D.C.I.T CC - XXVIII,KOLKATA, KOLKATA vs. M/S SPML INFRA LTD (ERSTWHILE M/S SUBHAS PROJECTS& MARKETING LTD), KOLKATA

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

Both appeal by Revenue are against the separate orders of Commissioner of Income Tax (Appeals)-XXXVIII, Kolkata in appeal No.204-205/CC-XXVIII/CIT(A)- C-I/11-12 by even date i.e. 24.01.2012. Assessments were framed by DCIT.CC.XXVIII, Kolkata u/s 143(3)/147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 29.12.2011 for assessment years 2006-07 & 2009-10 respectively.

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 2 2. Both the appeals are heard together and are being disposed of by way of consolidate order for the sake of convenience.

Shri Ravi Tulsiyn Ld. Authorized Representative appeared on behalf of assessee and Shri H.K. Lal, Ld. Departmental Representative appeared on behalf of Revenue.

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 3 entrepreneurial risk and investment risk and thus loses the character of a 'Developer' to which the incentive of deduction u/s 80-IA has all along been aimed, i) That the Ld. CLTCA) has failed to appreciate that the simple fact that tax was deducted u/s 194C from all the alleged 'eligible projects' makes it clear that the assessee was into a simple construction contract and thus was not entitled to deduction u/s 80-IA, j) That the Ld. CIT(A) has failed to realise that when an assessee executes a project of infrastructure development with the advance received from the Government or the Local Authorities, the very purpose and intent of Private Sector participation in the development of infrastructure is defeated and, accordingly, the assessee ceases to be entitled to the deduction. going both by words and spirit of section 80-IA, k) That the Ld. CITCA) has erred in facts as well as in the circumstances of the case in placing reliance upon the decisions of various courts of Law which are yet to reach finality, 1) That in view of the grounds (c) to (k) above, the Ld. CIT(A) has erred in facts as well as Il1 the circumstances of the case in directing to delete the disallowance of deduction u/s 80-IA to the tune of Rs.7,79,20,811/-; and m) That the Department craves the right to add, delete, modify or abrogate the grounds of appeal during the course of hearing of the case.”

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 4 The aforesaid projects were awarded by Central / State Government / Local Authority / Statutory Body on turnkey basis. The Assessing Officer, during the course of assessment proceedings observed that in all the aforesaid projects, the government / semi government organizations are the employer and assessee is acting as a contractor. All the projects were awarded to the assessee on the basis of quoted tender and were funded by the respective government / semi government organizations. Therefore the assessee received only running account payment and / or lump sum payment as per the conditions mentioned in the works order / agreement. Accordingly, AO opined that assessee is executing the projects as works contractor within the meaning of Explanation to Sec. 80IA of the Act. Hence, AO disallowed the deduction claim u/s 80-IA(4) for an amount of ₹7,79,20,811/- and added to the total income of assessee.

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 5 fund of labor and materials therefore it cannot be covered under the definition of works contract. Therefore, the assessee is entitled for the deduction u/s. 80-IA of the Act and considering the same, Ld CIT(A) deleted the addition made by AO by observing as under:- “5. I have considered the facts of the case. I have also perused the rival submissions made by the appellant as well as by the AO. I find that the facts of the present case and the legal issue involved in this appeal are similar to the facts and the legal issue involved in the case of the appellant for the assessment year 2009-10. Ground no 3 and 4 in the present appeal are directed against the action of the AO in disallowing the deduction u/s. 80IA as claimed by the appellant on the projects developed by it on the ground that the appellant is a mere works contractor and is therefore ineligible for deduction by virtue of the Explanation below sub-section (13) of section 80IA. I have dealt with this issue in detail in my appellate order dated the 18th March, 2013 in the case of the ape for the assessment year 2009-10 in Appeal No. 205/CC- XXVIII/CIT(A)C-I/11-12 wherein, after considering the facts of the case of the appellant and duly examining the legal position on section 80IA, I have held that the appellant is a ‘developer’ of infrastructure facilities as required under the said section and is therefore eligible for deduction u/s. 80IA. The decision given by me for the assessment year 2009-10 is also applicable for the present assessment year since the factual and legal position remains the same. Following the decision in the case of the appellant for the assessment year 2009-10 in Appeal No. 205/CC-XXVIII/CIT(A) C-I/11-12, it is to be held that the appellant is a ‘developer’ who fulfils all the requirements for claiming deduction u/s. 80IA and is therefore eligible for deduction under the said section. Accordingly, the AO is directed to allow the deduction of Rs.7,79,20,811/- as claimed by the appellant. Ground no 3 and 4 are allowed.”

Being aggrieved by this order of Ld CIT(A) Revenue is in appeal before us.

