C I T JAIPUR vs. M/S OM METAL INFRAPROJECTS LTD

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 442 / 2009 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj) ----Appellant Versus M/s OM Metals Infraprojects Ltd., (formerly M/s Om Metals Ltd.), Om Power, Church Road, M.I. Road, Jaipur ----Respondent D.B. Income Tax Appeal No. 446 / 2009 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj) ----Appellant Versus M/s Om Metals Infraprojects Ltd., (Formerly M/s Om Metals Ltd.) Om Power, Church Road, M.I. Road, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana, Mr. Mahendra Gargeiya _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 22/08/2017

In both these appeals common questions of law and facts are involved, hence, they are decided by this common judgment. 1. By way of the appeals, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has

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allowed the appeals of the assessee wherein the notice issued under Section 263 was quashed and set aside. 2. This Court while admitting the matters framed the following question of law:- “Whether on the facts and in the circumstances of the case, the ITAT was justified in setting aside the revisional order passed under Section 263 of the Income Tax Act, 1961.?” 3. Counsel for the appellant contended that the view taken by the Tribunal is contrary to law and is required to be quashed and set aside. Counsel for the appellant has taken us to the view of the Tribunal in para 11.1 which reads as under:- “11.1 So far as the contention of the Ld. D/R is concerned regarding that the assessee is not the developer of irrigation project since under section 80IA(4) "developer” who do not "operate and maintain" the infrastructure facilities are not eligible for the deduction, we do not agree with. Since in our view the word "OR" has been inserted in section n our 80IA(4) (i) as any enterprise carrying on the business of (i) developing, or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility has been introduced by the legislature from assessment year 2002- 03 only to remove the ambiguity. Hence the insertion of word "OR" was clarificatory in nature. This amended provisions of section were very much in operation in the assessment years

2003-04

and

2004-05

under consideration. The plea of the Ld. CIT that as per the provisions of section 80IA(4), for the relevant previous year, the enterprise carrying on business of developing the infrastructure facility was eligible for deduction only on the profit earned from "operating and maintaining" the infrastructure facility and that the enterprise was not to the eligible for deduction on the profit derived from "developing" the infrastructure facility is over lapping is not

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acceptable The Ld. CIT, in our view, has mis- read the provision by forming a view that a person who earns profit from projects secured under a works contract is not eligible for deduction under section 80IA(4). A perusal of the said section, however, indicates that there is no such mandate in the section. The term "contractor" is not essentially contradictory to the term "developer". on the contrary, the said section itself provides that the assessee should develop the infrastructure facility as per the agreement with the Government. For facility like water supply or irrigation or road project, rail system, the specification can be only through a facility specific tender. The specifications ensure that the development carried out by the assessee fits into the over all to requirement floated by the Government for a particular infrastructure. For example, the Government has certain specifications in mind in respect of full length water supply or irrigation system and these have to be specified to each segment developer. Having gone through the decision cited by the parties, we find that the decision of Mumbai Bench of the Tribunal in the case of Patel Engineering Co. Ltd. (supra) fully covers the issue raised herein, as there is no major change in the provisions of this section. From the assessment year 2000-01 to which that decision belongs to and in the assessment years 2003-04 and 2004-05 under consideration rather insertion of the word "OR" in between "developing", "operating and "maintaining" and "developing, operating and maintaining" any infrastructure facility during the years under consideration in the provisions has brought the assessee in a better position devoid of any ambiguity to claim the deduction. Paras 44, 45 and 46 of the said decision in the case of Patel Engineering Co. Ltd (supra) supports the case of assessee accepting which, in our view the AO had rightly allowed the claimed deduction to the assessee while placing reliance on the said decision. For a ready reference these paras are being reproduced hereunder:- "44. We have considered the rival contentions as also the relevant material on record, we find that in the Srisailam Project, the assessee company has constructed an underground tunnel to provide water supply by connecting the river Krishna to the power house. The

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assessee has also constructed underground specialized structures such as surge chamber, draft tube tunnels, tail race tunnel which takes the water back to the river for use for irrigation , etc. Similarly, for Koyna Project, the assessee constructed inlet tunnel for water supply upto the point of power house. The above construction work would, in our considered opinion, amount to development, as a new facility has been developed. In fact, we may note that the Revenue authorities too have not denied the factum of development having taken place ;however, the contention of the Revenue has been that the developer is not the assessee but the Government of Maharashtra in respect of Koyna Project and PSEB in respect of the Srisailam project, because, the investments have been made by them. 45. In the circumstances, as per the contentions raised before us orally as also in writing by the two rival representatives, the moot question that poses itself for our consideration is as to whether the assessee can be said to be developer when the amount has been paid to the assessee for the development work carried out by the assessee. In order to properly appreciate this question, it would be relevant, and no less beneficial, to refer to the legislative history of section 80-IA. As we have noted earlier, the amendment in section 80-IA was brought about by Finance Act, 1955 w.e.f. 1st April, 1996. By virtue of this amendment, exemption under Section 80-IA was provided to any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility. Thus to be eligible for this deduction, an assessee was required to carry out all the three activities, i.e., (i) to develop, (ii) to maintain, and (iii) to operate. After the modification effected by Finance Act, 1999, w.e.f. 1st April 2000, deduction under section 8OIA(4) has become available to any enterprise carrying on the business of (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure

facility

Therefore,

from assessment year 2000-01, deduction is available if the assessee carries on the business of any one of the above mentioned three types of activities, and accordingly also when the assessee is carrying on the activity of only developing. When an assessee is only

