Appeal Details
Counselvise Citation
[2012] 140 COUNSELVISE.COM (IT) 66208 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 10 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-08-2012
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
04-07-2011
Assessment Year
2007-2008
Appeal Filed On
08-10-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1292/HYD/2010 A.Y. 2007-08 M/S. MAYTAS-NCC (JV) HYDERABAD PAN: AALFM2137K VS. ASST. CIT CIRCLE-6(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI S. RAMA RAO RESPONDENT BY: SRI K. GNANA PRAKASH DATE OF HEARING: 26.06.2012 DATE OF PRONOUNCEMENT: 27.08.2012 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-IV, HYDERABAD DATED 10.8.2010 FOR A.Y. 2 007-08. 2. THE ASSESSEE IS IN APPEAL BEFORE US WITH REGARD TO DISALLOWANCE OF DEDUCTION U/S. 80IA OF INCOME-TAX A CT, 1961. THE ASSESSEE CLAIMED DEDUCTION ON VARIOUS PROJECTS EXEC UTED BY THE ASSESSEE CLAIMING THE WORK UNDERTAKEN BY IT AS EXEC UTION OF IRRIGATION PROJECTS WHICH CONSTITUTE THE BUSINESS O F DEVELOPMENT OF INFRASTRUCTURE FACILITIES AS PER DEFINITION OF INFR ASTRUCTURE FACILITY GIVEN IN SECTION 80IA(4) OF THE ACT. THE SAME WAS DENIED BY THE LOWER AUTHORITIES. AGAINST THIS ACTION OF THE LOWE R AUTHORITIES, THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESS EE DREW OUR ATTENTION TO THE PROVISIONS OF SECTION 80 IA (4 ) OF THE ACT. HE READ BEFORE US THE SAID SECTION 80 IA(4)(I) OF THE ACT AND SUBMITTED THAT BY THE FINANCE ACT, 2001 WITH EFFECT FROM 1-4- 2002 WHICH WAS AMENDED AS FOLLOWS:- (I) DEVELOPING OR (II) OPERATING AND MAINTAINING O R (III) DEVELOPING, OPERATING AND MAINTAINING A MEW ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 2 INFRASTRUCTURE SUBSTITUTED (I) DEVELOPING (MAINTA INING OR OPERATING OR (III) DEVELOPING, MAINTAINING AND OPERATING. 4. HE ALSO DREW OUR ATTENTION TO THE CIRCULAR NO. 14 O F 2001 WHICH READS AS UNDER: CIRCULAR NO. 14/2001 EXPLANATORY NOTES FINANCE ACT, 2001 - EXPLANATORY NOTES ON PROVISIONS RELATING TO DIRECT TAXES DEFINITION OF 'INFRASTRUCTURE FACILITY' IN SECTION 10(23G) TO BE SAME AS THAT IN SECTION BO-IA(4) 17.1 UNDER THE EXISTING PROVISIONS CONTAINED IN CLA USE (23G) OF SECTION 10, ANY INCOME OF AN INFRASTRUCTUR E CAPITAL FUND OR AN INFRASTRUCTURE CAPITAL COMPANY B Y WAY OF INTEREST, DIVIDEND (OTHER THAN DIVIDENDS REF ERRED TO IN SECTION 115-0) AND LONG TERM CAPITAL GAINS FR OM INVESTMENT MADE BY WAY OF EQUITY OR LONG-TERM FINAN CE IN AN APPROVED ENTERPRISE WHOLLY ENGAGED IN THE BUSINESS OF (I) DEVELOPING, (II) MAINTAINING AND OPERATING, OR (III) DEVELOPING, MAINTAINING AND OPE RATING AN INFRASTRUCTURE FACILITY SHALL NOT BE INCLUDED IN COMPUTING THE TOTAL INCOME. 17.2 FISCAL INCENTIVES FOR DEVELOPMENT OF INFRASTRU CTURE HAVE BEEN PROVIDED IN THE INCOME-TAX ACT AS A PACKA GE, SO THAT TAX HOLIDAY IS ALLOWED UNDER SECTION 80-IA TO THE INFRASTRUCTURE ENTERPRISE AND INCOME FROM LONG-TERM INVESTMENT MADE BY THE INFRASTRUCTURE CAPITAL COMPANY OR INFRASTRUCTURE CAPITAL FUND IN THE APPROVED ENTERPRISE IS EXEMPT UNDER SECTION 10(23G) . THUS, WHENEVER A DECISION IS TAKEN TO REVISE THE SC OPE OF FISCAL INCENTIVES TO INFRASTRUCTURE BY AMENDING SECTION 80-1A, NECESSARY AMENDMENTS ARE REQUIRED TO BE MADE IN SECTIONS 10(23G) AS WELL. 17.3 THUS, AS A MEASURE OF RATIONALISATION, FINANCE ACT, 2001, HAS AMENDED SECTION 10(23G) SO AS TO PROVIDE THAT INCOME BY WAY OF INTEREST, DIVIDEND OR LONG TERM CAPITAL GAINS OF AN INFRASTRUCTURE CAPITAL FUN D OR AN INFRASTRUCTURE CAPITAL COMPANY, FROM INVESTMENTS IN ANY ENTERPRISE OR UNDERTAKING WHOLLY ENGAGED IN THE BUSINESS REFERRED TO IN SUB-SECTION (4) OF SECTION 80-IA OR IN A HOUSING PROJECT REFERRED TO IN SUB-SECTION (10) OF SECTION 80-18 WILL NOT BE INCLUDED IN COMPUTING THE TOTAL INCOME. THIS WILL REMOVE THE REQUIREMENT OF ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 3 CONSEQUENTIAL AMENDMENT IN SECTION 10(23G) AS A RESULT OF ANY FUTURE CHANGE IN SECTION BO-IA REGARD ING INFRASTRUCTURE. 17.4 THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL , 2002, AND WILL, ACCORDINGLY, APPLY IN RELATION TO T HE ASSESSMENT YEAR 2002-03 AND SUBSEQUENT ASSESSMENT YEARS. [SECTION 5(G)] TAX HOLIDAY FOR INFRASTRUCTURE RATIONALISED 47.1 UNDER THE PROVISIONS OF SECTION BO-IA, ROADS, HIGHWAYS, BRIDGES, AIRPORTS, PORTS AND RAIL SYSTEMS ARE REGARDED AS INFRASTRUCTURE FACILITY AND THE ENTERPR ISES ENGAGED IN DEVELOPING OR OPERATING AND MAINTAINING OR DEVELOPING, OPERATING AND MAINTAINING SUCH INFRASTRUCTURE ARE ENTITLED TO A TAX HOLIDAY FOR FI VE YEARS AND A DEDUCTION OF 30% OF PROFITS FOR THE NEXT FIVE YEARS. THIS BENEFIT IS APPLICABLE IN RESPECT OF SUC H SPECIFIED INFRASTRUCTURAL FACILITY BECOMING OPERATI ONAL ON OR AFTER 1ST APRIL, 1995. THE ENTERPRISE CLAIMI NG SUCH BENEFIT HAS TO ENTER INTO AN AGREEMENT WITH TH E CENTRAL OR STATE GOVERNMENT OR A LOCAL AUTHORITY OR ANY OTHER STATUTORY AUTHORITY, BY WHICH THE ENTERPRISE WHICH DEVELOPS SUCH FACILITY, HAS TO TRANSFER SUCH FACILI TY TO THE GOVERNMENT OR PUBLIC AUTHORITY AFTER THE STIPUL ATED PERIOD. IN OTHER WORDS, THE REQUIRED CONDITION FOR AVAILING OF THIS BENEFIT IS THAT TRANSFER UNDER BOT (BUILD, OWN, TRANSFER) OR BOOT (BUILD, OWN, OPERATE AND TRANSFER) SCHEMES HAS TO BE MET. 47.2 INVESTMENTS IN INFRASTRUCTURE HAVE TO COMPETE WITH INVESTMENT IN OTHER SECTORS TO BE ATTRACTIVE. THERE IS, IN PARTICULAR, A NEED TO ENCOURAGE INVESTMENT IN THE A REA OF SURFACE TRANSPORT, WATER SUPPLY, WATER TREATMENT SYSTEM, IRRIGATION PROJECT, SANITATION AND SEWERAGE SYSTEM OR SOLID WASTE MANAGEMENT SYSTEMS. WITH THIS IN VIEW, SECTION BO-IA HAS BEEN AMENDED TO RELAX TH E EXISTING TWO TIER BENEFIT TO PROVIDE A TEN YEAR TAX HOLIDAY. KEEPING IN VIEW, THEIR CAPITAL INTENSIVE N ATURE, THE HIGHER ALLOWANCES OF DEPRECIATION IN THE INITIA L YEARS TO SUCH ENTERPRISES AND THE NEED FOR IMPROVED CASH FLOWS, AN INFRASTRUCTURE FACILITY IN THE NATUR E OF A ROAD (INCLUDING A TOLL ROAD), BRIDGE, RAIL SYSTEM, HIGHWAY PROJECT, WATER SUPPLY PROJECT, SANITATION, SEWERAGE AND SOLID WASTE MANAGEMENT SYSTEM SHALL BE ALLOWED A TEN YEAR TAX HOLIDAY IN PLACE OF A TWO -TIER ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 4 TAX HOLIDAY. SUCH AN ENTERPRISE MAY AVAIL OF THE TA X HOLIDAY CONSECUTIVELY FOR ANY TEN YEARS OUT OF TWEN TY YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAK ING BEGINS OPERATING THE INFRASTRUCTURE FACILITY. 47.3 IN THE CASE OF OTHER INFRASTRUCTURE, NAMELY, F OR AIRPORT, PORT, INLAND PORT AND INLAND WATERWAYS, SE CTION BO-IA HAS BEEN FURTHER AMENDED TO RELAX THE EXISTIN G TWO TIER FISCAL INCENTIVE. INSTEAD, AN IDENTICAL TE N YEAR TAX HOLIDAY MAY BE AVAILED OF IN A BLOCK OF INITIAL FIFTEEN YEARS. 