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2013 (11) TMI 197 - AT - Income TaxWhether the Tribunal while complying with the provisions of section 255(4) of the Act can consider the judgment of the Hon ble High Court in the case of ABG Heavy Industries. Disallowance of Deduction u/s 80IA(4) - development of infrastructure facility as a whole or in part - Held that - Taking the substance of the transaction, the assessee were entitled to all the profits in respect of the contract executed by them, hence the assessee would certainly be entitled to deduction under the provisions of 80IA as they have fulfilled all the other conditions - the Assessing Officer was directed to allow deduction u/s.80IA(4) of the Act to the assessee with regard to the projects in question for both the years - Following Deputy Commissioner of Income-tax, Central Circle-36, Mumbai Versus ABG Heavy Industries Ltd. 2010 (2) TMI 108 - BOMBAY HIGH COURT and Ayush Ajay Construction Ltd. vs ITO 2000 (7) TMI 225 - ITAT INDORE . The assessee Company had been included as a sub-contractor for the all the other projects either the contracts were directly in the name of assessee company or in the name of the joint venture enterprise - The fact that the assessee had a tripartite agreement with the relevant authorities makes the assessee a party to the main contract work itself and which clearly shows that the assessee on their own right are contractors and not just sub contractors as normally understood - The assessee was the contractor vis-a-vis the portion allotted to them and not only subcontractors, i.e. a direct party to the main agreement - The assessee had entered into a main agreement, in their own right, can claim the benefit of section 80IA - assessee was otherwise fulfilling all the conditions they were entitled to deduction under the provisions of section 80IA. The action of the assigning and the work of construction undertaken by the assessee was recognised by the State Government and a tripartite agreement was executed between the assessee and the State Government through which the State Government had recognised that the assessee had stepped into the shoes of assessee and notified authorising the assessee to collect the toll tax for a particular period - Since the assessee company had rectified all act and deeds of its promoter and owned all the assets and liabilities of its promoter through an agreement of assignment executed between the assessee and A after obtaining approval from the State Government, the assessee should be deemed to have undertaken the construction work since 1-4-1995 - Since the Government had provided this deduction in order to encourage economic growth of the country, the plenitude of exemption should not be whittled down, by laying stress on ambiguity here and there - If it was proved that, the assessee-company had obtained the status of a tenderer by virtue of a valid assignment, it should not be denied the benefit of deduction provided by the Central Government through introduction of sub-section (4A) of section 80 IA - The action of assessee could only be termed as a valid tax planning which was permissible under the law. Therefore, the assessee had fulfilled the requirements provided in section 80IA (4A)(ii) for claiming deduction, and, therefore, the Assessing Officer should have allowed the deduction claimed by the assessee company - Decided in favour of Assessee.
Issues Involved:
1. Deduction u/s 80IA(4) of the Income Tax Act. 2. Interpretation of amendments to section 80IA(4) by Finance Act, 2001. 3. Eligibility of a contractor as a developer under section 80IA(4). 4. Impact of the Bombay High Court's decision in ABG Heavy Industries Ltd. on the present case. 5. Compliance with section 255(4) of the Income Tax Act. Detailed Analysis: 1. Deduction u/s 80IA(4) of the Income Tax Act: The core issue revolves around the assessee's claim for deduction under section 80IA(4). The Assessing Officer disallowed this claim, and the CIT(A) confirmed the disallowance. The matter was brought before the ITAT, where the Judicial Member and the Accountant Member had differing opinions. The Judicial Member accepted the claim, while the Accountant Member did not. Consequently, the matter was referred to a Third Member under section 255(4) of the Act. The Third Member opined that a Larger Bench should hear the matter. The Larger Bench agreed with the Accountant Member, concluding that the assessee was not entitled to the deduction. 2. Interpretation of amendments to section 80IA(4) by Finance Act, 2001: The amendment to section 80IA(4) by the Finance Act, 2001, introduced the word 'or' between 'developing' and 'maintaining & operating,' which was intended to clarify that enterprises could qualify for deduction by engaging in any one of these activities. The Hon'ble Bombay High Court in the case of ABG Heavy Industries Ltd. held that this amendment was clarificatory and applicable retrospectively from A.Y. 2000-01 onwards. This interpretation was crucial as it determined the eligibility criteria for the deduction. 3. Eligibility of a contractor as a developer under section 80IA(4): The Tribunal had to determine whether the assessee, acting as a contractor, could be considered a developer and thus eligible for the deduction. The Bombay High Court in ABG Heavy Industries Ltd. clarified that even if an enterprise did not develop the entire project, it could still qualify for the deduction if it undertook significant development work. The court emphasized that the requirement to develop the entire project was not a legislative condition. The Tribunal found that the assessee had shouldered investment and technical risks, employed a qualified team, and was liable for liquidated damages, thereby fulfilling the conditions of being a developer. 4. Impact of the Bombay High Court's decision in ABG Heavy Industries Ltd. on the present case: The Hon'ble Bombay High Court's decision in ABG Heavy Industries Ltd. played a pivotal role in the Tribunal's judgment. The High Court directed the Tribunal to consider this decision while passing their order. The decision clarified that the insertion of 'or' in section 80IA(4) was to cure ambiguity and was applicable retrospectively. The Tribunal followed this direction and concluded that the assessee was eligible for the deduction under section 80IA(4). 5. Compliance with section 255(4) of the Income Tax Act: The Tribunal had to comply with section 255(4) of the Act, which involved giving effect to the opinion of the Third Member. The Tribunal noted that the Third Member's opinion was effectively overruled by the Bombay High Court's decision in ABG Heavy Industries Ltd. Consequently, the Tribunal directed the Assessing Officer to allow the deduction u/s 80IA(4) for the projects in question for both assessment years. Conclusion: The Tribunal, following the directions of the Hon'ble Bombay High Court and considering the clarificatory nature of the amendment to section 80IA(4), concluded that the assessee was entitled to the deduction for the relevant assessment years. The judgment emphasized the importance of interpreting tax provisions in a manner that promotes economic growth and aligns with legislative intent. The Tribunal's decision was pronounced in the open court on 28.2.2013.
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