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Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Shri A. Mohan Alankamony & Shri S.S. Godara
O R D E R Per S. S. Godara, J.M. These Revenue’s and assessee’s three cross appeals to 1333 and 1340 to 1342/Hyd/2017 arise against the Commissioner of Income Tax – 12, Hyderabad’s separate orders; all dated 15.05.2017 passed in case Nos.0264 to 0266/2014-15, ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 assessment year wise; respectively, involving proceedings u/s 143(3) r.w.s 254 of the Income Tax Act.
Heard both the parties. Case file(s) perused.
We notice at the outset that the sole identical issue that arises for our apt adjudication in the instant batch of Revenue’s and assessee’s three cross appeals each is that of latter’s eligibility to claim section 80IA deduction pertaining to twenty nine irrigation and road projects; as the case may be, containing identical corresponding contract clauses. We thus treat A.Y. 2004-05 as the “lead” year wherein the Revenue’s appeal proposes the following substantive grounds :
Whether on the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in its assumption that the assessee is a developer without any basis and without even referring to the terms of the agreement entered into by the assessee and without even adverting the findings of the AO on the issue.
2. Whether on the facts and circumstances of the case, and in the Law, the Ld. CIT(A) erred in a not appreciating that the explanation to section 80IA of the Act excluded business in the nature of works contract which is exactly the case of the assessee. 3. Whether on the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in not appreciating that the development of a new infrastructure facility is a sine qua non for being eligible for claiming deduction u/s 80IA whereas all the works done by the assessee were to only improve already existing facilities. 4. Whether on the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in a not appreciating the fact the CBDT circular no. 4 of 2010 is applicable only to the widening of existing road and not to simply relaying of an existing road. The Id CIT(A)failed to appreciate categorical findings of the AO that road projects undertaken by the assessee involved only relaying and therefore do not constitute new infrastructure facility. 5. Whether on the facts and circumstances of the case, and in law, the Ld. CIT(A) has grossly erred in extrapolating the clarification in CBDT Circular 2 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 No.4/2010 dated 18-05-2010 which was meant exclusively for road projects onto irrigation projects. The said Circular exclusively deals with road projects. There is nothing in it to suggest its applicability to irrigation projects. 6. Whether on the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in not appreciating that the most of irrigation/canal work undertaken by the assessee are in the nature of repairs, renovations and reconstruction of the existing facility and thus do not constitute new infrastructure facility. 7. The appellant craves leave to amend or alter any ground or add any other grounds which may be necessary.
The assessee’s cross appeal ITA 1340/Hyd/2017 raises the following substantive grounds :
1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous to the extent it is prejudicial to the appellant. 2. The learned Commissioner of Income Tax (Appeals) erred in not directing the Assessing Officer to allow deduction u/s 80IA(4) of the I.T. Act in respect of the following projects : a) U-11, Bellary Road Works – Karnataka. b) U-8, Belgaum Road Works - Karnataka.
We next note that the CIT(A)’s common detailed adjudication partly accepting assessee’s section 80IA deduction claim forming subject matter of challenge in these twin cross appeals reads as under :
4.1 Though the appellant has raised as many as 23 grounds, the only common issue raised in all these grounds is the manner in which the disallowance u/s.80IA was made. Ground Nos.2 to 22 deal with disallowance of claim of 80IA in respect of various Projects executed by the assessee and are being taken up in the ensuing paras. Remaining grounds i.e., 1 & 23 are general in nature, which do not require any specific adjudication. 5.0 Addition on account of disallowance of claim of deduction u/s 80IA(4) – Rs.5,67,75,166/- to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 5.1 While finalizing the order in pursuance to the Hon’ble ITAT direction, AO has disallowed the deduction claimed u/s 80IA(4) on the following Projects by discussing briefly each of the Projects.
The AO examined the facts of the case vis-à-vis the conditions stipulated u/s 80IA(4) of I.T. Act with special reference to important factors such as nomenclature used in work order, nature of agreement, to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 ITA Nos.1331 to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 This lower appellate discussion partly accepting the assessee’s section 80IA deduction relief leaves both the parties aggrieved. The Revenue’s case; as per its pleadings, is that this assessee all along has been a contractor only without having undertaken any business or financial risks; as the case may be. It has further placed reliance on this tribunal’s recent co-ordinate bench’s decision in ITA No.496/Hyd/2018 M/s. NEC NCC MAYTAS – JV Vs. DCIT dated 12.05.2021.
Shri B. Santhi Kumar and Shri Mohan Kumar, learned authorized representatives, have not only drawn strong support from the CIT(A)’s action quoting a catena of case law (supra) but also they have taken pains to refer to the corresponding agreement clauses regarding all twin irrigation and road projects. They stated very fairly that although this assessee had even received varying mobilization advance(s) 5 to 10%, the fact however remains that it had also undertaken all the business as well as financial risks; inter-alia designed, developed as well as ensured maintenance of the projects as per warranty clause within specified period. The assessee further to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 sought to highlight the fact that the Board’s circular (supra) had also entitled an entity engaged in road widening to be a developer only u/s 80IA(4) of the Act.
