2017 (12) TMI 659 - AT - Income Tax

Deduction u/s. 80IA - assessee is doing a works contract - whether assessee is a works contractor or a a developer? - Held that - The assessee is doing contract work but that work is according to the requirement and specification of the customer and the same has been done by using materials purchase from third parties other than the customers. Thus, though the assessee is doing a works contract the same would not fall within the meaning of the word works contract for the purpose of the Act due to the exclusion provided in the meaning of work in section 194C of the Act. The issue raised by the Ld. CIT that the assessee is not doing the development work but is only doing the contract also does not stand to test as the assessee admittedly is developing the roads and railway lines and the bridges thereof. Development encompasses within itself contract work. The agreement between the assessee and the customer being the government is for the development of the infrastructure facility being roads and rail systems and bridges by participating in the tenders. Under these circumstances, we are of the view that the AO was right in law in granting the assessee the benefit of deduction u/s. 801A(4) of the Act. See ARSS Infrastructure Projects Ltd. Versus ACIT 2014 (1) TMI 847 - ITAT CUTTACK Also this Tribunal in assessee s own case for A.Ys 2008-09, 2009-10, 2010- 11 and 2007-08 2017 (6) TMI 776 - ITAT KOLKATA held that assessee is a developer vide order dt. 07-10-2016. Also see case of M/s. GVPR Engineers Ltd &Ors 2012 (4) TMI 149 - ITAT HYDERABAD - Decided against revenue

Summary

Issues Involved:

1. Deduction under Section 80IA of the Income Tax Act, 1961.
2. Classification of the assessee as a developer versus a contractor.
3. Applicability of the explanation to Section 80IA introduced by the Finance Act, 2007.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IA of the Income Tax Act, 1961:

The primary issue in this appeal is whether the assessee is entitled to a deduction of ?82,56,250/- under Section 80IA of the Income Tax Act, 1961. The assessee, an AOP represented by its members, M/s Simplex Infrastructure Ltd. and M/s Somdatt Builders Pvt. Ltd., engaged in contractual work and claimed the deduction for a road construction project awarded by the Public Works Department, National Highway Project in Assam. The Assessing Officer (AO) denied the deduction, asserting that the assessee was merely a works contractor and not eligible for the deduction under Section 80IA(4).

2. Classification of the Assessee as a Developer versus a Contractor:

The assessee argued before the Commissioner of Income Tax (Appeals) [CIT(A)] that it had fulfilled all conditions under Section 80IA(4) and was not acting as a works contractor but as a developer of the infrastructure project. The CIT(A) reviewed the terms of the contract, highlighting the responsibilities of the assessee, such as design, procurement of materials, superintendence, safety, risk management, obtaining licenses, and arranging utilities. These responsibilities indicated that the assessee was not merely executing a works contract but was involved in the comprehensive development of the infrastructure project. The CIT(A) concluded that the assessee was a developer and thus eligible for the deduction under Section 80IA.

3. Applicability of the Explanation to Section 80IA Introduced by the Finance Act, 2007:

The Revenue contended that the explanation introduced by the Finance Act, 2007, excluded works contractors from claiming deductions under Section 80IA. However, the CIT(A) and the Tribunal referred to previous decisions, including those of the ITAT Hyderabad and ITAT Cuttack, which clarified that an entity involved in developing infrastructure facilities, even if under a contract, qualifies as a developer if it undertakes comprehensive responsibilities beyond mere construction. The Tribunal found that the assessee's activities aligned with those of a developer, as defined in the relevant judicial precedents. Therefore, the explanation to Section 80IA did not apply to the assessee in this context.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, affirming that the assessee was a developer and not a mere works contractor. Consequently, the assessee was entitled to the deduction under Section 80IA. The appeal by the Revenue was dismissed, and the order allowing the deduction was pronounced in open court on 06/12/2017.