TMI Blog2018 (6) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... for the correction of defects arising in the works at its cost. Thus, it cannot be said that the assessee had not undertaken any risk. It is clear that the assessee was not a works contractor simplicitor and was a developer and hence Explanation to section 80IA(13) of the Act does not apply to the assessee. In addition to developing the infrastructure facility, the assessee was even operating and maintaining the same. Thus, clearly the assessee is eligible for deduction u/s 80IA of the Act. Interest income - the same represents interest on fixed deposits - there is a direct nexus of the fixed deposit with the development activity of the assessee. AO in the assessment order has pointed out that there were interest expenses incurred by the assessee on cash credit, equipment finance and unsecured loans. The total of the interest paid including bank charges (which are as per Section 2(28A) are also considered to be interest) for the BT Road project was ₹ 6,56,124. We find that the interest income and interest expenses are closely linked and hence we direct the ld AO to consider the net interest while determining the profit of the enterprise. In the instant case, the net inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11. 2. The Ground No. 1 and 4 raised by the assessee are general in nature and does not require any specific adjudication. 3. The first issue to be decided in this appeal is as to whether the ld CITA was justified in denying the deduction claimed u/s 80IA of the Act in the facts and circumstances of the case. The interconnected issue to be decided thereon is as to whether the interest income of ₹ 5,12,928 was to be set off against the interest expenditure and the net income was to be excluded for the purpose of calculation of deduction u/s 80IA of the Act and also the apportionment of expense of the expenses of Head Office is to be appropriated against the expenses towards the project for the purpose of calculation of deduction u/s 80IA of the Act. 4. The brief facts of this issue is that the assessee is a company engaged in the business of construction of roads, boundary walls, underground sewerage and drainage system etc. The return of income for the Asst Year 2010-11 was filed by the assessee company on 29.9.2010 disclosing total income of ₹ 2,59,70,453/- after claiming deduction u/s 80IA of the Act to the tune of ₹ 80,39,696/- . The ld AO during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The design and the drawings of the project were not done by the assessee, but it was done by the Government. The assessee was only required to implement as per the drawing. The assessee was not required to invest its own funds because initially mobilization advance was given and subsequently as per the measurements, money was paid to the assessee. Thus, there was no financial risk or involvement of the assessee in the project. The assessee s return from doing work was guaranteed. The operation and maintenance of the B.T. Road Project was not to be done by the assessee but by the Government. Accordingly the ld AO issued a questionnaire dated 18.10.2012 to the assessee seeking for explanation as to why the claim of deduction u/s 80IA of the Act should not be disallowed. 5. The assessee in reply letter dated 8.11.2012 gave a detailed explanation and the gist of the explanation is as under:- The assessee: is engaged in the business of construction of roads, bridges, boundary wells, underground sewerage and drainage system since 2000. During the assessment year 2010-1.1 the assessee has undertaken the project for Improvement of B. T. Road involving widening of existing road fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han 5 km). Such a work cannot be called as development of infrastructure project. He further observed that the assessee has not taken any risk in the project, therefore he can be called as the developer. He observed that a developer conceives a project, invests in the project, takes risks and executes the project. The work was conceived by the Government and assessee was asked to complete the work as per the terms of contract. Accordingly the ld AO held that the assessee is merely a works contractor and not developer and hence not eligible for deduction u/s 80IA of the Act in view of the Explanation inserted with retrospective effect from 1.4.2000 thereon. 6.1. The ld AO also observed the following in his order :- 4.1.25 Without prejudice to the above contention that the assessee is not eligible to claim the deduction u/s 80IA, if at any appellate stage it is held that the assessee is eligible for deduction u/s 80IA, in that case, the claim of deduction u/s 80IA may be restricted subject to the following:- a) Claim of deduction on account of ineligible receipts That the ld AO observed that the assessee is not eligible for claim of deduction u/s 80IA of the Act on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit fees 11030 1256 Advertisement 20100 2289 Books Periodicals 3312 377 Computer Usage Maintenance 26978 3073 Donation Subscription 67344 7671 Employer-Employee Insurance 998993 113792 Legal Expenses 6007 684 Misc. Expenses 158398 18043 Rent 28984 3301 Rates Taxes 1832 209 Sundry Balances W/off 159609 18180 Postage Courier Charges 2455 280 Printing Stationery 59223 6746 Tender Expenses 55905 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the assessee is only a works contractor and not a developer. 8. Aggrieved, the assessee is in appeal before us on the following grounds :- 2. That on the facts brought on record, the Learned Commissioner (Appeals)-4, ought to have granted full relief to the appellant against the addition made by the Ld. Assessing officer of ₹ 80,39,696/- on account of disallowance of claim u/s 80lA and also restricted the claim u/s 801 A to the extent of ₹ 65,41,560/- if the appellant claim such deduction at any appellate stage. 9. We have heard the rival submissions and perused the materials available on record. The disallowance of claim of deduction u/s 80IA of the Act for ₹ 80,39,696 has been made holding that the said provisions do not apply to the case of the assessee. For the sake of convenience, the provisions of Section 80IA of the Act are reproduced below:- 80-IA. 33 [(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking] as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii ) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose: 45 [Provided that nothing contained in this sub-section shall apply in the case of transfer, either in whole or in part, of machinery or plant previously used by a State Electricity Board referred to in clause (7) of section 2 of the Electricity Act, 2003 (36 of 2003), whether or not such transfer is in pursuance of the splitting up or reconstruction or reorganisation of the Board under Part XIII of that Act.] Explanation 1.