Income Tax Appellate Tribunal - Delhi
Vrm (I) Ltd, vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'H' : NEW DELHI
BEFORE SHRI RAJPAL YADAV, JM AND SHRI R.C.SHARMA, AM
ITA No.811/Del/2008
Assessment Year : 2004-05
Dy.Commissioner of Vs. M/s V.R.M. (India) Limited,
Income Tax, B-33, Defence Colony,
Circle-17(1), New Delhi.
New Delhi. PAN No.AAACV4698J.
(Appellant) (Respondent)
Appellant by : Shri N.K.Chand, Sr.DR.
Respondent by : Ms.Padma Priya and
Shri Mukesh Kumar, Advocates.
ORDER
PER R.C.SHARMA, AM :
This is an appeal filed by the Revenue against the order of CIT(A) dated 18.12.2007 for AY 2004-05, wherein Revenue has raised following ground in its appeal:-
"On the facts & in the circumstances of the case, the ld.CIT(Appeal) has erred in deleting the disallowance of Rs.47,03,714/- made by the AO by rejecting the claim of the assessee in respect of the deduction u/s 80IB(10) of the I.T.Act, 1961."
2. Rival contentions have been heard and record perused. Facts in brief are that assessee is engaged in the business of building and developing of housing projects. In its return of income, the assessee has claimed deduction u/s 80IB(10) which was declined by the AO. In the course of assessment u/s 143(3), the AO observed that the assessee, M/s V.R.M.(India) Ltd. is a construction company which is engaged in construction activity since 1996-97. The company has been allotted during the FY 2001-02 the work of housing project worth Rs.12,53,65,692/- for the construction of housing units measuring 450 sq.ft. each 2 ITA-811/D/2008 on area more than one acre of land at Sector-62, Noida by Indian Railway Welfare Organization (in short IRWO). Another work had also been allotted of housing project worth Rs.22,82,96,800/- for the construction of housing unit measuring 38 to 42 sq. metre each on area more than one acre of land at Sector 14, Dwarka, Phase-II, New Delhi by Delhi Development Authority (in short DDA). Both the above works remained continued in the year under consideration. From the above two works, the contract receipt during the year under consideration has been shown at Rs.54,78,5,200/-. The profit out of this contract receipt is being shown at Rs.48,40,725/-. Out of this, Rs.47,03,714/- has been claimed exempt from tax in view of the deduction u/s 80IB(10) of the I.T.Act.
3. The AO further observed that Section 80IB(10) states as under:
The amount of deduction in the case of an undertaking, developing and building housing projects approved before the 31st day of March 2007 by a local authority shall be hundred percent of the profit derived in the previous year relevant to assessment year 2004-05 from such housing projects as:
(a) Such undertaking has commenced or commences development and construction of housing project on or after the 1st day of Oct 1998 and completed such construction :
(i) in a case where a housing project has been approved by the local authority before the 1st day of April 2004 on or before the 31st day of March 2008.
(b) the project is on the size of a plot of land which has a minimum area of one acre.
(c) The residential unit has a maximum build up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or 3 ITA-811/D/2008 within 25 Kms. from the municipal limits of these cities and one thousand and five hundred square feet at any other place.
4. As per AO, the profit derived only from developing and building housing project which are approved by local authority is eligible for deductions u/s 80IB.
So there should be
(i) A proposal should be for developing and building housing from the assessee side.
(ii) The assessee should develop and build the housing project.
(iii) The project should belong to the assessee.
(iv) The assessee should have submitted its proposal to a local authority and there should be an approval of proposal for the project from local authority.
5. In view of the above discussion, the AO observed that in this case, the company had executed the work relating to housing project of IRWO and DDA. There, the project belongs to IRWO & DDA. The assessee company did not develop and build any housing project of its own but simply executed the contract work awarded to it by DDA & IRWO. Hence there is no development of building of housing project of its own. Vide letters dated 21.7.2006, 26.9.2006 and 13.11.2006 the assessee was asked to file copy of its proposals submitted for approval to Noida Authority being the local authority & DDA and the copy of approval granted to the assessee company by the local authority for developing and building housing projects. In response, the assessee company filed the letter dated 10.1.2002 of Executive Engineer, SW D-9, DDA accepting the tender of the assessee. Another letter dated 30.7.2001 from the Director Technical IRWO accepting the tender for the construction of dwelling works has also been filed. From the letter dated 10.1.2002 of DDA and the copy of agreement attached with it and the letter dated 30.7.2001 of IRWO and copy of agreement attached with it, the AO observed that the assessee was merely a contractor and has executed the work according to the plan, terms and conditions of the contractee.
