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TMI Blog2004 (6) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... e facility, assessee is referred to as contractor or because some basic: specifications are laid down, it does not detract the assessee from the position of being a developer, nor will it debar the assessee from claiming deduction under section 80-IA(4). Discussed/considered as above, we hold that the assessee having carried out the work of constructing the abovementioned two projects, namely Srisailam Project and Koyana Project, as detailed above, is appropriately a developer of the said two infrastructure facilities, and in turn is entitled, and entitled justifiably, to claim deduction under section 80-IA(4). Whether the infrastructure facility or the enterprise developing the infrastructure facility, is to be owned by the company registered in India? - In the instant case, the assessee is a company registered in India, which owns the enterprise and which developed the infrastructure facility. We, therefore, hold that the second condition for eligibility of deduction under section 80-IA(4) is also fulfilled by the assessee and ground No. 1 of the Revenue s cross-objection having no merit fails. As the activity of these two projects of infrastructure facility undertaken by the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject. We accordingly hold that both the projects, Koyna and Srisailam are in the nature of infrastructure facility as defined in the Explanation to section 80-IA(4). Deduction under section 8O-IA(4) - We may note that the statutory provision as contained in section 80-IA provides for development of infrastructure facility . It nowhere provides that entire infrastructure project is to be developed by one enterprise. It is revealed from record that both the projects were multi-purpose projects for water supply, irrigation and power generation. The assessee has developed such part of the project, as was for supply of water from river/lake to turbine. Therefore, the assessee has developed infrastructure facility for supply of water and for irrigation. Merely because development work done by assessee is a point to point milestone of a multi-purpose project, it would not debar the assessee from claiming deduction under section 80-IA(4), so long as the nature of development made by assessee falls within the ambit of infrastructure facility and since we have found it established above that development work carried out by assessee was for development of infrastructure facility, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its. 4. Now we proceed to consider the assessee's appeal and Revenue's CO on merits. 5. In appeal, the assessee-appellant has raised four grounds of appeal. Ground No. 4 is general. Ground No. 1 along with its various parts being the main ground in this appeal is as under: "Re: Sec. 80-IA deduction Rs. 18.47 crores. 1. In the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding denial of deduction of Rs. 18,47,09,510, claimed under section 80-IA(4) in respect of income derived by the assessee from development of eligible infrastructural facilities. 2. Having regard to diverse submissions, the learned CIT(A) ought to have accepted contention of the appellant that the appellant was a developer of eligible infrastructure facilities and was, as a developer, entitled to grant of deduction under section 80-IA(4) of the Act. 3. In the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that the appellant was not a developer of impugned facilities but, was a civil contractor not entitled to relief inasmuch as: (a) The appellant held no interest in land supporting the facility. (b) The facility was owned by the Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's claim. The learned CIT(A) agreed with the Assessing Officer holding the assessee to be not entitled to deduction under section 80-IA, mainly for the reason that the assessee was not the "developer" as such of the abovementioned two projects. Hence aggrieved, the assessee is in appeal before the Tribunal. 9. We have heard the arguments of both the sides and have also perused the records including the written submission of the learned Authorised Representative of assessee as also that of learned CIT/Departmental Representative, for Revenue. 10. The learned counsel for assessee has made elaborate arguments before us contending that the assessee has fulfilled all the conditions, which are necessary for the allowability of deduction under section 80-IA(4) and so the assessee is entitled to get the said deduction. He has also furnished his detailed written submission to support/supplement his oral arguments. 11. The learned CIT/Departmental Representative has, on the other hand, supported the orders of the authorities below and has contended that the assessee did not fulfil the conditions, which are necessary for allowing deduction under section 80-IA(4). He has also filed hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business and prescribes the conditions necessary to claim deduction under section 80-IA. This sub-section (4) reads as under: "(4) This section applies to- (i) any enterprise carrying on the business of (i) developing (ii) maintaining and operating or (iii) developing, maintaining and operating 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; (b) it has entered into an agreement with the Central Government or State Government or a local authority or any other statutory body for (i) developing (ii) maintaining and operating or (iii) developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement; (c) it has started or starts operating and maintaining the infrastructure facility on or after 