TMI Blog2004 (6) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... s also holding additional charge of Dy. CIT, Circle-21, Mumbai, and so the aforesaid delay, in filing of CO, has taken place. He has contended that there has been reasonable/sufficient cause for the delay and so the said delay should be condoned. As against this, the learned Authorised Representative of assessee Shri S.K. Tulsiyan, advocate, has frankly submitted that he has no objection to the CO being admitted on record for hearing and disposal on merits. 3.3 Considering the rival contentions as also the relevant material on record, we find that there was reasonable/sufficient cause for the delay of 31 days in the filing of Revenue's CO and so we condone the said delay and admit the CO on record for disposal of the same on merits. 4. Now we proceed to consider the assessee's appeal and Revenue's CO on merits. 5. In appeal, the assessee-appellant has raised four grounds of appeal. Ground No. 4 is general. Ground No. 1 along with its various parts being the main ground in this appeal is as under: "Re: Sec. 80-IA deduction Rs. 18.47 crores. 1. In the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding denial of deduction of Rs. 18,47,09, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee is a listed company engaged in the execution of civil contracts, i.e., in the work of construction of roads, bridges, dams, canals, etc. During the year under consideration, the assessee was engaged in the business activity of construction of two projects, viz., Srisailam project in Andhra Pradesh and Koyna project in Maharashtra, the work of which was allotted to the assessee by the aforesaid two respective State Governments. It was claimed by the assessee that the above two projects were 'infrastructure projects' and the assessee 'developed' the same; therefore it is entitled to deduction under section 80-IA in respect of profit derived from the execution/development of the above two projects. The Assessing Officer rejected the assessee's claim. The learned CIT(A) agreed with the Assessing Officer holding the assessee to be not entitled to deduction under section 80-IA, mainly for the reason that the assessee was not the "developer" as such of the abovementioned two projects. Hence aggrieved, the assessee is in appeal before the Tribunal. 9. We have heard the arguments of both the sides and have also perused the records including the written submission of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 15. Section 80-IA was further amended/modified by the Finance Act, 1999 w.e.f. 1st April, 2000, i.e., from assessment year 2000-01. After the above modification, sub-section (4) of section 80-IA explains the eligible business and prescribes the conditions necessary to claim deduction under section 80-IA. This sub-section (4) reads as under: "(4) This section applies to- (i) any enterprise carrying on the business of (i) developing (ii) maintaining and operating or (iii) developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely:- (a) it is owned by a company registered in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the three activities of infrastructure facility being of (i) developing, (ii) maintaining and (iii) operating for being entitled to the deduction under section 80-IA. After the amendment of section 80-IA by Finance Act, 1999, the deduction is permissible to any enterprise, which is carrying on the business of only developing (I.F.), or of only maintaining and operating an infrastructure facility, or developing, maintaining and operating an infrastructure facility. He has contended that the present assessee carried on the business of "developing" the infrastructure facility. In support of his contention, he has referred to dictionary meanings of the words "develop", "developer" and "development" from various dictionaries and has quoted the same in his written submission, extract of which we reproduce below: "From the Random House Dictionary of the English Language, the following definitions can be found: Develop: 1. to bring out the capabilities or possibilities of; bring to a more advanced or effective state; 2. to cause to grow or expand. Developer: 1. a person or thing that develops. Development: 1. the act or process of developing; progress. Synonym - expan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber, draft tube tunnels, tail race tunnel, etc. which would increase or decrease the velocity of water so that the water could be used for irrigation. The project is expected to provide 60 thousand million cubic feet of water for irrigation in the State of Andhra Pradesh. The Head Race Tunnel constructed by the assessee is of 347 metres in length and the height is 16.1 metres. The tail race tunnel admeasures 2323 metres in length and 16.1 metres in height. The project is expected to provide 60 thousand million cubic feet of water for irrigation in the State of Andhra Pradesh (as per Krishna Water Disputes Tribunal Report)". "Details of the Koyna Project.