9911796707
TMI Blog2015 (11) TMI 1665X X X X Extracts X X X X X X X X Extracts X X X X ..... cts, 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 co-ordination, forwarding of returns to Prime Minister's office, Ministry of Home Affairs and other Departments, concerning power issues of J & K. in sum and substance, the objects to be pursued are ordinarily performed by Government Thus, assessee's contract with NHPC fulfills the condition prescribed in section 80IA(4)(i)(b) of the Act as it performs functions akin to state.No reason to disallow assessee’s claim for deduction u/s.80IA(4) in respect of project awarded by NHPC. We found that assessee’s contracts with NHPC fulfills all the conditions prescribed u/s.80IA(4)(1)(b) of the Act as it performs functions akin to estate. Accordingly, the AO is directed to allow deduction u/s.80IA(4) in respect of project awarded by NHPC. See Som Prakash Rekhi Versus Union of India [1980 (11) TMI 113 - SUPREME COURT OF INDIA ] X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case and in Law, the Learned CIT(A) erred in not directing the A.O to grant credit of T.D.S as claimed by the assessee 5. On the facts and circumstances of the case and in Law, the Learned CIT(A) erred in holding that the ground regarding disallowance u/s 14A while computing book profit u/s 115 JB is infructuous. 6. On the facts and circumstances of the case and in Law, the Learned CIT(A) erred in holding that the levy of interest u/s 234B consequential in nature. 2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is a public limited company engaged in the business of Civil Engineering projects such as tunnels, water supply projects, irrigation projects, hydel power projects, dams, bridges, rail projects etc. The assessee filed its return of income declaring total income of ₹ 3,33,24,319/-. The book profit under Section 115JB of the Act was ₹ 34,79,81,723/- and as the tax payable on the book profits was more than that of total income, therefore, the assessee paid tax on the book profits. Thereafter the income of the assessee was subjected to scrutiny and on completion of assessment u/s.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Project, a view was taken that the appellant does not fulfill the conditions laid down in section 80IA(4)(i)(b) which requires that an assessee must· enter into an agreement with the Central Govt. or State Govt. or Local Authority or any Statutory; Body. The A.O has further concluded that consequent to the insertion of Explanation to section 80IA(4) by the Finance Act, 2007 retrospectively from A.Y 2000-2001, the assessee has been held to be a 'works contractor' and not a 'developer' in A.Y 2003-04 and 2004-05 and since there is no change in the facts and circumstance for the captioned year, the claim made cannot be accepted. 4. By the impugned order, the CIT(A) partly allowed some of the disallowances, against which the revenue is in appeal and upheld some of the disallowances so made by the AO, against which the assessee is in cross objection before us. 5. The findings of CIT(A) with regard to allowing claim of deduction u/s 80IA(4), in respect of all projects expect Teesta Dam Project as under :- "6.5 I have considered the order of the A.O, the submissions of the appellant and the details/documents furnished as per the paper books kept on record. I hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut by the appellant, supplied funds and assured the payment for the work done. A perusal of the contract documents shows that the projects executed by the assessee were highly technical and specialized and involved huge risk. The assessee has also deployed people, plant and machinery, technical expertise know-how and financial resources. The appellant has furnished the relevant documents and details pertaining to the various projects in the paper book, Volume II. Reference to pages 250 to 257 of the said paper book indicate huge resource mobilization and financial and technical involvement of the appellant and on page 258 to 260 are the details of the bank guarantee given, machineries and man-power committed and the working capital committed on each of the project. It is apparent from the paper book that all sums received till the final completion certificate was issued on completion of the defect liability period, are considered interim payments. It is observed that in the case of ABG Heavy Industries Ltd., case also, where the assessee was held to be eligible for deduction under s. 80IA(4) by the Bombay High Court, the authority therein (J1\IPT) had contracted to make assured pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of the assessee's business activity. . Therefore, merely because the present assessee was paid by the Government for - development work, it cannot be denied deduction under section 8-IA(4) of the Act. The illustration of the artist, given by the assessee's counsel during the course of his arguments, is aptly illustrative and befitting. If an artist is asked to paint a beautiful picture and for such painting, payment is made by another person, the creator of the painting will be the artist and not the person who paid for it. We have also noted that the national water policy document furnished by the assessee, on p. 225 of its paper book-1, indicates the purpose of private sector participation. It states that private sector participation may help in introducing innovative ideas, generating financial resources and introduction and introducing corporate management and improving service efficiency and accountability to users. It is revealed from record and has also not been disputed by the Revenue that both the projects executed by the assessee were highly technical and specialized, as also extremely tricky and did involve huge risks as well. It is also revealed from recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction the assessee should develop the infrastructure facility as a whole and not in a particular part of it. We find that Hon'ble Bombay High Court in the case of ABG Heavy Industries has observed as under: "The assessee did not have to develop the entire project in order to qualify for a deduction under s. 80IA. The parliament did not legislate a condition impossible of compliance. 