East Coast Construction & Industries, CHENNAI V. ACIT, CHENNAI

CO 87/CHNY/2013

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2328 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 16-05-2013
• Court: TRIBUNAL
• Department Lawyers: DR ANITA SUMANTH
• Assessee Lawyers: AJIT KUMAR VARMA
• Keywords: Capital asset; Earning of tax free income; Retrospective amendment; Revenue expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NOS. 558, 559, 560 & 561/MDS/2013 / ASSESSMENT YEARS : 2005-06, 2006-07, 2008-09 & 2009 -10 AND C.O.NOS. 85 TO 88/MDS/2013 THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-II(1), CHENNAI. APPELLANT) V. EAST COAST CONSTRUCTION & INDUSTRIES LTD.,NO.4, 6 TH FLOOR, BUHARI BUILDINGS, MOORES ROAD, CHENNAI 600 006. PAN AAACE1662P RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : SHRI AJIT KUMAR VARMA, CIT / RESPONDENT BY : DR. ANITA SUMANTH, ADVOCATE ! / DATE OF HEARING : 30.03.2016 '# ! / DATE OF PRONOUNCEMENT: 20 .05.2016 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEALS BY THE REVENUE AND CROSS OBJECTIONS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF T HE - - ITA 558 TO 561/13 ETC. 2 COMMISSIONER OF INCOME-TAX(APPEALS) FOR THE ASSESSM ENT YEARS 2005-06, 2006-07, 2008-09 AND 2009-10. 2. THE FIRST COMMON GROUND IN ALL THE APPEALS BY TH E REVENUE IS WITH REGARD TO ALLOWABILITY OF DEDUCTION U/S.80IA OF THE ACT. 3. THE FACTS ARE COMMON IN ALL THESE APPEALS, HENCE , WE CONSIDER THE FACTS NARRATED IN ASSESSMENT YEAR 2005 -06. THE ASSESSEE IS ENGAGED IN CIVIL CONSTRUCTION WORKS LIK E CONSTRUCTION OF FLY OVER, UNDER PASS, SEWERAGE, WATER SUPPLY AND TREATMENT ETC., FOR VARIOUS LOCAL BODIES, RAILWAYS AND STATE/ CENTRAL GOVERNMENTS. FOR THE PURPOSE, THE ASSESSEE HAD ENT ERED INTO CONTRACT WITH THE STATE/CENTRAL GOVERNMENTS AND LOC AL AUTHORITIES TO EXECUTE THE INFRASTRUCTURAL WORKS AS PER THE CONTRACT AGREEMENT MADE AND CLAIMED DEDUCTION U/S.8 0IA FOR THE CONSTRUCTION OF ABOVE INFRASTRUCTURAL WORKS. DURIN G THE CURRENT YEAR, THE ASSESSEE HAS CLAIMED DEDUCTION U/S.80IA I N RESPECT OF PROFITS EARNED OUT OF THREE PROJECTS, VIZ., 1. MODI UNDER PASS 2. KUMBAKONAM, 3. THIRUVALLUR KADAMBATUR DURING THE COURSE OF SCRUTINY PROCEEDINGS, IT WAS N OTICED THAT THE - - ITA 558 TO 561/13 ETC. 3 ASSESSEE HAS NOT MADE ANY SUITABLE DEVELOPMENT AGRE EMENT WITH THE CENTRAL/STATE GOVERNMENT, LOCAL BODY OR AN Y OTHER STATUTORY BODY FOR THE PURPOSE OF DEVELOPING INFRAS TRUCTURE FACILITY AS REQUIRED UNDER THE PROVISIONS OF THE INCOME TAX ACT. ACCORDINGLY, THE DISALLOWED THE CLAIM OF THE ASSESS EE U/S.80IA OF THE ACT BY APPLYING THE EXPLANATION TO SEC.80IA OF THE ACT. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE TH E COMMISSIONER OF INCOME-TAX(APPEALS), WHO FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR TH E ASSESSMENT YEAR 2004-05 IN ITA NO.544/MDS/2010 DATED 13.9.2011 ALLOWED THE CLAIM OF THE ASSESSEE, BY OBSERVING THAT THE AS SESSEE IS ELIGIBLE FOR DEDUCTION U/S.80IA OF THE ACT AND AGAI NST THIS, THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. DR RELIED ON THE JUDGMENT OF THE GUJARAT HIGH COURT DATED 28.3.2013 IN THE CASE OF KATIRA CONSTRU CTION LTD. V. UOI (352 ITR 513), WHEREIN IT WAS HELD AS UNDER : THERE IS AN INTRINSIC DIFFERENCE BETWEEN DEVE LOPING AN INFRASTRUCTURE FACILITY AND EXECUTING A WORKS CONTRACT. WHAT THE EXPLANATION AIMS TO ACHIEVE IS T O CLARIFY THAT DEDUCTION UNDER SECTION 80-IA(4) OF TH E ACT WOULD NOT BE AVAILABLE IN CASE OF EXECUTION OF WORK S CONTRACT. EVEN WITHOUT THE AID OF THE EXPLANATION, IT WAS POSSIBLE TO CONTEND THAT SUCH EXPRESSION DID NO T INCLUDE AN ENTERPRISE EXECUTING A WORKS CONTRACT. - - ITA 558 TO 561/13 ETC. 4 THERE WOULD CERTAINLY BE A DEMARCATION BETWEEN DEVELOPING THE FACILITY AND EXECUTION OF WORKS CONT RACT AWARDED BY AN AGENCY ENGAGED IN DEVELOPING SUCH FACILITY. CIT V. RADHE DEVELOPERS [2012] 341 ITR 403 (GUJ) RELIED ON. FROM THE INCEPTION IN THE YEAR 1996, DEDUCT ION UNDER SUB-SECTION (4A) OF SECTION 80-IA OF THE ACT WAS AVAILABLE TO AN ENTERPRISE ENGAGED IN DEVELOPING, MAINTAINING AND OPERATING ANY INFRASTRUCTURE FACILI TY. AT THE VERY FIRST STAGE, THE DEDUCTION WAS MADE AVAILA BLE TO DRAW ADDITIONAL RESOURCES FOR FULFILLING THE REQUIREMENTS OF THE COUNTRY OF RAPID IMPROVEMENT IN INFRASTRUCTURE SUCH AS, EXPRESSWAYS, HIGHWAYS, AIRPORTS, PORTS, IN WHICH AREAS DEVELOPMENT WAS FOU ND TO BE DEFICIENT. THE PRINCIPAL IDEA BEHIND GRANTING DEDUCTION WAS TO ACHIEVE RAPID GROWTH IN INFRASTRUC TURE DEVELOPMENT WITH PRIVATE PARTICIPATION. EVEN AFTER BIFURCATION OF SECTION 80-IA INTO SECTION 80-IA AND SECTION 80-IB , WITH EFFECT FROM APRIL 1, 2000, THI S FUNDAMENTAL CONCEPT WAS NOT DISCARDED. SUB-SECTION (4) WHICH FORMED PART OF THE RECAST SECTION 80-IA D ID NOT CARRY ANY MATERIAL CHANGES FROM THE EARLIER PROVISIONS OF SUB-SECTION (4A) OF SECTION 80-IA WHI CH EXISTED PRIOR TO APRIL 1, 2000. WITH EFFECT FROM APRIL 1, 2002, SOME SIGNIFIC ANT CHANGES WERE MADE IN THE PROVISIONS. SUCH CHANGES WERE (I) THAT SUB-SECTION (4) OF SECTION 80-IA NOW REQUIRED THE ENTERPRISE TO CARRY ON THE BUSINESS OF DEVELOPING OR OPERATING AND MAINTAINING OR DEVELOPING, OPERATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY IN CONTRAST TO THE PREVIOUS REQUIREMENT OF ALL THREE CONDITIONS BEING CUMULATIV ELY SATISFIED ; (II) THAT THE EXPLANATION OF THE TERM INFRASTRUCTURE FACILITY WAS CHANGED TO BESIDES OTHE RS, A ROAD INCLUDING TOLL ROAD INSTEAD OF THE HITHERTO EX ISTING EXPRESSION ROAD ; AND (III) THAT THE REQUIREMENT OF - - ITA 558 TO 561/13 ETC. 5 TRANSFERRING THE INFRASTRUCTURAL FACILITIES DEVELOP ED BY THE ENTERPRISE TO THE CENTRAL OR THE STATE GOVERNME NT OR THE LOCAL AUTHORITY WITHIN THE TIME STIPULATED I N THE AGREEMENT WAS DONE AWAY WITH. THESE CHANGES, HOWEVER, WOULD NOT ALTER THE SITUATION VIS-A-VIS TH E EXPLANATION. THE BASIC REQUIREMENT OF THE ENTERPRIS E CARRYING ON THE BUSINESS OF DEVELOPING OR OPERATING AND MAINTAINING OR DEVELOPING, OPERATING AND MAINTAINING INFRASTRUCTURE FACILITY WAS NOT DONE AW AY WITH. EVEN AS AMENDED WITH EFFECT FROM APRIL 1, 200 2, SECTION 80-IA(4) COULD BE CONSTRUED AS NOT INCLUDIN G EXECUTION OF WORKS CONTRACT AS ONE OF THE ELIGIBLE ACTIVITIES FOR CLAIMING DEDUCTION. IN 2007, THE EXPLANATION BELOW SUB-SECTION (13) OF SECTION 80-IA CAME TO BE ADDED WHICH CLARIFIED T HAT NOTHING CONTAINED IN THE SECTION SHALL APPLY TO A PERSON WHO EXECUTES A WORKS CONTRACT ENTERED INTO WITH THE UNDERTAKING OR ENTERPRISE, AS THE CASE MAY BE. HOWEVER, THIS WAS NOT FOUND TO BE SUFFICIENT. W ITH A VIEW TO PREVENTING SUCH MISUSE OF THE TAX HOLIDAY UNDER SECTION 80-IA , IT WAS PROPOSED TO AMEND THE EXPLANATION TO CLARIFY THAT NOTHING CONTAINED IN TH E SECTION SHALL APPLY IN RELATION TO A BUSINESS WHICH IS IN THE NATURE OF A WORKS CONTRACT EXECUTED BY AN UNDERTAKING. WHAT THE EXPLANATION, DID WAS TO CLARI FY A STATUTORY PROVISION WHICH WAS AT BEST POSSIBLE OF A CONFUSION. IF THAT BE SO, THE EXPLANATION MUST BE S EEN AS ONE BEING IN THE NATURE OF PLAIN AND SIMPLE EXPLANATION AND NOT EITHER ADDING OR SUBTRACTING ANYTHING TO THE EXISTING STATUTORY PROVISION. IF TH E EXPLANATION WAS PURELY EXPLANATORY IN NATURE AND DI D NOT MEND THE EXISTING STATUTORY PROVISIONS, THE QUESTION OF LEVYING ANY TAX WITH RETROSPECTIVE EFFE CT WOULD NOT ARISE. THE EXPLANATION ONLY SUPPLIED CLAR ITY WHERE CONFUSION WAS POSSIBLE IN THE UNAMENDED PROVISION. IN THAT VIEW OF THE MATTER, THIS CANNOT BE SEEN AS A RETROSPECTIVE LEVY. HE ALSO RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT V. - - ITA 558 TO 561/13 ETC. 6 M/S. SREE STELLA INFRASTRUCTURE & PROJECTS LTD. IN ITA NO.1294/MDS/2011 DATED 28.9.2012 FOR THE ASSESSMENT YEAR 2008-09, WHEREIN IT WAS OBSERVED AS UNDER: 6. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECOR DS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. THE ISSUE INVOLVED IN THIS APPEAL IS WHETHER THE ASSESSEE IS ELIGIBLE FOR THE DEDUCTION UNDER SECTIO N 80-IA(4) OF THE ACT OR NOT. ACCORDING TO THE ASSES SING OFFICER THE ASSESSEE COMPANY HAD CONSTRUCTED WATER TREATMENT PLANT FOR CMWSSB AND SOME PRIVATE ENTITIE S AND AS PER THE CONSTRUCTION CONTRACT THE ASSESSEE H AD SIMPLY EXECUTED WORKS CONTRACT ON JOB WORK BASIS FO R CMWSSB AND THEREFORE WAS DENIED THE DEDUCTION U/S 80-IA(4) OF THE ACT. IN APPEAL THE LEARNED CIT(APPE ALS) SIMPLY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE C ASE OF PATEL ENGINEERING LTD. (94 ITD 141) ALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80- IA(4) OF THE ACT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS CATEGORICALLY GIVEN THE FINDI NG THAT THE ASSESSEE IS A WORKS CONTRACTOR AND HE HAS CONSTRUCTED THE WATER TREATMENT PLANT FOR CMWSSB ON JOB WORK BASIS. THIS FACT WAS NOT DISPUTED BEFORE U S. IT IS CLEAR FROM THE FACTS AVAILABLE ON RECORD THAT TH E ASSESSEE HAS EXECUTED THE WORKS CONTRACT, I.E. WATE R TREATMENT PLANT FOR CMWSSB AND HAS CLAIMED DEDUCTION UNDER SECTION 80-IA(4) OF THE ACT. THE ASSESSEE IS UNABLE TO ESTABLISH AS TO HOW IT HAD MA DE INVESTMENT IN THE PROJECT. APART FROM THAT THE ASSE SSEE IS NOT ABLE TO PROVE THAT IT HAS NOT EXECUTED THE W ORK CONTRACT BY PRODUCING RELEVANT MATERIAL TO CONTRADI CT THE FINDING GIVEN BY THE ASSESSING OFFICER. WE, THEREFORE, HOLD THAT THE ASSESSEE IS A WORKS CONTRA CTOR. 7. NOW THE ONLY ISSUE BEFORE US FOR CONSIDERATION I S WHETHER THE WORKS CONTRACTOR IS ELIGIBLE FOR DEDUCT ION UNDER SECTION 80- IA(4) OF THE ACT OR NOT. IT IS PE RTINENT TO MENTION HERE THAT THE FINANCE (NO.2) ACT, 2009 - - ITA 558 TO 561/13 ETC. 7 ADDED AN EXPLANATION TO SUB-SECTION(13) OF SECTION 80-IA WITH RETROSPECTIVE EFFECT FROM 1-04-2000, WHI CH READS AS UNDER : EXPLANATION.- FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT NOTHING CONTAINED IN THIS SECTION SHA LL APPLY IN RELATION TO A BUSINESS REFERRED TO IN SUB- SECTION (4) WHICH IS IN THE NATURE OF A WORKS CONTR ACT AWARDED BY ANY PERSON (INCLUDING THE CENTRAL OR STATE GOVERNMENT) AND EXECUTED BY THE UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB-SECTION (1). 8. AS PER THE ABOVE EXPLANATION TO SUB-SECTION (13) , WORKS CONTRACTOR IS NOT ELIGIBLE FOR DEDUCTION U/S 80-IA(4) OF THE ACT. THE VERY SAME EXPLANATION WAS CONSIDERE D BY THE TRIBUNAL, I BENCH MUMBAI IN ITA NO. 5172/MUM/2008 IN THE CASE OF THE INDIAN HUME PIPE CO. LTD. V. DCIT FOR THE ASSESSMENT YEAR 2004-05 (SUPRA) AND VIDE ORDER DATED 29-07-2010 HAS HELD AS UNDER : ++ THE LAW STANDS NOW IN THE LIGHT OF RETROSPECTIV E INSERTION OF EXPLANATION BELOW TO SECTION 80IA(13), THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80IA(4). THIS EXPLANATION, INTRODUCED BY FINANCE ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 2000, PROVIDES THAT (F)OR THE REMOVAL OF DOUBTS, I T IS HEREBY DECLARED THAT NOTHING CONTAINED IN THIS SECTION (I.E. 80-IA) 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). SUCH BEING THE LEG AL POSITION, AND THE ASSESSEE HAVING MERELY EXECUTED THE WORKS CONTRACT FOR INFRASTRUCTURE DEVELOPMENT A S AWARDED TO HIM, WE ARE OF THE CONSIDERED VIEW THAT AUTHORITIES BELOW RIGHTLY DECLINED THE DEDUCTION U/ S 80IA TO THE ASSESSEE. WE APPROVE THE CONCLUSIONS - - ITA 558 TO 561/13 ETC. 8 ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE I N THE MATTER; 9 . IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CAS E AND ALSO FOLLOWING THE DECISION OF THE CO-ORDINATE BENC H OF THIS TRIBUNAL IN THE CASE OF THE INDIAN HUME PIPE C O. LTD. (SUPRA), THE ASSESSEE IS NOT ELIGIBLE FOR DEDU CTION UNDER SECTION 80-IA(4) OF THE ACT. 10. THE LEARNED CIT(APPEALS) SIMPLY FOLLOWED THE DECISION OF THE TRIBUNAL IN THE CASE OF PATEL ENGIN EERING LTD. V. IT (94 ITD 141), WHICH HAS BEEN FOLLOWED IN THE CASE OF ACIT V. BHARAT UDYOG LTD. (24 SOT 412) ALSO , AND ALLOWED THE APPEAL OF THE ASSESSEE IGNORING THE EXPLANATION INSERTED TO SUB-SECTION (13) OF SECTION 80-IA BY THE FINANCE (NO.2) ACT, 2009. HOWEVER, WE FIND T HAT THE ORDER OF THE TRIBUNAL IN THE CASE OF PATEL ENGI NEERING LTD. V. DCIT (SUPRA) RELIED ON BY THE LEARNED CIT(APPEALS) NO MORE HOLDS THE FIELD AS AN EXPLANAT ION HAS BEEN INSERTED TO SUBSECTION (13) OF SECTION 80- IA BY THE FINANCE (NO.2) ACT, 2009, REPRODUCED ABOVE. FURTHER, NO MATERIAL HAS BEEN BROUGHT TO OUR NOTICE THAT THE ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN TH E CASE OF THE INDIAN HUME PIPE CO. LTD. (SUPRA) HAS B EEN REVERSED OR MODIFIED BY THE HONBLE HIGH COURT. THEREFORE, IN VIEW OF THE SPECIFIC PROVISIONS OF TH E ACT, I.E. THE EXPLANATION ADDED TO SUB-SECTION (13) OF S EC. 80- IA BY THE FINANCE (NO.2) ACT, 2009, AND ALSO THE DE CISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CA SE OF THE INDIAN HUME PIPE CO. LTD. (SUPRA), WE REVERSE T HE ORDER PASSED BY THE LEARNED CIT(APPEALS) AND RESTOR E THE ORDER PASSED BY THE ASSESSING OFFICER. 11. INSOFAR AS THE CASE LAW RELIED ON BY THE LEARNE D COUNSEL FOR THE ASSESSEE IN THE CASE OF ABG HEAVY INDUSTRIES LIMITED (SUPRA) IS CONCERNED, THE HONBL E BOMBAY HIGH COURT HAS NOT AT ALL CONSIDERED THE ISS UE, WHETHER WORKS CONTRACTOR IS ELIGIBLE FOR THE DEDUCT ION UNDER SECTION 80-IA(4) OR NOT. THE ONLY ISSUE BEFOR E THE HONBLE BOMBAY HIGH COURT WAS WHETHER THE ASSESSEE - - ITA 558 TO 561/13 ETC. 9 HAS TO DEVELOP THE ENTIRE PORT IN ORDER TO QUALIFY FOR DEDUCTION UNDER SECTION 80-IA. THEREFORE, THE HONB LE BOMBAY HIGH COURT NEVER DISCUSSED ANYTHING WITH REGARD TO THE WORKS CONTRACTOR OR SUCH CONTRACTOR I S ELIGIBLE FOR THE DEDUCTION UNDER SECTION 80-IA(4) O F THE ACT. THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT WAS THAT OF AN ASSESSEE WHO WAS A DEVELOPER AND THE ONLY DISPUTE WAS WHETHER THE ASSESSEE WAS TO DEVELO P THE ENTIRE PORT OR NOT. IN THOSE CIRCUMSTANCES THE HONBLE BOMBAY HIGH COURT HAS HELD THAT IT IS NOT NECESSARY FOR AN ASSESSEE TO DEVELOP THE ENTIRE PORT IN ORDER TO QUALIFY FOR DEDUCTION UNDER SECTION 80-IA. THEREFORE THIS DECISION HAS NO APPLICATION TO THE FACTS OF THE PRE SENT CASE. 12. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND THE STATUTORY PROVISIONS, THE APPEAL FILED BY THE REVENUE HAS TO BE ALLOWED AND WE DO SO. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED. 5. THE LD. AR RELIED ON THE ORDER OF THE JUDGMENT O F THE SUPREME COURT IN THE CASE OF CIT V. BERGER PAINTS I NDI LTD. (266 ITR 99), WHEREIN IT WAS HELD AS FOLLOWS: IF THE REVENUE HAS NOT CHALLENGED THE CORRECTNESS OF THE LAW LAID DOWN BY THE HIGH COURT AND HAS ACCEPTE D IT IN THE CASE OF ONE ASSESSEE, THEN IT IS NOT OPEN TO THE REVENUE TO CHALLENGE ITS CORRECTNESS IN THE CAS E OF OTHER ASSESSEES, WITHOUT JUST CAUSE. SHE ALSO RELIED ON THE ORDER OF THE TRIBUNAL IN ASS ESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO.544/ MDS/2010 DATED 13.9.2011, WHEREIN IT WAS HELD THAT : - - ITA 558 TO 561/13 ETC. 10 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE CAN SAFELY SAY THAT THE BENEFIT OF SECTION 80IA IS AVA ILABLE ONLY TO A DEVELOPER WHO CARRIES ON BUSINESS OF DEVELOPING OF INFRASTRUCTURE FACILITY. A PERSON WHO ENTERS INTO CONTRACT WITH ANOTHER PERSON FOR EXECUT ING WORKS CONTRACTS IS NOT ELIGIBLE FOR SUCH A BENEFI T. EXPLANATION TO SECTION 80IA WAS INSERTED BY FINANCE ACT, 2007 WITH RETROSPECTIVE EFFECT FROM 1.4.2000 WHICH HAS FURTHER BEEN AMENDED BY FINANCE (NO.2) ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 1.4.2000. THE AMENDMENT IN THIS EXPLANATION WAS NECESSITATED DUE TO CONTRARY JUDICIAL DECISION ON THIS ISSUE. T HUS, WE CAN UNEQUIVOCALLY NOW SAY THAT ANY UNDERTAKING OR ENTERPRISE WHICH EXECUTES THE INFRASTRUCTURE DEVELOPMENT PROJECTS, AS REFERRED TO IN SUB-SECTION (4) AS A WORKS CONTRACT AWARDED BY ANY PERSON INCLUDING THE CENTRAL OR STATE GOVERNMENT, IS NOT ELIGIBLE FO R TAX BENEFIT U/S 80IA(4). HAVING SAID THAT, NOW WE EXAMINE THE FACTS OF THIS CASE. THE ASSESSEE- COMPANY WAS GIVEN THIS BENEFIT IN ASSESSMENT YEAR 2003-04 BY THE DEPARTMENT ON IDENTICAL FACTS AFTER CONSIDERING THE EXPLANATION AND AMENDMENT THERETO. TO TRACE THE HISTORY OF THIS DEDUCTION, WE FIND THA T ORIGINALLY, IN THE PROVISION OF SECTION 80IA, THERE WAS NO MENTION OF ANY DEVELOPMENT OF INFRASTRUCTURE FACILITY. IT IS ONLY WITH EFFECT FROM 1.4.2000, T HIS SECTION WAS DIVIDED INTO TWO PORTIONS 80I AND 80IB. SECTION 80IA(4) PRESCRIBES ABOUT THE DEDUCTION AVAILABLE TO A DEVELOPER WHO DEVELOPS INFRASTRUCTUR E FACILITIES. IN VIEW OF THE AMENDMENT INSERTED BY T HE FINANCE ACT, 2007, WITH RETROSPECTIVE EFFECT FROM 1.4.2000, THE DEDUCTION U/S. 80IA IS AVAILABLE TO T HOSE ASSESSEES WHO ARE INVESTING AND DEVELOPING INFRASTRUCTURE FACILITY AND NOT TO PERSONS WHO SIM PLY EXECUTES WORKS-CONTRACTS. EXPLANATION IN QUESTIO N, AS IT STANDS TODAY, READS AS UNDER : EXPLANATION FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT NOTHING CONTAINED IN THIS SECTION (I.E. 80IA) SHALL APPLY TO A PERSON WHO - - ITA 558 TO 561/13 ETC. 11 EXECUTES A WORKS CONTRACT ENTERED INTO WITH THE UNDERTAKING OR ENTERPRISE, AS THE CASE MAY BE. 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. 10. WE HAVE FOUND THAT THE ASSESSEE-COMPANY IS A WORKS CONTRACTOR, WHO HAS ENTERED INTO AGREEMENT WITH THE LOCAL BODIES TO EXECUTE CERTAIN PART OF TH E WORK AWARDED TO IT THROUGH CONTRACT FOR INFRASTRUCT URE FACILITY. IT IS TRUE THAT WHERE A PERSON WHO MAKE S CIVIL WORK WILL BE ELIGIBLE FOR TAX BENEFIT U/S.80I A OF THE ACT. IN CONTRAST TO THIS, A PERSON WHO ENTERS INTO A CONTRACT WITH ANOTHER PERSON FOR EXECUTING WORKS CONTRACT, WILL NOT BE ELIGIBLE FOR TAX BENEFIT U/S. 80IA. IT WAS CLARIFIED BY THE CIRCULAR NO.3 OF 2008 DATED 12.3.2008 THAT THE PROVISIONS OF SECTION 80IA SHALL NOT APPLY TO A PERSON WHO EXECUTES ONLY WORK CONTRACTS AND ONLY THOSE WHO MAKE THE DEVELOPMENT WORK WILL BE ELIGIBLE FOR TAX BENEFIT U/S.80IA OF THE ACT. B E THAT AS IT MAY, WHEN WE APPLY THIS PROVISION IN ITS LETT ERS AND SPIRIT, WE FIND THAT THIS ASSESSEE IS VERILY EL IGIBLE FOR DEDUCTION U/S 80IA, AS THE ASSESSEE-COMPANY FULFILS ALL THE RELEVANT CONDITIONS. THE FACTS OF THIS CASE GO TO PROVE THAT THE ASSESSEE IS A DEVELOPER OF INFRASTRUCTURE FACILITIES. THE REASONS FOR OUR ABO VE CONCLUSION ARE GIVEN IN THE FOLLOWING PARAS. FIRST LY, THE ASSESSEE-COMPANY NOT ONLY DESIGNS BUT ALSO CREATES NEW PRODUCTS. THE ASSESSEE HAD UNDERTAKEN FOUR PROJECTS DURING THE RELEVANT YEAR A ND EXECUTED, CONSTRUCTED, DELIVERED AND MAINTAINED BUT IT. AS PER THE DEFINITION OF ADVANCED LAW LEXICON [PLACED AT PAGE 533 OF THE PAPER BOOKS] DEVELOPER MEANS A PERSON ENGAGED IN DEVELOPMENT OR OPERATION OR MAINTENANCE OF SPECIAL ZONE, AND ALSO INCLUDES ANY PERSON AUTHORIZED FOR SUCH PURPOSE BY ANY SUCH DEVELOPER. THE WORKS CONTRACT MEANS AN - - ITA 558 TO 561/13 ETC. 12 AGREEMENT IN WRITING FOR THE EXECUTION OF ANY WORK RELATING TO CONSTRUCTION, REPAIR, OR MAINTENANCE OF ANY BUILDING OR SUPERSTRUCTURE, DAM, WEIR, CANAL, RESERVOIR, TANK, LAKE, ROAD, WELL, BRIDGE, CULVERT, FACTORY, WORKSHOP, POWERHOUSE, TRANSFORMERS OR SUCH OTHER WORKS OF THE STATE GOVERNMENT OR PUBLIC UNDERTAKINGS AS THE STATE GOVERNMENT MAY BE BY NOTIFICATION, SPECIFY IN THIS BEHALF AT ANY OF ITS STAGES ENTERED INTO BY THE STATE GOVERNMENT OR BY AN OFFIC IAL OF THE STATE GOVERNMENT OR PUBLIC UNDERTAKING AND INCLUDES AN AGREEMENT FOR THE SUPPLY OF GOODS OR MATERIAL AND ALL OTHER MATTERS RELATING TO EXECUTIO N OF ANY OF THE SAID WORKS. THE CASE OF ACIT VS. INDWEL L LIANINGS PVT. LTD. (SUPRA), ON WHICH THE ASSESSING OFFICER HAS PLACED RELIANCE IS ALSO RELEVANT AND WE EXTRACT CERTAIN RELEVANT PORTION OF THIS DECISION F OR READY REFERENCE: VIDE FINANCE ACT, 2007, AN EXPLANATION WAS INSERTED WITH RETRIOSPEPCTIVE EFFECT FROM APRIL 1, 2000 AFTER SUB-SECTION (13) OF SECTION 80-IA, WHICH READS AS UNDER: FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY TO A PERSON WHO EXECUTES A WORKS CONTRACT ENTERED INTO WITH THE UNDERTAKING OR ENTERPRISE, AS THE CASE MAY BE. ACCORDING TO ATTORNEYS POCKET DICTIONARY, IN RELAT ION TO A CORPORATION OR BUSINESS, THE TERM UNDERTAKING DENOTES ITS WHOLE ENTERPRISE AND THE WORD ENTERPRI SE CONNOTES ALL THE RELATED ACTIVITIES PERFORMED EITHE R THROUGH UNIFIED OPERATION OR COMMON CONTROL BY ANY PERSON OR PERSONS FOR A COMMON BUSINESS PURPOSE. THE MENS LEGIS WITH REFERENCE TO DEVELOPER OF INFRASTRUCTURE FACILITY CAN BE GATHERED FROM THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2007, REPORTED IN [2007] 289 ITR - - ITA 558 TO 561/13 ETC. 13 (ST.)292 AT PAGE 312, WHICH READS AS UNDER: ' SECTION 80-IA, INTER ALIA, PROVIDES FOR A TEN-YEAR TAX BENEFIT TO AN ENTERPRISE OR AN UNDERTAKING ENGAGED IN DEVELOPMENT OF INFRASTRUCTURE FACILITIES, INDUSTRIA L PARKS AND SPECIAL ECONOMIC ZONES. THE TAX BENEFIT WAS INTRODUCED FOR THE REASON THAT INDUSTRIAL MODERNIZATION REQUIRES A PASSIVE EXPANSI ON 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 ALO NG BEEN FOR ENCOURAGING PRIVATE SECTOR PARTICIPATION B Y WAY OF INVESTMENT IN DEVELOPMENT OF THE INFRASTRUCTURE SECTOR AND NOT FOR 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 T HE 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 BENE FIT UNDER SECTION 80- LA. 