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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI ASHWANI TANEJA
आदेश / O R D E R PER C.N.PRASAD (J.M.)
This appeal is filed by the Revenue against the order of the Ld.CIT (Appeals)-39, Mumbai dated 31.03.2015 for the assessment year
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2005-06. There is delay of twenty five days in filing the cross objection by the Assessee. The Assessee has filed affidavit explaining the reasons for the delay in filing the cross objection. The Ld. DR has no serious objection in condoning the delay. Having considered the affidavit and the reasons for delay in filing appeal, we are of the view that the Assessee is prevented with reasonable cause in filing the appeal in time. Hence delay is condoned.
The first issue in the appeal of the Revenue is regarding disallowance of claim for deduction u/s 80IA(4) in respect of the projects other than the Teesta Lower Dam project.
At the outset, the Ld. Counsel for the Assessee submits that the claim for deduction u/s 80IA(4) has been allowed by the Coordinate Bench of this Tribunal by sustaining the order of the Ld. CIT (Appeals) in ITA No.6605/Mum/2013 dated 18.11.2015 for the assessment year 2005-06 in the appeal proceedings against the assessment order passed u/s 143(3) of the Act. The Ld. Counsel referring to pg.37 to 40 of the order submits that the Assessee was held to be a developer and not a contractor and therefore eligible for deduction u/s 80IA(4) on the infrastructure facilities developed by the Assessee. Therefore, he requests that the same may be followed.
The Ld. DR placed reliance on the orders of the Assessing Officer.
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We have heard the rival submissions, perused the orders of the authorities below and the decision of the Coordinate Bench in ITA No.6605/Mum/2013 dated 18.11.2015 and find that the Tribunal held that the Assessee is a developer, entitled for deduction u/s 80IA(4) in respect of the project. While holding so, it was observed as under : “6. Rival contentions have been heard and record perused. The Revenue has challenged the decision of the CIT(A) granting deduction u/s 801A(4) holding the assessee to be a developer of the infrastructure facilities (projects) and also that deduction is available to the assessee even when it has developed only a part of the project. We found that the CIT(A) has elaborately dealt with the contention of the AO at page 5 & 9 of his appellate order, as reproduced above. The CIT(A) has gone through the terms and conditions of each and every contract and at page 19 para 6.6 of her order, the CIT(A) held that the contract documents show that the projects executed were highly technical and specialized and involved huge risk; the assessee has also deployed people, plant and machinery, technical expertise, knowhow and financial resources; moreover, all sums received till the final completion certificate is issued on completion of the defect liability period, are considered interim payments. While holding so the CIT(A) relied on the decisions of the Hon'ble Bombay High Court in ABG Heavy Industries Ltd. 322 ITR 323 (pa ía 5 of that order), assessee's own case for AY 2000-01 reported in 94 lTD 411 (paras 46 and 47) and Bharat Udyog Ltd. 24 SOT 412 to hold that the assessee is a developer and not a contractor. 7. We had also gone through the tender document filed by the assessee which is placed on record, after analyzing the major clause of the agreement to determine the scope and nature of work undertaken, we found that assessee was a developer, therefore, eligible for claim of deduction u/s.801A(4). After considering and deliberating on the meanings of the words "developer" and "contractor", scope of the work, responsibilities and risks undertaken by the assessee in each of the contracts on page 60 to 62 para 6.14 of her order, the CIT(A) recorded a finding to the effect that the assessee is not a contractor but a developer. In coming to the above finding, in para 6.15, the CIT{A} also considered the clarificatory amendment by way of Explanation below sub section (13) of section 801A by the Finance Acts 2007 and 2009 and held, after considering various judicial pronouncements, that the amendment does not impact development contracts. On pages 63 to 66 paras 6,16 and 6.17, the
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CIT(A) noted that for the Koyna and Udhampur projects, the assessee has already been held to be a developer by the Hon'ble ITAT in its own case in the earlier years. Moreover, the Koyna project has also been held to be eligible for deduction in B.T. Patil& Sons Belgaum Construction Pvt. Ltd. After analyzing the terms of the contract, the CIT(A) reiterated that for all the projects, based on the investment, financial and technical risks undertaken by the contractor, the assessee is a developer of the respective projects. As regards the issue whether, to be eligible for deduction, the assessee has to develop the entire infrastructure facility and not only a part thereof, the CIT(A) relied on the CBDT circular no. 4/2010, the decisions of the ITAT in the assessee's own case, B.T. Patil& Sons Belgaum Construction Ltd. 34 Taxmann.com 97 and the Honbie Bombay High Court in ABG Heavy Industries Ltd. 8. We also found that the CIT(A) has dealt in great detail the scope of the work, risk and responsibilities undertaken by the assessee and after applying the proposition of law laid down in the following decisions arrived at the conclusion that assessee was a developer and not only a contractor :- i) Patel Engineering Ltd. v. OCIT 94 ITO 411; ii) B.T. Patil & Sons Belgaum Constructions (P.) Ltd. v. ACIT, 34 taxmann.com 97; iii) ACIT v. Patel KNR Joint Venture ITA 5230/M/2012; iv) CIT v. ABG Heavy Industries Ltd. 322 ITR 323; v) DCIT v. V.R.M. (India) Ltd. ITA 81 1/Del/2008; vi) KCL BELTarmat JVv, ITO, ITA 111/Rjtf2010. As regards the clarificatory Explanation inserted in section 801A by the Finance Acts 2007 and 2009, we place our reliance on the following decisions: i) B.T. Patil& Sons Belgaum Constructions (P.) Ltd. v. ACIT 34 taxmann.com 97; ii) AC IT v. Pate I KNR Joint Venture ITA 5230/M/2012; iii) DCIT v. V.R.M. (India) Ltd. ITA 81 1/Del/2008; iv) KCL BEL Tarmat JV v, ITO ITA 11 1/Rjt/2010; v) GVPR Engineers Ltd. v. ACIT 21 Taxmann.com 25 (Hyd); vi) KMC Constructions Ltd. v. ACIT 21 Taxmann.com 138 (Hyd). 9. With regard to contention of Id. CITDIR that assessee is a contractor, insofar as assessee has been mentioned as contractor in all the agreements, we rely on the following decisions :-
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i) In the assessee's own appeal for AY 2000-01, 94 lTD 411 (Mum); ii) ACIT v. Pratibha Industries 28 Taxmann.com 246 (Mum) ,wherein Mahalaxmi Construction Corpn. Ltd. v. Asstt. CIT in ITA 433/Pn/2007 has been relied upon; iii) ACIT v. Bharat Udyog Ltd, 24 SOT 412 (Mum) As regards the CIT DR's argument that the decision of the larger Bench in B.T. Patil & Sons Belgaum Construction Pvt, Ltd. 126 TTJ 577 (Mum) is still good law, we rely on the confirmatory order [reported in 34 Taxmann.com 97) (Pune)] passed by the Pune Bench. 10. In view of the above discussion, we uphold the action of CIT(A) for allowing claim of deduction u/s.80IA(4) in respect of all the projects.”