4 ITA-811/D/2008
6. The Indian Railway Welfare Organization vide letter dated September 16, 2005 addressed to the AO, Ward 17(1) stated that M/s V.R.M. (India) Ltd., the contractor was awarded a contract work for construction of 260 dwelling units including all civil, electrical, plumbing, sewerage, road, pavements, drains, underground water tank etc. at the rates provided in the schedule. As per letter dated 17.9.05 of DDA addressed to the ITO, W. 17(1), it has been explained that the rate contract on which the work is awarded is Rs.22,82,96,800/- and the work is completed as per specifications given.
7. The AO outrightly declined the claim of the assessee u/s 80IB(10) by observing that assessee is only a contractor and not a developer. The AO also observed that in its support, the assessee company has relied upon the decision of ITAT Delhi Bench 'D' order in ITA No.430 & 5026/Del/2004 dated 17.2.2006 in the case of M/s Villayati Ram Mittal Pvt.Ltd. Vs. ITO, 17(3), New Delhi. In respect of this decision, the AO observed that against the order of ITAT dated 17.2.2006, the department has filed the appeal before the Hon'ble Delhi High Court on 20.7.2006, therefore he did not agree to follow the decision of Coordinate Bench and held that considering the facts and circumstances of the case, the deduction u/s 80IB(10) cannot be allowed as the assessee company is a contractor and not a developer.
8. Aggrieved by this order of the AO, the assessee approached to the CIT(A). By the impugned order, the CIT(A) allowed the assessee's claim of deduction u/s 80IB(10) by observing that the terms 'Contractor' and 'Developer' are not mutually contradictory and that just because the assessee is a contractor, this does not detract the assessee from the position of being a developer. As per CIT(A), the position in Section 80IA(4) is equitable to that of provisions of Section 80IB(10), under which Section, the assessee is presently claiming entitlement. In view of the above, this issue was decided in favour of the assessee.
5 ITA-811/D/2008
9. Against the above order of CIT(A), the Revenue is in further appeal before us. It was contended by the learned DR Shri N.K.Chand that the assessee is a construction company engaged in the business of civil construction work, profit of which is not eligible for claim of deduction u/s 80IB(10) in view of the amendment brought in by introduction of Explanation to Section 80IB(10) with retrospective effect. He drew our attention to the Explanation which reads as under:-
"[Explanation .- For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).]"
10. He further submitted that in view of the explanation to Section 80IB(10) which was inserted retrospectively, deduction under this Section is not available to assessee who is merely contractor and executed works contracts. He placed reliance on the decision of Chennai Bench in the case of Indwell Linings (P) Ltd. - 313 ITR 118 (Chennai)(AT) and contended that Hon'ble Bench has clearly held that benefit of Section 80IA was available a developer only and a person who enters into a contract with another person for executing works contract would not be eligible for tax benefit u/s 80IA of the Act. He also placed on record the decision of the Special Bench in the case of B.T.Patil & Sons Belgaum Construction Pvt.Ltd. - 126 TTJ 577 (Mumbai), wherein it was held that deduction under Section 80IA(4) is not available to a contractor even prior to the amendment, insofar as the assessee is not developing any infrastructure facility at its own but only executing the civil construction work. Shri Chand further stated that in the report furnished u/s 44AB of the IT Act alongwith the return of income, the assessee itself has shown the nature of business as a contractor. In view of all these contentions, learned DR Shri Chand vehemently argued that the assessee having only executed works contract, is merely a contractor and not developer, no deduction under Section 80IB(10) is available to it.
