TMI Blog2018 (3) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee’s appeal. The assessee was not merely providing labour but was providing a complete infrastructure required to support the development of infrastructure facility. It deployed its various resources like material, manpower, machinery etc. In addition it exposed itself to various risks. We hold that the assessee is a developer and not a mere works contractor and accordingly is eligible for deduction u/s 80IA of the Act, which has been rightly held by the CIT-A. - Decided against revenue. - I.T.A No. 692/Kol/2016 - - - Dated:- 21-3-2018 - Shri Aby. T. Varkey, JM And Shri M.Balaganesh, AM For The Appellant : Shri Arindam Bhattacharjee, Addl. CIT For The Respondent : Shri Ravi Tulsiyan, FCA ORDER Per M.Balaganesh, AM 1. This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-9, Kolkata [in short the ld CIT(A)] in Appeal No.19/CIT(A)- 9/Cir-33/2014-15/Kol dated 29.01.2016 against the order passed by the ACIT, Range- 33, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 26.03.2013 for the Assessment Year 2010-11. 2. The only issue to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act to the tune of ₹ 1,11,75,715/- for the development of infrastructure facility. The ld AO invoked the provisions of Explanation to section 80IA with retrospective effect from 1.4.2000 and observed that the assessee JV is merely executing the civil construction work in the nature of works contracts and receiving payment from the National Highway Authority of India. The assessee was show caused as to why the deduction claimed u/s 80IA of the Act should be denied to it. The assessee filed a reply in response to the same. The ld AO without adducing any reason observed that the submission of the assessee is not found satisfactory and denied the deduction u/s 80IA of the Act and disallowed the same in the assessment. 4. The ld CITA appreciated the contentions of the assessee and deleted the disallowance u/s 80IA of the Act by holding that the assessee in the instant case is a developer and hence explanation to section 80IA(13) of the Act does not apply to it. The ld CITA also placed reliance on the co-ordinate bench decisions of this tribunal in the case of M/s Simplex Subhash JV, Simplex Somdatt Builders JV and Simplex Projects Ltd for Asst Year 2007-08 in this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1). 6.2. From a plain reading of the above it is clear that deduction U/S 80-IA does not apply to works contract. Now the relevant question that arises here is that does the term work contract include all contracts entered into by the assessee, i.e. can section 80-IA be interpreted in a manner that if an assessee develops infrastructure under a contract, he is not eligible for deduction U/S 80-IA (as interpreted by the ld. AO). 6.3. At this juncture, it would be appropriate to first discuss the legislative intent behind the extension of tax holiday to the infrastructure industry U/S 80-IA. In the 80's and in early 90's, infrastructure like roads, bridges, water works etc were being done by the Government departments like PWD, Irrigation Department etc departmentally. The experience had been that the infrastructure developed departmentally had poor quality, used to take much more time than as originally scheduled which in turn would result in cost escalation i.e. the government would end up spending much more than orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a purpose or use of energy. Thus going by the dictionary meaning we may say that a works contract is a contract which involves effort or in other words labour of the contractor. Further as per the Black s Law Dictionary, the term work means labour or in other words physical and mental exertion to attain an end especially as controlled by and for the benefit of the employer. Thus as per Black s Law also, a works contract is a labour contract under which the contractor merely employs his labour as per the directions of the contractee. 6.7. Further, attention is invited to relevant extracts of section 194C of the IT Act: ( iv) work shall include- ( a) advertising,- ( b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; ( c) carriage of goods or passengers by any mode of transport other than by railways; ( d) catering ; ( e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son 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 (or 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- IA. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the 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 entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coming to the facts of the case, it is submitted that the assessee was not mere works contractor, who had merely employed its labour under the projects from the various government authorities. The assessee was a developer. In addition to employing labour it made investments, it developed an enterprise/infrastructure to support the work under the various projects. In addition to labour, it deployed its machinery, materials and did all the things necessary (i.e. provided an enterprise) to support the construction work undertaken under the various projects. The assessee was provided with the site alone and by putting its own inputs (not labour alone) he converted the site into an infrastructural facility. 8.4 Further, ITAT (Hyderabad) in case of Siva Swathi Constructions Pvt. Ltd. vs DCIT, Circle-3(2) in ITA No.1008-09/Hyd/2013 for AYs 2009-10 2010-11 dated 25.10.2013 held that The next reason given by the CIT(A) is with regard to nonfinancial participation by the assessee, as the assessee has got mobilization advance. The mobilization advance has not been given freely. It has been given only after the assessee furnished a bank guarantee, and the bank guarantee has been give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sources to operate a facility, once constructed Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. Parliament when it amended the law was obviously aware of the administrative practice resulting in the circulars of the Central Board of Direct Taxes. The fact that in such a scheme. An enterprise would not operate the facility itself was not regarded as being a statutory bar to the entitlement to a deduction under section 80-IA of the Act. 8.5 From the above it is clear that even if an assessee is merely developing the infrastructural facility (without operating and maintaining the same), it is entitled to deduction u/s 80-1A. Further, condition (b) laid out in sub-section 4 of section 80-IA mandates the existence of an agreement with the Government. Moreover, if section 80- IA grants deduction on profits from the activity of development carried out in pursuance of an agreement with the Government it presupposes that assessee will earn some