8. In the case of ABG Heavy Industries (supra), the assessee therein had not developed the entire port but was only the supplier of cranes at the loading and loading 'terminal at the said JNPT port. Thus, assessee was not required to execute the entire project as observed by the Third Member. Another significant word used here is "owned" which indicates that the infrastructure facility should be owned by a company so as to be entitled to deduction under this section. The work done by the assessee is riot owned by it, it does not satisfy sub clause (a) of section 80IA(4)(i). The infrastructure facility should be owned by the assessee is not correct interpretation. It is evident from section itself as clarified by the jurisdictional High Court in ABG Heavy Industries (supra) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on the business of developing alone is entitled for deduction under s. 80IA(4) without operating and maintaining or developing, operating and maintaining an infrastructure facility. To decide this question it is necessary to analyze the section over the years after it was first introduced Section 80IA of the Act as it was originally enacted, provided that where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hostel or operation of a ship or developing, maintain and operating any infrastructure facility, amongst others, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentages specified in sub-section (5) and for such number of assessment years as specified in sub-section (6). Sub-section (4A) was introduced and inserted by the Finance Act, 1995 with effect from April 1, 1996. Sub-section (4A) stipulated that the section would apply to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was allowed to an Enterprise which carries on business of developing, maintaining and operating the infrastructure facility subject to fulfillment of conditions as per sub-clause (a), (b) and (c) of clause (i) of subsection 4A, which means that all the three activities have to be cumulatively carried out by an Enterprise. Subsequent amendments as discussed above have done away with the condition of the operation and the maintenance of the new infrastructure facility developed. The intention of the Parliament is now clear that after developing the infrastructure the enterprise need not necessarily maintain and operate the facility to claim the deduction. Even a Developer is eligible for deduction under this section. 6.12 The next issue to be decided is the pertinent question whether the appellant is a Developer or a contractor. The A.0 has held that the appellant is a "contractor' simplicitor and not a 'developer' In order to decide this question it is necessary to peruse Agreements alongwith all the documents forming part thereof containing the scope and nature of work entered into between the appellant and govt./authority. The appellant has furnished a copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ages for delays in execution/completion of the projects. Reference to pages 250-257 of the paper book would indicate huge Resource mobilization and financial involvement of the Appellant and on pages 258-260 are the details of Bank guarantees given, machineries and nialipower committed and the working capital committed on each of the project on which deduction u/s. 801A(4) is claimed. Copies of Agreement have been submitted by the appellant and the same have been place on record. A brief summary of the Agreement is as shown hereunder: 1) Koyna Project EXTENSION OF HEAD RACE TUNNEL (HRT) FOR WATER SUPPLY AND IRRIGATION IN KOYNA PROJECT (Government of Maharashtra - Irrigation Department) • The construction of extension of Head Race Tunnel (HRT) is undertaken in order to have optimum utilization of Koyna storage for irrigation on Eastward side and to have a lake tap. This would make available additional 15.28 TMC of water for Eastward irrigation without affecting the generation of KHEP State IV (Page 9). The work includes construction of Intake Structure Shafts, Air vent shafts of Additional Surge Gallery, Additional Surge Gallery, HRT, Construc3tion Shaft No. 1 and 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and methods of construction. (Page 27) • It is the responsibility of the Contractor to promptly bring to notice of the Engineer any error or discrepancy in the contract documents. (Page 25) • The Contractor has to inform the Engineer of any error, omission, fault and other defect in the design of or specifications of the work. (Page 27) • The Contractor has to submit general layout of plan of construction, plant and equipment and drawings or prints showing the location of major plants. (Page 26) • The Contractor has to furnish a. program showing the order of procedure in which he proposes to carry out the works within the prescribed time limit; however, such submission shall not relieve the Contractor of any of his duties or responsibilities under the contract. (Page 29) • The Contractor is obliged to appoint only such technical assistants as are skilled and experienced and semi-skilled and unskilled labour as necessary. (Page 30) • The Contractor was solely responsible for the acts, defaults and negligence of any sub-contractor, agents etc. (Page 24) • The Contractor is responsible for the true and proper setting out of the works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 36) • All payments received, till the entire work is complete and certificate of Final Completion is issued, are interim payments. (Page 53) • The Contractor is entitled to advance to cover cost of mobilizing the site against Bank guarantee, which advance will be recovered from the interim. payments. (Page 56) • The Contractor is not entitled to any compensation for the delay in payment made to it. (Page 58) • The other financial and Technical details of the project are given on pages 8, 147-148, 250 and 238-260 of the paper book. 2) Udhampur Project GOVERNMENT OF INDIA - NOTHERN RAILWAY CONSTRUCTION OF TUNNEL NO. 1 AT KATRA - UDHAMPUR SECTION • The Contract is for construction of of single Line Broad Gauge Tunnel No. I including cut and cover having a length of 3.14 km. between Udhampir and Katra in Udhampur-Srinagar-Baramullo Rail link project (Page 4), which is a "Rail Project". • The scope of work comprises of the following i. Earthwork in cutting all kinds of soils/rocks at approaches of tunnels including disposal of surplus spoils and all lead and lift etc. ii. Construction of Tunnel No. 1 including cut and covers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deployed, progress plan etc. (Page 31-A) • It will submit the Methods and program for the work to be carried out. (Page 47) • It has to "set out" the whole of the work and also amend any errors which may arise therein. (Page 49) • It shall make its own arrangement for service roads, paths etc. for carrying their tools, plant, labour and material to the site and if need be construct additional roads ut its oula cost. (Page 53, 55, 63) • It is agreed that the rates quoted by the Contractor are inclusive of ai elements of cost and nothing extra will be paid. (Page 20) • The drawing for the works prepared by the railways are for generai guidance only and may he suitably modified during the execution of the work according to the circumstances without making the railways liable for any claims on account of such changes. (Page 46) • It has to execute the work in close consultation with the Engineer to ensure that other works being executed in the same area by other contractors can progress concurrently. (Page 47) It is prohibited from making any claims for idle labour