Respectfully following the said order, we hold that the Assessee is a developer entitled for deduction u/s 80IA(4) of the Act. The grounds raised by Revenue are rejected on this issue.
The next issue in the appeal of the Revenue is regarding disallowance u/s 14A of the Act.
The Ld. Counsel for the Assessee submits that this issue was also decided by the Coordinate Bench while disposing off the appeal against assessment proceedings u/s 143(3). The Ld. Counsel referring to page 44 of the Coordinate Bench order submits that the Coordinate Bench deleted the disallowance by affirming the order of the Ld. CIT (Appeals).
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The Ld. DR placed reliance on the order of the Assessing Officer.
We have heard the rival contentions. The issue has been considered and the disallowance made u/s 14A is deleted by the Coordinate Bench observing as under : “12. With regard to disallowance u/s.14A, it was observed by the NO that assessee has invested funds in joint ventures, the income from which does not form part of the total income. The A.O was therefore of the view that the proportionate interest allocable to such funds on pro-rata basis has to be disallowed, The assessee objected to the said proposal stating that no capital amount has been invested in the joint venture and that with regard to the partnership firm only Rs,25,000!- has been contributed towards capital which is out of own funds. It was also stated before the A.O that as regards the debit balance outstanding with them, the same are not in the nature of investment in capital but mainly due to the company's share of profit and machinery hire charges lying with them, which is already reflected as income in the P&L A/c. Without prejudice, it was further stated before the A.O that the current account transactions are carried out from bank where sale proceeds of the assessee are deposited and also that the dues from JVs and Partnership firm on current-account are out of company's own fund and not out of borrowed funds. The AD rejected the said contention of the appellant stating that from a summary of the current account it could be observed that funds have flown out of the current account on which the assessee had paid interest. In these circumstances, the A.O disallowed the proportionate interest on the current account applying the interest rate of 125% as charged by the bank on CC Account, Accordingly, a sum of Rs.88,69,9371- has been disallowed and added back to the total income. 13. Before the CIT(A), the assessee submitted that the addition is not warranted since the same has been made on the basis of presumptions, conjectures and surmises. It is stated that the during the course of assessment the A.O had called for details of the balances in various joint ventures/ partnership firm wherein the assessee is the member/partner. It was explained that the debit balances in various JV /firm as on 31 .03.2005 are as under –
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• Pate I KNR JV Rs.9,01 ,67,275 • KNR Patel JV Rs. 7,49,10,863 • Patel Michigan JV Rs. 84,229 • AHCL PEL Rs. 6,03,90;870 14. By the impugned order, the CIT(A) deleted the disallowance made u/s.14A after observing as under :- "7.3 I have considered the matter. From the facts of the case it is apparent that the amounts treated by the A. 0 as loans and advances outstanding are in fact debit balances i.e. amounts receivable by the appellant either on account of hire charges in respect of machineries leased to JV or the share of profit of the appellant from the JV /firm. It has been amply demonstrated by the appellant through the copies of the various ledger account in respect of the Head Office/Capital account placed at pages 372 to 446 of paper book/volume II that the debit balances with the various JV /firm are not on account or funds transfer by the appellant but solely on account of the appellant's income and share of profit generated from such JV /firm. When no funds whatsoever, borrowed or otherwise, have been invested in JVs/firms, the applicability of section 14A does not arise. When there is no expenditure incurred in relation to income not includable in the total income, the applicability of section 14A is not warranted. Hence / am unable to sustain the disallowance as made by the A.O under s. 14A of the Act. The disallowance on a sum of Rs. 88,69,9371- is deleted.” 15. Ld. DR relied on the order of AO. On the other hand, the contention of Id. AR was that at the time of the hearing it was specifically pointed out to the A.O that the entire debit balance as shown above comprises of either amounts receivable by the appellant on account of hire charges of machinery from the JV or the appellant's share of profit in the JV firm. Factually it is stated that in Patel KNR JV, the debit balance of Rs.9,01,67,275 as on 31 .3.2005, comprises of machinery hire charges received / receivable of Rs.10,01,60,225 by the assessee from them and the share of profit of the appellant in the said JV aggregates to Rs.8,24,05,845; both, together, aggregating to Rs.l0,25,66,070. Hence the debit balance the said JV is not on account of any funds invested by the assessee in such JV, In KNR Patel JV the debit balance of Rs.7,49,10,863 as on 31,3,2005, comprise solely of machinery hire charges received / receivable of Rs.12,69,86,836 by the appellant from them and the share of profit of the assessee in the said JV aggregates to Rs.6,32,94,249; both, together, aggregating to Rs.1 9,02,81084. Hence the debit balance in the said JV is not
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on account of funds invested by the assessee in such JV. In AHCL PEL, the debit balance of Rs.6,03,90,869, as on 31 .3.2005, comprises of the share of profit of - the appellant in the firm for A.Y. 2004-05 of Rs.5,0 1,57,164. 16. The alternate contention of assessee was that the provisions of section 14A cannot be applied to the appellant since the share of profit received by the appellant from such integrated joint venture AOP is chargeable to tax in terms of provisions of section 167B r.w.s. 86 of the Act. A further without prejudice submission is that the company has substantial own funds by way of capital reserves aggregating Rs. 12,936 lacs which is more than 5.50 times of the balance in such JV / partnership firm. The sale proceeds of the appellant are deposited in the cash credit account and the debit balance are presumed to have been company's own funds and not from borrowed funds. The appellant relies on the following decisions: ACIT vs. Bombay Samachar Limited 74 ITR 723 (Bom), Wimco Seedlings Ltd. vs. OCIT 107 ITO 267 (Del.) It was further pointed out that the facts of following decisions are distinguishable from the facts of the appellant's case: ACIT v, Citicorp Finance (India) Ltd. 108 lTD 457 • Everplus Securities & Finance Ltd. v. DCII 101 lTD 151 • DOlT v. SG Investments & industries Ltd. 89 lTD 44 17. We have considered rival contentions and found that a clear finding has been given by the CIT(A) to the effect that amount was receivable on account of hire charges on machinery from JV or on account of assessee's share in the JV firm. The question of disallowance of interest u/s.14A arises only when the funds have been given to JV/sister concern income from which is not liable to tax. The detailed finding recorded by CIT(A) at para 7.3 has not been controverted, accordingly, we do not find any reason to interfere in the order of CIT(A) for deleting the disallowance made u/s.14A amounting to Rs.88,68,9371/-.”
Respectfully following the said decision we uphold the order of the Ld. CIT (Appeals) in deleting the disallowance u/s 14A of the Act.. The grounds raised by the Revenue on this issue are rejected.
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Coming to the Cross Objection of the Assessee, the first issue raised by the Assessee is in respect of the confirmation of the disallowance of claim for deduction u/s 80IA(4) of the Act in respect of Teesta Lower Dam Project. Referring to page 62 to 64 of the Order, the Ld. Counsel for the Assessee submits that the Coordinate Bench decided this issue in favour of the Assessee.
