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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI WASEEM AHMED, AM & SHRI K. NARASIMHA CHARY, JM
आदेश / O R D E R
Per Shri K. Narasimha Chary, JM:
The above four appeals are directed by the Revenue against the respective orders passed by the ld. Commissioner of Income Tax (Appeals)- XIX, Kolkata in case of one assessee for the different assessment years i.e. AYs.2008-09, 2009-10, 2010-11 & 2007-08 respectively.
I.T.A. Nos. 285, 286, 287 & 288/KOL./2014 Assessment years: 2008-2009 to 2010-11 & 2007-2008 Page 2 of 18 2. Since common grounds are involved in all the appeals of the revenue,
therefore, for the sake of convenience, we proceed to dispose off all the
appeals by this consolidated order.
Brief facts of this issue is that the assessee is an AOP and a joint venture of M/s Somdatt Builders Pvt Ltd and M/s Simplex Infrastructures Ltd., engaged in the business of civil constructions and development of infrastructure facility. Assessee undertook the work of developing certain infrastructural facility under certain contracts of National Highway Authority of India, which were in the nature of improvement of access to Golden Quadrilateral corridor by free flow facilities along NH-4, 45 and 205 within the City of Chennai.
Assessee filed return of income in respect of AYs 2007-08, 2008-09, 2009-10 and 2010-11 on 9.10.2007, 26.9.2008, 22.9.2009 and 25.9.2010 declaring Gross Income of Rs. 1,01,12,456/-, Rs. 97,47,931/-, Rs.1,21,65,674/- and Rs. 79,93,761/- respectively arising from the above business and claiming deduction under section 80-IA of the Act in respect of the entire income and thereby showing the net income as NIL. However, the Assessment Officer by way of orders under section 143(3) of the Act dt. 31.12.2009, 23.3.2010, 24.11.2011 and 23.4.2012 in respect of the AYs 2007-08, 2008-09, 2009-10 and 2010-11 respectively disallowed the deduction under section 80-IA of the Act in view of the Explanation to such section introduced by the Finance Act, 2009 with retrospective effect from 1.4.2000 and computed the net income of the assessee at Rs. 1,01,12,456/-, Rs. 97,47,931/-, Rs.1,21,65,674/- and Rs. 79,93,761/- respectively. Aggrieved by the said disallowance of the deduction and adding back the amount, assessee carried the matters in appeal and the learned CIT, by way of impugned orders allowed the deductions and deleted the additions made by the Assessment Officer.
I.T.A. Nos. 285, 286, 287 & 288/KOL./2014 Assessment years: 2008-2009 to 2010-11 & 2007-2008 Page 3 of 18
Challenging the action of the learned CIT in allowing the appeals of the assessee, Revenue came in these appeals on the following grounds:
Grounds of Appeal in ITA No. 285/KOL/2014: Ground No. 1. "That, on the facts and in circumstances of the case and in law, the Ld. CIT(Appeals) erred in allowing relief to the assessee by holding that AO's action is not well founded in position of law."
Ground No.2 "That, on the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in understanding the whole gamut of the case where consideration of assessee as works contractor by the A.O. was completely overlooked and considered the assessee as developer. "
Grond No. 3 "That on the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in directing the Assessing Officer to delete the addition."
Ground No.4 "That the appellant craves leave to submit additional grounds of appeal, if any, at or before the time of hearing and/or alter, modify, reframe any grounds of appeal at or before the time of hearing. Grounds of Appeal in ITA No. 286/KOL/2014 Ground No. o. 1. "That, on the facts and in circumstances of the case and in law, the Ld. CIT(Appeals) erred in allowing relief to the assessee by holding that AO's action is not well founded in position of law."
Ground No.2 "That, on the facts and circumstances of the case, and in law, the Ld. SIT(Appeals) has erred in understanding the whole gamut of the case where consideration of assessee as works contractor by the A.O. was completely overlooked and considered the assessee as developer. "
Grond No. 3 "That on the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in directing the Assessing Officer to delete the addition." Ground No.4 "That the appellant craves leave to submit additional grounds of appeal, if any, at or before the time of hearing and/or alter, modify, reframe any grounds of appeal at or before the time of hearing. "
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Grounds of Appeal in ITA No. 287/KOL/2014 Ground No. 1. "That, on the facts and in circumstances of the case and in law, the Ld. ClT(Appeals) erred in allowing relief to the assessee by holding that AD's action is not well founded in position of law."
