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TMI Blog2017 (11) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... - Sri N.V. Vasudevan, Judicial Member And Sri J. Sudhakar Reddy Accountant Member For The Assessee : Shri S.K. Tulsiyan For The Revenue : Shri G. Mallikarjuna, CIT, DR ORDER Per J. Sudhakar Reddy :- Both these appeals are filed by the Revenue, directed against separate orders of the ld. Commissioner of Income Tax (Appeals)-XIX, ( ld. CIT(A) ), passed u/s 250 of the Income Tax Act, 1961 (the Act ), dt. 20/10/2014 for the Assessment Year 2005-06 dt. 21/10/2014 for the Assessment Year 2010-11. 2. The Assessing Officer, in this case has passed an order for the Assessment Year 2005-06, dt. 30/11/2007 and for Assessment Year 2006-07 dt. 07/12/2007. As the issues arising in both these appeals are similar, for the sake convenience they are heard together and disposed off by way of this common order. 3. There is a delay of 16 days in filing of the appeal by the Revenue, for both these assessment years. After perusing the affidavit filed by the Revenue explaining the delay, we condone the delay and admit these appeal. 4. Facts in brief:- The assessee is a company and is engaged in the business of Ground Engineering, Civil Structural works, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IA(4) of the Act, can be granted on the following projects taken up by the assessee. These projects are:- * Development of Bus Terminal Complex for Karnataka State transport Corporation at Bangalore. * Development of launchpad for GS LV Mark III facilities of Satish Dhawan Space Centre SHAR at Sriharikota, Andhra Pradesh. * Development of a turbine building, emergency power supply building, cable and pipe tunnel etc. for Kundankulam Nuclear Power Project. * Development of a Jetty at the Naval Base at Visakhapatnam. 8. He took us through the order of the assessing officer as well as the ld. CIT(A) and submitted that the Ld. CIT(A) has not given any reason, whatsoever for reversing the findings of the assessing officer. He pointed out that the ld. CIT(A), has simply extracted the submissions made by the assessee, and thereafter stated that he is accepting the same. He argued that this is not is speaking order, and hence the same cannot be upheld. 8.1. Coming to each of these projects, he submitted that a launchpad built for GS LV Mark III facilities of Satish Dhawan Space Centre SHAR at Sriharikota, Andhra Pradesh, cannot be considered as an airport an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries Limited [322 ITR 323]. For the Assessment Year 2005-06. On the issue of whether launchpad is an airport or not, he relied on the submissions made before the ld. CIT(A), which is extracted at page 13 14 of his order. The sum and substance of the submissions is that, port is a point/place, from where the landing and take off takes place into air by airborne vehicles from the ground. He submits that base or platform from which a rocket is launched is also an airport. 9.1. On the issue of development of Jetty at the Naval Base at Visakhapatnam, he relied on the submissions made before the ld. CIT(A) and submitted that the Jetty is nothing but a structure which projects into a body of water built from a shore for use by ships. Hence, he submits that this was properly considered by the ld. CIT(A), who has granted relief appropriately. 9.2. On the development of Bus Terminal Complex of Karnataka State Transport Corporation at Bangalore, he submitted that CBDT has notified that even multilevel computerised car parking is an infrastructural facility. He submitted it is an error on the part of the revenue to argue that a bus terminal complex would be an infrastructural fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation (c) to subsection (4). The contracts for the project were entered into with the Department of Space vide contracts dated 30th May, 2000 and 16th December, 2003 on account of which the assessee was entitled to receive amounts of ₹ 5,39,50,000/- and ₹ 67,16,00,000/-. The assessee started work on the development of the projects from the Assessment Years 2001-02 and 2004-05. Therefore, these projects satisfy the conditions as laid down in clause (b) since the project has been started on the basis of agreements with Department of Space, government of India i.e. Central Government and satisfies clause (c) since it commenced in the AY 2001-02 and 2004-05 i.e. after 1st April, 1995. 9.3.2 The A.G. observed that in Form 10CCB the said facility was termed as 'Industrial Park' which is not identified as infrastructure facility u/s 80lA, whereas in the submission made, the same was treated as an Airport and hence the claim regarding nature of infrastructure facility was contradictory. He further alleged that Launch Pad is not an Airport. He, therefore, held that the profit from the above project is not allowable as deduction u/s 801A of the Act. 9.3.3 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the development of the project from A. Y. 2004-05. Therefore the project satisfies the conditions as laid in clause (b) since the project has started on the basis of an agreement with the Central Government and satisfies clause (c) since it has commenced in the A.Y. 2004-05 i.e. after 1st April, 1995. The said facility has been termed as 'Jetty ' in Form 10CCB. According to the A.O. as per the explanation there is no mention of 'Jetty' as an infrastructure facility. The same cannot be included under the head 'port' as the jetty was developed at a 'Naval Base' rather than port. Therefore it does not qualify as infrastructure facility as envisaged in the Explanation. 9.4.2. In this respect, attention is drawn to the meanings of 'jetty' and 'port': Jetty means 1. A structure, such as a pier, that project into a body of water to influence the current or tide or to protect a harbour or shoreline from storms or erosion. 