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, extract of which we reproduce below: "From the Random House Dictionary of the English Language, the following definitions can be found: Develop: 1. to bring out the capabilities or possibilities of; bring to a more advanced or effective state; 2. to cause to grow or expand. Developer: 1. a person or thing that develops. Development: 1. the act or process of developing; progress. Synonym - expansion, elaboration, growth, evolution; unfolding maturing, maturation. From Webster Dictionary the following definitions emerge: Development: a. To realise the potential of; b. To aid in the growth of: strengthen, develop the biceps. To bring into being: make active (develop a business). To convert (a tract of land) for specific purpose, as by building extensively. From Law Lexicon Dictionary, the following definitions could be seen: Development: 1. The act, process or result of developing or growing or causing to grow; the state of being developed; 2. Happening Development of land: The expression 'development' means the realisation of the potentialities of land or territory by building or mining: Sadruddin Suleman v. J.H. Patwadlen AIR 1965 Bom. 224, 242 (Constitution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, water supply and generation of hydro power-the difference being that, at Koyna the assessee has constructed inlet tunnel up to the point of power house. At koyna, the assessee carried out a highly specialized underwater blast for the first time in Asia. The assessee spent enormous sum for locating and receiving this technology for Indian project. The water tapped from the lake passes through two intake tunnels 188 and 242 metres long. At the end of this, 4 numbers vertical shafts arc located to house stop log gates, trash rack gates and service gales. After passing through these gates the water enters the Head Race Tunnels of 9.5 metres diameter and 4230 metres length. At the end of this tunnel, there is vertical surge shaft 21 metres diameter and 130 metres deep, from where the water is carried into 4 numbers take-off tunnels for a distance of further 60 metres. The complete design, layout and methodology required for carrying out underwater lake tapping was provided to the Government of Maharashtra by the assessee. Like Srisailam, this project also channelises 16 thousand million cubic feet of water for the purpose of irrigation and aims at irrigating 1,10,000 acres of nearb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alisation, financial commitment and involvement that projects tuning such immense national importance were awarded to the assessee. 20. He has contended that the authorities below have denied the deduction to the assessee on the ground that there was no financial involvement on the assessee. He has contended that the above allegation is incorrect and that there was huge financial involvement on account of mobilisation of equipment, issuing of bank guarantee, for building infrastructure facility in and around the project and in working capital; and the details of resources mobilisation by the assessee in both the projects are given at para 3.2.18 of his written submission, which are reprouced below: "Srisailam Project: In order to complete the work within the stipulated period, the assessee had to engage (including those of sub-contractors) employee strength of more than 800 skilled workers; more than 1000 unskilled and semi-skilled workers, besides 40 engineers/consultants and 30 sub-contractors supervising and controlling the work force which belonged to them. The assessee had to put in operation 19 excavators, 20 trucks, 80 tippers, 10 dumpers, 100 drilling machines, 5 stone cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent risk of delayed payment, arbitration and litigation. (iii) The development work has to be completed as per the agreement within time in spite of the geological risk. The developers enter into agreement, for development of facilities irrespective of geological conditions specified in the contract document. Many a times, actual rock conditions in underground works vary from those specified under the contract. In spite of this, developer is required to perform and complete the project at its costs and risks. Some of the geological risks are as follows: (i) Rock fall due to span and less detection period (ii) Excessive uncontrollable water inflow via underground aqua fur. (iii) Poisonous gas emission (iv) Ground squeezing action (v) Rock convergence (vi) Shear failure leading to rock slide (vii) Chimney formation due to rock tails (viii) Overburden collapse, etc." 22. He has contended that in view of all the above, the Government was saved of these responsibilities and risks and hence, it is the assessee who has developed the infrastructure facility. 23. He has contented that the Government is not carrying on any business of construction activity, but Government is inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reproduced below: "The assessee is merely a contractor and it had taken contract from Maharashtra Government for constructing the Koyna Dam, and from APSEB for constructing the Srisailam multipurpose power project. The contracts bagged by the assessee-company, known as Koyna Hydro Electric Project-State IV, was divided into two contracts. These two contracts were for construction of civil works related to the powerhouse. The Srisailam Project was a contract for excavation of tunnels and caverns for transformer and electricity powerhouse. The company executed these two contract works as per the terms and conditions and specifications set out in such contracts with Maharashtra Government and APSEB and was paid for each stage of work executed by it. The assessee-company had no financial stakes or investment in the above projects." 