The Ld. DR placed reliance on the assessment order.
This aspect of the matter has been considered by the Coordinate Bench and the Coordinate Bench following the decision of the ITAT Pune Bench in the case of Kirloskar Brothers Ltd. allowed the claim of the Assessee u/s 80IA(4) in respect to the Teesta Lower Dam project observing as under : 37. In Cross Objection, the assessee has taken a ground against denial of deduction u/s.801A(4) in respect of NHPC project. The AO declined the deduction in respect of profit from NHPC on the plea that NHPC is a Government of India Enterprise but that does not make it a Government of India or State. 38. Ld. AR placed reliance on the decisions of the Hon'ble Apex Court in Som Prakash Rekhi v. UOl &Anr. 19131, AIR 212 and Pradeep Kumar Biswas &Ors. v. Indian Institute of Chemical which have been referred to in the decision of the Honbie Pune Tribunal, in the context of section 801A(4), in Kirloskar Brothers Limited v. DCIT ITA 657/PN/2010 (CLPB 112 para 17). 39. We had carefully gone through the decision of Kirloskar Brothers Limited (supra), wherein the Tribunal has held as under :-
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"7. At the outset, we may refer to the relevant provisions of section 801A of the Act, which have a bearing on the issue. Pertinently, the claim of the assessee has to be examined with reference to the provisions of section 801A(4) of the Act as are applicable for the year under consideration. The relevant portion of section 801A is reproduced hereinafter- "804A. [(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.] ..................... (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park [or develops] a special economic zone referred to in clause (iii) of subsection (4)] or generates power or commences transmission or distribution of power [or undertakes substantial renovation and modernisation of the existing transmission or distribution lines]: [Provided that where the assessee develops or operates and maintains or develops, operates and maintains any infrastructure facility referred to in clause (a) or clause (b) or clause (C) of the Explanation to clause (i) of subsection (4), the provisions of this sub-section shall have effect as if for the words "fifteen years", the words "twenty years" had been substituted.] (4) This section applies to- (i) any enterprise carrying on the business [of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfils all the following conditions, namely (a) it is owned by a company registered in India or by a consortium of such companies [or by an authority or a board or a
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corporation or any other body established or constituted under any Central or State Act;] [(b) it 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) developing, operating and maintaining a new infrastructure facility;] (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. [Explanation—For the purposes of this clause, "infrastructure facility" means— (a) a road including toll road, a bridge or a rail system; (b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway or inland port;]" 8. Pertinently, section 8OlA(1) of the Act prescribes for a deduction with respect to the profits and gains derived by an undertaking or an enterprise from any business referred to in sub- section (4) of section 801A of the Act. The claim of the assessee
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before us is that it has undertaken a business referred to in sub- section (4) of section 801A of the Act while undertaking and executing the contract with SSNNL pertaining to the 'Saurashtra Branch Canal Pumping Scheme'. The eligible business for the present purpose is referred in clause (i) of sub-section (4) of section 801A of the Act. The claim of the assessee is that it is carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining the infrastructure facility referred to as 'Saurashtra Branch Canal Pumping Scheme', and therefore such business qualifies to be an eligible business for the purposes of section 801A(4) benefits. As per the assessee, the expression "infrastructure facility" has been defined in the Explanation below clause (i) of section 801A(4) of the Act which, inter-a/ia, includes a water supply project, irrigation project, etc.. In this manner, assessee has sought to justify that the execution of the project pertaining to 'Saurashtra Branch Canal Pumping Scheme' is a project which is within the domain of the expression "infrastructure facility" for the purposes of section 801A(4) of the Act. 9. Further, clause (i) of sub-section (4) of section 801A of the Act prescribes that the enterprise referred therein shall fulfill the conditions prescribed by way of sub-clauses (a), (b) and (c). In terms of sub-clause (a), it is provided that enterprise carrying on the eligible business should be owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act. Sub- clause (b) provides that the enterprise carrying on the eligible business should have entered into an agreement with the Central Government or State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility. Sub-clause (c) prescribes that the enterprise should start operating and maintaining the infrastructure facility on or after the 1st day of April, 1995. Ostensibly, the aforesaid three conditions are required to be fulfilled before an enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility is eligible for deduction u/s 801A(1) of the Act.
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Now, the first and the foremost objection taken by the Revenue is that the assessee does not fulfill the condition prescribed in sub- clause (b) of clause (I) to sub-section (4) of section 801A of the Act. In terms of the said objection, the Revenue contends that assessee has entered into a works contract agreement with SSNNL which is not an entity specified in sub- clause (b) of section 801A(4)(i) of the Act. According to the Revenue, SSNNL is not a Central Government or State Government or a local authority or any other statutory body, so as to be considered as an entity specified in sub- clause(b) of section 801A(4)(i) of the Act. As per the Revenue, SSNNL is a company registered under the Companies Act, 1956 and does not fall within the prescription of sub-clause (b) of section 801A (4) (.9 of the Act. As per the Revenue, though the entire share capital in the said company is owned either by the Central or the State Government, yet it can only be called a 'Government company' but it does not come within the purview of the entities specified in sub-clause (b) of clause (i) of section 801A(4) of the Act. The Revenue has supported its plea by referring to the judgement of the Hon'ble Supreme Court in the case of Steel Authority of India Ltd. vs. Shri Ambica Mills Ltd. & Ors., AIR 1998 SC 418. In terms of the said judgement, it is sought to be canvassed that although capital of SAIL was entirely owned by Government of India, but by virtue of its incorporation under the Companies Act, 1956 its personality was held to be distinct than that of the Government of India. Similarly, reliance has been placed on the judgement of the Hon'ble Supreme Court in the case of Heavy Engineering Mazdoor Union vs. State of Bihar, AIR 1970 SC 82 for the proposition that in the absence of statutory provisions, a commercial corporation acting on its own behalf, though controlled wholly or partially by a Government department, will be ordinarily presumed not to be a servant or agent of the State. On the aforesaid basis, it is sought to be made out that assessee has not entered into an agreement with any statutory body or any other entity specified in sub-clause (b) of section 801A (4) (I) of the Act for the purpose of executing the work relating to 'Saurashtra Branch Canal Pumping Scheme and thus the mandatory condition prescribed in section 801A (4)(i)(b) of the Act has not been complied with. 11. Per contra, the learned counsel for the assessee has vehemently reiterated the position of the assessee taken before the lower authorities to the effect that the contract with SSNNL
