2021 (5) TMI 1008 - AT - Income Tax

Disallowing 80IA deduction - non meeting the conditions of development of infrastructure facility - Whether lower authorities have erred in law and on facts in disallowing assessee s 80IA(4) deduction claim despite the fact that it has developed the impugned infrastructure facilities? - assessee pleaded that it has undertaken the business risk not only in the development of the said lift channel forming part of the irrigation project which has turned barren uneven tracks of land to a canal but also it had deployed all of the corresponding plant and machinery labour force followed by retention money s project thereby satisfying all the conditions of development of infrastructure facility - HELD THAT - The assessee s first and foremost plea that we ought to adopt liberal interpretation while considering section 80IA(4) claim in the light of relevant facts in the instant case deserves to reject. Suffice to say such a course of liberal interpretation is no more available while dealing with the Income Tax Act s provisions as per honourable apex court s recent constitutional bench s decision in Commissioner of Customs (Import) Vs. Dilip Kumar and Co. 2018 (7) TMI 1826 - SUPREME COURT settling the law that a fiscal statute as well as an exemption clause incorporated therein ought to be construed in stricter parlance only. Their lordships make it clear that benefit of doubt in case of taxing provision goes to the tax payer and vice versa in an instance of an exemption provision. The assessee s first argument is rejected therefore. We find force in Revenue s instant argument as the Finance Act 2009 substitutes the earlier explanation that the same would not cover a works contract for the purpose of providing deduction qua industrial undertaking or enterprise engaged in infrastructure development etc. Stages I II of the Bhima Lift Irrigation project undertaken by the assessee containing all the civil works like canal approach to the tunnel tunnel surge pool pump house delivery mains manufacturing testing inspection packing supply erection and commissioning of electro mechanical and hydro mechanical equipment indeed formed an architectural as well as engineering structure and therefore amounts to an execution of a works contract awarded by the state government through its irrigation development only and covered u/s. 80IA Explanation incorporated in the Act by the Finance Act 2009 w.e.f. 1.4.2000. CIT-DR at this stage invited our attention to page 18 in assessee s Paper Book II Part 1 that it had purely executed works contract only in view of the fact that the irrigation department had issued it mobilization advances on multiple occasions from time to time. He next took us to agreement clause 3.15 containing contract price and payment making it evident that the assessee had to be paid on fixed lump sum monthly basis only. And further that the assessee was entitled to get fixed lump sum monthly instalment payments provided value of the work executed is more than or equal to the fixed lump sum monthly instalment as indicated in the agreement. The said agreement stipulated advance payments to the assessee qua supply of goods at the site. All these facts sufficiently indicate that the assessee assuming that not accepting that it is the developer u/s. 80IA(4) of the Act executed a works contract only under Explanation to section 80IA of the Act and therefore not entitled for the impugned deduction. Such a strict interpretation employed in dealing with an instance of development of an infrastructure project would tantamount to closing the deduction chapter altogether and more particularly when this assessee has borne all risks and responsibilities of the lift irrigation project by paying reduction money and performance guarantee(s) as well - We hold that this last argument also fails to cut any ice since the assessee has merely performed a works contract and its retention money or the so called performance guarantee only gave an assurance to the irrigation development that it had carried out the corresponding construction etc. as per the specified design norms than involving any business risk. We accordingly hold the view of our independent appreciation of facts as well as assessment findings that the assessee is a contractor having executed works contract only. It is clear that the assessee has first of all been paid mobilization advances by the state government s department on periodic basis and then only it executed the corresponding lift irrigation project works contract followed by its yet another claim of section 80IA of the Act deduction (supra). We are afraid that such a liberal interpretation would amount to going against the stricter interpretation principle in view of honourable apex court decision Raghunath Rai Baraza Vs. PNB 2006 (12) TMI 479 - SUPREME COURT . We accordingly conclude both the learned lower authorities have rightly disallowed assessee s 80IA deduction claim involving varying sum(s) (supra) in their respective orders. - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of Section 80IA deduction claims.
2. Interpretation of the term "developer" under Section 80IA(4).
3. Examination of whether the assessee executed a works contract or developed an infrastructure facility.
4. Applicability of the Explanation to Section 80IA introduced by Finance Act, 2009.

Issue-wise Detailed Analysis:

1. Disallowance of Section 80IA Deduction Claims:
The core issue in all nine appeals is the disallowance of the assessee's Section 80IA deduction claims for various assessment years. The assessee, a joint venture engaged in developing irrigation projects, claimed deductions under Section 80IA(4) of the Income Tax Act, 1961, for its work on the Bhima Lift Irrigation Scheme. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disallowed these claims, stating that the assessee did not fulfill the conditions required for such deductions.

2. Interpretation of the Term "Developer" under Section 80IA(4):
The assessee argued that it qualifies as a "developer" under Section 80IA(4) because it undertook the development of infrastructure facilities, including design, development, engineering, construction, and maintenance. The CIT(A) initially held that fulfilling any of the three conditions—developing, operating and maintaining, or developing, operating, and maintaining—would suffice for eligibility under Section 80IA. However, the AO contended that the assessee did not operate or maintain the infrastructure and only executed part of the project, thus failing to meet the criteria.

3. Examination of Whether the Assessee Executed a Works Contract or Developed an Infrastructure Facility:
The tribunal examined whether the assessee executed a works contract or developed an infrastructure facility. The AO's reassessment concluded that the assessee merely executed a works contract and did not bear entrepreneurial risk or financial involvement. The tribunal noted that the assessee received mobilization advances and monthly lump sum payments, indicating that the government, not the assessee, was the developer. The tribunal referred to the Explanation to Section 80IA, which clarifies that works contracts are not eligible for deductions under this section.

4. Applicability of the Explanation to Section 80IA Introduced by Finance Act, 2009:
The tribunal emphasized the significance of the Explanation to Section 80IA introduced by the Finance Act, 2009, which states that works contracts awarded by any person, including the government, are not eligible for deductions under Section 80IA. The tribunal cited the Gujarat High Court's decision in Katira Constructions Limited, which upheld the validity of this Explanation. The tribunal also referred to the Supreme Court's decision in Kartar Singh Bhadana, which interpreted the term "works" to include architectural and engineering structures, supporting the view that the assessee executed a works contract.

Conclusion:
The tribunal concluded that the assessee executed a works contract and did not qualify as a developer under Section 80IA(4). The tribunal rejected the assessee's plea for a liberal interpretation of the provision, citing the Supreme Court's decision in Commissioner of Customs (Import) Vs. Dilip Kumar and Co., which mandates a strict interpretation of fiscal statutes and exemption clauses. Consequently, the tribunal upheld the disallowance of the assessee's Section 80IA deduction claims and dismissed the appeals.