- The work done by the assessee at Koyna is very similar to the work done at Srisailam. It is also a multipurpose project involving irrigation, water supply and generation of hydro power-the difference being that, at Koyna the assessee has constructed inlet tunnel up to the point of power house. At koyna, the assessee carried out a highly specialized underwater blast for the first time in Asia. The assessee spent enormous sum for locating and receiving this technology for Indian project. The water tapped from the lake passes thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... develop' should be understood reasonably as bringing about or producing a new facility by developing the natural resource (land) to harness the potential of another natural resource being water. He has contended that the reference is to the development of a facility, which was hitherto not available to the community for use. He has contended that thus, the assessee has offered, to the community, a new facility for its use. He has contended that the assessee has utilised its technical expertise and know-how, and has undertaken detailed engineering; it has drawn up multiple drawings; it has also undertaken to bear risks; it has mobilised technical and other staff, appropriate materials and equipment to accomplish the development work. He has contended that it is only because of its expertise, specialisation, financial commitment and involvement that projects tuning such immense national importance were awarded to the assessee. 20. He has contended that the authorities below have denied the deduction to the assessee on the ground that there was no financial involvement on the assessee. He has contended that the above allegation is incorrect and that there was huge financial involvem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaking huge risks as detailed in para No. 3.2.17 on pp. 9 and 10 of his written submission, which are reproduced hereunder: "The risks involved in the projects can be discussed as under: (i) The assessee was required to maintain its work under the contract for a period 12 months after completion thereof in cast of boll; the projects. As such, the assessee was laced with the risk of incurring heavy expenses during this period in case any problem arose. It is noteworthy that fault correction in case of an underground tunnel is extremly difficult and expensive proposition. As such, the development rise was essentially with the assessee. Copy of representative letter showing handing over duly completed project to the authority of the Srisailam project has been enclosed herewith. (ii) There was inherent risk of delayed payment, arbitration and litigation. (iii) The development work has to be completed as per the agreement within time in spite of the geological risk. The developers enter into agreement, for development of facilities irrespective of geological conditions specified in the contract document. Many a times, actual rock conditions in underground works vary from those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch enterprise should start maintaining infrastructure facility on or after 1st April, 1995. He has contended that the Assessing Officer has drawn his finding that the assessee fulfils none of these conditions. He has contended that to claim deduction under section 80-IA the assessee should have owned the infrastructure facility/project whereas the assessee did not own these two infrastructure facilities/projects and that the Koyna project belongs to Maharashtra Government and Srisailam project belongs to APSEB, a public sector undertaking of the Government of Andhra Pradesh. 26. The learned CIT/Departmental Representative has, while arguing that the assessee is merely a civil contractor and not a developer, has drawn our attention to the specific observation of Assessing Officer on p. 13 of assessment order, which is reproduced below: "The assessee is merely a contractor and it had taken contract from Maharashtra Government for constructing the Koyna Dam, and from APSEB for constructing the Srisailam multipurpose power project. The contracts bagged by the assessee-company, known as Koyna Hydro Electric Project-State IV, was divided into two contracts. These two contracts were f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erating an infrastructure facility, which in the instant case is a water-supply project." 30. He has also specifically taken us through his following contention on p. 3 of his written submission: "On comparing the provisions of section 80-IA(4A) as introduced by Finance Act, 1995 with the provisions of section 80-IA(4A), relevant for the assessment year under consideration, it would be seen that the provisions are similar in scope and content, with a few insignificant charges which have no material bearing on the interpretation of the provision." 31. He has contented that the scope and effect of the amendment, which brought about the introduction of sub-section (4A) has been explained in the Department's Circular No. 717, dated 14th August, 1995 he has specifically drawn our attention to the following para, as contained on p.4 of his written submission: "34.2 Industrial modernisation requires a massive expansion of, and qualitative improvement in, infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfil the requirements of the country withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countries, for the development of new infrastructure." 