TMI Blog2023 (2) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... fications and getting approval from the competent authority, safety and security of project and human resources, compliances of various statutory rules and laws. Therefore, merely because in the agreement for development of infrastructure facility, assessee is referred to as contractor or because if some basic specifications are laid down, it does not detract the assessee from the position of being a developer, nor will deprive the assessee from claiming deduction u/s.80IA(4) - As such, looking to the overall aspects of work undertaken by the assessee we can safely come to the conclusion that the assessee is engaged in development of the infrastructure facility and therefore, a developer, which entails the assessee to claim benefits u/s 80IA(4) - Thus, the issue of claim of deduction u/s 80IA(4) of the Act is allowed in favour of the assessee and against the Revenue. This common ground raised in all the appeals are accordingly disposed of. Additions made in the respective year are deleted Interest income claimed to be eligible for deduction u/s 80IA(4) - particular interest is on the mandatory fixed deposits as security and bank guarantee - HELD THAT:- We find that while gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals)-2, Ahmedabad, arising out of the order dated 12.03.2013 (in A.Ys. 2005-06 2006-07) 21.02.2014 (in A.Y. 2011-12) passed by the DCIT, Circle-4, Ahmedabad, 17.04.2009 (in A.Y. 2007-08) by ITO, Ward4(3), Ahmedabad under Section 143(3) r.w.s. 254 of the Income Tax Act, 1961 (hereinafter referred as to the Act ) for Assessment Year 2005- 06 2006-07 under Section 143(3) of the Act in A.Ys. 2007-08 2011- 12; respectively. 2. Since all these appeals are relating to identical issues that too in respect of the same assessee, the entire bunch of appeals are heard analogously and are being disposed of by this common order for the sake of convenience. 3. A perusal of the grounds of appeals, it would indicate that there are certain common grounds, which are as follows: i. Disallowance of claim under Section 80IA(4) of the Act by treating the assessee is a work contractor and not a developer by Revenue. ii. Disallowance on interest on FD iii. Disallowance under Section 40(a)(ia) of the Act. iv. Disallowance under Section 36(1)(va) of the Act. 4. Ground Nos. 1 2 relate to the issue as to whether the assessee is a developer or works contractor as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant caused appearance before the AO and filed written submission justifying the claim for deduction u/s 801A(4). The Learned AO disallowed the appellant's claim for deduction u/s 80IA(4) and finalized the assessment vide its order u/s 143(3) r.w.s. 254 dated 12/03/2013 determining total income at Rs.20,81,839/-. In the said order, the AO had made addition / disallowance of Rs. 17,21,232/- on account of claim u/s 80IA(4)of the Act, which was, in turn, confirmed by the Ld. CIT(A). Hence, the instant appeal. 9. The assessee company in support of its claim for deduction under Section 80IA(4) of the Act submitted that the assessee is an industrial enterprise carrying on the business of developing infrastructure facility i.e. irrigation project within the meaning of clause (c) of explanation to section 80IA(4). The business enterprise, which is developing the infrastructure facility i.e. construction of irrigation project is owned by a company registered in India in developing the infrastructure facility i.e. construction of irrigation canal which is one of its objects as per the Memorandum of Association of the company. The assessee has entered into an agreement with State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit gains derived from the business of developing the infrastructure facility. At this stage, it is not out of place to go in to the history of benevolent portion of section 80IA of the Income Tax Act. It may be noted that section 80IA was inserted in the stone by Finance (No.2) Act 1991 wef 1/4/1991. Initially as this provision stood, it provides a deduction for profit and gains derived from any business of an industrial undertaking or a hotel or from operation of ships. However this section was amended by Finance Act 1995 wef 1/4/1996 i.e. from Assessment Year 1996-97 whereby profit and gains derived from some other business which are referred to us eligible business were also allowed deduction .........Section 80IA was further amended by Finance Act 1999 wef. 1st April 2000 i.e. from assessment year 2000-01. After the above modification subsection 4 of section 80IA explains eligible bushes and prescribes the codices can deduction u/s.80IA. This sub-section(4) which is applicable to the assessment year under consideration reads as under: The provision of section 80IA(4) were further simplified by Finance Act 2001 we.f. A.Y. 2002-03, so that the condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue, has not taken into consideration the submissions of the assessee as made before us in its proper perspective. It was further contended that though the expression works contract has not been defined in the Act but various judicial pronouncements examined the issue and held that the term has wider meaning so as to state that if the activities carried out by the assessee involve development of project, engagement of various