6 ITA-811/D/2008
11. On the other hand, learned AR contended that assessee is engaged in the construction of building and developing housing projects and during the year under consideration, it was allotted work of construction and development of housing units by Indian Railway Welfare Organization (IRWO), Delhi and Delhi Development Authority (DDA). She further submitted that Section 80IB(10) clearly provides that if an undertaking is developing and building the housing projects, deduction u/s 80IA(10) is available. As per learned AR, the explanation added to Section 80IB(10) is not applicable in the assessee's case insofar as assessee was not undertaking merely works contract but has undertaken the development and building of housing project. Our attention was drawn to the letter dated 10.1.2002 issued by the DDA defining the scope of work of assessee is to undertake, which finds place in the paper book, the terms and conditions of the letter reads as under:-
"Terms & Conditions:-
i) The flats shall be 5 (Five) storeyed framed structure, (756 Nos.) with plinth area of 42 sqm. Each, in case the number of units/plinth area decreases due to unavoidable reasons, the cost shall be proportionately reduced Rs.7,190/- (Rupees Seven Thousand One Hundred Ninety Only) per sqm.
ii) The scope of work, as stated in the N.I.T. to be executed on Turnkey basis includes planning, designing, soil testing, earth filling, civil works, including its electrification, infrastructure, services like street lighting, sewerage, water supply drainage, roads, horticulture, landscaping, provision of dual water supply system, rains water harvesting as also construction of community hall, shopping center, boundary wall, electric sub-station, installation of transformer & equipment in it, laying of H.T. cables, L.T. network, service cables etc. and making the units complete & habitable including watch and ward for 3 (three) years from the date of recorded completion. This scope of work given in the NIT is only indicative and not exhaustive.
The agency shall be responsible for execution of all items required for completing these houses in all respects to make these units habitable and ready for occupation as well as functioning of all 7 ITA-811/D/2008 services, making environment fit for habitation without any additional cost, complete as per direction of the Engineer-in-charge.
iii) The flats will be maintained till these are handed over to the Engineer-in-charge in good conditions and free from all defects.
(iv) The services will be handed over to the various local bodies after its completion as per approved plans, etc., as stated in the NIT also.
(v) Before taking up the work, the layout plans as well as building plans, structural designs etc. are to be got approved from DDA/competent authority as mentioned in NIT by adhering to the time schedule laid down in the NIT.
(vi) The agency will also be responsible for getting the fire fighting arrangements, approved from the Delhi Fire Services before execution of the water supply scheme."
12. Learned AR also placed on record detail of scope of work allotted by the DDA and contended that the work so allotted was not merely civil construction but included planning, designing and execution in accordance with the layout plan and architectural/structural drawings to be approved by the DDA alongwith development of infrastructure. She further highlighted the scope of the work which as per the letter of the DDA was to be carried out which inter-alia included survey of the site, preparation of layout plan within the development controls, soil investigation, complete structural design, drawing for foundations, super structure, other structures, construction of all planned buildings, structures like UGR, pump house, boundary wall etc., all was to be completed as per the approved design, drawings and specifications including complete finishing of kitchen, sink, toilet, wash basin, taps, cocks, etc. The scope of work also included planning, designing and execution of internal sanitary systems, water supply, drainage systems including all its fittings, fixtures testing etc. She further submitted that as a developer, the assessee was also to undertake necessary arrangement for supply of water through dual pipe systems, planning, designing, earth filling, civil work including its electrification, infrastructure services like street lighting, sewerage, 8 ITA-811/D/2008 water supply, drainage, roads, horticulture, landscaping provision of dual water supply, rains water harvesting as also construction of community hall, shopping center, boundary wall, electric sub-stations, installation of transformer and equipment in it and laying of HT cables etc.
13. In view of the above scope of work, she vehemently contended that for claim of deduction u/s 80IB(10), the assessee had complied with the conditions of a builder and developer and that the activity of building and developing a housing project would essentially mean that the assessee should be a developer and builder. Accordingly, the assessee who is developing and building in substance would be eligible for deduction and a contractor or booking agent or advertising agent or broker etc. would not be eligible for the said deduction. She further submitted that developer and builder, normally enters into a development agreement with the landlord who allows the developer to develop the land and raise building on the land. Plan for such project may be passed in the name of the landlord, but it is the developer and builder who has to undertake all the civil responsibility under the central, state and local regulations. She further contended that the developer and builder need not be the owner of the land. She also laid emphasis on the definition of the "developer" as provided in Concise Oxford Dictionary, 9th Edition, wherein it was provided that the work "develop" means (a) to construct new building on land and (b) to convert land to a new purpose so as to use its resources more fully. The meaning of the expression "development" as per the aforesaid dictionary is the act of developing or the process of being developed.
