Income Tax Appellate Tribunal - Hyderabad
Kmc Constructions Ltd, Hyderabad vs Department Of Income Tax on 2 February, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
I.T.A. No. 996/Hyd/2003 : A.Y. 2002-03
M/s. KMC Constructions Ltd. vs. Asst. Commissioner of Income-
Hyderabad tax, Circle-2(2)
PAN: AABCK6483B Hyderabad
Appellant Respondent
I.T.A. No. 338/Hyd/2009 : A.Y. 2006-07
I.T.A. No. 084/Hyd/2010 : A.Y. 2007-08
M/s. KMC Constructions Ltd. vs. Asst. Commissioner of Income-
Hyderabad tax, Circle-2(1)
PAN: AABCK6483B Hyderabad
Appellant Respondent
I.T.A. No. 0430/Hyd/2003 : A.Y. 2001-02
I.T.A. No. 0558/Hyd/2006 : A.Y. 2003-04
I.T.A. No. 1027/Hyd/2007 : A.Y. 2004-05
I.T.A. No. 1223/Hyd/2007 : A.Y. 2005-06
M/s. KMC Constructions Ltd. vs. Dy. Commissioner of Income-
Hyderabad tax, Circle-2(1), Hyderabad
Appellant Respondent
I.T.A. No. 233/Hyd/2001 : A.Y. 1996-97
Addl. Commissioner of vs. M/s. Krishna Mohan
Income-tax (Assts), Special Constructions Ltd., Hyderabad
Range-2, Hyderabad GIR No.: K-1117/SR2
Appellant Respondent
I.T.A. No. 969/Hyd/2002 : A.Y. 2000-01
I.T.A. No. 617/Hyd/2003 : A.Y. 2001-02
Dy. Commissioner of Income- vs. M/s. KMC Constructions Ltd.
tax, Circle-2(1), Hyderabad Hyderabad
Appellant Respondent
I.T.A. No. 1079/Hyd/2003 : A.Y. 2002-03
Asst. Commissioner of vs. M/s. KMC Constructions Ltd.
Income-tax, Circle-2(2) Hyderabad
Hyderabad PAN: AABCK6483B
Appellant Respondent
2 I.T.A. No. 84/Hyd/2010 & Ors
M/s. KMC Constructions Ltd.
=======================
Assessee by: Shri S. Rama Rao
Revenue by: Shri V. Srinivas &
Shri T. Diwakar Prasad
Date of hearing: 02.02.2012
Date of pronouncement: 16.03.2012
ORDER
PER CHANDRA POOJARI, AM:
These 11 appeals by the assessee as well as by the Revenue are directed against the different orders of the CIT(A). Certain issues involved in these appeals are common in nature. Hence these appeals are clubbed together, heard together and disposed of by this common order for the sake of convenience.
2. First we will take up Revenue appeal in I.T.A. No. 233/Hyd/2001 for assessment year 1996-97. The issue herein is with regard to treatment of sales tax refund as income of the assessee. The Assessing Officer treated the refund of sales tax as revenue receipt by invoking the provisions of section 41(1) of the Income-tax Act, 1961 and taxed accordingly. The CIT(A) held that the Assessing Officer has specifically not brought into the assessment order as to the debit of a specified amount in a specific year. In a general manner, the assessment order speaks of the claim of the assessee in the earlier year which does not show the year of assessment, the amount allowed by the Department warranting taxation of the sales tax refund in this year. Since the assessee has taken into account the sales tax refund from the Departmental recoveries and deducted only the net recoveries, the adjustment has already taken place while arriving at the gross bills on which 11.5 per cent income has been estimated and according to the CIT(A) no separate addition is warranted. According to the DR the provisions of section 41(1) of the Act are clearly applicable and he submitted that the assessment order to be sustained. On the other hand, the learned AR submitted that the profit of the assessee is estimated at 11.5% of the gross bills after deducting the departmental recoveries 3 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= and material purchases. The departmental recoveries include sales tax deducted by the Department. Sales tax refunded by the Department has been reduced from the sales by the Department and only net sales tax allowed as deduction while passing the assessment order u/s. 143(3) of the Act and according to him the sales tax refund should not be added as additional income.
3. We have heard both the parties and perused the material on record. The sales tax refund amount, if it is allowed as a deduction in any earlier years, the same has to be treated as income of the assessee in this assessment year on receipt of the same amount. In other words, while computing the profits and gains of the assessee, an allowance or deduction has been made in any assessment year and subsequently in any assessment year, the assessee has received the same amount in whatever manner, the same has to be considered as income of the assessee in this assessment year, in view of the provisions of section 41(1) of the I.T. Act. Once it is found, as a fact, that the amount of sales tax was claimed by the assessee in respective profit & loss accounts and allowed as such actually by the Revenue, the assessee cannot get out of the mischief of section 41(1) of the Act. In other words, in order to bring a sum to assessment under section 41(1), it has to be established that it had been earlier allowed in an assessment by referring to the same but not by drawing inference. For this purpose we place reliance on the judgement of Supreme Court in the case of Tirunelveli Motor Bus Service Co. Pvt. Ltd. vs. CIT, 78 ITR 55. In the present case, as held by the CIT(A), the Assessing Officer has not specifically brought into the fact in the assessment order as to the debit of a specified amount in a specific year. In a general manner, the assessment order speaks of the claim of the assessee in the earlier year which does not show the year of assessment, the amount allowed by the Department warranting taxation of the sales tax refund in this year. Being so, we are not in a position to take a contrary view in this matter.
4 I.T.A. No. 84/Hyd/2010 & OrsM/s. KMC Constructions Ltd.
======================= Accordingly, we confirm the order of the CIT(A) on this issue. I.T.A. No. 233/Hyd/2001 by the Revenue is dismissed.
4. I.T.A. Nos. 430/Hyd/2003, 996/Hyd/03 and 558/Hyd/06 by assessee are with regard to confirming the estimation of commission from sub-contract at 4% / 12.5% of the gross receipt. In this case assessee's books of account were rejected by the Assessing Officer and income of the assessee from sub-contract is estimated at 4% / 12.5% of gross contract receipts.
5. We have heard both the parties and perused the material available on record. In our opinion, the estimating of income at 4% of the sub contract for the A.Ys. 2001-2002 and 2002-03 and at 12.5% for the A.Y 2003-04 is very reasonable. The Tribunal is consistently holding that income of the assessee at 9% on main contract executed by the assessee, it would be 8% of gross receipt in case of contract taken by the assessee on sub-contract basis and 4% in case of contract given by the assessee to third party on sub- contract basis and thereafter the assessee is entitled for no deduction towards depreciation as all other deductions deemed to have been allowed u/ss. 30 to 38 of the Act. For this purpose, we place reliance on the order of the Tribunal in the case of Teja Constructions vs. ACIT, 36 DTR 220 / 129 TTJ (Hyd) (UO) 57. Further as noted by the CIT(A) in his order for the A.Y. 2003-04 the Tribunal has already confirmed the application of net profit at 12.5% on contract receipt in the case of this assessee for the earlier years. In view of this discussion, we confirm the order of the CIT(A) for all these assessment years. This ground is dismissed.
6. Thus, assessee appeals in ITA Nos. 430/Hyd/03 and 996/Hyd/03 are dismissed.
7. Next issue in assessee appeal in ITA No. 558/Hyd/06 is with regard to treatment of Rs. 1,24,03,563/- as income from other sources.
5 I.T.A. No. 84/Hyd/2010 & OrsM/s. KMC Constructions Ltd.
=======================
8. Brief facts of the issue of that the assessee had offered an amount of Rs.1,08,07,045/- being interest on TDS, as 'other income' as per schedule-I forming part of the profit & loss account. However, the assessing officer has verified the position and found that the assessee was allowed interest of Rs. 1,24,03,563/- u/s 244A on its refund during the immediate previous year and assessed the same to tax as 'income from other sources'. The assessee claims expenditure to earn this interest income which was disallowed by the lower authorities. Against this, the assessee is in appeal before us.
9. We have heard both the parties on this issue. In our opinion the assessee has no reason to incur any expenditure to earn this interest income. Accordingly, we do not find any infirmity in the orders of the lower authorities and the same are confirmed. This ground of the assessee is rejected.
10. Now we take up the issue relating to allowability of deduction u/s 80IA(4)(i) of the Act on the profits earned from the development of the infrastructure projects undertaken by it. This issue is common in Revenue Appeals in ITA Nos. 969/Hyd/02, 617/Hyd/03 and 1079/Hyd/03 and Assessee appeals 558/Hyd/06, 1027/Hyd/07, 1223/Hyd/07, 338/Hyd/09 & 84/Hyd/10. In the initial assessment years i.e. 2000-01; 2001-02 and 2002-03, the Assessing officer rejected the claim made by the assessee on the ground that the assessee is not the owner of the infrastructure facility. It is submitted that the ownership mentioned in Section 80IA(4) refers to the enterprise carrying on the business of development and not to the infrastructure facility as presumed by the Assessing officer. When the assessee filed an appeal before the learned CIT (Appeals), the first appellate authority agreed with the assessee and held that the company is eligible for deduction under section 80IA(4A) of the Act. Against these CIT [A] orders, for those assessment years, the department is in appeal before this Tribunal. For the later assessment years, the Assessing Officer disallowed the 6 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= claim holding that the income from mere works contract would not be eligible for deduction under section 80IA (4) of the Act by referring the explanations inserted in Finance Act 2009 retrospectively. The learned CIT [A] confirmed the view taken by the Assessing officer and for these assessment years, the assessee is in appeal before us.
11. The assessee is a company which derives income from construction contract works. For the sake of convenience, we take the appeal pertaining to the assessment year 2007-08. The assessee has filed its return of income on 30-10-2007, showing income of Rs.16,51,57,700/- after claiming deduction of Rs.36,11,58,788/- under section 80-IA of the Act. During the assessment proceedings, the assessing officer has asked the assessee to furnish the details of projects which are executed by it during the previous year. In response to this, the assessee has furnished the list of those project works which were executed during the previous year and in respect of which it has claimed deduction under section 80-IA of the Act. During the assessment proceedings, the assessing officer has obtained the copies of works contract agreements entered into by the assessee in respect of such project works and examined the same for verifying the claim of the assessee for deduction under section 80-IA of the Act. Referring to the provisions of section 80-IA of the Act, and the Board's Circular Nos.717 dated 14-8-1995 and No.733 dated 3-1-1996, it was noted that deduction under section 80IA of the Act shall be available to an assessee who has developed infrastructure facility and has started operating and maintaining such infrastructure facility. However, after examining the details furnished and various documents filed by the assessee, the assessing officer found that it has not developed any infrastructure facility. The assessee is a civil contractor and has entered into agreements with various State Governments and other authorities only for carrying out civil construction works. He further noted that the assessee has failed to show even a single instance of operating any 7 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= infrastructure facility during the previous year and stated that it has not fulfilled the conditions as stipulated in section 80 IA(4) of the Act. The assessing officer held that the assessee is not entitled to deduction under section 80-IA of the Act. Accordingly, the assessing officer disallowed the claim of the assessee for deduction under section 80-IA and completed the assessment accordingly vide order dated 31-3-2009 passed under section 143(3) of the Act. Aggrieved against the order of the assessing officer, the assessee went in appeal before the CIT (A). On appeal, the CIT (A) after considering the grounds raised before him elaborately, dismissed the appeal filed by the assessee. Further aggrieved, the assessee is in appeal before us.
