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TMI Blog2000 (7) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislation has been misapprehended by the lower authorities. (v) That the ld. CIT(A) has erred in not giving any finding on the grounds that the ld. Assessing Officer has charged interest under section 234B at Rs. 23,47,990 when the appellant company had filed the return of income declaring taxable income at Rs. nil, which the appellant was legally entitled to do so. 2. We have heard the rival submissions of the parties and carefully perused the orders of the authorities below and the documents placed on record. 3. Ground Nos. (i) to (iv) relate to deduction claimed by the assessee under section 80-IA(4A) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The facts relating to the issue in narrow compass are that the assessee-company was incorporated on 19-5-1995 by the promoters of the company, Smt. Usha Agrawal and Shri Ajay Agrawal with the following objects, inter alia:-- "To carry on the business of buildings and operating projects for Government, Semi-Government or private parties whether company or Corporation on Build Operate and Transfer Principle (BOT)." 4. The assessee in its computation of income attached with the return of income claimed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assignment in favour of the assessee-company was also recognised and permission was granted by the State Government vide their letter dated 17-7-1995. Relying upon these facts, it was claimed before the Assessing Officer that since the assessee has fulfilled all the requirements of section 80-IA(4A) of the Act, he is entitled to the deduction on the income derived from the development of the aforesaid infrastructure. Having not satisfied with the contentions of the assessee the Assessing Officer has rejected the claim of the assessee on the ground that the assessee never entered into an agreement with the State Government and he was simply an assignee of the contract. As such, the basic requirement for claiming the deduction under, section 80-IA(4A) is not fulfilled. It was further observed by the Assessing Officer that the assessee-company was incorporated only with the object to claim the aforesaid deduction inasmuch as M/s. Ajay Construction, being a proprietorship concern, was not entitled to claim the deduction under the impugned section. 5. The assessment order was challenged before the CIT(A) with the submission that the entire contract was assigned in favour of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "assignment" has been defined as a specified task or amount of work assigned or undertaken as if assigned by Authority, the transfer of property; esp: the transfer of property to be held in trust or to be used for the benefit of creditors. Mr. Agrawal further contended that after obtaining the tender from the State Government M/s. Ajay Construction entered into an agreement with Smt. Usha Agrawal, the promoter of the assessee-company, and assigned the entire contract in favour of the company to be incorporated by its promoter in near future and thereafter the entire construction work was undertaken by the promoter of the assessee-company and the assessee-company after its incorporation itself. Since the acts and deeds of the promoter of assessee-company were adopted by the assessee-company itself, the entire contract work has been executed by the assessee-company and as such there was really a novation resulting in substitution of liabilities, nonetheless as a result of novation it can really be not justifiably contended that the enterprise has not entered into a contract with the State Government. He further invited our attention to the letters of the State Government through whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprises who entered into an agreement with the Central Government or the State Government or a local authority and stepping into the shoes of the original bidder by virtue of the aforesaid assignment agreement or sub-letting agreement. In fact, the legislature intended to give a Philip of deduction against the total income of the assessee derived from the aforesaid infrastructure inasmuch as the entire cost of the aforesaid infrastructure was borne by the assessee itself in order to promote expansion of quality infrastructure as evidently inadequate infrastructure is a key constraint to our economic progress. Mr. Agrawal has also emphasized that while interpreting the tax statute the authorities concerned or the court should take a lenient view favourable to the assessee if ambiguity is noticed in a particular section so that the object may be achieved for which the particular enactment was brought. In support of his contention, he relied upon the following judgments:-- (i) CIT v. Jayashree Charity Trust [1986] 159 ITR 280 (Cal.) (ii) M. Rangaswamy v. CWT [1996] 221 ITR 39 (Mad.) (iii) CWT v. Prakashi Talkies (P.) Ltd. [1993] 202 ITR 121 (Kar.) (iv) CIT v. Satyanarayan Sik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company, and assigned the tender obtained from the State Government in favour of Smt. Usha Agrawal, but the entire construction work was undertaken by Ajay Agrawal, the proprietor of M/s. Ajay Construction. The agreement between the assessee-company in which Ajay Agrawal and his wife, Usha Agrawal, were the sole directors, and M/s. Ajay Construction was executed on 21-7-1995 after the completion of the construction work though the assessee-company was incorporated on 195-1995. Mr. Gupta has also invited our attention to the balance sheet and profit and loss account of the assessee-company with the submission that the assessee had no funds to undertake the construction work. The entire funds and other machineries were supplied to the assessee-company by M/s. Ajay Construction for which it has charged interest and rent. Since the entire funds and other machineries were supplied to the assessee-company by M/s. Ajay Construction for which it has charged interest and rent and the entire work was undertaken by Ajay Agrawal, the proprietor of M/s. Ajay Construction, the creation of the assessee-company without any funds was simply a colourable device to claim the deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 80-IA(4A) were not brought to the statute. When the proposal to this effect was made in the budget speech by the Finance Minister, M/s. Ajay Construction entered into an agreement with Smt. Usha Agrawal, promoter of the assessee-company vide agreement dated 1-4-1995 and assigned the tender/contract for construction of Bakur bridge on BOT. As per the said agreement, whatever expenses were borne by M/s. Ajay Construction were taken over by Smt. Usha Agrawal on behalf of the assessee-company to be incorporated in future. After the agreement, the construction work was undertaken by Smt. Usha Agrawal till the incorporation of the assessee-company and after the incorporation the construction work was carried on by the assessee-company. It is also evident from record that as per the terms and conditions of the