TMI Blog2012 (8) TMI 1010X 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 the Assessing Officer on pro rata basis of turnover. The Assessing Officer is directed to examine the records, accordingly, and grant deduction on eligible turnover. Disallowance of claim of bad debt by enhancement of assessment by the CIT(A)- Held that:- As noticed by the CIT(A), there was a dispute regarding this issue and the dispute is pending before the Madras High Court. Further, it is not possible to claim the debt as bad debt in this assessment year 2002-03 on the basis of Tribunal award dated 10.1.2000 which is relevant to the assessment year 2000-01. Being so, we do not find any infirmity in the order of the CIT(A) and the same is confirmed on this issue. Penalty 271(1)(c) - Held that:- The issue relating to allowability of deduction u/s. 80IA we have remitted back the issue relating to allowability of deduction u/s. 80IA to the file of the Assessing Officer for fresh consideration. Hence, at this stage levy of penalty u/s. 271(1)(c) is premature. Accordingly, we are of the opinion that levy of penalty at this stage is not justified. - ITA No. 141/Hyd/2007, ITA No. 131 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01 which reads as under: Circular No. 14/2001 Explanatory Notes Finance Act, 2001 - Explanatory Notes on provisions relating to Direct Taxes Definition of 'Infrastructure facility' in section 10(23G) to be same as that in section BO-IA(4) 17.1 Under the existing provisions contained in clause (23G) of section 10, any income of an infrastructure capital fund or an infrastructure capital company by way of interest, dividend (other than dividends referred to in section 115-0) and long term capital gains from investment made by way of equity or long-term finance in an approved enterprise wholly engaged in the business of (i) developing, (ii) maintaining and operating, or (iii) developing, maintaining and operating an infrastructure facility shall not be included in computing the total income. 17.2 Fiscal incentives for development of infrastructure have been provided in the Income-tax Act as a package, so that tax holiday is allowed under section 80-IA to the infrastructure enterprise and income from long-term investment made by the Infrastructure Capital Company or Infrastructure Capital Fund in the approved enterprise is exempt under section 10(23G). Thus, wheneve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. With this in view, section Bo-IA has been amended to relax the existing two tier benefit to provide a ten year tax holiday. Keeping in view, their capital intensive nature, the higher allowances of depreciation in the initial years to such enterprises and the need for improved cash flows, an infrastructure facility in the nature of a road (including a toll road), bridge, rail system, highway project, water supply project, sanitation, sewerage and solid waste management system shall be allowed a ten year tax holiday in place of a two-tier tax holiday. Such an enterprise may avail of the tax holiday consecutively for any ten years out of twenty years beginning from the year in which the undertaking begins operating the infrastructure facility. 47.3 In the case of other infrastructure, namely, for airport, port, inland port and inland waterways, section Bo-IA has been further amended to relax the existing two tier fiscal incentive. Instead, an identical ten year tax holiday may be availed of in a block of initial fifteen years. 47.4 The condition that such infrastructure facility shall be transferred to the Central Government, State Government or local authority has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on the business of developing, maintaining and operating the infrastructure facility. Thus, to be eligible for this deduction, an assessee was required to carry out all the three activities, i.e., (i) to develop, (ii) to maintain and (iii) to operate. After the amendment effected in section 80-IA by the Finance Act, 1999 with effect from 1-4-2000, the deduction under section 80-IA(4) became available to any enterprise carrying on the business of (i) developing or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. [Para 7] Sub-clause (c) of section 80-IA(4) is applicable to an enterprise which is engaged in 'operating and maintaining' the infrastructure facility on or after 1-4- 1995. It is not applicable to the case of an enterprise, which is engaged in mere 'development' of infrastructure facility and not its 'operation' and 'maintenance'. Therefore, the question of 'operating and maintaining' of infrastructure facility by such an enterprise before or after any cut off date cannot arise. When the Act provides for deduction under section 80- IA(4), undisputedly for an enterprise, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the Government, for development work, it could not be denied deduction under section 80-IA (4). A person, who enters into a contract with another person, would be a contractor no doubt; and the assessee having entered into an agreement with the Government agencies for development of the infrastructure projects, was obviously a contractor; but that did not derogate the assessee from being a developer as well. The term 'contractor' is not essentially contradictory to the term 'developer'. On the other hand, rather section 80-IA(4) itself provides that the assessee should develop the infrastructure facility as per the 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. Therefore, merely because, in the agreement for development of infrastructure facility, assessee was referred to as contractor or because some basic specifications were laid down, it did not detract the assessee from the position of being a developer; nor would it debar the assessee from claiming deduction under section 80- IA(4).