12. The learned authorised representative of the assessee submitted that the main issue involved in the appeals before this Tribunal is allowability of deduction under section 80IA(4)(i) of the Act. This issue is common for all the assessment years under appeal. He dealt with the introduction and changes made by the legislature to Section 80IA(4) of the Act till date. The said section is meant for allowing deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development. The assessee claimed deduction as it is engaged in development of infrastructure and as it satisfied all the conditions mentioned therein. The provisions of Section 80IA(4)(i) as introduced by the by the Finance Act, 1999 and as amended from time to time are applicable to the assessee.
13. From a reading of the section, it is clear that the deduction is allowable to:
a) any company incorporated;
b) which entered into agreement with Government; or any government body; and undertakes development of infrastructure facility.
14. The purpose for which the said section was amended with effect from the assessment year 2000-01, can be traced to a 8 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= brochure issued by the Government of India, Ministry of Roads, Transport and High Ways in August, 2001. He has taken support from the aforesaid brochure, a copy of which is filed which is kept on record. In the said brochure, the Government of India extracted some of the decisions taken by it to bring in the development of infrastructure facility in the country. He pointed out that the Government provided the benefits to the Indian entrepreneurs by providing contract packages to the private enterprises. While providing benefits, the government specifically specified certain grants only to BOT Schemes. For the other schemes all the other benefits are made available. The classification provided in the brochure clearly indicates that the schemes of packages are meant for all the enterprises whether engaged in the development of infrastructure or under BOT. Hence, it clearly indicates that the Government of India with a view to develop the infrastructure facility provided various incentives to the Indian concerns for development of such infrastructure facility. With a view to provide the exemptions to the entrepreneurs carrying on such activity, the legislature introduced the amendment to Section 80IA(4) in the Finance Bill 1999 to be effective for and from the assessment years 2000-01 and onwards to fulfil the objective of the Prime Minister. The provisions of Sec.80IA(4) are made applicable to "any enterprise carrying on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating or development, maintenance and operating any infrastructure facility.........". Because of the amendment, the enterprises which are engaged in any of the three activities became eligible for deduction compared to the earlier provision, which was made applicable only to such enterprises engaged in all the three activities cumulatively. The provisions of sub section (4A) which were earlier applicable to the entrepreneurs engaged in developing, maintaining and operating was deleted with effect from 01-04-2000, but is incorporated in section 80IA(4) of the Act. It is clear that the enterprises which were developing, operating and maintaining and developing, operating and maintaining were 9 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= only eligible for such deduction up to the assessment year 1999- 2000 by virtue of the provisions of Section 80IA(4A). With the introduction of the new Section 80IA(4) amending the sub section (4) of Section 80IA and deleting the sub section (4A), the legislature provided deduction for any enterprise carrying on the business either developing or operating and maintaining or development, operating and maintaining instead allowing deduction only to the enterprises engaged in activity covering all the three activities together.
15. According to AR the provision extended to an enterprise carrying on any one of the three activities. It makes the matters more clear that the sub section (4) is amended again by the Finance Act, 2001 with effect from 01-04-2002.The legislature specifically added the conjunction 'OR' between the words (developing), (operating and maintaining) (developing, operating and maintaining). It makes it clear that the provision would apply to any enterprise carrying on the business of developing or carrying on the business of operating and maintaining or carrying on the business of development, operating and maintaining the infrastructure facility. Therefore, there is no requirement that all the three activities should have been carried on by a single enterprise so as to enable it to claim deduction under section 80IA(4) of the Act. This view is also supported by the decision of the Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd (322 ITR 323). It mentioned clearly that the three conditions development, operation and maintenance were not intended to be cumulative in nature. Therefore, any assessee who has undertaken any one of the activity is eligible for deduction under section 80IA (4) of the Act. The Mumbai Bench of the ITAT in the case of ACIT vs. Bharat Udyog Limited (118 ITD 336) also held that after the amendment of Section 80IA(4) it is applicable to enterprises who are engaged in developing infrastructural facility. Earlier, the Mumbai Bench in the case of Patel Engineering Ltd., vs. DICT reported in 94 ITD 411 also observed that the civil contractors who are developing the infrastructure facility is eligible for deduction 10 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= under section 80IA(4) of the Act. It is mentioned that the statutory provisions as contained in 80IA (4) provides for development of infrastructure facility. Therefore, it is clear that to be eligible for deduction under section 80IA (4), an enterprise need not necessarily be engaged in all the three activities of developing, maintaining and operating the infrastructure. It is enough if it is carrying on the business of either developing or maintaining and operating or developing, maintaining and operating the infrastructure facility.
16. He submitted that there is no dispute with regard to the meaning of the infrastructure facility used under section 80IA of the Act. An explanation is introduced below sub-section (4) of Section 80IA which reads as under;
Explanation - For the purpose 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 or inland port;
17. Hence, development of a road is development of infrastructure facility. Similarly, the water supply project or irrigation project are also called as infrastructure facility. Therefore, there cannot be any dispute with regard to the fact that the assessee herein is engaged in the activity of developing infrastructure facility. The word "develop" is not defined by the Income-Tax Act. It is necessary to depend upon the meaning assigned to it by various dictionaries. As per the Accurate & Reliable Dictionary, the meaning of the word "develop" includes the act of making some area of land or water more profitable or produce or useful. The meaning given to the word "develop" as 11 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= per 'The Random House Dictionary' of the English Language includes causing to grow, to elaborate or expand in detail. Synonyms of the word "develop" are given to be strengthening, widening, expanding, elaborating, growing etc.
18. He also taken support from the CBDT Circular No. 3 of 2008 dated 12-3-2008 (168 Taxman (statute) 12,54) to clarify the nature of the word developer. The clarification issued by the Board makes it clear that an assessee who executes the development work and carries out the civil construction work is a developer. The Board is also of the view that those persons working for others are the works contractors and not the developers. In the case of the assessee, the assessee itself undertook the work of development and therefore, it is a developer, even according to the Circular issued by the Board. It is submitted that it is carrying on such development activity and deriving income.
19. He drew our attention to the various activities undertaken by the assessee which are entitled for deduction u/s 80IA of the Act which are as follows:
Clause under Clause under
Description of work which which Clause No. and
S. Name of the
along with date of possession is possession is period of
No. Employer
Agreement taken over by handed over maintenance
the assessee to Govt.
1. Widening and Engineer-in-Chief, Sub-Clause Sub Clause Sub Clause 49.1 of
strengthening of PWD (Roads & 42.1 of 48.2 (a) of Agreement. Period
Cuddapah-Renigunta Buildings), Admn. Agreement Agreement of maintenance
Road. Agreement and EAP, Govt. of (DLP) is 12 months.
dated 1.03.1999. Andhra Pradesh.
2. Widening and Engineer-in-Chief, Sub-Clause Sub Clause Sub Clause 49.1 of
strengthening of PWD (Roads & 42.1 of 48.2 (a) of Agreement. Period
Pericherla-Thokapalle Buildings), Admn. Agreement Agreement of maintenance
Road. Agreement and EAP, Govt. of (DLP) is 24 months.
dated 3.03.2000. Andhra Pradesh.
3. Widening to four lanes National Highways Sub-Clause Sub Clause Sub Clause 49.1 of
and strengthening of Authority of India, 1- 42.1 of 48.2 (a) of Agreement. Period
existing two lane road A, Eastern Avenue, Agreement Agreement of maintenance
in km 27.80 to km Maharani Bagh, New (DLP) is 12 months.
61.00 in the Jagatpur- Delhi.
Chandikhol section of
NH-5 in Orissa.
Agreement dated
09.12.1999.
4. Widening to four lanes National Highways Sub-Clause Sub Clause Sub Clause 49.1 of
and strengthening of Authority of India, 42.1 of 48.1 of Agreement. Period
existing two lane New Delhi. Agreement Agreement of maintenance
12 I.T.A. No. 84/Hyd/2010 & Ors
M/s. KMC Constructions Ltd.
=======================
carriageway of (DLP) is 12 months.
Udaipur-Ratanpur-
Gandhinagar section of
NH-8-UG-1 (km
278.000 to 340.000) in
the state of Rajasthan.
Agreement dated
05.10.2001.
5. Upgradation of road The Project Director, Sub-Clause Sub Clause Sub Clause 49.1 of
from Sindhanur to Project 42.1 of 48.2 (a) of Agreement. Period
Budugumpa - Contract Implementation Unit, Agreement Agreement of maintenance
No. U-2, Agreement Karnataka State (DLP) is 12 months.
dated 19.12.2001. Highways
Improvement Project,
KR Circle,
Bangalore.
6. Vizag works - Package Engineer-in-Chief, Clause 21 of Clause 56 of Clause 35 of
- RBERP-Ygb-4 of PWD (Roads & the Agreement the Agreement. Period
Bld. No. Buildings), Admn. Agreement of maintenance
1/NCB/APERP and and EAP, Hyderabad (DLP) is 550 days.
other 4 packages. (AP)
Agreement dated
12.03.1999.
7. Widening and Superintending Site was As per paragraph 5 of
strengthening of Engineer (R&B), handed over Articles of
Visakhapatnam- Visakhapatnam on 12.12.2001. Agreement. Period Ananthagiri-Araku road of Maintenance in Visakhapatnam Dist. (DLP) is 12 months.
Agreement dated 12.12.2001.
8. Widening to four lanes Chief Engineer, Sub Clause 42.1 Sub Clause Sub Clause 49.1 of between km 439/000 to National Highway of Agreement 48.1 of Agreement. period km 477/000 of (PW) Region, 5th Agreement. of maintenance Bombay-Ahmedabad Floor, Konkan (DLP) is 12 months.
Section. Agreement Bhavan, Navi
dated 06.10.1997. Mumbai.
9. Widening and Superintending Site was handed Period of
strengthening of Engineer (R&B), over on maintenance (DLP)
Kodumur-Yemmiganur APHM & ECRP 01.03.1999. is 365 days.
road from km 0/0 to km Circle, Nandyal.
10/270 and 27/0 to
32/430 and
Devanakonda-
Pathikonda roads from
0/0 to 18/268 in
Kurnool Dist.
Agreement dated
01.03.1999.
10. Executing the work of Superintending Clause 21 of the Clause 35 of
improvements to Engineer (R&B), Agreement Agreement. Period
Hyderabad to Bijapur APHM & ECRP of maintenance
Road from km 80/0 to Circle, Warangal. (DLP) is 365 days.
109/0 in Ranga Reddy
Dist. Agreement dated
03.03.1999.
11. Strengthening of SH Secretary, Roads & Sub Clause 42.1 Sub Clause Sub Clause 49.1 as
151, 60A, 12 from Buildings Dept., as per FIDIC 48.1 as per per FIDIC. Period of
Ladvel-Dakor-Godhra 14/2, New FIDIC maintenance (DLP)
and paving of shoulders Sachivalaya, is 12 months.
(km 18/700 to km 0/500 Gandhinagar,
& km 90/100 to km Gujarat.
135/700) Agreement
dated 25.12.2002.
12. Renigunta-Guntakal South Central Clause 21.1 of Clause 21.2 of Clause 28.0 of
section - Rebuilding of Railway, the Agreement the Agreement Agreement. Period
13 I.T.A. No. 84/Hyd/2010 & Ors
M/s. KMC Constructions Ltd.
=======================
double line bridge No. Secunderabad. (Site Facilities) of Maintenance
393 across river (DLP) is 6 months.
Cheyyur. Agreement
dated 02.06.2004.
13. Upgradation of Road The Project Sub Clause 41.1 Sub-Clause Sub Clause 49.1 of
from Sindhanur to Director, Project of Agreement 48.2 (a) of Agreement. Period
Budugumpa - Contract Implementation (Notice to Agreement of Maintenance
No. U-8, Agreement Unit, Karnataka proceed). (DLP) is 365 days.
dated 21.03.2003. State Highways
Improvement
Project, KR Circle,
Bangalore.