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 6 assessee is acting as a works contractor and the Government authority has provided the assessee with the entire set up i.e. plant & machinery, materials and the infrastructure needed to support construction. It is also not a case that the assessee had to employ only labour to carry out construction. Instead, the assessee had provided an entire enterprise which was needed to convert the site (given by the Government) into an infrastructural facility. Regardless to say the aforesaid activities undertaken by the assessee involved a substantial amount of risk. Like any other entrepreneur who employs his material, plant, machinery, labour etc. in a project and undertakes risk, the assessee was also exposed to a substantial amount of risk by virtue of engaging his establishment in the infrastructure projects. In addition, the assessee was exposed to risk of non-completion of work within time, any damage caused to the works, site etc., increase in prices of materials, labour etc. beyond what the Government had agreed to compensate as per the agreement. Now, since the assessee is not of a works contractor simplicitor, it is clearly outside the purview of the Explanation to section 80-IA(13) of the Act. To substantiate the above attention is invited to the agreements with government authorities, which have been discussed in detail in the following paragraphs: I. Jodhpur Project: Rs. 2,83,71,828/- The agreement for the aforesaid project is enclosed at pages 1-60 of paper book. The following conditions listed in the agreement clearly establish that the assessee was a developer and not a mere works contractor: A. Scope of work: (i) Drawings and design: The assessee was responsible for the design of the work under the contract and was also responsible for accuracy of the said designs. (pg. 38, para 9.1) The assessee was to carry out preparatory works such as Topographic survey, soil investigations, geo-technical investigations etc. to prepare the plans, L- sections, designs, working drawings etc. It was to submit the detailed design and the execution drawings such as site plans, general arrangement drawings, L-sections, plans, architectural, structural drawings and all working drawings, for approval. (para 9.2)

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 7 (ii) Materials: All the material required for the work was to be provided by the assessee. (page 39, para 10) (iii) Labour: The assessee was required to employ staff for execution of work. (para 8.2 on page 37) (iv) Plant: The assessee was to arrange and supply at its own cost all material, plant, tools, appliances, implements, ladders, cordage, tackle, scaffolding and temporary works required for proper execution of the work. (page 15, clause 18) (v) Cost of Inspection and testing: For all equipment and material required for the execution of the work, the arrangement for inspection and expenses thereto was to be borne by the assessee. (page 40, para 10.2) Further, the assessee was to provide all apparatus, assistance, electricity, fuel, consumables labour, materials to carry out efficient testing of equipment, material and other parts of works. (para 10.3) (vi) Water and Electricity: The cost of all water connections necessary for the execution of the work and the cost of water consumed and hire charges of meters and the cost of electricity consumed in connection with the execution of work was to be paid by the assessee. (page 19, clause 36B) (vii) Site office, staff quarters etc.: The assessee was to have an office near the site and a clerk for service of communication notices.(page 37, para 8.1) Further, all the expenses in connection with purchase or construction or maintenance of site office, staff quarters was to be borne by the assessee. (para 7.13, page 37) (viii) Royalties and taxes: The assessee was to pay all royalties, octroi and other taxes and duties in respect of materials consumed on public work. (Clause 36A on page 19). ix) Insurance: The assessee was to take accident insurance and third party insurance. (para 7.2 on page 3). The responsibility of timely payment of premiums was that of the assessee. (x) Quality assurance system: The assessee was to institute a quality assurance system to demonstrate compliance with requirements of the contract. (para 7.6 on page 36)

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 8 (xi) Rights of way and facilities: The assessee was to bear all costs and charges for special/temporary rights of way which may be required for the work. (para 7.9 on page 36) (xii) Security of the site: The assessee was to provide adequate manpower and means for the security of the material, work-in-progress etc. It was responsible for keeping unauthorised persons off the site. (page 36 & 37, para 7.11) (xiii) Defects Liability period: Even after completion of works the assessee was responsible for correcting defects in the works for a period of 24 months from the date of issue of certificate for completion of works. (Pg. 42) (xiv) Operations & Maintenance: The project had an operation and maintenance period of 5 years.(page 3) B. Investment: In order to undertake the said project the assessee was to forward a sum of Rs. 41 lacs/ 1.63 crores as Earnest Money Deposit (see page 3 & 4). Further, it was to deposit an amount equal to 10% of the contract value towards security deposit in cash or in form of bank guarantee or by way of deduction from running bills. (see page 3 & 5). The said Deposit was to be released only after satisfactory completion of the maintenance period (pages 53 & 48). A perusal of Project Balance Sheet on page 68 shows an investment of Rs. 4,41,60,431/- on the said project. C. Risks: (i) The assessee was to finish the work specified in the contract within time failing which the assessee would be liable to compensate the Employer. (page 6) (ii) As already discussed above, the security deposit made by the assessee was to be released not on completion of the works, but after the maintenance period of 5 years. Thus, the completion of the work did not absolve the assessee of all its responsibilities. Even after completion it had the responsibility of maintaining the facility for 5 years ( see page 53 & 48)) (iii) In case of any injury to the workers the assessee is held responsible for the same, the assessee would be liable to a pay compensation to them (page 18)

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 9 (iv) The assessee was responsible for any damage that occurs to the building in which they may be working or to the work and was make good the damage at his expense. (page 15) D. Conclusion: From the aforesaid conditions, it is clear that the assessee was not merely responsible for supplying labour for the aforesaid project, but rather was responsible for the development of the entire infrastructure facility. In order to do so, it deployed its various resources, materials, labour, supervisor, Engineers etc. It made substantial investments and exposed itself to various risks. Hence it is clear that the assessee was a developer in the aforesaid project and hence is eligible for deduction U/S 80-1A.