47.4 THE CONDITION THAT SUCH INFRASTRUCTURE FACILIT Y SHALL BE TRANSFERRED TO THE CENTRAL GOVERNMENT, STATE GOVERNMENT OR LOCAL AUTHORITY HAS ALSO BEEN REMOVED . HOWEVER, THE AGREEMENT WITH SUCH AUTHORITIES FOR CREATION OF SUCH INFRASTRUCTURE WILL HAVE TO BE ENT ERED INTO. 47.5 UNDER SUB-SECTION (B) OF SECTION BO-IA, WHERE ANY GOODS ARE TRANSFERRED FOR A CONSIDERATION TO ANY OT HER BUSINESS OF THE ASSESSEE, THE CONSIDERATION SHOULD CORRESPOND TO THE MARKET VALUE OF SUCH GOODS. AS IN CERTAIN CASES, THE TRANSFER MAY RELATE TO SERVICES, THE PROVISION HAS BEEN ACCORDINGLY AMENDED TO CLARIFY T HAT THIS WOULD INCLUDE SERVICES. SUCH SERVICES MAY INCL UDE MARKETABLE SERVICES OF OPERATION AND MAINTENANCE (O&M) IN CASE OF INFRASTRUCTURE FACILITIES, MARKETA BLE SERVICES FOR DISTRIBUTION OF ELECTRICITY AND SPECIF IED MARKETABLE SERVICES IN TELECOM. INSTEAD OF THE WORD S 'INDUSTRIAL UNDERTAKING' OCCURRING IN SECTION 8O-IA , THE WORD 'UNDERTAKING' HAS ALSO BEEN SUBSTITUTED IN THE PROVISION FOR THE SAME REASON. 47.6 THESE AMENDMENTS WILL TAKE EFFECT FROM THE 1ST DAY OF APRIL, 2002, AND WILL, APPLY IN RELATION TO THE ASSESSMENT YEARS 2002-03 AND SUBSEQUENT YEARS. ON READING THE ABOVE SECTION AND THE NOTES ON CLAUS ES / CBDT CIRCULAR IT IS VERY CLEAR ~ THAT WITH EFFECT FROM 1-4-2002 ' THE ENTERPRISES ENGAGED IN DEVELOPING OR OPERATING AND MAINTAINING OR DEVELOPING, OPERATING AND MAINTAINING SUCH INFRASTRUCTURE ARE ENTITLED TO A T AX HOLIDAY. EARLIER TO THE ABOVE SUBSTITUTION THERE WA S NO 'OR' BETWEEN THE WORD M DEVELOPING, (II) MAINTAININ G AND OPERATING OR (III) DEVELOPING, MAINTAINING AND OPER ATING, ON ENTERING INTO AN AGREEMENT WITH GOVERNMENT WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 801A. ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 5 5. FROM THE ABOVE, HE SUBMITTED THAT THE ENTERPRISES E NGAGED IN DEVELOPING OR OPERATING AND MAINTAINING OR DEVEL OPING, OPERATING AND MAINTAINING SUCH INFRASTRUCTURE ARE E NTITLED TO A TAX HOLIDAY. EARLIER TO THE ABOVE SUBSTITUTION THERE WA S NO WORD 'OR' BETWEEN THE WORD DEVELOPING, (II) MAINTAINING AND O PERATING OR (III) DEVELOPING, MAINTAINING AND OPERATING, ON ENTERING INTO AN AGREEMENT WITH GOVERNMENT WOULD BE ELIGIBLE FOR DED UCTION UNDER SECTION 801A OF THE ACT. HE DREW OUR ATTENTION TO T HE DECISION OF THE MUMBAI ITAT IN THE CASE OF ACIT VS. BHARAT UDYO G LIMITED (118 ITD 336) WHEREIN HELD THAT:- THE AMENDMENT IN SECTION 80-IA WAS BROUGHT ABOUT B Y THE FINANCE ACT, 1995, WITH EFFECT FROM 1-4-1996. B Y VIRTUE OF THIS AMENDMENT, THE DEDUCTION UNDER SECTI ON 80-IA WAS PROVIDED TO ANY ENTERPRISE CARRYING ON TH E BUSINESS OF DEVELOPING, MAINTAINING AND OPERATING T HE INFRASTRUCTURE FACILITY. THUS, TO BE ELIGIBLE FOR T HIS DEDUCTION, AN ASSESSEE WAS REQUIRED TO CARRY OUT AL L THE THREE ACTIVITIES, I.E., (I) TO DEVELOP, (II) TO MAINTAIN AND (III) TO OPERATE. AFTER THE AMENDMENT EFFECTED IN SECTION 80-IA BY THE FINANCE ACT, 1999 WITH EFFECT FROM 1-4-2000, THE DEDUCTION UNDER SECTION 80-IA(4) BECA ME AVAILABLE TO ANY ENTERPRISE CARRYING ON THE BUSINES S OF (I) DEVELOPING OR (II) MAINTAINING AND OPERATING, O R (III) DEVELOPING, MAINTAINING AND OPERATING ANY INFRASTRUCTURE FACILITY. [PARA 7] SUB-CLAUSE (C) OF SECTION 80-IA(4) IS APPLICABLE TO AN ENTERPRISE WHICH IS ENGAGED IN OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILITY ON OR AFTE R 1-4- 1995. IT IS NOT APPLICABLE TO THE CASE OF AN ENTERP RISE, WHICH IS ENGAGED IN MERE DEVELOPMENT OF INFRASTRUCTURE FACILITY AND NOT ITS OPERATION AND MAINTENANCE. THEREFORE, THE QUESTION OF OPERATIN G AND MAINTAINING OF INFRASTRUCTURE FACILITY BY SUCH AN ENTERPRISE BEFORE OR AFTER ANY CUT OFF DATE CANNOT ARISE. WHEN THE ACT PROVIDES FOR DEDUCTION UNDER SECTION 8 0- IA(4), UNDISPUTEDLY FOR AN ENTERPRISE, WHICH IS ONL Y DEVELOPING THE INFRASTRUCTURE FACILITY, UNACCOMPA NIED BY OPERATING AND MAINTAINING THEREOF BY SUCH ENTI TY, THERE CANNOT BE ANY QUESTION OF PROVIDING A CONDITI ON FOR SUCH AN ENTERPRISE TO START OPERATING AND ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 6 MAINTAINING THE INFRASTRUCTURE FACILITY ON OR AFTER 1-4- 1995. SINCE THE ASSESSEE WAS ONLY A DEVELOPER OF TH E INFRASTRUCTURE PROJECT AND IT WAS NOT MAINTAINING A ND OPERATING THE INFRASTRUCTURE FACILITY, SUB-CLAUSE ( C) OF SUB-SECTION (4) OF SECTION 80-IA WAS NOT APPLICABLE . [PARA 8] FURTHER, FROM THE ASSESSMENT YEAR 2000-01, DEDUCTIO N UNDER SECTION 80-IA(4) IS AVAILABLE IF THE ASSESSEE CARRIES ON THE BUSINESS OF ANY ONE OF THE ABOVE- MENTIONED THREE TYPES OF ACTIVITIES. WHEN AN ASSESS EE IS ONLY DEVELOPING AN INFRASTRUCTURE FACILITY/PROJE CT AND IS NOT MAINTAINING NOR OPERATING IT, OBVIOUSLY SUCH AN ASSESSEE WOULD BE PAID FOR THE COST INCURRED BY IT; OTHERWISE, HOW WOULD 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 W OULD BE PAID BY THE GOVERNMENT. 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 OPE RATING THE INFRASTRUCTURE FACILITY. WHEN THE LEGISLATURE H AS PROVIDED THAT THE INCOME OF THE DEVELOPER OF THE INFRASTRUCTURE PROJECT WOULD BE ELIGIBLE FOR DEDUCT ION, IT PRESUPPOSES THAT THERE CAN BE INCOME TO DEVELOPER, I.E., TO THE PERSON WHO IS CARRYING ON THE ACTIVITY OF ON LY DEVELOPING INFRASTRUCTURE FACILITY. OBVIOUS, AS IT IS, A DEVELOPER WOULD HAVE INCOME ONLY IF HE IS PAID FOR DEVELOPMENT OF INFRASTRUCTURAL FACILITY, FOR THE SI MPLE REASON THAT HE IS NOT HAVING THE RIGHT/AUTHORIZATIO N TO OPERATE THE INFRASTRUCTURE FACILITY AND TO COLLECT TOLL THERE FROM AND HAS NO OTHER SOURCE OF RECOUPMENT OF HIS C OST OF DEVELOPMENT. THEREFORE, THE BUSINESS ACTIVITY OF THE NATURE OF BUILD AND TRANSFER ALSO FALLS WITHIN ELIG IBLE CONSTRUCTION ACTIVITY, THAT IS, ACTIVITY ELIGIBLE F OR DEDUCTION UNDER SECTION 80-IA INASMUCH AS MERE DEVELOPMENT AS SUCH AND UN-ASSOCIATED/UN- ACCOMPANIED WITH OPERATE AND MAINTENANCE ALSO FALLS WITHIN SUCH BUSINESS ACTIVITY AS IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA. THEREFORE, MERELY BECAUSE THE ASSESSEE WAS PAID BY THE GOVERNMENT, FO R DEVELOPMENT WORK, IT COULD NOT BE DENIED DEDUCTION UNDER SECTION 80-IA (4). A PERSON, WHO ENTERS INTO A CONTRACT WITH ANOTHER PERSON, WOULD BE A CONTRACTOR NO DOUBT; AND THE ASSESSEE HAVING ENTERED INTO AN AGREEMENT WITH THE GOVERNMENT AGENCIES FOR DEVELOPMENT OF THE INFRASTRUCTURE PROJECTS, WAS ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 7 OBVIOUSLY A CONTRACTOR; BUT THAT DID NOT DEROGATE T HE ASSESSEE FROM BEING A DEVELOPER AS WELL. THE TERM CONTRACTOR IS NOT ESSENTIALLY CONTRADICTORY TO TH E TERM DEVELOPER. ON THE OTHER HAND, RATHER SECTION 80-I A(4) ITSELF PROVIDES THAT THE ASSESSEE SHOULD DEVELOP TH E INFRASTRUCTURE FACILITY AS PER THE AGREEMENT WITH T HE 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 WAS REFERRED TO A S CONTRACTOR OR BECAUSE SOME BASIC SPECIFICATIONS WER E LAID DOWN, IT DID NOT DETRACT THE ASSESSEE FROM THE POSITION OF BEING A DEVELOPER; NOR WOULD IT DEBAR T HE ASSESSEE FROM CLAIMING DEDUCTION UNDER SECTION 80- IA(4).