2014 (10) TMI 1024 - AT - Income Tax

Eligibility of deduction u/s. 80IA(4) - income derived by the assessee from undertaking contract work - claim for deduction was declined by the lower authorities on the plea that the contract awarded to the assessee it contributed only part of the whole Krishna water supply project and therefore the work of the assessee was not regarding entire water supply project - as per CIT-A the assessee is a developer of infrastructure facilities and eligible for claiming deduction - HELD THAT - Assessee is entitled for deduction u/s 80 IA(4) of the Act. We have already held that assessee is entitled for deduction under section 80 IA(4) in respect of A.Y. 2004-05 and 2005-06 as relying on ABG HEAVY INDUSTRIES LIMITED 2010 (2) TMI 108 - BOMBAY HIGH COURT . That decision will be applicable for A.Y 2007-08 in case of both the assesees. Therefore these appeals of the assessee are also allowed.

Summary

Issues Involved:
1. Eligibility for deduction under section 80IA(4) of the Income Tax Act, 1961.
2. Determination of the assessee's role as a developer or contractor.
3. Interpretation of the term "developer" under section 80IA(4).
4. Applicability of judicial precedents to the assessee's case.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IA(4):
The primary issue revolves around whether the assessee qualifies for a deduction under section 80IA(4) of the Income Tax Act, 1961. The Revenue contends that the assessee is not eligible because it is merely a contractor without financial stakes in the projects, receiving periodic payments for work executed. The CIT(A) had allowed the deduction for the assessment year 2001-02 but denied it for 2006-07 and 2007-08. The Tribunal, however, found that the assessee is engaged in the development of infrastructure facilities and is entitled to the deduction, following the precedent set by the Hon'ble Bombay High Court in CIT vs. ABG Heavy Industries Ltd., 322 ITR 323.

2. Determination of the Assessee's Role as a Developer or Contractor:
The Revenue argues that the assessee is merely a contractor and not a developer, as it does not operate or maintain the infrastructure facilities and does not bear any financial risk. The Tribunal, however, observed that the assessee's activities, including laying pipelines and other infrastructure work, qualify as development under section 80IA(4). The Tribunal emphasized that the term "developer" should be interpreted broadly and that the assessee's involvement in significant portions of infrastructure projects qualifies it as a developer.

3. Interpretation of the Term "Developer" under Section 80IA(4):
The Tribunal referred to the Hon'ble Bombay High Court's interpretation in CIT vs. ABG Heavy Industries Ltd., which clarified that the term "developer" includes entities that develop parts of infrastructure projects. The Tribunal noted that requiring an entity to develop an entire project to qualify as a developer would be an impossible condition. The Tribunal held that the assessee, by undertaking substantial development work, meets the criteria of a developer under section 80IA(4).

4. Applicability of Judicial Precedents to the Assessee's Case:
The Tribunal relied on several judicial precedents, including the Hon'ble Bombay High Court's decision in CIT vs. ABG Heavy Industries Ltd., and the ITAT's decisions in Patel Engineering Ltd. and B.T. Patil & Sons Belgaum Construction Pvt. Ltd. The Tribunal noted that these precedents support the assessee's claim for deduction under section 80IA(4). The Tribunal also highlighted that the Special Bench decision in B.T. Patil & Sons was no longer good law after the Bombay High Court's ruling.

Conclusion:
The Tribunal concluded that the assessee is entitled to the deduction under section 80IA(4) for the assessment years in question. The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeals, directing the Assessing Officer to grant the deduction. The judgment reinforces the broad interpretation of the term "developer" and the applicability of section 80IA(4) to entities involved in significant infrastructure development activities.