Madras High Court
Principal Commissioner Of Income Tax vs M/S.V.A.Tech Wabag Pvt. Ltd on 7 March, 2019
Author: Vineet Kothari
Bench: Vineet Kothari
Judgment dt.07.03.2019 in TCA Nos.196-201/2019
[PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.]
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED :: 07-03-2019
CORAM
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN
T.C.A.Nos.196 TO 201 of 2019
Principal Commissioner of Income Tax,
Central 1,
No.108, Mahatma Gandhi Road,
Chennai. ... Appellant in all Appeals
-vs-
M/s.V.A.Tech Wabag Pvt. Ltd. ... Respondent in all Appeals
T.C.A.No.196 of 2019 is filed under Section 260A of the
Income Tax Act,1961, against the order of the Income Tax Appellate
Tribunal, Chennai 'D' Bench, dated 25.01.2017, passed in ITA
No.1226/Mds/2012.
T.C.A.No.197 of 2019 is filed under Section 260A of the
Income Tax Act,1961, against the order of the Income Tax Appellate
Tribunal, Chennai 'D' Bench, dated 25.01.2017, passed in ITA
No.1635/Mds/2012.
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Judgment dt.07.03.2019 in TCA Nos.196-201/2019
[PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.]
T.C.A.No.198 of 2019 is filed under Section 260A of the
Income Tax Act,1961, against the order of the Income Tax Appellate
Tribunal, Chennai 'D' Bench, dated 25.01.2017, passed in ITA
No.1637/Mds/2012.
T.C.A.No.199 of 2019 is filed under Section 260A of the
Income Tax Act,1961, against the order of the Income Tax Appellate
Tribunal, Chennai 'D' Bench, dated 25.01.2017, passed in ITA
No.1225/Mds/2012.
T.C.A.No.200 of 2019 is filed under Section 260A of the
Income Tax Act,1961, against the order of the Income Tax Appellate
Tribunal, Chennai 'D' Bench, dated 25.01.2017, passed in ITA
No.2167/Mds/2012.
T.C.A.No.201 of 2019 is filed under Section 260A of the
Income Tax Act,1961, against the order of the Income Tax Appellate
Tribunal, Chennai 'D' Bench, dated 25.01.2017, passed in ITA
No.1636/Mds/2012.
For Appellant : Mr.T.R.Senthil Kumar,
Senior Standing Counsel,
assisted by Mrs.K.G.Usha Rani,
Junior Standing Counsel.
For Respondent : Mr.T.Ramesh Kutty
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Judgment dt.07.03.2019 in TCA Nos.196-201/2019
[PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.]
JUDGMENT
(Judgment of the Court was delivered by Dr.Vineet Kothari,J.) Revenue has filed these Appeals under Section 260A of the Income Tax Act, 1961, in short, ''Act'', raising the following purported Substantial Questions of Law arising from the order of the learned Income Tax Appellate Tribunal, for brevity, ''Tribunal'', dated 25.01.2017, in and by which, the learned Tribunal dismissed the Appeals of the Revenue and upheld the order passed by the First Appellate Authority, namely, CIT (A) in favour of the Assessee on the issues involved in the present case.
2. The purported Substantial Questions of Law, as stipulated in the Memorandum of Appeal, are quoted below for ready reference :
“1. Whether the Appellate Tribunal is right in law in holding that the Assessee is eligible for deduction u/s.80IA (4) of the Income Tax Act ?
2. Whether the Appellate Tribunal is correct in law in holding that the Assessee is a “Developer” and 3 / 21 http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] not “Contractor” and, therefore, is eligible for deduction u/s. 80IA (4) of the Income Tax Act,1961 ?
3. Whether the Hon'ble Tribunal is correct in law in allowing Assessee's claim towards Foreign Exchange Loss, without appreciating the fact that the Assessee did not produce any proof before the Assessing Officer of business for import of various raw materials, as claimed before the Ld. CIT(A) as well as before Hon'ble Appellate Tribunal ?”
