2004 (6) TMI 245 - AT - Income Tax

Deduction u/s 80-IA(4) - Ownership requirement - Transfer of infrastructure facility to the Government - Applicability of the condition of operating and maintaining the infrastructure facility on or after 1st April 1995 - project maintenance expenses - HELD THAT - The term contractor is not essentially contradictory to the term developer . On the other hand, rather section 80-IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a local authority. So, entering into a lawful agreement and thereby becoming a contractor should, in no way, be a bar to the one being a developer. The assessee, presently under consideration before us, has developed infrastructure facility as per agreement with Maharashtra State Government/APSEB. Therefore, merely because, in the agreement for development of infrastructure facility, assessee is referred to as contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a developer, nor will it debar the assessee from claiming deduction under section 80-IA(4). Discussed/considered as above, we hold that the assessee having carried out the work of constructing the abovementioned two projects, namely Srisailam Project and Koyana Project, as detailed above, is appropriately a developer of the said two infrastructure facilities, and in turn is entitled, and entitled justifiably, to claim deduction under section 80-IA(4). Whether the infrastructure facility or the enterprise developing the infrastructure facility, is to be owned by the company registered in India? - In the instant case, the assessee is a company registered in India, which owns the enterprise and which developed the infrastructure facility. We, therefore, hold that the second condition for eligibility of deduction under section 80-IA(4) is also fulfilled by the assessee and ground No. 1 of the Revenue's cross-objection having no merit fails. As the activity of these two projects of infrastructure facility undertaken by the present assessee was of the kind of BT (build and transfer) being merely of 'development' and did not involve 'operate' aspect in respect of the same, the infrastructure facility developed by assessee had to be transferred and handed over to the Government of Maharashtra/APSEB on its completion only and without operating it, that is without resorting to the collection of toll therefrom for recoupment of its costs. Accordingly, in our opinion, the assessee has duly complied with this condition as well. We, therefore, hold that ground No. 2 of Revenue's cross objection has no merit and the same accordingly fails. Whether the facility developed by the assessee should fall within the purview of infrastructure facility as defined in the Explanation to section 80-IA(4) - In the definition, amongst others, water supply project and irrigation project are infrastructure facility . The learned CIT/Departmental Representative contended that the assessee has not developed any infrastructure facility as defined in the Explanation to section 80-IA(4). It was explained by the learned counsel that both the projects, i.e., Koyna and Srisailam projects are multi-purpose projects wherein water supply, irrigation and generation of hydro power was involved. He drew our attention to pp. 8 and 9 of the paper book 1 wherein the Maharashtra Government (chief engineer) and the APSEB (executive engineer) have certified to that effect. From the perusal of record, we find that the Assessing Officer has accepted the view as put forward by the learned Authorised Representative of assessee and has observed at p. 1 of the assessment order that Koyna Dam was constructed with the purpose of providing irrigation and water supply to Konkan Region and also to generate hydro electricity. Similarly, for Srisailam project, at p. 2 of the assessment order, the Assessing Officer has observed that Srisailam project is a multi-purpose project, wherein water supply, irrigation and generation of hydro power are involved. (The said view is also supported by the two certificates pp. 8 and 9 of paper book-1 of assessee) of the engineers of the two respective projects. We find that the chief engineer, Koyna project has certified the purpose of the project. Obvious as it is, from the above we find that the facility developed by the assessee does fall within the category of water supply project and also irrigation project. We accordingly hold that both the projects, Koyna and Srisailam are in the nature of infrastructure facility as defined in the Explanation to section 80-IA(4). Deduction under section 8O-IA(4) - We may note that the statutory provision as contained in section 80-IA provides for development of infrastructure facility . It nowhere provides that entire infrastructure project is to be developed by one enterprise. It is revealed from record that both the projects were multi-purpose projects for water supply, irrigation and power generation. The assessee has developed such part of the project, as was for supply of water from river/lake to turbine. Therefore, the assessee has developed infrastructure facility for supply of water and for irrigation. Merely because development work done by assessee is a point to point milestone of a multi-purpose project, it would not debar the assessee from claiming deduction under section 80-IA(4), so long as the nature of development made by assessee falls within the ambit of infrastructure facility and since we have found it established above that development work carried out by assessee was for development of infrastructure facility, the assessee cannot justifiably be denied of the deduction under section 80-IA, merely because the assessee has not developed the entire project. We hold accordingly. Thus, we hold the assessee to have fulfilled all the requisite conditions prescribed under sub-section (4) of section 80-IA for being eligible for deduction under section 80-IA. We, therefore, delete this disallowance of assessee's claim for deduction under section 80-IA and direct the Assessing Officer to allow the same. As such ground No. 1 in assessee's appeal stands allowed and the Revenue's cross-objection stands rejected. We order accordingly. In the result assessee's appeal is partly allowed as indicated above, while the Department's cross-objection is dismissed.

