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TMI Blog2017 (3) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... d Shri Ravi Tulsiyan, Ld. Authorized Representative appeared on behalf of assessee. 2. The only grievance of the Revenue is that whether the Ld CIT(A) is justified in allowing the deduction claimed u/s 80IA(4) of the Act though the assessee does not fulfill conditions u/s 80-IA of the Act. 3. The facts in brief are that assessee in the present case is a Limited Company and engaged in the business of contract work as observed from the assessment order. During the year under consideration, assessee has claimed deduction u/s 80-IA of the Act in respect of the following projects:- Sl. No Contract No. Name of the party for whom the assessee worked Description of project Amount of deduction claimed u/s. 80IA 1 C2067-2068 Kolkata Municipal Corporation Sewerage Rs.3,04,74,858/- 2 C2094-2104 Govt. of Assam Flyover Rs.17,08,66,992/- 3 C2130 Executive Engineer (Project), Bangalore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Act by observing as under:- Now, keeping in view the scheme of the tax holiday under sec. 80-Ia and the provisions of the Act, the details furnished in respect of the work carried out by the appellant company during the year under consideration have been perused. The nature of work executed, including work relating to ports, air-ports, highway ad municipal corporation, all coming in the category of infrastructure facility from the perusal of the terms and conditions of all the agreements, it is abundantly clear that it is not a case where the appellant was provided with the establishment and materials required to execute the work, which happens in case of works contract where the contractor gets the material and other requisites from the client and all he has to do is employ labour. The appellant in the given case was to procure raw material, make arrangements for power, water, plant machinery, obtain statutory clearances etc., and conduct all the other activities needed for construction to bring into existence an infrastructure facility. Further it was exposed to various risks like risk of damage of property, risk of accidents etc. therefore, having regard to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly. Hence, these grounds of appeal of the appellant are allowed. Being aggrieved by this, Revenue has come up in appeal before us on the following grounds of appeal. 5. Before us both the parties relied in the order authorities below as favourable to them. 6. We have heard rival contentions and perused the materials available on record. At the outset we find that the instant issue is already covered in favour of assessee in its own case by the order of Hon ble Kolkata Tribunal in ITA No 2168/Kol/2013 vide order dated 08.02.2017. The relevant extract of the order is reproduced below : 6. We have heard rival contentions and perused the materials available on record. From the foregoing discussion we find that the provisions of Section 80-IA of the Act applies to the enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :- (a) It is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble High Court and the Court has restrained to enforce the demand that may be raised in pursuance to the explanation to section 80IA of the Act. There is no direction to keep the assessment proceedings under abeyance. The AO treated the assessee as a mere works contractor conducting mere civil construction and hence as per the explanation to section 80- IA(13), the deduction is not available to him. However on examination of the records we find that the assessee has withdrawn the appeal filed before the Hon ble High Court. At this juncture attention in this regard is firstly invited to the provisions of the Explanation of Section 80-IA of the Act as produced below: For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1). From a plain reading of the above it is clear that deduction u/s 80-IA does not apply to works contract. Now the relevant question arises before us for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is liable to deduct income-tax as required under that sub-section. The words in the sub-sections (1) of 194C `on income comprised therein' appearing immediately after the words `deduct an amount equal to two per cent of such sum as income-tax' from their purport, cannot be understood as the percentage amount deductible from the income of the contractor out of the sum credited to his account or paid to him in pursuance of the contract, but deduction is to be made out of payments made to the contractor. 6.3 We see no reason to curtail or to cut down the meaning of the plain words used in the section. ''Any work means any work and not a works contract '', which has a special connotation in the tax law. Indeed in the subsection the work referred to therein expressly includes supply of labour to carry out a work. It is a clear indication of the Legislature that the work in the sub-section is not intended to be confined to or restricted to works contract . The issue before the Supreme Court in the aforesaid case was whether the term work used in section 194C needs to be restricted to works contract . The Apex Court laid out that the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Explanatory Memorandum clearly lays out that purpose of extending tax benefit u/s 80-IA was to encourage investments from the private sector and hence work contracts, i.e. contracts involving merely labour (or mere execution of construction without making investments) are outside the purview of the provisions of section 80-1A. Thus, the term works contract used in Explanation to section 80-IA(l3) means a contract of developing infrastructure by merely employing labour and making no investments. We also find support from the following judgments: The Hyderabad bench of Tribunal in case of M/s. GVPR Engineers Ltd. Vs. ACIT (2012) 32 CCH 0296 HydTrib (2012) 51 SOT 0207 (Hyd) (URO). The relevant extract of the order is reproduced as under : The next question to be answered is whether the assessee is a developer or mere works contractor. 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 Government or the Government body ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 department is not correct in holding that the assessee is a mere contractor of the work and not a developer. 