35. He has also referred to his following arguments as contained on pp. 9 and 10 of his written submission: "Circular No. 717, dated 14th August, 1995 and the other circulars, notes and memoranda referred to above indicate and explain the legislative intent behind the concept of granting deduction relating lo profits and gains derived from the business of any enterprise which has developed, or maintained and operated any infrastructural facility which is ultimately transferred to the Govermnent/public authority within the stipulated period of time. Therefore, perusal of all the circulars/memorandums/notes and clauses of the various Finance Bills referred to above, it is clear that the concept of BOT/BOOT has been incorporated in the provisions of section 80-IA and the fundamental structure and philosophy of BOOT has remained constant through various amendments that have taken place from time to time. As the circulars specifically refer to the development of infrastructural facility through BOT/BOOT or similar' schemes, it would be necessary to examine the scope and underlying philosophy of such schemes." 36. He has explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any development of infrastructure project by the assessee for the reason that the basic feature of BOT/BOOT schemes being the financial investment by the developer is absent in this case. In support of his contention, he has referred to CBDT Circular No. 717, dated 14th Aug., 1995, notes on clauses of Finance Bill, 1999 and memorandum explaining provisions in the Finance Bill, 1999 as already mentioned above. He has contended that it is in lieu of private funding and risk taken that the private party is granted concession to recover toll. He has also contended that the various expenditure detailed by assessee are in the nature of expenditure and not investment. 40. The learned CIT/Departmental Representative also contended that the assessee was not a developer, also for the reason that in the case of development of infrastructure by a private party, the promoter, that is the private party undertakes the job of drawing the design of project whereas here in the instant case the assessee has undertaken the development work based on the basic guidelines and specifications/drawings by and large, though not all, laid down by the Government/APSEB. In this regard, he has referred to p. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the water back to the river for use for irrigation, etc. Similarly, for Koyna project, the assessee constructed inlet tunnel for water supply up to the point of power house. The above construction work would, in our considered opinion, amount to development, as a new facility has been developed. In fact, we may note that the Revenue authorities too have not denied the factum of development having taken place; however, the contention of the Revenue has been that the developer is not the assessee but the Government of Maharashtra in respect of Koyna project and APSEB in respect of the Srisailam project, because, the investments have been made by them. 45. In the circumstances, as per the contentions raised before us orally as also in writing by the two rival representatives, the moot question that poses itself for our consideration is as to whether the assessee can be said to be developer when the amount has been paid to the assessee for the development work carried out by the assessee. In order to properly appreciate this question, it would be relevant, and no less beneficial, to refer to the legislative history of section 80-IA. As we have noted earlier, the amendment in secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frastructure project would be eligible for deduction, it presupposes that there can be income to developer, i.e., to the person who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if he is paid for development of infrastructure facility, for the simple reason that he is not having the right/authorisation to operate the infrastructure facility and to collect toll therefrom, has no other source of recoupment of his cost of development. Considered as such, we note that the business activity of the nature of "BT" (build and transfer) also falls within eligible construction activity that is activity eligible for deduction under section 80-IA inasmuch as mere "development" as such and unassociated/unaccompanied with 'operate' and 'maintenance' also falls within such business activity as is eligible for deduction under section 80-IA. In the case of such a construction activity, which does not involve the 'operate' aspect, the question of an assessee engaged in such activity (of 'BT' carrying on only 'development') to recover his costs of construction of his own from the infrastructure project/facility itself does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rather section 80-IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a local authority. So, entering into a lawful agreement and thereby becoming a contractor should, in no way, be a bar to the one being a developer. The assessee, presently under consideration before us, has developed infrastructure facility as per agreement with Maharashtra State Government/APSEB. Therefore, merely because, in the agreement for development of infrastructure facility, assessee is referred to as contractor or because some basic: specifications are laid down, it does not detract the assessee from the position of being a developer, nor will it debar the assessee from claiming deduction under section 80-IA(4). Discussed/considered as above, we hold that the assessee having carried out the work of constructing the abovementioned two projects, namely Srisailam Project and Koyana Project, as detailed above, is appropriately a developer of the said two infrastructure facilities, and in turn is entitled, and entitled justifiably, to claim deduction under section 80-IA(4). 