ACIT, CIR-33, KOLKATA, KOLKATA vs. M/S SIMPLEX SOMDATT BUILDERS JV, KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “D” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “D” KOLKATA Before Shri Waseem Ahmed, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member ITA No.691/Kol/2016 Assessment Year:2012-13 ACIT, Circle-33, M/s Simplex Somdatt बनाम 10B, Middleton Row, Builders, Simplex House, / 3rd Floor, Kolkata-71 27, Shkespeare Sarani, V/s. Kokata-17 [PAN No.AAGAS 1619 G] .. अपीलाथ� /Appellant ��यथ� /Respondent Shri Saurabh Kumar, Addl. CIT-DR अपीलाथ� क� ओर से/By Appellant Shri Ravi Tulsiyan, FCA ��यथ� क� ओर से/By Respondent 24-10-2017 सुनवाई क� तार�ख/Date of Hearing 06-12-2017 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-9, Kolkata dated 29.01.2016. Assessment was framed by DCIT, Circle-33 Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 23.12.2014 for assessment year 2012-13. The grounds raised by the Revenue per its appeal are as under:- “1) In the fact and circumstance of the case the Ld. CIT(A)-9, Kolkata has erred in allowing the deduction of Rs.82,56,250/- u/s 80IA 2) In the facts and circumstances of the case the Ld. CIT(A)-9,Kolkata has erred in treating the assessee as developer not contractor. 3) The Ld. CIT(A)-9, Kolkata has erred in not adhering to the explanation to Section 80IA (introduced by the Finance Act, 2007). 4) The depart craves leave to add, alter or amend an ground of grounds before or at the time of hearing.”

ITA No.691/Kol/2016 A.Y. 2012-13 ACIT, Cir-33, Kol Vs. M/s Simplex Somdatt Builders Page 2 Shri Saurabh Kumar, Departmental Representative appeared on behalf of Revenue and Shri Ravi Tulsiyan, Authorized Representative appeared on behalf of assessee. 2. The inter-related issue raised by Revenue in this appeal is that Ld. CIT(A) erred in allowing deduction u/s. 80IA of the Act for ₹82,56,250/-. 3. Briefly stated facts are that assessee is an AOP which is representing by its Members namely, M/s Simplex Infrastructure Ltd. and M/s Somdatt Builders Pvt. Ltd.. The assessee engaged in the business of contractual work and claiming deduction u/s. 80IA of the Act. The assessee was awarded a contract for the construction of road by Public Works Department, National Highway Project in the state of Assam. The assessee in respect of said project claimed deduction u/s 80IA(4) of the Act for ₹82,86,250/- only. However, the deduction claimed by the assessee was denied by Assessing Officer on the ground that it is merely acting as a works contractor and therefore it is not eligible for deduction u/s. 80IA(4) of the Act. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that it has satisfied all the conditions laid down u/s 80- IA(4) of the Act and therefore it is eligible for deduction. It was also submitted that assessee is not acting as a works contractor but actually developing the infrastructure project as envisaged under the provision of Section 80IA of the Act. The assessee in respect of the aforesaid project has carried out various functions as detailed hereunder:- “… .. (i) Design: The assessee was required to investigate, study, design, construct the Project Highway and Project Facilities in accordance with the Specifications and Standards (page 23, para 7.1.4(a). (ii) Materials: It was required to make its own arrangements for construction material. (page 23, para 7.1.4(f). (iii) Superintendence: In addition to labour and technical assistants (see page 32) the assessee was to provide overall superintendence during the execution of Works. (para 11.1, page 31) (iv) Safety & Security of the site: The assessee was responsible for the safety and security of the project site. In this regard, it was to : • comply with all environmental requirements under environmental laws and regulations. (page 34) • provide fencing lighting and guarding (page 36, para 13.S) (v) Risk: The assessee was responsible for the care of the Works and materials, goods and equipment etc., which were at its risk. (page 36, para 14.1)

