TMI Blog2016 (8) TMI 995X X X X Extracts X X X X X X X X Extracts X X X X ..... roject, then the assessee cannot be termed to be developer, as in that case no financial risk of the assessee would be there in the project. Furthermore, as per provisions of section 80IA, the eligible entity who claims himself to be a developer for the purpose of this section, is required to maintain separate books of account for the project and according to those accounts, correct profit has to be calculated. This aspect has also to be enquired by the Revenue authorities. If the Revenue Authorities find that the assessee has acted as developer, then he has to examine whether correct profit is deduced from the separate accounts required to be maintained by the assessee as per provisions of section 80IA of the Act. In view of all this discussion, we conclude that the lower authorities have not made thorough enquiry in the matter regarding the nature of agreements, terms of payments, maintenance of account books with respect to the project separately etc. before denying the claim of the assessee u/s. 80IA (4). However, for want of proper enquiries and in absence of correct facts emerged out of such enquiries, the decisions relied upon by the assessee, in our opinion, do not rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply and stated that the assessee company was engaged in the civil works and during this year, he has completed works of ₹ 10,57,95,700/- for construction of Water Supply reservoir and related civil works. The appellant submitted the details showing that the total turnover was ₹ 95,12,68,829/- and total profit declared was at ₹ 6,69,58,974/-. The overall profit ratio of this company is 7.03% and he submitted separate Profit Loss account and balance sheet. The total turnover was declared at ₹ 10,57,95,700/- on which the profit was declared of ₹ 2,47,75,170/-. The total profit rate comes to 23.4%. Thus, the profit worked out for eligible business claimed is much higher than the overall profit of the business. The appellant did not submit actual profit loss account before the Assessing Officer where entire expenditure income could be verified. According to the Assessing Officer, the assessee is not engaged in eligible business as defined in section 80IA(4) for claiming deduction under this section. He also found that as per Rule 18BBB, there should be separate profit loss account and balance sheet of the undertaking /enterprises, but no such separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich itself is a certificate from a highly competent professional of accounting and is enough to justify the compliance of the conditions referred to in section 80IA(4). The ld. AO has objected only on the report of CA that each page of Form No. 10CCB has not been signed. He has not rejected the said form No. 10CCB. The ld. AR also relied on the following decisions : (i). ARSS Infrastructure Projects Ltd. vs. ACIT (ITA Nos. 142, 143, 483 484) (ITAT Cuttack). (ii). CIT vs. VRM India Ltd. (ITA No. 2069/2010 (Delh. HC) (iii). CIT vs. M/s. Sarkar Builders (Civil Appeal No.4476 of 2015)(SC) (iv). CIT vs. Budharaja (NC) Co. 204 ITR 412 (SC) (v). ACIT vs. RR Constructions (ITA No. 2061/Mds/10 (Chennai Bench) (vi). Om Metal Infraprojects Ltd. vs. CIT, 26 DTR (Jp)Trib) 359 (vii) M/s. Maytas-NCC(JV) v. ACIT (ITA No. 1875/Hyd/11 (Hyd. Tribunal) (viii). CIT vs. ABG Heavy Industries Ltd. Ors., 322 ITR 323 (Bom. HC) (ix). Patel Engineering Ltd. vs. DCIT, 84 TTJ (Mum) 646(Mum. Tribunal) (x). M/s. Bongaigaon Refinery and Petrochemical Limited (Civil appeal No. 1679 of 2004) (SC) (xi). M/s. Pratibha Industries Ltd. (ITA Nos. 2197 to 2199/Mum/2008) (xii). M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew 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 section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and 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 purposes of this clause, infrastructure facility means- (a) a road including toll road, a bridge or a rail s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 993 and ending on the 31st day of March, [2011]; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, [2011]: Provided that the deduction under this section to an [undertaking] under sub-clause (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution; (c)undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, [2011]. Explanation.-For the purposes of this sub-clause, substantial renovation and modernisation means an increase in the plant and machinery in the network of transmission or distribution lines by at least fifty per cent of the book value of such plant and machinery as on the 1st day of April, 2004;] (v) an undertaking owned by an Indian company and set up for reconstruction or revival of a power generating plant, if- (a) such Indian company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isk. Thus, profit or loss whatever it may be is taken by the developer. But the contractor is not concerned with the profit and loss of the project. A contractor is interested only in the receipt of amount given in the contract. In order to claim a deduction u/s 80IA (4), an enterprise should be carrying on the business of developing, operating or maintaining any infrastructure facility which fulfills all the conditions mentioned at (a), (b) and (c) above. In the statement of facts submitted alongwith appeal memo, the appellant has admitted that they are involved in the business of civil contractors executing works on behalf of various agencies and parties. During the appellate proceedings, the appellant submitted a copy of letter dated 30.11.2006 issued by DRDO, which states that the work was to be commenced from 30.11.2006 and to be completed by 29.06.2007. It is seen from the letter of DRDO that the assessee was awarded a civil contract only for carrying out of earth work and civil work for the rain water harvesting project of DRDO. It can be seen that the appellant company is not qualifying even a single condition what to speak of all the conditions. The Ld. AR have not been ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of section 80IA was to encourage private participation by way of investment in development of infrastructure sector and not for the persons who merely execute the civil construction work or any other work contract. The Explanation specifically mentions that the provisions of section 80IA shall not apply a person who executes a work contracts. It further explains that the benefit will be available only to that person who himself makes the investment and himself executes the development work. It further says that a person who enters into a contract with another person for executing works contract, will not be eligible for the tax benefit u/s 80IA. Admittedly, the appellant was given only a work contract by the DRDO for earth and civil work of the rain water harvesting project. Thus, the Explanation is fully applicable to the appellant's case. Therefore, I .do not find any merit in the submissions of the Ld. AR and hence the same are rejected. Since the appellant company does not fulfill any of the criteria for making it eligible for deduction u/s 80IA of the IT. Act, 1961, the other contention of the Ld. AR regarding proper working of the profit from rain water harv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in appeal before the Commissioner of Incometax( 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 contract. What the Explanation aims to achieve is to clarify that deduction under section 80-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall 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 unamended provision. In that view of the matter, this cannot be seen as a retrospective levy. He also relied on the order of the Tribunal in the case of ACIT v. M/s. Sree Stella Infrastructure Project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (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 that nothing