BHINMAL CONTRACTORS PROPERTY & LAND DEVELOPERS P. LTD,MUMBAI vs. ACIT 4(1), MUMBAI

आदेश / O R D E R PER R.C.SHARMA (A.M):

These appeals are filed by the assessee against the order of CIT(A)-10/10/2012 for A.Y.2004-05, 2007-08, 2008-09 and 2009-10 in the matter of order passed u/s.143(3) / 143(3) r.w.s.147 of the IT Act.

2 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd 2. Common grievance of assessee in all the years pertains to disallowance of claim of deduction u/s.80IA(4). 3. Rival contentions have been heard and record perused. 4. Facts in brief are that assesses is in the business of construction/development of Infrastructure facilities such as Roads and providing necessary and crucial components of the Railway system. During the years under consideration assessee claimed deduction u/s.80IA(4) in respect of infrastructure project carried out by it. However, AO declared assessee’s claim on the plea that assessee is a contractor and not a developer. 5. By the impugned order, CIT(A) confirmed the action of the AO against which assessee is in further appeal before us. 6. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us. From the record, we found that assessee is in the business of construction / development of infrastructure facilities. It undertakes project of roads from State and Central Government and also provided necessary and crucial components of the railway system. The assessee being a developer within the meaning of section 80!A(4) of the Act, claimed deduction u/s.80IA(4). However, the AO disallowed the claim by stating that the assessee is not a developer but a contractor. For doing

3 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd so he has stated the reasons and also relied on a citation of Chennai ITAT decision in the case of the ACIT vs M/s. Indwel Lianings (P) Ltd. 7. On perusal of the aforesaid decision, we observe that the facts of the case law cited by the AO are totally different from that of assessee’s case and the AO has wrongly applied the said decision to impugned assessee. As the assessee had constructed a new road for Govt. of Rajasthan thereby acted as developer and not as a Contractor. In support of the same, assessee had submitted copy of Tender Agreement before the lower authorities and we had also carefully gone through the terms and conditions of Tender Agreement. As per our considered view, a person, who enters into a contract with another person, would be a contractor no doubt however in the instant case the assessee having entered into an agreement with the Government agencies for development of the infrastructure projects, was obviously a contractor, but that did not derogate the assessee from being a developer as well. The term 'contractor' is not essentially contradictory to the term 'developer'. On the other hand, rather section 80-IA(4) itself provides that the 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. Therefore, merely because, in the TDS certificate tax at source was deducted u/s. 194C being applicable to a contractor cannot be the reason for treating a genuine developer as a contractor. The same cannot detract the assessee from the position of

4 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd being a developer; nor should it debar the assessee from claiming deduction under section 80- IA(4). Therefore, the assessee, who is only engaged in developing the infrastructural facility, i.e., road, is entitled to the benefits of the deduction under section 80-IA(4). The provisions of sub-clause (c) of clause (i) of section 80-1 A (4) were inapplicable to the instant case, Hence, the order of the AO is based on incorrect interpretation of law. 8. On reading of the provisions of section 80IA and the notes on clauses/ CBDT Circular it is very clear that with effect from 1-4-2002 the enterprises engaged in developing or operating and, maintaining or developing, operating and maintaining such infrastructure are entitled to a tax holiday. Earlier to the above substitution there was no ‘or’ between the word developing, (ii) maintaining and operating or (ii) developing, maintaining and operating, As per the amended provisions merely on entering into an agreement with Government for development of infrastructure facility would be eligible for deduction under section 80-1 A(4). 9. From the above, it is crystal dear that the enterprise engaged in developing or operating and maintaining or developing, operating and maintaining such infrastructure facility are entitled to a tax holiday. Earlier to the above substitution there was no word 'or' between the word developing, (ii) maintaining and operating or (Hi) developing, maintaining and operating. Merely on entering into an agreement with Government for either development or O & M or developing O & M