ITA No.691/Kol/2016 A.Y. 2012-13 ACIT, Cir-33, Kol Vs. M/s Simplex Somdatt Builders Page 3 (vi) Licenses, permissions etc.: The assessee was to procure and maintain as necessary, appropriate proprietary rights, licenses, agreements and permissions for materials, processes and systems used in the Project [page 23, para 7.1.4 (b)] (vii) Strengthening of bridges: The assessee was responsible for and was to pay the cost of strengthening any bridge or altering or improving any road communication necessary for smooth execution of works (page 3S, para 16.2) (viii) Electricity, Water etc.: The assessee was responsible for making all arrangements for and paying all charges in connection with the supply of Electricity and Water. (page 39, para 17.10 (ix) Tests: The assessee was to carry out tests in accordance with the Applicable Laws and Applicable Permits (page 43, para 23.1) (x) Defect Liability period: Page 50, para 30.1 (xi) Equipment: The assessee was also required to provide Equipments required for the execution of the \Narks. 3.26 The above conditions clearly exhibit that it is not a case where the assessee was provided with the establishment and materials required to execute the work, which happens in case of works contract where the contractor gets the material and other requisites from the client and all he has to do is employ labour. The assessee in the given case was to procure raw material, make arrangements for power, water, plant machinery etc., and conduct all the other activities needed for construction. 3.27Hence in the light of the above discussion, the assessee is entitled to deduction u/s 80-lA of the Act.

Accordingly the Ld. CIT(A) after considering the submissions of assessee deleted the addition made by AO by observing as under:- “4. Conclusion: From the perusal of the terms and conditions in the agreement, it is clear that the assessee was not a works contractor and was a developer and hence Explanation to section 80-I(13) does not apply to the assessee. It is seen that a similar issue based on identical facts has been decided in favour of the appellant in his own case by the Hon'ble Tribunal, Kolkata for the AY 2007-08 and CIT(A)-XIX for the AY 2008-09, 2009-10 and 2010-11. The Hon'ble Tribunal and CIT(A) after examining the legal position and applying the same to the facts of the appellant’s case, allowed deduction u/s.80-I. The AO is directed to allow deduction u/s. 80IA.” The Revenue, being aggrieved, is in appeal before us. 5. Both the parties relied on the order of Authorities Below as favorable to them. 6. At the outset, we find that in the Co-ordinate Bench of this Tribunal in the identical facts of the case has allowed the deduction u/s. 80-IA(4) of the Act in the case of ITO Warrd-33(4) Kolkata Vs. M/s Somdatt Builders Simplex JV in ITA 470/Kol/2015 for the Assessment Year 2011-12 vide order dated 05.07.2017. The relevant operative portion of the said order is reproduced below:-

ITA No.691/Kol/2016 A.Y. 2012-13 ACIT, Cir-33, Kol Vs. M/s Simplex Somdatt Builders Page 4 8. Heard rival submissions and perused the material available on record. We find that the only question is to be decided by us for allowance of deduction u/s. 80IA of the Act as to whether the assessee is a developer or a works contractor. The AO found that the assessee claimed TDS credit of the amounts deducted by the project authority and thereby he held that the assessee is not a developer and is a works contractor. Now we may refer to the consolidated order dt:18-06-2013 of the Co- ordinate Bench in identical case supra, wherein it considered the order of ITAT Hyderabad in the case of M/s. GVPR Engineers Ltd Vs. ACIT. Relevant portion of which is reproduced herein below:- “the co-ordinate bench ITAT, Hyderabad ‘B’ Bench, Hyderabad in the case of M/s. GVPR Engineers Ltd &Ors in ITA Nos. 347/Hyd/2008 & 17 Others dated 29.02.2012, wherein in paras 26-29, it has been held as under:- 26. We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have also gone through all the case laws cited by both the parties. We find that the provisions of Section 801A (4) of the Act when introduced afresh by the Finance Act, 1999, the provisions under section 801A (4A) of the Act were deleted from the Act. The deduction available for any enterprise earlier under section 801A (4A) are also made available under Section 801A (4) itself. Further, the very fact that the legislature mentioned the words (i) “developing” or (ii) “operating and maintaining” or (iii) “developing, operating and maintaining” clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the income-Tax Act. We find that where an assessee incurred expenditure for purchase of materials himself and executes the development work i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80 IA of the Act. In contrast to this, a assessee, who enters into a contract with another person including Government or an undertaking or enterprise referred to in Section 80 IA of the Act, for executing works contract, will not be eligible for the tax benefit under section 80 IA of the Act. We find that the word “owned” in sub-clause (a) of clause (1) of sub section (4) of Section 801A of the Act refer to the enterprise. By reading of the section, it is clears that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word “ownership” is attributable only to the enterprise, carrying on the business which would mean that only companies are eligible for deduction under section 801A (4) and not any other person like individual, HUF, Firm etc. 27. We also find that according to sub-clause (a), clause (i) of sub section (4) of 80-IA the word “it” denotes the enterprise carrying on the business. The word “it” cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word “it” is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility. 28. The next question is to be answered is whether the assessee is a developer or mere works contractor. The Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by

