2025 (2) TMI 761 - AT - Income Tax

Denial of deduction claimed u/s 80IA - contract with Lucknow Metro Rail Corporation Ltd. (LMRCL) - HELD THAT - The assessee was only awarded the contract for design and construction of tunnel as specified in the tender document and the job of the assessee was over when the construction of tunnel was done as per the design approved. Assessee also does not fulfil the condition that the agreement has to be with Central Government/ State Government / Local Authority/Statutory Authority as LMRCL does not fit in any of them. It can be seen from the record that LMRCL was incorporated on 25/11/2013 under the Companies Act 1956 as a special purpose vehicle between the Central and State Government with equity share of 50 50 therefore in our understanding of the law it cannot be regarded as Central Government or State Government nor does it fall under the definition of local authority statutory authority. It is trite law that for claiming deduction u/s 80IA(4) all conditions have to be fulfilled cumulatively. No merit in the claim of deduction u/s 80IA of the Act and the lower authorities have not faulted anywhere by denying the same. Since we have dismissed the claim of the assessee u/s 80IA at the very threshold treating the assessee as a contractor we do not find it necessary to address the issues taken by the AO for denying the impugned claim. Accordingly both the appeals by the assessee are dismissed. Disallowance of legal and professional fees (fees for technical services) paid to Gulemark TPL JV - sole reason for the disallowance is that Gulemark TPL JV has not rendered the services therefore the claim was disallowed u/s 37 - HELD THAT - As details were supported by copies of bank payment advices for payment made to GLM were legal and professional fees before the AO along with copies of visa of the two employees of GLM visited India from time to time during the tenure of the project for rendering services supported with copy of leave and license agreement wherein concerned employees of GLM are accommodated in India along with vouchers of car hire charges for domestic transfer cost and two employees during the year visit to India. We are of the considered view that the fees for technical services as claimed by the assessee has been incurred for the purpose of business and therefore eligible for deduction under section 37 of the Act. AO has never treated the said claim as capital expenditure and has accepted the same as revenue expenditure therefore we do not find any reason to interfere with the findings of the CIT(A). Accordingly appeals of the revenue are dismissed.

Summary

The issues presented and considered in the legal judgment are as follows:1. Whether the assessee is entitled to claim deduction under Section 80IA of the Act for the contract with Lucknow Metro Rail Corporation Ltd. (LMRCL).2. Whether the fees for technical services paid to Gulemark TPL JV are allowable deductions under Section 37 of the Act.Issue-wise detailed analysis:Issue 1: Deduction under Section 80IA of the Act- The relevant legal framework includes Section 80IA of the Act which provides for deductions for profits and gains from industrial undertakings or enterprises engaged in infrastructure development.- The Court interpreted that the assessee, an un-incorporated association formed between two companies, was acting as a contractor for the LMRCL project and not developing, operating, or maintaining any infrastructural facility.- Key evidence included the contract agreement between the assessee and LMRCL, advance payments made by LMRCL, and the nature of the project.- The Court applied the law to the facts by analyzing the ownership and operational aspects of the project.- Competing arguments were considered, including reliance on judicial decisions such as the case of Ranjit Projects Private Limited and Commissioner of Income-tax, Central-II v. ABG Heavy Industries Ltd.- The Court concluded that the assessee did not fulfill the conditions for claiming deduction under Section 80IA of the Act, as it was merely a contractor for the project and not engaged in developing or operating infrastructural facilities.Issue 2: Deduction for fees for technical services- The legal framework involved Section 37 of the Act, which allows for deductions for expenses incurred for the purpose of business.- The Court examined the agreements related to the fees for technical services paid to Gulemark TPL JV and the services provided by them.- Key evidence included the agreements, bank payment advices, and supporting documents for services rendered.- The Court applied the law by determining whether the fees for technical services were incurred for the purpose of business.- Competing arguments centered on the actual provision of services by Gulemark TPL JV.- The Court held that the fees for technical services were eligible for deduction under Section 37 of the Act as they were incurred for the purpose of business and were treated as revenue expenditure by the AO.Significant holdings:- The Court dismissed the appeals by the assessee regarding the deduction under Section 80IA of the Act, as the assessee was deemed a contractor and not engaged in developing or operating infrastructural facilities.- The Court also dismissed the appeals by the revenue concerning the disallowance of legal and professional fees, ruling that the fees for technical services were allowable deductions under Section 37 of the Act.Overall, the Court's judgment focused on the interpretation of relevant legal provisions, examination of evidence, and application of the law to the facts of the case to determine the eligibility of deductions claimed by the assessee and the revenue.