TMI Blog2023 (12) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 projects were claimed in earlier years (in between 2004-05 to 2011-12). At the outset, we note that the revenue was in appeal before this tribunal in own case of the assessee on the same issue in A.Ys. 2008-09 to 2011- 12 [ 2023 (7) TMI 1081 - ITAT AHMEDABAD] The coordinate bench of this tribunal vide order dated decided the issue of deduction under section 80IA(4) of the Act in favour of the assessee stating if the literal meaning is drawn from the word of the developer and accordingly the deduction of the benefit given under section 80 IA of the Act is denied, then the object for which the provisions of section were brought under the statute will be defeated. Therefore, the provisions of section 80IA (4) of the Act should be read in such a way that the object of the statute should not be defeated. As assessee has undertaken the projects of infrastructure facility as envisaged under the provisions of section 80 IA(4A) of the Act in the capacity of the developer, we are inclined to hold that the assessee who is only engaged in the activity of development of infrastructure facility is eligible to claim the deduction u/s 80IA(4). Decided against revenue. Additional income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in law, the Id. CIT(A) has erred in not appreciating the fact that after the amended provisions of the section 80-IA, a person who enters into a contract will not be eligible for the tax benefit u/s 80-IA of the Act 1.2. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in not appreciating the fact that the company is not in the business of development of the infrastructure project but is merely executing the various welldefined civil construction activities as per the specifications, designs and plans provided by the developers of the infrastructure project. 2. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in allowing enhanced deduction u/s 801A(4) of the Act on the additional income relying upon the Circular of CBDT and earlier decisions without appreciating the fact that in the present case no link has been established that this enhanced profit as a result of survey operation is a part of eligible business profit and the fact that these profits were not reported in audited books. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Explanation, the legal position stands further fortified to the effect that the assessee deriving profit and gains from work contracts are not eligible for deduction under the section. The case laws relied upon by the assessee do not help in its case as either they have been rendered on different facts or after the amendment In Explanation below Sub section (13) of Sec. 80-IA by the Finance (No.2) Act 2009 they have been rendered ineffective. From the discussion and facts and circumstances of the instant case, it is proved that the assessee company has acted as Work Contractor and not as Developer and the income on which deduction u/s.801A(4) of the Act has been claimed was related to the contract works executed by the assessee. Thus, it is proved that the works carried out by the assessee company were not as Developer but as a Work Contractor and by virtue of agreements, the assessee company received the payments from time to time by raising the bills. 2.13 Further, the assessee company has also relied upon the recent citation of Hon'ble IT AT, D Bench, Ahmedabad in case of M/s. Sugam Construction Pvt. limited vs. ITO. But, here, it is pertinent to mention th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eveloped the infrastructure projects/facilities as a developer and not as work contractor as alleged by the AO. The relevant observation and finding of the learned CIT(A) in this respect are at pages 55 to 77 of his order. 7. Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us. 8. Both the learned DR and learned AR before us vehemently supported the order of the respective authorities below to the extent favourable to them. 9. We have heard the rival contentions of both the parties and perused the materials available on records. Admittedly, the assessee has claimed deduction under section 80IA(4) of the Act on 13 different projects of infrastructure facilities which has been disallowed by AO. On appeal by the assessee, the learned CIT(A) allowed the claim of deduction by following the order of the predecessor CIT(A) in own case of the assessee from A.Y. 2004-05 to 2011-12 and 2013-14. The learned CIT(A) also given categorical finding that there were no new projects. As such, the deduction on all the 13 projects were claimed in earlier years (in between 2004-05 to 2011-12). At the outset, we note that the revenue was in appeal before this t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Applying commercial principles in the operation of infrastructure facilities can 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 any 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. 11.3 Hence, the legislature inserted sub-section 4A to section 80-IA of the Act w.e.f. 1st April 1996 for providing the deduction to the enterprises or undertakings engaged in the business of development and operating maintaining o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue for denying the benefit to the assessee under the provisions of section 80IA(4) of the Act was revolving around the fact that the assessee is not a developer of infrastructure facility. It is only engaged in the business of work contract awarded to it. The AO also invoked the explanation below to sub section 13 of section 80IA of the Act. Likewise, the assessee has not entered into any contract with Central/ State Government or local authority as specified under section 80IA of the Act. All the allegations of the AO for denying the benefit of deduction under section 80-IA of the Act have been elaborated in the preceding paragraphs. 11.9 To our understanding, the Revenue before invoking the explanation below to section 80IA(13) of the Act was to appreciate the difference between a 'developer' and a 'works contractor'. Generally, in common parlance a person is referred to as 'developer' who undertakes the project to develop and construct at 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shall provide the remedy for the same. (j) That a developer shall be exposed to the penalty if it contravenes any of the clauses appearing in the contract awarded by the Government. Thus, the developer is responsible to complete the construction in a specified manner failing which it would be responsible for the consequences of delay/any other fault attributable to it. (k) That a developer shall undertake to maintain safety, security and protection of the environment. (l) That a developer shall provide and maintain at his own cost, all lights, guards, fencing, warning signs and watching, when or where necessary. 11.10 These are few broad sample qualities/ parameters of a developer through which the character of a developer can be defined. 