2013 (7) TMI 172 - HC - Income Tax

Exemption u/s 80-IA - Nature of the contract - construction of permanent bank protection measures to the Udyog Mandal canal and the Champakara canal and maintaining the same for a period of three years - Held that - terms of the contract and nature of the work executed by the assessee is a works contract - It is not a case where the assessee has made any investment in an infrastructure project. The authority owning the infrastructure project has entered into a contract with the assessee for repair and maintenance for a period of three years. In fact the terms of the agreement shows that the assessee has to furnish the bank guarantee and the assessee has been paid mobilization advance and, therefore, it is not a case of the assessee investing its money in development of infrastructure or operating and maintaining an infrastructure, which is already developed or developing and maintaining of any infrastructure development. It is an agreement entered into effect repairs to infrastructure by construction of permanent bank protection measures to the Udyog Mandal canal and the Champakara canal and maintaining the same for a period of three years - Decided in favour of revenue.

Summary

Issues:
Challenge to Tribunal's order denying deduction under section 80-IA of the Income-tax Act, 1961 for a works contract.

Analysis:
The appellant, a contractor for marine, mechanical, civil, and underwater works, claimed a deduction under section 80-IA for maintenance of infrastructure facility. The assessing authorities determined that the contract in question was a works contract, not entitling the appellant to the deduction. The agreement with the Inland Waterways Authority of India revealed the work involved construction of permanent banks of canals and maintenance for 36 months. The authorities disallowed the deduction as it was solely for maintenance, not development or operation of infrastructure, as required by section 80-IA.

The Commissioner of Income-tax (Appeals) and the Tribunal upheld the decision, stating the appellant was a contractor executing civil works for an infrastructure enterprise, falling under the Explanation to section 80-IA. The Tribunal emphasized that the work done was repair and maintenance, not creation of new infrastructure. The appellant argued that the work included construction of protection walls, attracting section 80-IA due to investment made. However, the courts found no merit in this argument, as the authorities had correctly classified the contract as a works contract, not involving infrastructure development.

The courts concurred that the appellant's engagement was for repairs and maintenance of existing canals, not infrastructure creation. The terms of the agreement indicated repair work and maintenance for three years, with no investment by the appellant in infrastructure development. The nature of the contract was deemed a works contract by all three authorities, with no substantial question of law arising for consideration. Consequently, the appeals were dismissed, affirming the denial of deduction under section 80-IA for the works contract.