Ground 0.2 "That, on the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in understanding the whole gamut of the case where consideration of assessee as works contractor by the A.O. was completely overlooked and considered the assessee as developer.
Ground No. 3 "That on the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in directing the Assessing Officer to delete the addition.
Ground No.4 "That the appellant craves leave to submit additional grounds of appeal, if any, at or before the time of hearing and/or alter, modify, reframe any grounds of appeal at or before the time of hearing. Grounds of Appeal in ITA No. 288/KOL/2014 Ground No. 1. "That, on the facts and in circumstances of the case and in law, the Ld. CIT(Appeals) erred in allowing relief to the assessee by holding that AO's action is not well founded in position of law." Ground No.2 "That, on the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in understanding the whole gamut of the case where consideration of assessee as works contractor by the A.O. was completely overlooked and considered the assessee as developer. Grond No. 3 "That on the facts and circumstances of the case, and in law, the Ld. CIT(Appeals) has erred in directing the Assessing Officer to delete the addition." Ground No.4 "That the appellant craves leave to submit additional grounds of appeal, if any, at or before the time of hearing and/or alter, modify, reframe any grounds of appeal at or before the time of hearing.
It is the argument of the Ld. AR that the Assessment Officer has never doubted the facts submitted by the assessee regarding their activities, but having considered such activities, reached a wrong conclusion that assessee is not a
I.T.A. Nos. 285, 286, 287 & 288/KOL./2014 Assessment years: 2008-2009 to 2010-11 & 2007-2008 Page 5 of 18 developer of an infrastructural facility but they are only a work contractor, to deny the deductions u/s.80IA of the Act. He further submitted that works contract is contract in which the contractor is not fastened with any responsibility than procurement and deployment of labour, whereas in the instant case the assessee also undertakes so many responsibility and risks incorporated in the general conditions document which forms part of the contract agreement. In this process, Learned AR drew our attention so many clauses of this general conditions of contract. Assessee meets the initial investment for men, material, machinery and other requisite components to convert the site provided by the Government into an infrastructural facility undertaking substantial responsibility and risk in this process. Job of assessee does not end with accomplishing a task in the project but it is a comprehensive and integrated one inasmuch as he is exposed to the risk and attendant consequences for completion of work within time, damage to the works site etc. and escalation in the prices of material. A cumulative result of all these things makes out the assessee a developer of an infrastructural facility but not a mere works contractor.
Argument of the learned DR is that the Government is the employer of the assessee by providing investment and the assessee receives running account payment/lump sum payments as such assessee is executing the project only as a works contractor within the meaning of explanation to section 80-IA of the Act, and the Assessment Officer rightly disallowed the deduction of the claim u/s.80-IA(4) of the Act and added back the amount to the total income of the assessee. He heavily relied upon the order of Assessment Officer.
On the above factual matrix and rival contentions, the point that arises for our consideration in these appeals is as to whether the assessee is a work contractor or a developer of infrastructural facility thereby entitled for deduction u/s.80-IA(4) of the Act?
I.T.A. Nos. 285, 286, 287 & 288/KOL./2014 Assessment years: 2008-2009 to 2010-11 & 2007-2008 Page 6 of 18
POINT:
A careful reading of Section 80-IA clearly shows that in order to avail deduction u/s 80-IA all the following conditions should be satisfied:
a) The assessee is a company or a consortium of companies; b) There exists an agreement with the Central Government, State Government, Local authority or any other statutory body and c) Pursuant to the agreement specified in point (ii) the company engages itself in any of the following activities: i. Development of infrastructure facility ii. Operation and maintenance of infrastructure facility iii. Development, operation and maintenance of infrastructure facility
Admittedly the Assessee is a consortium of companies. There is an agreement with the National Highways Authority of India. Pursuant to such agreement, the consortium engaged itself in the implementation of the project meant for improvement of Access to Golden Quadrilateral (GQ) Corridor by construction of free flow facilities along NH-4, 45 and 205 within Chennai City. In this context, we shall proceed to examine the entitlement of the assessee for deductions under section 80- IA of the Act. Vide Explanation to Section 80-IA of the Act, for the purposes of clause (4) thereof, "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 [inland port or navigational channel in the sea.] [(ii) any undertaking which has started or starts providing telecommunication services whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services on or after the 1st day of April, 1995, but on or before the [31st day of March, 2005;]
This explanation clearly covers the activity of the Assessee to mean that is creation of "infrastructure facility’’.