11.11 On the other hand, a 'contractor' is a person who undertakes work on a contract basis. He does not assume risks and responsibilities like that of a developer. He merely carries out the work as has been instructed to him by the contractee. Moreover, in the case of such work, the contractor gets a fixed amount of revenue to the extent of the work executed by it and is not entitled to any share of profit from the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke detailed drawings, design calculations/fabrication etc. at its own cost. Further, the assessee is also responsible for arranging methods of the execution of work along with detailed drawings, sketches, furnishing the details of sufficient plants, equipment, and labor. The assessee has to arrange the land for a temporary site office, office laboratory, parking yard, store yard, labor camp, workshop etc. The assessee was duty bound to protect the environment on and off the staff site and avoid the damage or nuisance etc. to the persons or to the property of the public. The assessee was to maintain at its own cost sufficient experienced supervisory staff required for the work and arrangement of their housing. The assessee was to have the field laboratory for the purpose of testing materials. The assessee has to arrange electric power and water supply. The assessee was also under the obligation to provide traffic safety arrangements like sign board, speed limit speed breakers, diversion board, etc. Besides the above, the assessee was to pay the liquidated damages in case of delay in the completion of project and other defaults. 11.17 The purpose for which the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and undertaking the risk for carrying out the activity of development of the infrastructure facility in the manner as discussed above. The assessee was also taking technical risk, subject to liquidated damages, providing technical manpower. 11.20 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 fund, 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: 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. 11.21 Further, we draw support by placing our reliance on the Judgment of Hon ble ITAT Kolkata in case of Asstt. CIT v. Simplex Infrastucture Ltd Ltd. I.T.A. No. 01/Kol/2020 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or/ author. So done, the rules of purposive construction have to be resorted to which would require the construction of the Act in such a manner so as to see that the object of the Act fulfilled; which in turn would lead the beneficiary under the statutory scheme to fulfill its constitutional obligations as held by the court inter alia in Ashoka Marketing Ltd. 11.24 In view of the above, the explanation below to section 80IA(13) should be read in such a way that the object of the provisions of section 80IA (4) of the Act should not be defeated. As discussed above, the sole purpose of the benefit of deduction under section 80IA(4) of the Act was to bring the development in the area of infrastructure facilities for which the country was in deficient. Thus, if the literal meaning is drawn from the word of the developer and accordingly the deduction of the benefit given under section 80 IA of the Act is denied, then the object for which the provisions of section were brought under the statute will be defeated. Therefore, the provisions of section 80IA (4) of the Act should be read in such a way that the object of the statute should not be defeated. 11.25 The next aspect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) It cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming a hindrance in the interpretation of the same. 11.27 There are, however, other judicial pronouncements of the Hon ble Supreme Court suggesting that though the rule that an explanation is meant only for filling a gap in the statute or removing any ambiguity or clearing a mischief, such rule of normal application is not unknown to exceptions. 11.28 From the above, it is transpired that the condition of being developer of the infrastructure facility was already embedded under the provisions of section 80IA of the Act. In holding so, we draw support and guidance from the judgment of Hon ble Gujarat High Court in the case of M/s Katira construction Vs Union of India reported in 31 taxmann.com 250 wherein it was held as under: In our, opinion, what the explanation aims to achieve is to clarify that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany registered in India or by a consortium; (ii) An agreement with the Central or State Government, local authority or statutory body; and (iii) The start of operation and maintenance of the infrastructure facility on or after 1- 4-1995. The requirement that the operation and maintenance of the infrastructure facility should commence after 1-4-1995 has to be harmoniously construed with the main provision under which a deduction is available to an assessee who develops; or operates and maintains; or develops, operates and maintains an infrastructure facility. Unless both the provisions are harmoniously construed, the object and intent underlying the amendment of the provision by the Finance Act of 2001 would be defeated. A harmonious reading of the provision in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops; or (ii) operates and maintains; or (iii) develops, maintains and operates that infrastructure facility. However, the commencement of the operation and maintenance of the infrastructure facility should be after 1-4-1995. In the present case, the assessee clearly fulfilled this condition 11.30 In view of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation 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 raised whether the assessee is acting as a developer or contractor before the Hon'ble Jurisdictional High Court neither, the said issue has been decided in the said judgement. 11.34 The organizations which have awarded the contract are 100% owned by the State Government and therefore it cannot be said that these are private parties. As such the organization awarded the contract to the assessee are the arms of the State Government. 11.35 At the time of hearing, both the learned DR and the AR before us submitted `that projects in respect of which the deduction was claimed by the assessee were of identical nature. Therefore, we have analyzed one contract/agreement with the government on sample basis. However, the findings given with respect to the contract elaborated above shall also be applied in all the contracts which were subject to the deduction under section 80-IA(4) of the Act. In view of the above, the grounds of appeal of the Revenue with respect to the admissibility of the claim of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttled position of law that any addition in Business Profits shall invariably lead to enhancement of deduction under Chapter VI-A. Jurisdictional Gujarat High Court has in case of ITO Ward 5(1) vs Keval Construction held that any disallowance would ultimately result in increase in assessee's profits from business which is eligible for profit linked incentive. And therefore, enhanced profits consequent to disallowance is eligible for profit linked deduction under Chapter VI-A of the Act. Hon'ble jurisdictional high court while dismissing appeal of the revenue noted that 5. Having heard counsel on both the question today in this appeal, we find no error in the Tribunal's ultimate conclusion. Even if a certain expenditure which was incurred by the assessee for the purpose of developing housing project was not allowable by virtue of section 40(a)(ia) of the Act, since the assessee had not deducted the tax at source as required under law, it cannot be denied that such disallowance would ultimately go to I increase the assessee's profit from the business of developing housing project. Whatever be the ultimate profit of assessee as computed even after making disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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