contained in this section (i.e. 80-IA) 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 the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1). Such being the legal position, and the assessee having merely executed the works contract for infrastructure development as awarded to him, we are of the considered view that authorities below rightly declined the deduction u/s 80IA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Ltd. (266 ITR 99), wherein it was held as follows: If the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assessees, without just cause. She also relied on the 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, wherein it was held that : 9. After considering the rival submissions, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 letters and spirit, we find that this assessee is verily eligible for deduction u/s 80IA, as the assessee-company fulfils all the relevant conditions. The facts of this case go to prove that the assessee is a developer of infrastructure facilities. The reasons for our above conclusion are given in the following paras. Firstly, the assessee-company not only designs but also creates new products. The assessee had undertaken four projects during the relevant year and executed, constructed, delivered and maintained but it. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tative 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 makes the investment and himself executes the development work, i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80- lA. 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. This amendment will take retrospective effect from April I, 2000 and will accordingly apply in relation to the assessment year 2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 maintaining any infrastructure facility' which fulfills certain conditions. Those conditions are (I) ownership of the enterprises by a company registered in India or by a consortiums; (II) an agreement with the central or State Government, local authority or statutory body; and (III) the Start of operation and maintenance of the infrastructure facility should commence after 1st April, 1995. The requirement that operation and maintenance of the infrastructure facility should commence after 1st April, 1995 has to be harmoniously c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 every works contractor may not be a developer . A developer is a specific kind of works contractor to be eligible for deduction u/s 80IA(4) who fulfills all the conditions namely, if the assessee develops the infrastructure facility if it operates the infrastructure facility and if it maintains the infrastructure facility or to put it in simpler terms, the harmonious reading of the provisions in its entirety would lead to the conclusion that this deduction is available to an enterprise who develops or ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision is enclosed at page 139 of the paper book. In the case of Patel Engineering Ltd vs Dy. CIT, 84 TTJ (Mumbai) 646 [copy enclosed at page No.145 of the paper book], it has been held that a person, who enters into a contract with another person will be treated as a contractor undoubtedly; and that assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor but does not derogate the assessee from be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eloper . 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.No.178/14/2010-ITA-I] dated 18.5.2010, widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80IA(4)(i) . The assessee is not required to develop the entire road in order to qualify for deduction u/s 80IA as has been held by the Hon'ble Bombay High Court in the case of CIT vs ABG Heavy industries Ltd, 322 ITR 323. The newly inserted Explanation 2 to section 80IA vide Finance Act, 2007, does not apply to a works contract entered into by the Government and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 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 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 this stage, we deem it appropriate to reproduce hereunder section 80IA of the Act providing deduction in respect of profits and gains from industrial undertaking or enterprises engaged in infrastructure development which reads as follows:- 80IA. (1)Where the gross total income of an assessee includes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding 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 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). *It introduced by Finance (No.2) Act, 2009 w..e.f. 1.4.2000 6.1 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 case in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business risk. The learned counsel for the assessee stated before the Bench that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know how, expertise and financial resources. After the amendment the section 80IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, prior to amendment the or between three activities was not there, after the amendment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier 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 consideration and decide the issue after examining all the agreements entered into by the assessee. 9. We have properly analyzed the aforesaid decision of ITAT Chennai Bench and the relevant provisions of law in the light of attending facts and circumstances of the case. Now, it has to be decided whether under the facts and circumstances of the present case, the assessee has undertaken eligible business for claiming impugned deduction or that the assessee is entitled to deduction u/s. 80IA(4) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractors, who undertake only the business risk. It is also opined by the Chennai Bench that the contracts, which involves design, development, operating and 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. While examining the paper book, we find that the assessee has filed letter issued by Chief Construction Engineer (R D) No. CCC(R D) C/O FN./8311/JO/CA/88 dated 30.11.2006 which mentions the job details to be done by the assessee. The ld. AR has also submitted completion certificate/performance report of work (page 26 to 33 of the paper book) issued by the Chief Construction Engineer R D (Central) dated 21.08.2008. From this certificate, it reveals that the date of commencement of work was 30.11.2006. In the instance case, it is not clear as to whether the assessee has engaged its own financial resources /risk to develop the rain water harvesting reservoir. A perusal of material available on record shows that the assessee has deposited only the security of ₹ 16,40,183/- as per letter dated 14.03.2007 placed at paper book page 29. The securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into between the parties. As also observed by ITAT, Chennai Bench in the aforesaid order, the developers who undertake entrepreneurial and investment risk are entitled for deduction under section 80IA(4) of the Act. Meaning thereby one of the distinction between a works contract and an infrastructure development is the element of risk which is necessary for a developer. Hon ble ITAT also observed that if the contracts involve design, development, operating and 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. As per section 80IA(4), the appellant should be engaged in the eligible business as defined in the section. For this, it was also to be examined and enquired by the revenue authorities from the agreements and the ground activities of appellant in compliance thereto as to who supplied the drawings and designing etc. of the project. It was also to be enquired as to what was the assessee s risk in the project. The Revenue authorities also did not examine the nature of payments received by the assessee whether it was disbursed by the contractee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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