II. Santaldih Thermal Power project, West Bengal: Rs. 4,08,58,949/- The agreement between the assessee and The West Bengal Power Development Corporation Ltd., for the aforesaid project is enclosed at pages 70-146 of paper book. The following conditions listed in the agreement clearly establish that the assessee was a developer and not a mere works contractor: A. Scope of Work: (i) Drawings: The assessee was responsible for developing detailed drawings to adopt equipment and materials to be supplied to the requirements indicated in the specification. Further, it was responsible for and was to pay for any alterations of work due to discrepancies in the drawings. (pg. no 92 & 93, para 13) (ii) Materials: The assessee was responsible for arrangement of materials required for the work. (pg. 93). Further, the assessee was required to establish on site testing facilities and was required to conduct tests, at its own cost, as specified. (pg. 143, para 21.1) (iii) Labour: The assessee was required to make arrangements for labour required for the work (para 16.5, page 140. It was responsible for payment of wages and was required to observe that hours and conditions of labour are not unfavorable. (page 139, para 16.3). In addition to the above, the assessee was to deploy engineers and supervisory personnel required for work. [pg. 136, para (j)] Further it was responsible

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 10 for providing accommodation and daily transport to its labour and other personnel. [pg. 135 paras (f) & (g)] (iv) Erection/Construction tools, Tackles and Machinery: The assessee was to provide all construction/erection machinery, tools, tackles and scaffolding required for work. (Pg. 144, para 22.10) (v) Insurance: The assessee was required to arrange, at its own cost, all insurance pertinent to the work. (highlighted portion on Pg. 116) (vi) Site office: The assessee had the responsibility of site office construction and approach rods as required. [page 136, para (k)]. Further it was to bear all expenses for special and temporary way leaves required in connection with access to the site. (pg. 144, para 21.5] (vii) Others: • Any open/covered storage required for the protection and storage of goods, construction materials and machinery was to be constructed by the assessee at his own cost. (pg. 134) • Watch and ward pg. 135, para (e)] • Postage, telephone and telegraph expenses [pg. 136, para (1)] • Cleaning up the site [para (m) on page 136] • The assessee was to take all the safety precautions during the erection/construction work. [para (r) on page 136] • Provision of sanitary convenience in the site office, stores and for the use of workmen at the site and at labour colony. [para (u) on page 137] • Lights, guards, fencing and watching [Pg 141, para 17.1] (viii) Warranty: The warranty period of the works was 12 months from the date of taking over the completed Plant or fully completed unit at the discretion of the owner (page 97) B. Investment: In order to undertake the said project the assessee was to furnish a performance guarantee equal to 10% of the Contract Price for diligent and due fulfillment of all obligations under the contract. The said guarantee was to provide for payment of any claims/damages due to the owner for failure of the assessee to met his obligations

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 11 under the contract. The said guarantee would be released at the end of the Warranty period. (page 84) A perusal of Project Balance Sheet on page 148 shows an investment of Rs. 13,69,87,730/- on the said project. C. Risks: (i) The assessee was to finish the work specified in the contract within time failing which the assessee would be liable to liquidated damages. (page 91) (ii) As already discussed above, the performance guarantee made by the assessee was to be released not on completion of the works, but at the end of warranty period. Thus, the completion of the work did not absolve the assessee of all its responsibilities. The said guarantee was to provide for payment of any claims/damages due to the owner for failure of the assessee to met his obligations under the contract. (see page 97) (iii) The assessee was to indemnify the owner of all costs, charges, expenses on account of any claims, demands, actions and proceedings against the owner in respect of any injury, loss or damage. (page 114) D. Conclusion: From the aforesaid conditions, it is clear that the assessee was not merely responsible for supplying labour for the aforesaid project, but rather was responsible for the development of the entire infrastructure facility. In order to do so, it deployed its various resources, materials, labour, supervisor, Engineers etc. It made substantial investments and exposed itself to various risks. Hence, it is clear that the assessee was a developer in the aforesaid project and hence is eligible for deduction u/s 80-IA. Ill. Urbani Lift Irrigation Scheme: Rs. 27,18,977/- The agreement between the assessee and Karnataka Neeravari Nigam Limited for the aforesaid project is enclosed at pages 149-237 of paper book. The following conditions listed in the agreement clearly establish that the assessee was a developer and not a mere works contractor: A. Scope of Work: (i) Drawings and designs: The assessee was responsible for the drawing and design of temporary works. It was required to submit the said drawings to the Engineers and obtain his approval before starting such work (Para 18.2 & 18.5 of page 184, 185)

