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TMI Blog2017 (5) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 31.03.2015 for the assessment year 2005-06. There is delay of twenty five days in filing the cross objection by the Assessee. The Assessee has filed affidavit explaining the reasons for the delay in filing the cross objection. The Ld. DR has no serious objection in condoning the delay. Having considered the affidavit and the reasons for delay in filing appeal, we are of the view that the Assessee is prevented with reasonable cause in filing the appeal in time. Hence delay is condoned. 2. The first issue in the appeal of the Revenue is regarding disallowance of claim for deduction u/s 80IA(4) in respect of the projects other than the Teesta Lower Dam project. 3. At the outset, the Ld. Counsel for the Assessee submits that the claim for deduction u/s 80IA(4) has been allowed by the Coordinate Bench of this Tribunal by sustaining the order of the Ld. CIT (Appeals) in ITA No.6605/Mum/2013 dated 18.11.2015 for the assessment year 2005-06 in the appeal proceedings against the assessment order passed u/s 143(3) of the Act. The Ld. Counsel referring to pg.37 to 40 of the order submits that the Assessee was held to be a developer and not a contractor and therefore eligible for deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 6.14 of her order, the CIT(A) recorded a finding to the effect that the assessee is not a contractor but a developer. In coming to the above finding, in para 6.15, the CIT{A} also considered the clarificatory amendment by way of Explanation below sub section (13) of section 801A by the Finance Acts 2007 and 2009 and held, after considering various judicial pronouncements, that the amendment does not impact development contracts. On pages 63 to 66 paras 6,16 and 6.17, the CIT(A) noted that for the Koyna and Udhampur projects, the assessee has already been held to be a developer by the Hon'ble ITAT in its own case in the earlier years. Moreover, the Koyna project has also been held to be eligible for deduction in B.T. Patil& Sons Belgaum Construction Pvt. Ltd. After analyzing the terms of the contract, the CIT(A) reiterated that for all the projects, based on the investment, financial and technical risks undertaken by the contractor, the assessee is a developer of the respective projects. As regards the issue whether, to be eligible for deduction, the assessee has to develop the entire infrastructure facility and not only a part thereof, the CIT(A) relied on the CBDT circul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted on this issue. 7. The next issue in the appeal of the Revenue is regarding disallowance u/s 14A of the Act. 8. The Ld. Counsel for the Assessee submits that this issue was also decided by the Coordinate Bench while disposing off the appeal against assessment proceedings u/s 143(3). The Ld. Counsel referring to page 44 of the Coordinate Bench order submits that the Coordinate Bench deleted the disallowance by affirming the order of the Ld. CIT (Appeals). 9. The Ld. DR placed reliance on the order of the Assessing Officer. 10. We have heard the rival contentions. The issue has been considered and the disallowance made u/s 14A is deleted by the Coordinate Bench observing as under : "12. With regard to disallowance u/s.14A, it was observed by the NO that assessee has invested funds in joint ventures, the income from which does not form part of the total income. The A.O was therefore of the view that the proportionate interest allocable to such funds on pro-rata basis has to be disallowed, The assessee objected to the said proposal stating that no capital amount has been invested in the joint venture and that with regard to the partnership firm only Rs,25,000!- has been contri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the debit balances with the various JV /firm are not on account or funds transfer by the appellant but solely on account of the appellant's income and share of profit generated from such JV /firm. When no funds whatsoever, borrowed or otherwise, have been invested in JVs/firms, the applicability of section 14A does not arise. When there is no expenditure incurred in relation to income not includable in the total income, the applicability of section 14A is not warranted. Hence / am unable to sustain the disallowance as made by the A.O under s. 14A of the Act. The disallowance on a sum of ₹ 88,69,9371- is deleted." 15. Ld. DR relied on the order of AO. On the other hand, the contention of Id. AR was that at the time of the hearing it was specifically pointed out to the A.O that the entire debit balance as shown above comprises of either amounts receivable by the appellant on account of hire charges of machinery from the JV or the appellant's share of profit in the JV firm. Factually it is stated that in Patel KNR JV, the debit balance of ₹ 9,01,67,275 as on 31 .3.2005, comprises of machinery hire charges received / receivable of ₹ 10,01,60,225 by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from which is not liable to tax. The detailed finding recorded by CIT(A) at para 7.3 has not been controverted, accordingly, we do not find any reason to interfere in the order of CIT(A) for deleting the disallowance made u/s.14A amounting to ₹ 88,68,9371/-." 11. Respectfully following the said decision we uphold the order of the Ld. CIT (Appeals) in deleting the disallowance u/s 14A of the Act.. The grounds raised by the Revenue on this issue are rejected. 12. Coming to the Cross Objection of the Assessee, the first issue raised by the Assessee is in respect of the confirmation of the disallowance of claim for deduction u/s 80IA(4) of the Act in respect of Teesta Lower Dam Project. Referring to page 62 to 64 of the Order, the Ld. Counsel for the Assessee submits that the Coordinate Bench decided this issue in favour of the Assessee. 