TMI Blog2013 (7) TMI 1226X X X X Extracts X X X X X X X X Extracts X X X X ..... turnkey execution of effluent treatment plants and sewerage treatment plants. It is a civil contractor. During the year under consideration, it has carried out certain contract works allotted by some of the State Governments with regard to construction of housing projects, sanitary systems, etc. It claimed that it had developed infrastructure facilities like water supply system, sanitation, sewerage system and solid waste management etc., and accordingly claimed deduction u/s. 80IA of Rs. 3,43,37,519. 3.2 The Assessing Officer required the assessee to furnish details of projects with respect to the deduction claimed as above. After going through the details relating to contracts in executing the projects as mentioned in page-2 of the assessment order, the Assessing Officer proceeded to examine the claim of deduction u/s. 80IA. The Assessing Officer observed that deduction u/s. 80IA is available to an assessee whose gross total income includes any profits and gains derived by an enterprise, from any business referred to in subsection (4) of section 80IA of the Income-tax Act. According to sec. 80IA(4)(i), 100% deduction has been provided in respect of profits and gains derived by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... newly added areas of Bangalore Maha Palika Municipality. Bangalore Water Supply and Sewerage Board, Bangalore. 2. Providing third stage water supply scheme to Tarikera Town. Karnataka Urban Water Supply and Drainage Board. 3. Providing third stage water supply scheme to Channarayapatna. Karnataka Urban Water Supply and Drainage Board, Channarayapatna. 4. Design, construction and commissioning of 8 million gallon per day capacity water treatment plant with rapid filteration process. Vijayawada Municipal Corporation, Vijayawada. 5. Construction, development and maintaining of Mumbai Waste Management. Mumbai Waste Management Ltd., Mumbai. 6. Expansion of capacity of Kasimedu Pumping Station and Pumping Main Chennai Metropolitan Water Supply Sewerage Board, Chennai. 7. For providing, laying, jointing, testing and commissioning of lateral, interceptor sewers in remaining areas of walled city including construction of manholes, appurtenances along with restoration of roads in Bikaner, Rajasthan. Infrastructure Development Project, Jaipur. 8. Construction of service reservoirs, supply delivery and erection of pump sets, supply, delivery and laying and testing of TSC pipes, PVC pipes. Engi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Being so it is entitled for deduction u/s. 80IA of the Act. He also relied on various judgements as mentioned below: a) M/s. GVPR Engineers Ltd. vs. ACIT, in ITA No. 347/Hyd/2008 dated 29.2.2012. b) M/s. Koya and Company Construction Pvt. Ltd. vs. ACIT in ITA No. 180/Hyd/2006 Ors. c) M/s. KMC Constructions Ltd. vs. ACIT in ITA No. 996/Hyd/2003 Ors. dated 16.3.2012. d) M/s. Nagarjuna Construction Company Ltd. vs. ACIT, ITA No. 141/Hyd/2007 Ors. dated 27.8.2012. e) M/s. Maytas NCC (JV) vs. ACIT, ITA No. 1292/Hyd/2010 dated 27.8.2012. f) Lakshmi Civil Engineering Works vs. Addl. CIT, ITA No. 766/PN/09 Ors., dated 8.6.2011. g) ABG Heavy Industries Ltd. 322 ITR 323 (Bom) h) Katira Construction Ltd. vs. Union of India SCA No. 11781 of 2009 Ors. dated 28.2.2013 (Gujarat). i) Sushee Hi-tech Constructions Pvt. Ltd. vs. ITO, ITA No. 414/Hyd/2012 dated 17.6.2013 5. The learned DR filed detailed written submissions and also he relied on the orders of the lower authorities. According to the DR to be eligible for deduction under section 80IA(4) of the Act, all the three conditions mentioned in the sub-section should be cumulatively fulfilled. According to him, the assessee should have been en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintaining the infrastructure facility on or after the first day of April, 1995 would only be eligible for deduction. Therefore, it applies to those enterprises which were earlier eligible for deduction under sub section (4A) and which will be continued to be eligible for deduction under sub-section (4). Such provision has no application to the case of the assessee, which became eligible for deduction under sub-section (4) of Sec. 80IA of the Act. Therefore, sub-clause (c) came into play only in respect of those concerns which claimed deduction for maintaining and developing the infrastructure facility and not for the assessee who only develops. The meaning of the word developer and the eligibility of the business to claim deduction meant for development of infrastructural facilities within the meaning of section 80IA has to be seen in the context of the genesis and legislative history of the section as held by the Supreme Court in the case of CIT vs. N.C. Buddhiraja (204 ITR 412,433) the provision as introduced by the Finance Act, 1991 as amended by Finance Act, 1996, Finance Act, 1999, Finance Act, 2001, up to Finance Act 2007 and Finance Act, 2009 and as explained by Circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was to be paid for the measurement of work completed at rates agreed upon. The partial and sectional nature of the proposed work is immediately clear from this notice and it is also apparent from this that the section of the road proposed for improvement has no independent existence capable of satisfying the requirement of section 80 IA (2). Therefore, this project is incapable of commencement of operations by itself, or to quality the larger infrastructure facility of which it is a part. The assessee also gets mobilisation advance as well as interest-free advance for machinery purchase