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 12 (ii) Materials required for the Project: The contractor was responsible for procurement of required quantity of pipes, special machinery, electrical items etc. (Pg. 198, para 18) (iii) Labour: The contractor was required to make its own arrangement for the engagement of all staff and labour, for their payment, housing, feeding and transport. (Para 1, pg. 194). Further he was to take adequate provisions for the safety of the workmen (pg. 202 of the agreement) and maintain adequate sanitary facilities for the employees (para 7 on page 196) (iv) Plant: All tools and plants required for the work was to supplied by the contractor at its own cost. (pg. 198, para 17) (v) Power & water: The contractor was required to make its own arrangement for electricity required at site and make its own arrangement of water. (Para 2 and 3 on page 195) (vi) Survey stations: the contractor was required to provide and maintain at its own expense, survey stations. He was further required to conduct all the surveys required for execution of the work. (para 4 on page 195) (vii) Temporary fencing: The contractor was required, at his own expense, to erect and maintain temporary fences and gates along the boundaries. (para 5 on page 196) (viii) Royalty: The contractor was to pay all fees, royalties, octroi dues levied by the State Government or any other local body (Clause 36(b), page 234) (ix) Operation & Maintenance of the system: As per scope of work on page 150, the assessee was responsible for proper operation of the installations for 2 years. Further it was to maintain the system in good order for 1 yr [see page 210 clause (f)] B. Investment: In order to undertake the said project the assessee was to furnish an Earnest money deposit equal to 1% and further security deposit equal to 6.5% of the cost of work for diligent and due fulfillment of all obligations under the contract (page 209). The said deposit was to be refunded after the final bills are paid or after 12 months from the date of completion of work during which period the work was to be maintained by the assessee in good order [page 210, clause (f)]. A perusal of Project Balance Sheet on page 243 shows an investment of Rs. 1,10,31,129/- on the said project.

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 13 C. Risks: (i) The assessee was to finish the work specified in the contract within time failing which the assessee would be liable to liquidated damages. (para 41.1, page 190) (ii) As already discussed above, the security deposit made by the assessee was to be released not on completion of the works, but at the end of maintenance period. Thus, the completion of the work did not absolve the assessee of all its responsibilities. The said guarantee could have been forfeited by the Nigam in order to recover any sums from the assessee. (see last para on page 213) (iii) The assessee was wholly responsible for any injury or damage to persons and properties, which may occur irrespective of any precautions he may take during the execution of the works. The assessee was to make good all claims and loss arising out of such accidents and indemnify the Employer from all such claims and expenses. (Para 2, page 199) (also see clause 19, page 226) D. Conclusion: From the aforesaid conditions, it is clear that the assessee was not merely responsible for supplying labour for the aforesaid project, but rather was responsible for the development of the entire infrastructure facility. In order to do so, it deployed its various resources, materials, labour, supervisor, Engineers etc. It made substantial investments and exposed itself to various risks. Hence, it is clear that the assessee was a developer in the aforesaid project and hence is eligible for deduction U/S 80-IA. IV. Benihala LIS Project: Rs. 24,54,116/- The agreement for the aforesaid project is enclosed at pages 244-315 of paper book. The following conditions listed in the agreement clearly establish that the assessee was a developer and not a mere works contractor: A. Scope of Work: (i) Design and drawings: The assessee was responsible for drawings and designs for temporary works. (para 18.2 on page 264) (ii) Material: The assessee was responsible for procurement of required quantity of materials like pipes, specials, machinery, electrical items etc.(para 18 on page 278 and clause 20 on page 306)

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 14 (iii) Labour: The assessee was responsible for the engagement of all staff and labour and also for their payment, housing, feeding and transport. (para 1 on page 274). The assessee was to take adequate measures to ensure their safety. (see safety provisions on pages 282). The assessee was responsible for and was to bear all expenses of providing medical aid to workmen on the site. Further it was to provide all necessary personal safety equipment, first aid apparatus for the use of persons employed on the site.( clauses 30(b) and 31 on page 309 & 310. In case of an any injuries to workmen the assessee would be responsible for payment of compensation. [page 309, clause 30(a)] (iv) Plant: All tools and plants required for the work including sheet piles and timber for shoring and strutting, pump sets etc. was to be supplied by the assessee at its own cost.( para 17 on page 278 and clause 20 on page 306) (v) Water and Electricity: The assessee was to make its own arrangement for the fresh water required for manufacturing of the pipes, construction of civil works and testing of pipelines as well as potable water required for his factory and labour camps. (para 2 on page 275) Further he was to make its arrangements for the electrical energy required at the site. (para 3 on page 275) (vi) Survey stations: The assessee was to, at his own expense, provide and maintain survey stations required to carry out surveys, measurements etc. in connection with works (para 4 on page 275) (vii) Other infrastructural facilities: • The assessee was to erect and maintain in a good condition temporary fences and gates along the boundaries. (para 5 on page 276)

• Provision of septic tank/pit latrines at the construction site/camps (para 15.10 on page 286)

• Provision of creches for working women labour (para 15.10 on page 286) • Drinking water (pg. 286) • Provision and maintenance of clean sanitary facilities on the site for use of its employees. (para 7 on page 276)

• Watching and lighting (page 278, para 15)

