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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED& SHRI SIDDHARTHA NAUTIYAL
O R D E R PER SIDDHARTHA NAUTIYAL, JM: These appeals have been filed by the Assessee and the Revenue against the orders passed by the Ld. Commissioner of Income Tax (Appeals)-XV (in short “Ld. CIT(A)”), Ahmedabad vide orders dated 31.05.2010 &15.12.2011 passed for the Assessment Years2007-08& 2008-09.Since common facts and issues for consideration are involved for both the years under consideration, both the appeals are being taken up together and disposed of by way of a common order.
The brief facts of the case are that the assessee is a Joint Venture Undertaking constitute by two companies M/s. Nagarjuna Construction M/s. N.C.C-M.S.K.E.L. (JV) vs. ITO Asst. Years –2007-08 & 2008-09 - 2 - Company Ltd. and M/s. M.S. Khurana Engineering Ltd. under the name and style of NCC-KSKEL. The assessee submitted a bid for works relating to construction of New Domestic Arrival Block at Ahmedabad to the Airports Authority of India, New Delhi. The contract for construction of new Domestic Arrival Block at Sardar Vallbhbhai Patel International Airport, Ahmedabad was awarded to the assessee vide working order dated 08.05.2006.
3. For A.Y. 2007-08, the Ld. CIT(A) dismissed the appeal of the assessee on the ground that the assessee is not eligible for deduction under Section 80-IA(4) in view of Explanation inserted in the Act by Finance Act 2009 with retrospective effect from 01-04-2000 and therefore, he confirmed the disallowance of Rs. 1,28,29,000/- made by the Assessing Officer. The assessee is in appeal against the aforesaid order passed by Ld. CIT(A) dismissing the appeal of the assessee and confirming the disallowance of claim of deduction under Section 80- IA(4) of the Act.
For A.Y. 2008-09, Ld. CIT(A) allowed the appeal of the assessee on the same set of facts and held that the assessee qualifies as a “developer” and is eligible for claim of deduction under Section 80- IA(4) of the Act. The Department is in appeal before us against the aforesaid order passed by Ld. CIT(A) holding that the assessee is eligible for claim of deduction under Section 80-IA(4) of the Act.
Accordingly, since common facts and issues for consideration are involved for both the years under consideration before us, both appeals are being taken up together. M/s. N.C.C-M.S.K.E.L. (JV) vs. ITO Asst. Years –2007-08 & 2008-09 - 3 -
The assessee has raised the following grounds of appeal (A.Y.2007-08):-
“1) The order passed by the Commissioner of Income Tax (Appeals) - XV, Ahmedabad dated 31-05-2010 is illegal, bad in law and it requires to be set aside. 2) The learned CIT(A) erred in law and on facts of the case in confirming the disallowance of relief u/s. 80-IA(4) of the Income Tax Act, 1961 on the ground that the appellant had executed the construction of new arrival block at SVP1 airport, Ahmedabad as a works contractor and was not a developer. 3) The learned CIT(A) erred in law and on facts of the case in holding that the appellant was not eligible for deduction in view of Explanation inserted in section 80-IA(O) of the Income Tax Act, 1961. 4) The learned CIT(A) grossly erred in not appreciating the submissions, other documents and various decisions relied upon by the Appellant. Therefore also the impugned order requires to be set aside. 5) The Appellant humbly prays before this Hon'ble Tribunal to allow this appeal and be further pleased to allow deduction of Rs. 1,28,29,000/- u/s. 80-IA of the Income Tax Act, 1961. 6) The Appellant crave leave to add, alter, edit, delete, modify, change or amend allor any of the grounds of appeal at the time or before the hearing of the appeal.”
The Department has raised the following grounds of appeal (A.Y. 2008-09):-
“1. The Ld. Commissioner of Income-Tax (Appeals)-XV, Ahmedabad has erred in law and on facts in deleting the disallowance of claim of deduction of Rs.6,86,60,491/- u/s.80IA of the I.T. Act.
2. On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XV, Ahmedabad ought to have upheld the order of the Assessing Officer.
It is therefore, prayed that the order of the Ld. Commissioner of Income- tax (Appeals)-XV, Ahmedabad may be set-aside and that of the Assessing Officer be restored.”
Whether contracts with Airports Authority of India (AAI) are eligible for grant of deduction under Section 80-IA(4) of the Act M/s. N.C.C-M.S.K.E.L. (JV) vs. ITO Asst. Years –2007-08 & 2008-09 - 4 - 8. The first issue for consideration before us is that whether contracts given by Airports Authority of India (AAI) are eligible for grant of deduction under Section 80-IA(4) of the Act.
For A.Y. 2007-08, the Ld. CIT(A) held that one of the reasons why the assessee is not eligible for claim of deduction under Section 80- IA(4) of the Act is that the assessee has not entered into a contract with Government of India towards construction of new Domestic Arrival Terminal at Ahmedabad Airports. The issue for consideration therefore is that whether contracts granted by Airports Authority of India would be eligible for claim of deduction under Section 80-IA(4) of the Act.