2. A wharf. Collins Essential Dictionary defines jetty as 1. a landing pier or dock 2. a structure built from a shore out into the water to protect a harbour As per Thesaur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on introduced w.e.f 1.4.2002 excludes any other public facility of a similar nature as may be notified by the' Board in this behalf in the Official Gazette. The A.O. further stated that the said facility would have been covered under the definition of infrastructure facility before the amendment as per old explanation to section 80IA(4). However, as per amended definition, the assessee's project does not lie in any of the categories. 9.5.3 In this respect the assessee wants to submit as under: The Modern satellite Bus Terminal Complex for Karnataka State Transport Corporation has been constructed at Mysore Chrome Tanning Company land, Mysore Road, Byataranapura, Bangalore. The Bangalore-Mysore Highway is known as Mysore road in the city area of Bangalore. The satellite bus terminal of the Karnataka State Road Transport Corporation (KSRTC) on Mysore Road it is the first of the four satellite terminals planned in the city's peripheral areas. It will also reduce the load on the Kempe Gowda Bus Station by handling about 2,250 long- distance and city bus services. The Bangalore Metropolitan Transport Corporation (BMTC) buses will have space for operating its serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to the file of the Assessing Officer to consider these submissions of the assessee on the above issue and de novo, adjudicate the matter. 13. In view of the above discussion, we restore this issue of the claim of deduction of the assessee, u/s 80IA of the Act, on the above 3 projects, to the file of the Assessing Officer, for fresh adjudication, in accordance with law. The A.O. shall consider all the submissions of the assessee and pass a speaking order. 13.1. The argument of the ld. DR, that deduction u/s 80IA(4) of the Act is available only in PPP models, where the private parties bring in funds for building of infrastructural facility and not otherwise, is not a ground on which the Assessing Officer has made the disallowance in his order. This is not a ground of appeal in the appeal also. In fact, the Assessing Officer has allowed the claim of deduction u/s 80IA(4) of the Act, made the assessee on 9 projects. Even otherwise, the issue is adjudicated in favour of the assessee by the Coordinate Bench of the Tribunal in the assessee s own case for Assessment Year 2010-11. Hence we dismiss this argument of the ld. D/R as devoid of merit. 14. In the result, the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture 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. 6.1 From the above it is clear in order to avail deduction u/s 80-IA all the following conditions should be satisfied: ( i) The assessee is a company or a consortium of companies; ( ii) There exists an agreement with the Central Government, State Government, Local authority or any other statutory body and ( iii) Pursuant to the agreement specified in point (ii) the company engages itself in any of the following activities: ( a) Development of infrastructure facility ( b) Operation and maintenance of infrastructure facility ( c) Development, operation and maintenance of infrastructure facility 6.2 Now the assessee in the given case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invited to relevant extracts of section 194C of the IT Act: (iv) work shall include- ( a) Advertising; ( b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting; ( c) Carriage of goods or passengers by any mode of transport other than by railways; ( d) Catering; ( e) Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. Thus as per section 194C also, works contract does not include a contract wherein the contractor in addition to employing labour, procures material from a third party. Thus, contracts involving mere labour of the contractor are included in the purview of works contract . Further, attention is invited to the judgment of the Supreme Court in case of Associated Cement Co. Ltd. vs. CIT [201 ITR 435], wherein the Hon'ble Court while interpreting the term 'work' u/s 194C held that Words any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which reads as under: Section 80-lA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and special economic zones. The tax benefit was introduced for the reason that industrial modernization requires a passive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been {or encouraging private sector participation by way of investment in development of the infrastructure sector and not {or the persons who merely execute the civil construction work or any other works contract. Accordingly, it is proposed to clarify that the provisions of section 80- IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself executes the development work, i.e., carries out the civil construction work he will be eligible for tax benefit under section 80- IA of the Act. In c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the contractor shall be eligible for deduction U/S 80-IA. Now coming to the facts of the case, it is submitted that the assessee was not mere works contractor, who had merely employed its labour under the projects from the various government authorities. The assessee was a developer. In addition to employing labour it made investments, it developed an enterprise/infrastructure to support the work under the various projects. In addition to labour, it deployed its machinery, materials and did all the things necessary (i.e. provided an enterprise) to support the construction work undertaken under the various projects. The assessee was provided with the site alone and by putting its own inputs (not labour alone) he converted the site into an infrastructural facility. 