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TMI Blog2023 (1) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... aning of the existing roads and coupled with the terms of contract, in our considered view, the revenue from this project is eligible for deduction u/s 80-IA(4) of the Act. Project 2: Executive Engineer Gandhinagar : G Road - As per the terms of agreement, we observe that this is a project undertaken for converting existing highway road into a four lane road. Project 3: Executive Engineer R B Division Bhuj - We observe that this is a project undertaken for converting existing single lane highway road into a two lane highway road. In respect of projects 2 and 3 above, since the scope of work involves expansion of the existing roads from 3 to 4 lane (for project 2) and from 1 to 2 lane highway (for project 3), we are of the considered view that the assessee in respect of the projects 2 and 3 has brought into effect a new infrastructure facility. As per the terms of agreement, we observe that this is a project undertaken for converting existing highway road into a four lane road, our observations with respect to project 1 would apply to projects 2 and 3 as well and accordingly in view of the above observations, we are of the considered view that the assessee is eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% of the value of each running bill (page 275 of paper book). Further, as per the terms of the contract the responsibility of mobilisation of men, material and machinery was included in the price and no separate payment on this account was able to the assessee in respect of this project. In the instant facts, looking into the fact that the project involved construction of new road and coupled with the terms of contract, in our considered view, the revenue from this project is eligible for deduction u/s 80-IA(4) of the Act. Project 11: Executive Engineer R B Division Bhuj (Deshlapar- Siracha Road) - Looking into the fact that the project involved both widening and strengthening of the existing roads and coupled with the terms of contract, in our considered view, the revenue from this project is eligible for deduction u/s 80-IA(4) of the Act. Project 12: Executive Engineer R B Division Bhuj (Fatehgardh- ShivgadhRoad) - As in order to be eligible for claim of deductionunder section 80-IA(4) of the Act, the primary condition which needs to be met is that the assessee should have developed/brought into existence of a new infrastructure facility. In our considered view, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal for A.Y. 2010-11, arises from order of the CIT(A)-3, Rajkot dated 15-01-2015, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . 2. The assessee has taken the following grounds of appeal:- 1.0 The grounds of appeal mentioned hereunder are without prejudice to one another. 2.0 The learned Commissioner of Income-tax (Appeal)-3, Rajkot [hereinafter referred to as the CIT(A)] erred on facts as also in law in confirming the disallowances of claim of deduction of ? 1,04,08,7397- u/s.80IA(4) of the Incometax Act, 1961 [hereinafter referred as to the Act ] made by the Assessing Officer on the alleged ground that the appellant is not eligible for deduction u/s.80IA(4) as the appellant failed to fulfill the condition specified u/s.80IA(4) of the Act. The order passed by the Id. CIT(A) is totally unjustified on facts as also in law and claim of deduction u/s.80IA(4) may kindly be directed to be allowed. 3. Your Honor s appellant craves leave to add, amend, alter or withdraw any or more grounds of appeal on or before the hearing of appeal. 3. The brief facts of the case are that the assessee is engaged in the business of infr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . .................................................................................................................................... .................................................................................................................................... 5.3 In this landmark decision, the Hon'ble Gujarat High Court has laid down the following principles:- 1. What the newly inserted explanation below sub-section 13 to s.80IA aims to achieve is to clarify that deduction u/s.80IA(4) of the Act would not be available in case of execution of works contract. 2. There would certainly be a demarcation between the developing the facility and execution of works contract awarded by an agency engaged in developing such facility. 3. The explanation must be seen as one being in the nature of plain and simple explanation and not either adding or subtracting anything to the existing statutory provision. 4. The legislature by way of impugned amendment has distinguished between the cases of developing/operating and maintaining/developing, operating and maintaining any infrastructure facility from the works contract awarded by any person, be it the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 However, before we analyse the order of Ld. CIT(Appeals) in respect of each individual projects, it would be useful to go through the relevant statutory provisions and law on the subject in light of various judicial precedents to have a better understanding of the precise scope of the deduction u/s 80-IA(4) . The relevant extracts of the section are reproduced below. 5.2 Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. 80-IA. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... participation by way of investment in development of the infrastructure sector and not for 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. In contrast to this, a person who enters into a contract with another person [i.e., undertaking or enterprise referred to in section 80-IA] for executing works contract, will not be eligible for the tax benefit under section 80-IA. This amendment will take retrospective effect from 1st April, 2000 and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. 5.3 A reading of the various Statutory provisions read with the Memorandum brings out the following salient features of claim of deduction under section 80-IA(4) of the Act: Firstly , purpose of introd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and improvement in infrastructure by encouraging private sector participation by way of investment in development of the infrastructure sector. The memorandum to the Finance Bill 2007 specifically provides that the purpose of the tax benefit has been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract . Therefore, the provisions cannot, in our view, be read in manner that all works contracts have been ousted from the scope of benefit under section 80-IA(4) of the Act (because that would be defeating the very purpose for which section 80-IA(4) of the Act was introduced), but the benefit is sought to be denied only to persons who merely execute works contract. Therefore, in cases where a person makes the investment and himself executes the development work i.e., carries out the civil construction work, benefit under section 80-IA(4) of the Act would be available. Therefore, a co-joint reading of all the provisions reproduced above, read with the memorandum, points to the fact that the benefit under section 80-IA(4) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific work being part of the project or it is for development of the facility as a whole, Fourthly, whether the contractor is required to bring his own manpower and material and expertise to the job or whether the materials and designs etc are provided by the Government. Whether the assessee has deployed its own plant and machinery towards execution of the project or is it a mere supplier of manpower Fifth, , whether the responsibility of the contractor ends with handing over the project or whether the responsibility in relation to the project continues even post the handing over the project i.e. whether the contractor is required to undertake the maintenance of the infrastructure for a period of 12 months or more after handing over of the project to the Government, Sixth , if during the period of construction any damage is incurred and whether the contractor shall be responsible for the same i.e. whether the assessee has to furnish a security deposit to the Employer and indemnify the employer of any losses/damage caused to any property/life in course of execution of works Seventh , whether the contractor was responsible for the correction of defects arising in the works at i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 Executive Engineer PIU Division Bhuj (Mundra PKG-3) 14 Executive Engineer Kutch Panchayat Division Bhuj (Akri -T humbadi Road) 5.9 Now, we shall discuss the scope of work being undertaken for each individual project and see whether the revenues from such project are eligible for deduction u/s 80-IA(4) of the Act. Project 1: Executive Engineer Gandhinagar : 1, 2, 3 and 4 Road: As per the terms of agreement, we observe that this is a project undertaken for converting a three lane highway road into a four lane road. In addition, the assessee deposited earnest money and also security deposit in respect of the said project (page 34 of the paper book). Further, the terms of contract contained a specific clause for liquidated damages in case of delay in part of the assessee completing the project within stipulated time. Further, clause 17A provide for the defect liability period of three years from the certified date of completion of work and also provides that 5% of the amount of each running bill shall be held and released after the free maintenance guarantee period of three years is ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. Further, as per the terms of the contract, the assessee would be required to furnish performance security and additional security in respect of this project. Looking into the totality of facts of the instant project, we are of the considered view that the assessee has brought in place a new infrastructure facility as envisaged /s 80-IA(4) of the Act and further in view of the terms and conditions highlighted above, the assessee is eligible for claim of deduction /s 80-IA(4) of the Act in respect of revenue is earned from project 4 above. Project 5: MPRRDA P.I.U. No. 1 Pac 1943: The scope of work in respect of this project is conversion of Kutcha road to pucca road along with necessary maintenance works for a period of five years. Further, the terms of the contract, the assessee would be required to furnish performance security and additional security in respect of this project. Looking into the totality of facts of the instant project, we are of the considered view that the assessee has brought in place a new infrastructure facility as envisaged /s 80-IA(4) of the Act and further in view of the terms and conditions highlighted above, the assessee is eligible for cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of agreement, we observe that this is a project undertaken for converting a single lane highway road into a two lane highway road. In addition, the assessee deposited Reserve amount and also performance bond money in respect of the said project (page 213 of the paper book). Further, the terms of contract contained a specific clause for liquidated damages in case of delay in part of the assessee completing the project within stipulated time (page 219 of Paper-Book). Further, Relevant clause 17A provides for the defect liability period of one year from the certified date of completion of work. Further, the contract covers various liabilities in respect to the assessee for any damage done in or outside of work. In this case, it may be useful to refer to CIRCULAR NO. 4/2010 [F.NO. 178/14/2010-IT(A-I)], DATED 18-5-2010, wherein Board considered the issue as to whether widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80-IA(4)(i) of the Incometax Act, 1961. Vide the above Circular, CBDT clarified that widening of an existing Road by constructing additional lanes as a part of a highway project by an undertaking would be regarde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tside of work. In this case, it may be useful to refer to CIRCULAR NO. 4/2010 [F.NO. 178/14/2010-IT(A-I)], DATED 18-5-2010, wherein Board considered the issue as to whether widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80-IA(4)(i) of the Income-tax Act, 1961. Vide the above Circular, CBDT clarified that widening of an existing Road by constructing additional lanes as a part of a highway project by an undertaking would be regarded as a new infrastructure facility for the purpose of section 80-IA(4). However, simply relaying or repairing of an existing Road would not be classifiable as a new infrastructure facility for this purpose. In the instant facts, looking into the fact that the project involved both widening and strengthening of the existing roads and coupled with the terms of contract, in our considered view, the revenue from this project is eligible for deduction u/s 80-IA(4) of the Act. Project 12: Executive Engineer R B Division Bhuj (Fatehgardh- ShivgadhRoad): A perusal of the terms of the contract in respect of project 12 indicates that scope of work in this project is only restricted to strengtheni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xecutive EngineerKutch Panchayat Division Bhuj (Akri- Thumbadi Road): A perusal of the terms of the contract in respect of project 14 indicates that scope of work in this project is only restricted to improvement of the existing roads. We note from the terms of contract that no new road has been brought into existence and further there is also no expansion/widening of the existing roads. Therefore, in respect of project number 14, we are of the considered view that the assessee has not brought into existence/developed any new infrastructure facility and hence he is not eligible for claim of deduction under section 80-IA(4) of the Act. As discussed above, in order to be eligible for claim of deduction under section 80-IA(4) of the Act, the primary condition which needs to be met is that the assessee should have developed/brought into existence of a new infrastructure facility. In our considered view, mere strengthening / improvement of the existing roads would not qualify as bringing into existence in a new infrastructure facility so as to be eligible for claim of deduction under section 80-IA(4) of the Act. 5.10 Accordingly, in our considered view, the assessee is not e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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