14. Reliance was also placed by the learned AR on the decision of the Hon'ble Supreme Court in the case of Gujarat Industrial Development Corporation & Others - 227 ITR 414, wherein while answering the question, whether "industrial development" could be enveloped within the expression "planning, development or improvement of cities, towns and villages or for both" in section 10(20A) of the Act, held that "development" involved planning and developing roads, buildings, 9 ITA-811/D/2008 sanitation, parks, educational institutions and other amenities in industrial area. The word "development" in section 10(20A) of the Act should be understood in its wide sense. There is no warrant to exclude all development programmes relating to any industry from the purview of the word "development" in the said clause. There is no indication in the Act that the development of a place can be accelerated through varieties of schemes and establishment of industries is one of the modes of developing an area.
15. Reliance was also placed on the decision of ITAT Coordinate Bench Jaipur in the case of Om Metals Infraprojects Ltd. wherein amendment by the Finance Act 2007 was elaborately discussed and it was held that it applies to a person who enters into a contract with an undertaking or enterprise and not to a work contract entered into by a government and the enterprise. It was further observed that Section 80IA(4) itself provides that the assessee should develop the infrastructure facility as per the agreement with the government and that even insertion of Explanation-2 to Section 80IA vide Finance Act 2007 has not altered this situation. It only applies to a work contract entered into between the enterprise and other party "the sub contractor". This amendment was held to be merely aims at denying deduction to the sub-contractor who executes the work contracts with the enterprise. Learned AR also drew our attention to the comparable instances quoted in the above case law which reads as under:-
• Write up on the purpose of installation of gates on the reservoir and its function in the Goshi Khurd Project has been narrated by the Vidharbha Irrigation Development Corporation, Nagpur, a Government of Maharashtra Undertaking.
• Tender was invited with general and technical specifications of work. • Tendered documents floated by Vidharbha Irrigation Development Corporation, Nagpur (a Government of Maharashtra Undertaking) narrating the commercial terms and conditions of the contract for spillway crushed 10 ITA-811/D/2008 gates, designs, manufacture, supply and erection of radial gates with hoist embedded plans, ancillary equipment and accessories etc. have been detailed.
• The description of the project the scope of the work floated by the VIDCN was narrated.
• Performance, security to special conditions of contract was provided. • Contractor's liability and insurance was there in the agreement. • Scope of work, general description and general conditions were mentioned. • Contractual obligations were present.
• The general description of the work, estimated cost, earnest money, security deposit and time allowed for the work were narrated in the agreement.
• Conditions of payment to the contractor were mentioned. • Action and compensation payable in case of bad work were mentioned. • Liability of contractor for damage done and for imperfection. • Reflecting the activities of the assessee involving huge amount in performing the assigned work.
16. As per learned AR, all the above clauses as discussed by the Tribunal were also present in the agreements executed between the assessee company and IRWO/DDA. Accordingly, she argued that assessee is eligible for claim of deduction u/s 80IB(10) of I.T.Act.
17. Learned AR further contended that the provisions of Section 80IB(10) are incentive provisions, therefore same must be construed liberally and in favour of the assessee so as to give full effect to the intention of the legislature. For this purpose, reliance was placed on the decision of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. - 196 ITR 188 wherein at page 189, following was observed by the Apex Court:-
11 ITA-811/D/2008 "A provision in a taxing statute granting incentives for promoting growth and development should be constructed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provisions and not to frustrate it."
18. In the light to the aforesaid judgement of the Apex Court and the provisions of Section 80IB(10) of the Act, as per learned AR the assessee company is entitled to deduction under Section 80IB(10) of the Act.
19. We have considered the rival contentions, carefully gone through the orders of the authorities below and deliberated upon the judicial pronouncements relied on by the learned AR and learned DR as well as discussed by the lower authorities in their respective orders. From the record, we found that assessee company was basically engaged in the business of building and developing of housing projects alongwith infrastructure. During the year under consideration, it has developed and executed two housing projects for DDA and IRWO. Profit derived from these projects was claimed as exempt under Section 80IB(10). In view of the explanation inserted to Section 80IB(10) with retrospective effect, according to which an undertaking executing the housing project as a work contractor will not be eligible for claim of exemption u/s 80IB(10), in respect of profits derived from such contract work, the contention of learned DR was that assessee was just a contractor and not developer, therefore in view of the amendment brought in retrospectively by insertion of the explanation, the assessee is not eligible for claim of deduction under Section 80IB(10). In this regard, we are inclined to agree with the learned DR that exemption under Section 80IB(10) is only available to an assessee who is working as a developer and builder and not to an undertaking who is merely working as a contractor. Now on the facts of the case and in the light of scope of work assigned to the assessee and undertaken by it, we 12 ITA-811/D/2008 have to decide whether the assessee company has worked simplicitor as a contractor or as a developer and builder of housing project.