agencies, undertaking risk element, raises own finances and invests its own funds in the construction of the project, then the case of the assessee falls within the meaning of expression developer . A perusal of the tender documents clearly shows that the assessee has to arrange own finances, purchase own plant machinery and purchase all materials at own cost, deploy qualified personnel for construction and development of infra projects. The authorities gave only general specifications for the project. However, for the specific drawings designs recommended by the assessee, the same has to be approved by the competent authority and becomes part of the tender. Further that once the tender is awarded, the assessee has to pay earnest money, security dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 35 (Hyd.ITAT) 8 . GVPR Engineers Ltd. [2012] 21 taxmann.com 25 (Hyd ITAT) 9. B.T. Patil Sons Belgaum Construction P.Ltd. [2013] 34 taxmann.com 97 (Pune ITAT) 10. Radhe Developers Vs.CIT, 341 ITR 403 (Guj) 14. The assessee made written submission before the appellate authority, the crux whereof is as follows: A. Y. 2005-06 3. The Learned Assessing Officer grossly erred in law and on facts of the case in denying the appellant's legitimate claim for deduction us 80IA(4) without considering the submissions filed by the appellant in the course of the Assessment proceedings. The AO had referred to only one submission filed dated 19/02/2013 dealing with different contention which is not part of said submission which referred by AO whereas the appellant had filed four submissions on 19/09/2012, 04/10/2012, 28/01/2013 and 19/02/2013 which had not been considered by the AO while passing the impugned order. The Assessing Officer has denied the appellant's valid claim for deduction w/s 80IA(4) without considering the submissions filed by the appellant in the course of the Assessment proceedings. The AO had referred to only one submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the project of construction and development of irrigation canal having such immense national importance was awarded to the assessee and the assessee had developed the said new infrastructure facility of such irrigation project. The assessee is therefore entitled deduction u/s 801A(4) 3.4 The assessee further submits that the amendment brought by the Finance Act 1999 was with the sole intention/purpose for providing deduction u/s 801A to the person who only develops or who only maintains and operates and infrastructure facility. If the Government does not pay a person who only develops the infrastructure facility, the entire cost of development would be a loss in the hands of the developers, as he is not operating the infrastructure facility. When the legislature has provided that the income 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. 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/authorizatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v/s Deputy CIT reported in (2005) 94 ITD 411 (Mumbai) had analytically considered the issue and delivered the judgment in favour of the assessee. Copy of the said judgment is attached herewith. It is submitted that the ratio of the decision and judgment in the said case is squarely applicable to the facts of our case. It is therefore prayed that the claim for deduction u/s 80IA(4) may please be allowed. 6.1 The assessee respectfully submits that the stand taken by the department that the assessed is contractor, executing civil contract and so it cannot be a developer as such, is misconceived and misdirected and is devoid of any merit in law and facts of the cases. It is true that in the normal sense of the term, the assessee is contractor. The IT Act has not defined the word 'Contractor . As per the Contract Act, any person entered in to an agreement with another, either to do or refrain from doing something in consideration of something becomes a contract. A person who entered in to contract with another person will be a contractor no doubt and assess having entered into an agreement with Government Statutory Body for development of infrastructure project is obviously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d others were centered around the admissibility of deduction u/s 80IB(10) of the IT Act. The assessing officer has disallowed the assessee's claim for deduction u/s 80IB(10) on the ground that claimants were not owners of the land on which the development had been carried out and that the assesses were only civil contractors. In these cases also, The ITAT interpreted the word develop with reference to its scope and amplitude and after quoting from various law lexicons and judicial pronouncement, rendered their decision in favour of the assessee. Kind reference is invited to Para 30 of the said judgment. 7.2 The Supreme Court in the case of Gujarat Industrial Development Corporation and others, 227 ITR 414 SC., considering the meaning of developer, held that the word development appearing in the provisions should be understood in its wider sense and therefore granted exemption, even though Gujarat Industrial Development Corporation was engaged in the Industrial development. 