5 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd would be eligible for deduction under section 80-IA of the Act In this connection we observe that in the decision of Jurisdictional Hon'ble Mumbai IT AT in the case of ACIT vs. Bharat Udyog Limited (118 ITD 336) wherein before amendment of Section 801A(4) it was held that to avail benefit assesses was to carry out all these activities. 10. The amendment in section 80-IA was brought by the Finance Act, 1995, with effect from 1-4-1996. By virtue of this amendment, the deduction under section 80-IA was provided to any enterprise carrying on the business of developing, maintaining and operating the infrastructure facility. Thus, to be eligible for this deduction, an assesses was required to carry out all the three activities, i.e., (i) to develop, (ii) to maintain and (iii) to operate. After the amendment effected in section 80-IA by the Finance Act, 1999 with effect from 1-4- 2000, the deduction under section 80-IA(4) became available to any enterprise carrying on the business of (i) developing (ii) maintaining and operating, or (Hi) developing, maintaining and operating any infrastructure facility. 11. Sub-clause (c) of section 80-IA(4) is applicable to an enterprise which is engaged in 'operating and maintaining' the infrastructure facility on or after 1-4-1995. It is not applicable to the case of an enterprise, which is engaged in mere 'development' of infrastructure facility and not its 'operation' and 'maintenance'. Therefore, the question of 'operating and maintaining' of infrastructure facility by such an enterprise before or after any cutoff date cannot arise. When the Act provides for deduction

6 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd under section 80-IA(4), undisputedly for an enterprise, which is only 'developing1 the infrastructure facility, unaccompanied by 'operating and maintaining' thereof by such entity, there cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 1-4-1995. Since the assessee was only a developer of the infrastructure project and it was not maintaining and operating the infrastructure facility, sub-clause (c) of sub-section (4) of section 80-IA was not applicable. 12. However, from the assessment year 2002-03, deduction under section 80-IA(4) is available if the assessee carries on 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 would be paid for the cost incurred by it: otherwise, how would 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. 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, i.e., to the person who is carrying on the activity of only developing infrastructure facility.

7 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd Obvious, as it is, a developer would have income only if he is paid for development of infrastructural facility, for the simple reason that he is not having the right/authorization to operate the infrastructure facility and to collect toll there from and has no other source of recoupment of his cost of development. Therefore, the business activity of the nature of build and transfer also falls within eligible construction activity, that is, activity eligible for deduction under section 80-IA inasmuch as mere 'development' as such and un-associated/un-accompanied with 'operate' and 'maintenance' also falls within such business activity and is eligible for deduction under section 80-IA. Therefore, merely because the assessee was paid by the Government, for development work, it could not be denied deduction under section 80-IA (4). 13. A perusal of all the documents placed before us, we found that, all the contracts of the site which was handed over by the Government Bodies to the assessee for development of the infrastructure facility and on completion, same was handed back to the concerned Government department. In few cases after operation for certain period, the entire site with the infrastructure facility developed has been handed over to the owner i.e. govt. Thus, keeping in view the facts of instant case the AO wrongly relied on the order of the Chennai Tribunal by treating the assessee as a contractor and not developer without appreciating that the assessee has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii)

8 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd developing, operating and maintaining a new infrastructure facility; For this purpose, we may place reliance on the order of the jurisdictions! Hon'ble ITAT, Mumbai larger third Member Bench in the case of B.T. Patil & Sons Belgaum Construction Pvt. Ltd. (126 TTJ (Mumbai) 577; 35 SOT 177, 32 DTR 1. It is submitted that therein the assessee is engaged in development of infrastructure facility by way of constructing Road. 14. Here it is important to mention that the Legislature inserted the word 'or' between (i) and (ii) with effect from 1-4-2002, which, is applicable to assessment year 2002-03 onwards. So with effect from the assessment year 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 assessment year 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 the "works contract" has not been defined in the context of section 8o-IA and, hence, in the absence of assignment of any :

