2024 (1) TMI 383 - HC - Income Tax

Deduction u/s 80IA(4) - whether assessee is a contractor or developer of infrastructure facilities? - ITAT deleted the addition - HELD THAT - Sub-clause 1 of Sub-section 4 of Section 80IA provides that Section 80IA applies to any enterprise carrying on the business of (1)developing, or (2)operating and maintaining or (3) developing operating and maintaining any infrastructure facilities which fulfills the condition prescribed therein. In the facts of the case as held by the CIT (A) as well as the Tribunal on giving a factual finding to the effect that the assessee has undertaken a work of development of infrastructure facilities by execution of the contract awarded to it as per the terms of the contract as enumerated by the CIT (A). CIT (Appeal) has further examined as to whether the project assigned to the assessee was in capacity of a contractor or the same was executed as a developer with respect to the canal projects, agreements were entered into by the assessee was analysed and tendered documents containing the terms and conditions of the project were taken into consideration with respect to the following aspects as to the entire investment in the project was to be made by the assessee. Interim payment to the tune of estimated contract value in respect of the development work done for each month after retention and other adjustments were to be made, security deposit was to be paid by the assessee, there was a penalty for delay, procurement of the material was the responsibility of the assessee, procurement of land for camp, for shop, labour camp etc. also the employment of qualified engineers, action and compensation in respect of bad work, defect liability of the accidents to persons in relation to Workman Compensation Act, indemnity insurance of the workmen employed. CIT (Appeal) and the Tribunal considering such aspects of the tendered agreement, concurrently held that the assessee has entered into a development of infrastructure facility agreement and not the works contract. No substantial question of law.

Summary

Issues Involved:
1. Whether the assessee is a contractor or a developer of infrastructure facilities eligible for deduction under Section 80IA(4) of the Income Tax Act, 1961.
2. Applicability of the explanation to Subsection 13 of Section 80IA of the Income Tax Act, 1961.

Summary:

Issue 1: Assessee as a Contractor or Developer
The Revenue appealed under Section 260A of the Income Tax Act, 1961, questioning the Income Tax Tribunal's decision to delete the disallowance of Rs. 6,20,01,678/- under Section 80IA(4). The Tribunal held that the assessee, a Private Limited Company engaged in construction and infrastructure development, is not a contractor but a developer, thus eligible for the deduction. The CIT (Appeal) supported this by stating that the assessee's role involved significant responsibilities such as designing, mobilizing funds, and managing construction material, which go beyond the scope of a mere contractor.

Issue 2: Explanation to Subsection 13 of Section 80IA
The Tribunal analyzed whether the explanation to Subsection 13 of Section 80IA, which denies the deduction to works contractors, applied to the assessee. It concluded that the assessee undertook substantial risks and responsibilities typical of a developer, including arranging methods of execution, maintaining supervisory staff, and ensuring environmental protection. The Tribunal emphasized that the purpose of Section 80IA(4) is to incentivize the development of infrastructure facilities, which the assessee fulfilled.

Concurrent Findings and Legal Provisions
Both the CIT (Appeal) and the Tribunal found that the assessee's activities met the criteria of a developer as per Section 80IA(4). The Tribunal noted that the assessee's involvement in the projects included making detailed drawings, arranging methods of execution, and assuming risks, which are indicative of a developer's role. The Tribunal also addressed the Revenue's contention regarding the nature of the contract awarded by the MPRDCL, concluding that the assessee was not merely executing a works contract but was engaged in developing infrastructure facilities.

Conclusion
The High Court upheld the Tribunal's decision, stating that no substantial question of law arises from the Tribunal's order. The appeal was dismissed, affirming that the assessee is eligible for the deduction under Section 80IA(4) as a developer of infrastructure facilities.