[PARA 9] THEREFORE, THE ASSESSEE, WHO WAS ONLY ENGAGED IN DEVELOPING THE INFRASTRUCTURAL FACILITY, I.E., ROAD , AND NOT ENGAGED IN THE OPERATING AND MAINTAINING THE SAID FACILITY, WAS ENTITLED TO THE BENEFITS OF THE DEDUC TION UNDER SECTION 80-IA(4). THE PROVISIONS OF SUB-CLAUS E (C) OF CLAUSE (I) OF SECTION 80-IA (4) WERE INAPPLICABL E TO THE INSTANT CASE. HENCE, THE ORDER OF THE COMMISSIONER (APPEALS) WAS CORRECT. [PARA 13] 6. FURTHER, HE DREW OUR ATTENTION TO THE DECISION OF B OMBAY HIGH COURT IN THE CASE OF CIT VS. GLENMARK PHARMACE UTICALS LIMITED (319 ITR 199), THE RELEVANT EXTRACT OF THE HEAD NOTE READS AS UNDER:- BY THE FINANCE ACT OF 2009, WHICH SUBSTITUTED THE PROVISIONS OF SECTION 194C, THE EXPRESSION 'WORK' H AS NOW BEEN DEFINED IN CLAUSE (IV ) OF THE SUBSTITUTED EXPLANATION. CLAUSES (A) TO (D ) ARE THE SAME AS CL AUSE (A ) TO (D) OF THE ERSTWHILE EXPLANATION III. HOWEV ER, THE EXPLANATION (E ) HAS NOW BEEN INSERTED. [PARA 26] WHAT HAS WEIGHED IN THE INTRODUCTION OF CLAUSE (E ) OF THE EXPLANATION WAS ONGOING LITIGATION ON THE QUEST ION AS TO WHETHER TDS WAS DEDUCTIBLE ON OUTSOURCING CONTRACTS. CLAUSE (E) WAS INTRODUCED 'TO BRING CLAR ITY ON THIS ISSUE' OR, IN OTHER WORDS, TO REMOVE THE AMBIG UITY ON THE QUESTION. CLAUSE (E) AS INTRODUCED CONTAINS A POSITIVE AFFIRMATION THAT THE EXPRESSION 'WORK' WIL L COVER MANUFACTURING OR SUPPLYING A PRODUCT, ACCORDING TO THE ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 8 REQUIREMENT OR SPECIFICATION OF A CUSTOMER, BY USIN G MATERIAL PURCHASED FROM SUCH A CUSTOMER. CLAUSE (E) HAS PLACED THE POSITION BEYOND DOUBT BY INCORPORATI NG LANGUAGE TO THE EFFECT THAT THE EXPRESSION 'WORK' S HALL NOT INCLUDE MANUFACTURE OR SUPPLY OF A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL WHICH IS PURCHASED FROM A PERSON OTHER THAN SUCH CUSTOMER. IN OTHER WORDS, TH E CIRCUMSTANCE THAT THE REQUIREMENTS OR SPECIFICATION S ARE PROVIDED BY THE PURCHASER IS NOT REGARDED BY THE STATUTE AS BEING DISPOSITIVE OF THE QUESTION AS TO WHETHER A CONTRACT CONSTITUTES A CONTRACT OF WORK O R SALE. WHAT IS OF SIGNIFICANCE IS WHETHER MATERIAL H AS BEEN PURCHASED FROM THE CUSTOMER, WHO ORDERS THE PRODUCT. WHEN THE MATERIAL IS PURCHASED FROM THE CUSTOMER WHO ORDERS THE PRODUCTS, IT CONSTITUTES A CONTRACT OF WORK, WHILE, ON THE OTHER HAND, WHERE T HE MANUFACTURER HAS SOURCED THE MATERIAL FROM A PERSON OTHER THAN THE CUSTOMER, IT WOULD CONSTITUTE A SALE . WHAT IS SIGNIFICANT IS THAT IN USING THE WORDS WHIC H CLAUSE (E) USES IN THE EXPLANATION, THE PARLIAMENT HAS TAKEN NOTE OF THE POSITION THAT WAS REFLECTED IN TH E CIRCULARS ISSUED BY THE CBDT SINCE 29-5-1972. THE JUDGMENT OF THE SUPREME COURT IN ASSOCIATED CEMENT CO. LTD. V. CIT [1993J 201 ITR 435/ 67 TAXMAN 346 GAVE AN EXPANSIVE DEFINITION TO THE EXPRESSION 'WOR K' AND REJECTED THE ATTEMPT OF THE ASSESSEE IN THAT CA SE TO RESTRICT THE EXPRESSION 'WORK' TO WORKS CONTRACT. B OTH BEFORE AND AFTER THE JUDGMENT OF THE SUPREME COURT, THE EXPANSIVE DEFINITION OF THE EXPRESSION 'WORK' CO-EX ISTED WITH THE REVENUE'S UNDERSTANDING THAT A CONTRACT FO R SALE WOULD NOT BE WITHIN THE PURVIEW OF SECTION 194 C. THE REVENUE ALWAYS UNDERSTOOD SECTION 194C TO MEAN THAT, THOUGH A PRODUCT OR THING IS MANUFACTURED TO THE SPECIFICATIONS OF A CUSTOMER, THE AGREEMENT WOULD CONSTITUTE A CONTRACT FOR SALE, IF (I ) THE PROPERT Y IN THE ARTICLE OR THING PASSES TO THE CUSTOMER UPON THE DELIVERY; AND (II) THE MATERIAL THAT WAS REQUIRED W AS NOT SOURCED FROM THE CUSTOMER/ PURCHASER, BUT WAS INDEPENDENTLY OBTAINED BY THE MANUFACTURER FROM A PERSON OTHER THAN THE CUSTOMER. THE RATIONALE FOR T HIS WAS THAT WHERE A CUSTOMER PROVIDES THE MATERIAL, WH AT THE MANUFACTURER DOES IS TO CONVERT THE MATERIAL IN TO A PRODUCT DESIRED BY THE CUSTOMER AND OWNERSHIP OF TH E MATERIAL BEING THAT OF THE CUSTOMER, THE CONTRACT ESSENTIALLY INVOLVES WORK OF LABOUR AND NOT OF A SA LE. THE PARLIAMENT RECOGNIZED THE DISTINCTION WHICH HEL D THE FIELD, BOTH ADMINISTRATIVELY IN THE FORM OF CIR CULARS ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 9 OF THE CBDT AND JUDICIALLY IN THE JUDGMENTS OF THE SEVERAL HIGH COURTS. CONSEQUENTLY, THE PRINCIPLES UNDERLYING THE APPLICABILITY OF SECTION 194C AS CONSTRUED ADMINISTRATIVELY AND JUDICIALLY IN DECIDE D CASES, FIND STATUTORY RECOGNITION IN THE EXPLANATIO N. THE EXPLANATION, THEREFORE, AS THE MEMORANDUM EXPLAININ G THE CLAUSES OF THE FINANCE BILL, 2009 STATES, WAS I N THE NATURE OF A CLARIFICATION. WHERE AN EXPLANATORY PROVISION IS BROUGHT TO REMOVE AN AMBIGUITY OR TO C LEAR A DOUBT, IT IS REFLECTIVE OF THE LAW AS IT HAS ALWA YS STOOD IN THE PAST, WHEREAS, IN THE INSTANT CASE, AN EXPLANATION IS INTRODUCED STATUTORILY TO ADOPT AN UNDERSTANDING OF THE LAW-BOTH IN THE FORM OF THE CIRCULARS OF THE CBDT AND IN JUDICIAL DECISION. THE PARLIAMENT MUST BE REGARDED AS HAVING INTENDED TO AFFIRM THAT INTENT. IN THE INSTANT CASE, THE INTENT HAS HELD THE FIELD FOR OVER THREE DECADES. [PARA 28) THE FACT THAT THE SPECIFICATIONS WERE PROVIDED BY T HE ASSESSEE TO THE MANUFACTURER/SUPPLIER WOULD MAKE NO DIFFERENCE TO THE LEGAL POSITION. THE AGREEMENT IN THE INSTANT CASE WAS ON A PRINCIPAL-TO-PRINCIPAL BASIS. THE MANUFACTURER HAD HIS OWN ESTABLISHMENT WHERE THE PRODUCT WAS MANUFACTURED. THE MATERIAL REQUIRED IN THE MANUFACTURE OF THE ARTICLE OR THING WAS OBTAINE D BY THE MANUFACTURER FROM A PERSON OTHER THAN THE ASSESSEE. THE PROPERTY IN THE ARTICLES PASSED UPON THE DELIVERY OF THE PRODUCT MANUFACTURED. UNTIL DELIVER Y, THE ASSESSEE HAD NO TITLE TO THE GOODS. THE GOODS HAD A N IDENTIFIABLE EXISTENCE PRIOR TO DELIVERY. [PARA 31) THE REASON THAT A SPECIFICATION OR REQUIREMENT IS ENUNCIATED BY THE ASSESSEE CONSTITUTES A MATTER OF BUSINESS EXPEDIENCY. A PURCHASER WHO DESIRES TO GET THE PRODUCT, WHICH HE INTENDS TO SELL UNDER HIS BRA ND NAME, OR TRADEMARK, MANUFACTURED FROM A THIRD PARTY WOULD BE INTERESTED IN ENSURING THE QUALITY OF THE PRODUCT. THE TRADEMARK HAS ASSOCIATED WITH IT AN ASSURANCE OF THE QUALITY OF THE GOODS WHICH ARE MARKETED AND ARE TRACEABLE TO THE ORIGIN OF THE GOO DS. ASSOCIATED WITH THE TRADEMARK IS THE GOODWILL AND REPUTATION WHICH IS ASSOCIATED WITH THE MARK. THIS IS PARTICULARLY SO IN THE CASE OF A PHARMACEUTICAL PRO DUCT WHERE THE