9 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd definition by the statute, its meaning should be understood in the common parlance. Accordingly a developer is a person who develops the facility and such person may or may not be a contractor. On the other hand, a contractor is stated to be a legal term whose rights and duties vis-a-vis contract are determined by way of legal document called the contract. For example if a contract to construct a highway from Mumbai to Delhi is given to a person he is contractor as well as developer. As against that a person who has been given a contract for painting or beautification is merely a contractor but not a developer. Accordingly while developing a project, a developer has to make technological inputs, entrepreneurial inputs, etc. Besides, there is financial involvement in terms of deployment of man and machine as well as bank guarantees. The developer undertakes the risk and reward of the project and is accountable to the authorities for the development work carried out by them. Therefore the assessee in the present case cannot and should not be characterized anything other than a developer. 15. It is a well settled legal position that ordinarily the meaning or definition of a word used in one statute cannot per se be imported into another as has been held by the Hon'ble Supreme Court in the case of Union of India v. R.C. Jain [1981] 2 SCC 308. Therefore, the meaning of the words 'developer' and 'contractor', as put forth by the Ld AO from other legislations, be they State or Central enactments, cannot be automatically applied in the present context. In order to ascertain the

10 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd meaning of a word not defined in the Act, a useful reference should be made to the General Clauses Act, 1897. If a particular word is not defined in the relevant statute but has been defined in the General Clauses Act, such definition throws ample light for guidance and adoption in the former enactment. According to section 3 of the General Clauses Act, the definitions given in this Act shall have applicability in all the Central Acts unless a contrary definition is provided of a particular word or expression. Further when these words are neither defined in the Income-tax Act, 1961 nor in the General Clauses Act, the next question is that where from to find the meaning of such words. This has been clearly explained by the Hon'ble jurisdictional High Court in the case of Abdulgafar A. Nadiadwala v. Asstt. CIT [2004] 267 ITR 4881 (Bom), wherein the Hon'ble High Court was looking into the meaning of the words /goods' and 'merchandise', which are not defined under section 80HHC in the context of Income-tax Act, 1961. The Hon'ble High Court held that ; "it is well-settled that in the absence of there being anything contrary to the context, the language of a statute should be interpreted according to the plain dictionary meaning of the terms used therein". Similar view has been expressed by the Hon'ble Supreme Court in the case of CWT v. Officer-In- Charge (Court of Wards) [1976]105 ITR 133 in which it was held that the ordinary dictionary. meaning of a word cannot be disregarded. The said word has been defined in Oxford Advanced Leader's Dictionary.

11 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd

12 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd called as a developer, who undertakes to do work according to the pre- decided plan. 18. Further it is relevant to note that the word "developing" used in sub- section (4) is with reference to "infrastructure facility". When the meaning of the word "infrastructure facility" as per Explanation, is perused your honour will found that it have been defined exhaustively by referring to a road project, airport, port, etc., a highway project, a water supply project and irrigation project, etc. Therefore, the use of word "developing" in juxtaposition to infrastructure facility indicates that what is eligible for deduction under this sub-section is the profits and gains derived from the development of infrastructure facility and not something de hors it. So in order to be eligible for deduction the development should be that of the infrastructure facility as a whole and not a particular part of it, it may be possible that some part of development work is assigned by the developer to some contractor for doing it on his behalf. That will not put the doer of such work into the shoes of a developer. 19. Further, reliance is placed on the judgment of Bombay High Court in the case of ABG Heavy Industries Limited 322ITR 323 (Bom) wherein held that:

"Section 80-IA of the Income-tax Act, 1961, was introduced to provide an impetus to the growth of infrastructure in the nation. A sound infrastructure is a sine qua non for economic development.

13 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd Absence of infrastructure poses significant barriers to growth and development. A model which relied exclusively on the provision of basic infrastructure by the State was found to be deficient: Section 80-IA was an instrument of legislative policy, conceived with a view to provide an impetus to private sector participation in infrastructural projects. Contemporaneously, with the provisions which were made by Parliament in section 80-IA of the Act, explanatory circulars issued in an administrative capacity by the Central Board of Direct Taxes held the field. These circulars gave expression to the scope and ambit of the concession was provided by section 80-IA. The evolution of section 80-IA would show a progressive liberalisation of the legislative scheme, in the interests of aiding the growth of infrastructure. The administrative circulars issued by the Central Board of Direct Taxes in implementation of section 80-IA similarly liberalised the scheme, consistent with the Act.”