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 15 (viii) Royalty etc.: All quarry fees, royalties and octroi dues levied by the State Government or any local body or authority and ground rent was to be paid by the assessee. (Clause 37(b) on page 312) (ix) Temporary diversion of roads: The assessee was to make at its own cost all necessary provision for the temporary diversion of roads, cart-tracks, footpaths, drains, water courses, channels etc. (para 12 on page 277) It was to pay customary vehicle license and permit fees for use of public roads. (para 10 on page 277) (x) Operation & Maintenance of the system: As per scope of work on page 245, the assessee was responsible for proper operation of the installations for 2 years. Further it was to maintain the system in good order for 1 yr [see page 290 clause (f)] B. Investment: In order to undertake the said project the assessee was to furnish an Earnest money deposit equal to 1 % and further security deposit equal to 6.5% of the cost of work for diligent and due fulfillment of all obligations under the contract (page 289). The said deposit was to be refunded after the final bills are paid or after 12 months from the date of completion of work during which period the work was to be maintained by the assessee in good order [page 290, clause (f)]. A perusal of Project Balance Sheet on page 321 shows an investment of Rs. 1,71,85,5411- on the said project. C. Risks: (i) The assessee was to finish the work specified in the contract within time failing which the assessee would be liable to liquidated damages. (para 41.1, page 270) (ii) As already discussed above, the security deposit made by the assessee was to be released not on completion of the works, but at the end of maintenance period. Thus, the completion of the work did not absolve the assessee of all its responsibilities. The said guarantee could have been forfeited by the Nigam in order to recover any sums from the assessee. (see para (e) on page 290 & last para on page 293) (iii) The assessee was wholly responsible for any injury or damage to persons and properties, which may occur irrespective of any precautions he may take during the execution of the works. The assessee was to make good all claims and loss arising out

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 16 of such accidents and indemnify the Employer from all such claims and expenses. (Para 2, page 279) (also see clause 19, page 306) (iv) Conclusion: From the aforesaid conditions, it is clear that the assessee was not merely responsible for supplying labour for the aforesaid project, but rather was responsible for the development of the entire infrastructure facility. In order to do so, it deployed its various resources, materials, labour, supervisor, Engineers etc. It made substantial investments and exposed itself to various risks. Hence, it is clear that the assessee was a developer in the aforesaid project and hence is eligible for deduction u/s 80-IA. Hence in the light of the above, the assessee is entitled to deduction u/s 80-IA of the Act. In addition to the above, the assessee was even assessed to VAT on the aforesaid projects. The given fact further strengthens the claim of the assessee that the said contracts constitute development contracts and not works contract. Lastly attention is invited to the recent judgment of the Kolkata Tribunal in case of Simplex-Som Dutt Builders J.V and Simplex-Subhash J.V & Simplex Projects Ltd.(order enclosed at pages 119-137 of paper book of orders) ,wherein the Hon'ble Tribunal on similar facts allowed the claim of the assessee u/s 80-IA. Now coming to the AO's contention that when the assessee executes a project with advances received from Government, the very purpose of private sector participation is defeated (ground j). In this regard it is clarified that advances (if at all any was received) were received against furnishing of bank guarantee (of an equal or higher amount) by the assessee. Further, a perusal of the project Balance Sheets (already discussed above) have already exhibited the funds deployed by the assessee in the given projects. Thus, the claim of the AO that no finance was provided by the assessee is factually incorrect.

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 17 (a) It is owned by a company registered in India or by a consortium of such companies 9 or by an authority or a board or a 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.

From the above it is clear in order to avail deduction u/s 80-IA all the following conditions should be satisfied: (i) The assessee is a company or a consortium of companies; (ii) There exists an agreement with the Central Government, State Government, Local authority or any other statutory body and (iii) Pursuant to the agreement specified in point (ii) the company engages itself in any of the following activities: (a) Development of infrastructure facility (b) Operation and maintenance of infrastructure facility (c) Development, operation and maintenance of infrastructure facility

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 18 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 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;

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 19 (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 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

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 20 "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.”

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

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 21 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 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

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 22 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.

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

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 23 developed an enterprise/infrastructure to support the work under the various projects. In addition to labour, it deployed its machinery, materials and did 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.

8.4 Further, ITAT (Hyderabad) in case of Siva Swathi Constructions Pvt. Ltd. vs DCIT, Circle-3(2) in ITA No.1008-09/Hyd/2013 for AYs 2009-10 & 2010-11 dated 25.10.2013 held that "The next reason given by the CIT(A) is with regard to non- financial participation by the assessee, as the assessee has got mobilization advance. The mobilization advance has not been given freely. It has been given only after the assessee furnished a bank guarantee, and the bank guarantee has been given by the bank only after getting enough security from the assessee, to protect itself from any risk on account of any default on the part of the assessee. The assessee has taken financial assistance from bank and paid huge interest of Rs. 2,87,10,943.00 for assessment year 2009-10 and of Rs. 9,35,78,373.00 for assessment year 2010-11, as seen from the Profit and Loss Account of the assessee for the relevant years ending on 31.3.2009 and 31.3.2010 respectively, copies of which are furnished by the assessee at pages 20 and 65 of the paper-book. Similarly, assessee has invested its own fund of Rs.5,55,00,000.00 for assessment year 2009-10 and of Rs. 7,86,75,710.00 for the assessment year 2010-11, as seen from the Balance Sheet of the assessee as on 31.3.2009 and 31.3.2010 respectively, copies of which are furnished by the assessee at pages 21 and 66 of the paper-book. In this view of the matter, the reason given by the CIT(A) on this aspect for denying deduction to the assessee under S.80-IA is also not valid.

