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TMI Blog2017 (3) TMI 1164X X X X Extracts X X X X X X X X Extracts X X X X ..... Mini Chandran ORDER Per S. Rifaur Rahman, A. M. Both these appeals filed by the assessee are directed against separate orders of CIT(A) - IV, Hyderabad, for AY 2005-06 and 2006- 07. As identical issue is involved in both these appeals, they were clubbed and heard together, therefore, we find convenient to dispose off these appeals by way of a common order. 2. Briefly the facts of the case as taken from AY 2005-06, are that the assessee had claimed deduction u/s 80IA of the Act on the entire business profits arrived at. In support of its claim, the assessee submitted that two infrastructure facilities were developed by the assessee which were roads and stated that roads are part of definition of infrastructure facility as per the explanation to sub- clause (4) of the said section. It was submitted that it has satisfied the stated conditions - it is owned by a consortium of companies registered in India (being a Joint Venture), it has started operation after 01/04/1995 and it is working in pursuance of agreements with state government of Rajasthan (State Road Project Division, Rajkot) and a statutory body (the NHAI). Further it was submitted that in respect of the infrastructure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee could claim deduction as a 'developer' while it was a 'contactor'. Accordingly, it was held that the said decision was not applicable to the assessee's case." 4. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and contended, inter-alia, that the assessee is in the eligible business of developing the infrastructure facility being the high way project and satisfying the conditions as to the ownership of the undertaking or enterprise as mentioned in clause (a) of sub-section (4)(i) of section 80IA and the assessee entered into an agreement with the NHAI for development of a new infrastructure facility, being widened to 4 lanes and upgraded the existing 2-lane road, as specified, above by transforming the same into a new infrastructure facility under the National highway Development Programme, it shall be declared as eligible for deduction u/s 80IA in respect of the profits derived from the said eligible business. 5. After considering the submissions of the assessee, the CIT(A) elaborately discussed/analysed the issue with various case laws and confirmed the disallowance made by the AO. The relevant paras of CIT(A) are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectioning of a stretch of National Highway No 2 amounted to developing of a new infrastructure facility. However, it is clear that despite such strengthening and 4 laning, the facilities so built could not be termed as a new infrastructure facility: as mandated by Sec. 80IA, as it amounted only to renovation and modernization of the existing facility. Even after such strengthening and 4 laning, no new user or utility was brought into existence. Obviously, even after the amendment brought in by Finance (No.2) Act, 2004, in sub-section 80IA(2) and in 80IA(4)(iv)(c), substantial renovation modernization' has been restricted to the net work and is not applicable to other infrastructures facilities. The assessee is therefore, not entitled to deduction even on this account." 6. Aggrieved by the order of the CIT(A), the assessee is in appeal before us raising the following grounds of appeal, which are common in both the AYs under consideration: "1. On the facts and in the circumstances the order of the CIT(A) is erroneous in law and facts of the case. 2. The ld. CIT(A) erred in law and facts of the case in confirming the action of the AO in disallowing the claim of the assessee u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has invested considerable amount in these projects and not merely acting as contractee. 8. Ld. DR submitted that the assessee is not a developer, it is only a contractee and the real owners are the Govt. The Govt. has given a contract to the assessee and paid the contract money as and when bills are raised by the assessee. She further submitted that the case of Sushee Hi Tech (supra) referred to by the AR is distinguishable to the facts of the case of the assessee. She submitted that the assessee has not taken any entrepreneurial risk, but, only business risk. Further, she relied on the order of CIT(A). 9. Considered the rival submissions and perused the material facts on record. The issue in dispute is squarely covered by the decision of the coordinate bench of this tribunal in the case of M/s KMC Constructions Ltd. in ITA Nos. 996/Hyd/2003 and others, vide order dated 16/03/2012, the decision of which has been followed in the subsequent years in other cases also. The coordinate bench has elaborately discussed the issue as under: "44. We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have also gone thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee and the Government. We find that the Government/Government body handed over the possession of the premises or the existing road to the assessee till the development of infrastructure facility. It is the assessee's r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered 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 undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word "contractor" is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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, Japan to the Government of India. The Government of India authorized to get the work done by Invitation of Tender. The source of funds as mentioned in the tender (herein Document after referred to as "the Fund") : The Government of India has received a loan from the Overseas Economic Cooperation Fund towards the cost of Widening to four lanes and strengthening of existing two lane carriageway in km. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 of deployment of technical personnel, plant and machinery, technical know-how, expertise and financial resources. 