14. Upgradation of road Govt. of Tamil Sub Clause 42.1 Sub Clause Sub Clause 49.1 of
project in Tamil Nadu. Nadu, Project of Agreement. 48.2 (a) of Agreement. Period
Agreement dated Director, Project Agreement of Maintenance
08.10.2004. Implementation (DLP) is 365 days.
Unit, Highways
Dept.
15. Allahabad Bypass National Highways Sub Clause 42.1 Sub Clause Sub Clause 49.1 of
Project - Package No. Authority of India, of Agreement 48.2 (a) of Agreement. Period
ABP-03, Agreement New Delhi. Agreement of Maintenance
dated 4.11.2004. (DLP) is 365 days.
16. Improvements to Karnataka Road Clause 2.17 of Clause 2.42 of Clause 2.43.1 of
existing 4-lane road in Development the Agreement. the Agreement. Period
Ramnagar- Corporation Ltd., Agreement. of Maintenance
Chennapatnam town Govt. of Karnataka (DLP) is 12 months.
limits on SH-17, Enterprise.
Agreement dated
15.12.2005.
17. Widening and National Highways Sub Clause 42.1 Sub Clause Sub Clause 49.1 of
strengthening of Authority of India, of Agreement 48.1 (a) of Agreement. Period
existing NH from 2 New Delhi. Agreement of Maintenance
lane to 4 lane from km (DLP) is 365 days.
1040.30 to km 1013.00
of Nalbari to Bijni
section NH-31 in
Assam. Pkg. No. AS-
07. Agreement dated
18.08.2005.
18. Widening and National Highways Sub Clause 42.1 Sub Clause Sub Clause 49.1 of
strengthening of Authority of India, of Agreement 48.1 (a) of Agreement. Period
existing NH from 2 New Delhi. Agreement of Maintenance
lane to 4 lane from km (DLP) is 365 days.
105.00 to km 183.00
of Dharamttul to
Sonapur section of NH-
37 in Assam. Pkg. No.
AS-20. Agreement
dated 18.08.2005.
19. Rehabilitation and National Highways Sub Clause 41.1 Sub Clause Sub Clause 49.1 of
upgrading of km Authority of India, of Agreement 48.2 of Agreement. Period
449.150 to km 509.000 New Delhi. (commencement Agreement of Maintenance
of NH-76 in Rajasthan. of work) (DLP) is 365 days.
Pkg. No. RJ-10.
Agreement dated
12.08.2005.
20. According to AR an analysis of the above works undertaken by the assessee clearly indicates that it carries on the activities of development of infrastructure facility. The counsel for the assessee submitted drew our attention to one copy of the complete agreement 14 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= entered into by it with NHAI by stating that all the agreements are similar.
21. It is submitted by counsel for assessee that, as per the agreement, the possession of the site is handed over to the assessee by the Government. The assessee takes possession and access to the property and thereafter it shall be the responsibility of the assessee to develop the said area into more useful infrastructure facility. In the process, every act required (whether mentioned in the agreement or not) in converting the area into more useful one shall be that of the assessee. The assessee has to undertake the responsibility of maintenance of the existing traffic and there should not be inconvenience to the regular traffic. The developed area after completion of the development of infrastructure is handed over to the Government. After handing over, the assessee shall maintain the infrastructure for a period of 48 months and any defects are to be rectified and it is clear that the assessee is converting the area entrusted to it into more useful and more profitable area and handing over the developed one to the Government. Therefore, the activity of the assessee is "to develop" an existing two lane road into four lane road thereby making the road more useful and profitable.
22. It is submitted that as per the explanation introduced by the Finance Act, 2007, any assessee who entered into a contract with the enterprise mentioned in Sub-Section (4) would not be eligible for deduction. It clearly indicates that any sub-contractor who undertakes a part of the work from the undertaking which was allotted the work would not be eligible for such deduction. The said explanation has no application to the assessee. The assessee did not claim such deduction or any income pertaining to a sub contract work undertaken from the enterprises referred to in Section 80IA(4). Therefore, the explanation introduced by the Finance Act, 2007 shall not affect the claim made by the assessee. The explanation introduced by the Finance Act, 2009 added that those enterprises undertaking simple works contracts by entering into agreements 15 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= with the enterprises or with the government or government organizations. As per this explanation, any enterprises which enter into a mere works contract either with any other enterprise or Government or Government corporation shall not be eligible for the deduction. It is made clear that any enterprise, which entered into development of infrastructure, would be eligible for deduction and not those enterprises, which enter into contract for executing works contracts. The assessee herein entered into agreement for development of infrastructure facility and not for a mere works contract. It is submitted that this explanation has to be read in the context of the application of the main provisions of Section 80IA(4) of the Act. From a reading of Section 80IA (4)(i) of the Act, it is clear that the deduction is available for any company which enters into agreement with any government or government body. It is clear that the deduction is available not for any person but for those companies entering into agreement with the government or other Government bodies/corporations. It is also made clear that the deduction is available for the corporate bodies entering into agreement with the government organizations. Therefore, the main provision makes it clear that the deduction is available to companies entering into agreement with government bodies or Government. Therefore, it is not correct to read the explanation to mean that the government body is eligible for deduction under section 80IA of the Act and the company entering into agreement with such government body is not eligible for deduction.
23. In so far as the meaning of the word "works contract" is concerned, the ld. AR placed reliance on the judgement of Bombay High Court in the case of CIT vs. Glenmark Pharmaceuticals Ltd., reported in 324 ITR 199 wherein held that in a works contract, the contractee would provide the material and all other requirements in the process of manufacture/production. The contractor merely carries on the work with the material supplied by the contractee and the knowledge supplied by the contractee. Further, in a works 16 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= contract, the risk is undertaken by the contractee and in case of development contract, the contractor undertakes the risks involved. In the case of the assessee, it was allotted a premises and the possession of the premises was handed over to the assessee. It was asked by the government to develop the said area into an infrastructure facility. All the activities necessary in the process of development and the losses suffered in the process, the material to be used including the expertise shall be of the assessee. The maintenance of the existing facility during the period of development also shall be of the assessee. Therefore, the assessee is a developer and not a works contractor. He relied on the Circular No.4 of 2010 dated 18-05-2010, which is after introduction of the explanation by the Finance Act, 2009, for the proposition that widening of existing road is an infrastructure facility and any enterprise carrying on the activity of widening of an existing road would be eligible for deduction under section 80IA(4) of the Act.
24. The learned counsel for the assessee relied on the following decisions:
1) The decision of the ITAT, Pune Bench "A" vide order dated 8.6.2011 in the case of Lakshmi Civil Engineering Pvt. Ltd., Vs Addl CIT, Range-II, Kolhapur. Wherein it is held that even if a person is a contractor, if all the conditions mentioned in Section 80IA(4) are fulfilled, the assessee becomes eligible for deduction.
2) The decision of the ITAT, Mumbai "F"-Bench in the case of Patel Engineering Ltd. Vs Deputy Commissioner of Income-Tax reported in 94 ITD 411 wherein it is held that the term "contractor" is not essentially contradictory to the term "developer". It was held that a person who has undertaken the contract for development is not only 17 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= a contractor but is also a "developer" eligible for deduction under section 80IA(4) of the Act.
3) Decision of the Mumbai Bench of the ITAT in the case of ACIT Vs Bharat Udyog Ltd. reported in (2008) 24 SOT 412 wherein it is held that an assessee engaged in development of infrastructure but not in maintaining and operating the same would be eligible for deduction under section 80IA (4) though he is described as a contractor and was paid by the Government.
4) The decision of the ITAT in the case of Metal Infra Projects Ltd., vs. CIT reported in 26 DTR 359, wherein it is held that simply because the agreement mentioned the assessee as contractor, he would not cease to be the developer.
25. It is submitted by the AR that the word "contractor" used in the agreements entered into would not debar the assessee from being a developer. In fact the assessee entered into agreement for development of infrastructure facility and therefore, it is a contractor. Therefore, the authorities are not justified to hold that the assessee is not a developer simply because he is mentioned as a contractor in the agreement. The Revenue authorities cannot make a distinction between the words "Contractor" and "developer". The conditions mentioned in the Income-Tax Act in Sec. 80-IA are that the assessee shall be a company and should have entered into an agreement with the Government or Government body for development of the infrastructure facility. Even if it did so in the process of fulfilling the contract, it would be eligible for deduction under the said section. Therefore, it was submitted that both the Assessing Officer and the learned Commissioner of Income-tax (appeals) are not correct in rejecting the claim made by the assessee for deduction under sec. 80IA(4) of the Act. The lower authorities are 18 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= of the view that separate books of account were not maintained for each of the work. In this regard it is submitted that proper accounts were maintained separately for each work except for the head office expenditure. Further, it is held by the Honourable ITAT in the case of Patwa Kinariwala Electronics Vs. IAC reported in 51 TTJ 280, wherein it is held that maintenance of separate books is not fatal. A similar decision is taken by the ITAT in the case of Shoghi Communications Ltd., Vs. DCIT reported in 9 SOT 489. The ITAT, Chennai Bench in the case of Cavinkare (P) Ltd., vs. ACIT reported in 16 DTR 322 held that separate books of account for each unit need not be maintained. However, it is submitted that the assessee maintained separate books of account and can arrive at the profit for each of the unit. The lower authorities are of the view that the deduction is allowable only when the assessee enters into agreement with Government and not with any other body corporate. In this regard, it is submitted that the provisions of section 80IA(4) makes it clear that an agreement can be entered into by the assessee with either the Government or the Government organization or a statutory body. The Statutory body includes any corporation or corporate body incorporated by the Government. It is submitted that the assessee took possession of the undeveloped area and handed over the developed area. In the process, it has undertaken every activity including the risks involved in the process. It has to reimburse losses suffered by anyone including the government and the people, if any one suffers the loss. It can also be seen that any loss caused because of the natural calamities also has to be made good by the assessee only. It had to undertake the maintenance of the existing road, while the process of development is on. It can neither stop the traffic nor stop the work. In the process, if any of the vehicle or person suffers loss because of any reason, it shall be the responsibility of the assessee. Every loss in the process has to be that of the assessee only. There is no such mention in the provisions of sec. 80IA (4) that the assessee should invest its own money in the process of development. The only requirement is that the enterprise should be 19 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= a company and such enterprise should be in the business of development of infrastructure facility. How the funds are pooled for the purpose is not mentioned in the Act. The department cannot introduce words into the Act to give a different meaning. They have to read the provisions as they exist in the Act. A plain reading of the provisions of section 80IA (4) does not indicate that the assessee to be eligible for deduction should have introduced its own funds. Various courts have held that the provisions allowing relief should be read liberally and nothing can be added to the words used in the Act so as to disentitle an assessee for the relief and also various courts have held that it is not open for the Department to read what is not there either in the documents or in the statutory provision, for which he placed copies of the case laws in the paper book submitted.