We have given our thoughtful consideration to rival contentions and find no merit in the assessee’s foregoing arguments supporting the CIT(A)’s action holding it partly eligible for the impugned section 80IA deduction relief. There is hardly any dispute about the assessee having undertaken irrigation and road projects from the concerned government departments in the nature of “works contract” only wherein it not only received mobilization advances in the initial stage but also there was no risk element involved as it had to carry out the construction of the irrigation project or and widening the road (supra) concerned as per the specific terms and conditions and prescribed specifications only. We notice in this factual backdrop that this tribunal’s recent co-ordinate bench’s decision in M/s. NEC NCC MAYTAS – JV Vs. DCIT (supra) has considered the “Explanation” regarding “works contract” u/s 80IA of the Act holding as follows :
4.1 We find no merit in the assessee’s stand. This tribunal’s co- ordinate bench recent order dt.12.05.2021 in M/s. NEC NCC MAYTAS – JV Vs. DCIT has already decided the issue that development of such irrigation works in furtherance to government agencies / “works contracts come under the statutory explanation to section 80IA inserted by the Finance Act 2009 w.e.f. 01.04.2000 substituting the earlier one introduced by the Finance Act 2007 w.e.f. 01.04.2007 as under :
“8. We have heard the foregoing rival submissions qua the instant issue of section 80IA deduction. The assessee has admittedly claimed the same taking itself as the developer by court that a corresponding commercial project firm of “infrastructural facility” as per section 80IA(4) Expln.(c) covering “a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system” only. Our attention has been invited to the to 1333/Hyd/2017 and ITA Nos.1340 to 1342/Hyd/2017 corresponding project’s architectural design (supra). The assessee has thereafter pleaded that it has undertaken the business risk not only in the development of the said lift channel forming part of the irrigation project which has turned barren uneven tracks of land to a canal but also it had deployed all of the corresponding plant and machinery, labour force followed by retention money’s project thereby satisfying all the conditions of development of infrastructure facility. All these assessee's arguments fail to evoke our concurrence for the reasons given hereunder. 9.1 The assessee's first and foremost plea that we ought to adopt liberal interpretation while considering section 80IA(4) claim in the light of relevant facts in the instant case deserves to reject. Suffice to say, such a course of liberal interpretation is no more available while dealing with the Income Tax Act’s provisions as per honourable apex court’s recent constitutional bench’s decision in Commissioner of Customs (Import) Vs. Dilip Kumar and Co. (2018) 9 SCC 1 settling the law that a fiscal statute as well as an exemption clause incorporated therein ought to be construed in stricter parlance only. Their lordships make it clear that benefit of doubt in case of taxing provision goes to the tax payer and vice versa in an instance of an exemption provision. The assessee’s first argument is rejected therefore.
We next examine the merits of the assessee's claim in light of section 80IA(4) r.w. Explanation ( c ) thereof. This is for the reason that the legislature has reintroduced the Explanation; formerly inserted by the Finance Act, 2007 w.e.f. 1.4.2007 that “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,” followed by its substitution by the Finance Act, 2009 w.e.f. 1.4.2000 that “for the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in subsection (4) which is in the nature of a works contract awarded by any person (including the central or state government) and executed by the undertaking or enterprise referred in sub-section (1).”
Learned CIT-DR at this stage quoted Katira Constructions Limited Vs. Union of India and Others (2013) 352 ITR 513 (Guj) upholding vires of the latter explanation that the same is purely explanatory in nature than amending the existing provision and therefore, the question of it being levying any tax with retrospective effect would not rise. It is thus explicitly clear that their lordships have held this latter explanation in the nature of a plain and simple one; neither adding nor subtracting anything to the earlier explanation, inserted vide Finance Acts, 2009 and 2007; respectively. Learned CIT-DR further sought to pin point the fact that the latter explanation inserted vide Finance Act, 2009 w.e.f. ;1.4.2000 has rather covered a work contract as not entitled for the impugned deduction 38 ITA Nos.1331 to 1333/Hyd/2017 and to 1342/Hyd/2017 despite the fact that the concerned assessee satisfied all other conditions in sub-section (4) of section 80IA of the Act. We find force in Revenue’s instant argument as the Finance Act, 2009 substitutes the earlier explanation that the same would not cover a works contract for the purpose of providing deduction qua industrial undertaking or enterprise engaged in infrastructure development, etc.
There is yet another equally important aspect which requires our apt adjudication at this stage i.e. of the clinching legislative expression in the latter explanation “nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the central or the state government)”. We note that honourable apex court yet another larger bench decision in Kartar Singh Bhadana Vs. Hari Singh Nalwa & Ors Civil Appeal No.6931 of 2000 decided on 27.03.2001 had an occasion to deal with the expression “works” used in section 9-A of the Representation of People Act, 1951. Hon’ble court therein went by the shorter Oxford English Dictionary’s meaning that “work means a structure or apparatus of some kind; an architectural or engineering structure, a building edifice. When it was used in the plural, that is, as works, it meant architectural or engineering operations, a fortified building, a defensive structure, fortification or any of the several parts of such structures”. Their lordships also took note of honourable jurisdictional high court’sjudgment in B. Laxmikantha Rao Vs. D Chinna Mallaiah AIR 1979 AP 132 whilst adopting the dictionary meaning of “work” in foregoing terms. We further quote Raghunath Rai Baraza Vs. PNB (2007) 135 Company cases 163 (SC) that it is the cardinal rule of interpretation that words used by the legislature are to be understood in their natural, ordinary or popular sense or constructed as per their grammatical meaning unless such a construction lead to some absurdity or there is something in the context or in the object of the statute to the contrary.