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fulfills the condition prescribed in section 801A(4)(i)(b) of the Act. The arguments of the assessee are two-fold. Firstly, it has referred to the judgements of the Hon'ble Supreme Court in the case of (i) Som Prakash Rekhi vs. Union of India & Anr., 1981 AIR 212; and, (ii) Pradeep Kumar Biswas & Ors. vs. Indian Institute of Chemical dated 06.04.2002, copies of which have been placed on record. On the basis of the aforesaid judgements, it is canvassed that an entity, like SSNNL, is liable to be considered as an instrumentality or an agency of the Government, and thus, it qualifies to an entity specified in section 801A(4)(i) of the Act. Secondly, it is sought to be made out that having regard to the background and peculiar features of SSNNL, the said concern is executing Governmental functions and is not engaged in any commercial activities. A reference has also been made to the Memorandum and Articles of Association of SSNNL, placed in the Paper Book at pages 26-27 to say that SSNNL functions under the direction and control of Government of Gujarat and further that it was essentially carrying out functions, which are otherwise carried out by the Government, for example, rehabilitation and resettlement of population affected by acquisition of land for Sardar Sarovar project, constructing hydro power generating stations, flood control, irrigation and water supply, etc.. The learned counsel pointed out that all kinds of infrastructure facilities referred in section 801A(4)(i) of the Act, like Railways, ports, dams, bridges, roads, etc. are always owned by the Government and cannot be owned by private owners. So however, for an efficient execution and handling of such infrastructure facilities, the governments form a Special Purpose Vehicle (SPV) in the form of separate entity registered under the Companies Act, 1956. It was, therefore, contended that even if such like entities are incorporated under the provisions of the Companies Act, 1956 still having regard to the functions performed, they have to be considered as mere extensions of the Government. By referring to the features of SSNNL, the learned counsel has sought to demonstrate that the tests laid down by the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra) and Pradeep Kumar Biswas & Ors. (supra) are fulfilled and SSNNL is liable to be considered as a 'statutory body' falling within the meaning of section 801A(4)(i(b) of the Act. 12. Before we proceed further, it would be appropriate to briefly refer to the salient features and objects of SSNNL. In this regard,
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we have perused the Memorandum and Articles of Association of SSNNL, a company incorporated under the provisions of the Companies Act, 1956. The main object of the said company is to execute, operate and maintain the Sardar Sarovar project comprising of a dam across river Narmada in the Nandod Taluka of Bharuch district in the State of Gujarat; a canal system emanating from the reservoir called the Sardar Sarovar impounded by the construction of the said dam; power houses at the foot of the said dam and at the canal head and all other works incidental or ancillary to the said project, in accordance with the directions of the Government of Gujarat. The works relating to dam and power houses are to be carried out under supervision of the Sardar Sarovar Construction Advisory Committee set up by the Central Government pursuant to the decision of the Narmada Water Disputes Tribunal. The directions that may be issued by the Narmada Control Authority and the Review Committee appointed by the Central Government pursuant to the decision of the Narmada Water Disputes Tribunal are also required to be complied by SSNNL. 13. The other objects, inter-a/ia, include undertaking resettlement and rehabilitation of the population affected by the Sardar Sarovar project; to construct, operate and maintain hydro power generation stations along with canal system, transmission lines, etc.. The objects also include promoting schemes in the State of Gujarat for flood control in the Narmada river basin and schemes for irrigation and water supply in the State for utilization of water from Sardar Sarovar. In sum and substance, the objects to be pursued by SSNNL are pre-dominantly functions which are ordinarily performed by Government. 14. On this point, we may refer to the decision of the Ahmedabad Bench of the Tribunal in the case of JCIT vs. Sardar Sarovar Narmada Nigam Ltd., (2005) 93 lTD 321 (Ahd). Though the said decision has been rendered in a different context, but what is of relevance for us is the discussion made by the Bench which brings out the background and the manner in which SSNNL came to be incorporated by the Government of Gujarat. As per the discussion in the case of Sardar Sarovar Narmada Nigam Ltd. (supra) and the other material placed in the Paper Book, the following fact position emerges.
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That in order to settle the dispute on distribution of the water of Narmada River, the Central Government had formed a Narmada Water Dispute Tribunal in 1969. In terms of the settlement arrived at by the Tribunal in 1979, the dam (i.e. Sardar Sarovar Dam) was to be constructed by the Government of Gujarat and the water was to be shared amongst the three States of Gujarat, Madhya Pradesh and Rajasthan. For erection of the dam, the Government of Gujarat set up a department called Narmada Development Department (NDD). NDD functioned as a Government Department and started erection work of the dam. In around 1988, the Government of Gujarat was advised that for efficient administration, execution and accountability the work may be carried out by a Nigam (i.e. a corporate body). Accordingly, the Government of Gujarat passed a resolution No. NMD11073(86)331(2)H dated 21.03.1988 which converted NDD into a fully owned Government company, namely, SSNNL. Accordingly, a corporate entity was incorporated by the Government of Gujarat under the provisions of the Companies Act, 1956 for execution of Sardar Sarovar project. Subsequently, the Government of Gujarat vide a resolution dated 31.08.1988 transferred the entire staff and officers working under the control of the Narmada Development Department to SSNNL. The Gujarat Government also transferred the assets of the Sardar Sarovar project to SSNNL vide a G.R. No. COR-1488-H dated 27th October, 1988. 16. The aforesaid background of the manner in which SSNNL came to be incorporated and read with the main objects contained in the Memorandum and Articles of Association of SSNNL, show that it was to work under the direct supervision and control of the Government of Gujarat. The other objects which we have enumerated above also show that SSNNL is to be understood as a Special Purpose Vehicle (i.e. SPV) though which the Government of Gujarat is carrying out functions of a State. 17. At this point, we may refer to the judgement of the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra). In the said case, dispute was between Burmah Shell, a company under the Companies Act, 1956, and one of its former employees. The company MIs Burmah Shell was acquired by Government of India and later it was known as Bharat Petroleum. A Writ Petition was filed by the employee against Bharat Petroleum. A preliminarily
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objection arose as to whether the Writ Petition was maintainable against MIs Bharat Petroleum as it was neither a statutory corporation and nor a Government department. The Court examined whether it was a State within the meaning of Article 12 of the Constitution of India. The Hon 'ble Supreme Court laid down certain tests in this context and the relevant portion of the Head notes of judgement is as under:- "2. Some of the tests laid down by this Court for deciding whether a body is State within the meaning of Article 12 are: (I) If the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the corporation is an instrumentality or agency of the Government. (ii) A finding of State financial supports plus an unusual degree of control over the management and policies might lead, one to characterize an operation as State action. (iii) The existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality. (iv) Whether the corporation enjoys monopoly status which is State conferred or State protected is a relevant factor. (v) If the functions of the corporation are important public functions and related to governmental functions it would be a relevant factor in classifying the corporation as instrumentality or agency of the Government (vi) If a department of Government is transferred to a corporation, it would be a strong factor supportive of the inference that it is an instrumentality of the State (vii) Where the chemistry of the corporate body answers the test of State if comes within the definition of Article (viii) Whether the legal person is a corporation created by a statute, as distinguished from under a statue is not an important criterion although it may be an indicium." 18. As per the Hon'ble Supreme Court, if the aforesaid tests are fulfilled by an entity, it would qualify to be understood as an instrumentality of State. As per the Hon'ble Supreme Court, the aforesaid tests provide an aid to determine whether a particular body is a State within meaning of Article 12 of the Constitution of India. Emphasizing the import of the aforesaid tests, the Hon'ble Supreme Court noted that true test is not how the legal entity in question was created but why it was created. The Hon'ble