and/or idle machinery etc. (Page 56) The initial security money fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork, general and local site conditions etc. having a bearing on the work. (Page 127) • The Contractor is expected, at its own cost, to inspect the site of the proposed work, inspect quarries and the network of road and satisfy itself about the quality and availability of the material before tendering for the project. No additional compensation will be paid or, this account. (Page 103 and 110) • The Contractor shall make all enquiries regarding availability of materials, site conditions, soil conditions etc. at its own risk and cost. (Page 103) • The entire site will be "handed over" to the Contractor for developing the infrastructure facility, which will be "handed over" back to the Employer on completion of the DLP. (Page 102) • The Contractor will be responsible for the efficiency, stability and completion of the permanent works. (Page 112) • All risks on account of the work to be carried out will be on the Contractor. (Page 112) • The Work has to be completed in. two working sections (2009 and 2010),(Page 7) • The Defect Liability Period is 24 months from the date of completion. (Page 123) • The Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke arrangements, at its own cost, for water supply and power. (Page 128) • The Contractor has to submit the list of plant, equipments and personnel to be committed at the construction site (Page 133) and is not allowed to remove any plant and other equipments without the prior approval of the Executive Engineer. (Page 134) • The Contractor is responsible for supply and installation of all temporary facilities at the construction site. (Page 137) • A field laboratory has to be established by the Contractor at the construction site. (Page 138) • The Contractor is entirely responsible for any damage or injury to persons/properties during the course of the work. (Page 126) • The earnest money deposit is liable to forfeiture. (Page 90) • At the time of entering into the Agreement, interest free security deposit equivalent needs to be given. Such security deposit will be released after the expiry of Defect Liability Period ("DLP") of 24 months, which commences from the date of completion of work (Page 102) • Interest fee retenrion money will be recovered from each bill, which will be released after the expiry of DLP of 24 months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both Permanent Works and Temporary Works. Work or Works shall mean and include plant and materials to be provided and work to be done by the contractor under contract, including all the preliminary and ancillary Works necessary for the fulfillment of the various items under the contract (Volume 1, page 40). • To be eligible for award of the contract, the Bidder has to provide evidence of eligibility and adequacy of finance and technical resources that can be allocated to the work, which would include detailed construction schedule, plant and machinery proposed to be committed to the contract work, furnishing fresh 1VIOU with foreign construction firm/RCC construction design consultant, confirming the services which will be provided by them. (Volume 1, Page 16, 17) • The Bidder is required to visit and ex-amine the site of work and its surroundings to obtain, at its own responsibility, all information that may be necessary for executing the contract, Ignorance of site conditions will not entitle the Developer for additional compensation, extension of time for completion of work or any other claim. (Volume 1, page 17) • The Contractor has to draw his own conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Volume 1, Page 35) The Developer has to prepare necessary construction drawings (Volume 1, Page 47) • The Contractor has to submit to the Government, a general lay out plan of construction, plant and equipment and drawings or print showing location of major plant and other facilities which he proposes to put up at the site. (Volume 1, Page 44) • The selection of construction plant and equipments and their timely mobilization will be the responsibility of the Contractor. (Volume 1, Page 70) Such equipments and material once brought on site cannot be removed without the approval of the Government. (Volume 1, Page 71) The details of commitment of major equipments, plants, key personnel etc. are at (Volume 3, Pages 51 to 56) • It is the responsibility of the Contractor to search and make available the required land for establishing plants and for disposing excavated stuff (Volume 1, Page 123) • The Developer has to ensure that all work at site is insured, including taking of third party insurance in respect of injury to persons and damage to property. (Volume 1, Page 24, 52) • The Contractor will have to procure all material required for completing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Page 81) • Interest bearing loan (.?_,-I)' 14% p.a. can be obtained by the Contractor against- the cost of mobilization (Volume 1, Page 79) • The other financial and Technical details of the project are given on pages 8, 147-148, 252 and 258-260 of the paper book. 5. Kalwakurtu Lift Irrigation Project Kalwakurthy Lift Irrigation Scheme Lift -1 (Government of Andhra Pradesh) • The Contract Value is: For EPC Turnkey Development Contract - ₹ 480.99 crores For Operation and Maintenance of the Plant for three years - ₹ 14.20 Crores. (Page 699) • Hence, the agreement comprises two components, development and then Operation and Maintenance for which separate and independent considerations are fixed. • The Agreement is for designing and execution of pumping station of Kaiwakurthy Lift Irrigation Scheme ("KLIP") comprising civil, electro mechanical, hydro mechanical, transmission lines and substation works etc., on EPC basis including operation and maintenance of pumping station for three years after successful completion of the project. (Page 83). • The Project envisages pumping of water between multiple reservoirs t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty for - Designing, Engineering and Execution of the project. (Page 112), However, the preliminary designs, drawings of various components of the project are given by the employer in Volume II, III and IV of the bid) (113) • The designs and drawings submitted by the Contractor have to be approved by the Engineer of the employer. (Page 690) • It shall submit drawings, data and descriptive literature as required in the specifications to enable evaluation of the bid as to the soundness, reliability, serviceability and efficiency. (Page 102) • The development has to be completed in 46 months. (Page 708) • The Defect Liability Period is 12 months from the date of completion of the project. (Page 714) • It has to give a detailed construction program of executing the project, the technology and the methodology to be adopted by it. (Page 111) • It has to make its awn arrangement