26. On the other hand, the learned departmental representative submitted written submissions based on the arguments put forth before us. He relied on the orders of the lower authorities and submitted that to be eligible for deduction under section 80IA(4) of the Act, all the three conditions mentioned in the sub-section should be cumulatively fulfilled. According to him, the assessee should have been engaged in development and maintenance of infrastructure facility. According to him, a mere developer is not eligible for deduction under section 80IA (4) of the Act. In this regard, he referred to sub-section (2) of Sec.80IA (4) and also sub clause (c) of the section 80IA(4) (i). The words used in sub-clause (c) "started" or "starts" operating and maintaining infrastructure facility on or after first of April, 1995 would apply only to the second type of enterprise who undertakes the work of "maintaining and operation". It would not apply to a person who is engaged in developing infrastructure facility as the word "developed" is not used in the said sub clause. Further, this is analysed by various courts. It is held clearly that such a provision i.e. clause (c) would apply only to such enterprises engaged in maintaining and operating the infrastructure. The Bombay High Court in the case of CIT Vs ABG Heavy Industries 20 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= Ltd.,[supra] observed that the requirement that the operation and maintenance of the infrastructure facility came after first of April, 1995 has to be harmoniously considered with the main provision under which deduction is available to the assessee which develops or operates, maintains and develops or operates and maintains infrastructure facility. There is significance for clause-(c) in so far as the enterprises carrying on business of developing and maintaining and operating infrastructure facility are concerned. To be eligible for deduction under sub-section (4A), any enterprise has to commence its operation on or after 01-04-1995. This clarified that any enterprise commencing its operations prior to the said date, but continuing to do the said activity for the assessment years 1996-97 and onwards would not be eligible. As submitted that sub section (4A) was removed with effect from the assessment year 2000-01 by the Finance Act, 1999. A new sub section (4) was introduced by the said Finance Act. Sub section (4) extended deduction to such enterprises which develop infrastructure or which maintain and operate infrastructure facility or which develops, maintains and operates an infrastructure facility. It is clarified by the Board that sub section (4A) was deleted and the deduction earlier available continues in lieu of sub section (4) of Section 80IA. Therefore, the condition mentioned in sub section (4A) that an enterprise commencing its activity of operating, maintaining the infrastructure facility on or after the first day of April, 1995 would only be eligible for deduction. Therefore, it applies to those enterprises which were earlier eligible for deduction under sub section (4A) and which will be continued to be eligible for deduction under sub-section (4). Such provision has no application to the case of the assessee, which became eligible for deduction under sub-section (4) of Sec. 80IA of the Act. Therefore, sub-clause (c) came into play only in respect of those concerns which claimed deduction for maintaining and developing the infrastructure facility and not for the assessee who only develops. The meaning of the word "developer" and the eligibility of the business to claim deduction meant for 'development of 21 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= infrastructural facilities' within the meaning of section 80IA has to be seen in the context of the genesis and legislative history of the section as held by the Supreme Court in the case of CIT vs. N.C. Buddhiraja (204 ITR 412,433) the provision as introduced by the Finance Act, 1991 as amended by Finance Act, 1996, Finance Act, 1999, Finance Act, 2001, up to Finance Act 2007 and Finance Act, 2009 and as explained by Circular 794 dated 9-8-2000 Circular 779 dated 14-9-1999 (240 ITR st. 32), Circular 794 dated 9-8-2000, Circular 779 dated 14-98-1999 (240 ITR st. 32), Circular 794 dated 19-8-2000, Circular 14/2001 (252 ITR st. 98) and Circular 3/2008 dated 12-03-2008 (168 Taxman St. 12,54) brings out the objectives of the statute and expectations of the law-makers in bringing the enactment. The statutory provisions as would be apparent from the Circulars and Explanatory Notes referred to herein-above seek to incorporate a quid pro quo between introduction of investment and entrepreneurial resources from the private sector and a tax deduction from the government to enable recoupment of expenditure incurred. The BOT/BOOT models seek to augment infrastructural assets in addition to governmental spending and not simply feed on government expenditure. The deduction under section 80IA is, therefore, available to the former, and not to the latter forms of business. The deduction claimed under section 80IA of the Act as prescribed in sub-section (1) is "in accordance with and subject to the provisions of this section...." in sub section (2), it is stated that the deduction is available for the specified number of years "brining from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication services or..." it is clear therefore that the deduction is inextricably connected to the commencement of operations of the infrastructure facility. It is apparent that the facility has to be conceived of in its totality because part of the infrastructure facility has not existence independent of the whole. A certain number of kilometres of a highway or irrigation canal has no existence by itself, and is incapable of becoming operational without 22 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= reference to the rest of the project, of which it is only a part. It is evident from the agreements filed by the asessee that the assessee undertook to execute the work on NHAI's specifications, at rates agreed upon, subject to measurement, within a period of 36 months of commencement.
27. He submitted that agreement filed by the assesee in the paper book wherein the details of rate analysis, Bill of quantities etc., make it clear that the assessee had no autonomy in matters of design and specification which completely vested with the employer. The only lawful entitlement of the assessee was to be paid for the measurement of work completed at rates agreed upon. The partial and sectional nature of the proposed work is immediately clear from this notice and it is also apparent from this that the section of the road proposed for improvement has no independent existence capable of satisfying the requirement of section 80 IA (2). Therefore, this project is incapable of commencement of operations by itself, or to quality the larger infrastructure facility of which it is a part. The assessee also gets mobilisation advance as well as interest-free advance for machinery purchase and there is no element of entrepreneurial initiative or financial participation of the contractor in this kind of a project. The successful bidder merely executes a Government contract and gets paid for it at mutually agreed rates and the nature of responsibilities assumed under the other contracts as per agreements. It is further stated that during the hearing, the authorised representative of the assessee was at pains to emphasise that the assessee undertook maintenance work and was hence in the same league as a developer. However, it is clear from the document as furnished in the paper book that the maintenance function was actually remedying of defects for a prescribed period. No separate charges have been collected and this cannot be seen as a maintenance function.
28. The ld. DR submitted that on these facts, having regard to the responsibilities assumed under the agreement, the assessee cannot 23 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= be seen as a developer; instead it plays the role of an executor/contractor. The contracts in question are in the nature of works contracts, the explanation inserted below section 80IA (13) of the Act with retrospective effect from 1-4-2000 has over-riding influence and debars the assessee's claim. The law on the subject of application of a retrospective amendment is clear from the special Bench decision of the Tribunal in the case of Aquarius Travels P Ltd. Vs. ITO (111 ITD 53). Such provisions should be applied in pending proceedings, even when they have not been involved earlier. As matters stand, therefore, the most important question for examination on facts is whether the business agreement in question can be termed a works contract or not. If the answer is in affirmative, nothing else matters because the Explanation takes over. If not, the other factors such a development/operation etc., and other specified conditions become relevant. Reliance was placed in this regard on the decision of the Mumbai High Court in the case of Glenmark Pharma (324 ITR 199) which digests the case law for ascertainment of whether facts of the agreement would amount to a contract for work or for sale.
29. He placed reliance on the decision of jurisdictional High Court in the case of Dr. Mrs. Renuka Datla vs. CIT (240 ITR 463) (AP), the provisions granting exemptions have to be strictly construed. It was held by the Supreme Court in the case of IPCA Laboratory Limited vs. DCIT (SC) 266 ITR 521 that when there is no ambiguity, provisions cannot be interpreted to confer a benefit upon the assessee. The provision is incapable of application to the facts of the assessee's case because the assessee is only an executor of a contract, which is in turn, part of a larger project undertaken by the Government, or its agency. By referring to the two decisions relied upon by the learned counsel for the assesee, Mumbai High Court in the case of CIT vs. ABG Heavy industries Limited reported in 322 ITR 323 and ITAT Pune Bench in the case of Laxmi Civil Engineering Pvt. Ltd., vs. Addl. CIT Kolhapur (unreported/ITA No.766/Pn/09 24 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= dated 8-6-2011), it is submitted that these decisions supported the proposition that (i) the ITAT's decision in the case of B.T. Patil & Sons, Larger Bench (Mumbai) reported in 126 TTJ 577 is no longer good law, and (ii) the distinction between developer and contractor is no longer relevant in the context of changed law explained by the Mumbai High Court in the case of ABG Heavy Industries (supra) and followed within its jurisdiction by the Pune Bench of the ITAT in the case of Laxmi Civil Engg. (supra). It is submitted that such reliance is neither correct nor relevant in deciding the issues on hand. This position is elaborated in the following paras. In the case of Laxmi Civil Engg. Pvt. Ltd., the argument of the assessee that was accepted by the ITAT, Pune Bench is broadly- the assessee is a contractor, every contractor is a developer as per the Mumbai High Court decision in the case of ABG Heavy Industries and a developer need not operate and maintain the infrastructure facility, as held by the Mumbai High Court in the case of ABG Heavy Industries. It is submitted that the decision of the Pune Bench of the ITAT in the case of Civil Engg. (supra) is of no help in deciding the issues in the impugned appeals for the reason that the terms and conditions of the contracts and the nature of obligations assumed there-under, by the business are not discussed in the said order. This is the factual fulcrum on which the decision of the ITAT (larger Bench) in B.T. Patil as well as the Mumbai High Court in ABG case was decided. Without such detail, there is no point of comparability between the Pune Bench decision and the other cases. The unanswered questions emerging there-from are -
i) Can we assume that there was a BOLT contract or was it a works contract?
ii) Can we assume that the assessee took ownership control of the asset created?
iii) The circumstances under which the enterprise in ABG Heavy Industries became akin to a developer, and do they obtain in the case of LCE? Such as 10 year ownership; retransfer;
25 I.T.A. No. 84/Hyd/2010 & OrsM/s. KMC Constructions Ltd.
======================= assumption of assured responsibility regarding operational readiness, etc., noticed in ABG Heavy Industries are not noticed in the facts of the case as digested by the afore mentioned decision of the Pune Bench of the ITAT in the case of LCE.
iv) The unbundling of conditions of development, operation & maintenance, and development operation and maintenance, in the sense of making them non cumulative by amendment of law effective from 1-4-2002 is not the only relevant issue. The larger issue is whether the assessee is a developer in the first place.
v) In the case of B.T. Patil, the cumulative or non cumulative satisfaction of conditions in section 80IA(4)(i) was never a material fact. This was so not only because the impugned appeals related to pre 1-4-2002 period, but also because the matter was decided on the preliminary issue of whether the assessee was a developer or not in the first place.
vi) Some of the attributes of a developer were discussed in the case of B.T. Patil, none of whom were absent in the case of ABG Heavy Industries.
30. The decision of the Mumbai High Court, though later in time was different in facts that there was no occasion even to refer to the ITAT's decision in the case of B.T. Patil. Therefore, it can be said that the decision of the Mumbai High Court in the case of ABG Heavy Industries will be binding in its jurisdiction for infrastructure contract cases, only in so far as the facts of the case are compatible. For the same reason, there can be no adverse implication for the precedent value of the B.T. Patil case. As submitted hereinabove, on immediate and necessary consequence of the retrospective amendment introduced by the Finance Act, 2009 inserting Explanation below section 80 IA(13), is that any business transacted in terms of a works contract stands disqualified from seeking 26 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= deduction under section 80I(A(4). The decision of the Mumbai High Court in the case of ABG would have no application from this point of view also. Since the agreement in ABG was a BOLT agreement and not a works contract their Lordships had no occasion to consider the Explanation introduced in Finance Act, 2009 with effect from 1-4-2001. Even if it is assumed, hypothetically, that the agreement in ABG was in the nature of a works contract, or that every contractor was a developer, the decision of the Mumbai High Court without considering the Explanation cannot operate to overrule the ITAT's decision in the case of B.T. Patil where the Bench of the Tribunal considered the effect of the explanation and it was explained by the Hyderabad Bench of the Tribunal in the case of Hyderabad Chemicals Supplies Limited (ITA No.352/Hyd/2005 and 6 others appeals dated 21-1-2011, in the context of an apparent conflict between a Special Bench (Ahmedabad) decision of the ITAT and Madras High Court at para-15 on page-8 as follows:-
"Further, judgment of High Court though not of the jurisdictional High Court, prevails over an order of the Special Bench even though it is from the jurisdictional Bench of the Tribunal, however, where the judgment of the non jurisdictional High Court, though the only judgment on the point, has been rendered without having been informed about certain statutory provisions that are directly relevant, it is not to be followed."