Thus in light of the aforesaid decision of the Tribunal Hyderabad Bench, the contention of the AO is not valid. Further, merely because the assessee was receiving payments from the Government in progress of work it cannot be said that the projects were financed by Government. In this regard it is pointed out that under sub-section 4

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 24 of section 80-IA, deduction is available to a developer, i.e. if, an assessee, merely develops the infrastructure facility without operating and maintaining the same, it is entitled to deduction. The Bombay High court in case of Commissioner of Income-tax v. ABG Heavy Industries Limited [322 ITR 323] observed that "Parliament amended the provisions of section 80-lA of the Act so as to clarify that in order to avail of a deduction, the assessee could (i) develop ; or (ii) operate and maintain ; or (iii) develop, operate and maintain the facility. The condition as regards development, operation and maintenance of an infrastructure facility was contemporaneously construed by the authorities at all material times, to cover within its purview the development of an infrastructure facility under a scheme by which an enterprise would build, own, lease and eventually transfer the facility. " "This was perhaps a practical realisation of the fact 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 the Central Board of Direct Taxes. 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 section 80-IA of the Act. "

8.5 From the above it is clear that even if an assessee is merely developing the infrastructural facility (without operating and maintaining the same), it is entitled to deduction u/s 80-1A. Further, condition (b) laid out in sub-section 4 of section 80-IA mandates the existence of an agreement with the Government. Moreover, if section 80-IA grants deduction on profits from the activity of development carried out in pursuance of an agreement with the Government it presupposes that assessee will earn some profits from mere development (without operating and maintaining) of the infrastructure facility. Now the relevant question that arises here is that how would an assessee engaged in mere developmental activity (and no operation) pursuant to an agreement with the Government earn profits? The obvious answer is that the assessee will recover its cost of development from the Government otherwise the entire cost of development will be a loss in its hands. Thus, if deduction u/s 80-IA is denied on the ground that the assessee had received payments from Government, then an assessee

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 25 who is only a "developer" (and not an operator) will never be entitled to deduction u/s 80-IA, which is clearly not the intention of legislature as discussed by the Bombay High Court in case of ABG Heavy Industries Ltd. Thus, merely because the assessee was paid by the Government for development work it cannot be denied deduction under section 80-IA(4). The contention of the assessee finds strength from the following judgments:

The ITAT (Mumbai) in case of ACIT v. Bharat Udyog Ltd. (2009) 123 TTJ 0689 : (2009) 23 DTR 0433 : (2009) 118 ITD 0336 : (2008) 24 SOT 0412

“After the amendment effected by Finance Act, 1999 w.e.f. 1st April, 2000, the deduction under s. 80-IA(4) has become available to any enterprise carrying on the business of (i) developing, or (ii) maintaining and operating, or (iii) developing, maintaining and operating any infrastructure facility. Sub-cl. (c) of cl. (i) of s. 80-IA(4) is obviously applicable to an enterprise which is engaged in ‘operating and maintaining’ the infrastructure facility on or after 1st April, 1995. It is not applicable to the case of an enterprise which is engaged in mere ‘development’ of infrastructure facility and not its ‘operation’ and ‘maintenance’. Therefore, the question of ‘operating and maintaining’ of infrastructure facility by such enterprise before or after any cut off date cannot arise. However, if the contention of the Departmental Representative is accepted, it would obviously/understandably lead to manifestly absurd results. When the Act provides for deduction undisputedly for an enterprise who is only ‘developing’ the infrastructure facility, unaccompanied by ‘operating and maintaining’ thereof by such person, there cannot be any question of providing a condition for such an enterprise to start operating and maintaining the infrastructure facility on or after 1st April, 1995. Since the assessee is only a developer of the infrastructure project and it is not maintaining and operating the infrastructure facility, sub-cl. (c) of cl. (i) of sub-s. (4) of s. 80-IA is not applicable. The interpretation of Revenue is absurd also in view of the rationale of the provisions of s. 80-IA(4)(i). From the asst. yr. 2000-01, deduction is available if the assessee carries on the business of any one of the three types of activities. When an assessee is only developing an infrastructure facility project and is not maintaining nor operating it, obviously such an assessee will be paid for the cost incurred by it; otherwise, how will the person who develops the infrastructure facility project, realise its cost ? If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the transferee has paid for the development of infrastructure

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 26 facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation canvassed by the Revenue authorities is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under s. 80-IA(4), which is not the intention of the law. If a person who only develops the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. When the legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction, it presupposes that there can be income to developer, i.e., to the person who is carrying on the activity of only developing infrastructure facility. Obvious as it is, a developer would have income only if he is paid for development of infrastructure facility, for the simple reason that he is not having the right/authorisation to operate the infrastructure facility and to collect toll therefrom, and has no other source of recoupment of his cost of development. Considered as such, the business activity of the nature of build and transfer also falls within eligible construction activity, that is, activity eligible for deduction under s. 80-IA inasmuch as mere ‘development’ as such and unassociated/ unaccompanied with ‘operate’ and ‘maintenance’ also falls within such business activity as is eligible for deduction under s. 80-IA. Therefore, merely because the present assessee was paid by the Government for development work, it cannot be denied deduction under s. 80-IA(4). A person who enters into a contract with another person will be a contractor no doubt; and the assessee having entered into an agreement with the Government agencies for development of the infrastructure projects, is obviously a contractor but that does not derogate the assessee from being a developer as well. The term "contractor" is not essentially contradictory to the term "developer". On the other hand, rather s. 80-IA(4) itself provides that assessee should develop the infrastructure facility as per agreement with the Central Government, State Government or a local authority. So, entering into a lawful agreement and thereby becoming a contractor should, in no way, be a bar to the one being a developer. Therefore, merely because in the agreement for development of infrastructure facility, assessee is referred to as contractor or because some basic specifications are laid down, it does not detract the assessee from the position of being a developer; nor will it debar the assessee from claiming deduction under s. 80-IA(4). Therefore, an assessee who is only engaged in the developing the infrastructural facility i.e., road and not engaged in the ‘operating and maintaining’ the said facility is entitled to the benefits of the deduction under s. 80-IA(4).—Patel Engineering Ltd. vs. Dy. CIT (2004) 84 TTJ (Mumbai) 646 followed. Provisions of sub-cl. (c) of cl. (i) of s. 80-IA(4) are inapplicable to the assessee which is engaged in mere developing of the infrastructure facility and, therefore, an assessee who is only