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Now coming to the aspect of the status of the Assessee – it is necessary to refer to the responsibilities and risks of the Assessee involved in implementing the project. It is the argument of the learned AR that the conditions listed in the agreement clearly go to establish that the assessee was a developer and not a mere works contractor. For this purpose he invited our attention to various Clauses of General Obligations of the agreement, and we shall extract them in a summary form for the purpose of convenience.
Clause 8.1 stipulates that the contractor shall, with due care and diligence, design (to the extent provided for by the contract), execute and complete the works and remedy any defects therein in accordance with the provisions of the Contract. The contractor shall provide all superintendence. labour. materials. Plant. Contractor's equipment and all the other things. whether of a temporary or permanent nature. required in and for such design, execution, completion and remedying of any defects. so far as the necessity for providing the same is specified in or is reasonably to be inferred from the Contract" From the above it is clear that the assessee was not merely providing labour under the contract. In addition to labour it was required to make all arrangements including materials, equipment, superintendence and any other thing required for completion of the work.
In respect of Drawings, Clause 6.6 says, "Working Drawings for Culverts based on the typical drawings provided in the Contract & Design calculations and fabrication drawings for temporary works ........................................ Shall be prepared by the contractors at his own cost".
Under clause 14.1 under the caption “Submission of programme and estimation of cash flows” the assessee was required to submit a detailed programme for the execution of the works. Further, under clause 14.3, it was required to provide the Engineer a detailed cash flow estimate within 28 days. As per clause 14.4, submission of the programme and its approval by the Engineer, did not relieve the assessee of its duties and responsibilities
Superintendence of Assessee in respect of work, vide clause 15.1, the assessee was to provide all necessary superintendence during the execution of works.
Under clause 34.1, the assessee was required to make his own arrangements for procuring and deploying of all staff and labour, local or other, and for their payment, housing, feeding and transport.
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Testing of materials and plant is the responsibility of the Assessee: In addition to provision of specified plant and material, the assessee was required to provide assistance, labour, electricity, fuels, stores, apparatus and instruments as are normally required for examining, measuring and testing any materials or plants. (clause 36.1). The cost of making the test was to be borne by the assessee (clause 36.2 and 36.3)
Under clause 19.1 (b) Assessee has to take care of Safety, Security and Protection of the Environment. The assessee was required to provide and maintain at his own cost all lights, guards, fencing, warning signs and watching, when or where necessary. Further under para (c), it was to take all the steps to protect the environment.
Vide clause 28.2, the assessee was required to pay all tonnage and other royalties, rent and other payments or compensation, if any, for getting stone, sand, gravel, clay or other materials required for the work
Under clause 30.2 the assessee was responsible for paying the cost of strengthening any bridges or improving any road communicating with or on the routes to the site to facilitate the movement of equipment and other temporary works.
In respect of rights of way, clause 42.3, the assessee was required to bear all the costs relating to rights of way required by it in connection with access to the site.
In addition to the above, the assessee was exposed to the following risks:
Clause 20 and 21 deal with the Insurance Policies against Damages: The assessee was responsible for any damage caused to the Works or any part thereof during the period of execution of works and the defect liability period. It was to rectify any such damages at its own cost. (clause 20.2). In order to cover the said risk, the assessee was obtain insurance policies to insure the works, material, plant & equipment etc.
Under clause 22.1, the assessee is responsible for the indemnification against losses. The assessee was to ideminfy the Employer against all losses and claims in respect of:
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• Death of or injury to any person • Loss of or damage to any property which may arise in consequence of the execution and completion of works
Vide clause 24.1, the Employer was not liable for any damages or compensation payable to any workman or other person in employment of the assessee. The assessee was to insure against any such liability.
