TMI Blog2016 (7) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, in the considered view of the Bench, the assessee should not be denied the deduction under sec.80IA of the Act, if the contracts involves design, development, operating & maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction u/s 80IA of the Act. In the opinion of the Bench the contracts which contain above features to be segregated on this deduction u/s.80IA has to be granted and the other agreements which are pure works contracts hit by the explanation to sec.80IA(13), those work are not entitled for deduction u/s.80IA of the Act. The profit from the contracts which involves design, development, operating & maintenance, financial involvement, and defect correction and liability period is to be computed by Assessing Officer on pro-rata basis of turnover. The Assessing Officer is directed to examine the contracts accordingly and grant deduction on eligible turnover as directed above. Disallowance u/s 14A r.w.r. 8D - Held that:- 2% of the exempt income is allowed. More so, Rule 8D is not in the statute book in the assessment year 2006- 07 which was introduced w.e.f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, viz., 1. Modi Under pass 2. Kumbakonam, 3. Thiruvallur Kadambatur During the course of scrutiny proceedings, it was noticed that the assessee has not made any suitable development agreement with the Central/State Government, local body or any other statutory body for the purpose of developing infrastructure facility as required under the provisions of the Income Tax Act. Accordingly, the disallowed the claim of the assessee u/s.80IA of the Act by applying the Explanation to sec.80IA of the Act. Against this, the assessee went in appeal before the Commissioner of Income-tax(Appeals), who following the earlier order of the Tribunal in assessee s own case for the assessment year 2004-05 in ITA No.544/Mds/2010 dated 13.9.2011 allowed the claim of the assessee, by observing that the assessee is eligible for deduction u/s.80IA of the Act and against this, the Revenue is in appeal before us. 4. The ld. DR relied on the judgment of the Gujarat High Court dated 28.3.2013 in the case of Katira Construction Ltd. v. UOI (352 ITR 513), wherein it was held as under : There is an intrinsic difference between developing an infrastructure facility and executing a works contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation. The basic requirement of the enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining infrastructure facility was not done away with. Even as amended with effect from April 1, 2002, section 80-IA(4) could be construed as not including execution of works contract as one of the eligible activities for claiming deduction. In 2007, the Explanation below sub-section (13) of section 80-IA came to be added which clarified that nothing contained in 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 added an Explanation to sub-section(13) of Section 80-IA with retrospective effect from 1-04-2000, which reads as under : Explanation.- For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in subsection (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1). 8. As per the above Explanation to sub-section (13), works contractor is not eligible for deduction u/s 80-IA(4) of the Act. The very same Explanation was considered by the Tribunal, I Bench Mumbai in ITA No. 5172/Mum/2008 in the case of The Indian Hume Pipe Co. Ltd. v. DCIT for the assessment year 2004-05 (supra) and vide order dated 29-07-2010 has held as under : ++ the law stands now in the light of retrospective insertion of Explanation below to Section 80IA(13), the assessee is not eligible for deduction u/s 80IA(4). This Explanation, introduced by Finance Act, 2009 with retrospective effect from 1st April, 2000, provides that (f)or the removal of doubts, it is hereby declared tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor is eligible for the deduction under section 80-IA(4) or not. The only issue before the Hon ble Bombay High Court was whether the assessee has to develop the entire Port in order to qualify for deduction under section 80-IA. Therefore, the Hon ble Bombay High Court never discussed anything with regard to the works contractor or such contractor is eligible for the deduction under section 80-IA(4) of the Act. The case before the Hon ble Bombay High Court was that of an assessee who was a developer and the only dispute was whether the assessee was to develop the entire Port or not. In those circumstances the Hon ble Bombay High Court has held that it is not necessary for an assessee to develop the entire port in order to qualify for deduction under section 80-IA. Therefore this decision has no application to the facts of the present case. 12. In view of the above facts and circumstances of the case and the statutory provisions, the appeal filed by the Revenue has to be allowed and we do so. 13. In the result, the appeal filed by the Revenue is allowed. 