7.3. The Supreme Court in the case of CIT vs VadilalLallubhai, 86 ITR 02 (SC) hat wed that nothing more than what is stated in the statute can be read and added to find out the meaning of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies or by an authority or board or a corporation or any other body established or constituted under any Central of State Act. (b) It has entered into an agreement with the Central Govt. or State Govt. or Local Authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility. (c) It has started or starts operating and maintaining the infrastructure facility on or after 1 day of April, 1995. As per the clause (c) of explanation below section 80LA(4) which defines infrastructure facility, it is explained that for the purpose of section 801A(4) infrastructure facility includes a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system clause (c) of explanation below section 801A(4). The appellant therefore prays that the disallowance of claim u/s 80IA(4) made by the AO which is unjustified in law and unwarranted by facts may please be deleted. It is submitted that in the return of income the appellant has claimed deduction of Rs 11,88,204/- u/s 80IA(4) However in the course of assessment proceedings the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 and 2009-10 the CSIT(A) have allowed the appeal and held that it was acting as a developer of the infrastructure facilities and some of the projects from which the income has been shown in these two years were also there in those years as well. It has also pointed out to certain Judicial pronouncements which have been delivered after the judgement of honourable Gujarat High Court mentioned above and has submitted that the direction be allowed. Various submissions given by the appellant have been reproduced in the preceding discussion. On a careful consideration of entire facts of the case it is noted that this the appellant has done various construction works during the year, which it claims to be in the nature of development of infrastructure facilities. Before analysing all the construction works it is to be seen, whether it is development of infrastructure facility or not? We will first discuss the reason for which the section 801A was introduced in the Act and other related issues such as the meaning of 'develop' or 'developer' and 'contractor'. The heading of Section 80IA mentions that it is for deductions in respect of profits and gains fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from industrial undertakings, etc. in certain cases. Infrastructure development was not contained in the said provision at the inception. Sub-section (4A) was introduced in section 80IA of the Act with effect from 1.4.96 making deduction applicable to any enterprise carrying on developing, maintaining and operating any infrastructure facility subject to fulfillment of the conditions contained therein. Sub section (4A) as it originally stood at the time of its introduction with effect from 1.4.96 read as under: (4A) This section applies to any enterprise carrying on the business of developing maintaining and operating any infrastructure facility which fulfils all the conditions, namely:- the enterprise is owned by a company registered in India or by a i) consortium of such companies: the enterprise has entered into an agreement with the Central ii) Government or a State Government or a local authority or any other statutory body for developing, maintaining and operating a new infrastructure facility subject to the conditions that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statuto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ports and rapid urban rail transport systems Additional resources are needed to fulfil the requirements of the country within reasonable time frame. In many countries the BOT (build-operate-transfer) or the BOOT (build-own-operate-transfer) concepts have been utilised for developing new infrastructure. Applying commercial principles in the operation of infrastructure facilities com provide bath managerial and financial efficiency. In view of this, it is proposed to allow a five year tax holiday for any enterprise which builds, maintains and operates any fracture facility such as roads, highways, or expressways or new bridges, airports, parts and rapid rail transport system on BOT or BOOT or similar other basis (where there is an ultimate transfer of the facility to a Government or public authority) The enterprise mat have entered into an agreement with the Central or State Government or a local authority or any other statutory authority for this purpose. The period within which the infrastructure facility has to be transferred needs to be stipulated in the agreement between the undertaking and the Government concerned. The tax holiday will be in respect of income derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purpose of this clause, Infrastructure facility means a) a road including toll road a bridge or a rail system The language used in sub-section (4) of section 80IA was changed from the requirement of developing, operating and maintaining to any enterprise carrying on business of developing or operating and maintaining or developing, opening and maintaining any infrastructure facility Thus, instead of the previous red of cumulative satisfaction of the said conditions, the Legislature now permitted the same deduction to those enterprises carrying on business of either developing or opening of maintaining or developing, operating and maintaining any infrastructure facility. Explanation to sub-section (4) of section 80IA which defines infrastructure facility was also slightly changed to refer to road including toll road. Further, the requirement of the enterprise fulfilling the condition that such infrastructure facility shall be transferred to the Central Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, Inland port and Inland waterways, it is also prepared in relax the existing two tier fiscal Incentive. The Bill proposes an identical ten year tax holiday that may be availed in a block of fifteen years is also proposed to do away with the mandatory requirement that such infrastructure facility shall be transferred the Central Government State Government, local authority or any other statutory authority. 