20. For better understanding of exemption available under Section 80IB(10) and the explanation introduced retrospectively w.e.f. 1.4.2001 applicable from the AY 2001-02 onwards, relevant provisions are reproduced hereunder:-
"[(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 6a [2008] by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,--
(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,--
(i)in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;
(ii)in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority.
Explanation.--For the purposes of this clause,--
(i)in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;
(ii)the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;
(b) the project is on the size of a plot of land which has a minimum area of one acre:
Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf;
(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi 13 ITA-811/D/2008 or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place; 6b[and]
(d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed five per cent of the aggregate built-up area of the housing project or two thousand square feet, whichever is less.] The following clauses (e) and (f) shall be inserted after clause (d) of sub-section (10) of section 80-IB by the Finance (No. 2) Act, 2009, w.e.f. 1-4-2010 :
(e) not more than one residential unit in the housing project is allotted to any person not being an individual; and
(f)in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely:--
(i)the individual or the spouse or the minor children of such individual,
(ii)the Hindu undivided family in which such individual is the karta,
(iii)any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.
6c [Explanation.--For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).]"
21. It is crystal clear from the plain reading of Section 80IB(10) that deduction is available in case of an undertaking developing and building housing projects approved before 31.3.2008 by the local authority and that such undertaking has commenced construction of the housing project on or after 1st day of October 1998 and the deduction eligible is 100% of the profits derived from such housing projects. An explanation has been introduced below Section 80IB(10) to the effect that nothing contained in this sub-section shall apply to an undertaking which executes the housing projects as a works contract awarded by any person including the central or state government. In the instant case before us, the project undertaken by the assessee company was undisputedly approved prior to 31.3.2008. There is also no dispute to the fact that assessee has commenced construction of housing project after 1.10.1998. The copies of approval of the 14 ITA-811/D/2008 projects from the local authorities were also duly submitted to the AO and the same are appended in the assessee's paper book at pages 1 to 5. However, in view of the explanation introduced with retrospective effect, the benefit of exemption under Section 80IB(10) is available only to an undertaking developing housing projects as a developer and not merely as a work contractor. For finding out whether on the facts and circumstances of the case the assessee has undertaken the work of housing project as a 'developer and builder' or as a 'work contractor simplicitor', we have to examine the nature of work undertaken and executed by the assessee. As the words "developer" and "contractor" have not been defined in Section 80IB nor in the General Clauses Act, we can take the dictionary meaning. As per Chambers 21st Century Dictionary (Revised Edition), "contractor" means "a person or firm that undertakes work on contract, specially connected with building, installation of equipment or the transportation of goods". The word "developer" has been defined as "someone who builds on land or improves and increases the value of building". It is crystal clear from the above definition that scope of work of developer is wider than the contractor insofar as contractor only undertakes works connected with the building, installation of equipment or the transportation of goods whereas the developer is a person who builds on land or improves or increases of a building by undertaking development of infrastructure and perennial facility of such building. Now, we have to examine the nature of work undertaken by the assessee in the instant case before us, with reference to the scope of work allotted to it and undertaken by it. For this purpose, we have gone through the agreement executed by the assessee and the complete scope of work assigned to the assessee in terms of the agreement and which has actually been undertaken by the assessee for performance of the work undertaken by it. In terms of the agreement so executed by the assessee, following is the scope of work assigned to the assessee :-
"Terms & Conditions:-
i) The scope of work, as stated in the N.I.T. to be executed on Turnkey basis includes planning, designing, soil testing, earth
15 ITA-811/D/2008 filling, civil works, including its electrification, infrastructure, services like street lighting, sewerage, water supply drainage, roads, horticulture, landscaping, provision of dual water supply system, rains water harvesting as also construction of community hall, shopping center, boundary wall, electric sub- station, installation of transformer & equipment in it, laying of H.T. cables, L.T. network, service cables etc. and making the units complete & habitable including watch and ward for 3 (three) years from the date of recorded completion. This scope of work given in the NIT is only indicative and not exhaustive. The agency shall be responsible for execution of all items required for completing these houses in all respects to make these units habitable and ready for occupation as well as functioning of all services, making environment fit for habitation without any additional cost, complete as per direction of the Engineer-in-charge.
ii) The flats will be maintained till these are handed over to the Engineer-in-charge in good conditions and free from all defects.