52. Therefore, in our considered view, the assessee should not be denied the deduction under section 80IA of the Act as the contracts involve development/construction, operating/maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract. In our opinion the contracts which 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 enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 fulfil all the above conditions. There cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 01.04.1995. From the assessment year 2000-01, deduction is available if the assessee is carrying out the business of any one of the above mentioned three types of activities. When an assessee is only developing an infrastructure facility project and is not maintaining nor operating it, obviously such an assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 available only to a 'developer' who carries on business of 'developing of infrastructure facility'. A person who enters into contract with another person for executing 'works contracts' is not eligible for such a benefit. Explanation to section 80IA was inserted by Finance Act, 2007 with retrospective effect from 1.4.2000 which has further been amended by Finance (No. 2) Act, 2009 with retrospective effect from 1.4.2000. The amendment in this Explanation was necessitated due to contrary judicial decision on this issue. Thus, we can unequivocally now say that any undertaking or enterprise which executes the infrastructure development project, as referred to in sub- section(4) as a works contract awarded by any person including the Central or State Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IA, 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 also creates new products. The assessee had undertaken four projects during the relevant year and executed, constructed, delivered and maintained by it. As per the definition of Advanced Law Lexicon [placed at page 533 of the paper book] "Developer" 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. The "works contract" means an agreement in writing for the execution of any work relating to construction, repair, or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory, workshop, powerhouse, transformers or such other works of the State Government or public undertakings as the State Government may be by notification, specify in this behalf at any of its stages entered into by the State Government or by an official ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rries out the civil construction work, he will be eligible for tax benefit under section 80- lA. 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 assessment year 2000-01 and subsequent years." It is made abundantly clear that the prescription of section 80- IA shall not apply to a person who executes work contracts entered into with an undertaking or enterprise. Thus, in a case where a person who makes investment and himself executes development works and carries out civil works, will be eligible for tax benefit under section 80- IA 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 the tax benefit under section 80-IA of the Act. In the present case, we find that the assessee was doing only contract works of in situ cement lining for water supply project of the Gujarat Water Supply and Sewerage Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. 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 harmoniously construed with the main provision under which deduction is available to an assessee who develops or operates and maintains, or develops, operates and maintains an infrastructure facility". A harmonious reading of the provisions in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops, or operates and maintains; or (iii) develops, maintain and operates that infrastructure facility. However, the commencement of the operation and maintenance: of the infrastructure facility should be after 1" April, 1995. In the present case the assessee clearly fulfilled this condition ". Before the amendment that was brought about by parliament by Finance Act, 2001 we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A 'developer' is a specific kind of works contractor to be eligible for deduction u/s 80IA(4) who fulfils all the 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 maintains; or develops, maintains and operates that infrastructure facility. The provision for giving the impugned incentives has been examined, re-examined, modified and amended after giving conscious and deliberate discussions by the concerned law makers. To our great chagrin even after this conscious exercise an entity who executes the works contract entered into between local authority/Central or State Government and makes a development of an infrastructure has not been excluded from the scope of this provision. And rightly so, because what infrastructure is required in public domain is the outlook/duty of a local authority or of a Central/State government. When a certain infrastructure is needed, the concerned autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Patel Engineering Ltd vs 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 'developer' as well. The term 'contractor' is not necessarily contradictory to the term 'developer'. On the other hand, rather section 80IA(4) itself provides that assessee should develop the infrastructure facility as per the agreement with the Central Government, State Government or a Local Authority. So, entering into a lawful agreement and thereby becoming a contractor should in no way be a bar to the one being a 'developer'. The assessee has developed infrastructure facility as per the agreement with Maharashtra Government/APSEB, therefore, merely because in the agreement for development of infrastructure facility the assessee is referred to as a contractor or because some basic specifications are laid down, it does not detra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 vs 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 the enterprise. It applies to a work contract entered into between the enterprise and other party 'the sub-contractor'. The amendment aims at denying deduction to the sub contractor who executes a work contract with the enterprise as held by the ITAT, Jaipur 'A' Bench in the case of Om Metal Infra projects Ltd vs CIT-I, Jaipur, in I.T.A. No. 722 & 723/JP/2008 dated 31.12.2008. The reliance by the ld. CIT(A) on the decision of ITAT, Chennai Bench in the case of ACIT vs Indwell Lianings Pvt. Ltd, 313 ITR(AT) 118, has been enlarged in its finding by the ITAT, Mumbai 'F' Bench in its decision rendered in the case of ACIT vs Bharat Udyog Ltd , by holding that such a deduction is only to be denied to a sub- contractor and not a mini contractor. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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