for accommodation of its staff at site during the Development period. However, during the Operation and Maintenance period, the quarters constructed by the Contractors will be provided, if available after accommodating Employer's staff. (Page 51) • The general te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond the stipulated date of completion of each unit of work. (Page 55) • The Employer will make 12% interest bearing recoverable advance payment against bank guarantee for an equivalent amount. (Page 56) • All progressive payments made are interim payments which shall be reviewed on quarterly basis. (Volume Page 60) • The Security deposit furnished by the Contractor is liable to forfeiture. (Volume 5) • No enhancement of prices for whatever reasons will be allowed once the contract is entered into. (Page 114) • It has to quote for the entire package on a single source responsibility basis. (Page 119) • It shall indemnify the Employer against all action, suits, claims, costs or expenses, damages or injury to any person or property on account of the negligence of the Contractor or is associates. (Page 169) • It shall replace/redo any unsound or imperfect work at its own expenses. (Page 170) The other financial and Technical details of the project are given on pages 8, 147-148, 252 and 258-260 of the paper book. vi. Joaeshwari-Vikhroli Link Road (MUTP JVLR) MUMBAI METROPOLITAN REGION DEVELOPMENT AUTHORITY (MMRDA) CONSTRUCTION OF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation that it considers necessary for entering into a contract for construction of works. (Page 23) • The entire work site will be in its possession from the date of commencement of works. (Page 49) • It is the responsible to obtain Commencement Certificate, Amended plan approval, if required and other statutory approvals from Local Authorities including Building Completion Certificate from the Competent Authority. Charges and deposits etc. for obtaining all the above approvals are to be paid by it. (Page 17) • It is the responsible to obtain Occupation Certificate and the Building Completion Certificate from the Competent Authority. (Page 17) and other certificates from various authorities as required by law and shall obtain electric supply for the tenements. (Page 56) • It is responsible to obtain amended approvals from SRA and other concerned authorities for any changes that are required. (Page 17) • It has to obtain certificate from MCGM and water connection at site after getting Occupation Certificate. (page 37) • It is responsible to obtain electrical supply and individual meters to tenements after getting Occupation Certificate. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractor to the Employer on completion of the Work. (Page 49) • All risks of loss of or damage to physical property and of personal injury and damage which arise during and in consequence of the performance of the Contract is the responsibility of the Contractor. (Page 48) • It has to take insurance, including Third Party Insurance from the start date to the end by the Defect Liability Period for the loss or damage to the Works, plant and machinery, equipment, damage to property, personal injury or death. (page 48) • It has to construct and install the works in accordance with the specifications and drawings (Page 48) • It is the responsibility of the Contractor to draw the attention of the Engineer to specific likely future events or circumstances that may affect the work or cost of the project. Defects found are to be rectified by the Contractor free of cast during development of the infrastructure facility and upto the end of defect liability period. Any defect got -rectified by the Employer directly will have to be paid by the Contractor (Page 50 - 51) • All materials on site, plant, equipment, Temporary Works and Works are deemed to be the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, after construction of Barrage, one Permanent road and intermediate link access road and Bailey bridge has to be constructed by the Contractor. (Page 13) • • All drains, cross drainage works, culvert etc. have to be developed by the Contractor. (Page 14) • • It may have to build, if required, and maintain various haulage roads around the project site and quarry locations at its own cost. (Page 14) • "Contractor" shall mean Patel Engineering Ltd. having its registered office at Patel Estate, Jogeshwari (W), Mumbai 400 102 and its legal representatives, successors and permitted assignee. (Page 119) • "Owner" shall mean the National Hydroelectric Power Corporation Ltd. (A Government of India Enterprise), having its registered office at NHPC Office Complex, Sector - 33, Faridabad - 121 003 (Haryana) India and shall include its successors and assigns. (Page 11911) • "Site" shall mean the land and other places on, under, in or through which the Permanent Works or Temporary Works of the Contract are to be executed including any other lands or places which may be provided by the Owner for work space or for any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e public. (Page 130) • It has to make his own arrangement in engagement of labour. (Page 131) • It undertakes that the plant, equipment, materials etc. forming part of the Permanent Work will be new. (Page 13) • It shall procure/arrange all construction materials except cement, steel and explosives. (Page 134) • Materials, appliances, equipments and spares forming part of the Works shall become the property of the Owner on the issue of Certificate of Completion. (Page 156) • Selection of plant and equipments and the timely mobilization will be the responsibility of the contractor. (Page 157) • It shall be solely responsible for protection of environment during the work at the construction site. (Page 167) • On the completion of the Works, the Contractor shall furnish "as constructed" drawings for every component of the work at its own cost to the Owner (Page 157) • It has to set up laboratory at site for material testing. (Page 176) • It has to design, furnish, set up, maintain and operate at the site all Temporary Works, Site installations and Contractor's equipment. (Page 270) • It shall be respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment and all the policy decisions are taken by the Government. viii. Santacruz Chembur Link Road MUMBAI METROPOLITAN REGION DEVELOPMENT AUTHORITY (MMRDA) ROAD NETWORK STRENGTHENING - SANTACRUZ CHEMBUR LINK ROAD (SCLR) _ MUMBAI URBAN TRANSPORT PROJECT (MUTP) • The work comprises of construction of 6 lane SCLR from Mithi River Bridge upto Amur Mahal. The length of project road under section I is 2.00 km. The work includes construction of 6 lane concrete road with 3.0 meters wide footpath on either side and central divider, construction of 527 meters long flyover along with 7.5 meters wide service roads & 3.0 meters footpath on either side, replacement of existing steel bridge with new one, road on Arnar