The Commissioner of Income Tax -IV V. M/s. Meghadoot Drillers

ITTA/295/2011

AI Insights

The case revolves around the interpretation of whether the activity of digging borewells falls under the category of 'Works Contract' as defined in Section 44AD of the Income Tax Act, 1961. The Income Tax Appellate Tribunal had previously ruled that it does not, based on the understanding that such activities are not directly connected with civil construction, as they can occur independently of any construction activities. The Revenue challenged this interpretation, arguing that the Circular from the Central Board of Direct Taxes broadly includes such activities under 'Works Contract'. However, the High Court found the Tribunal's interpretation reasonable and dismissed the appeal.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 737326 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 22-11-2011
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Assessment years; Civil construction; Income Tax; Works contract; Borewell Digging
• Section: 44AD

Judgement Text

"THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKUR AND THE HON’BLE SHRI JUSTICE SANJAY KUMAR I.T.T.A. No. 295 OF 2011 DATED:22-11-2011 Between: Commissioner of Income Tax, Hyderabad. … Appellant And M/s. Meghadoot Drillers, Nagarkurnool, (PO), Mahabubnagar District. … Respondent THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKUR AND THE HON’BLE SHRI JUSTICE SANJAY KUMAR I.T.T.A. No.295 OF 2011 JUDGMENT: (per the Hon’ble the Chief Justice Shri Madan B. Lokur) 1. The Revenue is aggrieved by an order dated 30.5.2008 passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘B’ SMC, Hyderabad in I.T.A. No. 154/Hyd/2008 for the assessment years 1997-98 to 2000-2001. 2. The only question that came up for consideration before the Tribunal was whether the digging of bore wells amounts to a Works Contract within the meaning of Section 44AD of the Income Tax Act, 1961 (for short ‘the Act’). 3. During the relevant period, in respect of an assessee engaged in the business of civil construction or supply of labour for civil construction, a sum equivalent to 8 per cent of the gross receipts paid or payable, to the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”. 4. In the explanation to that Section, civil construction was defined to include the construction or repair of any building, bridge, dam or other structure or of any canal or road and the execution of any works contract. ITTA No. 295 of 2011 page 1 of 3 5. The Central Board of Direct Taxes had issued Circular No. 684, dated 10.6.1994 in which it was stated that Works Contract will include works related to electrical fittings, plumbing job, landscaping etc. 6. Relying upon the aforesaid Circular, the Tribunal came to the conclusion that the works mentioned in the Circular are directly connected with civil construction and therefore they are to be considered for the application of Section 44AD of the Act. In so far as the digging of borewells is concerned, that would not fall within any of the aforesaid categories included in the Circular and therefore, could not be defined as a Works Contract. 7. The Tribunal also was of the opinion that digging of borewell is not all connected with civil construction since any borewell may be dug even after civil construction is completed and that this is altogether a different job, not connected with the civil construction. On the above basis, the Tribunal decided in favour of the assessee and came to the conclusion that the digging of borewell would not fall within the category of Works Contract within the meaning of Section 44AD of the Act. 8. Feeling aggrieved, the Revenue is before us and it is submitted by learned counsel that the Circular issued by the Board is broad enough to include within it digging of borewells as a part of Works Contract. 9. We are not inclined to accept the contention of learned ITTA No. 295 of 2011 page 2 of 3 counsel for the Revenue. In our opinion, the interpretation given by the Tribunal to the Circular is quite reasonable and in any event, even if the interpretation may not be strictly in conformity with the Circular, no substantial question of law arises in this regard. 10. Under these circumstances, we are not inclined to entertain this appeal. The appeal is accordingly dismissed. MADAN B. LOKUR, CJ SANJAY KUMAR, J 22-11-2011 pnb ITTA No. 295 of 2011 page 3 of 3 "