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Supreme Court also observed that all the tests may not be applicable or satisfied in a given case, but one will have to arrive at a conclusion based on the cumulative effect of the said tests. 19. The claim of the assessee before us is that SSNNL complies with all the tests laid down by the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra). First test is whether the share capital of the corporation is held by the Government. In the present case, the entire share capital of SSNNL is admittedly owned and held by the Government of Gujarat. The second test is as to whether the State exercises unusual degree of control over the management and policies and financial support is received from the State. In our considered opinion, the said test is fulfilled in the case of SSNNL as per the detailed discussion made by the Ahmedabad Bench of the Tribunal in the case of Sardar Sarovar Narmada Nigam Ltd.. Moreover, the Memorandum of Association and Articles of Association of SSNNL clearly establish that the said concern is operating under superintendence and direction of the Government of Gujarat. It has also been pointed out before us that the Directors of the SSNNL are drawn from the officials of the Government of Gujarat. The next test is the existence of deep and pervasive State control. In this context emerges that the Board of Directors of SSNNL are appointed by the Gujarat Government and it consists of the Government employees of the rank of Secretary/Additional Secretaries. The next test is whether the corporation enjoys monopoly status which is otherwise conferred on a State. The objects to be pursued by the SSNNL, the powers conferred on it, as revealed by the Memorandum of Association clearly suggest that SSNNL is in the activity of executing, operating and maintaining the Sardar Sarovar project comprising of a dam across river Narmada, a canal system, the Sardar Sarovar power houses at the foot of the said dam, etc.. All these aspects clearly show that SSNNL is involved in carrying out State monopoly functions, like operation of Airports, Ports, Railways, etc.. The next test is whether the functions performed are important public functions related to governmental functions. In the case of SSNNL, it is quite obvious that apart from executing, operating and maintaining the Sardar Sarovar project it is also involved in promoting schemes in the State of Gujarat for flood control in the Narmada river, irrigation and water supply schemes for utilization of water from Sardar Sarovar. All these are essentially government functions and obligations, which are being
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performed by SSNNL. The next test is if a Department of a Government is transferred to a corporation. In this context, it is quite clear that the erstwhile Narmada Development Department consisting of its employees as well as the assets of Sardar Sarovar project were transferred enbloc by the Government of Gujarat to SSNNL. The next test is as to whether the chemistry of the concerned body answers the test of a State. In our view, the said test is also fulfilled in the face of the fact that the incorporation of SSNNL, its ownership, management, control as well as the powers have a unmistakable stamp of a Government. 20. In view of the aforesaid discussion, in our view, the tests laid down by the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra) are fulfilled in the present case and it would be appropriate to deduce that SSNNL is an instrumentality or an agency of the State. Therefore, SSNNL is to be understood as an entity akin to those specified in sub-clause (b) of clause (i) to sub- section (4) of section 801A of the Act. Therefore, the objection of the Revenue that SSNNL was a company incorporated under the provisions of the Companies Act, 1956 and is therefore outside the purview of section 801A(4)(i) of the Act is unfounded. In-fact, the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra) specifically observed that merely because an entity is created under a statute and not created by a statute is not an important criteria. The test relating to the purpose, State control and functions performed are more important and determinative of the issue. Such tests, in our view, are clearly applicable in the case of SSNNL, and it is to be understood as an entity specified in section 801A(4)(i)(b) of the Act. 21. The C/T(A) and the learned Departmental Representative appearing for the Revenue has relied on the judgement of the Hon'b/e Supreme Court in the case of Steel Authority of India Ltd. (supra) and that of Heavy Engineering Mazdoor Union (supra) to say that entities such like SSNNL cannot be considered as statutory bodies even though the entire share capital is owned by the Government of India. We have considered the said judgements and find that the ratio decided therein has no relevance to the issue in dispute before us. In the case of Steel Authority of India Ltd. (supra), dispute related to certain commercial transactions between a private company and SAIL and no issue arose as to whether Steel Authority of India Ltd. was special purpose vehicle
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carrying out State functions or not. It may also be important to note that Steel Authority of India Ltd. is in the business of sale and manufacturing of steel which perhaps cannot be looked upon as a State monopoly function as distinct from the activities of SSNNL, which is the subject-matter for consideration before us. 22. In the case of Heavy Engineering Mazdoor Union (supra) also the emphasis was again with respect to the functions of commercial corporation, though wholly owned by the Government. In the case before us, i.e. SSNNL, it is clear that SSNNL is not a commercial corporation, but it has been formed with the intent and purpose for carrying out essentially governmental functions which are otherwise a monopoly or an obligation of the Government. For all these reasons, the facts in the case before us are quite distinct from those in the cases of Steel Authority of India Ltd. (supra) and Heavy Engineering Mazdoor Union (supra). 23. In the light of the aforesaid discussion, in our view, SSNNL being a mere extended arm of the Government of Gujarat carrying out governmental functions can be understood as an entity qualifying for consideration u/s 801A(4)(i)(b) of the Act. The objection of the Revenue in this context is thus rejected. 24. The second objection taken-up by the Revenue is that assessee was not a 'developer' so as to be eligible for deduction u/s 801A(4) of the Act. As per the Revenue, assessee was merely awarded a contract for execution of work by SSNNL. As per the Assessing Officer, assessee has executed a works contract and therefore, it was merely a 'contractor'. 25. On this aspect, it would be appropriate to refer to the scope of work carried out by the assessee. Notably, assessee was awarded the work of 'Saurashtra Branch Canal Pumping Scheme' to be executed on turnkey basis. In the course of execution of the project, assessee was required to conceptualize, design, engineering, manufacture, erect, test and commission and also operate five pumping stations. It has also been pointed out by the assessee that the pumping scheme carried out one of the largest irrigation scheme, which irrigated about 5.4 lakh hectares of land and provided drinking water to 4620 towns and villages. It has also been pointed out by the assessee that it developed certain new
