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TMI Blog2012 (5) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... hich contain above features are to be segregated and on these contracts deduction u/s. 80-IA has to be granted and the other agreements which are in the nature of pure works contracts hit by the explanation to section 80IA(13), those works are not entitle for deduction u/s 80IA of the Act. The profit from such is to be computed by assessing officer on pro-rata basis of turnover. The assessing officer is directed to examine accordingly and grant deduction on eligible turnover as directed above. Where the assessee has carried out the development of infrastructure work in Consortium or jointly with any other agency and not as a sub-contractor, then also the assessee is entitled for deduction u/s 80IA of the Act. The same principle is applicable in respect of work allotted by Government Corporation to the assessee. Being so, we are inclined to partly allow the ground relating to claiming of deduction u/s. 80IA.of the Act. - IT APPEAL NOs. 233 (Hyd.) of 2001, 969 (Hyd.) of 2002, 430, 617 and 996 (Hyd.) of 2003, 558 (Hyd.) of 2006, 1027 and 1223 (Hyd.) of 2007, 338 (Hyd.) of 2009 and 84 (Hyd.) of 2010 - - - Dated:- 16-3-2012 - CHANDRA POOJARI, SMT. ASHA VIJAYARAGHAVAN, JJ. S. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this assessment year on receipt of the same amount. In other words, while computing the profits and gains of the assessee, an allowance or deduction has been made in any assessment year and subsequently in any assessment year, the assessee has received the same amount in whatever manner, the same has to be considered as income of the assessee in this assessment year, in view of the provisions of section 41(1) of the I.T. Act. Once it is found, as a fact, that the amount of sales tax was claimed by the assessee in respective profit loss accounts and allowed as such actually by the Revenue, the assessee cannot get out of the mischief of section 41(1) of the Act. In other words, in order to bring a sum to assessment under section 41(1), it has to be established that it had been earlier allowed in an assessment by referring to the same but not by drawing inference. For this purpose we place reliance on the judgement of Supreme Court in the case of Tirunelveli Motor Bus Service Co. (P.) Ltd. v. CIT [1970] 78 ITR 55 (SC). In the present case, as held by the CIT(A), the Assessing Officer has not specifically brought into the fact in the assessment order as to the debit of a spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss account. However, the assessing officer has verified the position and found that the assessee was allowed interest of Rs. 1,24,03,563/- u/s 244A on its refund during the immediate previous year and assessed the same to tax as 'income from other sources'. The assessee claims expenditure to earn this interest income which was disallowed by the lower authorities. Against this, the assessee is in appeal before us. 9. We have heard both the parties on this issue. In our opinion the assessee has no reason to incur any expenditure to earn this interest income. Accordingly, we do not find any infirmity in the orders of the lower authorities and the same are confirmed. This ground of the assessee is rejected. 10. Now we take up the issue relating to allowability of deduction u/s 80IA(4)(i) of the Act on the profits earned from the development of the infrastructure projects undertaken by it. This issue is common in Revenue Appeals in ITA Nos. 969/Hyd/02, 617/Hyd/03 and 1079/Hyd/03 and Assessee appeals 558/Hyd/06, 1027/Hyd/07, 1223/Hyd/07, 338/Hyd/09 84/Hyd/10. In the initial assessment years i.e. 2000-01; 2001-02 and 2002-03, the Assessing officer rejected the claim made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tails furnished and various documents filed by the assessee, the assessing officer found that it has not developed any infrastructure facility. The assessee is a civil contractor and has entered into agreements with various State Governments and other authorities only for carrying out civil construction works. He further noted that the assessee has failed to show even a single instance of operating any infrastructure facility during the previous year and stated that it has not fulfilled the conditions as stipulated in section 80IA(4) of the Act. The assessing officer held that the assessee is not entitled to deduction under section 80-IA of the Act. Accordingly, the assessing officer disallowed the claim of the assessee for deduction under section 80-IA and completed the assessment accordingly vide order dated 31-3-2009 passed under section 143(3) of the Act. Aggrieved against the order of the assessing officer, the assessee went in appeal before the CIT(A). On appeal, the CIT(A) after considering the grounds raised before him elaborately, dismissed the appeal filed by the assessee. Further aggrieved, the assessee is in appeal before us. 12. The learned authorised representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill 1999 to be effective for and from the assessment years 2000-01 and onwards to fulfil the objective of the Prime Minister. The provisions of Sec. 80IA(4) are made applicable to "any enterprise carrying on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating or development, maintenance and operating any infrastructure facility ". Because of the amendment, the enterprises which are engaged in any of the three activities became eligible for deduction