12. In 2007, an explanation was added below sub-section (13) of section 801A by the Finance Act 2007, with retrospective effect from 1.4.2000. Such explanation reads as under: Explanation: For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be. Explanatory memorandum for introduction of such amendment reads as under: Section 80IA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, Industrial Parks and Special Economic Zones. The tax benefit was introduced for the reason that industrial modernization requires a mass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considerable misuse. Further, since the scope of the deductions under various provisions of Chapter VIA overlap, the tax payers, at times, claim multiple deductions for the same profits. With a view to preventing such misuse, it is proposed to amend the provisions of section 50x of the Income Tax Act to provide the following namely: Further with a view to preventing the misuse of the tax holiday under section 801A of the Income Tax Act, it is proposed to amend the Explanation to the said section to clarify that nothing contained in the said section shall apply in relation to a business referred to in sub-section (4) of the said section which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by an undertaking or enterprise referred to in sub-section (1) thereof. This amendment will take effect retrospectively from 1st April 2000 and will, accordingly apply in relation to assessment year 2000-2001 and subsequent years. 13. These, in the nutshell, are the relevant legislative changes brought about by the Parliament from time to time. The central question is, whether in the present case, the explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may recall that the impugned explanation below sub-section (13) to section 80IA starts with an expression for the removal of doubts, it is hereby declared that and provides that nothing contained in this section shall apply to 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 subsection (1). Thus the explanation in question was introduced for the removal of doubts and it declared that nothing containing in sub-section (4) would apply to a business in the nature of works contract. We may recall that sub-section (4) of section 80IA even after amendment of 2002, envisaged deduction in case of any enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility. Thus, the Legislature by way of the impugned amendment distinguished between the cases of developing/operating and maintaining/developing. operating and maintaining any infrastructure facility from the works contract awarded by any person, be it the Central or the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , growth, evolution, unfolding, maturing, maturation. Webster Dictionary, the following definitions emerge: To realize the potential of: To aid in the growth of Strength, develop the biceps, To bring into being: make active (develop a business) To convert (a tract of land) for specific purpose, as by building extensively. Law lexicon Dictionary: The following definitions could be seen: Development To act, process or result of development or growing or causing to grow, the state of being developed. Happening. 34. We have reproduced relevant terms of development agreements in both the sets of cares. It can be seen from the terms and conditions that the assessee had taken full responsibilities for execution of the development projects. Under the agreements, the assessee had full authority to develop the land as per his discretion. The assessee could engage professional help for designing and architectural work Assessee would enroll members and collect charges. Profit or loss which may result from execution of the project belonged entirely to the assessee. It can thus be seen that the assessee had developed the housing project. The fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he land owner and the erstwhile proposed purchasers the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, leaves little doubt in our mind that the assessee had total and complete control over the land in question. The assessee could put the land to use at agreed between the parties The assessee had full authority and also responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. Most significantly, the risk element was entirely that of the assessee. The land owner agreed to accept only a fixed price for the land in question. The assessee agreed to pay off the land owner first before appropriating any part of the sale consideration of the housing units for his benefit. In short, assessee took the full risk of executing the