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technologies in the course of executing the project, name/y, Siphon Technology, and the same was got patented also. The assessee also imported Concrete Volute Pump Technology for the project. The use of such technology ensured saving in energy b//Is. The assessee has also pointed out before the lower authorities that the import of technology and development of new technology done by assessee was without any mandate or requirements from SSNNL, but it was done by the assessee while executing its scope of work awarded by SSNNL. Detailed submissions have been made by the assessee before the lower authorities and the same is also placed in the Paper Book filed before us, including other material in the form of contract with SSNNL, communications with Government of Gujarat and SSNNL, etc to justify that assessee was not merely acting as a contractor. 26. Having regard to the scope of work executed by the assessee, it is difficult to comprehended that assessee was merely acting as a contractor. In common parlance, a contractor is understood as a person who carries out the assigned work as per the directions given by the contractee. In the present case, the assessee has used own-developed technology and its own resources to conceptualize, design, erect, commission, test and operate the 'Saurashtra Branch Canal Pumping Scheme'. Therefore, in our view, assessee is to be understood as a 'developer', and distinct from a 'contractor' qua the impugned contract awarded by SSNNL. The Chennai Bench of the Tribunal in the case of ACIT vs. lndwel Lingins (P) Ltd., 122 TTJ 137 (Chennai) has noted that a developer is a person who designs and creates new projects whereas a contractor is a person who has a contract to do work. In the present case, as the scope of work shows, assessee did not merely carry out a contract to do work but was responsible for conceptualizing, designing, erecting, commissioning and operating the water pumping scheme. On the above aspect, the judgement of the Hon'ble Bombay High Court in the case of CIT vs. ABG Heavy Industries Ltd., 322 ITR 323 (Bom), clearly supports the plea of the assessee of being a developer. In the case before the Hon'ble High Court, assessee was awarded a contract by Jawaharlal Nehru Port Trust (JNPT) to supply, install, test, commission and maintain the container handling equipment, namely, the cranes. JNPT was owing the dedicated container handling terminal. The stand of the Revenue was that assessee was not a developer of the infrastructure facility but had only
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supplied and installed the container handling cranes at the JNPT port. Therefore, it was contended by the Revenue that assessee was not eligible for the benefits of section 801A of the Act. The Hon'ble High Court has negated the stand of the Revenue and held that the contract executed by the assessee for supply, installation, testing, commissioning and maintenance of container handling cranes at the JNPT terminal tantamounted to development of an infrastructure facility within the meaning of section 801A of the Act. In our considered opinion, the said judgement of the Hon'ble High Court clearly covers the case of the assessee of being a 'developer' and not merely a 'contractor' for the purposes of section 801A(4) of the Act. 27. Remaining on this objection, it has also been asserted by the assessee before us that the scope of work assigned by the SSNNL was identical to the scope of work assigned by the Government of Andhra Pradesh to the assessee for its Godavari Lift Irrigation scheme. In so far as the profits relating to the project of Godavari Lift Irrigation scheme is concerned, the benefits of section 80IA has been allowed to the assessee and the assessee has not been treated as a 'contractor'. It has been pointed out that on account of the aforesaid, the stand of the Revenue in relation to the project executed for SSNNL is self-contradictory. 28. Before us, the aforesaid assertions of the assessee have not been assailed by the learned Departmental Representative. Be that as it may, in our view, having regard to the aforesaid discussion, assessee cannot be treated as a contractor for the work assigned by SSNNL and it is to be understood as a 'developer' within the meaning of section 80IA(4) of the Act. 29. Another objection taken by the Revenue is that assessee only constructed/developed the infrastructure facility but did not operate the same. This aspect of the controversy has been clearly answered by the Hon'ble Bombay High Court in the case of ABC Heavy Industries Ltd. (supra). Even an enterprise which is engaged only in development of an infrastructure facility has also been held to be eligible for section 801A benefits. Therefore, the said objection of the Revenue is not justified. In any case, it has also been pointed out before us that assessee has operated the infrastructure facility for a period of two years. Be that as it may,
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we find no justification in the aforesaid objection, which is dismissed. 30. It is also a plea of the Revenue that the infrastructure facility is to be owned by the assessee for the purposes of claiming benefit u/s 801A of the Act. In our view, the aforesaid objection of the Revenue is devoid of any statutory support from the provisions of section 801A(4)(i) of the Act. The same is therefore rejected. 31. One of the objections of the Assessing Officer was that the entire investment in the infrastructure project has not been made by the assessee and that 80% of the project cost has been received from SSNNL. Therefore, according to the Revenue, assessee- company has not funded the project without any assistance from SSNNL. This objection of the Revenue, in our view, is quite misconceived because a developer would have income only if he is paid for development of the infrastructure facility. The Mumbai Bench of the Tribunal in the case of ACIT vs. Bharat Udyog Ltd., 118 lTD 336 (Mum) noted that the business activity of the nature build and transfer' also falls within the eligible activities for deduction u/s 801A of the Act. The Mumbai Bench of the Tribunal has made the aforesaid observations in the context of objection raised before it regarding the claim u/s 801A of the Act on the ground that assessee was paid by the Government for the development work. The aforesaid objection was negated by the Tribunal and the claim of deduction was allowed u/s 801A of the Act. Thus, we do not find any justification to deny the claim of deduction u/s 801A(4) of the Act merely because the cost of the project executed by the assessee was not fully funded by the assessee itself. 32. In view of the aforesaid discussion, we therefore hold that assessee is eligible for the claim of deduction u/s 801A of the Act amounting to Rs.40,02, 10,981/- in respect of the profits derived from development of infrastructure facility for SSNNL. The order of the CIT(A) is set-aside and the Assessing Officer is directed to allow the deduction." 40. From the record we found that the Memorandum of Association (MA) of NHPC brings out the purpose of formation of NHPC. We found that Articles of Association (AA) of NHPC so submitted show that the appointment of Chairman of the company, its vice chairman, board of directors, managers, etc.
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are by the President of India and its operations are managed subject to compliance of conditions stipulated in Department of Public Enterprises circulars. We also found that entire share capital of NHPC is owned by the President of India and is a Schedule "A" enterprise and is top ten companies in terms of investment. On incorporation, NHPC took over the execution of various projects from Central Hydroelectric Projects Control Board, a government authority. Resources are earmarked for NHPC in the budgetary allocations of the India budget, more particularly for Teesta Lower Dam project also. NHPC has signed a MOU whereby the commitments I assistance to be received by NHPC from the Government are enumerated. In the Ministry of Power, Government of India work allocation is made for NHPC, including in respect of Jammu & Kashmir; co-ordination, forwarding of returns to Prime Minister's office, Ministry of Home Affairs and other Departments, concerning power issues of J & K. in sum and substance, the objects to be pursued are ordinarily performed by Government Thus, assessee's contract with NHPC fulfills the condition prescribed in section 801A(4)(i)(b) of the Act as it performs functions akin to state. 41. Applying the text laid down by the Hon'ble Supreme Court in the case of Som Prakash Rekhi (supra) as well as the proposition of law laid down by the coordinate bench in the case of Kirloskar Brothers Ltd. (supra) to the facts of the instant case, we do not find any reason to disallow assessee's claim for deduction uls.801A(4) in respect of project awarded by NHPC. We found that assessee's contracts with NHPC fulfills all the conditions prescribed u/s,801A(4)(1)(b) of the Act as it performs functions akin to estate. Accordingly, the AO is directed to allow deduction u/s.801A(4) in respect of project awarded by NHPC.”
Respectfully following the said order, we allow the claim of the Assessee u/s 80IA(4) of the Act in respect of the Teesta Lower Dam Project.