We observe that Section 80-IA(4)(i)(b) of the Act states that the assessee can enter into an agreement with Central Government or a State Government or a Local Authority or any Statutory Body for development of new infrastructure facility. The relevant extracts of Section 80-IA(4) of the Act are reproduced for ready reference:-
“(4) This section applies to— ….. (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;”
The Government of India constituted the International Airports Authority of India (IAAI) in 1972 to manage the nation's international airports while the National Airports Authority of India (NAAI) was constituted in 1986 to look after domestic airports. Both the above M/s. N.C.C-M.S.K.E.L. (JV) vs. ITO Asst. Years –2007-08 & 2008-09 - 5 - organizations were merged in April 1995 by an Act of Parliament, namely, the Airports Authority of India Act, 1994 and has been constituted as a Statutory Body and was named as Airports Authority of India (AAI). Therefore, AAI is a statutory body and in terms of the plain language of Section 80-IA(4) of the Act, and if other conditions of eligibility are satisfied by the assessee, it would be eligible for claim of deduction under Section 80-IA(4) of the Act, if the assesseehas entered into an agreement with any statutory body for carrying out development work. Therefore, in our considered view, claim of deduction under Section 80-IA(4) of the Act cannot be denied to the assessee only on the ground that since the assessee has entered into a contract with AAI, which does not constitute as a Central / State Government, the assessee is not eligible for claim of deduction under Section 80-IA(4) of the Act.
Other conditions for eligibility of claim of deduction under Section 80-IA(4) of the Act
Now we shall proceed to analyze whether other conditions for eligibility of claim of deduction under Section 80-IA(4) of the Act are satisfied in assessee’s set of facts.
The first issue for consideration before us is whether the assessee qualifies as a “developer” or the assessee is a “works contractor” within the meaning of Explanation to Section 80-IA of the Act.
Our attention was drawn to the case of PCIT vs. Montecarlo Construction Ltd. in Revenue Tax Appeal No. 786 of 2023 wherein M/s. N.C.C-M.S.K.E.L. (JV) vs. ITO Asst. Years –2007-08 & 2008-09 - 6 - the Gujarat High Court vide order dated 19.12.2023 has given a concrete finding that if conditions of eligibility are made, then assessee who is engaged in development work is eligible for claim of deduction under Section 80-IA(4) of the Act. In the above referred case, the assessee was engaged in business of construction and development of infrastructure projects like irrigation canals, road construction etc. and the issue for consideration was whether the assessee was eligible for claim of deduction under Section 80-IA(4) of the Act. The Gujarat High Court held that the CIT(Appeals) has given a detailed factual finding that the projects assigned to the assessee were executed in the capacity of a “developer”. The Ld. CIT(A) gave a categorical finding that entire investment in the project was to be made by the assessee, interim payment to the tune of estimated contract value in respect of the development work done for each month after retention and other adjustments, were to be made to the assessee, security deposit was to be paid by the assessee, there was penalty for delay by the assessee in completion of the project, procurement of the material was the responsibility of the assessee, procurement of land for camp, for shop, labour camp etc. and also the employment of qualified engineers, action and compensation in respect of bad work, defect liability of the accidents to persons in relation to Workman Compensation Act, indemnity insurance of the workmen employed etc. were all the responsibility of the assessee. Accordingly, the Gujarat High Court held that the Ld. CIT(A) and Tribunal considering such aspects of the tender agreement, concurrently held that the assessee had entered into a contract for “development” of infrastructure facility agreement and not a“works contract” and was eligible for claim of deduction under Section 80-IA(4) of the Act. M/s. N.C.C-M.S.K.E.L. (JV) vs. ITO Asst. Years –2007-08 & 2008-09 - 7 - 16. In the instant facts we have to firstly see whether the assessee is engaged in “development” for any “new infrastructural facility” or is engaged only in carrying out repair works or other incidental works, not amounting to development of a new infrastructural facility. In order to be eligible for claim of deduction under Section 80-IA(4) of the Act and to qualify as a “developer”, the assessee should be engaged in “development” of a new infrastructural facility and mere “repairs and maintenance” or “upkeep” or “revamp” work of existing facility and other incidental works would not qualify for deduction under Section 80- IA(4) of the Act, being primarily in the nature of “works contract” only. Once the essential threshold of assessee being engaged in “development” of a “new infrastructural facility” is satisfied, as a subsequent step, we need to analyze whether the “other conditions” for qualifying as a “developer” are satisfied i.e. the assessee has taken the necessary financial and entrepreneurial risk associated with development of a new project, so as to qualify as a “developer”.