housing project and thereby making profit or loss o the case may be. The assessee invested its own funds in the cost of constructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn-operate- transfer) concepts have been utilised for developing new infrastructure. Applying commercial principles in the operation of infrastructure facilities con provide both managerial and financial efficiency. In view of this, it is proposed to allow a five year tax holiday for any enterprise which builds, maintains and operates Infrastructure facility such as roads, highways, or expressways or new bridges, airports, ports and rapid rail transport system on BOT or BOOT or similar other basis (where there is an ultimate transfer of the facility to a Government or public authority) The enterprise must have entered into an agreement with the Central or State Government or a local authority or any other statutory authority for this purpose The period within which the infrastructure facility has to be transferred needs to be stipulated in the agreement between the undertaking and the Government concerned. The tax holiday will be in respect of income derived from the use of the infrastructure facilities developed by them. The five year period will be counted from the year in which the tracture facility become operational. It will apply in respect of infrastructure facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the agreement was done away with. 33. To our mind, these changes, however, would it alter the situation vis- -vis the impugned amendment. These legislative changes did enlarge the scope of the deduction and in a sense, made it available to certain assessees who would not have been, but for the changes eligible for such deduction, Nevertheless, the basic requirement of the enterprise carrying on the business of developing or operating and maintaining or developing operating and Infrastructure facility was not done away with In other words, in our understanding even the amended section 80IA(4) with effect from 1.4.2002 could be construed as not including con of works contract at one of the eligible activities for claiming deduction. We may, once again fall back on the explanatory memorandum explaining such legislative amendments It was explained that investment in infrastructure has to compete with the investment in other sectors and mat therefore be attractive. There is, therefore, in particular a need to encourage investment in the area of surface transport, water supply, water treatment system Irrigation project, sanitation and sewerage system or solid waste management sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el works contractor who might have been employed by the enterprise developing the infrastructure facility. However, this was not found to be sufficient explanation clearing do appellant has portly executed these works in both the assessment years involved. The appellant has given a detailed analysis of the lender clause of the contracts related to Dams awarded by government of Madhyo Pradesh and also by Rajasthan Government. A perusal of various details given by the appellant in respect of various terms and conditions of the contract show that most of the conditions of both the contracts are similar. It is noted that the specifications, funds and the idea was provided by the government agencies. It is clearly mentioned in the contract agreements that the specifications drawing showing the broad outline of the arrangement of the equipments and parameters and data based on which the designs and drawings were to be prepared were given by the Government Authorities. Further the drawing of said designs given by the appellant were to be approved by the Government Authorities. The appellant was paid for the work done by it from time to time during the execution of the project. In none of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the terms and conditions between the developer, i.e. the government agency, and the contractor, L.e. the appellant. Another most important aspect, which is very crucial in determining whether a person is a 'contracter' or a 'developer' is the financial risk which is taken by that person. It is clear from the details available that the appellant is executing the project in a phased manner. It is getting payment on a monthly basis in accordance with the work completed and verified by the government authorities. Therefore at a given point of time the financial risk of the appellant is limited. The cost of the overall project is very high and the appellant cannot say that it has taken the risk of that extent in a project which is totally developed, financed and executed by a developer the whole finance and risk is borne by the developer and in case of a failure of loss, the entire financial risk is that of the developer. He bears the profit or the loss arising out from that project. In the case of the appellant, it has only executed the limited part of the project and that foo on a contractual basis. The liability of the appellant was only limited to the defects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgments are not applicable to the present case as the Judgment of honourable Gujarat High Court Kafira Constructions (supra) which is directly on the issue has not been considered and distinguished in those decisions. Accordingly the judgments are respectfully distinguished. The appellant has also placed reliance on the judgement of Honourable Hyderabad ITAT in the case of Ramky Infrastructures Ltd. Vs ACIT ITA Nos. 472/Hyd/09, 473/Hyd/09, 474/Hyd/09. 