ULTIMATE CONSUMER IS LEGITIMATELY ENTITLE D TO ENSURE THAT HER HEALTH IS NOT PREJUDICED BY THE CONSUMPTION OF A PRODUCT NOT MEETING PRESCRIBED STANDARDS. THE OWNER OF A MARK, THEREFORE, INTRODUC ES SPECIFICATIONS TO ENSURE THAT THE PRODUCT MEETS THE ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 10 STANDARDS JUSTIFIABLY ASSOCIATED WITH THE REPUTATIO N OF THE MARK. THE SPECIFICATION ENSURES THE OBSERVANCE OF STANDARDS. SIMILARLY, A CLAUSE RELATING TO EXCLUSIV ITY IS NOT INCONSISTENT WITH A TRANSACTION OF SALE. HERE A GAIN MUCH DEPENDS UPON THE NATURE OF THE PRODUCT. RESTRICTIVE COVENANTS OF THIS KIND ARE INTENDED TO PROTECT THE INTELLECTUAL AND OTHER PROPERTY RIGHTS OF A PARTY WHICH MARKETS ITS GOODS BY REQUIRING A MANUFACTURER TO OBSERVE NORMS OF SPECIFICATIONS AND EXCLUSIVITY. THE LAW IS, THEREFORE, CONSISTENT WITH THE TRANSACT ION BEING REGARDED AS A TRANSACTION OF SALE, PROVIDED T HAT THE REQUIREMENTS OF A CONTRACT OF SALE ARE MET. THE Y WERE NET IN THE INSTANT CASE. THE CONTRACT ENTERED INTO BY THE ASSESSEE WAS NOT A CONTRACT FOR CARRYING ON ANY WORK WITHIN THE MEANING OF SECTION 194C. [PARA 32] 7. FURTHER, HE SUBMITTED THAT IN THE CASE OF THE ASSES SEE AGREEMENTS ENTERED WITH THE GOVERNMENT AUTHORITIES AND IT IS NOT RELATED A PART OF THE WORK AND WORK WAS UNDERTAKEN ON TURNKEY BASIS. THE SITE HAS BEEN HANDED OVER TO THE ASSESS EE FOR CARRYING ON THE WORK AS PER THE REQUIREMENTS OF THE GOVERNME NT AND ALSO OPERATING SYSTEM FOR A CERTAIN PERIOD MENTIONED THE REIN AND COMPLETED THE PROJECT AT THE END OF THE ABOVE SAID PERIOD AND AS SUCH THE ASSESSEE IS A DEVELOPER AND ALSO OPERATING THE SYSTEM FOR A CERTAIN PERIOD. ACCORDING TO THE COUNSEL FOR ASS ESSEE, IT HAS BEEN DEVELOPING THE INFRASTRUCTURE PROJECT RELATING TO WATER SUPPLYING SCHEME BY DESIGNING, ERECTION, TESTING AN D COMMISSIONING OF PROJECT ON TURNKEY BASIS. BROADLY THE TECHNICAL NATURE OF THE WORK UNDERTAKEN BY THE ASSESSEE IS AS FOLLOWS: I) DESIGNING AND MANUFACTURING OF PIPES: THE ASSES SEE SPECIALLY DESIGNED AND MANUFACTURED PRE-STRESSED C ONCRETE PIPES AND IT HAS BEEN DONE IN ACCORDANCE WITH SPECI FIC REQUIREMENTS. II) DESIGN AND MANUFACTURING OF PIPE FITTINGS OR S PECIALS. ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 11 III) TRANSPORTING, LAYING AND JOINING OF PIPES CON FORMING WITH SPECIFICATIONS. THE ACTIVITY INVOLVES EARTH WORK EX CAVATION, TRENCH EXCAVATION, HARD ROOK BLASTING, LOWERING AND LAYING OF PIPES, FITTING OF SPECIALS, FITTING OF RUBBER RINGS AT THE JOINTS, TESTING PIPE JOINTS AND PIPELINE. III) CONSTRUCTION OF PUMP HOUSE, PROVIDING AND FIT TING OF PUMP SETS. SUPPLY AND FITTING OF SUBMERSIBLE PUMPS, CENT RIFUGAL PUMPS, TURBINE PUMPS, SUBMERSIBLE MOTORS, MOTORS FO R TURBINES AND CENTRIFUGAL PUMP SETS, TRANSFORMER, GE NERATOR, PANEL BOARDS ETC. IV) DESIGN AND CONSTRUCTION OF RAW WATER PUMPING S TATIONS, WATER TREATMENT PLANT, TREATED WATER PUMPING STATIO N, TREATED WATER TRANSMISSION MAIN, CONSTRUCTION OF SU RGE TANK AND PIPE CONNECTION ARRANGEMENT, BOOSTER STATIONS, INTERNAL TRANSMISSION MAIN AND FEEDER MAINS, CONSTRUCTION OF SERVICE RESERVOIRS AND MASTER RESERVOIRS. V) MOBILISATION OF LABOURERS, [PREPARATION OF PLAN S TECHNICAL EXPERTISE, SUPERVISION, CO-ORDINATION AND CONTROL, SET UP MANUFACTURING FACILITY NEARBY THE PROJECT SITE TO MANUFACTURE PROJECT SPECIFIC PIPES AS PER THE REQUI RED SPECIFICATIONS WHICH REQUIRES WELL EQUIPPED MACHINE S, EMPLOYMENT OF SKILLED LABOUR AND TECHNICAL EXPERTS, EQUIPMENT TO TRANSPORT HEAVY PIPES TO LAYING SITES, EQUIPMENT TO LIFT AND LOWERING OF PIPES AT THE EXCA VATED SITES, PROVIDE QUALIFIED AND EXPERIENCE ENGINEER FOR EACH PROJECT SITE ETC TO BRING IN TO EXISTENCE AN INFRAS TRUCTURE FACILITY. MANUFACTURING OF PIPES TO SITES, EXCAV ATION UNDER VARIOUS CONDITIONS OF SOIL AND ROCK, LOWERING AND L AYING OF PIPES, JOINTING AND TESTING OF PIPE JOINT AND PIPE LINE AS A WHOLE, CONSTRUCTION OF PUMP HOUSES, STORAGE TANK/CO LLECTION ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 12 WELL, TREATMENT PLANTS, DISTRIBUTION PLANTS ETC AN D ALL THESE TOGETHER DEVELOP IN TO A NEW INFRASTRUCTURE WATER S UPPLY FACILITY. 8. ACCORDINGLY, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. HE SUBMITTED THAT THE ASS ESSING OFFICER IGNORED THE FACT THAT IN ALL THE CONTRACTS HANDED OVER TO THE ASSESSEE FOR DEVELOPMENT OF THE INFRASTRUCTURE FACI LITY. IN FEW CASES, AFTER OPERATION FOR CERTAIN PERIOD, HAD TO R E-HAND OVER BACK THE ENTIRE SITE WITH THE INFRASTRUCTURE FACILITY DE VELOPED TO THE OWNER. HE DREW OUR ATTENTION TO THE COPIES OF AGRE EMENT ENTERED WITH THE STATE GOVERNMENT. HE SUBMITTED THAT THE AB OVE OBSERVATION OF THE ASSESSING OFFICER IS FACTUALLY I NCORRECT AS IT CAN BE SEEN FROM THE AGREEMENTS AND CONTRACTS THE SITE IF HANDED OVER BACK TO THE EMPLOYER AFTER DEVELOPMENT OF THE ENTIR E FACILITY AND IN FEW CASES AFTER OPERATION AND MAINTENANCE FOR A PER IOD SPECIFIED THEREIN. ACCORDING TO THE AUTHORISED REPRESENTATI VE OF THE ASSESSEE, THE ASSESSEE HAS UNDERTAKEN THE CONSTRUCT ION OF THE ENTIRE INFRASTRUCTURE FACILITY AS ENVISAGED BY THE GOVERNMENT IN THE AGREEMENTS. THE ASSESSEE HAS ENTERED INTO AGR EEMENT WITH GOVERNMENT THEREBY SATISFYING THE CONDITIONS ENVISA GED IN SECTION 80IA OF THE ACT. HE DREW OUR ATTENTION TO A SAMPLE OF THE AGREEMENT IN WHICH THE NATURE OF WORK IS 'SURVEYING , DESIGN, SUPPLY, INSTALLATION, TESTING AND COMMISSIONING LIF T IRRIGATION ON TURNKEY BASIS. 9. HE DREW OUR ATTENTION TO ALL THE VARIOUS AGREEMENTS WHICH WERE CARRIED OUT BY THE ASSESSEE IN THESE ASSESSMEN T YEARS. HE SUBMITTED THAT OUT OF THE ABOVE AGREEMENTS THE CONT RACTS WHICH ARE UNDERTAKEN AS TURNKEY PROJECTS ARE ENTITLED FOR DEDUCTION U/S 80IA. ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 13 10. ACCORDING TO THE AUTHORISED REPRESENTATIVE, ALL THE CONTRACTS OF THE SITE WHICH WAS HANDED OVER BY THE GOVERNMENT BODIES TO THE ASSESSEE FOR DEVELOPMENT OF THE INFRASTRUCTURE FACILITY AND ON COMPLETION, IN FEW CASES AFTER OPERATION FOR CERTAI N PERIOD, THE ENTIRE SITE WITH THE INFRASTRUCTURE FACILITY DEVELO PED TO THE OWNER. HE SUBMITTED THAT THE LOWER AUTHORITIES WRONGLY REL IED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF PATEL ENGINEER ING LIMITED (94 ITD 411) WHEREIN THE TRIBUNAL HAS NOT CONSIDERED TH E RETROSPECTIVE AMENDMENT BY FINANCE ACT, 2007. ACCO RDING TO THE AUTHORISED REPRESENTATIVE, AFTER AMENDMENT TO SECTI ON 80IA(4)(I)(B) WHICH READS AS IT HAS ENTERED INTO AN AGREEMENT W ITH THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORI TY OR ANY OTHER STATUTORY BODY FOR (I) DEVELOPING (II) OPERAT ING AND MAINTAINING OR (III) DEVELOPING, OPERATING AND MAIN TAINING A NEW INFRASTRUCTURE FACILITY; THE WORD IT MEANS UNDERT AKING AND DEVELOP IS INDEPENDENT OF OPERATING AND MAINTAINI NG OR DEVELOPING, OPERATING AND MAINTAINING. FOR THIS PU RPOSE, HE RELIED ON THE ORDER OF THE ITAT, MUMBAI LARGER THIRD MEMB ER BENCH IN THE CASE OF B.T. PATIL & SONS BELGAUM CONSTRUCTION PVT. LTD. (126 TTJ (MUMBAI) 577; 35 SOT 171, 32 DTR 1. HE SUBMITT ED THAT THE ASSESSEE ENGAGED IN DEVELOPMENT OF INFRASTRUCTURE F ACILITY BY WAY OF CONSTRUCTING IRRIGATION CANALS AND IRRIGATION SY STEMS. IN THIS CONNECTION, HE DREW OUR ATTENTION TO THE ORDER OF T HE TRIBUNAL IN THE CASE OF B.T. PATIL & SONS CITED SUPRA SPECIFICA LLY TO PARAS 36 TO 41 WHICH READS AS FOLLOWS:- 36. HERE IT IS IMPORTANT TO MENTION THAT THE LEGIS LATURE INSERTED THE WORD 'OR' BETWEEN (I) AND (II) WITH EF FECT FROM 1-4-2002, WHICH IS APPLICABLE TO ASSESSMENT YE AR 2002-03. SO WITH EFFECT FROM THE ASSESSMENT YEAR 2002-03, NOT ONLY THE ENTERPRISE (I) DEVELOPING, (I I) OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILI TY SHALL BE ENTITLED TO DEDUCTION, BUT ALSO THE ENTERP RISE WHICH IS ONLY (I) DEVELOPING OR (II) OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILITY. FROM SUCH YEAR ONWARDS THE ENTERPRISE WHICH ONLY DEVELOPS THE ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 14 INFRASTRUCTURE FACILITY AND THEREAFTER TRANSFERS IT TO SOMEONE ELSE FOR OPERATING AND MAINTAINING ON BEHAL F OF TRANSFEREE SHALL ALSO BE COVERED FOR THE PURPOSE S OF GRANTING BENEFIT. THE DIFFERENCE IN THE SITUATION B ETWEEN ASSESSMENT YEAR 2002-03 ONWARDS AND PRIOR TWO YEARS IS THAT WHEREAS THE OPERATION AND MAINTENANCE OF TH E INFRASTRUCTURE FACILITY ON BEHALF OF THE ENTERPRISE DEVELOPING IS NECESSARY IN THE FORMER PERIOD, BUT I N THE LATER PERIOD, THE OPERATION AND MAINTENANCE SHALL B E ON BEHALF OF THE TRANSFEREE ENTERPRISE ITSELF. SINCE I N THE YEARS IN QUESTION, THE TRANSFER OF THE ENTERPRISE F OR OPERATION AND MAINTENANCE HAS NECESSARILY TO BE ON BEHALF OF THE ENTERPRISE DEVELOPING THE INFRASTRUCT URE FACILITY, AND FOR THE TIME BEING ASSUMING WITHOUT ADMITTING THE CONTENTION OF THE ID. AR THAT THE ASS ESSEE IS DEVELOPER OF INFRASTRUCTURE FACILITY, IT DOES NO T SATISFY THE OTHER CONDITION OF ITS TRANSFER FOR OPERATING A ND MAINTAINING ON ITS BEHALF FOR THE OBVIOUS REASON TH AT THERE IS NO TRANSFER AT ALL OF ANY INFRASTRUCTURE F ACILITY FROM THE ASSESSEE, MUCH LESS FOR OPERATING AND MAINTAINING ON ITS BEHALF 37. BE THAT AS IT MAY IT REMAINS TO BE EXAMINED AS TO WHETHER THE ASSESSEE CAN BE CALLED AS 'DEVELOPER' WITHIN THE MEANING OF SECTION 80IA(4). THE LEARNED COUNSEL SUBMITTED THAT THE WORK DONE BY THE ASSESSEE MADE IT A DEVELOPER ENTIT LED TO DEDUCTION. SHRI VIJAY MEHTA, THE LEARNED COUNSEL FOR THE INTERVENER CONTENDED THAT THE 'WORKS CONTRACT' HAS NOT BEEN DEFINED IN THE CONTEXT OF SECTION 8O-IA AN D, HENCE, IN THE ABSENCE OF ASSIGNMENT OF ANY DEFINITI ON BY THE STATUTE, ITS MEANING SHOULD BE UNDERSTOOD IN THE COMMON PARLANCE. ACCORDING TO HIM, A DEVELOPER IS A PERSON WHO DEVELOPS THE FACILITY AND SUCH PERSON MAYOR MAY NOT BE A CONTRACTOR. ON THE OTHER HAND, A CONTRACTOR IS STATED TO BE A LEGAL TERM WHOSE RIGHT S AND DUTIES VIS-A-VIS CONTRACT ARE DETERMINED BY WAY OF LEGAL DOCUMENT CALLED THE CONTRACT. HE CITED AN EXAMPLE T HAT IF A CONTRACT TO CONSTRUCT A HIGHWAY FROM MUMBAI TO DELHI IS GIVEN TO A PERSON HE IS CONTRACTOR AS WELL AS DEVELOPER. AS AGAINST THAT A PERSON WHO HAS BEEN GIVEN A CONTRACT FOR PAINTING OR BEAUTIFICATION IS MERELY A CONTRACTOR BUT NOT A DEVELOPER. ACCORDING TO HIM, WHILE DEVELOPING A PROJECT, A DEVELOPER HAS TO MAKE TECHNOLOGICAL INPUTS, ENTREPRENEURIAL INPUTS, ETC. BESIDES, THERE IS FINANCIAL INVOLVEMENT IN TERMS OF DEPLOYMENT OF MAN AND MACHINE AS WELL AS BANK GUARANTEES. HE WENT ON TO EXPLAIN THAT THE DEVELOPE R UNDERTAKES THE RISK AND REWARD OF THE PROJECT AND I S ACCOUNTABLE TO THE AUTHORITIES FOR THE DEVELOPMENT WORK ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 15 CARRIED OUT BY HIM. IN HIS OPINION, THE ASSESSEE IN THE PRESENT CASE CANNOT BE CHARACTERIZED ANYTHING OTHER THAN A DEVELOPER. 38. IN THE CIRCUMSTANCE, THE LEAR NED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE CONSTRUCTION IS A MINOR PART OF THE DEVELOPMENT. ACCORDING TO HIM, DEVELOPMENT INCLUDES THE WORKS TO BE DONE RELATING TO THE PLANNING, DESIGNING, ENGINEERI NG AND FINANCING, ETC., OF THE PROJECT. HE RELIED ON T HE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F HINDUSTAN AERONAUTICS LTD. V. STATE OF ORISSA [1984 ) 55 STC 327 IN WHICH IT HAS BEEN OBSERVED THAT IN A CONTRACT FOR WORK, THE PERSON PRODUCING HAS NO PROP ERTY IN THE THING PRODUCED AS A WHOLE, EVEN IF PART OR W HOLE OF THE MATERIAL USED BY HIM MAY HAVE BEEN HIS PROPERTY EARLIER. HE ALSO RELIED ON ANOTHER JUDGMEN T OF THE HON'BLE SUPREME COURT IN THE CASE OF TAMIL NADU V. ANANDAM VISHWANATHAN [1989) 1 SCC 613 IN WHICH IT WAS HELD THAT THE NATURE OF CONTRACT CAN BE FOUND O NLY WHEN THE INTENTION OF PARTIES IS FOUND OUT. THE FAC T THAT IN THE EXECUTION OF THE WORKS CONTRACT SOME MATERIA L ARE USED AND THE PROPERTY IN THE GOODS SO USED PASSES T O THE OTHER PARTY, THE CONTRACTOR UNDERTAKING THE WOR K WILL NOT NECESSARILY BE DEEMED, ON THAT ACCOUNT, TO SELL THE MATERIAL. IT WAS, THEREFORE, ARGUED THAT THE DEVELOPER IS A PERSON WHO BRINGS IN ADDITIONAL RESOURCES BY WAY OF INVESTMENT AND TECHNICAL EXPERT ISE FOR DEVELOPING THE INFRASTRUCTURE FACILITIES. SINCE THE ASSESSEE HAD SIMPLY DONE A PART OF WORK OF CIVIL CONSTRUCTION RELATING TO THE INFRASTRUCTURE FACILIT Y, HE STATED THAT IT IS NOT ELIGIBLE FOR DEDUCTION. 39. WE FIND IT AS AN UNDISPUTED POSITION THAT THE W ORDS 'DEVELOPER' AND 'CONTRACTOR' HAVE NOT BEEN DEFINED IN OR FOR THE PURPOSES OF SECTION 80-1A. THE PRIMARY QUES TION WHICH ARISES IS THAT HOW TO FIND OUT THE MEANING OF A WORD OR AN EXPRESSION WHICH IS NOT DEFINED IN THE A CT. IT IS A SETTLED LEGAL POSITION THAT ORDINARILY THE MEA NING OR DEFINITION OF A WORD USED IN ONE STATUTE CANNOT PER SE BE IMPORTED INTO ANOTHER AS HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA V. R.C. JAIN [1981]2 SCC 308. THEREFORE, THE MEANING O F THE WORDS 'DEVELOPER' AND 'CONTRACTOR', AS PUT FORT H BEFORE US BY THE RIVAL PARTIES FROM OTHER LEGISLATI ONS, BE THEY STATE OR CENTRAL ENACTMENTS, CANNOT BE AUTOMATICALLY APPLIED IN THE PRESENT CONTEXT. IN OR DER TO ASCERTAIN THE MEANING OF A WORD NOT DEFINED IN THE ACT, A USEFUL REFERENCE CAN BE MADE TO THE GENERAL CLAUS ES ACT, 1897. IF A PARTICULAR WORD IS NOT DEFINED IN T HE ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 16 RELEVANT STATUTE BUT HAS BEEN