2020 (2) TMI 827 - AT - Income Tax

Deduction u/s. 80IA - Fluoride Removal Unit and Arsenic Removal Units - assessee engaged in the business of developing, operating and maintaining community water system and contamination removal water system - HELD THAT - Explanation to section 80IA(4) makes it clear that infrastructure facility means a water supply project, water treatment system, irrigation project, sanitation and sewage system or solid waste management system. From the above, it is abundantly clear that the assessee shall be entitled for deduction u/s. 80IA(4) with respect to operating and maintaining of the water treatment system / water supply project. It is also clear that the assessee is not a developer but only operating and maintaining the water treatment system / water supply project. The contract work entrusted to the assessee for procurement and supply of water treatment system / water supply project will obviously not fall under the ambit of section 80IA (4) which the Ld. CIT (A) had also made it clear in his order by disallowing the deduction for supplying Fluoride Removal Unit and Arsenic Removal Units and it is appropriate. For procuring, supplying and erecting water treatment plant by virtue of job contract, the assessee will not be entitled for deduction U/s. 80IA(4) of the Act unless he is a developer and from the facts of the case it is apparent that the assessee is not a developer. Accordingly, we hereby hold that - (i) The assessee shall be entitled for the benefit of deduction u/s. 80IA(4) of the Act with respect to the profit earned out of operating and maintaining water treatment system / water supply project; (ii) However, the assessee shall not be entitled for benefit of deduction u/s. 80IA(4) of the Act with respect to the profit earned by supplying and erection of water treatment system / water supply project / Fluoride Removal Unit and Arsenic Removal Units as it is not a developer but only engaged in the task as works contractor.

Summary

Issues:
1. Condonation of delay in filing appeal before the Tribunal.
2. Eligibility of deduction under Section 80IA of the Income Tax Act for the assessee.
3. Interpretation of the term "developer" in the context of infrastructure projects for tax deduction purposes.

Analysis:
1. The Tribunal considered and granted condonation of a 10-day delay in filing the appeal by the Revenue based on the affidavit filed.

2. The main issue revolved around the eligibility of the assessee for deduction under Section 80IA of the Income Tax Act. The Revenue contested the deduction granted by the Ld. CIT (A) under Section 80IA, while the assessee challenged the disallowance of the deduction for Fluoride Removal Unit and Arsenic Removal Units. The assessee, a private limited company engaged in water system development, faced disallowance of deduction by the Ld. AO on the grounds of not being a developer but executing works contracts.

3. The Tribunal analyzed the facts presented by the assessee, highlighting its role in establishing community water systems and water treatment plants. The Ld. AO disallowed the deduction, emphasizing the civil contract nature of the work and the Finance Act of 2009's provisions regarding works contracts. However, the Ld. CIT (A) ruled in favor of the assessee after reviewing tender papers and contract terms but disallowed the deduction for specific units supplied.

4. Upon examination, the Tribunal identified two aspects of the transactions: equipment supply and plant operation and maintenance. It clarified that for deduction under Section 80IA, the assessee must be engaged in developing, operating, or maintaining infrastructure facilities. The Tribunal concluded that the assessee, not being a developer but operating and maintaining water treatment systems, is eligible for deduction under Section 80IA for operational profits but not for profits from supplying and erecting units, as it acts as a works contractor, not a developer.

5. The Tribunal partially allowed the Revenue's appeal and dismissed the Cross Objection of the assessee. The judgment emphasized the distinction between operating and maintaining infrastructure for deduction eligibility under Section 80IA, ultimately ruling in favor of the assessee for operational profits but not for supply and erection activities.