tender, the tenderer, M/s. Ajay Construction, was permitted to sub-let or assign the whole contract or any part of it in favour of any person or enterprises with the approval of the State Government. The preamble of the tender also speaks that the expression "tenderer" would also include its successors, representatives and permitted assignees. A copy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 1997-98 1-4-1997 to 29-8-1997 125 12,22,786.28 ------------------------------------------------------------------------------------------- Total 68,96,514.61 ------------------------------------------------------------------------------------------- 13. On the basis of tripartite agreement executed between the assessee, M/s. Ajay Construction and the State Government, the assessee had claimed deduction under section 80-IA(4A) of the Act which was rejected by the Assessing Officer and the CIT(A) on the ground that the assessee did not enter into an agreement with the State Government for construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id for the power they generate. Such counter guarantees are justifiable only if they are viewed as providing temporary breathing space, during which State Electricity Boards undertake necessary reforms of their institutional structure, operating practices and pricing policies. In the long run, we cannot escape the reality that the users of electricity must pay for its cost. The same criterion holds for other infrastructure sectors also. Once financial viability is assured, we can expect a renewed surge of both public sector and private sector investments in these areas." 15. With this object sub-section (4A) of section 80-IA was brought to the statute by the Finance Act, 1995 with effect from 1-4-1996, according to which any enterprise carrying on developing, maintaining and operating any infrastructure facility, shall be entitled to deduction under section 80-IA of the Act if it fulfils the requisite conditions. For the sake of brevity, we reproduce sub-section (4A) of section 80-IA of the Act:-- "(4A). This section applies to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the Apex Court's view the Hon'ble Madras High Court has taken a similar view in the case of M. Rangaswamy in which their Lordships have held that in case of doubt or difficulty encountered in ascribing the proper meaning to a provision or word in a provision, the statement of objects and reasons or the explanatory notes on clauses relating to amendment or the report of the Joint Parliamentary Committee which preceded the legislation concerned, will be useful to ascertain the intention of the legislature. 17. It is also a settled position of law that while construing the tax provisions besides determining the intention of the Legislature for its introduction to the statute, the expression used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute and which effectuate the object of the legislation. In the case of CIT v. Laxmi Metal lndustries [1909] 236 ITR 130 their Lordships of the Allahabad High Court have held that it is a recognised principle of interpretation that the administrative authority or the court should not whittle down the plenitude of the exemption or relief granted by the legislation by laying stress on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the fight of the budget speech of the Hon'ble Finance Minister and the abovesaid judicial pronouncements, we would find that the legislature has given a fillip of deductions to those enterprises who engage themselves in developing, maintaining and operating any infrastructure facilities for economic growth of the nation as it was felt by the legislature that inadequate infrastructure was a key constraint of our economic progress. As held by the Apex Court in the case of Bajaj Tempo Ltd., the provisions of promoting economic growth should be interpreted liberally and the restriction on it too has to be construed so as to advance the objective of the provisions and to frustrate it. If we put the fact of the case within the parameter laid down by the Apex Court and the various High Courts, we would find that the assessee though not entered into an agreement with the State Government at the initial stage but has obtained the tender/contract by virtue of a valid assignment, which was duly recognised by the State Government, should be deemed to have entered into an agreement with the State Government for construction of the impugned bridge on BOT basis. It is not the case of the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual construction work was undertaken by the assessee only. 19. From a careful perusal of the text and tenor of the tender we are of the view that the tender can be duly assigned with the approval of the Chief Engineer of PWD in favour of any person and the assignee would step into the shoes of the tenderer on the same terms and conditions. Since the assessee-company has rectified all acts and deeds of its promoter, Smt. Usha Agrawal, and owned all the assets and liabilities of its promoter through an agreement of assignment dated 21st July, 1995 executed between the assessee and M/s. Ajay Construction after obtaining approval from the State Government, the assessee shall be deemed to have undertaken the construction work since 1st April, 1995. We have also carefully perused the statements of accounts in the light of various judgments referred to by the parties and find that though the financial assistance and the machineries were provided by M/s. Ajay Construction to the assessee-company in which the proprietor of M/s. Ajay Construction and his wife are the sole directors but this fact cannot be ignored that ultimately the contract was executed by the assessee-company and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. 20. Apropos ground No. 5 it has been conceded on behalf of the assessee that the revenue cannot charge interest under section 234B without passing a specified order in this regard in the assessment order. In support of his contention he relied upon the judgment of Patna High Court in the case of, Uday Mistanna Bhandar & Complex v. CIT [1996] 222 ITR 441 in which their Lordships have held that notice of demand under sections 234A and 234B claiming interest can only be issued when there is a specific order in the assessment order levying interest under that section. To use the expression "charge interest, if any " or "charge interest as per the rules" cannot be read to mean that the Assessing Officer has passed orders to charge interest under all the aforesaid sections. The order to charge interest is to be specific and clear as for that matter any order to charge any tax, penalty or fine. When the assessment order is silent whether any interest is leviable, notice of demand under section 156 of the Act cannot go beyond the assessment order and the assessee cannot be served with any such notice demanding interest. Mr. Agrawal has also relied upon the order of Delhi Bench 'D' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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