475/ Hyd/09. 1906/Hyd/11, 1668/Hyd/11 Dated 17.07.2013 and has submitted that the judgement has been given after the decision of honourable Gujarat High Court in the case of Katira Constructions. have carefully perused the judgement.. It is noted that the judgement of honourable ITAT is primarily based on facts and the issue has been set aside to the file of the AO for examination whether the appellant was developer or a contractor. Accordingly, the judgement is respectfully distinguished. Further, it is not binding or there is a contrary judgement of the jurisdictional High Court in the present case. From perusal of all the judgements on the issue, it is noted that the issue is basically factual in nature and each case m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005-06. 18. This endeavor has further been made so as to ascertain the financial involvement / risk factors/liabilities involved in the project undertaken by the assessee for development of Infrastructure projects as mentioned above. 19. We have carefully considered the tender document appearing in the paper book filed before us wherein Page 46 clearly specifies that Contractor must have necessary experience, facilities, ability, financial resources, specific experience in designing and manufacture, supply, erection and commissioning of Radial Gates for Dams, personnel, plant machinery, etc. to perform the work. 20. Clause 18, 2.1.0 2.2.0 appearing at Page 36, 105 and 106 of the Paper Book of Tender documents speaks about the general specifications are given by the respective Authorities. However, the specific preliminary drawings designs, technical information, detailed layout drawings , etc. are to be given by the Contractor which shall be approved by the Competent Authority and shall form part of the accepted Tender. 21. Clause 2.22.1 to 3 Clause 2.34.1 of Tender appearing at Page 54 of the Paper Book specifies that no materials will be issued by the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and remaining 5% security will be deducted from the running bill. 29. Clause 4.3.17.2 of Tender of Page 13 of Paper Book specifies that Security Deposits are released after completion of period of 12 months from the date of issue of Certificate of completion of work. 30. Clause 12 of Tender of Page 35 of the Paper Book specifies that Retention money shall be deducted @ 5% from each running bill and shall be released after 12 months of completion of work and certificate issued by Engineer in charge. 31. Clause 4.3.3. of Tender specifies that if the contractor fails to complete contract by the stipulated date, or breaches any of the terms of agreement, he shall be liable to pay penalty by way of cancellation of contract, forfeiture of Security Deposit, etc. The same is reflecting at Page 86 of Paper Book. 32. Page 93 of the Paper Book deals with Clause 4.3.17.1 of Tender which specifies 12 months free maintenance and guarantee period from the certified date of completion of work. 33. Clause 3.23.2 3.24 of Tender of Page 68 of Paper Book specifies that advance on P M ( 90% for new and 50% for used P M), subject to maximum of 10 % of contract value can be availed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of financial resources, manpower deployment, both technical and administrative expertise, drawing and designing of the project specifications and getting approval from the competent authority, safety and security of project and human resources, compliances of various statutory rules and laws. 40. As to whether the assessee can be termed as developer or a contractor as contended by the Revenue in its written submissions, we find, in fact, it only attempts to give a general meaning of the term contractor and developer . In the cases in hand, we find that in terms of tender documents, audited accounts and facts on record suggest that the assessee has fully undertaken the work of development of various infrastructure projects as a whole by undertaking the risk responsibility, arranged own finances, materials, personnel, labour, machinery, other equipments etc. and thereby fulfilled the test of being a developer as per the principles laid down by Hon ble Gujarat High Court in the case of Radhe Developers, 341 ITR 403 (Guj). It is imperative upon us to take note of the relevant portion of the above judgments for better understanding of the issue on hand. 34. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the member already admitted is deleted, the assessee would have the full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from the financial institutions, banks etc. The land owners agreed to give necessary signatures, agreements, and even power of attorney to facilitate the work of the developer. In short, the assessee had undertaken the entire task of development, construction and sale of the housing units to be located on the land belonging to the original land owners. It was also agreed between the parties that the assessee would be entitled to use the full FSI as per the existing rules and regulations. However, in future, rules be amended and additional FSI be available, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and already narrated hereinabove and therefore, there is hardly any basis for assuming that it is merely a contractor executing a works contract. The difference between a developer and a contractor has to be properly analyzed and understood. This issue has come up before the Hon'ble ITAT, Amritsar Bench in the case of M/s. TRG Industries P. Ltd. in ITA Nos. 433 etc./Asr/2009. The Tribunal after relying various case laws has laid down the following parameters when to treat an assessee as a developer or contractor. (i) The assessee does not have to develop the entire infrastructure facility to qualify for deduction u/s.80-IA(4) and if only a part of the infrastructure facility is developed, the assessee would be eligible for deduction. (ii) The three requirements of section 80-IA(4) viz. development, operation and maintenance are not cumulative. Thus, an enterprise which only develops facility would also be entitled to the benefit of section 80-IA(4). (iii) Merely because the assessee is referred to as a contractor in the agreement, it would not debar it from claiming deduction. (iv) Direct agreement between the transferee-assessee and the specified authority i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, i.e. case of the assessee before us and the assessee before the ITAT, Hyderabad (referred above) are clearly distinguishable on all respects. 46. However, this particular aspect has already been considered in the matter of CIT vs. ABG Heavy Industries Ltd. [2010] 189 Taxman 54 (Bombay). The paragraph 22 of the said judgment suggests that in the particular facts and circumstances of the case in hand, the assessee is entitled to relief claimed under Section 80IA(4) of the Act. The first and foremost condition imposed by the statutory provision is that the enterprise must start operating and maintaining the infrastructure facility on or after 01.04.1995. Thereafter, time-to-time the provision though has been amended under this particular condition enunciated therein, that the assessee has to be granted conditions stipulated, fulfilling of which the assessee said to be a developer and entitled to the claim under Section 80IA of the Act. The view has been narrated in the said judgment in the following manner: 22. Another submission which was urged on behalf of the revenue is that under clause (iii) of sub-section (4A) of section 80-IA, one of the conditions imposed was that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. In the view which we have taken, all the assessment years in question to which this batch of appeals relates would be governed by the same principle. The subsequent amendment of section 80-IA(4A) of the Act to clarify that the provision would apply to an enterprise engaged in (i) developing; or (a) operating and maintaining; or (iii) developing, operating and maintaining an infrastructure facility was reflective of a position which was always construed to hold the field. Before the amendment that was brought about by Parliament by the Finance Act of 2001, we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to section 80-IA(4) of the Act set the matter beyond any controversy by stipulating that the three conditions for development, operation and maintenance were not intended to be cumulative in nature. 47. It is contended by Revenue that the profit element is already embedded in the tender price quoted by the assessee. Moreso, there is no financial risk involved as the assessee was getting the payment for the construction done by him from time to time as one of the major remarks and/or observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act was challenged. The Ld. Representative appearing for the Revenue vehemently argued on this point that the jurisdictional High Court in the said matter already decided the issue against the assessee. Fact remains that the jurisdictional High Court in that particular matter dealt with the constitutional validity of the insertion of explanation as mentioned hereinabove and decided the same in favour of the revenue to this effect that such explanation brought with retrospective effect from 01.04.2000 by the Finance Act No. 2 of 2009 was very well within the competence of Parliament. As such there was no issue whether the assessee is acting as a developer or contractor was raised before the Hon ble Jurisdictional High Court neither the said has been decided in the said judgement. 49. We have further considered the judgment passed by the Co-ordinate Bench in the matter of Rajkamal Builders Infrastructure Pvt. Ltd. in ITA No.441/Ahd/2011 20 Ors., order dated 13.05.2022, where the assessee had undertaken infrastructure facilities, such as, development infrastructure facilities such as development of roads, bridges, water treatment plants, canals, siphon work (irrigation proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.80IA(4) of the Act. As such, looking to the overall aspects of work undertaken by the assessee we can safely come to the conclusion that the assessee is engaged in development of the infrastructure facility and therefore, a developer, which entails the assessee to claim benefits under section 80IA(4) of the Act. Thus, the issue of claim of deduction under section 80IA(4) of the Act is allowed in favour of the assessee and against the Revenue. This common ground raised in all the appeals are accordingly disposed of. 52. In view of the above, following additions made in the respective year are deleted: A.Y. Amount 2005-06 Rs.17,21,232/- 2006-07 Rs.1,17,53,756/- 2007-08 Rs.79,87,237/- 2011-12 Rs.43,70,188/- 53. The second ground relates to interest income claimed to be eligible for deduction under Section 80IA(4) of the Act to the tune of Rs.8,50,443/-. This particular interest is on the mandatory fixed deposits as security and bank guarantee. 