2014 (10) TMI 930 - AT - Income Tax

Disallowance of deduction u/s.80IA and sec.80IB - AO disallowed the claim of the assessee on the ground that the assessee is not a developer of the project and merely worked as a contractor - Held that - In these appeals, we note that the project was duly approved by the competent authority, therefore, condition No.(i) is fulfilled, likewise the condition contained in (ii) is also fulfilled and similar is the position with respect to condition as contained in (iii). So far as, condition contained in sub clause (b) is concerned the size of the plot is also within the prescribed limit of more than one acres and the development of the project was carried out in accordance with the scheme framed by the government. So far as built up area condition is concerned this is also within the specified limit, meaning thereby all the conditions as stipulated in this section are complied with by the assessee. The totality of facts are clearly indicative to the conclusion, as discussed earlier also, that the assessee is not a work contractor, rather, it developed the project in every respect right from soil-testing, earth filling, designing, planning, sewerage, drainage, and till the final completion of the project. It is worth quoting that as per condition No. (iii) the flats were to be maintained till they are handed over to the Engineer in Charge. Hon ble Jurisdictional High Court in the case of ABG Heavy Industries Ltd. (2010 (2) TMI 108 - BOMBAY HIGH COURT) decided the similar case in favour of the assessee treating him to be a developer. The expression development has not been artificially defined for the purposes of sec.80IA/80IB of the Act, therefore, it should receive its ordinary and natural meaning. The Parliament in its wisdom amended the provisions of sec.80IA/80IB of the Act so as to clarify that in order to avail a deduction the assessee should (i) develop or (ii) operate and maintain or (iii) develop, operate and maintain the facility. Parliament eventually stepped into to clarify that it was not invariably necessary for a developer to operate and maintain the facility So far as, the contention of the Revenue that the assessee is not the owner of the project. We note that the section nowhere put a condition that for claiming deduction under these sections necessarily the assessee has to be the owner of the project. This is not the intention of the legislature otherwise nothing prevented it to include such clause at the time of legislating/inacting the provision. If the contention of the ld. DR is accepted then whole purpose of inacting such provision and consequent development of infrastructure will be defeated. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of deduction under sections 80IA and 80IB of the Income Tax Act, 1961.
2. Whether the assessee qualifies as a "developer" or merely a "contractor."
3. Compliance with the conditions specified under sections 80IA(4) and 80IB(10).

Detailed Analysis:

1. Disallowance of Deduction under Sections 80IA and 80IB:
The primary issue in these appeals is the disallowance of deductions claimed by the assessee under sections 80IA and 80IB of the Income Tax Act, 1961. The first appellate authority confirmed the disallowance, leading the assessee to appeal before the Tribunal.

2. Whether the Assessee Qualifies as a "Developer" or Merely a "Contractor":
The assessee argued that it was responsible for the complete development of the project, including planning, designing, soil testing, civil work, electrification, infrastructure, and services like sewerage, drainage, street lighting, roads, water supply, horticulture, and landscaping. The assessee contended that it was not merely executing a work contract but was developing the entire project, thereby qualifying as a "developer" entitled to deductions under sections 80IA and 80IB.

The Revenue, on the other hand, argued that the assessee was merely a work contractor for the Delhi Development Authority (DDA), executing the work given by the DDA. The Revenue contended that the budget, risk, and decision-making were all managed by the DDA, and thus the assessee was not a developer.

3. Compliance with Conditions Specified Under Sections 80IA(4) and 80IB(10):
The Tribunal examined the terms and conditions of the contract between the assessee and the DDA. The conditions indicated that the assessee was responsible for the complete development of the project, including planning, designing, soil testing, earth-filling, civil works, electrification, infrastructure services, and making the units habitable.

The Tribunal noted that the assessee was not merely constructing flats but was developing the entire infrastructure, including services like sewerage, drainage, water supply, roads, electrification, and other facilities. The Tribunal concluded that the assessee was not a contractor simplicitor but a developer.

The Tribunal also analyzed the provisions of sections 80IA(4) and 80IB(10) and found that the assessee fulfilled all the conditions specified under these sections. The project was approved by the competent authority, the size of the plot was within the prescribed limit, and the built-up area condition was also met. The Tribunal emphasized that the provisions should be construed liberally to promote growth and development.

The Tribunal referred to various judicial pronouncements, including the decision of the Hon'ble Bombay High Court in CIT vs. ABG Heavy Industries Ltd. and the Pune Bench of the Tribunal in M/s. Pratibha Constructions & Engineers (I) P. Ltd., which supported the view that the assessee was a developer and entitled to the claimed deductions.

The Tribunal also addressed the Revenue's contention that the assessee was not the owner of the project. The Tribunal clarified that the sections did not require the assessee to be the owner of the project to claim deductions. The intention of the legislature was to promote infrastructure development, and the ownership condition was not stipulated in the provisions.

Conclusion:
The Tribunal concluded that the assessee was entitled to the claimed deductions under sections 80IA and 80IB of the Income Tax Act, 1961. The appeals were disposed of in favor of the assessee, and the order was pronounced in the open court on October 10, 2014.