TMI Blog2020 (8) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement, it is clear that the assessee was not a works contractor simplicitor but a developer and hence Explanation to section 80- IA(13) does not apply to the assessee. It may be concluded that even after the amendment by the Finance Act, 2007 and the Finance Act, 2009, the contractors performing the work in the nature of a developer-cum-contractor and assuming risks and responsibilities shall be eligible for deduction u/s 80-IA in respect of the eligible infrastructural facilities. Hence the ground of appeal of the assessee is allowed. - ITA No. 627/Rjt/2014 - - - Dated:- 30-7-2020 - Shri Waseem Ahmedabad, Accountant Member And Ms Madhumita Roy, Judicial Member For the Assessee : Shri Mehul J. Ranpura, A.R For the Revenue : Shri Ranjit Singh, CIT.DR ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed by the Assessee against the order of the Ld. Commissioner of Income-Tax (Appeals)-1, Rajkot (in short Ld. CIT(A) ) dated 12/09/2014 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as the Act ) dated 11/03/2013 relevant to Assessment Year (A.Y) 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment of infrastructure housing project on a BOT basis. As per the contract with GIDC, the assessee was to undertake every kind of activity for the development of the housing project beginning right from the excavation of earth to constructing streetlight poles on the developed road. 5.1 The assessee has used its machines, funds, technical and administrative staff to carry out all the activities concerning the development of the infrastructure housing project. As such, the assessee claimed that it is not acting as a subcontractor. The work was given by GIDC on principal to principal basis and not on principal to agent basis. 5.2 However, the AO was of the view that GIDC is the developer of the project and as such the assessee is acting as a mere contractor for completing the work assigned to it by GIDC. 5.3 The AO also observed that even in the case of works contract the party has to use its machines, own funds, technical expertise, and other administrative staff and therefore the same cannot be the criteria to hold that the assessee is acting as the developer. Even the certificate issued by GIDC dated 31.12.2009 reflects that the assessee was acting as a works contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) rejected the contentions of the assessee and confirmed the disallowance made by the AO by observing as under: 6.5 I have carefully considered the appellant's submission and arguments. In the present case, it is an undisputed fact that the appellant has been awarded works contract by the State Government. The appellant's contention that because of the investment made and the cumulative nature of work carried out by him, he is a developer and hence entitled for deduction u/s.80IA(4), has no force in light of the principles laid down by the Hon'ble Gujarat High Court in the case of Katira Construction (supra). From careful reading of the decision of the Hon'ble High Court it would be difficult to assume that the Hon'ble High Court has not taken into consideration the difference between a works contract and the developer. The Hon'ble High Court has given a categorical finding that the explanation below s.80IA(13) was amended to clarify that nothing contained in this section shall apply in relation to/a business which is in the nature of a works contract. In para-27, the Hon'ble -' High Court has categorically stated that there is an intrins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified u/s 80IA(4) of the Act. Therefore the assessee cannot be denied the benefit of deduction as specified u/s 80IA(4) of the Act. 8. On the other hand, the Ld. DR before us submitted that the assessee is acting in pursuance to a work contract and accordingly it is not eligible for deduction u/s 80IA(4) of the Act. The Ld. DR also filed the written submission which is reproduced as under: 1. In the above appeal reliance is place on the following case laws: 1. State Of Gujarat (Commissioner Of ... vs M/S. Variety Body Builders on 26 April, 1976 [1976 AIR 2108, 1976 SCR 131] 2. Hindustan Aeronautics Ltd vs The State Of Orissa on 16 December, 1983 [1984 AIR 753, 1984 SCR (2) 267] 3. State Of Tamil Nadu vs Anandam Viswanathan on 24 January, 1989 [1989 AIR 962, 1989 SCR (1) 301] 4. Gmr Tambaram Tindivanam ... vs Deputy Commissioner Of Income Tax ... on 26 November, 2018 [ITA 545, 546, 1130 1131/BANG/2018] 5. Yojaka Marine Pvt. Ltd. Bs. Assistant Commissioner of Income-tax, Circle 1(1), Mangalore on 14 June, 2012 [(2012) 25 taxman.com 260 (Bang.)] Relevant portion of case law. 1. State Of Guiarat (Commissioner Of ... vs M/S. Variety Body Build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney due for the work already done under the contract and for the return of the security deposit subject to other provisions. This would also clearly show that the contract is a works contract and unfinished work would become the property of Railway and the legal representatives will be entitled only to claim for the value of the work done. There is no provision in the agreement in that event for handing over of the unfinished railway coach by the respondent or his legal representatives or assignees to the Railway Administration. The Railway Administration automatically becomes the owner of the unfinished property which was lying in its premises. This is another reason why no exaggerated importance can be assigned to the words delivery and handed over in clauses 15 and 23 