13. The Ld. DR placed reliance on the assessment order. 14. This aspect of the matter has been considered by the Coordinate Bench and the Coordinate Bench following the decision of the ITAT Pune Bench in the case of Kirloskar Brothers Ltd. allowed the claim of the Assessee u/s 80IA(4) in respect to the Teesta Lower Dam project observin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee develops or operates and maintains or develops, operates and maintains any infrastructure facility referred to in clause (a) or clause (b) or clause (C) of the Explanation to clause (i) of subsection (4), the provisions of this sub-section shall have effect as if for the words "fifteen years", the words "twenty years" had been substituted.] (4) This section applies to- (i) any 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 constituted under any Central or State Act;] [(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;] (c) it has started or starts operating and maintaining the infrastructure faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expression "infrastructure facility" has been defined in the Explanation below clause (i) of section 801A(4) of the Act which, inter-a/ia, includes a water supply project, irrigation project, etc.. In this manner, assessee has sought to justify that the execution of the project pertaining to 'Saurashtra Branch Canal Pumping Scheme' is a project which is within the domain of the expression "infrastructure facility" for the purposes of section 801A(4) of the Act. 9. Further, clause (i) of sub-section (4) of section 801A of the Act prescribes that the enterprise referred therein shall fulfill the conditions prescribed by way of sub-clauses (a), (b) and (c). In terms of sub-clause (a), it is provided that enterprise carrying on the eligible business should be 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 constituted under any Central or State Act. Sub- clause (b) provides that the enterprise carrying on the eligible business should have entered into an agreement with the Central Government or State Government or a local authority or any other st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of statutory provisions, a commercial corporation acting on its own behalf, though controlled wholly or partially by a Government department, will be ordinarily presumed not to be a servant or agent of the State. On the aforesaid basis, it is sought to be made out that assessee has not entered into an agreement with any statutory body or any other entity specified in sub-clause (b) of section 801A (4) (I) of the Act for the purpose of executing the work relating to 'Saurashtra Branch Canal Pumping Scheme and thus the mandatory condition prescribed in section 801A (4)(i)(b) of the Act has not been complied with. 11. Per contra, the learned counsel for the assessee has vehemently reiterated the position of the assessee taken before the lower authorities to the effect that the contract with SSNNL fulfills the condition prescribed in section 801A(4)(i)(b) of the Act. The arguments of the assessee are two-fold. Firstly, it has referred to the judgements of the Hon'ble Supreme Court in the case of (i) Som Prakash Rekhi vs. Union of India & Anr., 1981 AIR 212; and, (ii) Pradeep Kumar Biswas & Ors. vs. Indian Institute of Chemical dated 06.04.2002, copies of which have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xecute, operate and maintain the Sardar Sarovar project comprising of a dam across river Narmada in the Nandod Taluka of Bharuch district in the State of Gujarat; a canal system emanating from the reservoir called the Sardar Sarovar impounded by the construction of the said dam; power houses at the foot of the said dam and at the canal head and all other works incidental or ancillary to the said project, in accordance with the directions of the Government of Gujarat. The works relating to dam and power houses are to be carried out under supervision of the Sardar Sarovar Construction Advisory Committee set up by the Central Government pursuant to the decision of the Narmada Water Disputes Tribunal. The directions that may be issued by the Narmada Control Authority and the Review Committee appointed by the Central Government pursuant to the decision of the Narmada Water Disputes Tribunal are also required to be complied by SSNNL. 13. The other objects, inter-a/ia, include undertaking resettlement and rehabilitation of the population affected by the Sardar Sarovar project; to construct, operate and maintain hydro power generation stations along with canal system, transmission lines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 1988. 16. The aforesaid background of the manner in which SSNNL came to be incorporated and read with the main objects contained in the Memorandum and Articles of Association of SSNNL, show that it was to work under the direct supervision and control of the Government of Gujarat. The other objects which we have enumerated above also show that SSNNL is to be understood as a Special Purpose Vehicle (i.e. SPV) though which the Government of Gujarat is carrying out functions of a State. 