31. Without prejudice to the argument that the stand that the Mumbai High Court's order in ABG runs on completely different facts, it is respectfully pointed out that this decision cannot be a binding precedent, in any case, for the above-cited reason also and this issue can be seen in another perspective. There is nothing in the case of ABG Heavy Industries that supports the view that the 'developer' has to be seen de hors the contract and its stipulations. In the case of ABG Heavy Industries the Revenue took the stand that the assessee was not a developer because it was only a supplier of the equipment. This did not find favour because it was held that the nature of the business had to be seen in terms of the obligations 27 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= assumed under the contract which included not only supply and installation of the cranes but also testing, commitment of operational readiness for a period of ten years on the pain of liquidated damages and eventual re-transfer after such period. In the case of ABG Heavy Industries, the creation of certain standalone parts of the part complex qualified for being termed on infrastructure project because the Board Circular 793 dated 23-6-2000 clarified that part of the project would qualify if so certified by the Port Authorities. The container handling cranes assembly was certified to be an integral part of the Port Complex by the Port Authority. This is contextually very different from parts of the running length of a highway or irrigation canal being executed on a rate contract. The Department's argument that the assessee did not actually operate or maintain the facility in question was not upheld because the benefits of the section were held to be available to BOT/BOLT contracts by CBDT Circulars, which were any way binding on the IT authorities. In the case of the present case, it is not even claimed by the assessee that the work was carried out under a BOT/BOLT contract, or that it was not a works contract. It is further submitted that the distinction between business of development operation/maintenance and development/operation/maintenance was removed with the change in law effective from 1-4-2002, and that this was explained by the decision of the Mumbai High Court in the case of ABG Heavy Industries is fallacious for the following reasons:
"The Mumbai High Court decision was rendered in the context of a BOLT contract, which was in any case clarified by the Board Circular to qualify for the deduction under section 80IA. It was noticed by their Lordships that the subsequent changes in the law effective from 1-4- 2002 merely mirrored this liberalised outlook. That is not the same thing as saying that a business in the nature of a works contract qualified for the deduction in spite of not operating/maintaining the facility. The decision of the larger Bench in the case of B.T. Patil was not un-ware of the change in law effective from 1-4-2002 as would be evident from para 36 of the order. The change making the conditions of development/operation/maintenance non 28 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= cumulative was not relevant since the case related to pre 1-4-2002 period. In the case of B.T. Patil, the larger Bench enunciated certain tests to determine whether the business was one of a 'developer' or a mere 'contractor'. The briefly stated facts are as follows:
The distinction between creation of product vs. Rendering of service (para -40), owner vs. Executor of owner's plan with reference to project specification (para-42), vesting of property, subject to re-transfer if need be (para 46) and need for interpretation to avoid absurd results (para 50)."
32. In view of the terms of the relevant contract, it was possible to give a finding that the business was not one of 'development' per se. Therefore, the changes in law after 1-4-2002 were not even called into play in the case of B.T. Patil. It is further submitted that the Mumbai High Court's decision in the case of ABG Heavy Industries not only runs on different facts, it does not even refer to the case of B T Patil. Furthermore, the Mumbai High Court's stand that the nature of the business should be seen in the context of the obligations assumed under the contract only complements, not contradicts the larger Bench's distinction between a developer and contractor simpliciter, as noted hereinabove. It would be wrong and therefore to suggest that the case of B.T. Patil has been impliedly over-ruled by the High Court's decision. The departmental representative also placed reliance on another decision of the Mumbai Bench of the Tribunal in the case of Indian Hume Pipe Co. Ltd., vs. DCIT ITA No.5172/Mum/2008, dated 29-7-2011 for assessment year 2004-05. This decision pronounced after the Pune Bench decision in the case of Laxmi Civil Engg. considers the Tribunal decision of B.T. Patil as well as its jurisdictional High Court decision in the case of ABG and goes on to hold that the assessee is not entitled to the deduction under section 80IA (4) in view of the Explanation introduced with retrospective effect.
33. The learned Departmental Representative relied upon sub- section (2) of Sec.80IA of the Act and submitted that the deduction under sub-section (1) would be available for a period of 10 29 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= consecutive assessment years out of 15 years beginning from the year in which an undertaking or enterprise develops, begins to operate any infrastructure facility or starts providing telecommunication system. Therefore, he is of the view that unless operation of the infrastructure facility is also undertaken; the assessee would not be eligible for deduction. It is submitted that this section provides for an option to the assessee to choose to claim deduction for any 10 years out of 15 years commencing from the date of commencement of the maintenance and operation. For that limited purpose of facilitating an assessee who becomes eligible for deduction under section 80IA(4) in choosing the period of 10 years, the said provision was introduced. This cannot be considered as applicable to every enterprise eligible for deduction under section 80IA. This would apply to an enterprise which requires choosing the period of 10 years during which deduction is to be claimed. Only when the assessee has to exercise the choice, this section comes to operation. Other-wise this section would not operate.
34. The learned Departmental Representative referred to the Finance Bill, 1995 and the Circular No.717 dated 14.8.1995 reported in 215 ITR 70 (statutes). The said circular explained that an enterprise which is engaged in the business of develops, operate and maintain infrastructure facility alone was eligible for deduction. An enterprise which only develops infrastructure facility was not eligible for deduction up to the assessment year 2000-01. The provisions of Sec.80IA (4A) were made applicable only to the enterprise which develop, maintain and operates infrastructure facility. The assessee did not claim deduction under section 80IA (4A) of the Act. Therefore, neither the circulars issued up to that date nor the provisions of the law as were existed up to the assessment year 1999-2000 can be applied for the purpose of determining the allowability of deduction u/s 80IA(4) claimed by the assessee herein. The learned DR referred to the Circular reported in 240 ITR 32 (statutes). In the said circular it is clarified by the CBDT that the benefit in the amended provisions 30 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= of Sec.80IA (4) would extend to those undertakings which develop, operate and build, operate and transfer. It is only a clarificatory circular. As submitted earlier, Section 80IA (4) and Section 80IA (4A) were in statute. Sub-section (4A) dealing with the deduction in respect of business of development, operation, maintenance was deleted. Sub-section (4) which was applicable to Hotels was substituted by another provision which allow deduction to an enterprise which develops or operates and maintains or develops, operates and maintains. At that stage, an explanation was needed to be provided to mention that earlier sub section (4A) is re-introduced as a part in sub section (4) in a different shape. Therefore, a clarification was necessary and the said clarification was issued. It is also submitted that the development and risk are not undertaken by the assessee.
35. In the rejoinder, the learned counsel for the assessee submitted that the assessee introduced huge money in its business activity as on 31-3-2007. The own capital and the loan capital introduced by the assessee is Rs.342,56,11,907 (excluding the mobilization advance received from the Government) as against the turnover achieved at Rs. 660.80 crores. This would mean that the assessee invested its own funds in process of development of the infrastructure facility. The assessee has to wait for a period of 56 days/28 days for the payment after submission of the bill. Further the Government of India obtained the finance from outside the Country for the purpose of development of infrastructure facility.
36. The assessee utilized the funds either of its own or borrowed from others for the purposes of undertaking the development activity. Therefore, it cannot be said that the assessee has not utilized its own funds. The assessee also utilized its own technical personnel and undertook risk in the process of the business activity. It is not correct to mention that the assessee did not invest its own funds and did not employ its technical personnel. The requirement of the tender includes possession of capital, capability of obtaining loans from the 31 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= banks or financial institutions and the availability of the technical personnel. The assessee would be a successful bidder only when such requirements are fulfilled. The requirements of the tender documents are available at page 124 of the agreement submitted before the Honourable ITAT. The assessee undertook all the risks involved in the activity. According to clause 20.1, the assessee has to undertake full responsibility for the care of works and materials and plant for incorporation therein from the commencement date till the date of taking over. Clause No.20.2 of the agreement also mentions that loss or damage happens to the work, or any part thereof or materials or plant shall be the responsibility of the assessee. Clause No.22.1 mentions that the assessee shall be responsible for death or injury to any person or loss or damage to any property which may arise in consequence of the execution and completion of the works. Therefore, the assessee is liable for risks.
37. He submitted that the learned DR is also of the view that the maintenance undertaken by the assessee as per the contract is only as a sort of warrantee and not the maintenance as mentioned in Sec.80-IA(4) of the I.T. Act. In this regard, it is submitted that the assessee is claiming deduction as a person developing the infrastructure facility and not as a person maintaining such infrastructure facility. Further, the said clause was mentioned only to show that the assessee has undertaken a job of developing the entire infrastructure facility at the premises allotted to it and handed it over with a condition that it should be maintained by the assessee for a certain specified period. This only indicates that a composite agreement is entered into for development of the infrastructure facility with a clause to maintain the said infrastructure facility for a certain period. The learned DR mentioned that the assessee was not paid for any maintenance. It is true that there is no payment for maintenance but still the assessee has to undertake maintenance of the infrastructure facility for a period as mentioned in the agreement. This would clearly indicate that the assessee is a developer and not a 32 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= mere engaged in works contract. In works contract, the personal undertaking the work would not be responsible for any loss suffered during the period of work; he would not be responsible for maintenance of the infrastructure facility during the course of development; he would not be liable for maintaining the work afterwards also. The assessee, on the other hand, is made responsible for all such activities. It is also submitted that the Government of India authorized the NHAI to call for the tenders for the work. The Govt. of India received a loan from Overseas Economic Co-operation Fund, towards the cost of development. Accordingly, a tender was issued by the NHAI. Section 31 of the NHAI Act empowers the Central Government to temporarily divest the NHAI from development by handing it over to any person authorized for the purpose. The NHAI is authorized by the Government to entrust the duty of development of project to any other eligible person. In the process, the assessee became the successful bidder and undertook the work of development.
38. Further the ld. AR submitted that the learned DR mentioned that tax was deducted at source by the Government under sec. 194 C of the Act and therefore, the work undertaken is only a works contract and not development. In this regard the assessee submitted that the provisions of sec. 194 C make it clear that deduction of tax has to be made from payments made in respect of "any works". The work "any work" denotes the work of development of infrastructure facility also. Therefore, the observation of the learned DR is not correct. Further it is submitted that all the works were not entrusted by the NHAI alone. It can be seen from the list annexed that some of the works were entrusted by the Government of Karnataka, Government of Assam, Railways, Government of Rajasthan, Ministry of Road Transport, Government of India directly and Government of Gujarat directly to the assessee. In view of the above, it is not correct for the learned DR to mention that NHAI is the developer and not the assessee. If the argument of the learned DR were to be 33 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= correct the Legislature should have clearly mentioned that the authority which is responsible for development would be eligible for deduction under section 80-IA (4) of the I.T. Act. Such a mention is not there in the Act and on the other hand, it is mentioned that any company is eligible for deduction. Therefore, this view of the learned DR is not correct.