In respect of Liquidated Damages, the stipulation is that the assessee was to complete the work within time. In the event of any failure in this regard, it was liable to liquidated damages as specified in clause 47.
While dealing with the clause relating to release of retention after defect liability Period, agreement prescribes that even after the completion of the works, the responsibility of the assessee did not end. In case of any defects found in the works, it was to remedy the same at its own cost. (clause 49). The retention money deposited by the assessee was to be released after the completion of the defect liability period. Even the performance security furnished by the assessee could be claimed only after the completion of the defects liability period.( clause 10.2)
In the light of the above risks and responsibilities, in addition to mere rendering labour stipulated in the agreement, now we shall look at the law on the question whether the Assessee is a work contractor or a developer of an infrastructural facility. Learned AR heavily relied on and we would profitably refer to the following extracts of the order of the coordinate Bench of this Tribunal in DCIT Vs. M/s SPML Infra Ltd (erstwhile M/s Subhash Prjects & Marketing Ltd) ITA No.1291-1292/Kol/2013, Dated 24-08-2016,
“8.1 Now the assessee in the given case is a company which, pursuant to agreements with various Government bodies, engaged itself in the development of infrastructure facility as defined in the Explanation to sub section 4 of section 80-IA . These set of facts have not been disputed by the AO. The Ld. AO disallowed the claim on the ground that the assessee was a mere works contractor conducting mere civil construction and hence as per the explanation to section 80- IA(13), the deduction is not available to him. According to the AO, the investments were made by the Government authorities because the assessee was receiving payments in progress of the works on measurement. Attention in this regard is
I.T.A. Nos. 285, 286, 287 & 288/KOL./2014 Assessment years: 2008-2009 to 2010-11 & 2007-2008 Page 10 of 18
firstly invited to the provisions of the Explanation of Section 80-IA of the Act as produced below:
"For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub- section (1). "
From a plain reading of the above it is clear that deduction u/s 80-IA does not apply to works contract. Now the relevant question arises before us for adjudication is that what constitutes a works contract. Section 80-IA nowhere defines the term "works contract", hence the natural meaning of the word shall apply. As per the Oxford dictionary the term "work" means application of effort to a purpose or use of energy. Thus going by the dictionary meaning we may say that a works contract is a contract which involves effort or in other words labour of the contractor. Further as per the Black's Law Dictionary, the term "work" means labour or in other words physical and mental exertion to attain an end esp. as controlled by and for the benefit of the employer. Thus as per Blacks's Law also a works contract is a labour contract under which the contractor merely employs his labour as per the directions of the contractee. Further, attention is invited to relevant extracts of section 194C of the IT Act:
"(iv) "work" shall include-
(a) Advertising;
(b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) Carriage of goods or passengers by any mode of transport other than by railways;
(d) Catering;
(e) Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer."
Thus as per section 194C also, "works contract" does not include a contract wherein the contractor in addition to employing labour, procures material from a third party. Thus, contracts involving mere labour of the contractor are included in the purview of "works contract". Further, attention is invited to the judgment of the Supreme Court in case of
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Associated Cement Co. Ltd. vs. CIT [201 ITR 435], wherein the Hon'ble Court while interpreting the term 'work' u/s 194C held that
“Words `any work' in sub-s. (1) of s. 194C means any work including supply of labour to carry out work and is not intended to be confined to or restricted to works contract, therefore, a person who credits to the account of or pays to a contractor any sum payable on behalf of organizations specified in s. 194C(1) for carrying out any work (including supply of labour for carrying out any work) is liable to deduct income-tax as required under that sub- section. The words in the sub-sections (1) of 194C `on income comprised therein' appearing immediately after the words `deduct an amount equal to two per cent of such sum as income-tax' from their purport, cannot be understood as the percentage amount deductible from the income of the contractor out of the sum credited to his account or paid to him in pursuance of the contract, but deduction is to be made out of payments made to the contractor.”