17. At this point, we may refer to the judgement of the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra). In the said case, dispute was between Burmah Shell, a company under the Companies Act, 1956, and one of its former employees. The company MIs Burmah Shell was acquired by Government of India and later it was known as Bharat Petroleum. A Writ Petition was filed by the employee against Bharat Petroleum. A preliminarily objection arose as to whether the Writ Petition was maintainable against MIs Bharat Petroleum as it was neither a statutory corporation and nor a Government department. The Court examined whether it was a State within the meaning of Article 12 of the Constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the tests laid down by the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra). First test is whether the share capital of the corporation is held by the Government. In the present case, the entire share capital of SSNNL is admittedly owned and held by the Government of Gujarat. The second test is as to whether the State exercises unusual degree of control over the management and policies and financial support is received from the State. In our considered opinion, the said test is fulfilled in the case of SSNNL as per the detailed discussion made by the Ahmedabad Bench of the Tribunal in the case of Sardar Sarovar Narmada Nigam Ltd.. Moreover, the Memorandum of Association and Articles of Association of SSNNL clearly establish that the said concern is operating under superintendence and direction of the Government of Gujarat. It has also been pointed out before us that the Directors of the SSNNL are drawn from the officials of the Government of Gujarat. The next test is the existence of deep and pervasive State control. In this context emerges that the Board of Directors of SSNNL are appointed by the Gujarat Government and it consists of the Government employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act is unfounded. In-fact, the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra) specifically observed that merely because an entity is created under a statute and not created by a statute is not an important criteria. The test relating to the purpose, State control and functions performed are more important and determinative of the issue. Such tests, in our view, are clearly applicable in the case of SSNNL, and it is to be understood as an entity specified in section 801A(4)(i)(b) of the Act. 21. The C/T(A) and the learned Departmental Representative appearing for the Revenue has relied on the judgement of the Hon'b/e Supreme Court in the case of Steel Authority of India Ltd. (supra) and that of Heavy Engineering Mazdoor Union (supra) to say that entities such like SSNNL cannot be considered as statutory bodies even though the entire share capital is owned by the Government of India. We have considered the said judgements and find that the ratio decided therein has no relevance to the issue in dispute before us. In the case of Steel Authority of India Ltd. (supra), dispute related to certain commercial transactions between a private company and SAI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee that it developed certain new technologies in the course of executing the project, name/y, Siphon Technology, and the same was got patented also. The assessee also imported Concrete Volute Pump Technology for the project. The use of such technology ensured saving in energy b//Is. The assessee has also pointed out before the lower authorities that the import of technology and development of new technology done by assessee was without any mandate or requirements from SSNNL, but it was done by the assessee while executing its scope of work awarded by SSNNL. Detailed submissions have been made by the assessee before the lower authorities and the same is also placed in the Paper Book filed before us, including other material in the form of contract with SSNNL, communications with Government of Gujarat and SSNNL, etc to justify that assessee was not merely acting as a contractor. 26. Having regard to the scope of work executed by the assessee, it is difficult to comprehended that assessee was merely acting as a contractor. In common parlance, a contractor is understood as a person who carries out the assigned work as per the directions given by the contractee. In the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for its Godavari Lift Irrigation scheme. In so far as the profits relating to the project of Godavari Lift Irrigation scheme is concerned, the benefits of section 80IA has been allowed to the assessee and the assessee has not been treated as a 'contractor'. It has been pointed out that on account of the aforesaid, the stand of the Revenue in relation to the project executed for SSNNL is self-contradictory. 28. Before us, the aforesaid assertions of the assessee have not been assailed by the learned Departmental Representative. Be that as it may, in our view, having regard to the aforesaid discussion, assessee cannot be treated as a contractor for the work assigned by SSNNL and it is to be understood as a 'developer' within the meaning of section 80IA(4) of the Act. 29. Another objection taken by the Revenue is that assessee only constructed/developed the infrastructure facility but did not operate the same. This aspect of the controversy has been clearly answered by the Hon'ble Bombay High Court in the case of ABC Heavy Industries Ltd. (supra). Even an enterprise which is engaged only in development of an infrastructure facility has also been held to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs out the purpose of formation of NHPC. We found that Articles of Association (AA) of NHPC so submitted show that the appointment of Chairman of the company, its vice chairman, board of directors, managers, etc. are by the President of India and its operations are managed subject to compliance of conditions stipulated in Department of Public Enterprises circulars. We also found that entire share capital of NHPC is owned by the President of India and is