respectively as urged by Mr. Desai. This is therefore, not a contract where it can be said that there is an agreement to supply a completed railway coach which when produced will be the property of the contractor. Along with those of the contractor's materials and labour of Railway are also required to be ITHIS PAGE IS NOT WELL SCANED the value of the materials us conclusive although such matters may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting there to the other party for price. Mere transfer of property in goods used in, the performance of a contract is not sufficient; to constitute a sale there must be an agreement express or implied relating to the sale of goods and completion of the agreement by passing of title in the very goods contract the to be sold. Ultimately the true effect of an accertion made pursuance to a contract has to be judged not by an artificial rule that the accretion may he presumed to have become by vitrue of affixing to a chattel part of that chattel but from the intention of the parties to the contract. We are fortified by all the above decisions of this Court in our conclusion in favour of the assessee. We are therefore clearly of opinion that the contract in the present case is one of works contract and the High Court is not in answering the question in favour of the assessee. The appeals therefore fail and are dismissed with costs. One hearing fee for counsel. 2. Hindustan Aeronautics Ltd vs The State Of Orissa on 16 December, 1983 [1984 AIR 753, 1984 SCR(2)267] We have referred to the several correspondence which, according to us, indicate that the property in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch materials belonged to the Government of India at all material times. The appellant had no ownership in the materials which were all supplied by the Government of U.S.S.R. nor in the finished products and no question of sales tax on the impugned transaction could arise. Even on the indigenous materials procured or manufactured by the appellant in the process of fitting in and assembling, the appellant had no disposing power as the appellant was never the owner of these materials. 3. State Of Tamil Nadu vs Anandam Viswanathan on 24 January, 1989 [1989 AIR 962,1989 SCR (1) 301] The court has to find out the primary object of the transaction and intention of the parties. In this connection, it is necessary to rely on the observations of this Court in Hindustan Aeronautics Ltd's case (supra) at pages 327,333-334 of the report. The primary difference between a contract for work or service and a contract for sale is that in the former there is in the person performing or rendering service no property in the thing produced as a whole, notwithstanding that a part or even the whole of the material used by him may have been his property. Where the finished produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NH-45 in the State of Tamil Nadu. NHAI in discharge of its functions, envisaged under section 16 of the NHAI Act was keen to implement the aforesaid stretch of NH-45, a Project envisaging strengthening of the existing 4 lanes from km. 28/0 to km 67/0 and widening thereof to the existing 2 lane from km 67/0 to km 121/0 to 4 lane dual carriageway, with private sector participation on Build, Operate and Transfer (BOT) basis. With regard to the argument of the assessee that the service lane was developed by the assessee pursuant to the agreement we have considered opinion definition of service road and main lane as mentioned in Schedule D to agreement, are different and laying down of the service lane cannot be entitled the assessee to claim the benefit of laying down of the new infrastructure, we do not find that the benefit of maintenance and creation of service road can be given to the assessee. 16. The nature of activity which was undertaken by the assessee as we had understood from scope of work (supra) was only of maintaining and operating of the existing four lanes 28 km to 67kms. If we allow this kind of activity to fall with the ambit of Section 80IA, it will not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ang/2010 observed that the claim of the assessee for deduction. 80IA failed because it was neither a developer of infrastructure, nor did it develop, maintain and operate infrastructure facility. It was also clarified that the deduction under section 80IA of the Act would not be allowable to a person who executes a works contract entered into with the undertaking or enterprise who developed the infrastructure facility. On careful consideration, we are of the considered view that the facts and circumstances of the above cited case are identical to those of the assessee in the present case on hand and therefore it is clear that the assessee is not eligible to be allowed deduction under section 80IA of the Act. In the course of arguments, the learned Departmental Representative had cited and placed reliance on the decision of the Chennai Tribunal in the case of ACIT Vs. Indwel Linings P. Ltd. (2009) 313 ITR (AT) 118. We have perused the cited decision and find that the assessee in that case we engaged in undertaking works for in situ lining for water supply project and anti-corrosive lining and had claimed deduction under section 80IA of the Act. The Tribunal after examining the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the project to develop and construct on its own responsibility and takes all the risks of the development. These responsibilities and risk can be categorized as under: (a) That in a development contract responsibility is fully assigned