2013 (5) TMI 300 - AT - Income Tax

Entitlement to deduction u/s 80IA(4) - whether the assessee is a developer or mere works contractor - Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 80IA (4) of the Act - 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. Considering the case of GVPR Engineers Ltd. v. ACIT 2012 (4) TMI 149 - ITAT HYDERABAD , KMC Construction Ltd. v. ACIT 2012 (5) TMI 181 - ITAT HYDERABAD & Sushee Hi-Tech Constructions Pvt. Ltd. vs. DCIT 2012 (8) TMI 633 - ITAT HYDERABAD remit the issue back to the file of the AO with a direction to examine the issue afresh and to see whether the assessee carried on the development of infrastructure facilities cumulatively with the activities of design, development, operation, maintenance, financial involvement, defect correction of the contract executed by the assessee itself. In the event, the assessee itself carried on the development of infrastructure facilities/contract along with design, development, operation, maintenance, financial involvement, defect correction of the contract during the warranty period, then such contract to be considered as a development of infrastructure facility executed by the assessee and thereby eligible for deduction u/s. 80IA.

Summary

Issues Involved:
1. Granting of relief to the assessee by the CIT(A).
2. Direction by CIT(A) to AO for fresh verification.
3. Examination of each contract for risk, investment, etc.
4. Entrepreneurial risk and investment by the assessee.
5. Eligibility of works contracts for deduction under Section 80IA.

Detailed Analysis:

1. Granting of Relief to the Assessee by the CIT(A):
The Revenue contended that the CIT(A) erred both factually and legally in granting relief to the assessee. The Tribunal examined prior decisions, including those in the assessee's own case, and found that the provisions of Section 80IA(4) apply to enterprises involved in developing, operating, and maintaining infrastructure facilities. The Tribunal emphasized that the term "developer" includes entities undertaking significant entrepreneurial and investment risks, not merely executing works contracts.

2. Direction by CIT(A) to AO for Fresh Verification:
The Revenue argued that the CIT(A) exceeded its powers by directing the AO to make fresh verifications and decisions, effectively setting aside the matter. The Tribunal noted that similar directions had been issued in precedent cases, where the AO was instructed to examine the nature of the contracts to determine eligibility under Section 80IA. The Tribunal upheld this approach, directing the AO to segregate contracts involving development activities from mere works contracts.

3. Examination of Each Contract for Risk, Investment, etc.:
The CIT(A) directed the AO to examine each contract concerning risk and investment, which the Revenue claimed was contradictory. The Tribunal reiterated that contracts involving design, development, operation, maintenance, financial involvement, and defect correction should be distinguished from simple works contracts. The AO was instructed to assess whether the contracts included these elements, impacting the eligibility for deductions under Section 80IA.

4. Entrepreneurial Risk and Investment by the Assessee:
The Revenue contended that the assessee did not undertake entrepreneurial risk and investment. The Tribunal referenced several cases, including GVPR Engineers Ltd. and KMC Construction Ltd., which established that developers undertaking significant risks and investments qualify for deductions under Section 80IA. The Tribunal emphasized that the assessee must demonstrate involvement in design, development, operation, and maintenance to be eligible for the deduction.

5. Eligibility of Works Contracts for Deduction under Section 80IA:
The Revenue argued that works contracts are not eligible for deductions under Section 80IA. The Tribunal clarified that contracts involving comprehensive development activities qualify for deductions, distinguishing them from simple works contracts. The Tribunal directed the AO to examine the nature of the contracts and grant deductions accordingly, based on the presence of development activities.

Conclusion:
The Tribunal remitted the issue back to the AO for fresh examination, directing the AO to assess whether the contracts involved comprehensive development activities, including design, development, operation, maintenance, financial involvement, and defect correction. The AO was instructed to grant deductions under Section 80IA for eligible contracts and deny them for mere works contracts. The assessee's CO was dismissed as it became infructuous due to the remand. The Revenue's appeal was allowed for statistical purposes.