Mahal side and construction of junctions at Amarmahal with EEH and S.G. Barve Marg and improvement on the surrounding road network. (Pages 26, 27) • Hence, it is a "Road Project" • The Contractor has to prepare traffic diversion plan at various stages of work, as required and has to maintain liaison with the traffic police/authorities so as to ensure smooth flow of traffic at all stages of the work without causing inconvenience to the traffic. (Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l; It shall be responsible for the design of Temporary Works from the date of commencement of Works upto the date of handing over of the site \on duly completing the Works. (Page 43) • • It has to give O&M manuals and "As Built" drawings within 4 weeks of completion of whole or section of the work (Page 33). Delay in submission of above documents will result in levy of damages. (Page 34) • • The whole of the Works was to be completed in 24 months (Page 6). • • The Defect Liability Period is 12 months from the date of certification of the completion of the Works. (Page 29) • • From the date of commencement of work till the defect liability period is over, the Contractor has to insure the Works, plant, materials, equipments and other properties, employees and also take Third party insurance. (Page 29) • • It has to employ key personnel to carry out the functions of development of Works. (Page 41) • • All risks of loss or damage to vehicle, property and of personal injury and death which arise during and in consequence to the performance of the contract, except employer's risks, is the responsibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whole of the works as also for each of the milestone. (Page 32) • The Contractor is eligible for mobilization advance against submission of unconditional Bank Guarantee. (Page 32) • The Contractor is also eligible for equipment advance after equipment is brought to site on submission of unconditional Bank Guarantee for an amount of advance. (Page 32) • The Contractor is eligible for Secured advance against material required for the Works which have been delivered at site. (Page 32) • All the above advances are recovered by way of percentage deductions from the interim payments certified by the Engineer under the Contract. (Page 33) • The performance security will be by way of unconditional Bank Guarantee. (Page 33) • Non compliance with certain key conditions would result in the breach of contract for which the Contractor is liable to pay damages @ 20% of the cost of incomplete work, (Page 34) • The payment of liquidated damages does not release the Contractor from its liabilities. (Page 49) • The other financial and Technical details of the project are given on pages 8, 147-148, 252 and 258-26C) of the paper-book. 6.13 Fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts' used in the Explanation of Finance Act 2009 is to be perceived with the reference to the actual terms of the contract as can be perceived from the synopsis of the work in pre paragraphs above, it can be observed that appellant is not executing the work as a simple contractor. The Govt./authority in each of the case only monitors or oversees the execution of the work and never involves in execution of the actual work. Therefore, the Govt. authority cannot be called a developer. In Water supply, Irrigation, Road Rail system contract executed by the appellant after acquiring the contract it carries out geological and geotechnical investigation and other special test, establishes it own laboratory on the site and prepares drawings which are submitted to the Govt/authority. It is the responsibility of the appellant to do the soil testing, earth filling, makes its own arrangement for quarry, site office, installation of crusher, concrete plan etc. The appellant undertakes investments financial and technical risks and indemnifies any loss of life or property to the respective employer. The appellant only receives interim payments till the infrastructure is completely developed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture facility for govt./authority is contractor. On the basis of the above discussion it is held that the appellant is not a contractor simplicitor but a developer. 6.15 As regards the above finding, support is drawn from the order of the Pune Tribunal in the case of B.T. Patil and Sons Belgaum Construction Pvt. Ltd., in the case reported in 34 Taxmann.com 97, pursuant to the directions of the Bombay High Court, wherein para 9 and 10 it was held: 9. It was found by the erstwhile judicial. Member that assessee fulfilled the conditions of being a developer as subsequently interpreted by the Hon'ble Bombay High Court. With regard to clarificatory amendment to sub-section (13) of section 80IA by Finance Act 2007 & 2009 whereby the assessee is not held eligible for deduction u/s. 80IA(4). In this regard, we find that the amendment of 2007 debars the sub-contractor from availing benefits u/s. 80IA (4). The amendment of 2009 is riot applicable in the case where the assessee executes the work by shouldering investment & technical risk by employing ream of technically & administratively qualified persons and it is liable for liquidated damages if failed to fulfill the obligation lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard, we find that the amendment of 2007 debars the sub-contractor from. availing benefits under s. BOJA(4). The amendment oJ 2009 is not applicable in the case where the assessee executes the work by shouldering investment and technical risk by employing team oJ technically and administratively qualified persons and its liable for liquidated damages if failed to fulfill the obligations laid down in the Agreement." As the appellant herein is admittedly not a subcontractor, effectively, the decision of my predecessor on this issue is not followed. Moreover, it is observed that after considering the clarificatory amendment by the Finance Act, 2007 and the Finance Act, 2009, the same Koyna Project, on which the appellant has claimed deduction under s.80IA(4) in the impugned assessment year, has been held to be eligible for deduction under the said section in B. T. Patil and Sons Belgaum Construction Pvt. Ltd. where in paras 11 and 12 of that order, it was held that :- 11. The assessee company has been included in as a sub contractor for all the other projects either the contracts are directly in the name of assessee company or in the name of joint venture enterprises. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction under the provisions of section 80IA. In view of the legal position presently prevailing and respectfully following the decision of the Pune Tribunal in B. T. Patil and Sons Belgaum Constructions Put. Ltd., 34 Taxmann.Com99 (Pune) it is held that the appellant is eligible for deduction under s. 80IA(4) on the Koyna Project also. 6.17 As regards the deduction under s. SOIA on the Udhampur Rail Projects, it has been allowed 'to the appellant by the ITAT for A.Y 2001-02 and 2002-03 on the basis that appellant is a Developer. However, for A Y 2004-05, based on the insertion of Explanation by the Finance Act, 2007 and negating the submission of the appellant that the said amendment applies only to subcontractors and not to it as it was a developer, my predecessor held that the said contract was a works contract and hence not eligible for deduction. However, in the light of the legal position presently prevailing, especially in view of the decision in B.T. Patil and Sons Belgaum Constructions Pvt. Ltd. as discussed above, wherein it was held that the Explanation inserted by the Finance Act, 2007 applies only to subcontractors, the same is held not to apply to the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the section does not require that the infrastructure facility has to be owned by the appellant. It has also been held that for all the projects, based on the investment, financial and technical risks undertaken by the contractor, the appellant is a developer of the respective infrastructure facilities. However, as regards the Teesta Lower Dam project, I concur with the view of the Assessing Officer that the appellant has not satisfied the condition laid down regarding entering of an agreement with Central Government or State Government or local authority or any other statutory body. 6.20 The NHPC (National Hydro Electric Power Corporation) is a Government of India enterprise but that does not make it the Government of India or State. Though the appellant may argue that it undertakes all the functions of the Central Government of India, it is not equivalent to being the State or Central Government. Such corporation fully owned by the Government, are only the arm of the Govt. and not the Government itself. 6.21 In view of the facts and legal position as enumerated in 'the above paragraph, the AO is directed to allow deduction on Koyna, Udhampur, Ghatghar, Kalwakurt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial pronouncements, that the amendment does not impact development contracts. On pages 63 to 66 paras 6.16 and 6.17, the ClT(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 circular no. 4/2010, the decisions of the ITAT in the assessee's own case, B.T. Patil& Sons Belgaum Construction Ltd. 34 Taxmann.com 97 and the Hon'ble Bombay High Court in ABG Heavy Industries Ltd. 8. We also found that the CIT(A) has dealt in great detail the scope of the work, risk and responsibilities undertaken by the assessee and after applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint venture and that with regard to the partnership firm only ₹ 25,000/- has been contributed towards capital which is out of own funds. It was also stated before the A.O that as regards the debit balance outstanding with them, the same are not in the nature of investment in capital but mainly due to the company's share of profit and machinery hire charges lying with them, which is already reflected as income in the P&L A/c. Without prejudice, it was further stated before the A.O that the current account transactions are carried out from bank where sale proceeds of the assessee are deposited and also that the dues from J.Vs and Partnership firm on current-account are out of company's own fund and not out of borrowed funds. The A.O rejected the said contention of the appellant stating that from a summary of the current account it could be observed that funds have flown out of the current account on which the assessee had paid interest. In these circumstances, the A.O disallowed the proportionate interest on the current account applying the interest rate of 12.5% as charged by the bank on CC Account. Accordingly, a sum of ₹ 88,69,937/- has been disallowed and add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises of machinery hire charges received/receivable of ₹ 10,01,60,225 by the assessee from them and the share of profit of the appellant in the said JV aggregates to ₹ 8,24,05,845; both, together, aggregating to Rs.l~,25,66,070. Hence the debit balance the said JV is not on account of any funds invested by the assessee in such JV. In KNR Patel JV the debit balance of ₹ 7,49,10,863 as on 31.3.2005, comprise solely of machinery hire charges received/receivable of ₹ 12,69,86,836 by the appellant from them and the share of profit of the assessee in the said JV aggregates to ₹ 6,32,94,249; both, together, aggregating to ₹ 19,02,81,084. Hence the debit balance in the said JV is not on account of funds invested by the assessee in such JV. In AHCL PEL, the debit balance of ₹ 6,03,90,869, as on 31.3.2005, comprises of the share of profit of - the appellant in the firm for A.Y. 2004-05 of ₹ 5,0 1,57,164. 16. The alternate contention of assessee was that the provisions of section 14A cannot be applied to the appellant since the share of profit received by the appellant from such integrated joint venture AOP is chargeable to tax in terms of provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome is taxable in the hands of Patel Engineering and not in the hands of AOP. It is also pointed out that the matter did not attain finality as the Revenue has appealed before the Hon'ble High Court against the said order. Considering the said facts, it is held that it cannot be stated that there is no infirmity in the action of the A.O in bringing to tax the share of income from the said JV in the hands of the appellant albeit OR protective basis. However, presently the view taken by the Hon'ble Tribunal is that the income of AOP is assessable in the hands of the appellant. In the said view of the matter, the A.O is directed to bring the said sum La tax in the hands of the appellant on substantive basis. It is ordered accordingly." 20. With regard to the cross objection filed by the assessee in ground No.2 for taxing income of LGE & C Patel JV, we found that assessee's share of income had already been taxed in the hands of the AOP, the AO assessed the assessee's share therein on a protective basis. The ClT(A) discussed this on pages 70-71 of her order and held that, on facts, such income should now be taxed in the hands of the assessee on substantive basis. 21. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the AO after observing as under :- "9.3 I have carefully considered the matter. I am unable to concede to the contention of the appellant that the reallocation of expenses with reference to the USA branch and Panvel workshop is not called for since it has no bearing/nexus with the eligible infrastructure project. As stated by the appellant himself the activity of USA branch is to monitor the emerging trends in the infrastructure industry while that of the Panvel workshop is with reference to storage of equipment and material. As stated by the A.O these are cost centers and certainly have to be allocated to the eligible units on a reasonable basis. These expenses have a bearing on the eligible infrastructure project in that it enables the industry to gauge the global market to update itself with reference to technology and also to store the heavy equipments when not put into use. Therefore the A.O was correct in apportioning the said expenses to the eligible units on the basis of turnover. The AO will apportion the said expenditure on the basis of turnover while computing the deduction under s. 80IA(4). The said ground is held against the appellant." 