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2016 (3) TMI 743 - AT - Income TaxDeduction u/s 80IA - whether it is not a case of works contract - Held that - In the case before us, the entire power plant was established by M/s Kanishk Steel Industries Ltd. The assessee was given the licence to operate and generate electricity by an agreement dated 26.4.2008. The consideration of the agreement is supply of 9 million units of power generated in every financial year. If the production of electricity is less than 9 million units in any financial year then the assessee shall compensate to M/s Kanishk Steel Industries Ltd. by an amount equal to the value of such shortfall of electricity on the basis of the rate on which Tamilnadu Electricity Board supplies electricity. Even though there is no express agreement in respect of the electricity generated over and above 9 million units in every financial year, there is no obligation on the part of the assessee to supply the same to M/s Kanishk Steel Industries Ltd. In other words, the assessee may use the electricity generated over and above 9 million units in any financial year in accordance with its discretion. The agreement for licence does not provide for payment of any commission to the assessee by M/s Kanishk Steel Industries Ltd. In those facts and circumstances, this Tribunal is of the considered opinion that it is not a case of works contract as contended by the ld. DR. It is a simple case of a licence to operate the power plant set up by M/s Kanishk Steel Industries Ltd. Since the income of the assessee includes profits and gains derived from generation of power, this Tribunal is of the considered opinion that in view of the judgment of Madras High Court in the case of M/s K.A Infrastructure Pvt. Ltd. (2011 (10) TMI 641 - MADRAS HIGH COURT), the assessee is eligible for deduction u/s 80IA of the Act - Decided in favour of assessee.
Issues:
Deduction u/s 80IA of the Income Tax Act - Interpretation of 'works contract' - Eligibility of the assessee for deduction u/s 80IA. Analysis: The judgment by the Appellate Tribunal ITAT Chennai dealt with the issue of deduction u/s 80IA of the Income Tax Act. The primary contention was whether the assessee, who operated a power plant owned by another entity, was eligible for the deduction. The Departmental Representative argued that since the assessee was not the owner of the power plant, it did not qualify for the deduction. However, the CIT(A) ruled in favor of the assessee based on a previous Tribunal order. The Departmental Representative raised concerns regarding the nature of the business being a works contract, which could affect the eligibility for the deduction. The Tribunal examined the arguments presented by both sides. It noted that the assessee had a license agreement with the entity owning the power plant, allowing them to operate it. Referring to a previous Tribunal order and a judgment of the Madras High Court, the Tribunal concluded that ownership of the power plant was not a prerequisite for claiming the deduction u/s 80IA. The Tribunal emphasized that the agreement was for operating the power plant and not a works contract, as contended by the Departmental Representative. Regarding the additional ground raised by the Departmental Representative concerning the works contract nature of the business, the Tribunal analyzed the relevant Explanation to sec. 80IA introduced by the Finance Act, 2009. The Explanation clarified that the section would not apply to a business in the nature of a works contract. The Tribunal determined that the agreement in question did not constitute a works contract as it did not involve the execution of work using raw materials supplied by a third party. The Tribunal highlighted that the agreement allowed the assessee to operate the power plant without an obligation to supply excess electricity generated beyond a specified amount. Ultimately, the Tribunal upheld the decision of the CIT(A) and dismissed the appeals of the Revenue. The judgment confirmed the eligibility of the assessee for deduction u/s 80IA of the Income Tax Act, emphasizing that the agreement was a license to operate the power plant and not a works contract. The Tribunal's analysis was based on previous legal precedents and the specific terms of the agreement between the parties.
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