27. He has contended that deduction under section 80-IA(4) was provided to the developer of the infrastructure project, because, the Government did not have the sufficient resources to finance the infrastructure projects. He has contended that accordingly, for encouraging the participation of private sector in the development of infrastructure project, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on p.4 of his written submission: "34.2 Industrial modernisation requires a massive expansion of, and qualitative improvement in, infrastructure. Our country is very deficient in infrastructure such as expressways, highways, airports, ports and rapid urban rail transport systems. Additional resources are needed to fulfil the requirements of the country within a reasonable time frame. In many countries, the BOT (build-operate-transfer) or the BOOT (build-own operate-transfer) concept have been utilised for developing new infrastructure." 32. He has also referred to Notes on Clauses of Finance Bill, 1999 [(1999) 236 ITR(St.) 135] and emphasised the following observation as contained on p.5 of his written submission: "It further seeks to provide that when an enterprise develops infrastructure facility and subject to the agreement with the Central or State Government, local authority or statutory body, as the case may be, the operation and maintenance of such facility is carried on its behalf by some other undertaking, the provisions of this section shall continue to apply to such other enterprise for the unexpired period of the prescribed time." 33. Referring to his arguments re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal structure and philosophy of BOOT has remained constant through various amendments that have taken place from time to time. As the circulars specifically refer to the development of infrastructural facility through BOT/BOOT or similar' schemes, it would be necessary to examine the scope and underlying philosophy of such schemes." 36. He has explained, with quite elaboration and with specific reference to pp. 1 to 68 of his paper book, as also pp. 10, 11, and 12 of his written submission, the concepts of BOT (build-operate-transfer), BOOT (build-own-operate-transfer) and BOLT (build-own-lease-transfer) contending that these concepts have been adopted from the United Nations Industrial Development Organization (UNIDO) which is primarily concerned with the development of infrastructural facilities in third world countries to boost economic development. He has specifically referred to his following argument contained in para 15 on p. 12 of his written submission: "The hallmark of the BOT model is that it uses private investment to undertake the infrastructural development that has historically been the preserve for the public sector. In a BOT project a private company is given a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate party, the promoter, that is the private party undertakes the job of drawing the design of project whereas here in the instant case the assessee has undertaken the development work based on the basic guidelines and specifications/drawings by and large, though not all, laid down by the Government/APSEB. In this regard, he has referred to p. 78 of paper book of Revenue being internal p. 8 of the specimen format of agreement to lay emphasis on his contention. He has contended that in the case of private sector development of infrastructure facility, the limited ownership for the time being vests with the private promoter/developer though the ultimate ownership does vest with the Government or statutory body. He has contended that it is in lieu of private funding and risk taken that the private party is granted concession to recover toll by operating the infrastructural facility and in this regard he has also referred to pp. 79 and 80 of paper book of Revenue. He has also contended that the assessee does (sic). 41. In rejoinder, the learned Authorised Representative of assessee has contended that the Finance Act, 1999 effective from 1st April, 2000, i.e., assessment year 2000-01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the assessee can be said to be developer when the amount has been paid to the assessee for the development work carried out by the assessee. In order to properly appreciate this question, it would be relevant, and no less beneficial, to refer to the legislative history of section 80-IA. As we have noted earlier, the amendment in section 80-IA was brought about by Finance Act, 1995 w.e.f. 1st April, 1996. By virtue of this amendment, exemption under section 80-IA was provided to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. Thus to be eligible for this deduction, an assessee was required to carry out all the three activities, i.e., (i) to develop, (ii) to maintain, and (iii) to operate. After the modification effected by Finance Act, 1999, w.e.f. 1st April, 2000, deduction under section 80-IA(4) has become available to any enterprise carrying on the business of (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Therefore, from assessment year 2000-01, deduction is available if the assessee carries on the business of any one of the abovemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity as is eligible for deduction under section 80-IA. In the case of such a construction activity, which does not involve the 'operate' aspect, the question of an assessee engaged in such activity (of 'BT' carrying on only 'development') to recover his costs of construction of his own from the infrastructure project/facility itself does not arise, and so for the recoupment of the costs, the same have to be paid whether through running bills or otherwise; and considering the largeness/hugeness of the total financial investment involved, some advance if paid at some point of time, will not, in our view, change the basic nature/feature 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 80-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rried out the work of constructing the abovementioned two projects, namely Srisailam Project and Koyana Project, as detailed above, is appropriately a developer of the said two infrastructure facilities, and in turn is entitled, and entitled justifiably, to claim deduction under section 80-IA(4). 