3. As far as first two questions regarding eligibility of the Assessee-Contractor involved in the Development of Infrastructure Facility of Sewerage Plants under the contracts entered into by it with the local Municipal authorities is concerned, the learned Tribunal has categorically found that the Assessee had entered into contract with Municipal Corporations and Local Bodies for undertaking the said Development of Infrastructure Facility and was, therefore, entitled to the benefit of Deduction under Section 80IA (4) of the Act. The relevant extracts of the order of the learned Tribunal are quoted below for ready reference :
4 / 21http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] “7... The Ltd. AR submitted that the assessee's company main objects are complied and is involved in execution of infrastructure projects from the conceptualization to commissioning such as designing, basic & detailed engineering, procurement, construction, erection, testing and commissioning, trial run and subsequent operation and maintenance (O & M) of water/waste water treatment plants and sewerage system. We found the assessee substantiated its works with the process flow chart of Turnkey Project on execution of effluent treatment plant of different projects referred as Annexure-2 involving activity of more than 20 stages. The assessee company has entered into agreement with various Municipal bodies/local authorities, State Government authorities for execution of projects for development of new water treatment plants, whereas, the Assessing Officer considered that the assessee is not a developer of the projects but is a mere contractor and sub-contracts part of the work. The ld. AR filed the chart of Turnkey Projects Annexure-3 with details of different projects and claim made in the assessment orders. The Ld. AO disallowed these claims of projects considering as sub-contracts, whereas, the Ld. CIT(A) has relied on the explanations on the projects with financial investment and new infrastructure facilities in 5 / 21 http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] developing and supply of sewerage system in order to cater to the population of Chennai city. The Ltd. AO main contention that the assessee is only the contractor and not a developer but the person who develops the infrastructure facilities pursuant to contract with the Statement Government shall be considered as developer. We found the co-ordinate bench decision of East Coast Constructions (Supra) and Bombay Bench decision BT Patil and Jaipur Bench decision of Om Metal Infra Projects (Supra) and Hon'ble High Court of Bombay in the case of ABG Heavy Industries Ltd., 322 ITR 323 has considered similar activities performed by the assessee company is developing infrastructure i.e., conceptualization of designs, Level of Investment should be considered to be called as developer.
Considering the jurisdictional Tribunal case of East Coast Constructions Ltd., and several other decisions of the various benches. We found that the assessee company undertakes the entire responsibility from concept to Commissioning of developing the entire facility. Based on customer specifications, conceives the designs and technical plans, chooses the technology required for treatment of the effluents and executes the project through a skilled team of more than 250-300 engineers. The work performed includes the basic design of the plant, detailed engineering, 6 / 21 http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] procurement of equipment and components, delivery of supplies at site, civil construction of the structure, installation of equipment at site, interfacing through piping and cables, testing and commissioning and subsequent O&M. The assessee company having working capital facility from earlier years and investments are made in project in each year below :
Assessme Receivables Margin Money Bank
nt Year Rs. Deposit with Guarantees
Banks in Rs.
2002-03 8,94,65,141 6,80,000 13,37,42,649
2003-04 9,15,83,458 80,000 41,18,50,954
2004-05 22,19,79,451 80,000 55,90,27,996
2006-07 69,68,13,089 58,53,877 1,16,90,76,966
2007-08 1,19,04,09,447 6,94,930 1,76,97,65,551
The assessee company has utilized its own funds, borrowings and internal earnings and provided Guarantees for undertaking the projects where funds are invested and taken various insurance policies to protect the interest of the assessee in all the projects to cover the risks and has invested in assets for the execution of the project and has registered patents and continuously engages in Research and Development Activities.
7 / 21http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.]
8. The Ltd. AR elaborately demonstrated the facts and dealt on specific findings in the order of CIT(A) and supported with paper book containing details of copies of contracts and financial statements. We find that Ld. AO has placed reliance on the Tribunal decision of the Indwel Lining (P) Ltd., 122 TTJ 137 (Mds) which was considered by the East Coast Constructions Ltd., (Supra) and was distinguished where assessee was only civil contractor and did only civil works. Whereas, Ld. DR focussed on the later decision of the Tribunal in ACIT Vs. Sree Sella Infrastructure & Projects Ltd., in ITA No.1294/Mds/2011 for the assessment year 2008- 09 dated 28.09.2012 at Page 7 Para 6 where deduction u/s.80IA (4) was denied as under :
'We have heard both the sides, perused the records and gone through the orders of the authorities below. The issue involved in this appeal is whether the assessee is eligible for the deduction u/s. 80IA (4) of the Act or not.