(iii) The services will be handed over to the various local bodies after its completion as per approved plans, etc., as stated in the NIT also.
(iv) Before taking up the work, the layout plans as well as building plans, structural designs etc. are to be got approved from DDA/competent authority as mentioned in NIT by adhering to the time schedule laid down in the NIT.
(v) The agency will also be responsible for getting the fire fighting arrangements, approved from the Delhi Fire Services before execution of the water supply scheme."
22. It is crystal clear from the scope of work as enumerated above and which has been undertaken by the assessee, that the assessee has worked as a builder and developer of housing project as a whole and for this purpose he has undertaken work of planning, designing of layout plan and architectural/structural drawing of complete housing project as approved by the DDA. It has also carried out survey of the site, also prepared layout plan within the development controls, and has also undertaken detailed soil investigation, prepared complete structural, design and drawing for foundations and drawing for super structure. The assessee company has also undertaken the work of planning, designing and execution of internal 16 ITA-811/D/2008 sanitary system, water supply system, drainage system, including all its fittings and fixtures, testing etc. As a developer, the assessee company has also undertaken necessary arrangements for supply of water through dual pipe system, planning, designing, earth filling, civil works including its electrification, infrastructure services like street lighting, sewerage, water supply, drainage, roads etc. As a developer, the assessee company has also undertaken horticulture, landscaping, provisions for dual water supply, rains water harvesting and also construction of community hall, shopping center, electric sub-station, installation of transformer and equipment in it and also laying of HT cables etc. Had the assessee undertaken the housing project as works contract, its scope of work was limited to civil construction work. Whereas as a developer, assessee had undertaken work of land scaping, roads, electrification, infrastructure services like street lighting, sewerage, water supply, drainage, horticulture, electric sub-stations, installation of transformer, laying H.T.Cables etc.
23. The detailed scope of the work as enumerated above which was undertaken by the assessee, it can safely be concluded that on the facts of the case, the assessee has worked as a developer and not merely as a work contractor. Accordingly, we do not find any merit in the action of the AO for declining claim of deduction u/s 80IB(10) of IT Act. With regard to AO's observation that the project should be owned by the assessee for claim of exemption u/s 80IB(10) is misplaced insofar as there is no condition in Section 80IB that the project undertaken by the assessee as a developer and builder should be owned by the assessee. The only condition is with regard to the fact that only activity of developing and building a housing project would be eligible for claim of exemption u/s 80IB. It means that the assessee who is a developer and builder in substance would only be eligible for the deduction and not a contractor simplicitor. With regard to learned DR's contention that since the assessee himself has shown as a contractor in the tax audit report, he will not be eligible for claim of deduction u/s 80IB. In this regard, it is pertinent to mention here that 17 ITA-811/D/2008 whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view, which the assessee might taken of his rights, nor can the existence or absence of entries in his books of account or observation in the tax audit report will be of much relevance. Particulars in the tax audit report are not restricting the status of the assessee as to the contractors only. Even admission of the assessee is held to be not conclusive as held by the Hon'ble Delhi High Court in the case of Easter Industries Ltd. - 316 ITR 260. Hon'ble Supreme Court in the case of Satluj Cotton Mills - 116 ITR 1 observed that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity with the proper principles of accountancy, concealed profit or showed loss and the entries made by him cannot be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profits or loss to the assessee. Similar view has been taken by the Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Co.Ltd. - 82 ITR 363, where it was observed that whether the assessee is entitled to a particular deduction will depend on the provisions of the law relating thereto and not on the view which the assessee might take on his rights, nor the existence of entries in his books of account be decisive or conclusive in the matter. In view of these judicial pronouncements, mere mention by the assessee in TAR will not detract him from the legal rights which he is entitled to under Section 80IB of the Act. Similarly, since ownership of the project is not provided as a precondition for the claim of deduction u/s 80IB(10), there is no merit in the AO's allegation for decline of assessee's claim for such plea.