compared to the earlier provision, which was made applicable only to such enterprises engaged in all the three activities cumulatively. The provisions of sub section (4A) which were earlier applicable to the entrepreneurs engaged in developing, maintaining and operating was deleted with effect from 01-04-2000, but is incorporated in section 80IA(4) of the Act. It is clear that the enterprises which were developing, operating and maintaining and developing, operating and maintaining were only eligible for such deduction up to the assessment year 1999-2000 by virtue of the provisions of Section 80IA(4A). With the introduction of the new Section 80IA(4) amending the sub section (4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and operating the infrastructure. It is enough if it is carrying on the business of either developing or maintaining and operating or developing, maintaining and operating the infrastructure facility. 16. He submitted that there is no dispute with regard to the meaning of the infrastructure facility used under section 80IA of the Act. An explanation is introduced below sub-section (4) of Section 80IA which reads as under; Explanation - For the purpose of this clause, "infrastructure facility" means - ( a ) a road including toll road, a bridge or a rail system; ( b ) a highway project including housing or other activities being an integral part of the highway project; ( c ) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; ( d ) a port, airport, inland waterway or inland port; 17. Hence, development of a road is development of infrastructure facility. Similarly, the water supply project or irrigation project are also called as infrastructure facility. Therefore, there cannot be any dispute with regard to the fact that the assessee herein is engaged in the activity of develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenance (DLP) is 24 months. 3. Widening to four lanes and strengthening of existing two lane road in km 27.80 to km 61.00 in the Jagatpur-Chandikhol section of NH-5 in Orissa. Agreement dated 09.12.1999. National Highways Authority of India, 1-A, Eastern Avenue, Maharani Bagh, New Delhi. Sub-Clause 42.1 of Agreement Sub Clause 48.2 (a) of Agreement Sub Clause 49.1 of Agreement. Period of maintenance (DLP) is 12 months. 4. Widening to four lanes and strengthening of existing two lane carriageway of Udaipur-Ratanpur-Gandhinagar section of NH-8-UG-1 (km 278.000 to 340.000) in the state of Rajasthan. Agreement dated 05.10.2001. National Highways Authority of India, New Delhi. Sub-Clause 42.1 of Agreement Sub Clause 48.1 of Agreement Sub Clause 49.1 of Agreement. Period of maintenance (DLP) is 12 months. 5. Upgradation of road from Sindhanur to Budugumpa - Contract No. U-2, Agreement dated 19.12.2001. The Project Director, Project Implementation Unit, Karnataka State Highways Improvement Project, KR Circle, Bangalore. Sub-Clause 42.1 of Agreement Sub Clause 48.2 (a) of Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... South Central Railway, Secunderabad. Clause 21.1 of the Agreement (Site Facilities) Clause 21.2 of the Agreement Clause 28.0 of Agreement. Period of Maintenance (DLP) is 6 months. 13. Upgradation of Road from Sindhanur to Budugumpa - Contract No. U-8, Agreement dated 21.03.2003. The Project Director, Project Implementation Unit, Karnataka State Highways Improvement Project, KR Circle, Bangalore. Sub Clause 41.1 of Agreement (Notice to proceed). Sub-Clause 48.2 (a) of Agreement Sub Clause 49.1 of Agreement. Period of Maintenance (DLP) is 365 days. 14. Upgradation of road project in Tamil Nadu. Agreement dated 08.10.2004. Govt. of Tamil Nadu, Project Director, Project Implementation Unit, Highways Dept. Sub Clause 42.1 of Agreement. Sub Clause 48.2 (a) of Agreement Sub Clause 49.1 of Agreement. Period of Maintenance (DLP) is 365 days. 15. Allahabad Bypass Project - Package No. ABP-03, Agreement dated 4.11.2004. National Highways Authority of India, New Delhi. Sub Clause 42.1 of Agreement Sub Clause 48.2 (a) of Agreement Sub Clause 49.1 of Agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into more useful one shall be that of the assessee. The assessee has to undertake the responsibility of maintenance of the existing traffic and there should not be inconvenience to the regular traffic. The developed area after completion of the development of infrastructure is handed over to the Government. After handing over, the assessee shall maintain the infrastructure for a period of 48 months and any defects are to be rectified and it is clear that the assessee is converting the area entrusted to it into more useful and more profitable area and handing over the developed one to the Government. Therefore, the activity of the assessee is "to develop" an existing two lane road into four lane road thereby making the road more useful and profitable. 