6.4 It was also observed that 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. Similarly the Chennai Bench of Tribunal in case of R.R. Constructions, Chennai vs Department Of Income Tax 2013) 35 CCH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment year 2010-11, as seen from the Profit and Loss Account of the assessee for the relevant years ending on 31.3.2009 and 31.3.2010 respectively, copies of which are furnished by the assessee at pages 20 and 65 of the paper-book. Similarly, assessee has invested its own fund of ₹ 5,55,00,000.00 for assessment year 2009-10 and of ₹ 7,86,75,710.00 for the assessment year 2010-11, as seen from the Balance Sheet of the assessee as on 31.3.2009 and 31.3.2010 respectively, copies of which are furnished by the assessee at pages 21 and 66 of the paper-book. In this view of the matter, the reason given by the CIT(A) on this aspect for denying deduction to the assessee under S.80-IA is also not valid. Thus in light of the aforesaid decision of the Tribunal Hyderabad Bench, the contention of the AO is not valid. Further, merely because the assessee was receiving payments from the Government in progress of work it cannot be said that the projects were financed by Government. In this regard it is pointed out that under sub-section 4 of section 80-IA, deduction is available to a developer, i.e. if, an assessee, merely develops the infrastructure facility without oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80-IA is denied on the ground that the assessee had received payments from Government, then an assessee who is only a developer (and not an operator) will never be entitled to deduction u/s 80-IA, which is clearly not the intention of legislature as discussed by the Bombay High Court in case of ABG Heavy Industries Ltd. Thus, merely because the assessee was paid by the Government for development work it cannot be denied deduction under section 80-IA(4). The contention of the assessee finds strength from the following judgments: The ITAT (Mumbai) in case of ACIT v. Bharat Udyog Ltd. (2009) 123 TTJ 0689 : (2009) 23 DTR 0433 : (2009) 118 ITD 0336 : (2008) 24 SOT 0412 After the amendment effected by Finance Act, 1999 w.e.f. 1st April, 2000, the deduction under s. 80-IA(4) has become available to any enterprise carrying on the business of (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Sub-cl. (c) of cl. (i) of s. 80-IA(4) is obviously applicable to an enterprise which is engaged in operating and maintaining the infrastructure facility on or after 1st April, 1995. It is not applicable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer, i.e., to the person who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if he is paid for development of infrastructure facility, for the simple reason that he is not having the right/authorisation to operate the infrastructure facility and to collect toll therefrom, and has no other source of recoupment of his cost of development. Considered as such, the business activity of the nature of build and transfer also falls within eligible construction activity, that is, activity eligible for deduction under s. 80-IA inasmuch as mere development as such and unassociated/ unaccompanied with operate and maintenance also falls within such business activity as is eligible for deduction under s. 80-IA. Therefore, merely because the present assessee was paid by the Government for development work, it cannot be denied deduction under s. 80-IA(4). A person who enters into a contract with another person will be a contractor no doubt; and the assessee having entered into an agreement with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee will be paid for the cost incurred by it; otherwise, how will the person, who develops the infrastructure facility project, realize its cost? If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the transferee had paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing he infrastructure facility would be entitled to deduction under section 80IA(4), which is not the intention of the law. An enterprise, which develops the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. The legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction. It presupposes that there can be income to developer i.e. to the person who is carrying on the activity of only de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the contract with the Government was to carry out mere civil construction. Attention in this regard is invited to the following: (i) The ITAT (Ahmedabad) in case of Sugam Construction (P) Ltd. vs. ITO [56 SOT 45] held that It is also gathered (a) That a developer is a person who undertakes the responsibility to develop a project. (b) That a developer is therefore not a civil contractor simplicitor. (c) That if we apply the commercial aspect, then a developer has to execute both managerial as well as financial responsibility. (d) That the role of a developer, according to us, is larger than that of a contractor. (e) That when a person is acting as a developer, then he is under obligation to design the project, it is another aspect that such design has to be approved by the owner of the project, i. e. the Government in the present case. (f) That he has not only to execute the construction work in the capacity of a contractor but also he is assigned with the duty to develop, maintain and operate such project. (g) That to ascertain whether a civil construction work is assigned on development basis or contract basis can only be decided on the basis of the terms and conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, it was responsible for the correction of defects arising in the works at it cost. Thus, it cannot be said that the assessee had not undertaken any risk. The ITAT (Hyderabad] in case of Siva Swathi Construction (P) Ltd. (supra) held that Further reason given by the ld. CIT(A) for denying deduction under S.80IA to the assessee is that the assessee has not undertaken any risks. The observations of the ld. CIT(A) in this behalf are also not valid and correct. It was clearly mentioned in the agreement that the assessee shall execute and furnish indemnity bond for a period of four years, indemnifying the Government against any loss or expenditure incurred, to repair any defect noticed due to faulty working done by the contractor or substandard material used by the contractor. Further, it is also mentioned in the contract agreement that the assessee shall not claim for any loss due to foreseen circumstances, including suspension of work due to cause. It is also provided that in the event of accident to people employed by the assessee resulting in compensation to be paid as per the Workmen's Compensation Act the same shall be paid by the contractor, viz. the assessee only. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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