8.2 We see no reason to curtail or to cut down the meaning of the plain words used in the section. ''Any work" means any work and not a "works contract'', which has a special connotation in the tax law. Indeed in the sub-section the "work" referred to therein expressly includes supply of labour to carry out a work. It is a clear indication of the Legislature that the "work" in the sub-section is not intended to be confined to or restricted to "works contract". The issue before the Supreme Court in the aforesaid case was whether the term "work" used in section 194C needs to be restricted to "works contract". The Apex Court laid out that the term "work" used in section 194C need not be restricted to "works contracts" (i.e. labour contracts) because the sub-section expressly includes supply of labour to carry out work. In other words, it is implied that works contract means supply of labour to carry out work. Thus from the above we may say that a works contract constitutes a contract under which the contractor is merely employing his efforts or labour. Under such a contract, the contractee provides the material and other requisites (a complete infrastructure) needed to carry out the desired work to the contractor who by applying his labour to the said material turns the material into a desired product. Further, attention is invited to the memorandum explaining the provisions in the Finance Bill, 2007, reported in [2007] 289 ITR (St.) 292 at page 312, which reads as under: "Section 80-lA, inter alia, provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development of infrastructure facilities, industrial parks and special economic zones. The tax benefit was introduced for the reason that industrial modernization requires a passive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been {or encouraging private sector participation by way of investment in development of the infrastructure sector and not {or the persons who merely execute the civil construction work or any other works contract.”
I.T.A. Nos. 285, 286, 287 & 288/KOL./2014 Assessment years: 2008-2009 to 2010-11 & 2007-2008 Page 12 of 18 Accordingly, it is proposed to clarify that the provisions of section 80- IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the said section. Thus, in a case where a person makes the investment and himself 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 person who enters into a contract with another person (i.e., undertaking or enterprise referred to in section 80- IA) for executing works contract, will not be eligible for tax benefit under section 80- IA. This amendment will take retrospective effect from 1st April 2000 and will accordingly apply in relation to the assessment year 2000-01 and subsequent years. The Explanatory Memorandum clearly lays out that purpose of extending tax benefit u/s 80-IA was to encourage investments from the private sector and hence work contracts, i.e. contracts involving merely labour (or mere execution of construction without making investments) are outside the purview of the provisions of section 80-1A. Thus, the term "works contract" used in Explanation to section 80-IA(l3) means a contract of developing infrastructure by merely employing labour and making no investments. We also find support from the following judgments:
The Hyderabad bench of Tribunal in case of M/s. GVPR Engineers Ltd. Vs. ACIT (2012) 32 CCH 0296 HydTrib (2012) 51 SOT 0207 (Hyd) (URO). The relevant extract of the order is reproduced as under :
“The next question to be answered is whether the assessee is a developer or mere works contractor. 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. 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
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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 80IA (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 department is not correct in holding that the assessee is a mere contractor of the work and not a developer.”
8.3 It was also observed that "The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk.”
In this decision, it was further observed that:
Similarly the Chennai Bench of Tribunal in case of R.R. Constructions, Chennai vs Department Of Income Tax 2013) 35 CCH 0547 Chen Trib (2015) 152 ITD 0625 (Chennai) held that "when the assessee makes investment and himself executes development work and carries out civil works he is eligible for tax benefit u/s 80IA of the Act. Accordingly, with the foregoing discussion, we hold that the assessee is entitled to deduction u/s 80IA(4) of the Act, and therefore, we order to delete the addition made in this respect"
Thus, the memorandum explaining the provisions in the Finance Bill, 2007, further strengthens the contention of the assessee that a works contract is a contract which involves mere labour of the contractor. However, if under a contract, the contractor employs his capital and enterprise in addition to labour, then the said contract does not constitute a works contract under the Explanation to section 80-IA(l3) and the contractor shall be eligible for deduction U/S 80-IA. Now coming to the facts of the case, it is submitted that the assessee was not mere works contractor, who had merely employed its labour under the projects from the various government authorities. The assessee was a developer. In addition to employing labour it made investments, it developed an enterprise/infrastructure to support the work under the various projects. In addition to labour, it deployed its machinery, materials and did
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all the things necessary (i.e. provided an enterprise) to support the construction work undertaken under the various projects. The assessee was provided with the site alone and by putting its own inputs (not labour alone) he converted the site into an infrastructural facility.
