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2020 (8) TMI 15 - AT - Income TaxDeduction u/s 80IA(4) - assessee is acting as a work contractor in the projects of housing development as per explanation attached below section 80-IA (13) - whether the assessee is acting as a developer or the works contractor? - HELD THAT - Assessee deploys its resources (material, machinery, labour etc.) in the construction work clearly exhibits the risks undertaken by the assessee. The assessee in the tender documents as discussed above has clearly demonstrated the various risks undertaken by it. The assessee was to furnish a security deposit to the Government and indemnify at the same time of any losses/damage caused to any property/life in course of execution of works. Assessee was responsible for the correction of defects arising in the works at its own cost. For that purpose the Government retained the money payable to the assessee as a measure to ensure the quality of the work and to make liable the assessee in the event of the defect, if any. Thus, it cannot be said that the assessee had not undertaken any risk. Thus on perusal of the terms and conditions in the agreement, it is clear that the assessee was not a works contractor simplicitor but a developer and hence Explanation to section 80- IA(13) does not apply to the assessee. It may be concluded that even after the amendment by the Finance Act, 2007 and the Finance Act, 2009, the contractors performing the work in the nature of a developer-cum-contractor and assuming risks and responsibilities shall be eligible for deduction u/s 80-IA in respect of the eligible infrastructural facilities. Hence the ground of appeal of the assessee is allowed.
Issues Involved:
1. Eligibility for deduction under section 80IA(4) of the Income Tax Act, 1961. 2. Distinction between a 'developer' and a 'contractor' in the context of infrastructure projects. Issue-wise Detailed Analysis: 1. Eligibility for Deduction under Section 80IA(4) of the Income Tax Act, 1961: The primary issue raised by the assessee was the disallowance of the deduction claimed under section 80IA(4) of the Act amounting to ?1,95,05,203/-. The assessee, a private limited company engaged in civil construction, was awarded an infrastructure housing project by the Gujarat Industrial Development Corporation (GIDC). The Assessing Officer (AO) denied the deduction on the grounds that the project was in the nature of a works contract, making the assessee ineligible for the deduction as per the explanation attached below section 80IA(13) of the Act. The AO's view was that the assessee was merely executing a works contract and not developing the project. The assessee argued that it had fulfilled all conditions under section 80IA(4) and was responsible for the entire development of the project, including the use of its own resources (machines, funds, technical and administrative staff). The assessee contended that it was not acting as a subcontractor but as a principal developer. The Ld. Commissioner of Income-Tax (Appeals) [CIT(A)] upheld the AO's decision, referencing the Hon'ble Gujarat High Court's decision in Katira Construction, which distinguished between a developer and a works contractor. 2. Distinction between a 'Developer' and a 'Contractor': The Tribunal analyzed the distinction between a developer and a contractor to determine the eligibility under section 80IA(4). A developer undertakes the project on its own responsibility, assuming all risks and responsibilities, including financial, technical, and managerial aspects. In contrast, a contractor merely executes work as instructed by the contractee without assuming significant risks or responsibilities. The Tribunal noted that the assessee had undertaken substantial responsibilities, including providing materials, machinery, and labor, and had furnished a security deposit and performance guarantee. The terms of the contract indicated that the assessee was responsible for defects, maintenance, and potential damages, aligning more with the role of a developer than a contractor. The Tribunal referred to various judicial precedents, including the Hon'ble Bombay High Court's decision in CIT v. ABG Heavy Industries Ltd. and the Hon'ble Pune Tribunal's decision in B.T. Patil & Sons Belgaum Constructions (P.) Ltd., which laid down parameters for determining whether an entity acts as a developer. These parameters include undertaking financial risk, shouldering technical risk, liability for liquidated damages, and employing a qualified team. The Tribunal concluded that the assessee met the criteria of a developer, as it had invested its own resources, assumed risks, and was responsible for the project's overall development. Therefore, the explanation to section 80IA(13) did not apply to the assessee, and it was eligible for the deduction under section 80IA(4). Conclusion: The Tribunal allowed the appeal of the assessee, holding that the assessee was acting as a developer and not merely as a works contractor. Consequently, the assessee was entitled to the deduction under section 80IA(4) of the Income Tax Act, 1961. The order was pronounced on 30/07/2020 at Ahmedabad.
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