According to the Assessing Officer, the assessee company had constructed water treatment plant for CMWSSB and some private entities and as per the construction contract the assessee had simply 8 / 21 http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] executed works contract on job work basis for CMWSSB and therefore was denied the deduction u/s.80IA (4) of the Act. In appeal, the ld. CIT(A) simply following the order of the Tribunal in the case of Patel Engineering Ltd., (94 ITD 141) allowed the deduction claimed by the assessee u/s.80IA(4) of the Act. In the Assessment Order, the Assessing Officer has categorically given the findings that the assessee is a work contractor and he had constructed the water treatment plant for CMWSSB on job work basis. The fact was not disputed before us. It is clear from the facts available on record that the assessee has executed the works contract, i.e., water treatment plant for CMWSSB and has claimed deduction u/s.80IA(4) of the Act. The assessee is unable to establish as to how it had made investment in the project. Apart from that, the assessee is not able to prove that it has not executed the work contract by producing relevant material to contradict the finding given by the Assessing Officer. We, therefore, hold that the assessee is a works contractor.' 9 / 21 http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] We found that co-ordinate bench decision of this Tribunal above considered the facts for denial of claim that the assessee has not demonstrated how the projects are funded. In the present case, Ld. AR of the assessee has demonstrated the investments of the company in project from the assessment year 2002-03 to 2007-08 consisting of Receivables, Margin Money with the bank, and Bank Guarantees for performance guarantee. These financial aspects prove that the assessee company has funded finances in infrastructure and execution of projects. We are of the opinion that the assessee has complied the conditions u/s.80IA(4) of the Act and demonstrated the funding of the projects with financial statements...”
4. As far as the question involved for Assessment Year 2006-
2007 regarding Foreign Exchange Loss on account of fluctuations due to change of rates is concerned, the learned Tribunal also held the issue against the Revenue and in favour of the Assessee, holding that the said loss occurred in the course of business and, accordingly, allowed the same towards business expenditure under Section 37 (1) of the Act. The relevant findings of the learned Tribunal are quoted below for ready reference :
10 / 21http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] “10. On the next ground of forex exchange loss, we found that the Ltd. CIT (A) relied on the decision of the Sutlej Cotton Mills (Supra) at Page 31 of order as under :
'The law may therefore, now be taken to be well settled that where profit or loss arises to assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital such profit or loss would be of capital nature.' We find the loss due to forex exchange difference as on the date of balance sheet is expenditure falls u/s.37 (1) of the Act. The outstanding liability relating to the import of raw material based on closing rate of foreign exchange and if any difference by loss or gain arising on conversion liability should be routed through profit and loss account. Hence, we do not find any infirmity in the order of the 11 / 21 http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] CIT(A) and upheld the same and dismiss the ground of the Revenue. In the result, the Revenue appeal is dismissed.”
5. Sub-section (4) of Section 80IA of the Act, including its Proviso and Explanations to the extent relevant, is also quoted below for ready reference :
“(4) This section applies to -
(i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely:
(a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;
(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or
(ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;12 / 21
http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.]
(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995:
Provided that where an infrastructure facility 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.
Provided further that nothing contained in this section shall apply to any enterprise which starts the development 13 / 21 http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] or operation and maintenance of the infrastructure facility on or after the 1st day of April 2017.
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 system or solid waste management system;
(d) a port, airport, inland waterway, inland port or navigational channel in the sea.”
6. Having heard the learned counsel for the parties, we are satisfied that the findings of facts rendered by the learned Tribunal as well as the First Appellate Authority do not deserve any interference by this Court under Section 260A of the Act and no Substantial Question of Law arises in these Appeals filed by the Revenue. Since the Assessee admittedly entered into contract with Local Bodies or Municipal Bodies for undertaking the contract works for developing the infrastructure-sewage 14 / 21 http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] system, he is directly entitled to get the benefit of such deductions under Section 80IA (4) of the Act. The said Section, in fact, even extends the benefit to the Contractor, who is transferred with such Infrastructure Facility for operating and maintaining the same as per the Proviso to Section 80IA (4) of the Act. We have already dealt with this controversy in a judgment delivered by us in the case of Commissioner of Income Tax v.
M/s.Chettinad Lignite Transport Services Private Limited in T.C.A.No.741 of 2009 decided on 06.03.2019, the relevant portion of which order is quoted below for ready reference :
“8. From a reading of the aforesaid Provisos to Section 80IA(4), it is clear that the Legislature intended to extend the said benefit under Section 80IA of the Act to an enterprise involved in (i) developing or; (ii) operating and maintaining or; (iii) developing, operating and maintaining any infrastructure facility. The term “infrastructure facility” has been defined in the Explanation and the same includes a toll road, a bridge or a rail system, a highway project, etc. These are, obviously, big infrastructure facilities for which the enterprise in question should enter into a contract with the Central Government or State Government or Local 15 / 21 http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] Authority. However, the Proviso intends to extend the benefit of the said deduction under Section 80IA of the Act even to a transferee or a contractor who is approved and recognised by the concerned authority and undertakes the work of the said development of infrastructure facility or only operating or maintaining the same. The Proviso to sub-section (4) stipulates that subject to the fulfillment of conditions, the transferee will be entitled to the said benefit, as if the transfer in question had not taken place. It has been found by the Assessing Authority himself, in the present case, that the present Assessee M/s.Chettinad Lignite Transport Services Private Limited under an Agreement dated 16.04.2002, captioned as Lignite Transport System with M/s.ST-CMS Electric Company Private Limited, had undertaken the work of developing the said railway sidings and was operating and maintaining the same. The only ground on which, the Assessing Authority denied the said benefit was that the Assessee himself did not enter into any such contract with the Railways or with the Central Government.