Testing on the above observations we safely reach a conclusion that the assessee is only a developer of an infrastructural facility but not a mere works contractor. At this stage it is relevant to refer to a decision of the Bombay High court and a coordinate Bench of Cuttack Tribunal. In Commissioner of Income-tax v. ABG Heavy Industries Limited [322 ITR 323] the Bombay High Court held that
Plainly, right from 1996 CBDT was seized with the question, as to whether infrastructure facilities developed under a BOLT project would qualify for exemption under s. 80-IA of the Act. The first circular in that regard that was issued on 3rd Jan., 1996 specifically dealt with whether s. 80-IA(4A) of the Act would be applicable to a BOLT Scheme involving an infrastructure facility for the Indian Railways. The circular clarified that an infrastructure facility set up on a BOLT basis for Railways would qualify for a deduction. That was followed by the two circulars of the Board dt. 23rd June, 2000 and 16th Dec., 2005. The first of those circulars recognizes that structures for storage, loading and unloading etc. at a port built under a BOT and BOLT Scheme would qualify for a deduction. Now, there is no question of an enterprise operating a facility in a BOLT Scheme because such a scheme contemplates that the enterprise would build, own, lease and eventually transfer the facility to the authority for whom the facility is constructed. The subsequent circular dt. 16th Dec., 2005 once again clarified the position of CBDT that structures which have been built inter alia under a BOLT Scheme upto asst. yr. 2001-02 would qualify for a deduction under s. 80-IA of the Act. In fact from asst. yr. 2002-03, the process was further liberalized, consistent with the basic purpose and object of granting the concession. In this background, particularly in the context of the objective sought to be achieved and in the absence of any challenge on the part of the Revenue on the applicability of the binding circulars of CBDT, we are of the view that the condition as regards development, operation and maintenance of an infrastructure facility was contemporaneously construed by the authorities at all material times, to cover within its purview the development of an infrastructure facility under a scheme by which an enterprise would build, own, lease and eventually transfer the facility. This was perhaps a practical realisation of the fact a developer may not possess the wherewithal, expertise or resources to operate a facility, once constructed. Parliament eventually stepped in to clarify that it was not invariably necessary for a developer to operate and maintain the facility. Parliament when it amended the law was obviously aware of the administrative practice resulting in the circulars of CBDT. The fact that in such a scheme, an enterprise would not operate the facility itself was not regarded as being a statutory bar to the entitlement to a deduction under s. 80-IA of the Act. The Court cannot be unmindful in the present case of the underlying objects and reasons for a grant of deduction to an enterprise engaged in the development of an
I.T.A. Nos. 285, 286, 287 & 288/KOL./2014 Assessment years: 2008-2009 to 2010-11 & 2007-2008 Page 15 of 18 infrastructure facility. The provision was intended to give an incentive to investment for infrastructural growth in the country.
In ARSS Infrastructure Projects Ld. Vs. Asstt. Commissioner of Income-tax, ITA Nos. 142 & 143/CTK/2010, and ITA Nos. 483 & 484/CTK/2011, the CUTTTACK Bench of this tribunal held as follows:
Now coming to the merits of the deduction u/s. 80IA(4) of the Act. A perusal of the provisions of section 80IA(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 80IA(4) of the Act after the substitution of the explanation to section 80IA of the Act was introduced was only for the purpose of giving the benefit to BOT contracts then, the explanation to section 80IA(4) of the Act becomes otiose. This is as explanation to section 80IA(4) of the Act specifically provides for the road to include a toll road, a bridge or a rail system. BOT contract in respect of the railway system can never exist. Further, a perusal of the provisions of section 80IA 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 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.