24. In the case law relied on by the learned DR reported at 126 TTJ 557 in the case of B.D.Patil & Sons (supra), the issue was with regard to claim of deduction u/s 80IA(4) and in this case on the finding of fact that assessee was neither a 18 ITA-811/D/2008 developer nor it was fitted into any of the two categories of the eligible business of
(i) developing, (ii) maintaining and operating infrastructure facility on one hand or
(iii) developing, maintaining and operating any infrastructure facility on the other, it was held that assessee is not entitled to claim of deduction u/s 80IA. The Bench further observed that the learned AR has taken assistance from the language of this Section reading the word "or" between (i) and (ii) from the provisions as applicable to AY 2002-03 onwards, which are obviously not relevant for our purpose. We are dealing with AY 2000-01 and 2001-02 and the punctuation sign of coma is used between clause (i) and (ii) of Section 80IA(4) and not the word "or" as suggested by the learned AR. It shows that the benefit of deduction in these years is available not to the developer of the infrastructure facility until he maintains and operates it as well. The same condition can be found in sub-section (2) also. In view of the fact that coma has been used between (i) and (ii) and the word "or" has been used only between (ii) and (iii) of sub-section (4)(i), it shows that there are two types of eligible assessees for deduction under this Section in the years under consideration. First are those who develop the infrastructure facility and after some time transfer it to someone else [on or after 1.4.1999 as per proviso below sub-clause (c) to sub-section (4)(i)] to operate on their behalf in accordance with the agreement with the Central/State Government or local/statutory authority. Second category comprises of those who develop the infrastructure facility and also themselves operate and maintain the same. The use of punctuation sign coma between clauses (i) and (ii) cannot be substituted with the word "or" as used between (ii) and (iii) of sub-section (4)(i). Each and every word or sign of punctuation used by the legislature in the language of section carries its own meaning and depicts the intention of the legislature. It is not as if coma has been accidentally inserted between (i) and (ii) as against the intention of using the word "or", as suggested by the learned AR. Wherever the legislature intends to provide for choosing one of the alternatives it uses the word "or" between such options but where the intention is to make operative all the given propositions punctuation sign coma or/and the conjunction "and" is used between or amongst the relevant 19 ITA-811/D/2008 propositions. Here it is important to mention that the legislature inserted the word "or" between (i) and (ii) w.e.f. 1.4.2002, which is applicable to AY 2002-03. So, w.e.f the AY 2002-03, not only the enterprise (i) developing, (ii) operating and maintaining the infrastructure facility shall be entitled to deduction, but also the enterprise which is only (i) developing or (ii) operating and maintaining the infrastructure facility. From such year onwards the enterprise which only develops the infrastructure facility and thereafter transfers it to someone else for operating and maintaining on behalf of transferee shall also be covered for the purposes of granting benefit. The difference in the situation between AY 2002-03 onwards and prior two years is that whereas the operation and maintenance of the infrastructure facility on behalf of the enterprise developing is necessary in the former period, but in the later period the operation and maintenance shall be on behalf of the transferee enterprise itself. Since in the years in question the transfer of the enterprise for operation and maintenance has necessarily to be on behalf on the enterprise developing the infrastructure facility, and for the time being assuming without admitting the contention of the learned AR that the assessee is developer of infrastructure facility, it does not satisfy the other condition of its transfer for operating and maintaining on its behalf for the obvious reason that there is no transfer at all of any infrastructure facility from the assessee, much less for operating and maintaining on its behalf. The Tribunal further observed that in this case, the assessee claiming exemption u/s 80IA was doing only a part of the contract, he was not performing the full contract as a developer, whereas in the case before us, as discussed hereinabove, the assessee company was performing the whole contract entered into and worked as developer starting from earth leveling, road making, horticulture, soil testing, electrification, underground cabelling of entire area, putting HT lines, street lighting, sewerage, water supply, drainage etc. Thus, this case is distinguishable on facts and does not help the Revenue for declining assessee's claim u/s 80IB(10).
20 ITA-811/D/2008
25. The restriction put in by the insertion of Explanation to Section 80IB(10) relates to denial of exemption to an undertaking which executes the housing project as a work contract. In view of the above findings recorded by us which is as per the scope of the work actually undertaken by the assessee in terms of the agreement executed with DDA/IRWO, we can safely conclude that assessee has worked as a developer, therefore claim for exemption u/s 80IB cannot be denied. We accordingly dismiss the appeal of the revenue for the above mentioned reasons.
26. In the result, the appeal of the Revenue is dismissed.
Decision pronounced in the open Court on 23rd April, 2010.
Sd/- Sd/-
(RAJPAL YADAV) (R.C.SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 23.04.2010.
VK.
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
Deputy Registrar