profits from mere development (without operating and maintaining) of the infrastructure facility. Now the relevant question that arises here is that how wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and operating the infrastructure facility, sub-cl. (c) of cl. (i) of sub-s. (4) of s. 80-IA is not applicable. The interpretation of Revenue is absurd also in view of the rationale of the provisions of s. 80-IA(4)(i). From the asst. yr. 2000-01, deduction is available if the assessee carries on the business of any one of the three types of activities. When an assessee is only developing an infrastructure facility project and is not maintaining nor operating it, obviously such an assessee will be paid for the cost incurred by it; otherwise, how will the person who develops the infrastructure facility project, realise its cost ? If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the transferee has paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation canvassed by the Revenue authorities is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under s. 80-IA(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 80-IA(4). Therefore, an assessee who is only engaged in the developing the infrastructural facility i.e., road and not engaged in the operating and maintaining the said facility is entitled to the benefits of the deduction under s. 80-IA(4).-Patel Engineering Ltd. vs. Dy. CIT (2004) 84 TTJ (Mumbai) 646 followed. Provisions of sub-cl. (c) of cl. (i) of s. 80-IA(4) are inapplicable to the assessee which is engaged in mere developing of the infrastructure facility and, therefore, an assessee who is only engaged in developing the infrastructure facility and not in operating and maintaining the said facility is entitled to the benefit of deduction under s. 80-IA(4); merely because assessee is referred to as contractor in the agreement for development of infrastructure facility or some basic specifications are laid down, would not debar the assessee from claiming deduction under s. 80-IA(4). If a person who only develops the infrastructure facility was not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he was not operating the infrastructure facility. Merely because the assessee was paid by the Government for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dment, when assessee undertakes to develop the infrastructure facility only, it is the Government who will make payment to assessee in respect of infrastructure facility developed by it in terms of agreement so entered with Government. Thus, we do not find any infringement of conditions {or claim of deduction 8.6 Thus from the above, it is clear that the fact that the assessee had received payments from the Government in progress of its work has no bearing on eligibility of deduction u/s 80- IA. Further, the Revenue in all the grounds has contended that the contracts entered into by the assessee were merely ' construction contracts ' since the assessee is not exposed to any entrepreneurial and investment risk. In this regard, the AO has observed that the assessee is executing the contract against predetermined revenue w.r.t the above, it is submitted that under the impugned contracts, the assessee was merely carrying out the civil construction work. It was responsible for overall development of the infrastructure facility. It was merely provided with the site which it had to develop into an infrastructural facility by deploying his resources i.e. material, plant ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developer is authorized to raise funds either by private placement or by financial institutions on the basis of the project. These are few broad qualities of a developer through which the character of a developer can be defined. ( ii) ITAT(Hyderabad) in case of Koya and Co. Construction (P) Ltd. vs ACIT [51 SOT 203] held that The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all long 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 section 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstrated before the court that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical knowhow, expertise and financial resources. Thus the fact that the assessee deploys its resources (material, machinery, labour etc.) in the construction work clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement. 6.16. From the facts stated above, it is clear that the assessee was a developer and not a mere works contractor. Thus, it is clearly outside the purview of the Explanation to section 80-IA(13) of the Act. 6.17. To substantiate the above attention is invited to the terms and conditions of agreement entered into between the assessee and National Highway Authority of India, some of which have been listed below: ( i) General obligations : The assessee shall, with due care and diligence, design, execute and complete the work and remedy any defects therein in accordance with the provision of the contract. The assessee shall provide all superintendence, labour, material, plant, require in for such design, execution, completion and remedying of any defects. (page 12, para 8.1) ( ii) Material, Plant and workmanship : Page - 21, para 36.1 ( iii) Equipment, Temporary works and materials : Page - 31, para 54.1 ( iv) Labour : The assessee was to make its own arrangement for the engagement of all staff and labour and for their payment, housing and feeding. (page 21, para 34.1) ( v) Superintendence : The assessee was to provide all the necessary superin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the NHAI was produced before the Ld. CIT(A) who after perusal of the same allowed the assessee s appeal. 6.20. We find that the agreement in the instant case is similar to that before the tribunal in the case of SPML Infra Ltd for Asst Years 2006-07 2009-10 supra . In the instant case too, the assessee was not merely providing labour but was providing a complete infrastructure required to support the development of infrastructure facility. It deployed its various resources like material, manpower, machinery etc. In addition it exposed itself to various risks. 6.21. In view of the aforesaid findings in the facts and circumstances of the case and respectfully following the various judicial precedents relied upon including that of coordinate bench of this tribunal in SPML Infra Ltd supra, we hold that the assessee is a developer and not a mere works contractor and accordingly is eligible for deduction u/s 80IA of the Act, which has been rightly held by the ld CITA. Accordingly, we do not find any infirmity in the order of the ld CITA. Accordingly, the grounds raised by the revenue are dismissed. 7. In the result, the appeal of the revenue is dismissed . Order pron ..... X X X X Extracts X X X X X X X X Extracts X X X X
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