On the aspect of the Assessing Officer’s reasoning for the non-entitlement of the Assessee to claim deduction under section 80-IA of the Act when the Government has made payment to the assessee in respect of the project of infrastructure development undertaken by it in terms of respective agreement entered into with Government, similar question
I.T.A. Nos. 285, 286, 287 & 288/KOL./2014 Assessment years: 2008-2009 to 2010-11 & 2007-2008 Page 16 of 18
was considered by the Indore Bench of the Tribunal in case of Sanee Infrastructure Pvt. Ltd. vs. ACIT [138 ITD 433] held that
“As per our considered view, after amendment by the Finance Act, 2002 for claim of deduction u/s 80IA(4) infrastructure facility is only required to be developed and there is no condition that assessee should also operate the same. Thus, after amendment, when the assessee is not required to operate the facility, the payment for development of such infrastructure is required to be made by the Government only. However, as per pre-amended law when the assessee was not only required to develop but also required to operate and maintain the infrastructure facility, there was collection of revenue through toll tax by which assessee could have recovered not only its cost part but also profit thereon. After amendment, when assessee undertakes to develop the infrastructure facility only, it is the Government who will make payment to assessee in respect of infrastructure facility developed by it in terms of agreement so entered with Government. Thus, we do not find any infringement of conditions for claim of deduction u/s 80IA(4) when the Government has made payment to the assessee in respect of the project of infrastructure development undertaken by it in terms of respective agreement entered into with Government. It is pertinent to mention here that for claim of deduction, the infrastructure project should be completely developed by the assessee and not part of it.”
The stream of judicial reasoning referred to above makes it clear that the fact that the assessee had received payments from the Government in progress of its work has no bearing on eligibility of deduction u/s 80- IA. It also negates the contention of the Revenue that the contracts entered into by the assessee were merely 'construction contracts' since the assessee is not exposed to any entrepreneurial and investment risk. The general conditions referred supra makes it clear that the Assessee was responsible for overall development of the infrastructure facility and the Government was merely provided with the site which it had to develop into an infrastructural facility by deploying his resources i.e. material, plant & machinery, labour, supervisors etc. Assessee alone was responsible for any damage/loss caused to any property or life in course of execution of the works. Assessee was even responsible for remedying of the defects in the works at its cost and they are also required to operate and maintain the infrastructure facility. The assessee’s deployment of resources (men, money, material, machinery etc) in the
I.T.A. Nos. 285, 286, 287 & 288/KOL./2014 Assessment years: 2008-2009 to 2010-11 & 2007-2008 Page 17 of 18 construction work clearly exhibits the risks undertaken by the assessee. Further, the assessee vide the agreements has clearly demonstrated the various risks undertaken by it. The assessee was bound to furnish a security deposit to the Employer and indemnify the employer of any losses/damage caused to any property/life in course of execution of works. Apart from this, the Assessee was responsible for the correction of defects arising in the works at it cost. In these circumstances, it cannot be said that the assessee had not undertaken any risk. Hence, it cannot be said that the contract with the Government was to carry out mere civil construction.
A perusal of the terms and conditions of work, in the light of the judicial interpretation of different facts of entrepreneurial work involved in the project, it is clear that the assessee was not a works contractor simplicitor and was a developer, fulfilling all the conditions required under section 80-IA of the Act to entitle themselves for the deductions thereunder. Explanation to section 80- IA(13) has to application to the case of assessee. The irresistible conclusion that flows from the above is that the assessee is eligible for deduction u/s 80-1A of the Act. Having taken this view, we do not propose to interfere in the order of ld. CIT(A). Grounds of appeal of the Revenue are, therefore, dismissed.
In the result, Revenue’s appeals are dismissed. Order pronounced in the open court on 07/10/2016.
Sd/- Sd/- (WASEEM AHMED) (NARASIMHA CHARY) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER
कोलकाता /Kolkata; �दनांक Dated 07/10/2016
�काश �म�ा/Prakash Mishra,�न.स/ PS
I.T.A. Nos. 285, 286, 287 & 288/KOL./2014 Assessment years: 2008-2009 to 2010-11 & 2007-2008 Page 18 of 18
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :
अपीलाथ� / The Appellant
��यथ� / The Respondent.
आयकर आयु�त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु�त / CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. 6. गाड� फाईल / Guard file.
स�या�पत ��त //True Copy// आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Asstt. Registrar) आयकर अपील�य अ�धकरण, कोलकाता / ITAT, कोलकाता