2012 (5) TMI 158 - AT - Income Tax

Deduction u/s 80IA - ambiguity in the income tax act - infrastructure activities - Ownership of infrastructure itself - contractor or developer - held that - the words developer and contractor have not been defined in or for the purposes of section 80-1A. - the very fact that the legislature mentioned the words (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-Tax Act. Regarding ownership - held that - according to sub-clause (a), clause (i) of sub section (4) of Section 80-IA the word it denotes the enterprise carrying on the business. The word it cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word it is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. Developer or mere works contractor - held that - it is clear that from an un-developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA(4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The case of Laxmi Civil Engineering (P.) squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of a infrastructure facility is an eligible activity for claiming deduction under section 80IA of the Act after considering the Judgement of the Mumbai High Court in the case of ABG Heavy Industries Ltd. (2010 -TMI - 75718 - BOMBAY HIGH COURT).

Issues Involved:
1. Eligibility for deduction under Section 80IA(4) of the Income Tax Act.
2. Interpretation of the term "developer" versus "contractor".
3. Application of retrospective amendments to Section 80IA(4).
4. Analysis of agreements and contracts to determine eligibility.
5. Judicial precedents and their applicability.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IA(4):
The primary issue revolves around the assessee's eligibility for deduction under Section 80IA(4) for developing infrastructure projects. The assessee claimed deductions for developing infrastructure projects under various authorities. The lower authorities denied the deduction on the grounds that the assessee did not own the infrastructure and was merely a contractor, not a developer.

2. Interpretation of "Developer" versus "Contractor":
The assessee argued that under Section 80IA(4), as amended by the Finance Act, 2001, the term "developer" includes entities engaged in developing, operating, and maintaining infrastructure facilities. The assessee cited the Mumbai ITAT decision in Bharat Udyog Ltd., which held that the term "developer" includes those who develop infrastructure facilities without necessarily operating and maintaining them. The lower authorities, however, interpreted the term narrowly, denying the deduction on the basis that the assessee was only a contractor.

3. Application of Retrospective Amendments:
The assessee contended that the retrospective amendment by the Finance Act, 2007, which inserted an explanation to Section 80IA(13), was not applicable to their case. The amendment clarified that mere works contracts are not eligible for deduction. The assessee relied on the decision of the ITAT, Mumbai in B.T. Patil & Sons Belgaum Construction (P.) Ltd., which interpreted the amendment favorably for developers.

4. Analysis of Agreements and Contracts:
The assessee provided agreements and contracts to demonstrate that they undertook the development of infrastructure facilities, including design, development, operation, and maintenance. The lower authorities, however, concluded that the agreements were mere works contracts, as the projects were funded by the government, and the assessee was paid on a running bill basis without bearing the investment risk.

5. Judicial Precedents and Their Applicability:
The assessee cited various judicial precedents, including the Bombay High Court decision in CIT v. Glenmark Pharmaceuticals Ltd. and the ITAT decision in Laxmi Civil Engineering (P.) Ltd. These decisions supported the view that developers engaged in developing infrastructure facilities are eligible for deduction under Section 80IA(4). The lower authorities, however, relied on the decision in Patel Engg. Ltd. and the retrospective amendment to deny the deduction.

Conclusion:
The Tribunal concluded that the assessee is eligible for deduction under Section 80IA(4) if the contracts involve design, development, operation, and maintenance, financial involvement, and defect correction and liability period. The Tribunal directed the assessing officer to examine the records and grant deduction on eligible turnover. The Tribunal emphasized that the term "developer" includes entities that develop infrastructure facilities, and the retrospective amendment should not be interpreted to deny deductions to developers. The Tribunal also noted that the assessee's agreements involved significant entrepreneurial risk and investment, distinguishing them from mere works contracts.

Final Judgment:
The appeals were allowed in favor of the assessee for the assessment years 2003-04, 2004-05, and 2005-06, while the appeal for the assessment year 2006-07 was partly allowed. The Tribunal directed the assessing officer to grant deductions on eligible turnover based on the nature of the contracts.

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