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2017 (3) TMI 1050 - AT - Income TaxEligibility to deduction claimed u/s 80IA(4) - Held that - The assessee was not a works contractor simplicitor and was a developer and hence Explanation to section 80- IA(13) does not apply to the assessee. Further, in addition to developing the infrastructure facility, the assessee was even operating and maintaining the same. Thus, clearly the assessee is eligible for deduction u/s 80-IA.
Issues Involved:
1. Whether the assessee is entitled to deduction under section 80-IA(4) of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Entitlement to Deduction Under Section 80-IA(4) of the Income Tax Act, 1961 Facts and Background: The assessee, a limited company engaged in contract work, claimed deductions under section 80-IA of the Income Tax Act for various infrastructure projects awarded by government bodies. The projects included sewerage, flyovers, construction of multipurpose berths, oil jetty facilities, airport, and highway widening. The Assessing Officer (AO) disallowed the deduction claim, treating the assessee as a mere works contractor, not fulfilling the conditions of section 80-IA. CIT(A)'s Findings: The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, observing that the assessee was not merely executing works contracts but was engaged in developing infrastructure facilities. The CIT(A) noted that the assessee procured materials, arranged for power, water, and machinery, obtained statutory clearances, and faced various risks, thus acting as a developer. The CIT(A) relied on judicial precedents, including the cases of Patel Engineering Ltd. and Bharat Udyog Ltd., which supported the view that an entity involved in developing infrastructure facilities is entitled to deductions under section 80-IA, even if it does not operate or maintain the facilities. Tribunal's Analysis: The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, reiterating that the provisions of section 80-IA apply to enterprises engaged in developing, operating, or maintaining infrastructure facilities. The Tribunal emphasized the following key points: 1. Definition and Scope of Work Contracts: - The term "works contract" as per section 80-IA does not include contracts where the contractor employs capital and enterprise in addition to labor. - Contracts involving mere labor are considered works contracts, whereas contracts involving significant investment and development activities are not. 2. Judicial Precedents: - The Tribunal referred to various judicial precedents, including the Supreme Court's interpretation in Associated Cement Co. Ltd. vs. CIT, which clarified that "any work" includes supply of labor but also encompasses broader activities. - The Tribunal cited cases where entities involved in developing infrastructure facilities, even without operating them, were granted deductions under section 80-IA. 3. Entrepreneurial and Investment Risks: - The assessee undertook significant risks, including procurement of materials, deployment of machinery, and responsibility for any damage or defects in the projects. - The Tribunal noted that the assessee was responsible for developing the infrastructure facilities from scratch, indicating substantial entrepreneurial and investment risks. 4. Government Payments: - The Tribunal clarified that receiving payments from the government for development work does not disqualify an entity from claiming deductions under section 80-IA. - The intention of the legislation is to encourage private sector investment in infrastructure development, not merely to reward labor contracts. 5. Operational and Maintenance Projects: - For projects involving operation and maintenance, the Tribunal noted that the explanation to section 80-IA(13) does not apply, thus allowing deductions for such projects as well. Conclusion: The Tribunal concluded that the assessee was engaged in developing infrastructure facilities and not merely executing works contracts. Therefore, the assessee was entitled to deductions under section 80-IA(4) of the Income Tax Act. The appeal by the Revenue was dismissed, and the order of the CIT(A) was upheld. Order Pronounced: The Tribunal pronounced the order in the open court on 10/03/2017, dismissing the Revenue's appeal.
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