and there is no element of entrepreneurial initiative or financial participation of the contractor in this kind of a project. The successful bidder merely executes a Government contract and gets paid for it at mutually agreed rates and the nature of responsibilities assumed under the other contracts as per agreements. It is further stated that during the hearing, the authorised representative of the assessee was at pains to emphasise that the assessee undertook maintenance work and was hence in the same league as a developer. However, it is clear from the document as furnished in the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Addl. CIT Kolhapur (unreported/ITA No.766/Pn/09 dated 8-6-2011), it is submitted that these decisions supported the proposition that (i) the ITAT s decision in the case of B.T. Patil Sons, Larger Bench (Mumbai) reported in 126 TTJ 577 is no longer good law, and (ii) the distinction between developer and contractor is no longer relevant in the context of changed law explained by the Mumbai High Court in the case of ABG Heavy Industries (supra) and followed within its jurisdiction by the Pune Bench of the ITAT in the case of Laxmi Civil Engg. (supra). It is submitted that such reliance is neither correct nor relevant in deciding the issues on hand. This position is elaborated in the following paras. In the case of Laxmi Civil Engg. Pvt. Ltd., the argument of the assessee that was accepted by the ITAT, Pune Bench is broadly- the assessee is a contractor, every contractor is a developer as per the Mumbai High Court decision in the case of ABG Heavy Industries and a developer need not operate and maintain the infrastructure facility, as held by the Mumbai High Court in the case of ABG Heavy Industries. It is submitted that the decision of the Pune Bench of the ITAT in the case of Lax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be no adverse implication for the precedent value of the B.T. Patil case. As submitted hereinabove, on immediate and necessary consequence of the retrospective amendment introduced by the Finance Act, 2009 inserting Explanation below section 80 IA(13), is that any business transacted in terms of a works contract stands disqualified from seeking deduction under section 80I(A(4). The decision of the Mumbai High Court in the case of ABG would have no application from this point of view also. Since the agreement in ABG was a BOLT agreement and not a works contract their Lordships had no occasion to consider the Explanation introduced in Finance Act, 2009 with effect from 1-4-2001. Even if it is assumed, hypothetically, that the agreement in ABG was in the nature of a works contract, or that every contractor was a developer, the decision of the Mumbai High Court without considering the Explanation cannot operate to overrule the ITAT s decision in the case of B.T. Patil where the Bench of the Tribunal considered the effect of the explanation and it was explained by the Hyderabad Bench of the Tribunal in the case of Hyderabad Chemicals Supplies Limited (ITA No.352/Hyd/2005 and 6 others ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present case, it is not even claimed by the assessee that the work was carried out under a BOT/BOLT contract, or that it was not a works contract. It is further submitted that the distinction between business of development operation/maintenance and development / operation/ maintenance was removed with the change in law effective from 1-4- 2002, and that this was explained by the decision of the Mumbai High Court in the case of ABG Heavy Industries is fallacious for the following reasons: The Mumbai High Court decision was rendered in the context of a BOLT contract, which was in any case clarified by the Board Circular to qualify for the deduction under section 80IA. It was noticed by their Lordships that the subsequent changes in the law effective from 1-4-2002 merely mirrored this liberalised outlook. That is not the same thing as saying that a business in the nature of a works contract qualified for the deduction in spite of not operating/maintaining the facility. The decision of the larger Bench in the case of B.T. Patil was not unaware of the change in law effective from 1-4- 2002 as would be evident from para 36 of the order. The change making the conditions of development/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion system. Therefore, he is of the view that unless operation of the infrastructure facility is also undertaken; the assessee would not be eligible for deduction. It is submitted that this section provides for an option to the assessee to choose to claim deduction for any 10 years out of 15 years commencing from the date of commencement of the maintenance and operation. For that limited purpose of facilitating an assessee who becomes eligible for deduction under section 80IA(4) in choosing the period of 10 years, the said provision was introduced. This cannot be considered as applicable to every enterprise eligible for deduction under section 80IA. This would apply to an enterprise which requires choosing the period of 10 years during which deduction is to be claimed. Only when the assessee has to exercise the choice, this section comes to operation. Other-wise this section would not operate. 