Issues Involved:
1. Delay in filing of Cross-Objection (CO) by the Department.
2. Allowability of deduction u/s 80-IA(4) for the assessee.
3. Ownership requirement for claiming deduction u/s 80-IA(4).
4. Agreement with Government for developing infrastructure facility.
5. Transfer of infrastructure facility to the Government.
6. Applicability of the condition of operating and maintaining the infrastructure facility on or after 1st April 1995.
7. Nature of the infrastructure facility developed by the assessee.
8. Allowance of project maintenance expenses.
9. Charging of interest u/s 234B.

Summary:

1. Delay in filing of Cross-Objection (CO) by the Department:
The CO was filed with a delay of 31 days. The Departmental Representative contended that the delay was due to the Assessing Officer being busy with time-barring assessments and holding additional charge. The assessee had no objection to the CO being admitted. The Tribunal condoned the delay and admitted the CO for disposal on merits.

2. Allowability of deduction u/s 80-IA(4):
The assessee, engaged in the execution of civil contracts, claimed a deduction of Rs. 18.47 crores u/s 80-IA(4) for developing infrastructure facilities. The CIT(A) upheld the denial of the deduction, stating that the assessee was not a developer but a civil contractor. The Tribunal, however, held that the assessee fulfilled the conditions for deduction u/s 80-IA(4) as it developed the infrastructure facilities, mobilized resources, and bore significant risks.

3. Ownership requirement for claiming deduction u/s 80-IA(4):
The Tribunal clarified that the requirement is that the enterprise developing the infrastructure facility should be owned by an Indian company, not the infrastructure facility itself. The assessee, being a company registered in India, fulfilled this condition.

4. Agreement with Government for developing infrastructure facility:
The assessee had entered into agreements with the Government of Maharashtra and APSEB for developing the Koyna and Srisailam projects, respectively. The Tribunal found that this condition was fulfilled.

5. Transfer of infrastructure facility to the Government:
The Tribunal held that the transfer of the infrastructure facility by the assessee to the Government was fulfilled by handing over possession of the developed facility. The Tribunal rejected the Department's contention that there was no transfer since the land always belonged to the Government.

6. Applicability of the condition of operating and maintaining the infrastructure facility on or after 1st April 1995:
The Tribunal held that this condition is applicable only to enterprises maintaining and operating the infrastructure facility, not to those merely developing it. Therefore, this condition was not applicable to the assessee.

7. Nature of the infrastructure facility developed by the assessee:
The Tribunal found that the facilities developed by the assessee fell within the category of water supply and irrigation projects, as defined in the Explanation to section 80-IA(4). The Tribunal rejected the Department's contention that the assessee developed only a part of the project and not the whole.

8. Allowance of project maintenance expenses:
The Tribunal directed the Assessing Officer to allow the deduction for project maintenance expenses in the year under consideration, limited to the extent of expenditure actually incurred by the assessee in the subsequent year, following the decision in the assessee's own case for assessment year 1986-87.

9. Charging of interest u/s 234B:
The Tribunal directed the Assessing Officer to allow consequential relief by recomputing the interest u/s 234B in accordance with the income redetermined on giving effect to the appellate order.

Conclusion:
The assessee's appeal was partly allowed, and the Department's cross-objection was dismissed.

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