[Para 9] There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. What is significant is that in using the words which clause (e) uses in the Explanation, the Parliament has taken note of the position that was reflected in the circulars issued by the CBDT since 29-5-1972. The judgment of the Supreme Court in Associated Cement Co. Ltd. v. CIT [1993J 201 ITR 435/ 67 Taxman 346 gave an expansive definition to the expression 'work' and rejected the attempt of the assessee in that case to restrict the expression 'work' to works contract. Both before and after the judgment of the Supreme Court, the expansive definition of the expression 'work' co-existed with the revenue's understanding that a contract for sale would not be within the purview of section 194C. The revenue always understood section 194C to mean that, though a product or thing is manufactured to the specifications of a customer, the agreement would constitute a contract for sale, if (i ) the property in the article or thing passes to the customer upon the delivery; and (ii) the material that was required was not sourced from the customer/ purchaser, but was independently obtained by the manufacturer from a person other than the customer. The rationale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ark is the goodwill and reputation which is associated with the mark. This is particularly so in the case of a pharmaceutical product where the ultimate consumer is legitimately entitled to ensure that her health is not prejudiced by the consumption of a product not meeting prescribed standards. The owner of a mark, therefore, introduces specifications to ensure that the product meets the standards justifiably associated with the reputation of the mark. The specification ensures the observance of standards. Similarly, a clause relating to exclusivity is not inconsistent with a transaction of sale. Here again much depends upon the nature of the product. Restrictive covenants of this kind are intended to protect the intellectual and other property rights of a party which markets its goods by requiring a manufacturer to observe norms of specifications and exclusivity. The law is, therefore, consistent with the transaction being regarded as a transaction of sale, provided that the requirements of a contract of sale are met. They were net in the instant case. The contract entered into by the assessee was not a contract for carrying on any work within the meaning of section 194C. [P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ites, provide qualified and experience engineer for each project site etc to bring in to existence an infrastructure facility. Manufacturing of pipes to sites, excavation under various conditions of soil and rock, lowering and laying of pipes, jointing and testing of pipe joint and pipe line as a whole, construction of pump houses, storage tank/collection well, treatment plants, distribution plants etc and all these together develop in to a new infrastructure water supply facility. 8. Accordingly, the assessee is entitled for deduction under section 80IA of the Act. He submitted that the assessing officer ignored the fact that in all the contracts handed over to the assessee for development of the infrastructure facility. In few cases, after operation for certain period, had to re-hand over back the entire site with the infrastructure facility developed to the owner. He drew our attention to the copies of agreement entered with the State Government. He submitted that the above observation of the assessing officer is factually incorrect as it can be seen from the agreements and contracts the site if handed over back to the employer after development of the entire facility and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 41 which reads as follows:- 36. Here it is important to mention that the Legislature inserted the word 'or' between (i) and (ii) with effect from 1-4-2002, which is applicable to assessment year 2002-03. So with effect from the assessment year 2002-03, not only the enterprise (i) developing, (ii) operating and maintaining the infrastructure facility shall be entitled to deduction, but also the enterprise which is only (i) developing or (ii) operating and maintaining the infrastructure facility. From such year onwards the enterprise which only develops the infrastructure facility and thereafter transfers it to someone else for operating and maintaining on behalf of transferee shall also be covered for the purposes of granting benefit. The difference in the situation between assessment year 2002-03 onwards and prior two years is that whereas the operation and maintenance of the infrastructure facility on behalf of the enterprise developing is necessary in the former period, but in the later period, the operation and maintenance shall be on behalf of the transferee enterprise itself. Since in the years in question, the