ITA No.691/Kol/2016 A.Y. 2012-13 ACIT, Cir-33, Kol Vs. M/s Simplex Somdatt Builders Page 5 the assessee is akin to works contract and he is not eligible for deduction under section 801A (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. We find that the Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee’s responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee’s duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an un- developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 801A (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 801A (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer. 29. We also find that as per the provisions of the section 801A of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word “contractor” is used .to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word “contractor” is used to

ITA No.691/Kol/2016 A.Y. 2012-13 ACIT, Cir-33, Kol Vs. M/s Simplex Somdatt Builders Page 6 denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor.” 9. The Co-ordinate Bench of this Tribunal in identical case vide order dt.18-06-2013 supra, further considered the order in the case of ARSS Infrastructure Projects Ltd Vs. ACIT, Cir-2(1), Bhubaneswar in ITA Nos. 142,143/CTK/2010 & 483, 484/CTK/2011 dt. 13-06-2013 observed that where an assessee is doing contract work according to the requirement and specification of the customer and the same has been done by using materials purchased from third parties other than the customers and held that though the assessee is doing a works contract the same would not fall within the meaning of the word ‘works contract’ for the purpose of the Act due to the exclusion provided in the meaning of ‘work’ in section 194C of the Act. Relevant findings are reproduced herein below for better understanding:- 11. We have considered the rival submissions. Admittedly, a perusal of the agreement entered into between the assessee and the Govt of Andhra Pradesh Irrigation & CAD Department shows that the assessee has taken EPC/Turnkey contract of the flood flow canal project from SRSP. The name of the contract has been extracted earlier in this order. The scope of the work is also extracted above. Admittedly, the assessee has taken a turnkey contract from the Irrigation Department, Govt. of Andhra Pradesh. The turnkey contract is in respect of the irrigation project. Irrigation project is an infrastructure facility within the scope of Explanation to section 80IA(4) of the Act. The provisions of section 80IA(4) is to be controlled by the Explanation to section 80IA, which has been substituted by the Finance (No.2) Act, 2009 with retrospective effect from 1-4-2-2000. This Explanation is found after sub-section (13) of section 80IA. The said Explanation attempts to control the provisions of sub-section 4. More so, it says that nothing contained in section 80IA would apply in relation to the business referred to sub-section (4), which is in the nature of works contract. A works contract is not defined in section 80IA. Now, what would come into consideration is whether the substituted Explanation after sub- clause (13) changed the nature of the meaning of ‘infrastructure facility’ provided in the Explanation to section 80IA(4). Admittedly, the Explanation to section 80IA(4) gives the meaning the term ‘infrastructure facility’. The substituted explanation after sub clause (13) brings in the nature of work as a works contract. The provisions of section 194C, which deals with TDS in respect of payment to contractors for carrying out any work in the Explanation thereto as explained the term ‘work’ to be an inclusive definition, but has provided an exclusion to be ‘does not include manufacturing or supplying of a product. according to requirement or specification of the customer by using materials purchased from a person, other than such customer’. Thus, with this in mind, a perusal of the turnkey contract agreement entered into by the assessee with the Irrigation Department, Govt of A.P clearly shows that the construction of all the structures of the whole canal system is to be as per approved design, drawings, specifications of the department etc. The survey is to be done as per investigation and designing criteria of the Irrigation Department. This is also as per article 11.1 of the agreement. The assessee is to procure the materials independently and those materials are to confirm to the specifications provided. The assessee is also to make its arrangements for storage of the materials. This is as per article 107 of the agreement. Thus, admittedly the work done by the assessee falls in the exclusion provided

