2022 (6) TMI 1110 - AT - Income Tax

Deduction u/s 80IA - treating the assessee-company as a Contractor and not Developer by the Department - AO has denied deduction u/s 80IA(4) by holding that the assessee has acted as work-contract in the project awarded by the statutory bodies - CIT-A allowed the claim of deduction - HELD THAT - The primary condition is that the enterprise must carry on the work of developing an infrastructure facility. As mentioned above, Explanation under sub-Section (13) of Section 80-IA clarifies that this section will not apply to any business which is in the nature of a works contract . In the present case the lower authorities have denied the benefit of Section 80-IA(4) to the appellant-company on the assumption that the appellant-company is engaged in executing merely a work contract and it is not carrying on the business of developing an infrastructure facility. The assessee has undertaken entirely and exclusively the projects awarded by the local government authorities, as it is evident from the records as explained and already narrated hereinabove and therefore, there is hardly any basis for assuming that it is merely a contractor executing a works contract. The difference between a developer and a contractor has to be properly analyzed and understood. Tender work under consideration are not for a specific work, rather they are for development facility as a whole. The responsibility is fully assigned to the developer for execution and completion of the work. Various stipulations contained in the Tender documents demonstrate various risks undertaken by the assessee for execution of the project work awarded by the competent authority in terms of financial resources, manpower deployment, both technical and administrative expertise, drawing and designing of the project specifications and getting approval from the competent authority, safety and security of project and human resources, compliances of various statutory rules and laws. Therefore, merely because in the agreement for development of infrastructure facility, assessee is referred to as contractor or because if some basic specifications are laid down, it does not detract the assessee from the position of being a developer, nor will deprive the assessee from claiming deduction under Section 80IA(4) of the Act. As such, looking to the overall aspects of work undertaken by the assessee we can safely come to the conclusion that the assessee is engaged in development of the infrastructure facility and therefore, a developer, which entails the assessee to claim benefits under Section 80IA(4) of the Act. Thus, the issue of claim of deduction under Section 80IA(4) of the Act is allowed in favour of the assessee

Summary

Issues Involved:
1. Denial of claim of deduction under Section 80IA(4) of the Income Tax Act, 1961 by treating the assessee-company as a 'Contractor' and not 'Developer'.
2. Disallowance of interest and other income as not eligible for deduction under Section 80IA(4) of the Act.
3. Disallowance of depreciation on plant & machinery.

Issue-wise Detailed Analysis:

1. Denial of Claim of Deduction under Section 80IA(4):
The primary issue was whether the assessee qualifies as a 'Developer' or merely a 'Contractor' under Section 80IA(4). The assessee, engaged in infrastructure development, claimed deductions under this section, which were disallowed by the AO and confirmed by the First Appellate Authority. The assessee argued that it fulfilled all conditions under Section 80IA(4), including arranging its own finances, purchasing materials and machinery, and undertaking risks. The AO, however, considered the assessee a contractor, not a developer, as it did not own the land, was not responsible for operation and maintenance, and worked under government specifications.

The Tribunal analyzed the tender documents, financial statements, and other records. It noted that the assessee was responsible for significant financial investments, risks, and operational responsibilities, which aligned with the role of a developer. The Tribunal referred to various judicial precedents, including the case of Radhe Developers, and concluded that the assessee met the criteria of a developer, thus eligible for the deduction under Section 80IA(4).

2. Disallowance of Interest and Other Income:
The AO disallowed interest income and other income, arguing they were not derived from industrial activities and thus not eligible for deduction under Section 80IA(4). The assessee contended that the interest income was from fixed deposits made as security for government projects, hence part of the business income. The Tribunal referred to a similar case, Rajkamal Builders Infrastructure Pvt. Ltd., where it was held that such interest income is eligible for deduction. Following this precedent, the Tribunal decided in favor of the assessee, allowing the deduction of interest and other income.

3. Disallowance of Depreciation on Plant & Machinery:
The AO disallowed depreciation on plant and machinery, reasoning that since the assessee was not recognized as a developer, it was not entitled to such claims. However, given the Tribunal's decision recognizing the assessee as a developer under Section 80IA(4), the depreciation on plant and machinery used for infrastructure development was allowed. The Tribunal thus granted the claim of depreciation amounting to Rs. 31,78,286/-.

Conclusion:
The Tribunal concluded that the assessee qualifies as a developer and is entitled to deductions under Section 80IA(4) for the respective assessment years. Consequently, the disallowances of interest income and depreciation on plant and machinery were also reversed. All appeals preferred by the assessee were allowed.