transfer of the enterprise for operation and maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court in the case of Hindustan Aeronautics Ltd. v. State of Orissa [1984) 55 STC 327 in which it has been observed that in a contract for work, the person producing has no property in the thing produced as a whole, even if part or whole of the material used by him may have been his property earlier. He also relied on another judgment of the Hon'ble Supreme Court in the case of Tamil Nadu v. Anandam Vishwanathan [1989) 1 SCC 613 in which it was held that the nature of contract can be found only when the intention of parties is found out. The fact that in the execution of the works contract some material are used and the property in the goods so used passes to the other party, the contractor undertaking the work will not necessarily be deemed, on that account, to sell the material. It was, therefore, argued that the developer is a person who brings in additional resources by way of investment and technical expertise for developing the infrastructure facilities. Since the assessee had simply done a part of work of civil construction relating to the infrastructure facility, he stated that it is not eligible for deduction. 39. We find it as an undisputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon'ble Supreme Court in the case of CWT v. Officer-In- Charge (Court of Wards) [1976]105 ITR 133 in which it was held that the ordinary dictionary meaning of a word cannot be disregarded. 40. Coming back to our point of ascertaining the meaning of the words 'contractor' as well as 'developer', which have neither been defined in the Act nor in the General Clauses Act, we fall upon Oxford Advanced Learner's Dictionary to find out their meaning. According to this dictionary, . developer is a person or company that designs and creates new products, whereas contractor is a person or a company that has a contract to do work or provides services or goods to another. The New Shorter Oxford Dictionary defines the word contractor as : person who enters into a contract or agreement. Now chiefly spec. a person or firm that undertakes work by contract, esp. for building to specified plans . In the light of the meaning ascribed to these words by the dictionaries, it is observed that the developer is a person who designs and creates new products. He is the one who conceives the project. He may execute the entire project himself or assign some parts of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e poses significant barriers to growth and development. A model which relied exclusively on the provision of basic infrastructure by the State was found to be deficient. Section 80-lA was an instrument of legislative policy, conceived with a view to provide an impetus to private sector participation in infrastructural projects. Contemporaneously, with the provisions which were made by Parliament in section 80-IA of the Act, explanatory circulars issued in an administrative capacity by the Central Board of Direct Taxes held the field. These circulars gave expression to the scope and ambit of the concession was provided by section 80-lA. The evolution of section 80-lA would show a progressive liberalisation of the legislative scheme, in the interests of aiding the growth of infrastructure. The administrative circulars issued by the Central Board of Direct Taxes in implementation of section 80-IA similarly liberalised the scheme, consistent with the Act. The expression development has not been artificially defined for the purposes of section 80-lA of the Act and must, therefore, receive its ordinary and natural meaning. An assessee does not have to develop the entire port in or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision 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 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 April 1, 1995. The assessee, in terms of the policy of the Government of India to encourage private sector participation in the development of infrastructure, bid for and was awarded a contract for leasing of container handling cranes at the Jawaharlal Nehru Port Trust (JNPT). In pursuance of the contract, the assessee deployed rail mounted quay side cranes, rail mounted gantry cranes and rubber tired gantry cranes at the container handling terminal of the JNPT. JNPT had a dedicated container hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unloading of containers at the port and that the cranes that were to be supplied by the assessee formed an integral part of the port. JNPT clarified that the contracts had been executed under the BOLT scheme and in accordance with its directions; the cranes would be transferred to the port trust at no cost on the expiry of a period of ten years of the commencement of the contract. The obligations which had been assumed by the assessee under the terms of the contract were obligations involving the development of an infrastructure facility. Section 80-IA of the Act essentially contemplated a deduction in a situation where an enterprise carried on the business of developing, maintaining and operating an infrastructure facility. A port was defined to be included within the purview of the expression infrastructure facility . The obligations which the assessee assumed under the terms of the contract were not merely for supply and installation of the cranes, but involved a continuous obligation right from the supply of the cranes to installation, testing, commissioning, operation and maintenance of the cranes for a term of ten years after which the cranes were to vest in JNPT free of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance, operating and maintenance of the project and more so the assessee itself incurred expenditure for procuring men and materials, machines and the investment is by the assessee itself, being so it can not be equated with Indian Home pies Company. Further, in the case of Indian Home pies Company, the Tribunal has recorded the finding of fact that there is no dispute that the assessee is covered by the Explanation below the section 80IA(13) of the Income Tax Act. But in the case of present assessee, it has been disputed the applicability of Explanation to section 80IA(13) s the undertaken various contracts on turnkey basis as submitted in earlier paras. 13. On the other hand, the learned departmental representative submitted that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law w.e.f. 1-4- 2002 is not material for adjudication of the grounds in the impugned appellate orders. This is because in so far as the contracts in question are in the nature of works contracts, the explanation inserted below section 80IA (13) with retrospective effect from 1-4-2000 has over-riding influence and debars the assessee's claim. Further it is contended that the introduction of the explanation below section 80 IA(13) in 2007 with retrospective effect from 1-4-2000 puts matters beyond doubt. The law on the subject of application of a retrospective amendment is clear from the special Bench decision of the Tribunal in the case of Aquarius Travels P Ltd. Vs. ITO (111 ITD 53). Such provisions should be applied in pending proceedings, even when they have not been involved earlier. As matters stand, therefore, the most important question for examination on facts is whether the business agreement in question can be termed a works contract or not. If the answer is in affirmative, nothing else matters because the Explanation takes over. If not, the other nuances such a development/operation etc., and other specified conditions become relevant. Reliance was placed in this rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership; retransfer; assumption of assured responsibility regarding operational readiness, etc., noticed in ABG Heavy Industries are not noticed in the facts of the case as digested by the afore mentioned decision of the Pune Bench of the ITAT in the case of LCE. iv) The unbundling of conditions of development, operation maintenance, and development operation and maintenance, in the sense of making them non cumulative by amendment of law effective from 1-4- 2002 is not the only relevant issue. The larger issue is whether the assessee is a developer in the first place. v) In the case of B.T. Patil, the cumulative or non cumulative satisfaction of conditions in section 80IA(4)(i) was never a material fact. This was so not only because the impugned appeals related to pre 1-4- 2002 period, but also because the matter was deci9ded on the preliminary issue of whether the assessee was a developer or not in the first place. vi) Some of the attributes of a developer were discussed in the case of B.T. Patil, none of whom were absent in the case of ABG Heavy Industries. 19. According to the DR, the decision of the Mumbai High Court, though later in time was different in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y case, for the above-cited reason also and this issue can be seen in another perspective. There is nothing in the case of ABG Heavy Industries that supports the view that the 'developer' has to e seen de hors the contract and its stipulations. In the case of ABG Heavy Industries the Revenue took the stand that the assessee was not a developer because it was only a supplier of the equipment. This did not find favour because it was held that the nature of the business had to be seen in terms of the obligations assumed under the contract which included not only supply and installation of the cranes but also testing, commitment of operational readiness for a period of ten years on the pain of liquidated damages and eventual re-transfer after such period. In the case of ABG Heavy Industries, the creation of certain standalone parts of the part complex qualified for being termed on infrastructure project because the Board Circular 793 dated 23-6- 2000 clarified that part of the project would qualify if so certified by the Port Authorities. The container handling cranes assembly was certified to be an integral part of the Port Complex by the Port Authority. This is contextually v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the changes in law after 1-4-2002 were not even called into play in the case of B.T. Patil. It is further submitted that the Mumbai High Court's decision in the case of ABG Heavy Industries not only runs on different facts, it does not even refer to the case of B T Patil. Furthermore, the Mumbai High Court's stand that the nature of the business should be seen in the context of the obligations assumed under the contract only complements, not contradicts the larger Bench's distinction between a developer and contractor simpliciter, as noted hereinabove. It would be wrong and therefore to suggest that the case of B.T. Patil has been impliedly over-ruled by the High Court's decision. The departmental representative also places reliance on another decision of the Mumbai Bench of the Tribunal in the case of Indian Hume Pipe Co. Ltd., vs. DCIT ITA No. 5172/Mum/2008, dated 29-7-2011 for assessment year 2004-05 wherein held that the company was not entitled to deduction u/s 80IA(4) of the Income Tax Act 1961 as it was only a works contract and not a development of eligible infrastructure projects.. This decision pronounced after the Pune Bench decision in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not any other person like individual, HUF, Firm etc. 25. We also find that according to sub-clause (a), clause (i) of sub section (4) of Section 80-IA the word it denotes the enterprise carrying on the business. The word it cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word it is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. 26. The next question is to be answered is whether the assessee is a developer or mere works contractor. The Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 80IA (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an un-developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80IA (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. 27. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is clear from the express intension of the parliament while introducing the Explanation. The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstrated before us that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know-how, expertise and financial resources. 29. As per submission of the assessee's counsel broadly the technical nature of the work undertaken by the assessee is as follows: i) Designing and Manufacturing of pipes: The assessee specially designed and manufactured Pre-stressed concrete pipes and it has been done in accordance with specific requirements. ii) Design and manufacturing of pipe fittings or spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, in our considered view, the assessee should not be denied the deduction under section 80IA of the Act if the contracts involves development, operating, maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract to deny the deduction u/s 80IA of Act. In our opinion the contracts which contain above features to be segregated on this deduction u/s. 80-IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 80IA(13), those work are not entitle for deduction u/s 80IA of the Act. The profit from the contracts which involves development, operating, maintenance, 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 the records accordingly and grant deduction on eligible turnover as directed above. It is needless to say that similar view has been taken by the Chennai Bench of the Tribunal and deduction u/s. 80IA was granted in the case of M/s. Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287/Mds/06 order dated 27t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect 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. 26. In view of the above orders of the Tribunal on similar issue relating to deduction u/s. 80-IA(4), we are inclined to remit the issue back to the file of the Assessing Officer to decide the issue in the light of the above orders 27. The next for our consideration in ITA No. 465/Hyd/06 is with regard to claim of bad debts. The assessee claimed bad debts of ₹ 26,42,293 with regard to advance made to suppliers of labourers, miscellaneous sub-contractors and suppliers who are normally local residents of the project site. Further the assessee claimed deduction in respect of debt of ₹ 1,68,79,143. The CIT(A) while considering the issue relating to the allowability of bad debts of ₹ 26,42,293 given a finding that the assessee not discharged the genuineness of the case and also failed to furnish complete address of debtors, invoice no., amount and date. Being so, the claim was disallowed. 28. Before us the learned AR submitted that these debts were ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the same was disallowed by him which resulted in enhancement of income. 33. We have heard both the parties on this issue. As noticed by the CIT(A), there was a dispute regarding this issue and the dispute is pending before the Madras High Court. Further, it is not possible to claim the debt as bad debt in this assessment year 2002-03 on the basis of Tribunal award dated 10.1.2000 which is relevant to the assessment year 2000-01. Being so, we do not find any infirmity in the order of the CIT(A) and the same is confirmed on this issue. 34. Now coming to the appeal in ITA No. 640/Hyd/2006, the issue is relating to levy of penalty u/s. 271(1)(c) of the Income-tax Act, 1961. 35. Facts of the issue in brief are that the assessee filed a return of income for assessment year 2002-03 on 28.8.08 admitting total income of ₹ 3,17,19,933. The revised return was filed on 24.10.02 admitting income at ₹ 3,31,82,219. The revised return was processed u/s. 143(1) on 27.11.2002. The case was selected for scrutiny and the assessment u/s. 143(3) was completed on 31.3.2005 determining total income at ₹ 3,62,19,230. The assessee filed an appeal before the CIT(A) against the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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