48. Now we proceed to consider the secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Assessing Officer, that the word "it" represents the 'infrastructure facility', is accepted, it will lead to an absurd result, because, sub-clause (b) of clause (i) of sub-section (4) provides that: "it has entered into and agreement with Central Government ......." and thus 'it' as used in sub-clause (b) has to be someone who/which has entered into an agreement with the Government, etc. Obviously, the infrastructure facility cannot be such an entrant as it cannot enter into an agreement with the Central Government or with anybody else. Understandably, it is only the 'enterprise', which can enter into an agreement with the Central Government or State Government or any other person. As such, viewed as above also, the word "it" denotes "the enterprise" and not "the infrastructure facility". 51. Accordingly, the conclusion drawn by learned CIT(A) on this count, that is on the count as to what is required to be owned in sub-clause (a) of clause (i) of sub-section (4) of section 80-IA, whether 'infrastructure facility' or 'the enterprise' is found to have rightly been drawn and quite justified, and the same need not be interfered with. 52. As seen above, we have held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : To convey; to make over from one to another, to remove Document whereby one person transfers property, securities, or rights to another. A transfer is an act or transaction, by which property of one person is, by him, vested in another. The term 'transfer' means to convey or pass the right of one person over to another, unless the general meaning is restricted or limited by something accompanying it as, for example, that the transfer was for a limited time or for a particular purpose. 'Transfer' with its grammatical variations and cognate expressions, means to make alienation 'inter vivos'. [UP Act 1 of 1869 (Estates), section 2 clause (1)]. The word 'transfer' would mean transfer of possession, which is lawful and valid - Navrangpura Gam Dharmada Milk Trust v. Ramtuji Ramaji AIR 1994 Guj. 75, 90." [Bombay Tenancy and Agricultural Lands Act, (67 of 1948), section 88(1)(b)]. 56. The learned CIT/Departmental Representative has therefore, submitted that from the above meaning of the word "transfer", it is clear that the concept of transfer involves relinquishment or alienation of rights and presupposes divestment associated with ownership or part ownership and may be for limited t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development of infrastructure facility, possession of land was transferred to the assessee by the State of Maharashtra/APSEB and after the development of the infrastructure facility, the same was transferred to State of Maharashtra/ APSEB. In support of this contention, the assessee's counsel referred to the certificate from the Executive Engineer, Koyna Construction Division, Koyna Nagar, and the certificate from the Executive Engineer, SLBHES, Division 2 Srisailam Dam. 59. We have considered the rival contentions, as also the relevant material on record referred to by the parties. We may note that as per section 8O-IA(4)(i)(b), the infrastructure facility developed by the enterprise should be transferred to Government within the period stipulated in the agreement. It had been the contention of the learned CIT/Departmental Representative that since the land on which infrastructure facility has been developed always belonged to the Government and assessee has already been paid for construction work, there is no question of "transfer" of infrastructure facility by the assessee. However, we are unable to agree with this contention of the learned CIT/Departmental Representative. At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether it be by periodical payment or by lump sum payment, and whether the payment is made while development work is in progress or when the same has been completed. In that view of the matter, the question of comparing the rights, title, or interest of an assessee (a developer) in infrastructure in the case of 'BT" with those of a developer in the case of 'BOT' or 'BOOT' is, in our considered opinion, of no relevant bearing on the issue, inasmuch as a developer seems to have almost same rights, title or interest (except regarding mode of payment or collection of tolls) in infrastructure facility whether it be the case of 'BT' or that of 'BOT' or 'BOOT', in view of the discussions made by us above. Accordingly, in the instant case as the activity of these two projects of infrastructure facility undertaken by the present assessee was of the kind of "BT" (build and transfer) being merely of 'development' and did not involve 'operate' aspect