39. The learned CIT DR referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. N.C. Budharaja & Co., reported in 204 ITR 412. The learned CIT DR discussed the object of amendment made to Sec.80IA by the Finance Act, 1995. For which, it is submitted that the decision of the supreme Court referred to by the learned DR relates to the deduction allowable for the Assessment Years 1974-75 to 1977-78 and the learned DR also discussed the amendment by the Finance Act, 1995. The claim of the assessee is for the Assessment Year 2000-01 and afterwards. The judgement of the Supreme Court was deciding the issues as per the provisions existed at the relevant point of time which is not applicable to the years under consideration. Therefore, the reliance of the DR on the said decision is misplaced. The learned CIT DR also referred to the Circular No.779 dated 14-09-1999. The said circular was issued only to clarify that the enterprises which were earlier eligible for deduction under section 80IA (4A) up to the assessment year 1999-2000 would continue to be eligible for deduction under section 80IA(4) for the assessment Year 2000-01 and onwards. This clarification does not indicate that the deduction under section 80IA(4) is allowable only in respect of the enterprises carrying on the activity of operating and maintaining. The circular No.794 dated 09-08-2000 referred to by the learned DR clearly mentions that the benefits under section 80IA (4) were extended to water treatment and solid waste management system in order to attract commercial enterprises to operate such facilities. This circular also has no application for the facts of the assessee's case. The Circular No.14 of 2001 referred to by the learned DR not on the point. It also clarifies the position as obtaining 34 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= prior to 1999-2000 and later. It does not apply to the years under consideration.
40. The learned DR also refers to the Circular No.3 of 2008 dated 12-03-2008. In the said circular it was made clear that the benefit under section 80IA is allowable in a case where a person makes investment and he executes the development work i.e. carrying out the civil construction work. In contrast to this, a person who enters into a contract with any other person for executing the works contract will not be eligible for the tax benefits under section 80IA. It is submitted that the assessee makes the investment on its own in so far as the works are concerned and itself executes the development work. The circular clarified that the execution of the civil work is equal to development. This makes it very clear that the assessee is eligible for deduction under section 80IA of the Act as the assessee invested its own finance in the process of development and undertakes the development work on its own with all the risks involved. Therefore, the circular supports the claim of the assessee that it is a developer.
41. The learned DR referred various circulars and mentions that the enterprises which carry on the activity under the concept of BOT and BOLT alone will be eligible for deduction. In this regard, it is submitted that the provisions of Section 80IA(4) makes the matters clear that a person who develops or operates and maintains or develops, operates and maintains would be eligible for deduction. The provision itself is very clear. It is applicable to any enterprise carrying on any one activity. The Bombay High Court in the case of ABC Industries clarified that all the three activities need not be done and the assessee would be eligible for deduction if it carried on even a single activity out of the above three activities. Therefore, the presumption of the department that the assessee who carry on BOT/BOLT alone are eligible for deduction is not correct. There is no mention in the enabling sections that an assessee to be eligible for deduction should have been engaged in BOT/BOOT/BOLT schemes.
35 I.T.A. No. 84/Hyd/2010 & OrsM/s. KMC Constructions Ltd.
=======================
42. The learned DR mentions that the meaning of the word "developer" cannot be ascertained from the Act. He relied on the various decisions to mention that the interpretation must be in consonance with the purpose of the statute. In this regard, it is submitted that the interpretation has to be in consonance with the purpose of the Act. The assessee already submitted the changes made to the provisions of the law and also discussed various amendments brought in by the legislature. It can be understood from the above and from the reading of the provisions of Section 80IA (4)(i) that an assessee who enters into an agreement with Government for the purpose of development of infrastructure facility is eligible for deduction. In such circumstances, the mention by the learned DR that the entire infrastructure facility should be invested by the assessee and that it should be maintained by the assessee clearly shows that the interpretation provided by the learned DR is not in consonance with the provisions of law and, therefore, the said decisions favour the assessee and not the department. The learned DR also referred to the observations made by the Special Bench of the ITAT in the case of B.T. Patil and sons. It is submitted that the said decision is recalled and the observations made cannot be considered. Further, the Bombay High Court in the case of ABG Heavy Industries held that the three conditions mentioned in Sec. 80IA(4) need not cumulatively be fulfilled. Therefore, any observation to the contrary by the Special Bench is not relevant at present. The submissions of the learned DR of A Bench are mostly to the effect that the assessee is not a developer, but only a works contractor and that the assessee's who engage themselves in all the three activities alone would be eligible for deduction under sec. 80IA of the Act. It is already submitted in detail that it is a developer and not engaged in the works contract alone and that for the purpose of being eligible for deduction under section 80IA of the Act, one need not carry on all the activities of Develop, operate and maintenance. The learned DR also referred to the copy of the agreement submitted before the 36 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= Honourable ITAT. According to the learned DR, the agreement used the word "contract" for completion of "works" and the Government made payments including the mobilization advance. Therefore, the learned DR is of the view that the assessee is engaged in mere works contract and undertook the work only with the money belonging to the Government. In this regard, the assessee already submitted detailed explanation in the above mentioned paragraphs. The learned DR also contended that only a part of the entire infrastructure facility is development by the assessee and therefore, the infrastructure facility cannot be operated. In this regard, it is submitted that the entire work of development of the road from Km 27.80 to Km 61.00 is undertaken by the assessee. The assessee developed the entire road of a distance of 33.20 km. The whole of the development activity in respect of the said distance is entrusted to the assessee. No part of such activity was entrusted to any other concern.
43. The learned DR is not correct to mention that the assessee undertook the work partially. The entire reach was developed by the assessee. The assessee relies on the decision of the I.T.A.T. in the case of Patel Engineering Company referred to above. The Honourable ITAT observed that development of one reach is also eligible for deduction under sec. 80IA of the Act.
44. We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have also gone through all the case laws cited by both the parties. We find that the provisions of Section 80IA(4) of the Act when introduced afresh by the Finance Act, 1999, the provisions under section 80IA(4A) of the Act were deleted from the Act. The deduction available for any enterprise earlier under section 80IA (4A) are also made available under Section 80IA (4) itself. Further, the very fact that the legislature mentioned the words (i) "developing" or (ii) "operating and maintaining" or (iii) "developing, operating and maintaining" clearly indicates that any enterprise which carried on 37 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-Tax Act. We find that where an assessee incurs expenditure on its own for purchase of materials and towards labour charges and itself executes the development work i.e., carries out the civil construction work, it will be eligible for tax benefit under section 80 IA of the Act. In contrast to this, a assessee, who enters into a contract with another person including Government or an undertaking or enterprise referred to in Section 80 IA of the Act, for executing works contract, will not be eligible for the tax benefit under section 80 IA of the Act. We find that the word "owned" in sub-clause (a) of clause (1) of sub section (4) of Section 80IA of the Act refer to the enterprise. By reading of the section, it is clear that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word "ownership" is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA(4) and not any other person like individual, HUF, Firm etc.
45. We also find that according to sub-clause (a), clause (i) of sub section (4) of Section 80-IA the word "it" denotes the enterprise carrying on the business. The word "it" cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word "it" is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility.
46. The next question is to be answered is whether the assessee is a developer or mere works contractor. The Revenue relied on the 38 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 80IA (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee and the Government. We find that the Government/Government body handed over the possession of the premises or the existing road to the assessee till the development of infrastructure facility. It is the assessee's responsibility to do any act till the possession of property is handed over to the Government. If the existing road is to be developed into a four lane road, the first phase is to take over the existing and developed road. Secondly, the assessee has to arrange for the traffic and shall facilitate the people to use the facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure 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 39 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= 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 the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 48 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an un-developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA(4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80IA(4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer.
47. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the Government. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word "contractor" is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word "contractor" is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor.
40 I.T.A. No. 84/Hyd/2010 & OrsM/s. KMC Constructions Ltd.
======================= Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor. Therefore, the first appellate authority rightly held that the assessee is eligible for deduction under section 80IA (4) for the assessment years 2000-01, 2001-02 and 2002-03.
48. We find that the decision relied on by the learned counsel for the assessee in the case of CIT vs. Laxmi Civil Engineering works [ITA No. 766/Pun/09 dated 8.6.2011] squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of infrastructure facility is an eligible activity for claiming deduction under section 80IA of the Act after considering the Judgement of the Mumbai High Court in the case of ABG Heavy Engineering [supra].The case of ABG is not the pure developer whereas, in the present case, the assessee is the pure developer. We also find that Section 80IA of the Act, intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to such entities. The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 80IA of the Act, which ultimately culminated into Amendment under section 80IA of the Act, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT. We also find that, to avoid misuse of the aforesaid amendment, an Explanation was inserted in Section 80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80IA of the Act. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the parliament would have simply reversed the Amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only mere works contact or sub-contract as distinct from the developer. This is clear 41 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= from the express intension of the parliament while introducing the Explanation. The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along 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. We have carefully gone through the various activities carried on by the assessee. An analysis of the works undertaken by the assessee clearly indicates that it carried on the activities of development of infrastructure facility. For clarity we reproduce one of the projected undertaken by the assesee.
Nature of work : Widening to four lanes and
strengthening of existing two lane
carriageway in km. 27.80 to km. 61.00
Jagatpur-Chandikhol Section of National
Highway No.5 in the State of Orissa.
The said work is : Overseas Economic Co-operation Fund,
financed by Japan to the Government of India. The
Government of India authorized to get the
work done by Invitation of Tender.
The source of : The Government of India has received a loan
funds as from the Overseas Economic Cooperation
mentioned in the Fund towards the cost of Widening to four
tender (herein lanes and strengthening of existing two lane
Document after carriageway in km. 27.80 to km 61.00 in
referred to as "the Jagatpur-Chandikhol Section of NH-5 in the
Fund") State of Orissa, and intends to apply part of
the proceeds of this loan to eligible payments under the contract (hereinafter referred to as the "Contract) for which the notice inviting tenders has been issued by the employer, as authorized by the Government of India.
Payment by the Overseas Economic Co-
operation Fund(OECF) will be made only at the request of the Government of India and upon approval by the Bank in accordance with the terms and conditions of the loan agreement. Except as the Bank may 42 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= specifically otherwise agree, no party other than the borrower shall derive any rights from the loan agreement or have any claim to the loan proceeds.
Scope of work The work broadly comprises of -
a) Construction of additional two lane carriageway by the side of existing two lane road in km 27.80 to 61.00
b) Strengthening of existing pavement by providing bituminous strengthening overlays
c) Provision of central median, pavement shoulders and service roads.
d) Improvement of junctions/ geometrics, pavement profile correction, lane marking and providing road signages.
e) Repair/rehabilitation of existing bridges.
f) Construction/reconstruction of bridges.
g) Improvement of drainage system, widening/providing culverts, cattle crossings etc.
h) Other miscellaneous items pertinent to the project.
i) Maintenance of the said infrastructure for a period of 48 months (during the period of development of 36 months and defect liability period of 12 months)
49. For this purpose, the possession of the site is handed over to the assessee by the Government. The assessee takes possession and access to the property and thereafter it shall be the responsibility of the assessee to develop the said area into more useful infrastructure facility. In the process, every act required (whether mentioned in the agreement or not) in converting the area into more useful one shall be that of the assessee. The assessee has to undertake the responsibility of maintenance of the existing traffic and there should not be inconvenience to the regular traffic. The developed area after completion of the development of infrastructure is handed over to the Government. After handing over, the assessee shall maintain the 43 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= infrastructure for a period of 48 months and any defects are to be rectified.
50. From the above facts it is clear that the assessee is converting the area entrusted to it into more useful and more profitable area and handing over the developed one to the Government/Government Bodies. Therefore, the activity of the assessee is " to develop" an existing two lane road into four lane road thereby making the road more useful and profitable.
51. Without any doubt, the learned counsel for the assessee clearly demonstrated before us that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know-how, expertise and financial resources.