to the developer to do all acts for execution and completion of work right from designing the project till handing over the project to the Government. As such, the agreement is not for a specific work, it is for development of facility as a whole. Indeed the ownership of the site or the ownership over the land remains with the Government/owner but during the period of development agreement the developer exercise complete realm over the land or the project. However, in some case there can be a situation that the developer has to take the approval of the design from the Government/ contractee but that will not change the status of the developer as works contractor. (b) That the first phase for the developers is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been instructed to him by the contractee. Moreover, in case of such work the contractor gets fixed amount of revenue for executing such work and is not entitled to any share of profit from revenue generated by the developer/land owner. 10.3 To summarize, the developer acts as a principal whereas the contractor acts as an agent in performing the functions as required by the developer. The developers, in true sense, are the persons who are carrying out the business of developing or operating and maintaining or developing, operating and maintaining the infrastructure facility the infrastructure facility whereas the contractors are those persons who merely execute part of these functions on behalf of developer and do not own any risks and responsibilities of the work. In such cases, the contractors may not be eligible for the deduction under section 80-IA of the Act, as they are not developing any infrastructure facility but only providing assistance to the actual developer. 10.4 In view of the above, we note that it is possible to ascertain whether a civil construction work is assigned on development basis or contract basis only on the basis of the terms and conditions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurity deposit and 5% performance bond amounting to ₹ 97,77,900.00 and 1,95,55,800.00 respectively which implies that the has made initial investment in the project by way of furnishing security and performance guarantee. 10.8 Besides the above, we note certain clauses from the tender document which are reproduced as under: 1. As per clause 1 the assessee was liable to deposit the security with GIDC. 2. As per clause 2 the assessee was liable to pay liquidated damages on account of delay in the execution of the work. 3. As per clause 3 the GIDC shall forfeit the security deposit, shall have the lien on all the plants and machinery including material in the event of any default by the assessee. 4. As per clause 8 the payment to the assessee shall be released only upon the completion of the work which will be approved by the engineer in charge. 5. As per clause 17A and 17B, in case of any defect in the work, the assessee is liable to rectify the same. The assessee also agreed to provide free maintenance guarantee for the period as agreed. 10.9 There were many more clauses in the tender document which is placed on pages 24 to 119 of the paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 10.13 Further, in case of Asstt. CIT v. Pratibha Industries Ltd. [2012] 28 taxmann.com 246/[2013] 141 ITD 151 (Mum.) , the Hon'ble Mumbai Tribunal held that where the assessee had invested his own funds, it would be assumed that the assessee was acting as a developer and not as a contractor. Relevant extract of the above decision is reproduced as under : 83 ** ** ** There are letters exchanged, written by the assessee and various Government departments, which indicate that the assessee was awarded the job, wherein the assessee had placed the bank guarantee, against the tendered cost, which proved beyond doubt that the assessee, itself was doing the development of infrastructure facility, on behalf of the Government, besides placing its own funds at risk and peril. 10.14 Reference is also invited to the decision of the Hon'ble Hyderabad Tribunal in the case of Sushee Hi Tech Constructions (P.) Ltd. v. Dy. CIT [2013] 33 taxmann.com 236/58 SOT 111 (URO) wherein it has been held that where contracts involve development, operating, maintenance, financial involvement and defect correction and liability period, then such contracts canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denial of the benefit contemplated under sub-section ( 1). 10.17 It is also pertinent to note that the Hon ble Gujarat High Court in the case of Katira Construction Ltd. Vs. Union Bank of India reported in 31 taxmann.com 250 has decided the issue of the applicability of the explanation attached below section 80-IA (13) whether such explanation was applicable retrospectively in the case on hand. The assessee challenged the vires of Explanation inserted below sub-section (13) of section 80-IA of the Income-tax Act, 1961 by Finance (No. 2) Act of 2009 with retrospective effect from 1-4-2000. By adding the impugned Explanation, the Legislature provided that nothing contained in the 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 and executed by an undertaking or enterprise. The central question is, whether in the present case, the explanation below sub-section (13) to section 80-IA introduced by the Finance Act No.2 of 2009 with effect from 1.4.2000 transgresses the legislative competence of the Parliament. The Hon ble court decided the issue in favour of the revenue that such explanation b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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