In this case, we observe that the assessee entered into contract a contract for construction of new domestic arrival block at Sardar Vallabhbhai Patel International Airport, Ahmedabad (refer Pages 144- 145 of Paper Book and Pages 27,28-30 of CIT(Appeals) order). It is observed that Ld. CIT(A) at Page 28 of his order observed that the assessee was awarded a contract for full-fledged development of an Airport along-with all facilities like AC, flight information display system, full electrification etc. Therefore, evidently the contract has not been awarded to the assessee for carrying out any repairs, maintenance or upkeep etc. of existing airport facility, but the assessee has been awarded contract for bringing into existence a new infrastructural facility M/s. N.C.C-M.S.K.E.L. (JV) vs. ITO Asst. Years –2007-08 & 2008-09 - 8 - in place being new domestic arrival block at Sardar Vallabhbhai Patel International Airport. Accordingly, the assessee in our view is has been entrusted the responsibility of bringing into existence and “new infrastructure facility” being a new domestic arrival block at Sardar Vallabhbhai Patel International Airport.
The next issue for consideration is whether the assessee has undertaken the necessary financial and entrepreneurial risk so as to qualify as a “developer”, or is it a case that the assessee is merely acting on the directions of AAI wherein complete responsibility for finance, man-power, scope of work, penalty provisions etc. are to be borne by AAI and assessee is only working at the behest and under the control and directions of AAI. In this case, we observe that the assessee has furnished bank guarantee to AAI (refer Pages 51-61 of the Paper Book), the assessee has furnished detailed program and CPM work diagram to AAI for its approval (refer Pages 51-61 of the Paper Book), the assessee has prepared and submitted electrical layout drawing for site office (refer Pages 69-70 of Paper Book), the assessee has prepared various other designs like curtain glazing wall (refer Pages 72-98 of Paper Book), honey comb panels designs (refer Pages 99-103 of Paper Book), design for air handling unit Duct & Pipe (refer Pages 104-124 of the Paper Book) etc. Further, the assessee has also undertaken to provide all materials for the project at it’s own expenses (other than those which are supplied by AAI) (refer Pages 131 and 06 of Paper Book). The assessee has also undertaken to indemnify AAI employees against action for claim or proceedings relating to infringement or use of any patent or design etc. (refer Pages 132 of Paper Book). Accordingly, looking into the facts of the instant case, it is observed that the assessee has M/s. N.C.C-M.S.K.E.L. (JV) vs. ITO Asst. Years –2007-08 & 2008-09 - 9 - undertaken to bring into existence a new infrastructure facility being new domestic arrival block at Sardar Vallabhbhai Patel International Airport, Ahmedabad and further the assessee is also undertaken various financial and entrepreneurial risks required to be borne by a “Developer” of a project viz. providing bank guarantee to AAI, procurement of certain materials by the assessee at it’s own cost during the construction phase, preparation of various architectural designs relating to the project for approval of AAI etc. which all support the fact that the assessee is in the instant facts is a “developer” within the meaning of Section 80-IA of the Act and is eligible for claim of deduction under Section 80-IA(4) of the Act. We observe that Ld. CIT(A) undertook a detailed analysis of the scope of work undertaken by the assessee and the various risks and responsibilities undertaken by the assessee and then came to conclusion that assessee qualifies as a “developer” and is eligible to claim of deduction under Section 80-IA(4) of the Act. Accordingly, we find no infirmity in the order of CIT(Appeals) so as to call for any interference.
Assessment Year 2007-08 19. Accordingly, in light of the foregoing discussion and looking into the facts of the instant case, the appeal of the assessee is allowed for A.Y. 2007-08 for the reason that eligibility of claim of deduction under Section 80-IA(4) of the Act cannot be denied to the assessee only on the ground that the contract has been awarded to AAI. As discussed in the preceding paragraphs of the judgment, AAI is a Statutory Body and a contract was awarded by AAI to the assessee in the capacity as a “developer”would be eligible for deduction under Section 80-IA(4) of the Act (subject to meeting of other conditions stipulated under Section 80-IA(4) of the Act). M/s. N.C.C-M.S.K.E.L. (JV) vs. ITO Asst. Years –2007-08 & 2008-09 - 10 -
In the result, assessee’s appeal is allowed for A.Y. 2007-08.
Assessment Year 2008-09
Further, as observed in the preceding paras of the judgment, we are of the considered view that Ld. CIT(A) has not erred in facts and in law in coming to the conclusion that assessee qualifies as a “developer” within the meaning of Section 80-IA(4) of the Act and hence is eligible for claim of deduction under Section 80-IA(4) of the Act.
In the result, the Department’s appeal is dismissed for A.Y. 2008- 09.
In the combined result, the appeal filed by the assessee is allowed for A.Y. 2007-08 and the Department’s appeal is dismissed for A.Y. 2008-09. This Order pronounced in Open Court on 29/01/2024
Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 29/01/2024 TANMAY, Sr. PS TRUE COPY आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,