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 27 engaged in developing the infrastructure facility and not in ‘operating and maintaining’ the said facility is entitled to the benefit of deduction under s. 80-IA(4); merely because assessee is referred to as ‘contractor’ in the agreement for development of infrastructure facility or some basic specifications are laid down, would not debar the assessee from claiming deduction under s. 80-IA(4).” If a person who only develops the infrastructure facility was not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he was not operating the infrastructure facility. Merely because the assessee was paid by the Government for development work it could not be denied deduction under section 80-IA(4). The Chennai Bench of Tribunal in case of R.R. Constructions, Chennai vs. Department of Income tax held that "When an assessee is only developing an infrastructure facility project and is not maintaining nor operating it, obviously such an assessee will be paid for the cost incurred by it; otherwise, how will the person, who develops the infrastructure facility project, realize its cost? If the infrastructure facility, just after its development, is transferred to the Government, naturally the cost would be paid by the Government. Therefore, merely because the transferee had paid for the development of infrastructure facility carried out by the assessee, it cannot be said that the assessee did not develop the infrastructure facility. If the interpretation done by the Assessing Officer is accepted, no enterprise carrying on the business of only developing he infrastructure facility would be entitled to deduction under section 80IA(4), which is not the intention of the law. An enterprise, which develops the infrastructure facility is not paid by the Government, the entire cost of development would be a loss in the hands of the developer as he is not operating the infrastructure facility. The legislature has provided that the income of the developer of the infrastructure project would be eligible for deduction. It presupposes that there can be income to developer i.e. to the person who is carrying on the activity of only development infrastructure facility. Ostensibly, a developer would have income only if he is paid for the development of infrastructure facility, for the simple reason that he is not having the right/authorization to operate the infrastructure facility and to collect toll there from, has no other source of recoupment of his cost of development.

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 28 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. "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 {or claim of deduction"

8.6 Thus from the above, it is 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. Further, the Revenue in all the grounds has contended that the contracts entered into by the assessee were merely 'construction contracts' since the assessee is not exposed to any entrepreneurial and investment risk. In this regard, the AO has observed that the assessee is executing the contract against predetermined revenue w.r.t the above, it is submitted that under the impugned contracts, the assessee was merely carrying out the civil construction work. It was responsible for overall development of the infrastructure facility. It 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. It was responsible for any damage/loss caused to any property or life in course of execution of the works. It was even responsible for remedying of the defects in the works at its cost. It was also required to operate and maintain the infrastructure facility. Hence, it cannot be said that the contract with the Government was to carry out mere civil construction. Attention in this regard is invited to the following: (i) The ITAT (Ahmedabad) in case of Sugam Construction (P) Ltd. vs. ITO [56 SOT 45] held that "It is also gathered (a) That a developer is a person who undertakes the responsibility to develop a project. (b) That a developer is therefore not a civil contractor simplicitor. (c) That if we apply the commercial

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 29 aspect, then a developer has to execute both managerial as well as financial responsibility. (d) That the role of a developer, according to us, is larger than that of a contractor. (e) That when a person is acting as a developer, then he is under obligation to design the project, it is another aspect that such design has to be approved by the owner of the project, i. e. the Government in the present case. (f) That he has not only to execute the construction work in the capacity of a contractor but also he is assigned with the duty to develop, maintain and operate such project. (g) That to ascertain whether a civil construction work is assigned on development basis or contract basis can only be decided on the basis of the terms and conditions of the agreement. Only on the basis of the terms and conditions it can be ascertained about the nature of the contract assigned that whether it is a "work contract" or a "development contract". (h) That in a development contract" responsibility is fully assigned to the developer for execution and completion of work. (i) That although the ownership of the site or the ownership over the land remains with the owner but during the period of development agreement the developer exercise complete domain over the land or the project. That a developer is not expected to raise bills at every step of construction but he is expected to charge the cost of construction plus mark-up of his profit from the assignee of the contract. (k) That a developer is therefore expected to arrange finances and also to undertake risk. (I) That in contrast to the rights of a "contractor" a "developer" is authorized to raise funds either by private placement or by financial institutions on the basis of the project. These are few broad qualities of a developer through which the character of a developer can be defined. " (ii) ITAT(Hyderabad) in case of Koya and Co. Construction (P) Ltd. vs ACIT [51 SOT 203] held that "The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all long 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

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 30 undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstrated before the court that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical knowhow, expertise and financial resources. "