52. Therefore, in our considered view, the assessee should not be denied the deduction under section 80IA of the Act as the contracts involve development/construction, operating/maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract. In our opinion the contracts which contain above features are to be segregated and on these contracts deduction u/s. 80-IA has to be granted and the other agreements which are in the nature of pure works contracts hit by the explanation to section 80IA(13), those works are not entitle for deduction u/s 80IA of the Act. The profit from such is to be computed by assessing officer on pro-rata basis of turnover. The assessing officer is directed to examine accordingly and grant deduction on eligible turnover as directed above. It is needless to say that deduction u/s 80IA was granted in similar case by the Chennai Bench of the Tribunal and deduction u/s. 80IA was granted in the case of M/s. Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287/Mds/06 order dated 27th July, 2007 for the assessment year 2004-05. Later in ITA No. 1179/Mds/08 vide order dated 26th February, 2010 the Tribunal has taken the same view by inter-alia holding as follows:
44 I.T.A. No. 84/Hyd/2010 & OrsM/s. KMC Constructions Ltd.
======================= "7. Moreover, the reasons for introducing the Explanation were clarified as providing a tax benefit because modernisation requires a massive expansion and qualitative improvement in infrastructures like expressways, highways, airports, ports and rapid urban rail transport systems. For that purpose, 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 work contract has been encouraged by giving tax benefits.
Thus the provisions of section 80IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the section but where a person makes the investment and himself executes the development work, he carries out the civil construction work, he will be eligible for the tax benefit under section 80IA."
53. The above order was followed in subsequent assessment years 2007-2008 & 2008-09 in ITA Nos. 1312 & 1313/Mds/2011 vide order dated 18.11.2011 in the case of the same assessee.
54. It is also pertinent to mention herein that this Tribunal in similar circumstances, in the case of M/s. GVPR Engineers Ltd. Hyderabad in ITA No. 347/H/08 vide order dated 29th February 2012 has taken similar view and granted deduction u/s 80IA of the Act. We also came across an order of this Tribunal on this issue in the case of R.R. Constructions wherein the Chennai Bench of the Tribunal in its order dated 3.10.2011 in I.T.A. No. 2061/Mds/2010 for assessment year 2007-08 confirmed the granting of deduction u/s. 80IA while holding as follows:
"3. We have heard rival submissions and have carefully perused the entire record. The first issue of the appeal is regarding claim of deduction under section 80IA(4) of the Act. The case of the revenue is that the assessee is a 'works contractor' and not a 'developer' as stipulated under section 80IA(4) of the Act. The section 80IA(4) applies to any enterprise, which carries on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facilities, which fulfil all the above 45 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= conditions. There cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 01.04.1995. From the assessment year 2000-01, deduction is available if the assessee is carrying out the business of any one of the above mentioned 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, realize 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 had 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 done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing he infrastructure facility would be entitled to deduction under section 80IA(4), which is not the intention of the law. An enterprise, who develop the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. The legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer i.e. to the person who is carrying on the activity of only development infrastructure facility. Ostensibly, a developer would have income only if he is paid for the development of infrastructure facility, for the simple reason that he is not having the right/authorization to operate the infrastructure facility and to collect toll there from, has no other source of recoupment of his cost of development. While filing the return, the assessee had made claim under section 80IA(4) of the Act.
4. The assessee has also produced all six agreements regarding six projects undertaken before the Assessing Officer, whose copies are available before us also. It is a fact that even after taking a contract from the Government, if the assessee develops infrastructure facilities, it would be regarded as a 'developer' and not as a 'works contractor'. The assessee firm has carried on entire construction/development of the infrastructure facilities and satisfy all the conditions of section 46 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= 80IA(4)(i)(a). It is undeniable fact that the assessee has taken development of infrastructure facility agreement from the State Government/local authority. A contractor who develops the infrastructure facility becomes a developer to claim exemption under section 80IA(4). The Hon'ble Bombay Bench of ITAT while deciding the case of Patel Engineering Ltd. vs. DCIT in ITA No. 1221/Mum/2004 has gone to the extent of holding that the assessee, a civil contractor, having executed a part of contracts of irrigation and water supply on 'build and transfer' basis and handed over them to contractee Governments, was eligible for deduction under section 80IA(4).
5. We have also taken a similar view in ITA No. 554/Meds/2010 in the case of East Coast Constructions & Industries Ltd v. DCIT vide order dated 13.09.2011 and relevant paras from 9 to 14 are reproduced hereunder:
"9. After considering the rival submissions, we can safely say that the benefit of section 80IA is available only to a 'developer' who carries on business of 'developing of infrastructure facility'. A person who enters into contract with another person for executing 'works contracts' is not eligible for such a benefit. Explanation to section 80IA was inserted by Finance Act, 2007 with retrospective effect from 1.4.2000 which has further been amended by Finance (No. 2) Act, 2009 with retrospective effect from 1.4.2000. The amendment in this Explanation was necessitated due to contrary judicial decision on this issue. Thus, we can unequivocally now say that any undertaking or enterprise which executes the infrastructure development project, as referred to in sub-section(4) as a works contract awarded by any person including the Central or State Government, is not eligible for tax benefit u/s 80IA(4). Having said that, now we examine the facts of this case. The assessee-company was given this benefit in assessment year 2003-04 by the Department on identical facts after considering the Explanation and amendment thereto. To trace the history of this deduction, we find that originally, in the provision of section 80IA, there was no mention of any development of 'infrastructure facility'. It is only with effect from 1.4.2000, this section was divided into two portions 80IA and 47 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= 80IB. Section 80IA(4) prescribes about the deduction available to a developer who develops infrastructure facilities. In view of the amendment inserted by the Finance Act, 2007, with retrospective effect from 1.4.2000, the deduction u/s 80IA is available to those assessees who are 'investing and developing infrastructure facility' and not to persons who simply executes 'works- contracts'. Explanation in question, as it stands today, reads as under:
"Explanation - For the removal of doubts, it is hereby declared that nothing contained in this section(i.e. 80IA) shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be."
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 tax benefit under section 80- IA.
10. We have found that the assessee-company is a works contractor, who has entered into agreement with the local bodies to execute certain part of the work awarded to it through contract for infrastructure facility. It is true that where a person who makes infrastructure and himself executes development work and carries out civil work will be eligible for tax benefit u/s 80IA of the Act. In contrast to this, a person who enters into a contract with another person for executing works contract, will not be eligible for tax benefit u/s 80IA. It was clarified by the Circular No. 3 of 2008 dated 12.3.2008 that the provisions of section 80IA shall not apply to a person who executes only work contracts and only those who make the development work will be eligible for tax benefit u/s 80IA of the Act. Be that as it may, when we apply this provision in its letters and spirit, we find that this assessee is verily eligible for deduction u/s 80IA, as the assessee-company fulfils all the relevant conditions. The facts of this case go to prove that the assessee is a 'developer' of infrastructure facilities. The reasons for our above conclusion are given in the following paras. Firstly, the assessee-company not only designs but 48 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= also creates new products. The assessee had undertaken four projects during the relevant year and executed, constructed, delivered and maintained by it. As per the definition of Advanced Law Lexicon [placed at page 533 of the paper book] "Developer" means - a person engaged in development or operation or maintenance of Special economic Zone, and also includes any person authorized for such purpose by any such developer. The "works contract" means an agreement in writing for the execution of any work relating to construction, repair, or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory, workshop, powerhouse, transformers or such other works of the State Government or public undertakings as the State Government may be by notification, specify in this behalf at any of its stages entered into by the State Government or by an official of the State Government or public undertaking and includes an agreement for the supply of goods or material and all other matters relating to execution of any of the said works. The case of ACIT vs Indwell Lianings Pvt. Ltd (supra), on which the Assessing Officer has placed reliance is also relevant and we extract certain relevant portion of this decision for ready reference:
Vide Finance Act, 2007, an Explanation was inserted with retrospective effect from April, 2000 after sub-section (13) of section 80- IA, which reads as under :
"For the removal of doubts, it is hereby declared that nothing contained in this section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be."
According to Attorney's Pocket Dictionary, in relation to a corporation or business, the term "undertaking" denotes its whole enterprise and the word "enterprise" connotes all the related activities performed either through unified operation or common control by any person or persons for a common business purpose.
49 I.T.A. No. 84/Hyd/2010 & OrsM/s. KMC Constructions Ltd.
======================= The mens legis with reference to developer of infrastructure facility can be gathered from the memorandum explaining the provisions in the Finance Bill, 2007, reported in [2007] 289 ITR (St.) 292 at page 312, which reads as under :
"Section 80-IA, 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 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.
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- lA. 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 tax benefit under section 80- IA.
This amendment will take retrospective effect from April I, 2000 and will accordingly apply in relation to the assessment year 2000-01 and subsequent years."
It is made abundantly clear that the prescription of section 80- IA shall not apply to a person who executes work contracts entered into with an undertaking or enterprise. Thus, in a case where a person who makes investment and himself 50 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= executes development works and carries out civil works, will be eligible for tax benefit under section 80- IA of the Act. In contrast to this, a person who enters into a contract with another person for executing works contract will not be eligible for the tax benefit under section 80-IA of the Act.
In the present case, we find that the assessee was doing only contract works of in situ cement lining for water supply project of the Gujarat Water Supply and Sewerage Board. As such, the benefit of section 80-IA cannot be extended to the assessee. The decisions relied upon by the assessee were rendered prior to the amendment and as such not relevant for deciding this issue. We, therefore, restore the order of the Assessing Officer and reverse the order of the Commissioner of Income-tax (Appeals). "
11. To further elaborate the discussion on this issue, paras 5 & 6 of the decision of ITAT Pune Bench rendered in the case of Laxmi Civil Engg. P. Ltd vs Addl. CIT, order dated 8.6.2011 are being extracted herein below:
5. We heard both the parties and perused the orders of the revenue. The contentious issues before us are (i) whether the contractor is synonymous with the developer within the meaning of section 80IA (4)(i) of the Act; (ii) whether the condition placed in clause (c) is applicable to the case of a developer, who is not carrying on business of operating and maintaining the infrastructural facilities. In our opinion, the answer to these question are provided by the judgment of the Bombay High Court in the case of ABG Heavy Engg Ltd (supra). In this regard, we perused the above cited para-22 of the said judgment and for the sake of completeness, the said paragraph is reproduced as under:-
"22. The submission which was urged on behalf of the Revenue is that Clause (iii) of sub-section (4A) of section 80-lA, one of the conditions imposed was that the enterprise must start operating and maintaining the infrastructure facility on or after 1st April, 1995. The same requirement is embodied in sub clause (1) of sub-clause (4) of the amended provisions. It was urged that since the assessee 51 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= was not operating and maintaining the facility, he did not fulfil the condition. The submission is fallacious both in fact and in law. "
That the assessee was maintaining the facility is not in dispute. The facility was commenced after 1st April, 1995. Therefore, the requirement was met in fact. Moreover, as a matter of law, what the condition essentially means is that the infrastructure facility should have been operational after 1st April, 1995. After Section 80IA was amended by the Finance Act, 2001, the section applies to an enterprise carrying on the business of
(i) developing; or (ii) operating and maintaining; or
(iii) developing, operating and maintaining any infrastructure facility' which fulfils certain conditions. Those conditions are (I) ownership of the enterprises by a company registered in India or by a consortiums; (II) an agreement with the central or State Government, local authority or statutory body;
and (III) the Start of operation and maintenance of the infrastructure facility should commence after 1st April, 1995. The requirement that operation and maintenance of the infrastructure facility should commence after 1st April, 1995 has to be harmoniously construed with the main provision under which deduction is available to an assessee who develops or operates and maintains, or develops, operates and maintains an infrastructure facility".
A harmonious reading of the provisions in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops, or operates and maintains; or (iii) develops, maintain and operates that infrastructure facility. However, the commencement of the operation and maintenance: of the infrastructure facility should be after 1" April, 1995. In the present case the assessee clearly fulfilled this condition ".