14 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd would qualify for deduction under section 80 IA. Parliament amended the provision of section 80 IA of the Act so as to clarify that in order to avail of a deduction,the assessee (i) develop, (ii) operate and maintain or (ii) develop, operate and maintain the facility. The condition as regards development, operation and maintenance of an infrastructure facility was contemporaneously construed by the authorities at all material times, to cover within its purview the development of an infrastructure facility under a scheme by which an enterprise would build, own, lease and eventually transfer the facility. This was perhaps a practical realisation of the fact that a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed. Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. In Bajaj Tempo v. CIT [1992J196 ITR 188, the Supreme Court emphasized that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. In the present case, the administrative circulars issued Central Board of Direct Taxes proceeded on that basis by adopting a liberal view of the scope and ambit of the provisions of section 80-IA of the Act. Parliamentary intervention endorsed the administrative practice. After section 80-IA was amended by the Finance Act of 2001, the section applies to an enterprise carrying on the business of (i) developing; or (ii) operating; maintaining; or (iii) developing, operating and maintaining any infrastructure facility which fulfils certain conditions. Those

15 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd conditions are ownership of the enterprise by a company registered in India or by a consortium (it) an agreement with the Central or State Government, local authority of statutory body; and (Hi) the start of operation and maintenance of infrastructure facility on or after April 1, 1995. The requirement that the operation and maintenance of the infrastructure facility should commence after April 1, 1995 has to be harmoniously construed with the main provision under which a deduction is available to an assessee who develops; or 'operates and maintains; or develops, operates and maintains an infrastructure facility. Unless both the provisions are harmoniously construed, the object intent underlying the amendment of the provision by the Finance Act of 2001 would be defeated. A harmonious reading of the provision in its entirety would lead to the conclusion that the deduction is available to an enterprise which (i) develops; or (ii) operates and maintains; or (Hi) develops maintains and operates that infrastructure facility. However, the commencement of the operation and maintenance of the infrastructure facility should be after April 1,1995. 21. The assessee, in terms of the policy of the Government of India to encourage private sector participation in the development of infrastructure, bid for and was awarded a contract for. In pursuance of the contract, the assessee deployed rail mounted quay side cranes, rail mounted gantry cranes and rubber tired gantry cranes at the container handling terminal of the JNPT. JNPT had a dedicated container handling terminal. According to the assessee, the only activities of the

16 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd terminal consisted of loading, unloading and storage of containers. Under contracts dated September 2, 1994 and October 16, 1995, JNPT accepted the bid submitted by the assessee for supply, installation, testing, commissioning and maintenance of the cranes. By the terms of the agreement, JNPT agreed to pay lease charges in a total sum of Rs. 215.50 crores over a period of ten years. The contract envisaged two options. Under the first option, operation and maintenance was to be carried out by the assessee. Under the second option only maintenance was to be carried out by the assessee. Under the contracts, JNPT reserved the right to exercise the option to request the assessee to carry out both operation and maintenance during the lease period or to carry out only maintenance while operation was done by JNPT. The contracts stipulated, inter alia, the submission of a performance guarantee bond representing 10 per cent of the average annual contract value computed with reference both to maintenance and operation. The assessee assumed the responsibility of making the equipment available for operation for a minimum number of days as stipulated in the contract and became liable to pay liquidated damages for non-availability of the same. 22. The obligations which had been assumed by the assessee under the terms of the contract were obligations involving the development of an infrastructure facility. Section 80-IA of the Act essentially contemplated a deduction in a situation where an enterprise carried on the business of developing, maintaining and operating an infrastructure

17 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd facility. A port was defined to be included within the purview of the expression "infrastructure facility". The obligations which the assessee assumed under the terms of the contract were not merely for on a BOT basis. On the fulfillment of the ten years, there was a vesting in the JNPT free of The finding that the assessee had developed the infrastructure facility and was engaged in operating the Road is entitled to the special deduction under Section 80 IA. 23. 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.) Reliance can also be placed on the following decision of Hon'ble ITAT in the case of Nagarjuna Construction Company Ltd. vs. DY CIT Central Circle-3 Hyderabad. Sanee Infrastructure (P) Ltd vs ACIT 3(1) Bhopal, Transtory (India) Ltd vs. Income Tax Officer Ward 2(2), Guntur. Applying the proposition of law laid down in these cases to the facts of instant case, we do not find any merit for disallowance made u/s. 80IA(4) during the years under consideration. 25. Accordingly, Assessing Officer is directed to allow the claim u/s.80IA(4) in all the years under consideration. 26. In the assessment year 2008-09, the assessee is aggrieved for disallowance made by the Assessing Officer amounting to 62,15,220/- u/s. 40(a)(ia) of the Act.