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 APRIL I, 2000 AND WILL ACCORDINGLY APPLY IN RELATIO N TO THE ASSESSMENT YEAR 200 -01 AND SUBSEQUENT YEARS.' IT IS MADE ABUNDANTLY CLEAR THAT THE PRESCRIPTION O F - - ITA 558 TO 561/13 ETC. 14 SECTION 80- IA SHALL NOT APPLY TO A PERSON WHO EXECUTES WORK CONTRACTS ENTERED INTO WITH AN UNDERTAKING OR ENTERPRISE. THUS, IN A CASE WHERE A PERSON WHO MAKES INVESTMENT AND HIMSELF EXECUTES DEVELOPMENT WORKS AND CARRIES OUT CIVIL WORKS, WILL BE ELIGIBLE FOR TAX BENEFIT UNDER SECTION 80- IA OF TH E ACT. IN CONTRAST TO THIS, A PERSON WHO ENTERS INTO A CON TRACT WITH ANOTHER PERSON FOR EXECUTING WORKS CONTRACT WI LL NOT BE ELIGIBLE FOR THE TAX BENEFIT UNDER SECTION 8 0- IA OF THE ACT. IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE WAS DOING ONLY CONTRACT WORKS OF INSITU CEMENT LINING F OR WATER SUPPLY PROJECT OF THE GUJARAT WATER SUPPLY AN D SEWERAGE FOARD. AS SUCH, THE BENEFIT OF SECTION 80- IA CANNOT BE EXTENDED TO THE ASSESSEE. THE DECISIONS RELIED UPON BY THE ASSESSEE WERE RENDERED PRIOR TO THE AMENDMENT AND AS SUCH NOT RELEVANT FOR DECIDING THIS ISSUE. WE, THEREFORE, RESTORE THE ORD ER OF THE ASSESSING OFFICER AND THE COMMISSIONER OF INCOME-TAX (APPEALS). 11. TO FURTHER ELABORATE THE DISCUSSION ON THIS ISSUE, PARAS 5 & 6 OF THE DECISION OF ITAT PUNE BENCH RENDERED IN THE CASE OF LAXMI CIVIL ENGG. P. LTD VS ADDL. CIT, ORDER DATED 8.6.2011 ARE BEING EXTRACTED HEREIN BELOW: 5. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. THE CONTENTIOUS ISSUES BEFOR E US ARE (I) WHETHER THE CONTRACTOR IS SYNONYMOUS WIT H THE DEVELOPER WITHIN THE MEANING OF SECTION 80IA (4)(I) OF THE ACT; (II) WHETHER THE CONDITION PLACE D IN CLAUSE (C) IS APPLICABLE TO THE CASE OF A DEVELOPER , WHO IS NOT CARRYING ON BUSINESS OF OPERATING AND MAINTAINING THE INFRASTRUCTURAL FACILITIES. IN OUR OPINION, THE ANSWER TO THESE QUESTION ARE PROVIDED BY THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE O F ABG HEAVY ENGG LTD (SUPRA). IN THIS REGARD, WE PERUSED THE ABOVE CITED PARA-22 OF THE SAID JUDGMEN T - - ITA 558 TO 561/13 ETC. 15 AND FOR THE SAKE OF COMPLETENESS, THE SAID PARAGRAP H IS REPRODUCED AS UNDER:- '22. THE SUBMISSION WHICH WAS URGED ON BEHALF OF THE REVENUE IS THAT CLAUSE (III) OF SUB-SECTION (4A ) OF SECTION 80-LA, ONE OF THE CONDITIONS IMPOSED WAS TH AT THE ENTERPRISE MUST START OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILITY ON OR AFTER 1 ST APRIL, 1995. THE SAME REQUIREMENT IS EMBODIED IN SUBCLAUSE (1) OF SUB-CLAUSE (4) OF THE AMENDED PROVISIONS. IT WAS URGED THAT SINCE THE ASSESSEE WAS NOT OPERATING AND MAINTAINING THE FACILITY, HE DID NOT FULFILL THE CO NDITION. THE SUBMISSION IS FALLACIOUS BOTH IN FACT AND IN LA W. ' THAT THE ASSESSEE WAS MAINTAINING THE FACILITY IS N OT IN DISPUTE. THE FACILITY WAS COMMENCED AFTER 1 ST APRIL, 1995. THEREFORE, THE REQUIREMENT WAS MET IN FACT. MOREOVER, AS A MATTER OF LAW, WHAT THE CONDIT ION ESSENTIALLY MEANS IS THAT THE INFRASTRUCTURE FACILI TY SHOULD HAVE BEEN OPERATIONAL AFTER 1S1 APRIL, 1995. AFTER SECTION 80IA WAS AMENDED BY THE FINANCE ACT, 2001, THE SECTION APPLIES TO AN ENTERPRISE CARRYING ON THE BUSINESS OF (I) DEVELOPING; OR (II) OPERATING A ND MAINTAINING; OR (III) DEVELOPING, OPERATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY' WHICH FULF ILLS CERTAIN CONDITIONS. THOSE CONDITIONS ARE (I) OWNERS HIP OF THE ENTERPRISES BY A COMPANY REGISTERED IN INDIA OR BY A CONSORTIUMS; (II) AN AGREEMENT WITH THE CENTRA L OR STATE GOVERNMENT, LOCAL AUTHORITY OR STATUTORY BODY; AND (III) THE START OF OPERATION AND MAINTENA NCE OF THE INFRASTRUCTURE FACILITY SHOULD COMMENCE AFTE R 1ST APRIL, 1995. THE REQUIREMENT THAT OPERATION AND MAINTENANCE OF THE INFRASTRUCTURE FACILITY SHOULD COMMENCE AFTER 1ST APRIL, 1995 HAS TO BE HARMONIOUSLY CONSTRUED WITH THE MAIN PROVISION UNDER WHICH DEDUCTION IS AVAILABLE TO AN ASSESSEE WHO DEVELOPS OR OPERATES AND MAINTAINS, OR DEVELOPS, OPERATES AND MAINTAINS AN INFRASTRUCTURE FACILITY'. - - ITA 558 TO 561/13 ETC. 16 A HARMONIOUS READING OF THE PROVISIONS IN ITS ENTIR ETY WOULD LEAD TO THE CONCLUSION THAT THE DEDUCTION IS AVAILABLE TO AN ENTERPRISE WHICH (I) DEVELOPS, OR OPERATES AND MAINTAINS; OR (III) DEVELOPS, MAINTAIN AND OPERATES THAT INFRASTRUCTURE FACILITY. HOWEVER, THE COMMENCEMENT OF THE OPERATION AND MAINTENANCE: OF THE INFRASTRUCTURE FACILITY SHOULD BE AFTER 1' APRI L, 1995. IN THE PRESENT CASE THE ASSESSEE CLEARLY FULFILLED THIS CONDITION'. BEFORE THE AMENDMENT THAT WAS BROUGHT ABOUT BY PARLIAMENT BY FINANCE ACT, 2001 WE HAVE ALREADY NOTED THAT THE CONSISTENT LINE OF CIRCULARS OF THE BOARD POSTULATED THE SAME POSITION. THE AMENDMENT MADE BY PARLIAMENT TO S.80-IA(4) OF THE ACT, SET THE MAT TER BEYOND ANY CONTROVERSY BY STIPULATING THAT THE THRE E CONDITIONS FOR DEVELOPMENT, OPERATION AND MAINTENANCE WERE NOT INTENDED TO BE CUMULATIVE IN NATURE '. 6. THE ABOVE JUDGMENT OF THE HON'BLE HIGH COURT IS DELIVERED IN THE CASE OF ABG HEAVY ENGG LTD (SUPRA) , WHO IS A CONTRACTOR FOR THE LNP TRUST AND THAT CONTACTOR, ASSESSEE IS FOUND TO BE AN ELIGIBLE DEVELOPER FOR MAKING CLAIM OF DEDUCTION U/S SECTION 80IA (4) OF THE ACT. FROM THE ABOVE, IT IS EVIDENT THAT THE PERSON WHO ONLY DEVELOPS THE INFRASTRUCTURE DO NOT HAVE THE OCCASION TO OPERATE AND MAINTAIN THE INFRASTRUCTURE. IT IS FURTHER EVIDENT THAT THE HARM ONIOUS READING IS NECESSARY AND MANDATORY IN VIEW OF HIGH COURT'S JUDGMENT IN THE CASE OF AN ENTERPRISE CARRY ING ON BUSINESS OR DEVELOPING WHICH IS THE CASE OF THE ASSESSEE, ALL THE CONDITIONS REFERRED TO CLAUSE (I) OF SECTION 80IA (4) SHOULD REFER TO THE CONDITIONS AS APPLICABLE TO THE DEVELOPER. IN OTHER WORDS, THE DEVELOPER WHO IS ONLY DEVELOPING THE INFRASTRUCTURE FACILITIES SINCE HE DOES NOT OPERATE AND MAINTAIN INFRASTRUCTURAL FACILITIES, CANNOT BE EXPECTED TO FULFILL THE CONDITION AT SUBCLAUSE (C) WHICH IS AN IMPOSSIBILITY AND THE REQUIREMENTS TO FULFILL THE S AID - - ITA 558 TO 561/13 ETC. 17 CONDITION SHALL AMOUNT TO ABSURDITY AND THEREFORE UNCALLED FOR. THEREFORE, WE FIND REQUIREMENT OF HARMONIOUS READING OF SUB-CLAUSE (C) VIS--VIS OF CLAUSE (I) OF SECTION 80IA (4) OF THE ACT. THUS, TH E DISCUSSION IN HIGH COURT'S DECISION IN PARAGRAPH-22 EXTRACTED ABOVE, IS DIRECTLY APPLICABLE TO THE FACT S OF THE CASE AND EVENTUALLY IS ENTITLED FOR THE DEDUCTI ON UNDER SECTION 80IA (4) OF THE ACT. ACCORDINGLY, THE MODIFIED GROUND, WHICH IS COMMON IN ALL THE FOUR APPEALS IS ALLOWED IN FAVOUR OF THE ASSESSEE. 