facility. The decision of the larger Bench in the case of B.T. Patil was not unaware 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). 11. In view of the terms of the relevant contract, it was possible to give a finding that the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erprise 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. 13. The learned Departmental Representative 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat such infrastructure facility shall be transferred to the central Government, state Government, Local Authority or such other statutory body, as the case may be, within the period stipulated in the agreement. (iii) the enterprise starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995. 10. The aforesaid provision was amended by Finance Act, 1999 w.e.f. 1.4.2000. After the amendment the old provision were deleted from the Act and deduction available to any enterprise for developing infrastructure facility under section 80IA(4A) are also made available under section 80IA(4). The new provision under section 80IA(4) reads as under : (4) This section applies to- (i) any enterprise carrying on the business [ (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating ] any infrastructure facility which fulfils all the following conditions, namely :- (a) it is owned by a company registered in India or by a consortium of such companies. (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 new HUF Firm etc., The Coordinate Bench further held that for arriving at a conclusion as to whether the work done is to develop the infrastructure or it involves construction of a particular item. The agreement is to be read as a whole. If the assessee utilised its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facilities, it cannot be considered as a mere works contract but has to be considered as a development of infrastructure facilities. The Coordinate Bench further interpreting the word contractor held that every agreement entered into between the parties is a contract and for the purpose of the agreement a person may be called as a contractor as he enters into a contract. But the word contractor is used only to denote a person entering into an agreement or contract. A person undertaking the development of infrastructure facilities under a contract is also a contractor. Therefore, the contractor and the developer cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial resources. Thus, the principle that would emerge from the above said decisions of the Coordinate Bench is that assessee would be entitled for deduction under section 80IA(4) of the Act, if he develops the infrastructure facilities. However, the assessee has to demonstrate that it has actually carried on development of infrastructure facilities cumulatively undertaking with all the activities of design, development, engineering, construction, maintenance, financial involvement, defect correction and such other ancillary and incidental work connected with the development of the project. The assessee has to establish this fact by producing clinching evidence that it has in fact, developed the project and has not executed the work merely as a contractor. The revenue authorities have neither examined the contracts in its entirety nor looked into all these aspects. Only by referring to some of the clauses of the contract an inference has been drawn that the assessee has executed the work as a contractor. At the same time, apart from the contract, the assessee has also not submitted before us any other documentary evidence which could conclusively demonstrate that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing provisions. Normally, therefore, an Explanation would not expand the scope of the main provision and the purpose of the Explanation would be to fill a gap left in the statute, to suppress a mischief to clear a doubt or as is often said to make explicit what was implicit. SUNDARAM PILLAI (S.) v. V. R. PATTABIRAMAN [1985] AIR 1985 sC 582, KESHAVJI RAVJI AND CO. v..CIT [1990] 183 ITR 1 (SC), CIT v.. GOLD COIN HEALTH FOOD (P.) LTD. [2008] 304 ITR 308 (SC) and HIRA LAL RATTAN LAL v. STO [1973] 31 STC 178 (SC) relied on. There is an intrinsic difference between developing an infrastructure facility and executing a works contract. What the Explanation aims to achieve is to clarify that deduction under section BO-IA( 4) of the Act would not be available in case of execution of works contract. Even 'Without the aid of the Explanation, it was possible to contend that such expression did not include an enterprise executing a works contract. There would certainly be a demarcation between developing the facility and execution of works contract awarded by an agency engaged in developing such facility. CIT v. RADHE DEVELOPERS [2012] 341 ITR 403 (Guj) relied on. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be. However, this was not found to be sufficient. With a view to preventing such misuse of the tax holiday under section 80-IA, it was proposed to amend the Explanation to clarify that nothing contained in the section shall apply in relation to a business which is in the nature of a works contract executed by an undertaking. What the Explanation, did was to clarify a statutory provision which was at best possible of a confusion. If that be so, the Explanation must be seen as one being in the nature of plain and simple Explanation and not either adding or subtracting anything to the existing statutory provision. If the Explanation was purely explanatory in nature and did not mend the existing statutory provisions, the question of levying any tax with retrospective effect would not arise. The Explanation only supplied clarity where confusion was possible in the un amended provision. In that view of the matter, this cannot be seen as a retrospective levy. 16. Being so, in our opinion, it is appropriate to remit the entire issue back to the file o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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