22. It is submitted that as per the explanation introduced by the Finance Act, 2007, any assessee who entered into a contract with the enterprise mentioned in Sub-Section (4) would not be eligible for deduction. It clearly indicates that any sub-contractor who undertakes a part of the work from the undertaking which was allotted the work would not be eligible for such deduction. The said explanation has no application to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e/production. The contractor merely carries on the work with the material supplied by the contractee and the knowledge supplied by the contractee. Further, in a works contract, the risk is undertaken by the contractee and in case of development contract, the contractor undertakes the risks involved. In the case of the assessee, it was allotted a premises and the possession of the premises was handed over to the assessee. It was asked by the government to develop the said area into an infrastructure facility. All the activities necessary in the process of development and the losses suffered in the process, the material to be used including the expertise shall be of the assessee. The maintenance of the existing facility during the period of development also shall be of the assessee. Therefore, the assessee is a developer and not a works contractor. He relied on the Circular No. 4 of 2010 dated 18-05-2010, which is after introduction of the explanation by the Finance Act, 2009, for the proposition that widening of existing road is an infrastructure facility and any enterprise carrying on the activity of widening of an existing road would be eligible for deduction under section 80IA(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect in rejecting the claim made by the assessee for deduction under sec. 80IA(4) of the Act. The lower authorities are of the view that separate books of account were not maintained for each of the work. In this regard it is submitted that proper accounts were maintained separately for each work except for the head office expenditure. Further, it is held by the Honourable ITAT in the case of Patwa Kinariwala Electronics v. IAC [1994] 77 taxman 319 (Ahd.)(Mag.), wherein it is held that maintenance of separate books is not fatal. A similar decision is taken by the ITAT in the case of Shoghi Communications Ltd., v. Dy. CIT [2006] 9 SOT 489 (Chd.). The ITAT, Chennai Bench in the case of Cavinkare (P) Ltd., v. Jt. CIT [2009] 178 Taxman 17 (Chennai) (Mag.) held that separate books of account for each unit need not be maintained. However, it is submitted that the assessee maintained separate books of account and can arrive at the profit for each of the unit. The lower authorities are of the view that the deduction is allowable only when the assessee enters into agreement with Government and not with any other body corporate. In this regard, it is submitted that the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions mentioned in the sub-section should be cumulatively fulfilled. According to him, the assessee should have been engaged in development and maintenance of infrastructure facility. According to him, a mere developer is not eligible for deduction under section 80IA(4) of the Act. In this regard, he referred to sub-section (2) of Sec. 80IA(4) and also sub clause (c) of the section 80IA(4)(i). The words used in sub-clause (c) "started" or "starts" operating and maintaining infrastructure facility on or after first of April, 1995 would apply only to the second type of enterprise who undertakes the work of "maintaining and operation". It would not apply to a person who is engaged in developing infrastructure facility as the word "developed" is not used in the said sub clause. Further, this is analysed by various courts. It is held clearly that such a provision i.e. clause (c) would apply only to such enterprises engaged in maintaining and operating the infrastructure. The Bombay High Court in the case of ABG Heavy Industries Ltd., [ supra ] observed that the requirement that the operation and maintenance of the infrastructure facility came after first of April, 1995 has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Act, 1991 as amended by Finance Act, 1996, Finance Act, 1999, Finance Act, 2001, up to Finance Act 2007 and Finance Act, 2009 and as explained by Circular 794 dated 9-8-2000 Circular 779 dated 14-9-1999 (240 ITR st. 32), Circular 794 dated 9-8-2000, Circular 779 dated 14-98-1999 (240 ITR st. 32), Circular 794 dated 19-8-2000, Circular 14/2001 (252 ITR st. 98) and Circular 3/2008 dated 12-03-2008 (168 Taxman St. 12,54) brings out the objectives of the statute and expectations of the law-makers in bringing the enactment. The statutory provisions as would be apparent from the Circulars and Explanatory Notes referred to herein-above seek to incorporate a quid pro quo between introduction of investment and entrepreneurial resources from the private sector and a tax deduction from the government to enable recoupment of expenditure incurred. The BOT/BOOT models seek to augment infrastructural assets in addition to governmental spending and not simply feed on government expenditure. The deduction under section 80IA is, therefore, available to the former, and not to the latter forms of business. The deduction claimed under section 80IA of the Act as prescribed in sub-section (1) is "in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mphasise that the assessee undertook maintenance work and was hence in the same league as a developer. However, it is clear from the document as furnished in the paper book that the maintenance function was actually remedying of defects for a prescribed period. No separate charges have been collected and this cannot be seen as a maintenance function. 