12. LET US REMIND OURSELVES THAT THE HON'BLE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LTD VS CIT, 196 ITR 188, HAS ORDAINED THAT TAXING STATUTE GRANTING INCENTIVES FOR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE LIBERALLY CONSTRUED. 13. NOW, THE QUESTION ARISES AS TO WHETHER THE TERM CONTRACTOR IS NOT ESSENTIALLY CONTRADICTORY TO TH E TERM DEVELOPER. IN FACT, IN EVERY DEVELOPMENT THE TERM DEVELOPER WILL DEFINITELY BE A WORKS CONTRACTOR BUT EVERY WORKS CONTRACTOR MAY NOT BE A DEVELOPER. A DEVELOPER IS A SPECIFIC KIND OF WORKS CONTRACTOR TO BE ELIGIBLE FOR DEDUCTION U/S 80IA(4) WHO FULFILLS ALL THE CONDITIONS NAMELY, IF THE ASSESSEE DEVELOPS THE INFRASTRUCTURE FACILITY IF IT OPERATES THE INFRASTR UCTURE FACILITY AND IF IT MAINTAINS THE INFRASTRUCTURE FAC ILITY OR TO PUT IT IN SIMPLER TERMS, THE HARMONIOUS READING OF THE PROVISIONS IN ITS ENTIRETY WOULD LEAD TO THE CONCLUSION THAT THIS DEDUCTION IS AVAILABLE TO AN ENTERPRISE WHO DEVELOPS OR OPERATES AND ALSO MAINTAINS; OR DEVELOPS, MAINTAINS AND OPERATES THAT INFRASTRUCTURE FACILITY. THE PROVISION FOR GIVING T HE IMPUGNED INCENTIVES HAS BEEN EXAMINED, RE- EXAMINED, MODIFIED AND AMENDED AFTER GIVING CONSCIOUS AND DELIBERATE DISCUSSIONS BY THE CONCERNED LAW MAKERS. TO OUR GREAT CHAGRIN EVEN AFTER THIS CONSCIOUS EXERCISE AN ENTITY WHO EXECUTE S THE WORKS CONTRACT ENTERED INTO BETWEEN LOCAL AUTHORITY/CENTRAL OR STATE GOVERNMENT AND MAKES A - - ITA 558 TO 561/13 ETC. 18 DEVELOPMENT OF AN INFRASTRUCTURE HAS NOT BEEN EXCLUDED FROM THE SCOPE OF THIS PROVISION. AND RIGH TLY SO, BECAUSE WHAT INFRASTRUCTURE IS REQUIRED IN PUBL IC DOMAIN IS THE OUTLOOK/DUTY OF A LOCAL AUTHORITY OR OF A CENTRAL/STATE GOVERNMENT. WHEN A CERTAIN INFRASTRUCTURE IS NEEDED, THE CONCERNED AUTHORITIES HAVE A BROADER PICTURE IN THEIR MIND AIMING AT ACQUIRING CERTAIN FACILITY FOR WHICH INFRASTRUCTURE DEVELOPMENT IS REQUIRED. SO, TO SAY, WHEN ANY ASSESSEE/ENTERPRISE AGREES UNDER A CONTRACT TO DEVELOP SUCH AN INFRASTRUCTURE FACILITY, IT CANNOT STRAIGHT AWAY BE DUBBED AS NOT THE BRAINCHILD OF TH AT ENTERPRISE, BUT ONLY OF THE AUTHORITY IN QUESTION. THEREFORE, AGAIN THIS PROVISION IN SO FAR AS THE CONDITIONS REQUIRED TO BE FULFILLED TO BE ELIGIBLE FOR THIS INCENTIVE HAD TO BE PROVIDED BY THE JURIDICAL FORUM S DEALING WITH THIS ISSUE. AFTER IN-DEPTH DELIBERATIO NS, DISCUSSIONS AND EXAMINATION OF THESE PROVISIONS, FINALLY, IT HAS BEEN RESOLVED THAT IF AN ENTERPRISE EVEN AFTER ENTERING INTO A CONTRACT WITH A LOCAL AUTHORI TY OR THE GOVERNMENTS, MAY BE CENTRAL OR STATE, IN CASE I T CONSTRUCTS THE INFRASTRUCTURE FACILITY, OPERATES IT AND ALSO MAINTAINS THE SAME, IT WOULD BE ELIGIBLE FOR T HIS DEDUCTION. 14. NOW, LET US EXAMINE THE FACTS OF THE GIVEN CASE . IT IS AN UNDENIABLE FACT THAT THE ASSESSEE IS ENGAGED IN THE CIVIL CONSTRUCTION WORK LIKE CONSTRUCTION OF FL YOVER, BRIDGE UNDERPASS, SEWERAGE, WATER SUPPLY ETC. FOR VARIOUS LOCAL BODIES, RAILWAYS, CENTRAL/STATE GOVERNMENTS. IN FACT, AS PER THE TERMS OF AGREEMENT , EVEN THE INITIAL PROPOSALS FORMULATED BY THE DEPARTMENT WHICH ARE STATED TO BE TENTATIVE, THE ASSESSEE HAS THE LIBERTY TO MAKE DIFFERENT PROPOSAL S WITHOUT DETRIMENTAL TO THE GENERAL FEATURES OF THE DEPARTMENTAL PROPOSAL, LIKE ROAD LEVEL/BOTTOM OF DECK LEVEL, MFL, SILL LEVEL, LINEAR WATER WAY, WIDT H OF THE BRIDGE ETC. RIGHT FROM THE DRAWINGS TO THE WORK OF CONSTRUCTION HAS BEEN DONE BY THIS ASSESSEE AND HAS BORNE THE COST ITSELF. THE COMPANY HAS - - ITA 558 TO 561/13 ETC. 19 CONSTRUCTED, DELIVERED AND MAINTAINED AND SECURITY IS ALSO MAINTAINED THEREAFTER. SO, THIS IS A CASE OF TRANSFER OF PROPERTY IN CHATTEL AND NOT A CONTRACT OF SERVICE. A DEVELOPER AS PER THE ADVANCED LAW LEXICON MEANS A PERSON ENGAGED IN DEVELOPMENT OR OPERATION OR MAINTENANCE OF SPECIAL ECONOMIC ZONE, AND ALSO INCLUDES ANY PERSON AUTHORIZED FOR SUCH PURPOSE BY ANY SUCH DEVELOPER. IN THE CASE OF ACIT VS BHARAT UDYOG LTD, F BENCH OF ITAT MUMBAI, HAS CONCLUDED THAT ANY ASSESSEE WHO IS ENGAGED IN DEVELOPING THE INFRASTRUCTURE FACILITY AND ALSO OPERATING AND MAINTAINING THE SAME, IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80IA(4). A COPY OF THIS DECISION IS ENCLOSED AT PAGE 139 OF THE PAPER BOOK. IN THE CASE OF PATEL ENGINEERING LTD VS DY. CIT, 84 TTJ (MUMBAI) 646 [COPY ENCLOSED AT PAGE NO.145 OF THE PAPER BOOK], IT HAS BEEN HELD THAT A PERSON, WH O ENTERS INTO A CONTRACT WITH ANOTHER PERSON WILL BE TREATED AS A CONTRACTOR UNDOUBTEDLY; AND THAT ASSESSEE HAVING ENTERED INTO AN AGREEMENT WITH THE GOVERNMENT OF MAHARASHTRA AND ALSO WITH APSEB FOR DEVELOPMENT OF THE INFRASTRUCTURE PROJECTS, IS OBVIOUSLY A CONTRACTOR BUT DOES NOT DEROGATE THE ASSESSEE FROM BEING A DEVELOPER AS WELL. THE TERM CONTRACTOR IS NOT NECESSARILY CONTRADICTORY TO TH E TERM DEVELOPER. ON THE OTHER HAND, RATHER SECTION 80IA(4) ITSELF PROVIDES THAT ASSESSEE SHOULD DEVELO P THE INFRASTRUCTURE FACILITY AS PER THE AGREEMENT WI TH THE CENTRAL GOVERNMENT, STATE GOVERNMENT OR A LOCAL AUTHORITY. SO, ENTERING INTO A LAWFUL AGREEME NT AND THEREBY BECOMING A CONTRACTOR SHOULD IN NO WAY BE A BAR TO THE ONE BEING A DEVELOPER. THE ASSESSEE HAS DEVELOPED INFRASTRUCTURE FACILITY AS P ER THE AGREEMENT WITH MAHARASHTRA GOVERNMENT/APSEB, THEREFORE, MERELY BECAUSE IN THE AGREEMENT FOR DEVELOPMENT OF INFRASTRUCTURE FACILITY THE ASSESSEE IS REFERRED TO AS A CONTRACTO R 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 - - ITA 558 TO 561/13 ETC. 20 FROM CLAIMING DEDUCTION U/S 80IA(4). THE FACTS OF T HE PRESENT CASE ARE EXACTLY IDENTICAL TO THE FACTS OF THAT CASE RENDERED BY ITAT MUMBAI BENCH IN WHICH UNDER IDENTICAL FACTS AND CIRCUMSTANCES, THE ASSESSEE HAS BEEN HELD TO BE ELIGIBLE FOR DEDUCTION U/S 80IA(4). SECTION 80IA(4)(I)(B) REQUIRES DEVELOPMENT OF INFRASTRUCTURE FACILITY AND TRANSFER THEREOF AS PER AGREEMENT AND IT CANNOT BE DISPUTED IN VIEW OF THE MATERIAL ON RECORD THAT THE ASSESSEE HA S TRANSFERRED THE INFRASTRUCTURE FACILITY DEVELOPED B Y IT BY HANDING OVER THE POSSESSION THEREOF TO THE CONCERNED AUTHORITY AS REQUIRED BY THE AGREEMENT. THE HANDING OVER OF THE POSSESSION OF DEVELOPED INFRASTRUCTURE FACILITY/PROJECT IS THE TRANSFER OF THE INFRASTRUCTURE FACILITY/PROJECT