DEFINED IN THE GENERA L CLAUSES ACT, SUCH DEFINITION THROWS AMPLE LIGHT FOR GUIDANCE AND ADOPTION IN THE FORMER ENACTMENT. ACCORDING TO SECTION 3 OF THE GENERAL CLAUSES ACT, THE DEFINITIONS GIVEN IN THIS ACT SHALL HAVE APPLICABIL ITY IN ALL THE CENTRAL ACTS UNLESS A CONTRARY DEFINITION I S PROVIDED OF A PARTICULAR WORD OR EXPRESSION. ON SCANNING SECTION 3 OF THE GENERAL CLAUSES ACT, WE OBSERVE THAT NEITHER THE WORD 'CONTRACTOR' NOR 'DEV ELOPER' HAS BEEN DEFINED THEREIN. THUS, THE GENERAL CLAUSES ACT IS ALSO OF NO ASSISTANCE IN THIS REGARD. GOING AHEAD, WHEN THESE WORDS ARE NEITHER DEFINED IN THE INCOME- TAX ACT, 1961 NOR IN THE GENERAL CLAUSES ACT, THE NEXT QUESTION IS THAT WHERE FROM TO FIND THE MEANING OF SUCH WORDS. THERE IS NO NEED TO WANDER HERE AND THERE IN SEARCH OF ANSWER WHICH HAS BEEN APTLY GIVEN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ABDULGAFAR A. NADIADWALA V. ASSTT. CIT [2004] 267 I TR 4881 (BOM.) WHEREIN THE HON'BLE HIGH COURT WAS LOOKING INTO THE MEANING OF THE WORDS 'GOODS' AND 'MERCHANDISE', WHICH ARE NOT DEFINED UNDER SECTION 80HHC IN THE CONTEXT OF INCOME-TAX ACT, 1961. THE HON'BLE HIGH COURT HELD THAT : 'IT IS WELL-SETTLED THAT IN THE ABSENCE OF THERE BEING ANYTHING CONTRARY TO THE CONTEXT, THE LANGUAGE OF A STATUTE SHOULD BE INTERP RETED ACCORDING TO THE PLAIN DICTIONARY MEANING OF THE TE RMS USED THEREIN'. SIMILAR VIEW HAS BEEN EXPRESSED BY T HE HON'BLE SUPREME COURT IN THE CASE OF CWT V. OFFICER -IN- CHARGE (COURT OF WARDS) [1976]105 ITR 133 IN WHICH IT WAS HELD THAT THE ORDINARY DICTIONARY MEANING OF A WORD CANNOT BE DISREGARDED. 40. COMING BACK TO OUR POINT OF ASCERTAINING THE MEANING OF THE WORDS 'CONTRACTOR' AS WELL AS 'DEVEL OPER', WHICH HAVE NEITHER BEEN DEFINED IN THE ACT NOR IN T HE GENERAL CLAUSES ACT, WE FALL UPON OXFORD ADVANCED LEARNER'S DICTIONARY TO FIND OUT THEIR MEANING. ACCORDING TO THIS DICTIONARY, . 'DEVELOPER' IS A PE RSON OR COMPANY THAT DESIGNS AND CREATES NEW PRODUCTS, WHEREAS 'CONTRACTOR' IS A PERSON OR A COMPANY THAT HAS A CONTRACT TO DO WORK OR PROVIDES SERVICES OR GOODS TO ANOTHER. THE NEW SHORTER OXFORD DICTIONARY DEFINES THE WORD 'CONTRACTOR' AS : PERSON WHO ENTERS INTO A CONTRACT OR AGREEMENT. NOW CHIEFLY SPEC. A PERSON O R FIRM THAT UNDERTAKES WORK BY CONTRACT, ESP. FOR BUI LDING TO SPECIFIED PLANS'. IN THE LIGHT OF THE MEANING AS CRIBED TO THESE WORDS BY THE DICTIONARIES, IT IS OBSERVED THAT THE DEVELOPER IS A PERSON WHO DESIGNS AND CREATES N EW ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 17 PRODUCTS. HE IS THE ONE WHO CONCEIVES THE PROJECT. HE MAY EXECUTE THE ENTIRE PROJECT HIMSELF OR ASSIGN SO ME PARTS OF IT TO OTHERS. ON THE CONTRARY, THE CONTRAC TOR IS THE ONE WHO IS ASSIGNED A PARTICULAR JOB TO BE ACCOMPLISHED ON THE BEHALF OF THE DEVELOPER. HIS DU TY IS TO TRANSLATE SUCH DESIGN INTO REALITY. THERE MAY, I N CERTAIN CIRCUMSTANCES, BE OVERLAPPING IN THE WORK O F DEVELOPER AND CONTRACTOR, BUT THE LINE OF DEMARCATI ON BETWEEN THE TWO IS THICK AND UNBREACHABLE. WHEN THE PERSON ACTING AS DEVELOPER, WHO DESIGNS THE PROJECT , ALSO EXECUTES THE CONSTRUCTION WORK, HE WORKS IN TH E CAPACITY OF CONTRACTOR TOO. BUT WHEN HE ASSIGNS THE JOB OF CONSTRUCTION TO SOMEONE ELSE, HE REMAINS THE DEVELOPER SIMPLICITER, WHEREAS THE PERSON TO WHOM T HE JOB OF CONSTRUCTION IS ASSIGNED, BECOMES THE CONTRA CTOR. THE ROLE OF DEVELOPER IS MUCH LARGER THAN THAT OF T HE CONTRACTOR. IT IS NO DOUBT TRUE THAT IN CERTAIN CIRCUMSTANCES, A DEVELOPER MAY ALSO DO THE WORK OF A CONTRACTOR BUT A MERE CONTRACTOR PER SE CAN NEVER B E CALLED AS A DEVELOPER, WHO UNDERTAKES TO DO WORK ACCORDING TO THE PRE-DECIDED PLAN. ` 41. FURTHER IT IS RELEVANT TO NOTE THAT THE WORD 'DEVELOPING' USED IN SUB-SECTION (4) IS WITH REFERE NCE TO 'INFRASTRUCTURE FACILITY'. WHEN WE FURTHER PERUSE T HE MEANING OF THE WORD 'INFRASTRUCTURE FACILITY' AS PE R EXPLANATION, IT IS FOUND TO HAVE BEEN DEFINED EXHAUSTIVELY BY REFERRING TO A ROAD PROJECT, AIRPOR T, PORT, ETC., A HIGHWAY PROJECT, A WATER SUPPLY PROJECT AND IRRIGATION PROJECT, ETC. THEREFORE, THE USE OF WORD 'DEVELOPING' IN JUXTAPOSITION TO INFRASTRUCTURE FAC ILITY INDICATES THAT WHAT IS ELIGIBLE FOR DEDUCTION UNDER THIS SUB-SECTION IS THE PROFITS AND GAINS DERIVED FROM T HE DEVELOPMENT OF INFRASTRUCTURE FACILITY AND NOT SOME THING DE HORS IT. SO IN ORDER TO BE ELIGIBLE FOR DEDUCTIO N THE DEVELOPMENT SHOULD BE THAT OF THE INFRASTRUCTURE FA CILITY AS A WHOLE AND NOT A PARTICULAR PART OF IT, AS HAS BEEN CONTENDED BY THE ID. AR. IT MAY BE POSSIBLE THAT SO ME PART OF DEVELOPMENT WORK IS ASSIGNED BY THE DEVELOP ER TO SOME CONTRACTOR FOR DOING IT ON HIS BEHALF. THAT WILL NOT PUT THE DOER OF SUCH WORK INTO THE SHOES OF A DEVELOPER. 11. FURTHER, HE RELIED ON THE JUDGMENT OF BOMBAY HIGH C OURT IN THE CASE OF ABG HEAVY INDUSTRIES LIMITED 322 ITR 32 3 (BOM) WHEREIN HELD THAT: ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 18 SECTION 80-IA OF THE INCOME-TAX ACT, 1961, WAS INTRODUCED TO PROVIDE AN IMPETUS TO THE GROWTH OF INFRASTRUCTURE IN THE NATION. A SOUND INFRASTRUCTUR E IS A SINE QUA NON FOR ECONOMIC DEVELOPMENT. ABSENCE OF INFRASTRUCTURE POSES SIGNIFICANT BARRIERS TO GROWTH AND DEVELOPMENT. A MODEL WHICH RELIED EXCLUSIVELY ON TH E PROVISION OF BASIC INFRASTRUCTURE BY THE STATE WAS FOUND TO BE DEFICIENT. SECTION 80-LA WAS AN INSTRUMENT OF LEGISLATIVE POLICY, CONCEIVED WITH A VIEW TO PROVID E AN IMPETUS TO PRIVATE SECTOR PARTICIPATION IN INFRASTR UCTURAL PROJECTS. CONTEMPORANEOUSLY, WITH THE PROVISIONS WH ICH WERE MADE BY PARLIAMENT IN SECTION 80-IA OF THE ACT , EXPLANATORY CIRCULARS ISSUED IN AN ADMINISTRATIVE CAPACITY BY THE CENTRAL BOARD OF DIRECT TAXES HELD THE FIELD. THESE CIRCULARS GAVE EXPRESSION TO THE SCOPE AND AMBIT OF THE CONCESSION WAS PROVIDED BY SECTION 80- LA. THE EVOLUTION OF SECTION 80-LA WOULD SHOW A PROGRESSIVE LIBERALISATION OF THE LEGISLATIVE SCHEM E, IN THE INTERESTS OF AIDING THE GROWTH OF INFRASTRUCTUR E. THE ADMINISTRATIVE CIRCULARS ISSUED BY THE CENTRAL BOAR D OF DIRECT TAXES IN IMPLEMENTATION OF SECTION 80-IA SIMILARLY LIBERALISED THE SCHEME, CONSISTENT WITH T HE ACT. THE EXPRESSION DEVELOPMENT' HAS NOT BEEN ARTIFICIA LLY DEFINED FOR THE PURPOSES OF SECTION 80-LA OF THE AC T AND MUST, THEREFORE, RECEIVE ITS ORDINARY AND NATURAL MEANING. AN ASSESSEE DOES NOT HAVE TO DEVELOP THE ENTIRE PORT IN ORDER TO QUALIFY FOR A DEDUCTION UND ER SECTION 80-LA. PARLIAMENT DID NOT LEGISLATE A CONDI TION IMPOSSIBLE OF COMPLIANCE. A PORT IS DEFINED TO BE A N INFRASTRUCTURE FACILITY AND THE CIRCULAR OF THE BOA RD CLARIFIED THAT A STRUCTURE FOR LOADING, UNLOADING, STORAGE, ETC., AT A PORT WOULD QUALIFY