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2017 (12) TMI 659

Deduction u/s. 80IA - assessee is doing a works contract - whether assessee is a works contractor or a a developer? - Held that:- The assessee is doing contract work but that work is according to the requirement and specification of the customer and the same has been done by using materials purchase from third parties other than the customers. Thus, though the assessee is doing a works contract the same would not fall within the meaning of the word ‘works contract’ for the purpose of the Act due to the exclusion provided in the meaning of ‘work’ in section 194C of the Act. The issue raised by the Ld. CIT that the assessee is not doing the development work but is only doing the contract also does not stand to test as the assessee admittedly is developing the roads and railway lines and the bridges thereof. Development encompasses within itself contract work. The agreement between the assessee and the customer being the government is for the development of the infrastructure facility being roads and rail systems and bridges by participating in the tenders. Under these circumstances, we are of the view that the AO was right in law in granting the assessee the benefit of deduction u/s. .....

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the deduction claimed by the assessee was denied by Assessing Officer on the ground that it is merely acting as a works contractor and therefore it is not eligible for deduction u/s. 80IA(4) of the Act. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that it has satisfied all the conditions laid down u/s 80- IA(4) of the Act and therefore it is eligible for deduction. It was also submitted that assessee is not acting as a works contractor but actually developing the infrastructure project as envisaged under the provision of Section 80IA of the Act. The assessee in respect of the aforesaid project has carried out various functions as detailed hereunder:- … .. (i) Design: The assessee was required to investigate, study, design, construct the Project Highway and Project Facilities in accordance with the Specifications and Standards (page 23, para 7.1.4(a). (ii) Materials: It was required to make its own arrangements for construction material. (page 23, para 7.1.4(f). (iii) Superintendence: In addition to labour and technical assistants (see page 32) the assessee was to provide overall superintendence during the execution of .....

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ssee. It is seen that a similar issue based on identical facts has been decided in favour of the appellant in his own case by the Hon'ble Tribunal, Kolkata for the AY 2007-08 and CIT(A)-XIX for the AY 2008-09, 2009-10 and 2010-11. The Hon'ble Tribunal and CIT(A) after examining the legal position and applying the same to the facts of the appellant s case, allowed deduction u/s.80-I. The AO is directed to allow deduction u/s. 80IA. The Revenue, being aggrieved, is in appeal before us. 5. Both the parties relied on the order of Authorities Below as favorable to them. 6. At the outset, we find that in the Co-ordinate Bench of this Tribunal in the identical facts of the case has allowed the deduction u/s. 80-IA(4) of the Act in the case of ITO Warrd-33(4) Kolkata Vs. M/s Somdatt Builders Simplex JV in ITA 470/Kol/2015 for the Assessment Year 2011-12 vide order dated 05.07.2017. The relevant operative portion of the said order is reproduced below:- 8. Heard rival submissions and perused the material available on record. We find that the only question is to be decided by us for allowance of deduction u/s. 80IA of the Act as to whether the assessee is a developer or a works contra .....

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pplicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, 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 801A (4) and not any other person like individual, HUF, Firm etc. 27. We also find that according to sub-clause (a), clause (i) of sub section (4) of 80-IA the word it denotes the enterprise carrying on the business. The word it cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word it is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. 28. The next question is to be answered is whether the assessee is a developer or mere works contractor. The Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract .....

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Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an undeveloped area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 801A (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 801A (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. 29. We also find that as per the prov .....

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planation to section 80IA, which has been substituted by the Finance (No.2) Act, 2009 with retrospective effect from 1-4-2-2000. This Explanation is found after sub-section (13) of section 80IA. The said Explanation attempts to control the provisions of sub-section 4. More so, it says that nothing contained in section 80IA would apply in relation to the business referred to sub-section (4), which is in the nature of works contract. A works contract is not defined in section 80IA. Now, what would come into consideration is whether the substituted Explanation after subclause (13) changed the nature of the meaning of infrastructure facility provided in the Explanation to section 80IA(4). Admittedly, the Explanation to section 80IA(4) gives the meaning the term infrastructure facility . The substituted explanation after sub clause (13) brings in the nature of work as a works contract. The provisions of section 194C, which deals with TDS in respect of payment to contractors for carrying out any work in the Explanation thereto as explained the term work to be an inclusive definition, but has provided an exclusion to be does not include manufacturing or supplying of a product. according t .....

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of the coordinate of the tribunal, [ITAT, Hyderabad Bench, Hyderabad in the case of GVPR Engineers Ltd &Ors (refer to supra). We may mention here that our view also finds support from the decision of the co-ordinate bench of this tribunal, ITAT Cuttack Bench, Cuttack in the case of ARSS Infrastructure Projects Ltd Vs. ACIT, Circle-2 (1), Bhubaneswar in ITA Nos. 142, 143/CTK/2010 & 483,484/CTK/2011 dated 13-06-2013, wherein one of us was a party and in which case it has been held as under :- 10. Now coming to the merits of the deduction u/s. 801A(4) of the Act. A perusal of the provisions of section 801A(4) of the Act shows that in the explanation infrastructure facility has been specified to mean a road including a toll road, a bridge or a rail system. Admittedly, the assessee is doing the business of development of railway tracks and bridges thereof as also roads. If, we are to accept the contention of the Ld. CIT that the provisions of section 801A(4) of the Act after the substitution of the explanation to section 8OIA of the Act was introduced was only for the purpose of giving the benefit to BUT contracts then, the explanation to section 801A(4) of the Act becomes otio .....

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