The next issue in the cross objection of the Assessee is regarding reduction of claim u/s 80IA(4) of the Act, i.e. attribution of expenses to the projects eligible for deduction u/s 80IA(4) of the Act.
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The Ld. Counsel for the Assessee referring page 47 to 50 of the Coordinate Bench decision submits that this issue has been considered by the Coordinate Bench in favour of the Assessee.
The Ld. DR places reliance on the order of the lower authorities. [ 19. We have heard the rival submissions. We find that the Coordinate Bench held as under : “23. While computing assessee's income the AD attributed certain expenses incurred by the assessee to the projects eligible for deduction under s.801A(4). The AD has stated, without prejudice to the stand earlier taken that the assessee is not eligible to claim deduction under s.801A for the reasons as mentioned by him, there are certain expenses that have to be allocated to the different projects assuming that the claim is allowable. The A.O has pointed out that the expenditure incurred at the Panvel workshop, US office etc. being not profit centers but only support centers, the same have to be allocated to the profit centers in proportion to the turnover, which has not been done. The A.O therefore allocated the impugned expenditure to the different projects as shown herein under: Total of non-profit centers, USA, Annual Profit Total Profit after H.O. Panvel, Karjat etc. from the Name Turnover expenses and I.T. allocated in these Project (C -D) Amt. Depreciation Amt. projects in in Rs. in Rs. proportion to turnover Koyna 1389507106 107740099 11996349 95743750 Udampur, 16101068 14579381 1391424 13187956 T1,T4&T5 Santacruz 59790181 2888979 515800 2373179 Chembur Link Road Ghatghar 919755893 45517800 8040559 37477241 Teesta 1690878716 13587488 1458613 12128875 Lowe Dam Kalwakurti 17820000 6347004 153730 6193274 Lift Irrigation Project Mutp 272327784 6864474 2349325 4515150 Srisailam 214195365 19386170 1847827 17538343 Weir work Total 19,91,57,768
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9.2 The appellant contends that no such reallocation of expenditure is called for since the activities of the US branch is to monitor the global trends in the infrastructure industry regarding technology etc. and that the Panvel Workshop is used for storing new machinery till they are dispatched to the sites and for repairs and services. It is pointed out that since the expenditure with regard to the US branch has no bearing/ nexus with eligible infrastructure project, it is not a cost center. The expenses incurred on the Panvel workshop has no bearing/ nexus with the eligible infrastructure project, it/s not a cost center. In view of the above, it/s requested that the allocation of such expenditure to the infrastructure projects be deleted. 24. By the impugned order the CIT(A) confirmed the action of the AO after observing as under :- "9.3 I have carefully considered the matter. I am unable to concede to the contention of the appellant that the reallocation of expenses with reference to the USA branch and Pan vel workshop is not called for since it has no bearing/ nexus with the eligible infrastructure project. As stated by the appellant himself the activity of USA branch is to monitor the emerging trends in the infrastructure industry while that of the Pan vel workshop is with reference to storage of equipment and material. As stated by the A.O these are cost centers and certainly have to be allocated to the eligible units on a reasonable basis. These expenses have a bearing on the eligible infrastructure project in that it enables the industry to gauge the global market to update itself with reference to technology and also to store the heavy equipments when not put into use. Therefore the A.O was correct in apportioning the said expenses to the eligible units on the basis of turnover. The AO will apportion the said expenditure on the basis of turnover while computing the deduction under s. 801A(4). The said ground is held against the appellant. 25. Rival contentions have been heard and record perused. From the record we found that while claiming deduction u/s.801A(4), the assessee apportioned the head office expenses to the Section 801A profits of each infrastructure facility and calculated the profits and gains derived therefrom after deducting HO expenses based on which the claim of deduction u/s.801A(4) of Rs.23,34,38,1031- was made. As per the AO the Panvel
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workshop and the USA office expenses has to be allocated to 801A(4) projects to arrive at the correct amount of the deduction u/s 801A(4). Accordingly, he allocated, site wise, the expenses attributable to the Panvel workshop and the USA office at an aggregate amount of [1] 2,77,53,627 being column D in the table at page 17 of his order. Hence, he was of the view that, as in the earlier years, if the appellate authorities hold that the assessee is eligible for the said deduction, the deduction allowable should be Rs.20,56,84,476 (23,34,38,103 - 2,77,53,627) only. The CIT(A), on pages 71-73 para 9, upheld the view of the AO. The assessee is in further appeal before us against allocation of expenses and in reduction of 801A deduction. 26. It was contended by Id. AR that such reallocation of expenses is not required with reference to the Panvel workshop and the USA office as it has no bearing I nexus with the eligible infrastructure projects; whereas the USA branch monitors the emerging trends in the construction industry, the Panvel workshop is used for storage and repairs of equipments. As per Id. AR for computing the "profits and gains of business derived from the eligible infrastructure facility (project), all expenses directly incurred on the project only need to be reduced to calculate its profits and gains. It is trite that "income" results when expenses are reduced from the revenues. The courts have held that the term "income derived from" is narrower than "income attributable to" and accordingly it is submitted that the expenses incurred at the USA branch and the Panvel workshop cannot be reduced while computing "income derived from" the project though such expenses may be attributable to the infrastructure facility. Reliance was placed on the decision of the coordinate bench of the Tribunal in DCW Ltd. v. Additional CIT 37 SOT 322 (Mum), wherein it was held that indirect expenses not directly relatable to the unit cannot but be ignored while computing income "derived from", Further reliance was placed on decision of the Hon'ble Apex Court in Liberty India v. (IT 317 ITR 218 (SC), wherein the Hon'ble Court explained that "the words "derived from" are narrower in connotation as compared to the words "attributable to". In other words, by using the expression "derived from", Parliament intended to cover sources not beyond the first degree. 27. In view of the above, Id. AR contended that no reallocation of expenses is required. It was further submitted by Id. AR that on page 17, in column C, the AO has made errors in mentioning the profit amount in respect of certain projects; this is apparent from the fact that such profit stated in the column does not match with the project wise profits mentioned by him on page 2 of the assessment order and page 7 of the PB. The AO be directed to substitute the correct amounts of profits eligible for deduction u/s 801A(4) in column C.
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On the other hand, Id. DR relied on the order of lower authorities. 29. We have considered rival contentions and found that certain expenditure incurred by Panvel workshop and the USA office was attributed by the AO to the eligible units, consequently profit claimed as deduction was reduced. The contention of Id. AR was that these expenses were not directly incurred for earning the income which is liable to deduction u/s801A(4). However, it has not been brought on record by ower authorities to show that expenses incurred at Panvel workshop and USA office was incurred directly for assessee's projects eligible for deduction u/s.801A(4). Respectfully following the decision of coordinate bench directly on the issue reported at 37 SOT 322 and the decision of Hon'ble Supreme Court in case of Liberty India (supra), we do not find any merit for reducing the profit of eligible undertaking by these expenses. Accordingly, we direct the AO not to reduce the profit eligible for deduction uls.801A(4). We direct accordingly.”
