2012 (12) TMI 338 - HC - Income Tax

Deduction u/s 80HHBA Deduction u/s 80HHB Assessee was engaged in the business of engineering and technical consultants Deduction claimed in relation to derive profits from the business of execution of a foreign project AO argued that assessee s role in the above works are of consultancy and supervisory nature which cannot be treated as an integral part of execution of any project. Whether services rendered by the assessee fell within the scope of the expressions execution of a foreign project or execution of a housing project and the profits derived from such services are eligible for the deduction u/s 80HHBA & 80HHB Revenue contended that the expression used in both the sections is execution of the project or execution of a housing project and not merely project and therefore, the word execution would merely involve the physical activity or aspect of the project and cannot take in the technical or technological aspect. Held that - It was the duty of the assessee to ensure that the construction of the project is undertaken in an economical and efficient manner in accordance with the conditions of the contract, technical specifications and engineering drawings and any amendments thereto, to optimize the use of the available resources and to minimize the cost, maximize the quality of the work, to expedite the construction so as to meet the completion deadlines, to ensure that there is no cost over-run etc. Supply of material and labour which constitute the physical aspects of the project cannot by itself ensure the execution or completion of the project; it has to be complemented by an equally important aspect of the supply of the designs, drawings and such other technical or technological inputs as well as supervisory and engineering services rendered by the assessee company Both the physical as well as technical aspects of the project are equally important and one cannot be separated from the other. Therefore assessee is entitled to the deduction both u/s 80HHB and u/s 80HHBA. In favour of assessee

Summary

Issues Involved:
1. Eligibility for deduction under Section 80HHB.
2. Eligibility for deduction under Section 80HHBA.
3. Interpretation of "execution of a foreign project" and "execution of a housing project".

Detailed Analysis:

Eligibility for Deduction under Section 80HHB:
The primary issue revolves around whether the respondent-assessee's activities qualify as "execution of a foreign project" under Section 80HHB. The assessing officer disallowed the deduction, asserting that the assessee's role was limited to consultancy and supervisory services, which did not constitute the actual execution of a foreign project. However, the CIT(Appeals) and the Tribunal found that the assessee's role was integral to the execution of foreign projects, referencing the Supreme Court's judgment in Continental Construction Ltd. vs. Commissioner of Income Tax, which held that the expression "business of execution of a foreign project" includes all aspects of the business and activities ancillary to it. Thus, the profits derived from these activities qualify for the deduction under Section 80HHB.

Eligibility for Deduction under Section 80HHBA:
Similar to the issue under Section 80HHB, the eligibility for deduction under Section 80HHBA was questioned. The assessing officer argued that the assessee's involvement was merely supervisory and consultative, not constituting the execution of a housing project. The CIT(Appeals) and the Tribunal, however, concluded that the assessee's role in providing engineering and technical inputs, supervising construction, and ensuring adherence to design and technical specifications was integral to the execution of the housing projects. The Tribunal upheld the CIT(Appeals)'s decision, noting that the assessee's involvement was continuous and coterminous with the contractor's work, thus qualifying for the deduction under Section 80HHBA.

Interpretation of "Execution of a Foreign Project" and "Execution of a Housing Project":
The core dispute was the interpretation of the terms "execution of a foreign project" and "execution of a housing project." The revenue contended that these terms should be restricted to physical activities. In contrast, the assessee argued, supported by the CIT(Appeals) and the Tribunal, that these terms should be expansively interpreted to include technical and supervisory services essential for the project's completion. The Supreme Court's judgment in Continental Construction Ltd. supported this broader interpretation, stating that the execution of a project encompasses all necessary technical services and inputs. The High Court agreed with this interpretation, affirming that the assessee's activities were integral to the execution of both foreign and housing projects.

Conclusion:
The High Court dismissed the revenue's appeal, affirming the CIT(Appeals) and Tribunal's decisions that the assessee's activities qualified for deductions under Sections 80HHB and 80HHBA. The court emphasized that both physical and technical aspects are essential for project execution, and the assessee's role in providing engineering, technical, and supervisory services was indispensable. The substantial question of law was answered in favor of the assessee, confirming their eligibility for the deductions.