Before the amendment that was brought about by parliament by Finance Act, 2001 we have already noted that the consistent line of circulars of the Board postulated the same position. The amendment made by Parliament to S. 80-IA(4) of the Act, set the matter beyond any controversy by stipulating that the three conditions for 52 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= development, operation and maintenance were not intended to be cumulative in nature
6. The above judgment of the Hon'ble High Court is delivered in the case of ABG Heavy Engg Ltd (supra), who is a contractor for the INP Trust and that contactor, assessee is found to be an eligible developer for making claim of deduction u/s section 80IA (4) of the Act. From the above, it is evident that the person who only develops the infrastructure do not have the occasion to operate and maintain the infrastructure. It is further evident that the harmonious reading is necessary and mandatory in view of High Court's judgment in the case of an enterprise carrying on business or developing which is the case of the assessee, all the conditions referred to clause (i) of section 80IA (4) should refer to the conditions as applicable to the developer. In other words, the developer who is only developing the infrastructure facilities since he does not operate and maintain Infrastructural facilities, cannot be expected to fulfil the condition at sub clause ( c) which is an impossibility and the requirements to fulfil the said condition shall amount to absurdity and therefore uncalled for. Therefore, we find requirement of harmonious reading of sub-clause (c) vis-à-vis of clause (i) of section 80IA (4) of the Act. Thus, the discussion in High Court's decision in paragraph-22 extracted above, is directly applicable to the facts of the case and eventually is entitled for the deduction under section 80IA (4) of the Act. Accordingly, the modified ground, which is common in all the four appeals is allowed in favour of the assessee. "
12. Let us remind ourselves that the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd vs CIT, 196 ITR 188, has ordained that taxing statute granting incentives for promoting growth and development should be liberally construed.
13. Now, the question arises as to whether the term 'contractor' is not essentially contradictory to the term 'developer'. In fact, in every development the term 'developer' will definitely be a 'works contractor' but every works contractor may not be a 'developer'. A 'developer' is a specific kind of works contractor to be eligible for deduction u/s 80IA(4) who fulfils all the conditions 53 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= namely, if the assessee develops the infrastructure facility if it operates the infrastructure facility and if it maintains the infrastructure facility or to put it in simpler terms, the harmonious reading of the provisions in its entirety would lead to the conclusion that this deduction is available to an enterprise who - develops or operates and also maintains; or develops, maintains and operates that infrastructure facility. The provision for giving the impugned incentives has been examined, re-examined, modified and amended after giving conscious and deliberate discussions by the concerned law makers. To our great chagrin even after this conscious exercise an entity who executes the works contract entered into between local authority/Central or State Government and makes a development of an infrastructure has not been excluded from the scope of this provision. And rightly so, because what infrastructure is required in public domain is the outlook/duty of a local authority or of a Central/State government. When a certain infrastructure is needed, the concerned authorities have a broader picture in their mind aiming at acquiring certain facility for which infrastructure development is required. So, to say, when any assessee/enterprise agrees under a contract to develop such an infrastructure facility, it cannot straight away be dubbed as not the brainchild of that enterprise, but only of the authority in question. Therefore, again this provision in so far as the conditions required to be fulfilled to be eligible for this incentive had to be provided by the juridical forums dealing with this issue. After in-depth deliberations, discussions and examination of these provisions, finally, it has been resolved that if an enterprise even after entering into a contract with a local authority or the Governments, may be Central or State, in case it constructs the infrastructure facility, operates it and also maintains the same, it would be eligible for this deduction.
14. Now, let us examine the facts of the given case. It is an undeniable fact that the assessee is engaged in the civil construction work like construction of flyover, bridge underpass, sewerage, water supply etc. for various local bodies, railways, Central/State Governments. In fact, as per the terms of agreement, even the initial proposals formulated by the Department which are stated to be tentative, the assessee has the liberty to make different proposals without detrimental to the general features of the Departmental proposal, like Road level/bottom of deck level, MFL, Sill level, Linear water way, width of the 54 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= bridge etc. Right from the drawings to the work of construction has been done by this assessee and has borne the cost itself. The company has constructed, delivered and maintained and security is also maintained thereafter. So, this is a case of transfer of property in chattel and not a contract of service. A 'developer' as per the Advanced Law Lexicon means "a person engaged in development or operation or maintenance of Special Economic Zone, and also includes any person authorized for such purpose by any such developer". In the case of ACIT vs Bharat Udyog Ltd, 'F' Bench of ITAT Mumbai, has concluded that any assessee who is engaged in developing the infrastructure facility and also operating and maintaining the same, is entitled to the benefit of deduction u/s 80IA(4). A copy of this decision is enclosed at page 139 of the paper book. In the case of Patel Engineering Ltd vs Dy. CIT, 84 TTJ (Mumbai) 646 [copy enclosed at page No. 145 of the paper book], it has been held that a person, who enters into a contract with another person will be treated as a 'contractor' undoubtedly; and that assessee having entered into an agreement with the Government of Maharashtra and also with APSEB for development of the infrastructure projects, is obviously a contractor but does not derogate the assessee from being a 'developer' as well. The term 'contractor' is not necessarily contradictory to the term 'developer'. On the other hand, rather section 80IA(4) itself provides that assessee should develop the infrastructure facility as per the agreement with the Central Government, State Government or a Local Authority. So, entering into a lawful agreement and thereby becoming a contractor should in no way be a bar to the one being a 'developer'. The assessee has developed infrastructure facility as per the agreement with Maharashtra Government/APSEB, therefore, merely because in the agreement for development of infrastructure facility the assessee is referred to as a 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 u/s 80IA(4). The facts of the present case are exactly identical to the facts of that case rendered by ITAT Mumbai Bench in which under identical facts and circumstances, the assessee has been held to be eligible for deduction u/s 80IA(4). Section 80IA(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 55 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= infrastructure facility developed by it by handing over the possession thereof to the concerned authority as required by the agreement. The handing over of the possession of developed infrastructure facility/project is the transfer of the infrastructure facility/project by the assessee to the authority. The handing over of the infrastructure facility/project by the developer to the Government or authority takes place after recoupment of the developer's costs whether it be "BT' or 'BOT' or 'BOOT' because in 'BOT' and 'BOOT' this recoupment is by way of collection of toll there from whereas in 'BT' it is by way of periodical payment by the Government/Authority. The land involved in infrastructure facility/project always belongs to the Government/Local authority etc., whether it be the case of 'BOT' or 'BOOT' and it is handed over by the Government/Authority to the developer for development of infrastructure facility/Project. The same has been the position in the given case as well. So, deduction u/s 80IA(4) is also available to this assessee which has undertaken work of a mere 'developer'. Rather, the statutory provision as contained in section 80IA which provides for deduction of infrastructure facility no way provides that entire infrastructure facility project has to be developed by one enterprise. Thus, as per section 80IA the assessee should develop the infrastructure facility as per the agreement with the Central/State Government/Local Authority. Entering into a lawful agreement and thereby becoming should, in no way be a bar to the one being a 'developer'. In this regard, as we have already stated, the decision of ACIT vs Bharat Udyog Ltd, 118 ITD 336 and Patel Engineering Ltd vs Dy. CIT, 84 TTJ 646, are relevant. As per Circular No. 4/2010 [F. No. 178/14/2010-ITA-I] dated 18.5.2010, widening of existing roads constitutes creation of new infrastructure facility for the purpose of section 80IA(4)(i) . The assessee is not required to develop the entire road in order to qualify for deduction u/s 80IA as has been held by the Hon'ble Bombay High Court in the case of CIT vs ABG Heavy industries Ltd, 322 ITR 323. The newly inserted Explanation 2 to section 80IA vide Finance Act, 2007, does not apply to a works contract entered into by the Government and the enterprise. It applies to a work contract entered into between the enterprise and other party 'the sub-contractor'. The amendment aims at denying deduction to the sub contractor who executes a work contract with the enterprise as held by the ITAT, Jaipur 'A' Bench in the case of Om Metal Infra projects Ltd vs CIT-I, Jaipur, in I.T.A. No. 722 & 723/JP/2008 dated 56 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= 31.12.2008. The reliance by the ld. CIT(A) on the decision of ITAT, Chennai Bench in the case of ACIT vs Indwell Lianings Pvt. Ltd, 313 ITR(AT) 118, has been enlarged in its finding by the ITAT, Mumbai 'F' Bench in its decision rendered in the case of ACIT vs Bharat Udyog Ltd , by holding that such a deduction is only to be denied to a sub-contractor and not a mini contractor. Similar view has been taken by the ITAT Chennai Bench in the case of ACIT vs Smt. C. Rajini (supra) in which both of us constituted the Bench. In this decision the definition and difference between works contractor and a developer has been examined in detail. The main thrust of the decision is that a developer need not be the owner of the land on which development is made. Although that decision was rendered in the context of a developer of buildings and the deduction was in respect of 80IB(10), but the definition of 'developer' given in that case is also relevant for this purpose. Moreover, we are in agreement that in incentive provisions, the construction should be liberally given as held by the Hon'ble Supreme Court rendered in the case of Bajaj Tempo Ltd vs CIT, 196 ITR 188. Thus, when the assessee makes investment and himself executes development work and carries out civil works, he is eligible for tax benefit u/s 80IA of the Act. Accordingly, with the foregoing discussion, we hold that the assessee is entitled to deduction u/s 80IA(4) of the Act, and therefore, we order to delete the addition made in this respect."
6. Therefore, by following the above arguments and reasoning, we confirm the findings of the ld. CIT(A) and do not find any valid merit in the Revenue's appeal. Accordingly, the appeal stands dismissed.
55. Further, we make it clear that where the assessee has carried out the development of infrastructure work in Consortium or jointly with any other agency and not as a sub-contractor, then also the assessee is entitled for deduction u/s 80IA of the Act. The same principle is applicable in respect of work allotted by Government Corporation to the assesee. Being so, we are inclined to partly allow the ground relating to claiming of deduction u/s. 80IA.of the Act.
56. In the result, departmental appeals in I.T.A. No. 233/Hyd/01, 969/Hyd/02, 617/Hyd/03 and 1079/Hyd/03 are dismissed. The 57 I.T.A. No. 84/Hyd/2010 & Ors M/s. KMC Constructions Ltd.
======================= assessee's appeals in ITA Nos. 430/Hyd/03 and 996/Hyd/03 are also dismissed. Assessee's appeals in ITA Nos. 558/Hyd/06, 1027/Hyd/07, 1223/Hyd/07, 338/Hyd/09 and 84/Hyd/10 are partly allowed.
Order pronounced in the open court on 16th March, 2012.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 16th March, 2012
Copy forwarded to:
1. M/s. KMC Constructions Ltd., c/o. Shri S. Rama Rao, Advocate, 102, Shriya's Elegance, D. No. 3-6-643, St. No. 9, Himayatnagar, Hyderabad
2. M/s. Krishna Mohan Constructions Ltd., c/o. Shri S. Rama Rao, Advocate, 102, Shriya's Elegance, D. No. 3-6-643, St. No. 9, Himayatnagar, Hyderabad
3. Asst. Commissioner of Income-tax, Circle-2(1), Hyderabad.
4. Asst. Commissioner of Income-tax, Circle-2(2), Hyderabad.
5. Dy. Commissioner of Income-tax, Circle-2(1), Hyderabad.
6. Addl. Commissioner of Income-tax (Assts), Special Range-2, Hyderabad.
7. The CIT(A)-III
8. The CIT-2, Hyderabad.
9. The CIT, AP-1, Hyderabad
10. The DR -A Bench, ITAT, Hyderabad tprao