2024 (12) TMI 310 - AT - Income Tax

Deduction u/s 80IA - profits derived from development of infrastructure project Assessee got project on subcontract basis - Deduction denied on the ground that the appellant had not entered into any agreement with Central Government or State Government or local authority or any statutory body and which is a pre-condition for claiming deduction under the said provisions of the Act - determination of contract- subcontractor relationship between the appellant and M/s. HCC Ltd. - contention of the assessee before the AO that the appellant is a developer of infrastructure facility, as defined u/s 80IA(4) and the profit derived from the development of infrastructure facility, is eligible for deduction u/s 80IA(4) - scope of agreements and sub-contracting in the context of Section 80IA(4). HELD THAT - As per provisions of Section 80IA(4) an Enterprise should be owned by a company registered in India or by a consortium of such companies. Further, it shall enter into agreement with the Central Government or a State Government or any local authority or any other statutory body for developing or, operating and maintaining or developing, operating and maintaining any infrastructure facility. Finally, it should start operating and maintaining the infrastructure facility on or after the 1st day of April of 1995. Only dispute is with regard to entering into an agreement with the Central Government or a State Government or any local authority or any other statutory body - Considering the nature and size of the infrastructure facility, the developer i.e., Government of Andhra Pradesh, Irrigation and C.A.D. Department itself has provided for sub-contracting up to 50% of the work to the other eligible contractors upon satisfying the eligibility criteria and having required experience and strength to carry out the development work, which is provided in Clause 43 of the Agreement between the JV and the Government of Andhra Pradesh. Since the condition of sub-contracting portion of work to other contractor is ingrained in the agreement between the JV and Government of Andhra Pradesh itself, in our considered view, the agreement between the appellant company and M/s.HCC for developing the project (civil works) is akin to agreement with the Central Government or a State Government or any local authority or any other statutory body. Once the project is considered to be eligible project in terms of provisions of Section 80IA(4) of the Act and there is a provision for sub-contracting portion of the work to the other contractor, as per clauses of the agreement between the parties, in our considered view, the agreement between the appellant company and one of the JV partners is as good as, the agreement between the authorities and the developer for developing the project and it goes back to the date of original agreement. Therefore, we are of the considered view that AO upon satisfying the fact that the profits derived from the project of development of infrastructure facility is eligible for claiming deduction u/s 80IA(4) erred in disallowing the claim of the appellant only on the ground that the agreement between the appellant and M/s.HCC is not in terms of section 80IA(4) of the Act, and thus, in our considered view, reasons given by the Assessing Officer is incorrect and cannot be accepted. Thus, going by the nature of work and the work executed by the assessee, it is not less than to any developer, who develops a big infrastructure project like irrigation projects. Therefore, having noticed that the assessee has carried out development of infrastructure project, as defined u/s 80IA(4), upon satisfying the conditions of the BID document, in our considered view, the AO ought not to have rejected the claim of the appellant merely for the reason that the appellant has not entered into any direct agreement with the Central Government or a State Government or any local authority or any other statutory body. In our considered view, if you go by the provisions to Section 80IA(4) of the Act, it even allows deduction u/s 80IA(4) to a successor entity, in case of transfer of project to other entity for operating and maintaining of infrastructure facility, and thus, in our considered view, the proviso does not require that there should be a direct agreement between the transferee enterprise and the specified authority for availing the benefit u/s 80IA of the Act, and this legal principle is supported by the decision of Chettinad Lignite Transport Services (P.) Ltd. 2019 (4) TMI 683 - MADRAS HIGH COURT Thus, once the successor entity is eligible to claim deduction under Section 80IA, then there is no question of denying the said benefit to any enterprise, which is a joint partner of said infrastructure facility. Since the appellant is one of the partners of the development of irrigation project, in our considered view, the appellant is entitled for deduction u/s 80IA(4) of the Act. Also relying on Megha Engineering and Infrastructure Ltd. 2024 (9) TMI 1662 - ITAT HYDERABAD we are of the considered view that the appellant is entitled for deduction u/s 80IA(4) towards profits derived from development of infrastructure facility. Decided in favour of assessee.

Summary

Issues Involved:

1. Eligibility for deduction under Section 80IA(4) of the Income Tax Act, 1961.
2. Interpretation of agreements and sub-contracting in the context of Section 80IA(4).
3. Application of relevant case law and judicial precedents.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80IA(4):

The primary issue was whether the appellant, a sub-contractor, was eligible for deduction under Section 80IA(4) of the Income Tax Act, 1961. The appellant claimed a deduction for profits derived from the development of an infrastructure project, Pranahita Chevella Lift Irrigation Scheme. The Assessing Officer (AO) disallowed the deduction, stating that the appellant did not satisfy the condition of entering into an agreement with the Central or State Government, a requirement under Section 80IA(4). The AO argued that the contract was awarded to a Joint Venture (JV) and not directly to the appellant, thus failing to meet the statutory conditions.

2. Interpretation of Agreements and Sub-contracting:

The appellant contended that although it was a sub-contractor, it fulfilled the conditions of Section 80IA(4) through its agreement with the JV, which had the Government's approval. The appellant argued that the sub-contract was executed with the Government's consent, and it undertook all risks and responsibilities akin to a principal contractor. The appellant relied on the proviso to Section 80IA(4), which allows for deduction even when the infrastructure facility is transferred, suggesting that the deduction should extend to sub-contractors approved by the Government.

3. Application of Relevant Case Law and Judicial Precedents:

The appellant cited the decision of the Hon'ble Madras High Court in CIT Vs. Chettinad Lignite Transport Services (P.) Ltd, which held that sub-contractors could claim deductions under Section 80IA(4) if they satisfy all other conditions. The Tribunal also considered the decision in ACIT Vs. Megha Engineering & Infrastructure Ltd., which supported the view that a constituent partner of a JV could claim the deduction if the JV agreement was with the specified authority. The Tribunal distinguished the case from DCIT Vs. HES Infra Private Limited, where the deduction was denied due to the absence of a direct agreement with the Government. The Tribunal emphasized a liberal interpretation of Section 80IA(4) to achieve legislative intent and economic development goals.

Conclusion:

The Tribunal concluded that the appellant was entitled to the deduction under Section 80IA(4) of the Act. It found that the appellant had undertaken significant entrepreneurial and investment risks, satisfying the conditions of a 'developer' under the Act. The Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and directed the AO to allow the deduction, emphasizing a liberal interpretation of the statute to support infrastructure development. The appeal filed by the assessee was allowed.