25. Rival contentions h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the unit cannot but be ignored while computing income "derived from". Further reliance was placed on decision of the Hon'ble Apex Court in Liberty India v. (IT 317 ITR 218 (SC), wherein the Hon'ble Court explained that "the words "derived from" are narrower in connotation as compared to the words "attributable to". In other words, by using the expression "derived from", Parliament intended to cover sources not beyond the first degree. 27. In view of the above, ld. AR contended that no reallocation of expenses is required. It was further submitted by ld. AR that on page 17, in column C, the AO has made errors in mentioning the profit amount in respect of certain projects; this is apparent from the fact that such profit stated in the column does not match with the project wise profits mentioned by him on page 2 of the assessment order and page 7 of the PB. The AO be directed to substitute the correct amounts of profits eligible for deduction u/s 80IA(4) in column C. 28. On the other hand, ld. DR relied on the order of lower authorities. 29. We have considered rival contentions and found that certain expenditure incurred by Panvel wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments needed to carry out the subsequent work on the site and (iii) Advance against work and material given to the assessee to help it in procuring material and against the work in progress on the site. Whereas in the first two cases, it is a capital receipt in the nature of loan not connected to any work carried out by the contractor, the third one is an advance in the revenue field. ln all the above cases, the Principal uniformly deducts tax at source u/s 194C of the Act. From the record we found that the AO has discussed this on pages 18-21 of the assessment order and citing section 199 has disallowed credit of TDS of ₹ 1,29,31,900/- as the advances pertaining thereto are not credited to the profit and loss account during the year. The CIT(A), on page 73-74 para 11 of her order, concurred with the view of the AO. As per terms of various contract agreements under which Site Mobilisation Loan and the Machinery Mobilisation Loan/advances, mostly on interest ranging from @ 12% to 18% p.a., have been granted against bank guarantee. In the balance sheet, such contractee advance mobilisation loan is reflected as loan funds under the head Contractee advances as a liability. Such l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion u/s.80IA(4) in respect of NHPC project. The AO declined the deduction in respect of profit from NHPC on the plea that NHPC is a Government of India Enterprise but that does not make it a Government of India or State. 38. Ld. AR placed reliance on the decisions of the Hon'ble Apex Court in Som Prakash Rekhi v. UOI &Anr. 19B1, AIR 212 and Pradeep Kumar Biswas &Ors. v. Indian Institute of Chemical which have been referred to in the decision of the Hon'ble Pune Tribunal, in the context of section 80IA(4), in Kirloskar Brothers Limited v. DClT ITA 657/PN/2010 (CLPB 112 para 17). 39. We had carefully gone through the decision of Kirloskar Brothers Limited (supra), wherein the Tribunal has held as under :- "7. At the outset, we may refer to the relevant provisions of section 80IA of the Act, which have a bearing on the issue. Pertinently, the claim of the assessee has to be examined with reference to the provisions of section 80IA(4) of the Act as are applicable for the year under consideration. The relevant portion of section 80IA is reproduced hereinafter:- "80-IA. [(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. [Explanation.-For the purposes 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) prescribes that the enterprise should start operating and maintaining the infrastructure facility on or after the 1st day of April, 1995. Ostensibly, the aforesaid three conditions are required to be fulfilled before an enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility is eligible for deduction u/s 80IA(1) of the Act. 10. Now, the first and the foremost objection taken by the Revenue is that the assessee does not fulfill the condition prescribed in sub-clause (b) of clause (i) to sub-section (4) of section 80IA of the Act. In terms of the said objection, the Revenue contends that assessee has entered into a works contract agreement with SSNNL which is not an entity specified in subclause (b) of section 80IA(4)(i) of the Act. According to the Revenue, SSNNL is not a Central Government or State Government or a local authority or any other statutory body, so as to be considered as an entity specified in sub-clause(b) of section 80IA(4)(i) of the Act. As per the Revenue, SSNNL is a company registered under the Companies Act, 1956 and does not fall within the prescripti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, and thus, it qualifies to an entity specified in section 80IA(4)(i) of the Act. Secondly, it is sought to be made out that having regard to the background and peculiar features of SSNNL, the said concern is executing Governmental functions and is not engaged in any commercial activities. A reference has also been made to the Memorandum and Articles of Association of SSNNL, placed in the Paper Book at pages 26-27 to say that SSNNL functions under the direction and control of Government of Gujarat and further that it was essentially carrying out functions, which are otherwise carried out by the Government, for example, rehabilitation and resettlement of population affected by acquisition of land for Sardar Sarovar project, constructing hydro power generating stations, flood control, irrigation and water supply, etc.. The learned counsel pointed out that all kinds of infrastructure facilities referred in section 80IA(4)(i) of the Act, like Railways, ports, dams, bridges, roads, etc. are always owned by the Government and cannot be owned by private owners. So however, for an efficient execution and handling of such infrastructure facilities, the governments form a Special Purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er from Sardar Sarovar. In sum and substance, the objects to be pursued by SSNNL are pre-dominantly functions which are ordinarily performed by Government. 