28. The ld. DR submitted that on these facts, having regard to the responsibilities assumed under the agreement, the assessee cannot be seen as a developer; instead it plays the role of an executor/contractor. The contracts in question are in the nature of works contracts, the explanation inserted below section 80IA(13) of the Act with retrospective effect from 1-4-2000 has over-riding influence and debars the assessee's claim. The law on the subject of application of a retrospective amendment is clear from the special Bench decision of the Tribunal in the case of Aquarius Travels (P.) Ltd. v. ITO [2008] 111 ITD 53/21 SOT 9 (Delhi) (SB) (URO). Such provisions should be applied in pending proceedings, even when they have not been involved earlier. As matters stand, therefore, the most important question for examination on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in the case of ABG Heavy Industries Ltd. ( supra ) and a developer need not operate and maintain the infrastructure facility, as held by the Mumbai High Court in the case of ABG Heavy Industries Ltd. ( supra ). It is submitted that the decision of the Pune Bench of the ITAT in the case of Civil Engg. (P.) Ltd. ( supra ) is of no help in deciding the issues in the impugned appeals for the reason that the terms and conditions of the contracts and the nature of obligations assumed there-under, by the business are not discussed in the said order. This is the factual fulcrum on which the decision of the ITAT (larger Bench) in B.T. Patil as well as the Mumbai High Court in ABG case was decided. Without such detail, there is no point of comparability between the Pune Bench decision and the other cases. The unanswered questions emerging there-from are - ( i ) Can we assume that there was a BOLT contract or was it a works contract? ( ii ) Can we assume that the assessee took ownership control of the asset created? ( iii ) The circumstances under which the enterprise in ABG Heavy Industries became akin to a developer, and do they obtain in the case of LCE? Such as 10 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act, or that every contractor was a developer, the decision of the Mumbai High Court without considering the Explanation cannot operate to overrule the ITAT's decision in the case of B.T. Patil Sons Belgaum Constructions (P.) Ltd. ( supra ) where the Bench of the Tribunal considered the effect of the explanation and it was explained by the Hyderabad Bench of the Tribunal in the case of Hyderabad Chemicals Supplies Ltd. v. Asstt. CIT ITA No. 352/Hyd/2005 and 6 others appeals dated 21-1-2011, in the context of an apparent conflict between a Special Bench (Ahmedabad) decision of the ITAT and Madras High Court at para-15 on page-8 as follows:- "Further, judgment of High Court though not of the jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench of the Tribunal, however, where the judgment of the non jurisdictional High Court, though the only judgment on the point, has been rendered without having been informed about certain statutory provisions that are directly relevant, it is not to be followed." 31. Without prejudice to the argument that the stand that the Mumbai High Court's order in ABG runs on comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 80IA. It was noticed by their Lordships that the subsequent changes in the law effective from 1-4-2002 merely mirrored this liberalised outlook. That is not the same thing as saying that a business in the nature of a works contract qualified for the deduction in spite of not operating/maintaining the facility. The decision of the larger Bench in the case of B.T. Patil was not un-ware of the change in law effective from 1-4-2002 as would be evident from para 36 of the order. The change making the conditions of development/operation/maintenance non cumulative was not relevant since the case related to pre 1-4-2002 period. In the case of B.T. Patil, the larger Bench enunciated certain tests to determine whether the business was one of a 'developer' or a mere 'contractor'. The briefly stated facts are as follows: The distinction between C reation of Product v. Rendering of Service (para-40), Owner v. Executor of Owner's plan with reference to project specification (para-42), vesting of property, subject to re-transfer if need be (para 46) and need for interpretation to avoid absurd results (para 50)." 32. In view of the terms of the relevant contract, it was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was introduced. This cannot be considered as applicable to every enterprise eligible for deduction under section 80IA. This would apply to an enterprise which requires choosing the period of 10 years during which deduction is to be claimed. Only when the assessee has to exercise the choice, this section comes to operation. Other-wise this section would not operate. 34. The learned Departmental Representative referred to the Finance Bill, 1995 and the Circular No. 717 dated 14.8.1995 reported in 215 ITR 70 (statutes). The said circular explained that an enterprise which is engaged in the business of develops, operate and maintain infrastructure facility alone was eligible for deduction. An enterprise which only develops infrastructure facility was not eligible for deduction up to the assessment year 2000-01. The provisions of Sec. 80IA(4A) were made applicable only to the enterprise which develop, maintain and operates infrastructure facility. The assessee did not claim deduction under section 80IA(4A) of the Act. Therefore, neither the circulars issued up to that date nor the provisions of the law as were existed up to the assessment year 1999-2000 can be applied for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the banks or financial institutions and the availability of the technical personnel. The assessee would be a successful bidder only when such requirements are fulfilled. The requirements of the tender documents are available at page 124 of the agreement submitted before the Honourable ITAT. The assessee undertook all the risks involved in the activity. According to clause 20.1, the assessee has to undertake full responsibility for the care of works and materials and plant for incorporation therein from the commencement date till the date of taking over. Clause No. 20.2 of the agreement also mentions that loss or damage happens to the work, or any part thereof or materials or plant shall be the responsibility of the assessee. Clause No. 22.1 mentions that the assessee shall be responsible for death or injury to any person or loss or damage to any property which may arise in consequence of the execution and completion of the works. Therefore, the assessee is liable for risks. 