ITA No.691/Kol/2016 A.Y. 2012-13 ACIT, Cir-33, Kol Vs. M/s Simplex Somdatt Builders Page 7 to the meaning of the work given in the Explanation to section 194C of the Act. Once it falls outside the meaning of term ‘work’ for the purpose of section 194C, the question that arises is can it be said that the assessee is doing the work contract as provided in the substituted Explanation in section 80IA after sub clause (13)?, The answer would be emphatic no. 12. This is because the assessee is doing the activity of development of an infrastructure facility as provided under section 80IA(4). The project is a Turnkey project and it cannot form nor have a character of a works contract. Works contract would be applicable to the repairs and maintenance of an existing project. Works contract cannot be in relation to the development of a new project. One of the arguments raised by the learned Sr.DR that the intention of the substitution of the Explanation after sub clause (13) of section 80IA was to deny, the benefit of deduction u/s. 80IA(4) in respect of works contract, but to provide the deduction to such undertakings, which is doing the business of building, operating and Transfer (BOT) and building owning, operating and transfer BOOT as also PPP contracts does not hold water in so far as an irrigation project can never function under BOT or BOOT or PPP . In the circumstances, we are of the view that the assessee’s claim is not hit by the substituted Explanation as provided after sub clause(13) of section 80IA.. Here, we may mention that this view finds support from the decision of the co- ordinate of the tribunal, [ITAT, Hyderabad Bench, Hyderabad in the case of GVPR Engineers Ltd &Ors (refer to supra). We may mention here that our view also finds support from the decision of the co-ordinate bench of this tribunal, ITAT Cuttack Bench, Cuttack in the case of ARSS Infrastructure Projects Ltd Vs. ACIT, Circle-2 (1), Bhubaneswar in ITA Nos. 142, 143/CTK/2010 & 483,484/CTK/2011 dated 13-06-2013, wherein one of us was a party and in which case it has been held as under :- 10. Now coming to the merits of the deduction u/s. 801A(4) of the Act. A perusal of the provisions of section 801A(4) of the Act shows that in the explanation ‘infrastructure facility’ has been specified to mean a road including a toll road, a bridge or a rail system. Admittedly, the assessee is doing the business of development of railway tracks and bridges thereof as also roads. If, we are to accept the contention of the Ld. CIT that the provisions of section 801A(4) of the Act after the substitution of the explanation to section 8OIA of the Act was introduced was only for the purpose of giving the benefit to BUT contracts then, the explanation to section 801A(4) of the Act becomes otiose. This is as explanation to section 801A(4) of the Act specifically provides for the road to include a toll road, a bridge or a rail system. BUT contract in respect of the railway system can never exist. Further, a perusal of the provisions of section 801A of the Act shows that the term ‘works contract’ is not defined in the said section. However, the terms ‘works’ and ‘contract’ is defined in the provisions of section 194C of the Act. If a particular word or term is not defined in the specific section then, one could go to other sections in the said Act where the definition would be available to draw a meaning to the said terms. In the provisions of section 194C of the Act, work has been given an inclusive definition but in the subsequent portion it has excluded the manufacturing or supplying a product according to requirement or specification of a customer by using material purchased from a person other than such customer. As has been specified by the Ld. AR, the assessee is doing contract work but that work is according to the requirement and specification of the customer and the same has been done by using

ITA No.691/Kol/2016 A.Y. 2012-13 ACIT, Cir-33, Kol Vs. M/s Simplex Somdatt Builders Page 8 materials purchase from third parties other than the customers. Thus, though the assessee is doing a works contract the same would not fall within the meaning of the word ‘works contract’ for the purpose of the Act due to the exclusion provided in the meaning of ‘work’ in section 194C of the Act. The issue raised by the Ld. CIT that the assessee is not doing the development work but is only doing the contract also does not stand to test as the assessee admittedly is developing the roads and railway lines and the bridges thereof. Development encompasses within itself contract work. The agreement between the assessee and the customer being the government is for the development of the infrastructure facility being roads and rail systems and bridges by participating in the tenders. Under these circumstances, we are of the view that the AO was right in law in granting the assessee the benefit of deduction u/s. 801A(4) of the Act.