9. The learned Tribunal, however, in our opinion, rightly applied the Proviso to Section 80IA(4) of the Act and held that since the Assessee was recognised as contractor for these railway sidings, which undoubtedly fell under the 16 / 21 http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] definition of “infrastructure facility”, it was entitled to the said benefit under Section 80IA of the Act. The grounds on which the Assessing Authority denied the said benefit to the Asessee ignoring the effect of Provisos to Section 80IA(4), therefore, could not be sustained. The learned Tribunal, in our opinion, has rightly held that the Proviso does not require that there should be a direct agreement between the transferee enterprise and the specified authority for availing the benefit under Section 80IA of the Act. There is no dispute before us that the Assessee was duly recognised as transferee or assignee of the principal contractor M/s.ST-CMS Company Private Limited and was duly so recognised by the Railways to operate and maintain the said railway sidings at Vadalur and Uthangalmangalam Railway Stations. The findings of fact with regard to the said position recorded by the learned Tribunal are, therefore, unassailable and that clearly attracted the first Proviso to Section 80IA(4) of the Act.
10. The learned counsel for the Revenue relied upon a decision of this Court in the case of M/s.Covanta Samalpatti Operating Private Limited, Chennai-20 v. The Assistant Commissioner of Income Tax, Company Circle I (3), Chennai-34, reported in (2018) 93 Taxmann 38. In the said case, the claim of the Assessee company, which was engaged 17 / 21 http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] in power generation, for deduction under Section 80IA of the Act was denied by the Revenue on the ground that the Assessee Undertaking had not been set up for generation and distribution of power and that the Assessee was only a contractor for the maintenance work of power plant, which was owned by Samalpatti Power Corporation Private Limited (SPCL). On these facts, the Court held that the Assessee was not entitled to deduction under Section 80IA of the Act. We do not find any parity of facts of the said case with the facts available before us. The power generating companies are entitled to deduction under Section 80IA of the Act in different sub clauses viz., under Section 80IA(4)(iv) of the Act. Where there is no such Proviso, as is available in clause (i) of Section 80IA(4) of the Act, which deals with deduction to enterprise involved in developing, operating and maintaining the infrastructure facilities. Obviously, if the Assessee is getting only fees for the maintenance of certain power generating plant, as was the case before the Co-
ordinate Bench of this Court in Covanta case (supra), he may not be entitled to such deduction, but the fact situation before us is entirely different and, therefore, we do not find any support from the said case cited by the learned counsel for the Revenue.
18 / 21http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.]
11. We are, therefore, of the considered opinion that there is no merit in these appeals filed by the Revenue and the questions of law framed above deserve to be answered in favour of the Asessee and against the Revenue. We hereby do so. The appeals preferred by the Revenue deserve to be dismissed and accordingly, the same are dismissed. No costs.”
7. Regarding Loss on account of fluctuations in Foreign Currency also, in our opinion, the authorities below have rightly found that the same did not pertain to any capital asset and such loss had occurred to the Assessee in the ordinary course of business, and, therefore, allowed it towards business expenditure under Section 37 (1) of the Act.
8. Thus, no Substantial Question of Law arises in the present Appeals filed by the Revenue and the Appeals are liable to be dismissed, which are, accordingly, dismissed. No costs.
Index : Yes/No (V.K.,J.) (C.V.K.,J.)
Internet : Yes/No 07-03-2019
Speaking / Non-Speaking Order
dixit
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Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] To Income Tax Appellate Tribunal, Chennai 'D' Bench, Chennai.
20 / 21http://www.judis.nic.in Judgment dt.07.03.2019 in TCA Nos.196-201/2019 [PCIT v. M/s.V.A.Tech Wabag Pvt.Ltd.] DR.VINEET KOTHARI, J.
and C.V.KARTHIKEYAN, J.
dixit T.C.A.Nos.196-201 OF 2019 07-03-2019 21 / 21 http://www.judis.nic.in