13. The learned Departmental Representative referred to the Finance Bill, 1995 and the Circular No.717 dated 14.8.1995 reported in 215 ITR 70 (statutes). The said circular explained that an enterprise which is engaged in the business of develops, operate and maintain infrastructure facility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment of infrastructure facility as per old section 80IA was contained in sub-section (4A) which 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 following conditions, namely :- (i) the enterprise is owned by a company registered in India or by a consortium of such companies. (ii) the enterprise has entered into an agreement with the Central 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 condition that such infrastructure facility shall be transferred to the central Government, state Government, Local Authority or such other statutory body, as the case may be, within the period stipulated in the agreement. (iii) the enterprise starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995. 10. The aforesaid provision was amended by Finance Act, 1999 w.e.f. 1.4.2000. After the amendment the old provision were deleted from the Act and deduction available to any enterprise for developing infrastructu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal further held that where an assessee incurs expenditure on its own for purchase of materials and towards labour charges and itself executes the development work, it will be eligible for deduction under section 80IA of the Act. It was further held that the word owned in sub-clause (a) on clause (1) of sub-section (4) of section 80IA of the Act referred to the enterprise. In other words, the enterprise carrying on development of the infrastructure facilities should be owned by a company or consortium of companies. The infrastructure facilities need not be owned by a company. It was held that the word ownership is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA(4) and not any other person like new HUF Firm etc., The Coordinate Bench further held that for arriving at a conclusion as to whether the work done is to develop the infrastructure or it involves construction of a particular item. The agreement is to be read as a whole. If the assessee utilised its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facilities, it cannot be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intenance, financial involvement and defect correction and liability period is to be computed by Assessing Officer on pro-rata basis of turnover. The Assessing Officer is directed to examine and grant deduction on eligible turnover as directed above. 13. In the case of M/s. KMC Construction Ltd. also the Coordinate Bench of this tribunal allowed the claim of deduction under section 80IA of the Act as the assessee had clearly demonstrated that it had undertaken huge risk in terms of development of technical personnel, plant and machinery, technical knowhow expertise and financial resources. Thus, the principle that would emerge from the above said decisions of the Coordinate Bench is that assessee would be entitled for deduction under section 80IA(4) of the Act, if he develops the infrastructure facilities. However, the assessee has to demonstrate that it has actually carried on development of infrastructure facilities cumulatively undertaking with all the activities of design, development, engineering, construction, maintenance, financial involvement, defect correction and such other ancillary and incidental work connected with the development of the project. The assessee has to es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by any person and executed by an undertaking or enterprise, is valid. Parliament has power not only to legislate with respect to the subject-matter on hand, but also with retrospective effect, if so found necessary. In the field of taxation, Parliament enjoys considerable latitude in framing and implementing policies. The wisdom of Parliament in enacting a statute cannot be questioned in a court of law. Ordinarily, an Explanation is introduced by the Legislature for clarifying some doubts or removing confusion which may be possible from the existing provisions. Normally, therefore, an Explanation would not expand the scope of the main provision and the purpose of the Explanation would be to fill a gap left in the statute, to suppress a mischief to clear a doubt or as is often said to make explicit what was implicit. SUNDARAM PILLAI (S.) v. V. R. PATTABIRAMAN [1985] AIR 1985 sC 582, KESHAVJI RAVJI AND CO. v..CIT [1990] 183 ITR 1 (SC), CIT v.. GOLD COIN HEALTH FOOD (P.) LTD. [2008] 304 ITR 308 (SC) and HIRA LAL RATTAN LAL v. STO [1973] 31 STC 178 (SC) relied on. There is an intrinsic difference between developing an infrastructure facility and executing a works contract. What the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirement of the enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining infrastructure facility was not done away with. Even as amended with effect from April 1, 2002, section 80-IA(4) could be construed as not including execution of works contract as one of the eligible activities for claiming deduction. In 2007, the Explanation below sub-section (13) of section 80-IA came to be added which clarified that nothing contained in the section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be. However, this was not found to be sufficient. With a view to preventing such misuse of the tax holiday under section 80-IA, it was proposed to amend the Explanation to clarify that nothing contained in the section shall apply in relation to a business which is in the nature of a works contract executed by an undertaking. What the Explanation, did was to clarify a statutory provision which was at best possible of a confusion. If that be so, the Explanation must be seen as one being in the nature of plain and simple Explanation and not either adding or subtracting ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