We go by the foregoing observations of their lordships and observe that the stages I & II of the Bhima Lift Irrigation project undertaken by the assessee containing “ all the civil works like canal approach to the tunnel, tunnel, surge pool pump house, delivery mains manufacturing, testing, inspection, packing, supply, erection and commissioning of electro mechanical and hydro mechanical equipment” indeed formed an architectural as well as engineering structure and therefore, amounts to an execution of a “works contract awarded by the state government” through its irrigation development only and covered u/s. 80IA Explanation incorporated in the Act by the Finance Act, 2009 w.e.f. 1.4.2000. Learned CIT-DR at this stage invited our attention to page 18 in assessee's Paper Book II Part 1 that it had purely executed “works contract” only in view of the fact that the irrigation department had issued it mobilization advances on multiple occasions from time to time. He next took us to agreement clause 3.15 containing “contract price and payment” making it evident that the assessee had to be paid on “fixed 39 ITA Nos.1331 to 1333/Hyd/2017 and to 1342/Hyd/2017 lump sum monthly basis” only. And further that the assessee was entitled to get “fixed lump sum monthly instalment payments provided value of the work executed is more than or equal to the fixed lump sum monthly instalment as indicated in the agreement.” The said agreement stipulated advance payments to the assessee qua supply of goods at the site. All these facts sufficiently indicate that the assessee, assuming that not accepting that it is the developer u/s. 80IA(4) of the Act, executed a works contract only under Explanation to section 80IA of the Act and therefore, not entitled for the impugned deduction.
The assessee next made a very strong endeavour to place reliance on a catena of case law (supra) including CIT Vs. ABG Heavy Industries Limited (2010) 322ITR 323 (Bom). We find that neither of these decisions deals with the interplay between the section 80IA(4) Vs. 80IA Explanation involving execution of works contract as is the factual position before us. The said case law distinguished, therefore.
Mr. Afzal’slast argument seeks to buttress the point that such a strict interpretation employed in dealing with an instance of development of an infrastructure project would tantamount to closing the deduction chapter altogether and more particularly, when this assessee has borne all risks and responsibilities of the lift irrigation project by paying reduction money and performance guarantee(s) as well. We hold that this last argument also fails to cut any ice since the assessee has merely performed a works contract and its retention money or the so called performance guarantee only gave an assurance to the irrigation development that it had carried out the corresponding construction etc. as per the specified design norms than involving any business risk. We accordingly hold the view of our independent appreciation of facts as well as assessment findings that the assessee is a contractor having executed works contract only.
We also deem it appropriate to quote Adam Smith’s ‘The Wealth of Nations’ (published in 1776 and called as the founding work on modern economics) that “ It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
Nevertheless, the same connotation applies in the facts of the instant case. It is clear that the assessee has first of all been paid mobilization advances by the state government’s department on periodic basis, and, then only it executed the corresponding lift irrigation project works contract followed by its yet another claim of section 80IA of the Act deduction (supra). We are afraid that such a liberal interpretation would amount to going against the stricter interpretation principle in view of honourable apex court decision (supra). We accordingly conclude both the learned lower authorities have rightly disallowed assessee's 80IA deduction claim involving varying sum(s) (supra) in their respective orders. The same stands confirmed. These assessee's appeals are dismissed therefore.”
ITA Nos.1331 to 1333/Hyd/2017 and to 1342/Hyd/2017
We thus hold that section 80IA’s Explanation(s) is squarely attracted herein that even if the assessee itself is treated as the developer under sub-section (4) of the very provision, the impugned claim shall be hit by the foregoing Explanation as its business is in the nature of a “works contract” only. Reliance placed on all earlier orders (supra); not considering the statutory “Explanation(s)”, are not forced to be binding precedent in light of CIT Vs. B.R. Constructions (1993) 202 ITR 222 (AP). The Revenue’s lead appeal ITA 1331/Hyd/2017 is allowed and assessee’s cross-appeal ITA 1340/Hyd/2017 is dismissed in above terms.
We make it clear that we have decided the sole issue of section 80IA deduction in Revenue’s favour, all other pleadings on merits are rendered academic.
Same order to follow in remaining two years’ cross-appeals and 1333 and 1341 and 1342/Hyd/2017 filed by the Revenue and assessee; respectively, since involving the very 29 or identical projects only.
ITA Nos.1331 to 1333/Hyd/2017 and to 1342/Hyd/2017
10. Theses Revenue’s three appeals to 1333/Hyd/2017 are allowed and the assessee’s cross appeals ITA Nos.1340 to 1342/Hyd/2017 are dismissed in above terms. A copy of this common order be placed in respective case files.