6.5 Further, ITAT (Hyderabad) in case of Siva Swathi Constructions Pvt. Ltd. vs DCIT, Circle-3(2) in ITA No.1008-09/Hyd/2013 for AYs 2009-10 2010-11 dated 25.10.2013 held that The next reason given by the CIT(A) is with regard to non- financial participation by the assessee, as the assessee has got mobilization advance. The mobilization advance has not been given freely. It has been given only after the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. Parliament when it amended the law was obviously aware of the administrative practice resulting in the circulars of the Central Board of Direct Taxes. The fact that in such a scheme. An enterprise would not operate the facility itself was not regarded as being a statutory bar to the entitlement to a deduction under section 80-IA of the Act. 6.6 From the above it is clear that even if an assessee is merely developing the infrastructural facility (without operating and maintaining the same), it is entitled to deduction u/s 80-1A. Further, condition (b) laid out in sub-section 4 of section 80-IA mandates the existence of an agreement with the Government. Moreover, if section 80-IA grants deduction on profits from the activity of development carried out in pursuance of an agreement with the Government it presupposes that assessee will earn some profits from mere development (without operating and maintaining) of the infrastructure fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or after 1st April, 1995. Since the assessee is only a developer of the infrastructure project and it is not maintaining and operating the infrastructure facility, sub-cl. (c) of cl. (i) of sub-s. (4) of s. 80-IA is not applicable. The interpretation of Revenue is absurd also in view of the rationale of the provisions of s. 80-IA(4)(i). From the asst. yr. 2000-01, deduction is available if the assessee carries on the business of any one of the 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, realise its cost ? If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the transferee has paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation canvassed by the Revenue authorities is accepted, no enterprise, carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id down, it does not detract the assessee from the position of being a developer; nor will it debar the assessee from claiming deduction under s. 80-IA(4). Therefore, an assessee who is only engaged in the developing the infrastructural facility i.e., road and not engaged in the 'operating and maintaining' the said facility is entitled to the benefits of the deduction under s. 80-IA(4).--Patel Engineering Ltd. vs. Dy. CIT (2004) 84 TTJ (Mumbai) 646 followed. Provisions of sub-cl. (c) of cl. (i) of s. 80-IA(4) are inapplicable to the assessee which is engaged in mere developing of the infrastructure facility and, therefore, an assessee who is only engaged in developing the infrastructure facility and not in 'operating and maintaining' the said facility is entitled to the benefit of deduction under s. 80-IA(4); merely because assessee is referred to as 'contractor' in the agreement for development of infrastructure facility or some basic specifications are laid down, would not debar the assessee from claiming deduction under s. 80-IA(4). If a person who only develops the infrastructure facility was not paid by the Government, the entire cost of developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is not required to operate the facility, the payment for development of such infrastructure is required to be made by the Government only. After amendment, when assessee undertakes to develop the infrastructure facility only, it is the Government who will make payment to assessee in respect of infrastructure facility developed by it in terms of agreement so entered with Government. Thus, we do not find any infringement of conditions {or claim of deduction 6.7 Thus from the above, it is clear that the fact that the assessee had received payments from the Government in progress of its work has no bearing on eligibility of deduction u/s 80- IA. Further, the Revenue in all the grounds has contended that the contracts entered into by the assessee were merely 'construction contracts' since the assessee is not exposed to any entrepreneurial and investment risk. In this regard, the AO has observed that the assessee is executing the contract against predetermined revenue w.r.t the above, it is submitted that under the impugned contracts, the assessee was merely carrying out the civil construction work. It was responsible for overall development of the infrastructure fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (k) That a developer is therefore expected to arrange finances and also to undertake risk. (I) That in contrast to the rights of a contractor a developer is authorized to raise funds either by private placement or by financial institutions on the basis of the project. These are few broad qualities of a developer through which the character of a developer can be defined. (ii) ITAT(Hyderabad) in case of Koya and Co. Construction (P) Ltd. vs ACIT [51 SOT 203] held that The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all long been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstrated before the court that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical knowhow, expertise and financial r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractor shall not be included in the category of 'developer' u/s 80-1A. Thus, the Explanation clearly does not apply to O M projects. Hence, deduction of ₹ 35,16,941/- claimed for the aforesaid project u/s 80-IA cannot be denied by invoking the explanation to section 80- 1A. 7. From the perusal of the terms and conditions in the agreement, it is clear that the assessee was not a works contractor simplicitor and was a developer and hence Explanation to section 80- IA(13) does not apply to the assessee. Further, in addition to developing the infrastructure facility, the assessee was even operating and maintaining the same. Thus, clearly the assessee is eligible for deduction u/s 80-1A. In our considered view do not find any reason to uphold the order of ld. CIT(A). Hence this ground of appeal of the Assessee is allowed. 18. Respectfully following the same, we uphold the order of the ld. CIT(A), on this issue. 18.1. We find that the assessing officer, in this case has passed an order for the impugned Assessment Year, seven days after passing the assessment order for the Assessment Year 2005-06. The Assessing Officer had allowed the claim for deduction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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