14. On this point, we may refer to the decision of the Ahmedabad Bench of the Tribunal in the case of JCIT vs. Sardar Sarovar Narmada Nigam Ltd., (2005) 93 ITD 321 (Ahd). Though the said decision has been rendered in a different context, but what is of relevance for us is the discussion made by the Bench which brings out the background and the manner in which SSNNL came to be incorporated by the Government of Gujarat. As per the discussion in the case of Sardar Sarovar Narmada Nigam Ltd. (supra) and the other material placed in the Paper Book, the following fact position emerges. 15. That in order to settle the dispute on distribution of the water of Narmada River, the Central Government had formed a Narmada Water Dispute Tribunal in 1969. In terms of the settlement arrived at by the Tribunal in 1979, the dam (i.e. Sardar Sarovar Dam) was to be constructed by the Government of Gujarat and the water was to be shared amongst the three States of Gujarat, Madhya Pradesh and Rajasthan. For erection of the dam, the Government of G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding whether a body is State within the meaning of Article 12 are : (i) If the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the corporation is an instrumentality or agency of the Government. (ii) A finding of State financial supports plus an unusual degree of control over the management and policies might lead, one to characterize an operation as State action. (iii) The existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality. (iv) Whether the corporation enjoys monopoly status which is State conferred or State protected is a relevant factor. (v) If the functions of the corporation are important public functions and related to governmental functions it would be a relevant factor in classifying the corporation as instrumentality or agency of the Government (vi) If a department of Government is transferred to a corporation, it would be a strong factor supportive of the inference that it is an instrumentality of the State (vii) Where the chemistry of the corporate body answers the test of State if comes within the definition of Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andum of Association clearly suggest that SSNNL is in the activity of executing, operating and maintaining the Sardar Sarovar project comprising of a dam across river Narmada, a canal system, the Sardar Sarovar power houses at the foot of the said dam, etc.. All these aspects clearly show that SSNNL is involved in carrying out State monopoly functions, like operation of Airports, Ports, Railways, etc.. The next test is whether the functions performed are important public functions related to governmental functions. In the case of SSNNL, it is quite obvious that apart from executing, operating and maintaining the Sardar Sarovar project it is also involved in promoting schemes in the State of Gujarat for flood control in the Narmada river, irrigation and water supply schemes for utilization of water from Sardar Sarovar. All these are essentially government functions and obligations, which are being performed by SSNNL. The next test is if a Department of a Government is transferred to a corporation. In this context, it is quite clear that the erstwhile Narmada Development Department consisting of its employees as well as the assets of Sardar Sarovar project were transferred enbloc by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haps cannot be looked upon as a State monopoly function as distinct from the activities of SSNNL, which is the subject-matter for consideration before us. 22. In the case of Heavy Engineering Mazdoor Union (supra) also the emphasis was again with respect to the functions of commercial corporation, though wholly owned by the Government. In the case before us, i.e. SSNNL, it is clear that SSNNL is not a commercial corporation, but it has been formed with the intent and purpose for carrying out essentially governmental functions which are otherwise a monopoly or an obligation of the Government. For all these reasons, the facts in the case before us are quite distinct from those in the cases of Steel Authority of India Ltd. (supra) and Heavy Engineering Mazdoor Union (supra). 23. In the light of the aforesaid discussion, in our view, SSNNL being a mere extended arm of the Government of Gujarat carrying out governmental functions can be understood as an entity qualifying for consideration u/s 80IA(4)(i)(b) of the Act. The objection of the Revenue in this context is thus rejected. 24. The second objection taken-up by the Revenue is that assessee was not a 'developer' so as to be el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qua the impugned contract awarded by SSNNL. The Chennai Bench of the Tribunal in the case of ACIT vs. Indwel Lingins (P) Ltd., 122 TTJ 137 (Chennai) has noted that a developer is a person who designs and creates new projects whereas a contractor is a person who has a contract to do work. In the present case, as the scope of work shows, assessee did not merely carry out a contract to do work but was responsible for conceptualizing, designing, erecting, commissioning and operating the water pumping scheme. On the above aspect, the judgement of the Hon'ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd., 322 ITR 323 (Bom), clearly supports the plea of the assessee of being a developer. In the case before the Hon'ble High Court, assessee was awarded a contract by Jawaharlal Nehru Port Trust (JNPT) to supply, install, test, commission and maintain the container handling equipment, namely, the cranes. JNPT was owing the dedicated container handling terminal. The stand of the Revenue was that assessee was not a developer of the infrastructure facility but had only supplied and installed the container handling cranes at the JNPT port. Therefore, it was contended by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the infrastructure facility is to be owned by the assessee for the purposes of claiming benefit u/s 80IA of the Act. In our view, the aforesaid objection of the Revenue is devoid of any statutory support from the provisions of section 80IA(4)(i) of the Act. The same is therefore rejected. 31. One of the objections of the Assessing Officer was that the entire investment in the infrastructure project has not been made by the assessee and that 80% of the project cost has been received from SSNNL. Therefore, according to the Revenue, assessee-company has not funded the project without any assistance from SSNNL. This objection of the Revenue, in our view, is quite misconceived because a developer would have income only if he is paid for development of the infrastructure facility. The Mumbai Bench of the Tribunal in the case of ACIT vs. Bharat Udyog Ltd., 118 ITD 336 (Mum) noted that the business activity of the nature 'build and transfer' also falls within the eligible activities for deduction u/s 80IA of the Act. The Mumbai Bench of the Tribunal has made the aforesaid observations in the context of objection raised before it regarding the claim u/s 80IA of the Act on the ground tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
