2018 (3) TMI 1154 - AT - Income Tax

Entitlement for deduction u/s 80IA - whether assessee is a developer and not a mere works contractor?- Held that - We find that like any other entrepreneur who employs his material, plant, machinery, labour etc. in a project and undertakes risk, the assessee was also exposed to a substantial amount of risk by virtue of engaging his establishment in the infrastructure projects. In addition, the assessee was exposed to risk of non-completion of work within time, any damage caused to the works, site etc. increase in prices of materials, labour etc. beyond what the Government had agreed to compensate as per the agreement. It is clear that the assessee was a developer and not a mere works contractor. Thus, it is clearly outside the purview of the Explanation to section 80-IA(13) of the Act. The assessee in the given case was to procure raw material, make arrangements for power, water, plant machinery etc., and conduct all the other activities needed for construction. Now the aforesaid agreement with the NHAI was produced before the Ld. CIT(A) who after perusal of the same allowed the assessee s appeal. The assessee was not merely providing labour but was providing a complete infrastructure required to support the development of infrastructure facility. It deployed its various resources like material, manpower, machinery etc. In addition it exposed itself to various risks. We hold that the assessee is a developer and not a mere works contractor and accordingly is eligible for deduction u/s 80IA of the Act, which has been rightly held by the CIT-A. - Decided against revenue.

Summary

Issues Involved:
1. Whether the assessee is a developer or contractor.
2. Whether the assessee is entitled to deduction under section 80IA of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Whether the assessee is a developer or contractor:

The primary issue revolves around determining if the assessee, a joint venture between two companies, qualifies as a developer or merely a contractor. The assessee entered into an agreement to develop infrastructure (specifically, the rehabilitation and upgradation of a road) and claimed deduction under section 80IA of the Act. The Assessing Officer (AO) denied this deduction, treating the assessee as a contractor executing works contracts, based on the Explanation to section 80IA inserted by the Finance Act, 2009 with retrospective effect from 1.4.2000. The AO argued that the assessee was merely executing civil construction work for the National Highway Authority of India (NHAI) and receiving payments, thus not qualifying as a developer.

The Commissioner of Income Tax (Appeals) [CIT(A)] reversed the AO’s decision, holding that the assessee was indeed a developer and not a contractor. The CIT(A) relied on previous tribunal decisions and the legislative intent behind section 80IA, which aimed to encourage private sector investment in infrastructure development, not just mere execution of civil works.

The tribunal further analyzed the term “works contract” and concluded that it refers to contracts involving mere labor without significant investment from the contractor. The tribunal cited various judgments and legislative explanations to support the view that a developer undertakes entrepreneurial and investment risks, as opposed to a contractor who only undertakes business risks. The tribunal found that the assessee, by deploying its resources (material, machinery, labor, etc.), undertaking risks, and being responsible for the overall development and maintenance of the infrastructure, qualified as a developer.

2. Whether the assessee is entitled to deduction under section 80IA of the Income Tax Act, 1961:

The tribunal examined the conditions under section 80IA, which provides a tax benefit to enterprises engaged in the development, operation, and maintenance of infrastructure facilities. The tribunal noted that the assessee met the conditions required for claiming the deduction, including being a consortium of companies and having an agreement with a government authority (NHAI) for developing an infrastructure facility.

The tribunal rejected the AO’s interpretation that any contract for developing infrastructure under an agreement with the government would disqualify the assessee from claiming the deduction. The tribunal emphasized the legislative intent to promote private sector investment in infrastructure development and clarified that the deduction under section 80IA applies to developers who undertake significant investment and entrepreneurial risks.

The tribunal also addressed the AO’s contention that the assessee received payments from the government, arguing that such payments do not disqualify the assessee from being considered a developer. The tribunal highlighted that the legislative scheme allows for deductions even if the developer does not operate and maintain the infrastructure, as long as the development is pursuant to an agreement with the government.

The tribunal cited multiple judgments supporting the view that developers who invest in and develop infrastructure facilities, even if paid by the government, are entitled to deductions under section 80IA. The tribunal concluded that the assessee was a developer, not a mere contractor, and thus eligible for the deduction claimed.

Conclusion:

The tribunal upheld the CIT(A)’s decision, confirming that the assessee is a developer and entitled to the deduction under section 80IA of the Act. The appeal by the Revenue was dismissed, and the order was pronounced in court on 21.03.2018.