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2017 (3) TMI 1164 - AT - Income TaxDeduction u/s 80IA of the Act on the entire business profits arrived at - Held that - The assessee is not merely a contractor but an entity which has taken not only enterprise risk but also business risk considering the fact that it has invested huge funds in the project which demonstrates that it has taken enterprise as well as business risk. It shows that the assessee has owned the project till it is handed over to the govt. it has taken all the risk till the project is complete. In our considered view we adjudicate that the assessee is a developer as enumerated in section 80IA(4) and eligible to claim deduction u/s 80IA. Accordingly we set aside the order of the CIT(A) and direct the AO to allow the assessee s claim of deduction u/s 80IA of the Act. - Decided in favour of assessee
Issues Involved:
1. Eligibility of the assessee for deduction under section 80IA of the Income-tax Act, 1961. 2. Classification of the assessee as a "developer" or a "contractor". 3. Interpretation of the term "infrastructure facility" under section 80IA. 4. Application of departmental circulars and amendments to section 80IA. 5. Analysis of judicial precedents and case laws relevant to section 80IA. Detailed Analysis: 1. Eligibility for Deduction under Section 80IA: The primary issue revolves around the assessee's claim for deduction under section 80IA, which pertains to profits derived from developing infrastructure facilities. The assessee argued that it satisfied all conditions stipulated under section 80IA, including being a consortium of companies registered in India, starting operations post-01/04/1995, and working under agreements with state government and statutory bodies. 2. Classification as "Developer" or "Contractor": The Assessing Officer (AO) denied the deduction, asserting that the assessee was merely a "contractor" and not a "developer" as per the agreement with the National Highways Authority of India (NHAI). The AO emphasized that the term "contractor" used in the agreement indicated that the assessee did not own the infrastructure facility, which was a prerequisite for claiming the deduction. 3. Interpretation of "Infrastructure Facility": The AO also argued that the infrastructure facility must be owned by the enterprise claiming the deduction. Since the ownership remained with NHAI, the assessee's claim was invalid. Additionally, the AO noted that the assessee did not develop the facility on a Build-Operate-Transfer (BOT) or Build-Own-Operate-Transfer (BOOT) basis, which are models typically associated with such deductions. 4. Application of Departmental Circulars and Amendments: The AO referenced Circular No. 717 dated 14/08/1995, which predated amendments to section 80IA. The assessee countered by citing Circular No. 4/2010, which clarified that the term "developer" includes those who develop infrastructure facilities without necessarily operating and maintaining them. The assessee highlighted that section 80IA was amended to encourage private participation in infrastructure development by including the term "or" between "developing," "operating and maintaining," and "developing, operating and maintaining." 5. Judicial Precedents and Case Laws: The CIT(A) upheld the AO’s decision, emphasizing that the assessee acted as a contractor, not a developer, and did not finance the projects independently. The CIT(A) referenced various case laws to support this conclusion. However, the appellate tribunal considered the decision in the case of M/s KMC Constructions Ltd., where it was held that entities undertaking development work independently, even under government contracts, could qualify as developers eligible for section 80IA deductions. The tribunal noted that the term "developer" should be interpreted broadly to include those who undertake significant entrepreneurial and investment risks. The tribunal also referenced the case of Sushee Hi Tech, where similar facts led to the allowance of the deduction under section 80IA. The tribunal emphasized that the assessee had invested substantial funds and taken on significant risks, thus qualifying as a developer. Conclusion: The tribunal concluded that the assessee was indeed a developer as per the provisions of section 80IA and was eligible for the claimed deductions. The tribunal set aside the CIT(A)'s order and directed the AO to allow the deduction. The decision was based on a comprehensive analysis of the legislative intent behind section 80IA, relevant judicial precedents, and the assessee's substantial investment and risk in developing the infrastructure facility. Result: Both appeals filed by the assessee for AY 2005-06 and 2006-07 were allowed, affirming the assessee's eligibility for deductions under section 80IA.
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