Respectfully following the said order, we direct the Assessing Officer not to reduce the profit of eligible undertaking by these expenses while computing deduction u/s 80IA(4) of the Act.
The next issue in the cross objection of the Assessee is relating to disallowance of TDS on advances. The Ld. Counsel submits that this issue is also decided by the Tribunal in its order at page nos. 50 to 52 in paras 31 to 33.
The Ld. DR placed reliance on the assessment order.
We have heard the rival submissions and find that in respect of advances received, the Tribunal directed the Assessing Officer to grant credit for TDS in the year of deduction itself observing as under :
29 ITA No. 3643/Mum/2015 and CO No.37/Mum/2017 (A.Y.2005-06) M/s Patel Engineering Ltd.
“30. The AO did not allow credit of TDS in respect of advances received. 31. By the impugned order the CIT(A) confirmed the action of the AO after observing as under :- “11. 1 On a consideration of this ground no relief can be afforded to the appellant since credit for TDS will be granted as and when the income is offered to tax. The appellant requires credit of Rs. 2,73,73,1621/- deducted from the advances received. It has been pointed out by the A. 0 that TDS on advance have regularly been disallowed in the earlier years and the appellant is on further appeal. Consistent with the stand taken in earlier years the A.O has not allowed credit with respect to the TDS on advances. However,, the A.O has himself agreed that the corresponding income for TDS advances amounting to Rs. 1,44,41,2621/- has been offered as income during the current year. Hence to the said extent, appellant is eligible for grant of credit of TOS as per law. The A.O will grant credit, subject to the same not having been granted in the earlier years.” 32. We have considered rival contentions and found that in terms of the contract agreement, the assessee receives advances / loans on which the payer deducts tax at source. Such loans and advances can broadly be classified as (i) Site Mobilisation loan granted to enable the assessee to mobilise the work site i.e. create access roads, mobilise men, equipments, establish and set up site office, etc., (ii) Machinery Mobilisation loan granted to enable the assessee to purchase machineries and equipments needed to carry out the subsequent work on the site and (iii) Advance against work and material given to the assessee to help it in procuring material and against the work in progress on the site. Whereas in the first two cases, it is a capital receipt in the nature of loan not connected to any work carried out by the contractor, the third one is an advance in the revenue field. In all the above cases, the Principal uniformly deducts tax at source u/s 194C of the Act. From the record we found that the AO has discussed this on pages 18-21 of the assessment order and citing section 199 has disallowed credit of TDS of Rs1,29,31,900I- as the advances pertaining thereto are not credited to the profit and loss account during the year. The ClT(A), on page 73-74 para 11 of her order, concurred with the view of the AO. As per terms of various contract agreements under which Site Mobilisation Loan and the Machinery Mobilisation Loan I advances, mostly on interest ranging from @ 12% to 18% pa., have been granted against bank guarantee, In the balance sheet, such contractee advance mobilisation loan is reflected as loan funds under the head Contractee advances as a
30 ITA No. 3643/Mum/2015 and CO No.37/Mum/2017 (A.Y.2005-06) M/s Patel Engineering Ltd.
liability. Such loan can never be the income of the assessee, neither in present or in future; deduction of such loan advance from running bills is only a practical and convenient way to recover the loan. Such mobilisation loan being a capital receipt, there was no legal obligation on the part of the contractee to deduct tax at source u/s 1940. If tax has been deducted at source, the credit for such TDS has to be allowed in the year of deduction itself, In ACIT v. Peddu Srinivas Rao ITA 324Nizag12009 mobilisation advance was received and on identical facts it was held that credit for such TDS should be given in the year of deduction of TDS itself. This decision was followed in Zelan Projects Pvt. Ltd. v. DCIT ITA 1361/Hyd/2013 fel::pBS—ee]. Similarly, in Arvind Murjani Brands (P.) Ltd.v, ITO 21 Taxmanncom 131 (Mum) E , it was held that where tax is deducted at source on an amount which is not at all chargeable to tax, command of section 199 will have to be harmoniously and pragmatically read as providing for allowing credit for tax deducted at source in the year of receipt of amount, in which the tax was deducted at source. 33. In respect of advance against work and material, we found that the said advance is reflected as a reduction from construction work in progress, which itself is valued at contract rates i.e. selling price. In other words, the income pertaining to such advance is already impregnated in the work in progress offered for tax during the impugned year itself. The Tribunal in ACIT v.Patel KNR Joint Venture ITA 5230/Mum/2012, on identical facts, following Toyo Engineering Ltd., decided in favour of the assessee. Respectfully following the decision of the coordinate bench in the case of associate concern of the assessee vis-à-vis other decisions referred above, we direct the AO to allow the credit for TDS in year of deduction itself. We direct accordingly.”
Respectfully following the said order we direct the Assessing Officer to follow the directions as set out in the order in ITA 6605/Mum/2013 dated 18.11.2015 and grant credit for TDS in the year of deduction itself.
The next issue in cross objection is regarding disallowance u/s 14A while computing book profit under 115JB of the Act.
31 ITA No. 3643/Mum/2015 and CO No.37/Mum/2017 (A.Y.2005-06) M/s Patel Engineering Ltd.
The Ld. Counsel submits that the Tribunal dismissed this ground as infructuous for the reason that the adjustment made towards disallowance under 14A has been deleted while computing income under normal provisions of the Act.
Following the said order we hold that this ground becomes infructuous as the disallowance u/s 14A is already deleted while computing income under normal provisions of the Act.
The last ground in cross objection in respect of levy of interest u/s 234B. This ground being consequential, the same is dismissed.
In the result, appeal of the Revenue is dismissed and the cross objection of the Assessee is allowed in part in terms indicated herein above. [ Order pronounced in the open court on the 27th day of April 2017.
Sd/- Sd/- (ASHWANI TANEJA) (C.N.PRASAD) लेखा सदस्य / न्याधयक सदस्य / ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई / Mumbai; नििाुंक / Dated 27.04.2017 LR, SPS
32 ITA No. 3643/Mum/2015 and CO No.37/Mum/2017 (A.Y.2005-06) M/s Patel Engineering Ltd.
आदेश की प्रधिधलधप अग्रेधिि / Copy of the Order forwarded to :
अपीलार्थी / The Appellant 1. प्रत्यर्थी / The Respondent. 2. 3. आयकि आयुक्त(अपील) / The CIT(A), Mumbai. 4. आयकि आयुक्त / CIT 5. नवभागीय प्रनतनिनर्, आयकि अपीलीय अनर्किण, मुंबई / DR, ITAT, Mumbai गार्ा फाईल / Guard file. 6. सत्यानपत प्रनत //True Copy// आदेशान सार/ BY ORDER,
सहायक पुंजीकार (Asstt. Registrar) आयकर अपीलीय अधिकरण, मुंबई / ITAT, Mum