2016 (9) TMI 1573 - HC - Income Tax

Deduction u/s 80-IA (4) - assessee had merely executed a work contract for IRCON International Ltd. for construction of some part of the Railway bridge and works contract u/s 80-IA(4) - HELD THAT - Work executed is based on a contract between the Air Port Authority Railway Department Department of Roads in respect of each assessment year. AO in respect of each assessment year takes a different view by interpreting the contract. These contracts and the work executed fall within the ambit of Section 80-IA (4). Therefore the assessment in contradiction by interpreting the contract at their will is impermissible. It will be contrary to law. Since the requirements of Section 80-IA(4) are satisfied the assessee is entitled to the benefit of deduction under Section 80-IA(4). The respondent assessee is entitled to the deduction in respect of all assessment years for which deduction under Section 80-IA(4) has been denied. - Decided in favour of the assessee.

Summary

Issues Involved:
1. Whether the assessee company qualifies as a developer under Section 80-IA(4) of the Income Tax Act, 1961.
2. Whether the ITAT erred in law by relying on judgments not applicable to the assessee's case.
3. Whether the ITAT misinterpreted the provisions of the Income Tax Act, 1961 regarding the eligibility of contractors as developers.
4. Whether the ITAT was justified in allowing the loss on account of Quota written off as revenue expenditure.

Detailed Analysis:

Issue 1: Qualification as Developer under Section 80-IA(4)
The primary contention was whether the assessee company, engaged in the development of infrastructure like airports and railway bridges, qualified as a developer under Section 80-IA(4) of the Income Tax Act, 1961. The Revenue argued that the assessee merely executed work contracts and did not develop infrastructure facilities independently, thus making them ineligible for deductions under this section.

The Tribunal, however, held that Section 80-IA(4)(i) should be read disjunctively, meaning that an enterprise can qualify for deductions if it is involved in either developing, operating, or maintaining infrastructure facilities. The Tribunal emphasized that the word "or" in the provision indicates that fulfilling any one of these conditions is sufficient for eligibility. The Tribunal concluded that the assessee qualifies as a developer and is entitled to the deductions.

Issue 2: Reliance on Judgments
The Revenue contended that the ITAT erred by relying on judgments not applicable to the assessee's case. However, the Tribunal and the High Court found that the judgments cited were relevant and applicable. The Tribunal's reliance on these judgments was considered appropriate in interpreting the provisions of Section 80-IA(4) and determining the eligibility of the assessee for deductions.

Issue 3: Interpretation of Provisions
The Revenue argued that the ITAT misinterpreted the provisions of the Income Tax Act by holding that there was no bar for a contractor to be a developer for the purposes of Section 80-IA(4). The Tribunal clarified that the amended Section 80-IA(4)(i)(c) and its explanation make it clear that the deduction is allowable if the enterprise is involved in developing, operating, or maintaining infrastructure facilities. The Tribunal held that the assessee, being involved in the development of infrastructure projects, meets the criteria set out in the provision.

Issue 4: Allowance of Loss on Quota Written Off
In ITA No.35/2013, the issue was whether the ITAT was justified in allowing the loss of Rs. 7,85,590/- on account of Quota written off by treating it as revenue expenditure. The Revenue argued that it was a capital loss as the assessee had stopped its business. However, the Tribunal allowed the loss as revenue expenditure, and the High Court upheld this decision, finding no error in the Tribunal's judgment.

Conclusion:
The High Court dismissed all the appeals filed by the Revenue, affirming the Tribunal's decisions. The Court held that the assessee qualifies as a developer under Section 80-IA(4), the reliance on specific judgments was appropriate, the interpretation of the provisions was correct, and the loss on Quota written off was rightly treated as revenue expenditure. The questions of law were answered against the Revenue and in favor of the assessee.