in respect of the same, the infrastructure facility developed by assessee had to be transferred and handed over to the Government of Maharashtra/APSEB on its completion only and without operating it, that is without resorting to the collection o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of facility whose operation and maintenance has already started before 1st April, 1995, an assessee was not eligible for deduction under section 80-IA. The Finance Act, 1999 has enlarged the scope of section 80-IA and with effect from assessment year 2000-01 any enterprise, which is carrying on the business of only developing the infrastructure facility, is also entitled to deduction under section 80-IA(4). Similarly, if any enterprise is carrying on the business of only maintaining and operating the infrastructure facility is also entitled to deduction under section 80-IA(4) and any enterprise which is developing as well as maintaining and operating, the infrastructure facility is also entitled to deduction under section 80-IA(4). 62. It is noteworthy that the condition at clause (c) which reads "It has started or starts operating and maintaining the infrastructure facility on or after 1st day of April, 1995" is obviously applicable to an enterprise which is 'maintaining and operating', the infrastructure facility, it cannot apply to the case of an enterprise, which has undertaken merely 'development' of infrastructure facility, and not its 'maintenance and operation' and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of providing irrigation and water supply to Konkan Region and also to generate hydro electricity. Similarly, for Srisailam project, at p. 2 of the assessment order, the Assessing Officer has observed that Srisailam project is a multi-purpose project, wherein water supply, irrigation and generation of hydro power are involved. (The said view is also supported by the two certificates pp. 8 and 9 of paper book-1 of assessee) of the engineers of the two respective projects. We find that the chief engineer, Koyna project has certified the purpose of the project as under: "This is to certify that the water from Shivaji Sagar Lake of Koyna hydro electric project is utilised for water supply, irrigation and power generation as per the administratively approved project report by irrigation department, Government of Maharashtra, which is as per Krishna Water Disputes Tribunal. This certificate is issued for official use only". 65. Similarly, the purpose of Srisailam project has been certified by the executive engineer, SLBHES, Srisailam Dam as under: "This is to certify that Srisailam project is a multi-purpose project where water supply, irrigation and hydro power generation are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that each stretch of development of the road project amounts to a development of 'infrastructure facility'. 68. We have considered the rival contentions as also the relevant material on record. We may note that the statutory provision as contained in section 80-IA provides for "development of infrastructure facility". It nowhere provides that entire infrastructure project is to be developed by one enterprise. It is revealed from record that both the projects were multi-purpose projects for water supply, irrigation and power generation. The assessee has developed such part of the project, as was for supply of water from river/lake to turbine. Therefore, the assessee has developed "infrastructure facility" for supply of water and for irrigation. Merely because development work done by assessee is a point to point milestone of a multi-purpose project, it would not debar the assessee from claiming deduction under section 80-IA(4), so long as the nature of development made by assessee falls within the ambit of "infrastructure facility" and since we have found it established above that development work carried out by assessee was for development of infrastructure facility, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 80-IA and direct the Assessing Officer to allow the same. As such ground No. 1 in assessee's appeal stands allowed and the Revenue's cross-objection stands rejected. We order accordingly. 72. Ground No. 2 in the assessee's appeal reads as under: "2.00 RE. Warranty expenses The learned CIT(A), having held that the project maintenance expenses had been incurred during the relevant assessment year erred in directing the learned Assessing Officer to allow the project maintenance expenses actually incurred by the assessee in the immediately succeeding year". 73. We have heard both the parties and perused the material placed before us. 74. During the year under consideration, the assessee has completed two projects and has offered the income on project completion basis. The assessee has also made provision for the project maintenance expenses, which it is required to incur as per the terms of agreement. The provision is made on estimated basis based on past experience. The Assessing Officer has disallowed the claim of the provision on the ground that is only a contingent liability. The CIT(A) has directed the Assessing Officer to allow project maintenance expenses actual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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