BY THE ASSESSEE TO THE AUTHORITY. THE HANDING OVER OF THE INFRASTRUCTURE FACILITY/PROJECT BY THE DEVELOPER TO THE GOVERNMENT OR AUTHORITY TAKES PLACE AFTER RECOUPMENT OF THE DEVELOPERS COSTS WHETHER IT BE BT OR BOT OR BOOT BECAUSE IN BOT AND BOOT THIS RECOUPMENT IS BY WAY OF COLLECTION OF TOLL THEREFRO M WHEREAS IN BT IT IS BY WAY OF PERIODICAL PAYMENT BY THE GOVERNMENT/AUTHORITY. THE LAND INVOLVED IN INFRASTRUCTURE FACILITY/PROJECT ALWAYS BELONGS TO T HE GOVERNMENT/LOCAL AUTHORITY ETC., WHETHER IT BE THE CASE OF BOT OR BOOT AND IT IS HANDED OVER BY TH E GOVERNMENT/AUTHORITY TO THE DEVELOPER FOR DEVELOPMENT OF INFRASTRUCTURE FACILITY/PROJECT. THE SAME HAS BEEN THE POSITION IN THE GIVEN CASE AS WEL L. SO, DEDUCTION U/S 80IA(4) IS ALSO AVAILABLE TO THIS ASSESSEE WHICH HAS UNDERTAKEN WORK OF A MERE DEVELOPER. RATHER, THE STATUTORY PROVISION AS CONTAINED IN SECTION 80IA WHICH PROVIDES FOR DEDUCTION OF INFRASTRUCTURE FACILITY NO WAY PROVIDE S THAT ENTIRE INFRASTRUCTURE FACILITY PROJECT HAS TO BE DEVELOPED BY ONE ENTERPRISE. THUS, AS PER SECTION 80IA THE ASSESSEE SHOULD DEVELOP THE INFRASTRUCTURE FACILITY AS PER THE AGREEMENT WITH THE CENTRAL/STAT E GOVERNMENT/LOCAL AUTHORITY. ENTERING INTO A LAWFUL AGREEMENT AND THEREBY BECOMING SHOULD, IN NO WAY - - ITA 558 TO 561/13 ETC. 21 BE A BAR TO THE ONE BEING A DEVELOPER. IN THIS RE GARD, AS WE HAVE ALREADY STATED, THE DECISION OF ACIT VS BHARAT UDYOG LTD, 118 ITD 336 AND PATEL ENGINEERING LTD VS DY. CIT, 84 TTJ 646, ARE RELEVAN T. AS PER CIRCULAR NO.4/2010[F.NO.178/14/2010-ITA-I] DATED 18.5.2010, WIDENING OF EXISTING ROADS CONSTITUTES CREATION OF NEW INFRASTRUCTURE FACILITY FOR THE PURPOSE OF SECTION 80IA(4)(I) . THE ASSESSEE IS NOT REQUIRED TO DEVELOP THE ENTIRE ROAD IN ORDER TO QUALIFY FOR DEDUCTION U/S 80IA AS HAS BEEN HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS ABG HEAVY INDUSTRIES LTD, 322 ITR 323. THE NEWLY INSERTED EXPLANATION 2 TO SECTION 80IA VIDE FINANCE ACT, 2007, DOES NOT APPLY TO A WORKS CONTRACT ENTER ED INTO BY THE GOVERNMENT AND THE ENTERPRISE. IT APPLI ES TO A WORK CONTRACT ENTERED INTO BETWEEN THE ENTERPRISE AND OTHER PARTY THE SUB-CONTRACTOR. TH E AMENDMENT AIMS AT DENYING DEDUCTION TO THE SUB CONTRACTOR WHO EXECUTES A WORK CONTRACT WITH THE ENTERPRISE AS HELD BY THE ITAT, JAIPUR A BENCH IN THE CASE OF OM METAL INFRAPROJECTS LTD VS CIT-I, JAIPUR, IN I.T.A.NO. 722 & 723/JP/2008 DATED 31.12.2008. THE RELIANCE BY THE LD. CIT(A) ON THE DECISION OF ITAT, CHENNAI BENCH IN THE CASE OF ACIT VS INDWELL LIANINGS PVT. LTD, 313 ITR(AT) 118, HAS BEEN ENLARGED IN ITS FINDING BY THE ITAT, MUMBAI F BENCH IN ITS DECISION RENDERED IN THE CASE OF ACIT VS BHARAT UDYOG LTD , BY HOLDING THAT SUCH A DEDUCTION IS ONLY TO BE DENIED TO A SUB-CONTRACTOR AND NOT A MIN CONTRACTOR. SIMILAR VIEW HAS BEEN TAKEN BY THE ITAT CHENNAI BENCH IN THE CASE OF ACIT VS SMT C.RAJINI (SUPRA) IN WHICH BOTH OF US CONSTITUTED THE BENCH. IN THIS DECISION THE DEFINITION AND DIFFERENCE BETWEEN WORKS CONTRACTOR AND A DEVELOPER HAS BEEN EXAMINED IN DETAIL. THE MAIN THRUST OF THE DECISION IS THAT A DEVELOPER NEED NOT BE THE OWNER OF THE LAND ON WHICH DEVELOPMENT IS MADE. ALTHOUGH THAT DECISION WAS RENDERED IN THE CONTEXT OF A DEVELOPER OF BUILDINGS AND THE DEDUCTION WAS IN RESPECT OF 80IB(10), BUT THE DEFINITION OF DEVELOPER GIVEN I N THAT - - ITA 558 TO 561/13 ETC. 22 CASE IS ALSO RELEVANT FOR THIS PURPOSE. MOREOVER, W E ARE IN AGREEMENT THAT IN INCENTIVE PROVISIONS, THE CONSTRUCTION SHOULD BE LIBERALLY GIVEN AS HELD BY T HE HON'BLE SUPREME COURT RENDERED IN THE CASE OF BAJAJ TEMPO LTD VS CIT, 196 ITR 188. THUS, 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. 6. WE HAVE CONSIDERED THE ELABORATE SUBMISSIONS MA DE BY BOTH THE PARTIES AND ALSO PERUSED THE MATERIALS AVA ILABLE ON RECORD. WE HAVE ALSO GONE THROUGH ALL THE CASE LAWS CITED BY BOTH THE PARTIES. WE FIND THAT THE PROVISIONS OF SE CTION 80IA(4) OF THE ACT WHEN INTRODUCED AFRESH BY THE FINANCE ACT, 1999, THE PROVISIONS UNDER SECTION 80IA(4A) OF THE ACT WERE D ELETED FROM THE ACT. THE DEDUCTION AVAILABLE FOR ANY ENTERPRISE EARLIER UNDER SECTION 80IA(4A) ARE ALSO MADE AVAILABLE UNDER SECT ION 80IA(4) ITSELF. FURTHER, THE VERY FACT THAT THE LEGISLATURE MENTIONED THE WORDS (I) 'DEVELOPING' OR (II) 'OPERATING AND MAINT AINING' OR (III) 'DEVELOPING, OPERATING AND MAINTAINING' CLEARLY IND ICATES THAT ANY ENTERPRISE WHICH CARRIED ON ANY OF THESE THREE ACTIVITIES WOULD BECOME ELIGIBLE FOR DEDUCTION. THEREFORE, THE RE IS NO AMBIGUITY IN THE INCOME-TAX ACT. WE FIND THAT WHERE AN - - ITA 558 TO 561/13 ETC. 23 ASSESSEE INCURS EXPENDITURE ON ITS OWN FOR PURCHASE OF MATERIALS AND TOWARDS LABOUR CHARGES AND ITSELF EXECUTES THE DEVELOPMENT WORK I.E., CARRIES OUT THE CIVIL CONSTRUCTION WORK, IT WILL BE ELIGIBLE FOR TAX BENEFIT UNDER SECTION 80 IA OF THE ACT. IN CONTRAST TO THIS, A ASSESSEE, WHO ENTERS INTO A CONTRACT WITH ANOTHER P ERSON INCLUDING GOVERNMENT OR AN UNDERTAKING OR ENTERPRIS E REFERRED TO IN SECTION 80 IA OF THE ACT, FOR EXECUTING WORKS CO NTRACT, WILL NOT BE ELIGIBLE FOR THE TAX BENEFIT UNDER SECTION 80 IA OF THE ACT. AT THIS STAGE, WE DEEM IT APPROPRIATE TO REPRODUCE HER EUNDER SECTION 80IA OF THE ACT PROVIDING DEDUCTION IN RE SPECT OF PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKING OR ENTERPRISE S ENGAGED IN INFRASTRUCTURE DEVELOPMENT WHICH READS AS FOLLOWS:- 80IA. (1)WHERE THE GROSS TOTAL INCOME OF AN ASSESSE E INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (S UCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSIN ESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE AS SESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSEC UTIVE ASSESSMENT YEARS. (2) .. (2A) (3) .. (4) THIS SECTION APPLIES TO - - ITA 558 TO 561/13 ETC. 24 (I) ANY ENTERPRISE CARRYING ON THE BUSINESS OF (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING, OPER ATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY WHICH FULFI LS ALL THE FOLLOWING CONDITIONS, NAMELY: (A) IT IS OWNED BY A COMPANY REGISTERED IN INDIA OR BY A CONSORTIUM OF SUCH COMPANIES OR BY AN AUTHORITY OR A BOARD OR A CORPORATION OR ANY OTHER BODY ESTABLISHED OR C ONSTITUTED UNDER ANY CENTRAL OR STATE ACT; (B) IT HAS ENTERED INTO AN AGREEMENT WITH THE CENTR AL GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORI TY 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 MAINTAIN ING 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 W HICH DEVELOPED SUCH INFRASTRUCTURE FACILITY (HEREAFTER REFERRED TO IN THIS SECTION AS THE TRANSFEROR ENTERPRISE) TO ANOTHER ENTERPRISE (H EREAFTER IN THIS SECTION REFERRED TO AS THE TRANSFEREE ENTERPRISE) F OR THE PURPOSE OF OPERATING AND MAINTAINING THE INFRASTRUCTURE FAC ILITY ON ITS BEHALF IN ACCORDANCE WITH THE AGREEMENT WITH THE CE NTRAL GOVERNMENT, STATE GOVERNMENT, LOCAL AUTHORITY OR ST ATUTORY BODY, THE PROVISIONS OF THIS SECTION SHALL APPLY TO THE T RANSFEREE ENTERPRISE AS IF IT WERE THE ENTERPRISE TO WHICH TH IS CLAUSE APPLIES AND THE DEDUCTION FROM PROFITS AND GAINS WOULD BE A VAILABLE TO SUCH TRANSFEREE ENTERPRISE FOR THE UNEXPIRED PERIOD DURING WHICH THE TRANSFEROR ENTERPRISE WOULD HAVE BEEN ENTITLED TO THE DEDUCTION, IF THE TRANSFER HAD NOT TAKEN PLACE. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, INFR ASTRUCTURE FACILITY MEANS (A) A ROAD INCLUDING TOLL ROAD, A BRIDGE OR A RAIL SYSTEM; (B) A HIGHWAY PROJECT INCLUDING HOUSING OR OTHER AC TIVITIES BEING AN INTEGRAL PART OF THE HIGHWAY PROJECT; (C) A WATER SUPPLY PROJECT, WATER TREATMENT SYSTEM, IRRIGATION PROJECT, SANITATION AND SEWERAGE SYSTEM OR SOLID WA STE MANAGEMENT SYSTEM; - - ITA 558 TO 561/13 ETC. 25 (D) A PORT, AIRPORT, INLAND WATERWAY, INLAND PORT O R NAVIGATIONAL CHANNEL IN THE SEA; (5) (13) . *EXPLANATION. - FOR THE REMOVAL OF DOUBTS, IT IS HE REBY 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 O R ENTERPRISE REFERRED TO IN SUB-SECTION (1). *IT INTRODUCED BY FINANCE (NO.2) ACT, 2009 W..E.F. 1.4.2000 6.1 A PERUSAL OF THE STATUTORY PROVISIONS MA KES IT CLEAR THAT IT DOES NOT PROVIDE A BLANKET DEDUCTION I.E. IN ORDER TO SUCCEED IN A CLAIM OF DEDUCTION; THE CONCERNED ASSESSEE HAS TO D ERIVE PROFITS AND GAINS FROM ANY BUSINESS REFERRED TO IN SUB-SECT ION 4. FURTHER, SUB-SECTION 4 PRESCRIBES APPLICABILITY OF CLAUSE I.E. THE CASE IN WHICH THE DEDUCTION PROVISION WOULD APPLY. IT IS IN THIS SUB-SECTION THAT THE LEGISLATURE HAS ENUMERATED THE NATURE OF THE UNDERTAKINGS, THEIR ACTIVITIES IN CONTRIBUTING RAIS ING OF INFRASTRUCTURE. FURTHER, IN THE EXPLANATION ATTACHE D TO THE SUB- SECTION, THE LEGISLATURE HAS ALSO ENTRUSTED THE MEA NING OF THE INFRASTRUCTURE FACILITIES. IN OUR OPINION, AN ASSES SEE WHILE CLAIMING DEDUCTION HAS TO SATISFY ALL CONDITIONS IN SUB-SECTION 4(1)(A) OR (B) OR (C). IT IS MANDATORY FOR THE ASSE SSEE TO FIRST SATISFY SUB-SECTION CLAUSE I(A), THEN (B) THEN (C), THEN PROVISO AND - - ITA 558 TO 561/13 ETC. 26 SO ON. IN CASE THE CONCERNED ASSESSEE FAILS IN ANY ONE OF THE CLAUSES, EVEN IF IT SATISFIES THE OTHER PART OF THE SUB-SECTION, THE CLAIM HAS TO BE REJECTED. NOW WE PROCEED TO DECIDE AS TO WHETHER THE ASSESSEE CONCERN SATISFIES SUB-SECTION 4(I) OF THE ACT OR NOT. FOR THE SAID SUBSECTION, A READING OF THE PROVISION MAKES IT UNAMBIGUOUS THAT THE CONCERNED CLAIMANT HA S TO BE AN ENTERPRISES CARRYING ON THE BUSINESS OF DEVELOPING OR OPERATING AND MAINTAINING OR DEVELOPING, OPERATING AND MAINTA INING ANY INFRASTRUCTURE FACILITY AND IT HAS TO BE OWNED BY A CONSORTIUM OF SUCH COMPANY OR BY AN AUTHORITY OR A BOARD OR A COR PORATION OR ANY OTHER BODY ESTABLISHED OR CONSTITUTED UNDER ANY CENTRAL OR STATE ACT. ADMITTEDLY, THE ASSESSEE IS A LIMITED C OMPANY AND IT SATISFIES THIS CONDITION. 6.2 IN OUR OPINION, SEC.80IA OF THE ACT, INTENDED T O COVER THE ENTITIES CARRYING OUT DEVELOPING, OPERATING AND MAI NTAINING THE INFRASTRUCTURE FACILITY KEEPING IN MIND THE PRESENT BUSINESS MODELS AND INTEND TO GRANT THE INCENTIVES TO SUCH E NTITIES. THE CBDT IN CIRCULAR NOS.779 DATED 14.9.1999 AND 794 DA TED 9.8.2000 CLARIFIED THAT PURE DEVELOPER SHOULD ALSO BE ELIGIBLE TO CLAIM DEDUCTION UNDER SEC.80IA OF THE ACT, WHICH UL TIMATELY - - ITA 558 TO 561/13 ETC. 27 CULMINATED INTO AMENDMENT UNDER SEC.80IA OF THE ACT , IN THE FINANCE ACT 2001, TO GIVE EFFECT TO THE AFORESAID CIRCULARS ISSUED BY THE CBDT. WE ALSO FIND THAT, TO AVOID MISUSE OF THE AFORESAID AMENDMENT, AN EXPLANATION WAS INSERTED IN SEC.80IA OF THE ACT, IN THE FINANCE ACT-2007 AND 2009, TO CLARIFY THAT M ERE WORKS CONTRACT WOULD NOT BE ELIGIBLE FOR DEDUCTIONS UNDER SEC.80IA OF THE ACT. BUT, CERTAINLY, THE EXPLANATION CANNOT BE READ TO DO AWAY WITH THE ELIGIBILITY OF THE DEVELOPER; OTHERWI SE, THE PARLIAMENT WOULD HAVE SIMPLY REVERSED THE AMENDMENT MADE IN THE FINANCE ACT, 2001. THUS, THE AFORESAID EXPLANA TION WAS INSERTED, CERTAINLY, TO DENY THE TAX HOLIDAY TO THE ENTITIES WHO DOES ONLY MERE WORKS CONTRACT OR SUB-CONTRACT AS DI STINCT FROM THE DEVELOPER. THIS IS CLEAR FROM THE EXPRESS INTE NTION OF THE PARLIAMENT WHILE INTRODUCING THE EXPLANATION. THE EXPLANATORY MEMORANDUM TO FINANCE ACT 2007 STATES THAT THE PUR POSE OF THE TAX BENEFIT HAS ALL ALONG BEEN TO ENCOURAGE INVESTM ENT IN DEVELOPMENT OF INFRASTRUCTURE SECTOR AND NOT FOR TH E PERSONS WHO MERELY EXECUTE THE CIVIL CONSTRUCTION WORK. IT CAT EGORICALLY STATES THAT THE DEDUCTION UNDER SEC.80IA OF THE ACT IS AVA ILABLE TO DEVELOPERS WHO UNDERTAKES ENTREPRENEURIAL AND INVES TMENT RISK - - ITA 558 TO 561/13 ETC. 28 AND NOT FOR THE CONTRACTORS, WHO UNDERTAKES ONLY BU SINESS RISK. THE LEARNED COUNSEL FOR THE ASSESSEE STATED BEFORE THE BENCH THAT THE ASSESSEE AT PRESENT HAS UNDERTAKEN HUGE RI SKS IN TERMS OF DEPLOYMENT OF TECHNICAL PERSONNEL, PLANT AND MAC HINERY, TECHNICAL KNOW HOW, EXPERTISE AND FINANCIAL RESOURC ES. AFTER THE AMENDMENT THE SECTION 80IA(4) READ AS (I) DEVELOPIN G OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING, OPER ATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY, PRIOR TO A MENDMENT THE OR BETWEEN THREE ACTIVITIES WAS NOT THERE, AFTER THE AMENDMENT OR HAS BEEN INSERTED W.E.F.1-4-2002 BY FINANCE AC T 2001. THEREFORE, IN THE CONSIDERED VIEW OF THE BENCH, THE ASSESSEE SHOULD NOT BE DENIED THE DEDUCTION UNDER SEC.80IA O F THE ACT, IF THE CONTRACTS INVOLVES DESIGN, DEVELOPMENT, OPERATI NG & MAINTENANCE, FINANCIAL INVOLVEMENT, AND DEFECT CORR ECTION AND LIABILITY PERIOD, THEN SUCH CONTRACTS CANNOT BE CAL LED AS SIMPLE WORKS CONTRACT TO DENY THE DEDUCTION U/S 80IA OF TH E ACT. IN THE OPINION OF THE BENCH THE CONTRACTS WHICH CONTAIN AB OVE FEATURES TO BE SEGREGATED ON THIS DEDUCTION U/S.80IA HAS TO BE GRANTED AND THE OTHER AGREEMENTS WHICH ARE PURE WORKS CONTR ACTS HIT BY THE EXPLANATION TO SEC.80IA(13), THOSE WORK ARE NOT ENTITLED FOR - - ITA 558 TO 561/13 ETC. 29 DEDUCTION U/S.80IA OF THE ACT. THE PROFIT FROM THE CONTRACTS WHICH INVOLVES DESIGN, DEVELOPMENT, OPERATING & MAI NTENANCE, FINANCIAL INVOLVEMENT, AND DEFECT CORRECTION AND LI ABILITY PERIOD IS TO BE COMPUTED BY ASSESSING OFFICER ON PRO-RATA BAS IS OF TURNOVER. THE ASSESSING OFFICER IS DIRECTED TO EXA MINE THE CONTRACTS ACCORDINGLY AND GRANT DEDUCTION ON ELIGIB LE TURNOVER AS DIRECTED ABOVE. 