FOR DEDUCTION UNDER S ECTION 80 IA. PARLIAMENT AMENDED THE PROVISION OF SECTION 80 IA OF THE ACT SO AS TO CLARIFY THAT IN ORDER TO AVA IL OF A DEDUCTION, THE ASSESSEE (I) DEVELOP,(II) OPERATE AN D MAINTAIN OR (II) DEVELOP, OPERATE AND MAINTAIN TH E FACILITY. THE CONDITION AS REGARDS DEVELOPMENT, OPERATION AND MAINTENANCE OF AN INFRASTRUCTURE FACI LITY 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, LEA SE AND EVENTUALLY TRANSFER THE FACILITY. THIS WAS PERH APS A PRACTICAL REALISATION OF THE FACT THAT A DEVELOPER MAY NOT POSSESS THE WHEREWITHAL, EXPERTISE OR RESOURCES TO OPERATE A FACILITY, ONCE CONSTRUCTED. PARLIAMENT ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 19 EVENTUALLY STEPPED IN TO CLARIFY THAT IT WAS NOT INVARIABLY NECESSARY FOR A DEVELOPER TO OPERATE AND MAINTAIN THE FACILITY. IN BAJAJ TEMPO V. CIT [1992] 196 ITR 188, THE SUPREME COURT EMPHASIZED THAT A PROVISION IN A TAXING STATUTE GRANTING INCENTIVES F OR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALLY. IN THE PRESENT CASE, THE ADMINISTRATIVE CIRCULARS ISSUED CENTRAL BOARD OF DI RECT TAXES PROCEEDED ON THAT BASIS BY ADOPTING A LIBERAL VIEW OF THE SCOPE AND AMBIT OF THE PROVISIONS OF SE CTION 80-IA OF THE ACT. PARLIAMENTARY INTERVENTION ENDORS ED THE ADMINISTRATIVE PRACTICE. AFTER SECTION 80-IA WA S AMENDED BY THE FINANCE ACT OF 2001, THE SECTION APPLIES TO AN ENTERPRISE CARRYING ON THE BUSINESS O F (I) DEVELOPING; OR (II) OPERATING; MAINTAINING; OR (III ) DEVELOPING, OPERATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY WHICH FULFILS CERTAIN CONDI TIONS. THOSE CONDITIONS ARE OWNERSHIP OF THE ENTERPRISE BY A COMPANY REGISTERED IN INDIA OR BY A CONSORTIUM (II) AN AGREEMENT WITH THE CENTRAL OR STATE GOVERNMENT, LOC AL AUTHORITY OF STATUTORY BODY; AND (III) THE START OF OPERATION AND MAINTENANCE OF INFRASTRUCTURE FACILIT Y ON OR AFTER APRIL 1, 1995. THE REQUIREMENT THAT THE OPERATION AND MAINTENANCE OF THE INFRASTRUCTURE FAC ILITY SHOULD COMMENCE AFTER APRIL 1, 1995 HAS TO BE HARMONIOUSLY CONSTRUED WITH THE MAIN PROVISION UNDE R WHICH A DEDUCTION IS AVAILABLE TO AN ASSESSEE WHO DEVELOPS; OR 'OPERATES AND MAINTAINS; OR DEVELOPS, OPERATES AND MAINTAINS AN INFRASTRUCTURE FACILITY. UNLESS BOTH THE PROVISIONS ARE HARMONIOUSLY CONSTRU ED, THE OBJECT INTENT UNDERLYING THE AMENDMENT OF THE PROVISION BY THE FINANCE ACT OF 2001 WOULD BE DEFEATED. A HARMONIOUS READING OF THE PROVISION IN ITS ENTIRETY WOULD LEAD TO THE CONCLUSION THAT THE DEDU CTION IS AVAILABLE TO AN ENTERPRISE WHICH (I) DEVELOPS; O R (II) OPERATES AND MAINTAINS; OR (III) DEVELOPS MAINTAINS AND OPERATES THAT INFRASTRUCTURE FACILITY. HOWEVER, THE COMMENCEMENT OF THE OPERATION AND MAINTENANCE OF TH E INFRASTRUCTURE FACILITY SHOULD BE AFTER APRIL 1, 19 95. THE ASSESSEE, IN TERMS OF THE POLICY OF THE GOVERNM ENT OF INDIA TO ENCOURAGE PRIVATE SECTOR PARTICIPATION IN THE DEVELOPMENT OF INFRASTRUCTURE, BID FOR AND WAS AWARDED A CONTRACT FOR LEASING OF CONTAINER HANDLIN G CRANES AT THE JAWAHARLAL NEHRU PORT TRUST (JNPT). I N PURSUANCE OF THE CONTRACT, THE ASSESSEE DEPLOYED RA IL MOUNTED QUAY SIDE CRANES, RAIL MOUNTED GANTRY CRANE S AND RUBBER TIRED GANTRY CRANES AT THE CONTAINER ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 20 HANDLING TERMINAL OF THE JNPT. JNPT HAD A DEDICATE D CONTAINER HANDLING TERMINAL. ACCORDING TO THE ASSES SEE, THE ONLY ACTIVITIES OF THE TERMINAL CONSISTED OF LO ADING, UNLOADING AND STORAGE OF CONTAINERS. UNDER CONTRACT S DATED SEPTEMBER 2, 1994 AND OCTOBER 16, 1995, JNPT ACCEPTED THE BID SUBMITTED BY THE ASSESSEE FOR SUPP LY, INSTALLATION, TESTING, COMMISSIONING AND MAINTENANC E OF THE CRANES. BY THE TERMS OF THE AGREEMENT, JNPT AGR EED TO PAY LEASE CHARGES IN A TOTAL SUM OF RS. 215.50 C RORES OVER A PERIOD OF TEN YEARS. THE CONTRACT ENVISAGED TWO OPTIONS. UNDER THE FIRST OPTION, OPERATION AND MAINTENANCE WAS TO BE CARRIED OUT BY THE ASSESSEE. UNDER THE SECOND OPTION ONLY MAINTENANCE WAS TO BE CARRIED OUT BY THE ASSESSEE. UNDER THE CONTRACTS, J NPT RESERVED THE RIGHT TO EXERCISE THE OPTION TO REQUES T THE ASSESSEE TO CARRY OUT BOTH OPERATION AND MAINTENANC E DURING THE LEASE PERIOD OR TO CARRY OUT ONLY MAINTENANCE WHILE OPERATION WAS DONE BY JNPT. THE CONTRACTS STIPULATED, INTER ALIA, THE SUBMISSION OF A PERFORMANCE GUARANTEE BOND REPRESENTING 10 PER CENT OF THE AVERAGE ANNUAL CONTRACT VALUE COMPUTED WITH REFERENCE BOTH TO MAINTENANCE AND OPERATION. THE ASSESSEE ASSUMED THE RESPONSIBILITY OF MAKING THE EQUIPMENT AVAILABLE FOR OPERATION FOR A MINIMUM NUMBER OF DAYS AS STIPULATED IN THE CONTRACT AND BECAME LIABLE TO PAY LIQUIDATED DAMAGES FOR NON- AVAILABILITY OF THE EQUIPMENT AFTER COMMISSIONING. AFTER THE EXPIRY OF THE LEASE PERIOD OF TEN YEARS, THE AS SESSEE WAS LIABLE TO HAND OVER THE EQUIPMENT TO JNPT FREE OF COST. UNDER THE CONTRACT THE ASSESSEE FURNISHED AN INDEMNITY TO JNPT TOWARDS DAMAGES THAT MAY BE SUSTAINED TO THE EQUIPMENT OR TO ANY PROPERTY OF TH E PORT TRUST OR TO THE LIVES PERSONS OR PROPERTIES OF OTHERS. THE ASSESSEE ASSUMED OTHER CONTRACTUAL OBLIGATIONS INCLUDING AMONGST THEM, THE LIABILITY TO INSURE THE EQUIPMENT, TO INDEMNIFY JNPT TOWARDS THE CLAIMS OF WORKERS' COMPENSATION AND FOR COMPLIANCE WITH LABOU R LEGISLATION. THE ASSESSEE CLAIMED SPECIAL DEDUCTION UNDER SEC. 80-IA. THE ASSESSING OFFICER REJECTED TH E CLAIM BUT THE COMMISSIONER (A)) AND TRIBUNAL ALLOWE D IT. ON APPEAL TO THE HIGH COURT: HELD, DISMISSING THE APPEAL, THAT ON MAY 31, 2004, JNPT ISSUED A CERTIFICATE CONFIRMING THE AWAR D OF CONTRACTS TO THE ASSESSEE ON SEPTEMBER 2, 1994 AND OCTOBER, 16, 1995 FOR SUPPLY, INSTALLATION, TESTING , COMMISSIONING AND MAINTENANCE OF CONTAINER HANDLING EQUIPMENT ON LEASE FOR A PERIOD OF TEN YEARS FOR LO ADING ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 21 AND UNLOADING OF CONTAINERS AT THE PORT AND THAT TH E CRANES THAT WERE TO BE SUPPLIED BY THE ASSESSEE FORMED AN INTEGRAL PART OF THE PORT. JNPT CLARIFIED THAT THE CONTRACTS HAD BEEN EXECUTED UNDER THE BOLT SCHEME AND IN ACCORDANCE WITH ITS DIRECTIONS; THE CRANES WOULD BE TRANSFERRED TO THE PORT TRUST AT NO COST ON THE EXPIRY OF A PERIOD OF TEN YEARS OF THE COMMENCEMENT OF THE CONTRACT. THE OBLIGATIONS WHICH HAD BEEN ASSUMED BY THE ASSESSEE UNDER THE TERMS OF THE CONTRACT WERE OBLIGATIONS INVOLVING THE DEVELOP MENT OF AN INFRASTRUCTURE FACILITY. SECTION 80-IA OF THE ACT ESSENTIALLY CONTEMPLATED A DEDUCTION IN A SITUATION WHERE AN ENTERPRISE CARRIED ON THE BUSINESS OF DEVELOPING, MAINTAINING AND OPERATING AN INFRASTRUC TURE FACILITY. A PORT WAS DEFINED TO BE INCLUDED WITHIN THE PURVIEW OF THE EXPRESSION 'INFRASTRUCTURE