54. At the time of hearing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the assessee as other income which appears from the records is nothing but the claim approved and received by the assessee for the assessment year 2004-05 in respect of the infrastructure project undertaken by the assessee. We find that before the lower authorities the assessee has explained regarding interest income earned by it from the fixed deposits, security deposits, margin-money and from the bond, with the banks and other institutions, as per the terms and conditions of the contract agreement with the Government authorities. Furnishing of fixed deposits for bank guarantees, security deposits etc. are the pre-condition for awarding the project work by the competent authority, and therefore, these are necessity of regular course of business and has direct nexus with the activities. Jurisdictional High Court in the case of Empire Pumps P. Ltd (supra) held that interest income having direct nexus with its business, was to be considered as income derived from business. Thus, deduction under section 80I of the Act was allowed on such income. Yet in another decision by jurisdictional High Court in the case of CIT Vs. Shah Alloys Ltd. (supra) has held that interest rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebruary 2007 to the tune of Rs.30,850/-. Such TDS on such amount was made on 31.03.2007 but deposited on 29.05.2007. According to Ld. AO, the TDS so deducted ought to have been deposited by 31.03.2007. Similarly, the appellant credited total amount of Rs.1,54,339/- in the account of Raj Security Services (MP) towards security charges. The sum of Rs.1,43,484/- were credited before February 2007 and remaining Rs.10,855/- were credited in the month of March 2007. However, the TDS on full amount was made on 31.03.2017 but paid to the Government on 30.05.2007. As the same was not deposited within stipulated time i.e. by 31.03.2007, the Ld. AO disallowed the said amount invoking the provision of Section 40(a)(ia) of the Act and added the same to the total income of the appellant, which was further confirmed by the First Appellate Authority. Hence, the instant appeal before us. 60. The case of the assessee before us is this that as the TDS was paid before filing of return under Section 139(1) of the Act, the disallowance made under Section 40(a)(ia) of the Act is bad in law and not sustainable. In this regard, he relied upon the judgment passed by the Hon ble Apex Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11 and subsequent years. 25) The controversy surrounding the above amendment was whether the amendment being curative in nature should be applied retrospectively i.e., from the date of insertion of the provisions of Section 40(a)(ia) or to be applicable from the date of enforcement. 26) TDS results in collection of tax and the deductor discharges dual responsibility of collection of tax and its deposition to the government. Strict compliance of Section 40(a)(ia) may be justified keeping in view the legislative object and purpose behind the provision but a provision of such nature, the purpose of which is to ensure tax compliance and not to punish the tax payer, should not be allowed to be converted into an iron rod provision which metes out stern punishment and results in malevolent results, disproportionate to the offending act and aim of the legislation. Legislature can and do experiment and intervene from time to time when they feel and notice that the existing provision is causing and creating unintended and excessive hardships to citizens and subject or have resulted in great inconvenience and uncomfortable results. Obedience to law is mandatory and has to be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uences and supply an obvious omission. The proviso ensured reasonable interpretation and retrospective effect would serve the object behind the enactment. The aforesaid view has consistently been followed by this Court in the following cases, viz., Whirlpool of India Ltd., vs. CIT, New Delhi (2000) 245 ITR 3, CIT vs. Amrit Banaspati (2002) 255 ITR 117 and CIT vs. Alom Enterprises Ltd. (2009) 319 ITR 306. 30) Hence, in light of the forgoing discussion and the binding effect of the judgment given in Allied Moters (supra), we are of the view that the amended provision of Sec 40(a)(ia) of the IT Act should be interpreted liberally and equitable and applies retrospectively from the date when Section 40(a)(ia) was inserted i.e., with effect from the Assessment Year 2005-2006 so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. As the developments with regard to the Section recorded above shows that the amendment was curative in nature, it should be given retrospective operation as if the amended provision existed even at the time of its insertion. Since the assessee has filed its returns on 01.08. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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