18 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd 27. Rival contentions have been heard and record perused. From the record, we find that during the year under consideration, the assessee has made various payments to contractors and transporters. By invoking provisions of section 40(a)(ia) of the Act, AO disallowed the same. By impugned order, the learned CIT(A) confirmed the order of the Assessing Officer, against which, the assessee is in further appeal before us. 28. We have considered the rival contentions and carefully gone through the orders of the authorities below and found from record that during the year, the assessee has made payment of Rs.51,04,857/- to sub- contractors and Rs.11,10,363/- to the transporters. We find that the assessee has duly deducted tax at source during the year relevant to previous year and also deposited the amount of TDS in Government Treasury before last date of filing the return of income u/s. 139(1) of the Act. Since, TDS deducted on payments have already been deposited before filing the return u/s.139(1) of the Act, the same cannot be disallowed by invoking provisions of section 40(a)(ia) of the Act. From the record, we find that TDS up to February, 2008 have been duly deposited in the Government account on 29.8.2010, which is prior to the last date of filing the return u/s. 139(1). Accordingly, there is no justification on the part of the Assessing Officer to disallow payment u/s. 40(a)(ia) of the Act. The Assessing Officer is directed to delete the disallowance so made.

19 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd From the record, we find that during the course of re-assessment proceedings, the AO noticed that the assessee has debited an amount of Rs.98,14,571/- to the P & L account under the head "Labour Expenses". The AO, therefore, asked the assessee to justify its claim of expenses. On going through the details, the AO noticed that some of the expenses are incurred in cash. The muster roll of the labourers is not properly maintained and also there is no site-wise muster roll. Accordingly, an adhoc disallowance of Rs.2 lakhs was made, which was confirmed by the learned CIT(A). Assessee is in further appeal before us. 30. We have considered the rival submissions, carefully gone through the record and found that all these expenses are revenue in nature and have been incurred during normal course of assessee’s business of constructing roads etc. Relevant details of expenditure so incurred were submitted before the lower authorities along with name of laborers. Small amount of cash was paid at site to the labourers, which cannot be made a reason for disallowance because labourers are small and uneducated persons, were not having any bank accounts. Moreover the books of accounts are audited and neither the AO nor the Auditor has found any discrepancy in the books of accounts.

20 ITA No.7207/Mum/2012 and other appeals M/s. Bhinmal Contractors Property & Land Developers P. Ltd • CIT V Chandanlal Keshawlal & Co. (1960) 38 ITR 601 (SC) • JK Woolen Mfrs V CIT (1969) 72 ITR 612 (SC) • Alluminium Corp of India Ltd V CIT (1972) 86 ITR 11 (SC) • OMKAR SAHAY MOHEMMAD SAIL 37 ITR 151 (SC) • Kishanchand Chelaram vs CIT 125 ITR 713 (SC) • Friends Clearing Agency (P) Ltd V CIT 237 CTR 464/332 ITR 269 • CIT v. SSP (P) Ltd {2011] 202 Taxman 386/14 taxmann.com 87(Punj & Har) • CIT Faridabad vs.S.S.P. (P.) Ltd. [2011] 14 taxmann.com 87 (Punj. & Har.) 32. Keeping in view the facts and circumstances vis-à-vis nature of assessee’s business and fact that labour payment have been made at site, we restrict the disallowance at Rs.20,000/- in place of Rs. 2 lakhs made by the Assessing Officer. We direct accordingly. 33. In the result, appeals are allowed in terms indicated hereinabove. Order pronounced in the open court on this 26/04/2018 Sd/- Sd/- (RAM LAL NEGI) (R.C.SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 26/04/2018 Karuna Sr.PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. BY ORDER, 6. Guard file. सत्यापित प्रतत //True Copy// (Asstt. Registrar) ITAT, Mumbai