a Schedule "A" enterprise and is top ten companies in terms of investment. On incorporation, NHPC took over the execution of various projects from Central Hydroelectric Projects Control Board, a government authority. Resources are earmarked for NHPC in the budgetary allocations of the India budget, more particularly for Teesta Lower Dam project also. NHPC has signed a MOU whereby the commitments I assistance to be received by NHPC from the Government are enumerated. In the Ministry of Power, Government of India work allocation is made for NHPC, including in respect of Jammu & Kashmir; co-ordination, forwarding of returns to Prime Minister's office, Ministry of Home Affairs and other Departments, concerning power issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Total Turnover Amt. in Rs. Profit after H.O. expenses and I.T. Depreciation Amt. in Rs. Total of non-profit centers, USA, Panvel, Karjat etc. allocated in these projects in proportion to turnover Annual Profit from the Project (C -D) Koyna 1389507106 107740099 11996349 95743750 Udampur, T1,T4&T5 16101068 14579381 1391424 13187956 Santacruz Chembur Link Road 59790181 2888979 515800 2373179 Ghatghar 919755893 45517800 8040559 37477241 Teesta Lowe Dam 1690878716 13587488 1458613 12128875 Kalwakurti Lift Irrigation Project 17820000 6347004 153730 6193274 Mutp 272327784 6864474 2349325 4515150 Srisailam Weir work 214195365 19386170 1847827 17538343 Total 19,91,57,768 9.2 The appellant contends that no such reallocation of expenditure is called for since the activities of the US branch is to monitor the global trends in the infrastructure industry regarding technology etc. and that the Panvel Workshop is used for storing new machinery till they are dispatched to the sites and for repairs and services. It is pointed out that since the expenditure with regard to the US branch has no bearing/ nexus with eligible infrastructure project, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible for the said deduction, the deduction allowable should be ₹ 20,56,84,476 (23,34,38,103 - 2,77,53,627) only. The CIT(A), on pages 71-73 para 9, upheld the view of the AO. The assessee is in further appeal before us against allocation of expenses and in reduction of 801A deduction. 26. It was contended by Id. AR that such reallocation of expenses is not required with reference to the Panvel workshop and the USA office as it has no bearing I nexus with the eligible infrastructure projects; whereas the USA branch monitors the emerging trends in the construction industry, the Panvel workshop is used for storage and repairs of equipments. As per Id. AR for computing the "profits and gains of business derived from the eligible infrastructure facility (project), all expenses directly incurred on the project only need to be reduced to calculate its profits and gains. It is trite that "income" results when expenses are reduced from the revenues. The courts have held that the term "income derived from" is narrower than "income attributable to" and accordingly it is submitted that the expenses incurred at the USA branch and the Panvel workshop ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct accordingly." 20. Respectfully following the said order, we direct the Assessing Officer not to reduce the profit of eligible undertaking by these expenses while computing deduction u/s 80IA(4) of the Act. 21. The next issue in the cross objection of the Assessee is relating to disallowance of TDS on advances. The Ld. Counsel submits that this issue is also decided by the Tribunal in its order at page nos. 50 to 52 in paras 31 to 33. 22. The Ld. DR placed reliance on the assessment order. 23. We have heard the rival submissions and find that in respect of advances received, the Tribunal directed the Assessing Officer to grant credit for TDS in the year of deduction itself observing as under : "30. The AO did not allow credit of TDS in respect of advances received. 31. By the impugned order the CIT(A) confirmed the action of the AO after observing as under :- "11. 1 On a consideration of this ground no relief can be afforded to the appellant since credit for TDS will be granted as and when the income is offered to tax. The appellant requires credit of ₹ 2,73,73,1621/- deducted from the advances received. It has been pointed out by the A. 0 that TDS on advance have r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tical and convenient way to recover the loan. Such mobilisation loan being a capital receipt, there was no legal obligation on the part of the contractee to deduct tax at source u/s 1940. If tax has been deducted at source, the credit for such TDS has to be allowed in the year of deduction itself, In ACIT v. Peddu Srinivas Rao ITA 324Nizag12009 mobilisation advance was received and on identical facts it was held that credit for such TDS should be given in the year of deduction of TDS itself. This decision was followed in Zelan Projects Pvt. Ltd. v. DCIT ITA 1361/Hyd/2013 fel::pBS-ee]. Similarly, in Arvind Murjani Brands (P.) Ltd.v, ITO 21 Taxmanncom 131 (Mum) E , it was held that where tax is deducted at source on an amount which is not at all chargeable to tax, command of section 199 will have to be harmoniously and pragmatically read as providing for allowing credit for tax deducted at source in the year of receipt of amount, in which the tax was deducted at source. 33. In respect of advance against work and material, we found that the said advance is reflected as a reduction from construction work in progress, which itself is valued at contract rates i.e. selling price. In othe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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