-For the purposes of clause (ii), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely :- (a ) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India; (b ) such machinery or plant is imported into India from any country outside India; and (c ) no deduction on account of depreciation in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terprise would have been entitled to the deduction, if the transfer had not taken place. 50 [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 51, airport, inland waterway 52[, inland port or navigational channel in the sea];] 53[( ii) any undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the 31st day of March, 54[2005].] Explanation.-For the purposes of this clause, domestic satellite means a satellite owned and operated by an Indian company for providing telecommunication service; (iii ) any undertaking which develops, develops and operates or maintains and operates an industrial p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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;] 66 [(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 is formed before the 30th day of November, 2005 with majority equity participation by public sector companies for the purposes of enforcing the security interest of the lenders to the company owning the power generating plant and such Indian company is notified 67 before the 31st day of December, 2005 by the Central Government for the purposes of this clause; (b) such undertaking begins to generate or transmit or distribute power before the 31st day of March, 68[ 2011];] 69[ 69a [(vi ) any undertaking carrying on the business of laying and operating a cross-country natural gas distribution network, including pipelines and storage facilities being an integral part of such network, which fulfils the following conditions, namely:- (a ) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation established or constituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years following the year in which such amount was transferred to the reserve account; and the amount remaining unutilised shall be chargeable to tax as income of the year in which such transfer to reserve account took place. (7) 71[The deduction] under sub-section (1) from profits and gains derived from an 72[undertaking] shall not be admissible unless the accounts of the 72[undertaking] for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form 73 duly signed and verified by such accountant. (8) Where any goods 74[or services] held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods 74[or services] held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger- (a ) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b ) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place. 77 [(12A) Nothing contained in sub-section (12) shall apply to any enterprise or undertaking which is transferred in a scheme of amalgamation or demerger on or after the 1st day of April, 2007.] 78 [(13) Nothing contained in this section shall apply to any Special Economic Zones notified on or after the 1st day of April, 2005 in accordance with the scheme referred to in sub-clause (iii) of clause (c) of sub-section (4).] 79 [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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusal of the Audit Report in form 10CCB, we find that the Auditors of the Company have certified that the assessee is claiming deduction u/s 80IA of the Act from Asst Year 2004-2005 and during Asst Year 2010-2011 (i.e the year under consideration), the assessee had undertaken development of roads and the total turnover of the eligible unit was ₹ 8.21 crores and the net profit was ₹ 80.39 lakhs and the deduction u/s 80IA of the Act for the year was ₹ 80.39 lakhs. 9.2. We find from the copy of the work order available in the paper book that the Executive Engineer, Public Works Department, Government of West Bengal awarded a contract for improvement and widening of BT Road from 11.72 KM to 17 KM. We find that BT Road is a part of State Highway No. 1. The assessee has stated before the ld AO and as recorded in the assessment order, the said road was to be widened from 4 lane to 6 lane. Thus the work to be done by the assessee was that of widening of road, increasing the length of the road. It is evident from the definition of infrastructure project as per Section 80IA(4) of the Act that the development of road is included in the scope of the section. We also fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an eligible infrastructure project as per Section 80IA(4)(i) of the Act. 9.3. We find that the AO treated the assessee as a mere works contractor conducting mere civil construction and hence as per the explanation to section 80- IA(13), the deduction is not available to him. At this juncture attention in this regard is firstly invited to the provisions of the Explanation of Section 80-IA of the Act as produced below: 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 the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1). 9.3.1. 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 arises before us for adjudication is that what constitutes a works contract. Section 80-IA nowhere defines the term works contract , hence the natural meaning of the word shall apply. As per the Oxford dictionary the term work means application of effort to a purpose or use of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rport, cannot be understood as the percentage amount deductible from the income of the contractor out of the sum credited to his account or paid to him in pursuance of the contract, but deduction is to be made out of payments made to the contractor. We see no reason to curtail or to cut down the meaning of the plain words used in the section. ''Any work means any work and not a works contract'', which has a special connotation in the tax law. Indeed in the subsection, the work referred to therein expressly includes supply of labour to carry out a work. It is a clear indication of the Legislature that the work in the sub-section is not intended to be confined to or restricted to works contract . The issue before the Hon ble Supreme Court in the aforesaid case was whether the term work used in section 194C needs to be restricted to works contract . The Hon ble Apex Court laid out that the term work used in section 194C need not be restricted to works contracts (i.e. labour contracts) because the subsection expressly includes supply of labour to carry out work. In other words, it is implied that works contract means supply of labour to carry out work. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the purview of the provisions of section 80-1A. Thus, the term works contract used in Explanation to section 80-IA(l3) means a contract of developing infrastructure by merely employing labour and making no investments. 9.4. We find that there is a difference between a developer and a contractor simplicitor. This issue was examined by the various coordinate benches of the tribunal as under:- a) Co-ordinate Bench of Ahmedabad Tribunal in the case of Sugam Construction (P) Ltd. vs. ITO [56 SOT 45] wherein it was held that: It is also gathered (a) That a developer is a person who undertakes the responsibility to develop a project. (b) That a developer is therefore not a civil contractor simplicitor. (c) That if we apply the commercial aspect, then a developer has to execute both managerial as well as financial responsibility. (d) That the role of a developer, according to us, is larger than that of a contractor. (e) That when a person is acting as a developer, then he is under obligation to design the project, it is another aspect that such design has to be approved by the owner of the project, i. e. the Government in the present case. (f) That he has not only to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in. (2013 (10) TMI 1411 , wherein it was held that: Further reason given by the ld. CIT(A) for denying deduction under S.80IA to the assessee is that the assessee has not undertaken any risks. The observations of the ld. CIT(A) in this behalf are also not valid and correct. It was clearly mentioned in the agreement that the assessee shall execute and furnish indemnity bond for a period of four years, indemnifying the Government against any loss or expenditure incurred, to repair any defect noticed due to faulty working done by the contractor or substandard material used by the contractor. Further, it is also mentioned in the contract agreement that the assessee shall not claim for any loss due to foreseen circumstances, including suspension of work due to cause. It is also provided that in the event of accident to people employed by the assessee resulting in compensation to be paid as per the Workmen's Compensation Act the same shall be paid by the contractor, viz. the assessee only. In view of the various specific clauses in the agreement fastening the risks to be undertaken by the assessee, discussed above, it cannot be said that the assessee has not undertaken any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 80IA (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 department is not correct in holding that the assessee is a mere contractor of the work and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s 80-IA is denied on the ground that the assessee had received payments from Government, then an assessee who is only a developer (and not an operator) will never be entitled to deduction u/s 80-IA, which is clearly not the intention of legislature as discussed by the Hon ble Bombay High Court in case of ABG Heavy Industries Ltd supra. Thus, merely because the assessee was paid by the Government for development work, it cannot be denied deduction under section 80-IA(4) of the Act. Reliance in this regard is placed on the following decisions :- a) Co-ordinate Bench of Mumbai Tribunal in the case of ACIT v. Bharat Udyog Ltd reported in (2009) 118 ITD 0336 , wherein it was held that:- After the amendment effected by Finance Act, 1999 w.e.f. 1st April, 2000, the deduction under s. 80-IA(4) has become available to any enterprise carrying on the business of (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Sub-cl. (c) of cl. (i) of s. 80-IA(4) is obviously applicable to an enterprise which is engaged in operating and maintaining the infrastructure facility on or after 1st April, 1995. It is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer, i.e., to the person who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if he is paid for development of infrastructure facility, for the simple reason that he is not having the right/authorisation to operate the infrastructure facility and to collect toll therefrom, and has no other source of recoupment of his cost of development. Considered as such, the business activity of the nature of build and transfer also falls within eligible construction activity, that is, activity eligible for deduction under s. 80-IA inasmuch as mere development as such and unassociated/ unaccompanied with operate and maintenance also falls within such business activity as is eligible for deduction under s. 80-IA. Therefore, merely because the present assessee was paid by the Government for development work, it cannot be denied deduction under s. 80-IA(4). A person who enters into a contract with another person will be a contractor no doubt; and the assessee having entered into an agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 9.6. 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 80IA of the Act. Further, the Revenue 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. We do not agree with this view of the Revenue. We find that on reading of the above it is clear that the contention of the ld AO that the assessee had not undertaken any entrepreneurial and investment risk is an incorrect interpretation of the facts. The assessee deploying its resources i.e. finance, technical expert, human resources, material, machinery, labour etc. in the construction work clearly exhibits the risks undertaken by the assessee. The assessee was to indemnify the employer of any losses/d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.9. Accordingly, the Ground No. 2 raised by the assessee is partly allowed. 10. The last issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the action of the ld AO in reducing the claim of depreciation from 30% to 15% on commercial vehicles in the facts and circumstances of the case. 10.1. The brief facts of this issue is that the assessee had used its commercial vehicles for the purpose of execution of its development projects and it was stated that it had calculated its costing for the use of tippers / commercial vehicles as per requirement given by the Government department . It was pleaded that this costing is nothing but the hire charges which the assessee would have earned by hiring the vehicles. Indirectly, hire charges of tippers whether tippers are taken on hire or used for own business is included in assessee s tender rate. The contract value awarded to the assessee includes a portion towards this hire charges also. Hence the tippers / commercial vehicles were used by the assessee in the business of running them on hire and accordingly would be entitled for higher depreciation at 30% . This plea was not accepted by the ld AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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