5. The ld. AR relied on the order of the Judgment of the Supreme Court in the case of CIT v. Berger Paints Indi L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 executes only work contracts and only those who make the development work will be eligible for tax benefit u/s.80IA of the Act. Be that as it may, when we apply this provision in its l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-lA, one of the conditions imposed was that the enterprise must start operating and maintaining the infrastructure facility on or after 1 st April, 1995. The same requirement is embodied in subclause (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 fulfill 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 1s1 April, 1995. After Section 80IA was amended by the Finance Act, 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oping the infrastructure facilities since he does not operate and maintain Infrastructural facilities, cannot be expected to fulfill the condition at subclause (c) which is an impossibility and the requirements to fulfill the said condition shall amount to absurdity and therefore uncalled for. Therefore, we find requirement of harmonious reading of sub-clause (c) vis- -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 to the term developer . In fact, in every development the term developer will definitely be a works contractor but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous 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 and also operating and maintaining the same, is entitled to the benefit of deduction u/s 80IA(4). A copy of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefrom 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 Udyog Ltd, 118 ITD 336 and Patel Engineering Ltd vs Dy. CIT, 84 TTJ 646, are relevant. As per Circular No.4/2010[F. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. 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 under section 80IA(4A) are also made available under Section 80IA(4) itself. Further, the very fact that the legislature mentioned the words (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-Tax Act. We find that where an assessee incurs expenditure on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway, inland port or navigational channel in the sea; (5) (13) . *Explanation. - For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid circulars issued by the CBDT. We also find that, to avoid misuse of the aforesaid amendment, an Explanation was inserted in sec.80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under sec.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 contract or sub-contract as distinct from the developer. This is clear from the express intention 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 sec.80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CIT v. Hi Tech Arai Ltd. (321 ITR 477) the jurisdictional High Court held that simply because a Co-ordinate Bench of the Tribunal had taken a different view, the Tribunal on this occasion also ought to have followed the same, having no merit. When it is found that the Tribunal has applied a law correctly in the impugned order, there is no gainsaying that there was an earlier order by the Coordinate Bench and, therefore, for that reason, this time also the Tribunal should have blindly followed its earlier decision even if such earlier decision did not reflect the correct position of law. 7.2 Further, Mumbai Bench I of this Tribunal in the case of CIT v. Pramod H. Lele (47 SOT 363), held that the decision, which was rendered in ignorance of the terms of a statute or rule, having no statutory force. In view of this, in our opinion, it is appropriate to remit the issue in dispute back to the file of the AO to consider all the agreements entered into by the assessee and he shall examine the same along with the explanations and also the application of the judgment of the Gujarat High Court cited supra. Accordingly, we remit the issue in dispute to the file of the AO for fresh c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the Revenue s appeal by holding that the disallowance sustained by the CIT(Appeals) at 2% is justified and placed reliance on the judgment of Madras High Court in the case of Simpson Co. Ltd. vs. DCIT in TC(A) No.2621 of 2006 dated 15.10.12. Accordingly, this ground of cross objection is also dismissed as infructuous in CO No.86/Mds/2013. 16. The next ground raised by the assessee in CO No.87/Mds/13 is as follows: The objections raised by the Department in grounds 3 to 3.4 is not correct as the merits has already been considered in the order of the CIT(A) with reference to 14A disallowance. 17. This ground raised by the assessee is not emanating from the order of the CIT(Appeals) as well as from the grounds raised by the Revenue. Accordingly, this ground of cross objection is dismissed. 18. The next ground raised by the assessee in CO Nos.87 88/Mds/13 is that the CIT(Appeals) erred in upholding disallowance u/s.14A read with Rule 8D under section 115JB. Sec.115JB does not speak about Rule 8D. Refer J.K.Investors (Bombay) Ltd. v. ACIT(ITAT MUMBAI) J Bench in ITA No.7858/Mum/2011, as there is no satisfactory note for disallowance. 19. This issue came fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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