7. FURTHER, IT IS TO BE NOTED THAT WHILE PASSIN G THE IMPUGNED ORDERS, THE CIT(A) RELIED ON THE ORDER OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 , WHEREIN EXPLANATION TO SEC.80IA(13) WAS NOT IN THE PRESENT FORM AND BEING SO, THE TRIBUNAL TOOK A NOTE OF EARLIER EXPLA NATION TO SEC.80IA(13) OF THE ACT AND DECIDED THE ISSUE IN FA VOUR OF THE ASSESSEE. MORE SO, THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF KATIRA CONSTRUCTION LTD. CITED SUPRA, WAS NOT AVAILABLE BEFORE THE TRIBUNAL AS WELL AS BEFORE THE LOWER AUTHORITIES, FOR CONSIDERA TION, WHICH WAS DELIVERED ON 28.3.2013. FURTHER, NEITHER THE AO NO R THE CIT(APPEALS) HAVE GONE THROUGH EACH AGREEMENT OF TH E CONTRACT ENTERED INTO BY THE ASSESSEE TO CARRY OUT THE PROJE CTS. 7.1 IT IS ALSO PERTINENT TO NOTE THAT IN THE C ASE OF CIT V. HI - - ITA 558 TO 561/13 ETC. 30 TECH ARAI LTD. (321 ITR 477) THE JURISDICTIONAL HI GH COURT HELD THAT SIMPLY BECAUSE A CO-ORDINATE BENCH OF THE TRI BUNAL HAD TAKEN A DIFFERENT VIEW, THE TRIBUNAL ON THIS OCCASI ON ALSO OUGHT TO HAVE FOLLOWED THE SAME, HAVING NO MERIT. WHEN IT I S FOUND THAT THE TRIBUNAL HAS APPLIED A LAW CORRECTLY IN THE IMP UGNED ORDER, THERE IS NO GAINSAYING THAT THERE WAS AN EARLIER OR DER BY THE CO- ORDINATE BENCH AND, THEREFORE, FOR THAT REASON, THI S TIME ALSO THE TRIBUNAL SHOULD HAVE BLINDLY FOLLOWED ITS EARLIER D ECISION EVEN IF SUCH EARLIER DECISION DID NOT REFLECT THE CORRECT P OSITION OF LAW. 7.2 FURTHER, MUMBAI BENCH I OF THIS TRIBUNA L IN THE CASE OF CIT V. PRAMOD H. LELE (47 SOT 363), HELD THAT THE D ECISION, WHICH WAS RENDERED IN IGNORANCE OF THE TERMS OF A S TATUTE OR RULE, HAVING NO STATUTORY FORCE. IN VIEW OF THIS, IN OUR OPINION, IT IS APPROPRIATE TO REMIT THE ISSUE IN DISPUTE BACK TO T HE FILE OF THE AO TO CONSIDER ALL THE AGREEMENTS ENTERED INTO BY THE ASSESSEE AND HE SHALL EXAMINE THE SAME ALONG WITH THE EXPLANATIO NS AND ALSO THE APPLICATION OF THE JUDGMENT OF THE GUJARAT HIGH COURT CITED SUPRA. ACCORDINGLY, WE REMIT THE ISSUE IN DISPUTE TO THE FILE OF THE AO FOR FRESH CONSIDERATION AND DECIDE THE ISSUE AFTER EXAMINING ALL THE AGREEMENTS ENTERED INTO BY THE AS SESSEE. - - ITA 558 TO 561/13 ETC. 31 8. THE NEXT GROUND IN ITA NO.559/MDS/2013 IS WI TH REGARD TO RESTRICTING THE DISALLOWANCE MADE U/S.14A R.W.RULE 8D TO 2% OF DIVIDEND INCOME EARNED. 9. IN OUR OPINION, THIS ISSUE IS SQUARELY COVER ED BY THE JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF SIMPSO N & CO. LTD. VS. DCIT IN TC(A) NO.2621 OF 2006 DATED 15.10. 12, WHEREIN IT WAS HELD THAT 2% OF THE EXEMPT INCOME IS ALLOWED . MORE SO, RULE 8D IS NOT IN THE STATUTE BOOK IN THE ASSESSMEN T YEAR 2006- 07 WHICH WAS INTRODUCED W.E.F. 24.3.2008. BEING S O, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(APPEALS) . THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE AND THI S GROUND RAISED BY THE REVENUE IS REJECTED. 10. THE NEXT GROUND IN ITA NO.560 & 561/MDS/20 13 IS WITH REGARD TO DELETION OF ADDITION TOWARDS LICENSE FEE OF ` 11.04 LAKHS AS REVENUE EXPENDITURE. 11. WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SOUTHERN ROADWAYS LTD. (304 ITR 84), WHEREIN IT WAS HELD THAT THE EXPENSES INCURRED BY THE ASSESSEE FOR INSTALLATION OF SOFTWARE PACKAGES WHICH REVOLVES ON THE MODERN - - ITA 558 TO 561/13 ETC. 32 COMMUNICATION TECHNOLOGY ENABLES THE ASSESSEE TO CA RRY ITS OPERATION EFFECTIVELY, EFFICIENTLY, SMOOTHLY AND PR OFITABLY AND IT DOES NOT WORK ON A STAND ALONE BASIS. SUCH SOFTWAR E ENHANCES THE EFFICIENCY OF THE OPERATION BEING AN AID IN THE MANUFACTURING PROCESS RATHER THAN THE TOOL ITSELF. THEREFORE, TH E PAYMENT FOR SUCH APPLICATION SOFTWARE, THOUGH THERE IS AN ENDUR ING BENEFIT, DOES NOT RESULT IN ACQUISITION OF ANY CAPITAL ASSET AND IT MERELY ENHANCES PRODUCTIVITY OR EFFICIENCY OF THE ASSESSEE . HENCE, IT IS TO BE TREATED AS REVENUE EXPENDITURE. ACCORDINGLY , ITA NOS.560 & 561/MDS/13 ARE PARTLY ALLOWED. CO NOS.85 TO 88/MDS/2013: 12. THE FIRST COMMON GROUND IN ALL THE CROSS OBJECTIONS IS IN SUPPORTIVE OF THE ORDER OF THE CIT(APPEALS) REGARDI NG THE DELETION OF ADDITION MADE U/S.80IA OF THE ACT. 13. SINCE, WE HAVE ADJUDICATED THIS GROUND IN REVENUES APPEAL, THIS GROUND OF CROSS OBJECTION IS ALLOWED F OR STATISTICAL PURPOSES. 14. THE NEXT GROUND IN CO NO.86/MDS/2013 IS WIT H REGARD TO RESTRICTION OF DISALLOWANCE U/S.14A OF THE ACT. - - ITA 558 TO 561/13 ETC. 33 15. THIS ISSUE IS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE IN ITA NO.559/MDS/13, WHILE ADJUDICATING THE REVENUES APPEAL BY HOLDING THAT THE DISALLOWANCE SUSTAINED BY THE CIT( APPEALS) AT 2% IS JUSTIFIED AND PLACED RELIANCE ON THE JUDGMEN T OF MADRAS HIGH COURT IN THE CASE OF SIMPSON & CO. LTD. VS. DC IT IN TC(A) NO.2621 OF 2006 DATED 15.10.12. ACCORDINGLY, THIS GROUND OF CROSS OBJECTION IS ALSO DISMISSED AS INFRUCTUOUS IN CO NO.86/MDS/2013. 16. THE NEXT GROUND RAISED BY THE ASSESSEE IN CO NO.87/MDS/13 IS AS FOLLOWS: THE OBJECTIONS RAISED BY THE DEPARTMENT IN GROUNDS 3 TO 3.4 IS NOT CORRECT AS THE MERITS HAS ALREADY BEEN C ONSIDERED IN THE ORDER OF THE CIT(A) WITH REFERENCE TO 14A DISALLOWANCE. 17. THIS GROUND RAISED BY THE ASSESSEE IS NOT E MANATING FROM THE ORDER OF THE CIT(APPEALS) AS WELL AS FROM THE G ROUNDS RAISED BY THE REVENUE. ACCORDINGLY, THIS GROUND OF CROSS OBJECTION IS DISMISSED. 18. THE NEXT GROUND RAISED BY THE ASSESSEE IN C O NOS.87 & - - ITA 558 TO 561/13 ETC. 34 88/MDS/13 IS THAT THE CIT(APPEALS) ERRED I N UPHOLDING DISALLOWANCE U/S.14A READ WITH RULE 8D UNDER SECTIO N 115JB. SEC.115JB DOES NOT SPEAK ABOUT RULE 8D. REFER J.K. INVESTORS (BOMBAY) LTD. V. ACIT(ITAT MUMBAI) J BENCH IN ITA NO.7858/MUM/2011, AS THERE IS NO SATISFACTORY NOTE FOR DISALLOWANCE. 19. THIS ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF SHRIRAM CAPITAL LTD. IN ITA NOS. 512 & 513/MDS/15 DATED 26.6.2015, WHEREIN IT WAS HELD THAT THE PROVI SIONS OF SEC.14A HAS NO APPLICATION WHILE DETERMINING THE BO OK PROFIT U/S.115JB OF THE ACT. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE. 20. THE ASSESSEE HAS RAISED THE FOLLOWING GROU ND IN CO NO.88/MDS/13 : THE OBJECTIONS RAISED BY THE DEPARTMENT IN GROUNDS 3 TO 3.4 IS NOT CORRECT AS THE MERITS HAS ALREADY BEE N CONSIDERED IN THE ORDER OF THE CIT(A) FOR DISALLOWA NCE OF REVENUE EXPENDITURE IN RESPECT OF MICROSOFT LICE NCE FEE 21. THIS GROUND IS DECIDED IN FAVOUR OF ASSESS EE WHILE DECIDING THE REVENUES APPEALS IN ITA NOS. 560 & 56 1/MDS/13. - - ITA 558 TO 561/13 ETC. 35 BEING SO, THE CROSS OBJECTION IS DISMISSED AS INFRU CTUOUS. 22. IN THE RESULT, THE APPEALS OF THE REVENUE I N ITA NO.558/MDS/13 IS ALLOWED FOR STATISTICAL PURPOSE AN D ITA NOS. 559, 560 & 561/MDS/13 ARE PARTLY ALLOWED FOR STATIS TICAL PURPOSES AND THE CROSS OBJECTIONS OF THE ASSESSEE IN CO NOS. 85 & 86/MDS/2013 ARE DISMISSED AND CO NOS. 87 & 88/MDS/1 3 ARE PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 20 TH OF MAY, 2016 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 20 TH MAY, 2016. MPO* 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.