2019 (4) TMI 683 - HC - Income Tax

Benefit of deduction u/s 80IA to transferee or assignee - Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. - Assessing Authority denied the said benefit was that the Assessee himself did not enter into any such contract with the Railways or with the Central Government - Tribunal allowed claim - HELD THAT - Tribunal, however, in our opinion, rightly applied the Proviso to Section 80IA(4) and held that since the Assessee was recognised as contractor for these railway sidings, which undoubtedly fell under the definition of infrastructure facility , it was entitled to the said benefit u/s 80IA. The grounds on which the Assessing Authority denied the said benefit to the Assessee ignoring the effect of Provisos to Section 80IA(4), therefore, could not be sustained. Tribunal, in our opinion, has rightly held that the Proviso does not require that there should be a direct agreement between the transferee enterprise and the specified authority for availing the benefit under Section 80IA. There is no dispute before us that the Assessee was duly recognised as transferee or assignee of the principal contractor M/s.ST-CMS Company Private Limited and was duly so recognised by the Railways to operate and maintain the said railway sidings at Vadalur and Uthangalmangalam Railway Stations. The findings of fact with regard to the said position recorded by the learned Tribunal are, therefore, unassailable and that clearly attracted the first Proviso to Section 80IA(4) - Decided in favour of the Assessee and against the Revenue.

Issues Involved:
1. Entitlement to deduction under Section 80IA of the Income Tax Act, 1961.
2. Eligibility of infrastructure facility for deduction under Section 80IA.
3. Applicability of the proviso to sub-section 4 of Section 80IA.
4. Interpretation of explanation 13 to Section 80IA introduced by the Finance Act, 2007.
5. Requirement of a direct contract with the Government/authority for eligibility under Section 80IA.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80IA:
The primary issue was whether the assessee was entitled to deduction under Section 80IA, even though it did not directly satisfy the conditions specified therein. The Tribunal allowed the appeals for the assessment years 2003-2004, 2004-2005, and 2010-2011, holding that the assessee was entitled to the benefit of deduction under Section 80IA. The Revenue contended that since the assessee was only a sub-contractor and had not entered into a direct contract with the specified authority, it was not entitled to the deduction. The Tribunal, however, found that the assessee had provided an "infrastructure facility" and was recognized as a contractor by the Railways, thus fulfilling the conditions under the proviso to Section 80IA(4).

2. Eligibility of Infrastructure Facility for Deduction:
The Revenue argued that the infrastructure facility was not eligible for deduction under Section 80IA as the assessee was merely a transport contractor. The Tribunal, however, noted that the assessee had undertaken the work of developing railway sidings and was operating and maintaining them under an agreement with M/s. ST-CMS Electric Company Private Limited. The Tribunal concluded that the assessee had provided an infrastructure facility to the specified authority, thus making it eligible for the deduction.

3. Applicability of the Proviso to Sub-section 4 of Section 80IA:
The Tribunal held that the proviso to sub-section 4 of Section 80IA applied in this case. The proviso extends the benefit of deduction to a transferee or contractor recognized by the concerned authority, even if there was no direct contract with the specified authority. The Tribunal found that the assessee was recognized as a contractor for the railway sidings, and thus, the benefit under Section 80IA was applicable.

4. Interpretation of Explanation 13 to Section 80IA:
The Revenue argued that the explanation inserted by the Finance Act, 2007, which states that no deduction is allowable to a sub-contractor, should apply. However, the Tribunal, citing the proviso to Section 80IA(4), held that the explanation did not negate the entitlement of the assessee, as the assessee was recognized as a contractor by the Railways and had undertaken the development and maintenance of the infrastructure facility.

5. Requirement of a Direct Contract with the Government/Authority:
The Revenue contended that the assessee did not have a direct contract with the Central Government, State Government, or Local Authority, as required under Section 80IA(4). The Tribunal, however, held that the proviso to Section 80IA(4) does not necessitate a direct agreement between the transferee enterprise and the specified authority. The Tribunal found that the assessee was duly recognized by the Railways and had fulfilled the conditions specified under the proviso, thus making it eligible for the deduction.

Conclusion:
The High Court upheld the Tribunal's decision, stating that the assessee was entitled to the benefit of deduction under Section 80IA, as it had provided an infrastructure facility and was recognized as a contractor by the Railways. The Court dismissed the appeals filed by the Revenue, answering the questions of law in favor of the assessee and against the Revenue. The Court found no merit in the Revenue's arguments and concluded that the Tribunal had rightly applied the proviso to Section 80IA(4), allowing the deduction to the assessee.

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