37. He submitted that the learned DR is also of the view that the maintenance undertaken by the assessee as per the contract is only as a sort of warrantee and not the maintenance as mentioned in Sec. 80-IA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be made from payments made in respect of "any works". The work "any work" denotes the work of development of infrastructure facility also. Therefore, the observation of the learned DR is not correct. Further it is submitted that all the works were not entrusted by the NHAI alone. It can be seen from the list annexed that some of the works were entrusted by the Government of Karnataka, Government of Assam, Railways, Government of Rajasthan, Ministry of Road Transport, Government of India directly and Government of Gujarat directly to the assessee. In view of the above, it is not correct for the learned DR to mention that NHAI is the developer and not the assessee. If the argument of the learned DR were to be correct the Legislature should have clearly mentioned that the authority which is responsible for development would be eligible for deduction under section 80-IA(4) of the I.T. Act. Such a mention is not there in the Act and on the other hand, it is mentioned that any company is eligible for deduction. Therefore, this view of the learned DR is not correct. 39. The learned CIT DR referred to the decision of the Hon'ble Supreme Court in the case of N.C. Budharaja Co., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the execution of the civil work is equal to development. This makes it very clear that the assessee is eligible for deduction under section 80IA of the Act as the assessee invested its own finance in the process of development and undertakes the development work on its own with all the risks involved. Therefore, the circular supports the claim of the assessee that it is a developer. 41. The learned DR referred various circulars and mentions that the enterprises which carry on the activity under the concept of BOT and BOLT alone will be eligible for deduction. In this regard, it is submitted that the provisions of Section 80IA(4) makes the matters clear that a person who develops or operates and maintains or develops, operates and maintains would be eligible for deduction. The provision itself is very clear. It is applicable to any enterprise carrying on any one activity. The Bombay High Court in the case of ABC Industries clarified that all the three activities need not be done and the assessee would be eligible for deduction if it carried on even a single activity out of the above three activities. Therefore, the presumption of the department that the assessee who carry on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to the copy of the agreement submitted before the Honourable ITAT. According to the learned DR, the agreement used the word "contract" for completion of "works" and the Government made payments including the mobilization advance. Therefore, the learned DR is of the view that the assessee is engaged in mere works contract and undertook the work only with the money belonging to the Government. In this regard, the assessee already submitted detailed explanation in the above mentioned paragraphs. The learned DR also contended that only a part of the entire infrastructure facility is development by the assessee and therefore, the infrastructure facility cannot be operated. In this regard, it is submitted that the entire work of development of the road from Km 27.80 to Km 61.00 is undertaken by the assessee. The assessee developed the entire road of a distance of 33.20 km. The whole of the development activity in respect of the said distance is entrusted to the assessee. No part of such activity was entrusted to any other concern. 43. The learned DR is not correct to mention that the assessee undertook the work partially. The entire reach was developed by the assessee. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sub section (4) of Section 80-IA the word "it" denotes the enterprise carrying on the business. The word "it" cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word "it" is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. 46. The next question is to be answered is whether the assessee is a developer or mere works contractor. The Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 80IA(4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an un-developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA(4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80IA(4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. 47. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the Government. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word "contractor" is used to denote a person entering into an agreement for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act as distinct from the developer. This is clear from the express intension of the parliament while introducing the Explanation . The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. We have carefully gone through the various activities carried on by the assessee. An analysis of the works undertaken by the assessee clearly indicates that it carried on the activities of development of infrastructure facility. For clarity we reproduce one of the projected undertaken by the assessee. Nature of work : Widening to four lanes and strengthening of existing two lane carriageway in km. 27.80 to km. 61.00 Jagatpur-Chandikhol Section of National Highway No. 5 in the State of Orissa. The said work is financed by : Overseas Economic Co-operation Fund, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty and thereafter it shall be the responsibility of the assessee to develop the said area into more useful infrastructure facility. In the process, every act required (whether mentioned in the agreement or not) in converting the area into more useful one shall be that of the assessee. The assessee has to undertake the responsibility of maintenance of the existing traffic and there should not be inconvenience to the regular traffic. The developed area after completion of the development of infrastructure is handed over to the Government. After handing over, the assessee shall maintain the infrastructure for a period of 48 months and any defects are to be rectified. 50. From the above facts it is clear that the assessee is converting the area entrusted to it into more useful and more profitable area and handing over the developed one to the Government/Government Bodies. Therefore, the activity of the assessee is "to develop" an existing two lane road into four lane road thereby making the road more useful and profitable. 51. Without any doubt, the learned counsel for the assessee clearly demonstrated before us that the assessee at present has undertaken huge risks in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 1312 1313/Mds/2011 vide order dated 18.11.2011 in the case of the same assessee. 54. It is also pertinent to mention herein that this Tribunal in similar circumstances, in the case of GVPR Engineers Ltd. v. Asstt. CIT Hyderabad in ITA No. 347/H/08 vide order dated 29th February 2012 has taken similar view and granted deduction u/s 80IA of the Act. We also came across an order of this Tribunal on this issue in the case of R.R. Constructions wherein the Chennai Bench of the Tribunal in its order dated 3.10.2011 in I.T.A. No. 2061/Mds/2010 for assessment year 2007-08 confirmed the granting of deduction u/s. 80IA while holding as follows: "3. We have heard rival submissions and have carefully perused the entire record. The first issue of the appeal is regarding claim of deduction under section 80IA(4) of the Act. The case of the revenue is that the assessee is a 'works contractor' and not a 'developer' as stipulated under section 80IA(4) of the Act. The section 80IA(4) applies to any enterprise, which carries on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facilities, which fulfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it would be regarded as a 'developer' and not as a 'works contractor'. The assessee firm has carried on entire construction/development of the infrastructure facilities and satisfy all the conditions of section 80IA(4)(i)(a). It is undeniable fact that the assessee has taken development of infrastructure facility agreement from the State Government/local authority. A contractor who develops the infrastructure facility becomes a developer to claim exemption under section 80IA(4). The Hon'ble Bombay Bench of ITAT while deciding the case of Patel Engineering Ltd. v. DCIT in ITA No. 1221/Mum/2004 has gone to the extent of holding that the assessee, a civil contractor, having executed a part of contracts of irrigation and water supply on 'build and transfer' basis and handed over them to contractee Governments, was eligible for deduction under section 80IA(4). 5. We have also taken a similar view in ITA No. 554/Meds/2010 in the case of East Coast Constructions Industries Ltd v. DCIT vide order dated 13.09.2011 and relevant paras from 9 to 14 are reproduced hereunder: "9. After considering the rival submissions, we can safely say that the benefit of section 80IA is avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through contract for infrastructure facility. It is true that where a person who makes infrastructure and himself executes development work and carries out civil work will be eligible for tax benefit u/s 80IA of the Act. In contrast to this, a person who enters into a contract with another person for executing works contract, will not be eligible for tax benefit u/s 80IA. It was clarified by the Circular No. 3 of 2008 dated 12.3.2008 that the provisions of section 80IA shall not apply to a person who executes only work contracts and only those who make the development work will be eligible for tax benefit u/s 80IA of the Act. Be that as it may, when we apply this provision in its letters and spirit, we find that this assessee is verily eligible for deduction u/s 80IA, as the assessee-company fulfils all the relevant conditions. The facts of this case go to prove that the assessee is a 'developer' of infrastructure facilities. The reasons for our above conclusion are given in the following paras. Firstly, the assessee-company not only designs but also creates new products. The assessee had undertaken four projects during the relevant year and executed, constructed, delivered and mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of, and qualitative improvement in, infrastructure ( viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract. Accordingly, it is proposed to clarify that the provisions of section 80-IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work, i.e. , carries out the civil construction work, he will be eligible for tax benefit under section 80-IA. In contrast to this, a person who enters into a contract with another person ( i.e. , undertaking or enterprise referred to in section 80-IA) for executing works contract, will not be eligible for tax benefit under section 80- IA. This amendment will take retrospective effect from April I, 2000 and will accordingly apply in relation to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the assessee was not operating and maintaining the facility, he did not fulfil the condition. The submission is fallacious both in fact and in law. " That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1st April, 1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1st April, 1995. After Section 80IA was amended by the Finance Act, 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating and maintaining; or (iii) developing, operating and maintaining any infrastructure facility' which fulfils certain conditions. Those conditions are (I) ownership of the enterprises by a company registered in India or by a consortiums; (II) an agreement with the central or State Government, local authority or statutory body; and (III) the Start of operation and maintenance of the infrastructure facility should commence after 1st April, 1995. The requirement that operation and maintenance of the infrastructure facility should commence after 1st April, 1995 has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case and eventually is entitled for the deduction under section 80IA(4) of the Act. Accordingly, the modified ground, which is common in all the four appeals is allowed in favour of the assessee. " 12. Let us remind ourselves that the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd v. CIT , 196 ITR 188, has ordained that taxing statute granting incentives for promoting growth and development should be liberally construed. 13. Now, the question arises as to whether the term 'contractor' is not essentially contradictory to the term 'developer'. In fact, in every development the term 'developer' will definitely be a 'works contractor' but every works contractor may not be a 'developer'. A 'developer' is a specific kind of works contractor to be eligible for deduction u/s 80IA(4) who fulfils all the conditions namely, if the assessee develops the infrastructure facility if it operates the infrastructure facility and if it maintains the infrastructure facility or to put it in simpler terms, the harmonious reading of the provisions in its entirety would lead to the conclusion that this deduction is available to an enterprise who - develops or operates and also mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s constructed, delivered and maintained and security is also maintained thereafter. So, this is a case of transfer of property in chattel and not a contract of service. A 'developer' as per the Advanced Law Lexicon means "a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorized for such purpose by any such developer". In the case of ACIT v. Bharat Udyog Ltd, 'F' Bench of ITAT Mumbai, has concluded that any assessee who is engaged in developing the infrastructure facility and also operating and maintaining the same, is entitled to the benefit of deduction u/s 80IA(4). A copy of this decision is enclosed at page 139 of the paper book. In the case of Patel Engineering Ltd v. Dy. CIT , 84 TTJ (Mumbai) 646 [copy enclosed at page No. 145 of the paper book], it has been held that a person, who enters into a contract with another person will be treated as a 'contractor' undoubtedly; and that assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor but does not derogate the assessee from being a 'develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the statutory provision as contained in section 80IA which provides for deduction of infrastructure facility no way provides that entire infrastructure facility project has to be developed by one enterprise. Thus, as per section 80IA the assessee should develop the infrastructure facility as per the agreement with the Central/State Government/Local Authority. Entering into a lawful agreement and thereby becoming should, in no way be a bar to the one being a 'developer'. In this regard, as we have already stated, the decision of ACIT v. Bharat Udyog Ltd, 118 ITD 336 and Patel Engineering Ltd v. Dy. CIT , 84 TTJ 646, are relevant. As per Circular No. 4/2010 [F. No. 178/14/2010-ITA-I] dated 18.5.2010, widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80IA(4)(i). The assessee is not required to develop the entire road in order to qualify for deduction u/s 80IA as has been held by the Hon'ble Bombay High Court in the case of CIT v. ABG Heavy Industries Ltd , 322 ITR 323. The newly inserted Explanation 2 to section 80IA vide Finance Act, 2007, does not apply to a works contract entered into by the Government and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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