48. Now we proceed to consider the second issue, which is whether the infrastructure facility or the enterprise developing the infrastructure facility, is to be owned by the company registered in India? The learned CIT/Departmental Representative contended that the infrastructure facility should be owned by the company registered in India. Ground No. 1 of the Revenue's cross-objection is also to this effect. He contended that in this case, both the infrastructure facilities were not owned by the assessee-company, but by the Government of Maharashtra/APSEB; therefore, the assessee is not entitled to deduction under section 80-IA(4). The learned counsel for assessee, on the other hand, contended that the requirement is that the enterprise developing the infrastructure facility should be owned by an Indian company. 49. We have considered the rival contentions as also the relevant material o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) on this count, that is on the count as to what is required to be owned in sub-clause (a) of clause (i) of sub-section (4) of section 80-IA, whether 'infrastructure facility' or 'the enterprise' is found to have rightly been drawn and quite justified, and the same need not be interfered with. 52. As seen above, we have held that 'the enterprise' should be owned by a company registered in India. In the instant case, the assessee is a company registered in India, which owns the enterprise and which developed the infrastructure facility. We, therefore, hold that the second condition for eligibility of deduction under section 80-IA(4) is also fulfilled by the assessee and ground No. 1 of the Revenue's cross-objection having no merit fails. 53. We now proceed to consider the next condition of having entered into an agreement with Central Government or State Government or a local authority or any other statutory body for developing an infrastructure facility, as contained in sub-clause (b) of clause (?) of sub-section (4) of section 80-IA. It is not in dispute, that the assessee has entered into an agreement with Government of Maharashtra for developing Koyna project and with APSEB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 88(1)(b)]. 56. The learned CIT/Departmental Representative has therefore, submitted that from the above meaning of the word "transfer", it is clear that the concept of transfer involves relinquishment or alienation of rights and presupposes divestment associated with ownership or part ownership and may be for limited time or for a particular purpose. He has contended that in the instant case the infrastructure facility was never transferred by assessee to the Maharashtra Government/APSEB. He has contended that in the instant case what the assessee has done is merely handing over of the infrastructure facility to the Maharashtra Government/APSEB and it is not a transfer of right. He has contended that in BOOT and BOT, the private parties have limited ownership which they transfer to Government/statutory authority after the concession period. In this regard, he has referred to para 19 on p. 14 of his written submission as also pp. 27 to 31 of paper book of Revenue. Referring to the interpretation of the term right or interest on p. 30 of paper book of Revenue, he has contended that the present assessee had no such right or interest in the infrastructure facility as it has simp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which infrastructure facility has been developed always belonged to the Government and assessee has already been paid for construction work, there is no question of "transfer" of infrastructure facility by the assessee. However, we are unable to agree with this contention of the learned CIT/Departmental Representative. At the time of hearing before us it was pointed out by the learned counsel for assessee that land was handed over to the assessee for carrying out development work. In this reference, he referred to clause 12 of agreement with APSEB, and clause 42 of agreement with Government of Maharashtra. He also stated that alter completion of development of infrastructure facility, the same was transferred by handing over possession thereof. In support of this, he referred to p. 11 of assessee's paper book 1 for handing over of possession of infrastructure facility. We find that section 8O-IA(4)(i)(b) requires development of infrastructure facility and transfer thereof as per agreement and it cannot be disputed in view of the material on record that the assessee has transferred the infrastructure facility developed by it, by handing over possession thereof to the Government of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d transfer) being merely of 'development' and did not involve 'operate' aspect in respect of the same, the infrastructure facility developed by assessee had to be transferred and handed over to the Government of Maharashtra/APSEB on its completion only and without operating it, that is without resorting to the collection of toll therefrom for recoupment of its costs. Accordingly, in our opinion, the assessee has duly complied with this condition as well. We, therefore, hold that ground No. 2 of Revenue's cross objection has no merit and the same accordingly fails. 