Thus the fact that the assessee deploys its resources (material, machinery, labour etc.) in the 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 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. Further, it was responsible for the correction of defects arising in the works at it cost. Thus, it cannot be said that the assessee had not undertaken any risk. The ITAT (Hyderabad] in case of Siva Swathi Construction (P) Ltd. (supra) held that "Further reason given by the ld. CIT(A) for denying deduction under S.80IA to the assessee is that the assessee has not undertaken any risks. The observations of the ld. CIT(A) in this behalf are also not valid and correct. It was clearly mentioned in the agreement that the assessee shall execute and furnish indemnity bond for a period of four years, indemnifying the Government against any loss or expenditure incurred, to repair any defect noticed due to faulty working done by the contractor or substandard material used by the contractor. Further, it is also mentioned in the contract agreement that the assessee shall not claim for any loss due to foreseen circumstances, including suspension of work due to cause. It is also provided that in the event of accident to people employed by the assessee resulting in compensation to be paid as per the Workmen's Compensation Act the same shall be paid by the contractor, viz. the assessee only. In view of the various specific clauses in the agreement fastening the risks to be undertaken by the assessee, discussed above, it cannot be said that the assessee has not undertaken any risk.

8.7 From the above, it is clear that the contention of the AO that the assessee had not undertaken any entrepreneurial and investment risk is an incorrect interpretation of

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 31 the facts. Lastly, with regard to the project O&M, Bangalore (on which a deduction of Rs. 35,16,9411- was claimed), it is submitted that it is an operation and maintenance project, to which Explanation to section 80-IA(13) does not apply. Explanation to section 80-IA(13) merely distinguishes between a developer and works contractor. It clarifies that a works contractor shall not be included in the category of 'developer' u/s 80-1A. Thus, the Explanation clearly does not apply to O&M projects. Hence, deduction of Rs. 35,16,9411- claimed for the aforesaid project u/s 80-IA cannot be denied by invoking the explanation to section 80-1A.

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 32 e) That the Ld. CIT(A) has failed to appreciate that considering the definition of 'Works Contract' as per Central Sales Tax Act and West Bengal Value Added Tax Act, the assessee-company is simply a contractor who merely executed works contract and hence not entitled to the deduction u/s 80lA within the scope of Explanation below section 80-IA(13) of the Act f) That the Ld. CITCA) has failed to interpret the legislative intent of the provisions of section 80-IA to the extent spelt out in CBDT's Circular No. 3 of 2008 dated 12.03.2008, which states that the incentive of deduction u/s 80-IA has all along been intended to benefit developers who undertake entrepreneurial risk and investment risk and not contractors who only undertake business risk, g) That the Ld. CIT(A) has failed to understand the difference between the 'Development Agreement' and 'Construction Contract' where in the former's case, there is no commitment in terms of revenue to be generated while in the case of the later, there is always a fixed commitment of revenue, h) That the Ld. CIT(A) has failed to appreciate that when an assessee execute a contract against a pre-determined amount of revenue, it cease to undertake any entrepreneurial risk and investment risk and thus loses the character of a 'Developer' to which the incentive of deduction u/s 80-IA has all along been aimed, i) That the Ld. CLTCA) has failed to appreciate that the simple fact that tax was deducted u/s 194C from all the alleged 'eligible projects' makes it clear that the assessee was into a simple construction contract and thus was not entitled to deduction u/s 80-IA, j) That the Ld. CITCA) has failed to realise that when an assessee executes a project of infrastructure development with the advance received from the Government or the Local Authorities, the very purpose and intent of Private Sector participation in the development of infrastructure is defeated and, accordingly, the assessee ceases to be entitled to the deduction. going both by words and spirit of section 80-IA, k) That the Ld. CITCA) has erred in facts as well as in the circumstances of the case in placing reliance upon the decisions of various courts of Law which are yet to reach finality, 1) That in view of the grounds (c) to (k) above, the Ld. CIT(A) has erred in facts as well as in the circumstances of the case in directing to delete the disallowance of deduction u/s 80-IA to the tune of Rs.61,86,38,683/- m) That as regards the disallowance of deduction u/s 80G, the Ld. CIT(A) has erred in Law in admitting additional evidence without having recorded the reasons for such admission and consequently, in directing to restrict the disallowance to Rs.2,50,000/-; and n) That the Department craves the right to add, delete, modify or abrogate the grounds of appeal during the course of hearing of the case.”

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 33 13. We have already decided the same issue in favour of the assessee in ITA 1291/Kol/2013 of Revenue’s appeal, since the facts are exactly identical both the parties are agreed whatever view taken in the above appeal in ITA No. 1291/Kol/2013, may be taken in ITA No. 1292/Kol/2013 for A.Y.09-10 also. We hold accordingly.

Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us.

ITA No.1291-1292/Kol/2013 A.Ys 06-07 & 09-10 DCIT CC-XXVIII, Kol. v. M/S SPML Infra Ltd Page 34 18. We have heard rival contentions and perused the materials available on record. At the outset, it was found that Ld. CIT(A) has granted relief to assessee u/s. 80G of the Act after having remand report from AO which is duly recorded in his appellate order. Considering the totality of the facts and circumstances and in our considered view, we do not find any reason to interfere in the order of Ld. CIT(A). Accordingly, we uphold the same. This ground of Revenue’s appeal is dismissed.

By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता