2009 (10) TMI 521 - AT - Income Tax

Deduction u/s 80-IA(4) - Appointment of Third Member - AO did not allow the deduction as in his opinion the assessee had not fulfilled conditions stipulated in sub-section (4) inasmuch as the infrastructure was not owned by the assessee-company - CIT(A) came to hold that the assessee could not be called as a Developer in the sense of section 80-IA because no agreement was signed by it with the Central Government or State Government or local authorities for development of projects under BOT or BOOT scheme - Difference of opinion between the ld' JM and the ld' AM - AM did not concur with the view expressed by the learned JM in granting deduction u/s 80-IA(4) in respect of all the projects undertaken by the assessee. On illustrative basis he explained the facts of Koyna project in which the assessee was a sub-contractor. Then he took note of the amendment made in section 80-IA by the Finance Bill, 2007 by which an Explanation has been introduced with retrospective effect from 1-4-2000. In the opinion of the learned AM even if there was some lack of clarity in the main provision, the new Explanation clarified the position that no deduction could be allowed. That is how this matter is before the instant Larger Bench. Whether it is reference under sub-section (3) or (4) of section 255? - As the reference stood already made by the members of the Division Bench u/s 255(4) when they shortlisted their difference of opinion by formulating the questions, the constitution of Larger Bench by the Hon ble President under such compelling circumstances was only u/s 255(4) and not u/s 255(3). The reference to sub-section (3) by the Hon ble President in this reference appears to be only with a view to nominate a Larger Bench of three members so that there may not be any problem of majority opinion on the applicability or otherwise of Explanation below section 80-IA(13) inserted by the Finance Act, 2007. We, therefore, clarify that for all practical purposes it is a reference to the Larger Bench comprising of three members u/s 255(4) of the Act. Permission to intervene and extent of intervention in proceedings under section 255(4) - The intervention can be allowed only to that aspect of the legal issue which is before the Bench in the proceedings under section 255(4). No other aspect even of the same legal issue which is subjudice before the Bench, can be allowed to be argued. As the decision of the Bench under section 255(4) has to be only on the point or points by which the members of the Division Bench differed, it cannot be called upon to express opinion, either generally or specifically, on any aspect of the matter other than that which is under consideration. We, therefore, permit the interveners to address the Bench only on the legal issue raised before us and not to transgress the boundaries inherently set up by the questions under consideration. Whether the Tribunal has to decide an issue on the basis of the law as it stands on the day of the passing of the order?- A.R. argued that the learned Accountant Member passed his order by taking cognizance of the provisions of Finance Bill, 2007 which were not enacted by that time - HELD THAT - Once a proposal in the Finance Bill is converted into provision in the Act, such provision becomes applicable. Lot of emphasis has been laid by the learned A.R. on the proposition that when the learned AM passed his order, the said Explanation to section 80-IA was merely a proposal in the Finance Bill and not enacted. It is observed that the Finance Bill, 2007 became Act on receiving the assent of the Hon ble President of India. The learned AM passed his order on 21-5-2007, i.e., after the enactment of Explanation below section 80-IA(13). It is, therefore, clear that when the learned AM passed his order, the Explanation to section 80-IA had already come into force with retrospective effect from 1-4-2000. Thus, it is evident that this issue has been needlessly dragged by the learned A.R., which otherwise has no legs to stand on. Applicability of law standing on the day of the passing of the order - When an amendment is carried out to a particular section with retrospective effect, the authorities before whom the matter is pending, are bound to apply the amended law even if it sees the light of the day after the passing of the order by the authorities below it. Thus, any retrospective amendment made to a particular provision covering the year in dispute, needs to be given effect to on any matter pending before any authority, notwithstanding the fact that such amendment was carried out after the passing of the assessment order. Therefore, it is not permissible to argue that the Tribunal is incompetent to take cognizance of any provision which comes into existence with retrospective effect, on the issue pending before it. However, it is of paramount importance that before applying such amended provision, aggrieved party must be given an opportunity of hearing. Whether a Bench u/s 255(4) can take note of a provision inserted with retrospective effect having bearing on the issue, coming into existence after the passing of separate orders by the dissenting members but during the pendency of dispute before the Bench under sub-section (4) of section 255? - The very purpose of conducting judicial proceedings by Bench under section 255(4) for hearing on such point or points depicts that the parties are at liberty to advance any legal submission before the Bench on the question before it, even if such submission was not made at the time of hearing before the Division Bench. Making of additional legal submission by the parties in the proceedings under section 255(4) is poles apart from the proscription on the parties in filing additional evidence before the Bench which was not made available to the Division Bench. Thus, it is clear that both the parties are at liberty to raise any legal submission in respect of the question before the Bench under section 255(4) notwithstanding the fact that such submission was not or could not have made earlier. It is unrealistic to argue that the later amendment in the statutory provision or development of law on the question which is pending in dispute relating to the year, should be ignored. Not following such amendment would give absurd results and the order so passed will be rendered erroneous. There remains no doubt whatsoever that the retrospective amendment is a good ground for the rectification of an order. When the retrospective amendment is a valid ground for rectification of the order, we fail to see as to why such amendment be not applied when the proceedings are continuing under section 255(4). We, therefore, hold that the Tribunal is not empowered but duty bound to apply such retrospective amendment made to the relevant section after allowing chance to the aggrieved party to address on such retrospective amendment concerning the dispute in question. We, therefore, answer this question in affirmative by holding that the Tribunal has to decide an issue on the basis of the law as it stands on the day of the passing of the order. Entitlement for deduction u/s 80-IA(4) - ascertaining the meaning of the words contractor as well as developer - HED THAT - We find it as an undisputed position that the words developer and contractor have not been defined in or for the purposes of section 80-IA. It is a settled legal position that ordinarily the meaning or definition of a word used in one statute cannot per se be imported into another as has been held by the Hon ble Supreme Court in the case of Union of India v. R.C. Jain 1981 (2) TMI 200 - SUPREME COURT . Therefore, the meaning of the words developer and contractor , as put forth before us by the rival parties from other legislations, be they State or Central enactments, cannot be automatically applied in the present context. In order to ascertain the meaning of a word not defined in the Act, a useful reference can be made to the General Clauses Act, 1897. It is noted from the material on record that the assessee was given civil construction work to be done strictly according to the plan laid down by the State Government/Statutory Authorities. Such authorities have been referred to as the owner and the assessee as the joint venture for executing the contract. The sphere of work assigned to the assessee is simply to do the specified job of civil construction. It is not involved in the planning and development of the infrastructure facility as a whole. Therefore, the claim of the assessee fails on both the counts, viz., it is neither a developer nor it fits into any of the two categories of the eligible businesses of ( i ) developing, ( ii ) maintaining and operating infrastructure facility on one hand or ( iii ) developing, maintaining and operating any infrastructure facility on the other. When we examine the mandate of clause ( i ) of sub-section (4) of section 80-IA it transpires that the eligible enterprise must fulfil all the conditions set out in sub-clauses ( a ), ( b ) and ( c ) of section 80-IA(4)( i ). Here it is important to notice that the transfer of infrastructure facility from one person to another should be only for the purpose of operating and maintaining it on its behalf and that too in accordance with the agreement with Central/State Government or Local Authority or Statutory Body, etc. We find that the assessee has failed to satisfy the condition as enshrined in sub-clause ( c ) as it had neither started operating and maintaining the infrastructure facility nor it transferred anything to someone else for operating on its behalf and still further there is no question of concurrence of the concerned authority as there is no such clause in any of the agreements with them. Rather there cannot be any question of such operation or maintenance since the infrastructure facility is not at all owned by the assessee. From the foregoing discussion it is manifest that the assessee failed to satisfy the conditions as laid down in clause (i) read with those mentioned in sub-clauses ( a ) to ( c ) of sub-section (4) of section 80-IA. It cannot be conferred with the benefit as provided in section 80-IA. It is merely doing work of civil construction, which is a part of the entire infrastructure project and not the whole of it. The claim made on behalf of the assessee that on account of its association with the infrastructure facility in any manner, even though partly, the eligibility for deduction is earned, is untenable. In the present case, the infrastructure facilities in respect of which the assessee is claiming deduction, are being set up by the State Government(s) or local/statutory authorities and the assessee is simply engaged in some construction work, thereby contributing partly in the attainment of the object of developing the infrastructure facility. Under such circumstances, it does not qualify for deduction within the framework of sub-section (4)( i ) itself. Effect of the insertion of Explanation below section 80-IA(13) by the Finance Act, 2007 which was subsequently substituted with a new Explanation by the Finance Act, 2009 with retrospective effect from 1-4-2000 - The position which was earlier apparent on a careful look of the provisions of sub-section (4) has now been made available even at the cursory look through the Explanation by clarifying the hitherto intention of the Legislature that no person executing the works contract shall be eligible for deduction under section 80-IA, even if it is an enterprise as referred to in sub-section (1). The language of this Explanation makes it crystal clear that the benefit under sub-section (4) cannot be provided to a business referred to in sub-section (4) which is in the nature of works contract awarded by any person including the Central or State Government and executed by the undertaking or enterprise referred to in sub-section (1). From the memorandum explaining the rationale behind the substitution of Explanation it can be easily seen that the Legislature clarified its intention beyond any doubt that the deduction cannot be allowed in relation to an eligible business which is in the nature of works contract. Even if one presumes, for a moment, that all the conditions set out in sub-section (4) clause ( i ) are satisfied, which are actually not fulfilled in the instant case, and the enterprise is covered under sub-section (1), then also deduction cannot be allowed in relation to a business which is in the nature of a works contract. As provision should be strictly construed as regards the applicability to the case of the assessee. It is only when the applicability is found that the process of liberally interpreting the same commences. Here is a case in which the assessee does not satisfy the applicability condition itself as the profits from works contract awarded to it are excluded from the ambit of the deduction under this provision. Without the aid of Explanation to this section, we have concluded above that the conditions set out in sub-section (4) clause ( i ) are not satisfied and, hence, the assessee cannot claim deduction under this section. The insertion and substitution of the Explanation is only to clarify that the deduction cannot be allowed in relation to a business in the nature of works contract under any circumstance. In other words, the view emerging from the careful circumspection of sub-section (4) has been endorsed by the Explanation and that too with retrospective effect from 1-4-2000 thereby covering both the years under consideration. We, therefore, answer question No. 1 in negative by holding that the assessee is not entitled to deduction under the provisions of section 80-IA(4) in respect of the projects undertaken. We agree with the view expressed by the ld. Accountant Member and direct listing of the matter before the Division Bench, for passing an order in accordance with majority view.

Summary

Issues Involved:
1. Eligibility of the appellant for deduction under section 80-IA(4) of the Income-tax Act, 1961.
2. Applicability of the law as it stands on the day of passing the Tribunal's order.

Issue-wise Detailed Analysis:

1. Eligibility of the Appellant for Deduction under Section 80-IA(4):

The appellant, a civil contractor, claimed deductions under section 80-IA(4) for various infrastructure projects. The Assessing Officer denied the deductions, arguing that the appellant did not meet the conditions stipulated in sub-section (4) of section 80-IA. The projects were not owned by the appellant, there were no agreements with the government for developing, operating, and maintaining any infrastructure facility, and the appellant was merely executing construction contracts for government bodies.

The CIT(A) upheld the Assessing Officer's decision, noting that the projects did not satisfy the conditions of section 80-IA(4). Specifically, the Bhima Sina Link Canal Tunnel project was a joint venture with a non-corporate entity, which did not meet the "consortium of companies" requirement. The Kadabgatti Tunnel project was executed before the stipulated date of 1-4-1995. The Koyna Hydro Electric Project was a sub-contracted work, and the Jihe Kathapur Lift Irrigation Project was a joint venture with non-corporate entities.

The Tribunal's Judicial Member allowed the deduction, interpreting that the appellant was a developer and that ownership of the project by the government did not disqualify the appellant. However, the Accountant Member disagreed, emphasizing the retrospective amendment by the Finance Bill, 2007, which clarified that no deduction could be allowed for works contracts.

The Larger Bench, considering the difference in opinions, concluded that the appellant did not qualify for the deduction. The appellant was merely executing construction contracts and was not involved in developing, operating, and maintaining the infrastructure facilities. The projects were owned by the government, and the appellant did not meet the conditions of section 80-IA(4). The retrospective amendment by the Finance Act, 2009, further clarified that deductions under section 80-IA are not applicable to works contracts.

2. Applicability of the Law as it Stands on the Day of Passing the Tribunal's Order:

The Tribunal had to decide whether to apply the law as it stood on the day of passing the order. The appellant argued that the Accountant Member erred by considering the Finance Bill, 2007, which was not enacted at the time of passing the order. However, the Tribunal clarified that section 294 of the Act, which deals with the charging of income-tax, was not applicable in this context.

The Tribunal emphasized that the law governing the issue, as it stands on the day of passing the order, must be applied. This includes any retrospective amendments made to the relevant provisions. The Finance Bill, 2007, became an Act on 11-5-2007, and the Accountant Member's order was passed on 21-5-2007. Therefore, the retrospective amendment was applicable.

The Tribunal cited various judgments, including the Supreme Court's decision in M.K. Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd., which held that retrospective amendments must be considered even if they come into force after the assessment order. The Tribunal concluded that it is bound to apply the law as it stands on the day of passing the order, including any retrospective amendments.

Conclusion:

The Tribunal concluded that the appellant was not entitled to deductions under section 80-IA(4) for the projects undertaken. The appellant did not meet the conditions of developing, operating, and maintaining infrastructure facilities and was merely executing construction contracts. The retrospective amendment by the Finance Act, 2009, further clarified that deductions under section 80-IA are not applicable to works contracts. The Tribunal also affirmed that it must apply the law as it stands on the day of passing the order, including any retrospective amendments.