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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 ..... nvisaged under section 80-IA(4A) and contemplated by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Smt. Usha Agrawal, promoter of the assessee- company. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the submission that according to the Webster's Dictionary "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f it enters into an agreement with the original bidder or the 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with Smt. Usha Agrawal, the wife of its proprietor, as a promoter of 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edly, at the time when the tender was granted to M/s. Ajay Constructions, 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 incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 construction of the aforesaid bridge on BOT basis, which is sine qua non for claiming the aforesaid deduction. Now, the short question before us is whether there was an agreement between the assessee-company with the State Government for construction of the aforesaid bridge on BOT basis or whether the assessee has stepped into the shoes of M/s. Ajay Construction, the original tenderer, after obtaining the assignment of the entire contract with the approval of the Chief Engineer, PWD, on the same terms and conditions of the agreement/tender settled between M/s. Ajay Construction and the State Government or whether by virtue of legal assignment of a tender/contract in favour of the assessee, the assessee is entitled to claim the deduction under section 80-IA(4A) of the Act. 14. Before going to the merits of the case, we feel it necessary to examine the purpose of introduction of section 80-IA(4A) to the statute. The object of this legislation can be viewed from the budget speech of the Finance Minister fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t:-- "(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, namely:-- (i) the enterprise is owned by a company registered in India or by a consortium of such companies; (ii) the enterprise has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement; (iii) the enterprise starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995." Before construing the provisions of section 80-IA(4A) of the Act and its applicability, we should bear in mind the object of its insertion and the intention of the legislature of this legislation. As held by various High Courts that though the speech of the Finance Minister cannot be a decisive factor for con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecognised 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 any ambiguity here or there. The provisions relating to exemption have to be construed liberally. It was also held by the Apex Court in the case of CIT v. Poddar Cement (P.) Ltd. [1997] 226 ITR 625 that where there are two possible interpretations of a particular section which is akin to a charging section, the interpretation which is favourable to the assessee should be preferred while construing that particular provision. Reiterating the same view, the Apex Court in the case of CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 3083 has held that in interpreting a fiscal statute, the Court cannot proceed to make good the deficiencies if there be any. The Court must interpret the statute as it stands as and in case of doubt, in a manner favourable to the taxpayer. This view of the Apex Court is not new one as they have been consistently taking the same view since long as in the case of CIT v. Vegetable Products Ltd [1973] 88 ITR 192 their Lordships have held that if the Court finds that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 revenue that the entire expenditure incurred in the construction of the aforesaid bridge was not borne by the assessee but by M/s. Ajay Construction, the main tenderer. The revenue has rejected the claim of the assessee for the simple reason that the assessee had never entered into any contract with the State Government and the assessee-company is nothing but a colourable device to evade tax. It is a settled position of law to the company is a juristic entity and it should be considered independent from the shareholders or the directors. Admittedly, M/s. Ajay Construction, the original tenderer, have assigned the remaining work of the contract/tender alongwith the expenditure incurred by it to Smt. Usha Agrawal, the promoter of the assessee-company through an agreement dated 1-4-1995 and thereafter the construction work was undertaken by the promoter of the assessee-company till its incorporation. When the permission of the assignment was granted by the State Government, fresh agreement was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany 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 act of assignment was duly recognised by the State Government. No doubt, it is true that in view of the judgment of the Apex Court in the case of Juggilal Kamlapat , and McDowell Co. Ltd., the judicial authorities are competent enough to pierce the corporate veil and to ascertain the real state of affairs. If we look, into the real state of affairs, we would find that Ajay Agrawal has obtained the tender through its proprietorship concern, M/s. Ajay Construction from the State Government and later on it assigned the contract to the assessee-company i.e., Ayush Ajay Construction Private Limited in which Mr. Ajay Agrawal and his wife, Smt. Usha Agrawal, were the sole directors, to avail the tax deductions under section 80-IA(4A) of the Act inasmuch as the deductions are only given to those enterprises which are owned by the companies registered in India or by a consortium of such companies. Since the Government has provided this deduction in order to encourage economic growth of the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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' of the Tribunal in the case of Multies Chemicals v. Asstt. CIT IT Appeal No. 801 (Delhi) of 1992 in which the view of the Patna High Court was followed by the Tribunal. It was further contended that since no contrary view has been taken by any other High Court of the land, the view taken by the Patna High Court should strictly be followed by all the Benches of the Tribunal though they do not fall within the jurisdiction of the Patna High Court. In the assessment order the Assessing Officer has simply stated "charge interest as per law" which does not enjoin the revenue to issue as demand notice of interest under section 234B of the Act. 21. Shri Brijesh Gupta, the learned Senior Departmental Representative, on the other hand, has submitted that charging of interest under section 234B is of compensatory nature. There is no need to pass a specific order for charging interest under that section. In support of his contention, he relied upon the following judgments:-- (i) Dr. S. Reddap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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