60. The learned CIT/Departmental Representative has contended that the enterprise has not started operating and maintaining the infrastructure facility on or after 1st April, 1995 and therefore the assessee is not entitled to deduction under section 80-IA(4). He has also contended that the learned Authorised Representative of assessee's argument has been that after amendment of 1999 there is absurdity among various sub-clauses of clause (i) of sub-section (4), so sub-clause (c) of clause (i) of subsection (4) should be ignored for the reason that it has no application to assessee's case, but this contention of learned Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructure facility on or after 1st day of April, 1995" is obviously applicable to an enterprise which is 'maintaining and operating', the infrastructure facility, it cannot apply to the case of an enterprise, which has undertaken merely 'development' of infrastructure facility, and not its 'maintenance and operation' and so the question of 'operating and maintaining' of infrastructure facility by such enterprise before or after any cut-off date cannot arise. However, if the contention of the learned CIT, Departmental Representative is accepted, it would obviously/understandably lead to manifestly absurd results. When the Act provides deduction for a person who is only 'developing' the infrastructure facility, unaccompanied by 'operating' thereof by such person, there can be no question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 1st April, 1995. In that view of the matter, we find substance in the contentions of learned Authorised Representative of assessee and inescapably we have but to hold that the condition at clause (c) is applicable to an enterprise, which is carrying on the business of maintaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal. This certificate is issued for official use only". 65. Similarly, the purpose of Srisailam project has been certified by the executive engineer, SLBHES, Srisailam Dam as under: "This is to certify that Srisailam project is a multi-purpose project where water supply, irrigation and hydro power generation are involved. The water from Srisailam project is channelised through the tunnels and channels and used for the abovementioned purposes". 66. Obvious as it is, from the above we find that the facility developed by the assessee does fall within the category of water supply project and also irrigation project. We accordingly hold that both the projects, Koyna and Srisailam are in the nature of "infrastructure facility" as defined in the Explanation to section 80-IA(4). 67. There has also been the contention of the learned CIT/Departmental Representative that the assessee has developed only a part of the project and not the whole of it, it is not eligible for deduction under section 8O-IA(4) inasmuch as the infrastructure facility as explained in clause (c) of Explanation below sub-section (4)(i) means developing the whole of it and not a part of it, and that the assessee's wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee from claiming deduction under section 80-IA(4), so long as the nature of development made by assessee falls within the ambit of "infrastructure facility" and since we have found it established above that development work carried out by assessee was for development of infrastructure facility, the assessee cannot justifiably be denied of the deduction under section 80-IA, merely because the assessee has not developed the entire project. We hold accordingly. 69. There has, however, also been an alternative argument canvassed by the learned CIT/Departmental Representative that the provisions of section 80-IA(1) state that where the gross total income of an assessee includes any profits and gains 'derived from' any business of an enterprise engaged in the development of an infrastructure facility, the assessee shall be entitled to deduction on the profits and gains 'derived from' such business. He has raised this contention on the footing that the facts of the assessee's case reveal that the assessee is not a developer but is a mere contractor and is deriving income from civil contract work, and that the assessee is not deriving any profits and gains from the development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as per the terms of agreement. The provision is made on estimated basis based on past experience. The Assessing Officer has disallowed the claim of the provision on the ground that is only a contingent liability. The CIT(A) has directed the Assessing Officer to allow project maintenance expenses actually incurred by the assessee in the immediately succeeding year. The limited request before us by the learned counsel for the assessee was to clarify, that deduction for the expenses is to be allowed in the year under consideration, though the computation of deduction may be made on the basis of expenses actually incurred by the assessee in the succeeding year. 75. We find that the Tribunal, Mumbai Bench has considered the identical issue in assessee's own case for assessment year 1986-87 vide ITA No. 1253/Bom./1990. The Tribunal has held as under: "We have heard the parties and considered their rival submissions. When the entire receipt is offered to tax, the liability in executing the work has to be allowed in view of the decision of the Supreme Court in the case of Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC). It is actually discharged at Rs. 19,55,985 and therefore that alone ..... X X X X Extracts X X X X X X X X Extracts X X X X
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