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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 is, just after its development, transferred to the Govemment, naturally the cost would be paid by the Government. Therefore, merely because the Maharashtra Government or APSEB has paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the did not develop the infrastructure facility. If the interpretation canvassed by the Revenue authorities is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under section 80IA(4). 46. We have noticed above that the amendment brought in by the Finance Act, 1999 was with the sole intention/purpose of providing deduction under section 80-IA to the person, who only develops or who only maintains and operates an infrastructure facility. If a person who only develops 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. When 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, ie., to the person who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if he is paid for 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 therefrom, has no other source of recoupment of his cost of development. Considered as such, we note that the business activity of the nature of "BT" (build and transfer) also falls within eligible construction activity that is activity eligible for deduction under section 80-IA inasmuch as mere "development"

such

and unassociated/unaccompanied with 'operate' and 'maintenance' also falls within such business activity as is eligible for deduction under section 80IA. In the case of such a construction activity,

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which does not involve the 'operate' aspect, the question of an assessee engaged in such activity (of 'BT' carrying on only 'development') to recover his costs of construction of his own from the infrastructure project/facility itself does not arise, and so for the recoupment of the costs, the same have to be paid whether through running bills or otherwise; and considering the largeness/hugeness of the total financial investment involved, some advance if paid at some point of time, will not, in our view, change the basic nature/feature of the assessee's business activity. Therefore, merely because the present assessee was paid by the Government, for development work, it cannot be denied deduction under section 80-IA(4) of the Act. The illustration of the artist, given by the assessee's counsel during the course of his arguments, is aptly illustrative and befitting. If an artist is asked to paint a beautiful picture and for such painting, payment is made by another person, the creator of the painting will be the artist and not the person who paid for it. We have also noted that the national water policy document furnished by the assessee, on p. 225 of its paper book-1 indicates the purpose of private sector participation. It states that private sector participation. It states that private sector participation may help in introducing innovative ideas, generating financial resources and introducing corporate management and improving service efficiency and accountability to users. It is revealed from record and has also not been disputed by the Revenue that both the projects executed by the assessee were highly technical and specialized, as also extremely tricky and did involve huge risks as well. It is also revealed from record that for executing such projects the assessee has deployed people, plant and machinery, technical expertise, know-how and the financial resources as has also been the specific contention of the learned Authorized Representative of assessee as noted by us above." The Tribunal in that decision has specifically rejected the contention of the revenue that the developer is not the assessee but the Government of Maharashtra and APSEB, the fact of that case are similar to the fact of the present case and the only difference is that in the present case the Government authority is Vidharbha Irrigation Development Corporation.

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On perusal of the assessment orders in question, we find that the AO has given categorical finding on the issue after discussing the same in detail as evident from contents of pages 12 to 18 of the assessment order. In our view, he has also rightly followed the decision of the Tribunal on an identical issue under the similar facts and circumstances in the case of Patel Engineering Co. Ld. vs. ACIT (supra) relied upon by the ACIT before him in support of their submissions. The assessment order, therefore, cannot be held as erroneous merely because the ld. CIT nurturing a different view on the issue. Hence the said assessment orders on the issue, which is erroneous even if it is not prejudicial to the interest of revenue cannot be made a subject matter of revision under section 263 of the Act. There is also no substance in the contention of the Ld. D/R that the assessment orders on the issue have only been set aside by the ld. CIT vide the impugned order and the assessee will be at liberty to avail the opportunity to present its case on the issue before the AO in a fresh assessment so directed by the ld. CIT, because it cannot be a acceptable reason for justification of invocation of provisions of section 263 of the Act. The requirement, as discussed above, for invocation of the provisions of section 263 of the Act is that the assessment order on the issue must be erroneous in so far as it is prejudicial to the interest of revenue and mere mentioning of the said two ingredients will not extend any jurisdiction to the ld. CIT to invoke the supervisory provisions under section 263 of the Act. The decision of the Special Bench of the Tribunal in the case of IVRCL Infrastructure & Projects Ltd. vs. ACIT (supra) relied upon by the ld. D/R is also not helpful to the revenue because issue has not been decided in that case for want of verification of some additional evidence and thus matter was set aside to the file of the AO to decide the issue afresh in the light of fresh evidence. Under these facts and circumstances, we are of the view that the assessment orders in question on the issue were neither erroneous nor prejudicial to the interest of revenue hence the Ld. CIT was not justified in setting aside the same. The assessment orders on the issue for the assessment years under consideration are restored while setting aside the revisional order

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under section 263 in question. The issue is decided in favour of the assessee. Grounds raising the issue are accordingly allowed.” 4. Even otherwise, the issue is now squarely covered by the decision of the Supreme Court, in that view of the matter, question of reopening will not arise. 5. In that view of the matter, the issue is required to be answered in favour of the assessee. 6. Both the appeals stand dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. A.Sharma/