FACILITY' . THE OBLIGATIONS WHICH THE ASSESSEE ASSUMED UNDER THE TERMS OF THE CONTRACT WERE NOT MERELY FOR SUPPLY AN D INSTALLATION OF THE CRANES, BUT INVOLVED A CONTINUO US OBLIGATION RIGHT FROM THE SUPPLY OF THE CRANES TO INSTALLATION, TESTING, COMMISSIONING, OPERATION AND MAINTENANCE OF THE CRANES FOR A TERM OF TEN YEARS A FTER WHICH THE CRANES WERE TO VEST IN JNPT FREE OF COST. AN ASSESSEE DID NOT HAVE TO DEVELOP THE ENTIRE PORT IN ORDER TO QUALIFY FOR A DEDUCTION UNDER SECTION 80-I A. THE CONDITION OF A CERTIFICATE FROM THE PORT AUTHORITY WAS FULFILLED AND JNPT CERTIFIED THAT THE FACILITY PROV IDED BY THE ASSESSEE WAS AN INTEGRAL PART OF THE PORT. THE ASSESSEE DEVELOPED THE FACILITY ON A BOLT BASIS UND ER THE CONTRACT WITH JNPT. ON THE FULFILMENT OF THE LE ASE OF TEN YEARS, THERE WAS A VESTING IN THE JNPT FREE OF COST. THE FINDING THAT THE ASSESSEE HAD DEVELOPED THE INFRASTRUCTURE FACILITY AND THAT IT WAS ENGAGED IN OPERATING THE CRANES WAS, THEREFORE, BASED ON THE MATERIAL ON RECORD. THE FACT THAT THE ASSESSEE WAS ALSO MAINTAINING THE CRANES WAS NOT DISPUTED. THE FACILI TY WAS COMMENCED AFTER APRIL 1, 1995. THE ASSESSEE WAS ENTITLED TO THE SPECIAL DEDUCTION UNDER SECTION 80- IA. 12. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANC E ON TWO DECISIONS- MUMBAI HIGH COURT IN THE CASE OF CIT VS. ABG HEAVY INDUSTRIES LIMITED 322 ITR 323 AND ITAT PUNE BENCH IN THE CASE OF LAXMI CIVIL ENGINEERING PVT. LTD., VS. ADDL. CIT KOLHAPUR (UNREPORTED/ITA NO. 766/PN/09 DATED 8-6-2011). IT WAS URGED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THESE DE CISIONS ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 22 SUPPORTED THE PROPOSITION THAT (I) THE ITATS DECI SION IN THE CASE OF B.T. PATIL & SONS, LARGER BENCH (MUMBAI) REPORTE D IN 126 TTJ 577 IS NO LONGER GOOD LAW, AND (II) THE DISTINCTIO N BETWEEN DEVELOPER AND CONTRACTOR IS NO LONGER RELEVANT IN T HE CONTEXT OF CHANGED LAW EXPLAINED BY THE MUMBAI HIGH COURT IN T HE CASE OF ABG HEAVY INDUSTRIES (SUPRA) AND FOLLOWED WITHIN IT S JURISDICTION BY THE PUNE BENCH OF THE ITAT IN THE CASE OF LAXMI CIVIL ENGG. (SUPRA). FURTHER, HE SUBMITTED THAT ORDER OF THE TR IBUNAL RELIED BY THE DEPARTMENTAL REPRESENTATIVE IN ITA NO. 2932/MUM BAI/2010 RELATING TO THE A.Y 2006-07 IN THE CASE OF THE INDI AN HOME PIPE COMPANY HAS NO APPLICATION TO THE FACTS OF ASSESSEE CASE. IN THE CASE BEFORE MUMBAI BENCH, THE ASSESSEE WAS SUPPLYI NG, LAYING OF PIPELINES AND WAS ONLY A WORKS CONTRACT WHICH IS EV IDENT FROM PARA 3 OF THAT ORDER. ON THE CONTRARY THE ASSESSEE IS ENGAGED IN DEVELOPMENT OF WATER SUPPLY PROJECT AS EVIDENT FROM THE TENDER ALLOTTED BY VARIOUS AUTHORITIES, PROJECT HAS BEEN U NDERTAKEN ON TURNKEY BASIS. THE PROJECT ALSO INCLUDES OPERATION AND MAINTENANCE FOR A PERIOD ONE YEAR TO TWO YEAR. AS T HE ASSESSEE IS ENGAGED IN DESIGNING, MANUFACTURING OF PIPES, MAINT ENANCE, OPERATING AND MAINTENANCE OF THE PROJECT AND MORE S O THE ASSESSEE ITSELF INCURRED EXPENDITURE FOR PROCURING MEN AND MATERIALS, MACHINES AND THE INVESTMENT IS BY THE AS SESSEE ITSELF, BEING SO IT CAN NOT BE EQUATED WITH INDIAN HOME PI ES COMPANY. FURTHER, IN THE CASE OF INDIAN HOME PIES COMPANY, T HE TRIBUNAL HAS RECORDED THE FINDING OF FACT THAT THERE IS NO D ISPUTE THAT THE ASSESSEE IS COVERED BY THE EXPLANATION BELOW THE S ECTION 80IA(13) OF THE INCOME TAX ACT. BUT IN THE CASE OF PRESENT A SSESSEE, IT HAS BEEN DISPUTED THE APPLICABILITY OF EXPLANATION TO S ECTION 80IA(13) S THE UNDERTAKEN VARIOUS CONTRACTS ON TURNKEY BASIS A S SUBMITTED IN EARLIER PARAS. 13. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT THE MEANING OF THE WORD DEVELOPER AND THE ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 23 ELIGIBILITY OF THE BUSINESS TO CLAIM DEDUCTION MEAN T FOR DEVELOPMENT OF INFRASTRUCTURAL FACILITIES WITHIN THE MEANING OF SECTION 80IA HAS TO BE SEEN IN THE CONTEXT OF THE G ENESIS AND LEGISLATIVE HISTORY OF THE SECTION AS HELD BY THE S UPREME COURT IN THE CASE OF CIT VS. N.C. BUDDHIRAJA (204 ITR 412,43 3) THE PROVISION AS INTRODUCED BY THE FINANCE ACT, 1991 AS AMENDED BY FINANCE ACT, 1996, FINANCE ACT, 1999, FINANCE ACT, 2001, UP TO FINANCE ACT 2007 AND FINANCE ACT, 2009 AND AS EXPLA INED BY CIRCULAR 794 DATED 9-8-2000 CIRCULAR 779 DATED 14-9 -1999 (240 ITR ST. 32), CIRCULAR 794 DATED 9-8-2000, CIRCULAR 779 DATED 14- 98-1999 (240 ITR ST. 32), CIRCULAR 794 DATED 19-8-2 000, CIRCULAR 14/2001 (252 ITR ST. 98) AND CIRCULAR 3/2008 DATED 12-03-2008 (168 TAXMAN ST. 12,54) BRINGS OUT THE OBJECTIVES OF THE STATUTE AND EXPECTATIONS OF THE LAW-MAKERS IN BRINGING THE ENAC TMENT. THE STATUTORY PROVISIONS AS WOULD BE APPARENT FROM THE CIRCULARS AND EXPLANATORY NOTES REFERRED TO HEREIN-ABOVE SEEK TO INCORPORATE A QUID PRO QUO BETWEEN INTRODUCTION OF INVESTMENT AND ENTREPRENEURIAL RESOURCES FROM THE PRIVATE SECTOR A ND A TAX DEDUCTION FROM THE GOVERNMENT TO ENABLE RECOUPMENT OF EXPENDITURE INCURRED. THE BOT/BOOT MODELS SEEK TO AUGMENT INFRASTRUCTURAL ASSETS IN ADDITION TO GOVERNMENTAL SPENDING AND NOT SIMPLY FEED ON GOVERNMENT EXPENDITURE. THE DED UCTION UNDER SECTION 80IA IS, THEREFORE, AVAILABLE TO THE FORMER , AND NOT TO THE LATTER FORMS OF BUSINESS. THE DEDUCTION CLAIMED U NDER SECTION 80IA OF THE ACT AS PRESCRIBED IN SUB-SECTION (1) IS IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION. ... IN SUB SECTION (2), IT IS STATED THAT THE DEDUCTION IS AVAILABLE F OR THE SPECIFIED NUMBER OF YEARS BRINING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE AN Y INFRASTRUCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATION SERV ICES OR... IT IS CLEAR THEREFORE THAT THE DEDUCTION IS INEXTRICABLY CONNECTED TO THE COMMENCEMENT OF OPERATIONS OF THE INFRASTRUCTURE FA CILITY. IT IS ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 24 IMMEDIATELY APPARENT THAT THE FACILITY HAS TO BE CO NCEIVED OF IN ITS TOTALITY BECAUSE PART OF THE INFRASTRUCTURE FACILIT Y HAS NOT EXISTENCE INDEPENDENT OF THE WHOLE. A CERTAIN NUMBER OF KILO METRES OF A HIGHWAY OR IRRIGATION CANAL HAS NO EXISTENCE BY ITS ELF, AND IS INCAPABLE OF BECOMING OPERATIONAL WITHOUT REFERENCE TO THE REST OF THE PROJECT, OF WHICH IT IS ONLY A PART. IT IS EVID ENT FROM THE ENCLOSURES THAT THE ASSESSEE UNDERTOOK TO EXECUTE THE WORK AS PER AGREED SPECIFICATIONS, AT RATES AGREED UPON, SU BJECT TO MAINTENANCE, WITHIN A PERIOD OF 24 MONTHS OF COMMEN CEMENT. 14. THE PARTICULARS FURNISHED IN THE PAPER BOOK SHOWS THE RATE ANALYSIS, BILL OF QUANTITIES ETC., WHICH MAKES IT CLEAR THAT THE ASSESSEE HAD NO AUTONOMY IN MATTERS OF DESIGN AND S PECIFICATION WHICH COMPLETELY VESTED WITH THE EMPLOYER. THE ONL Y LAWFUL ENTITLEMENT OF THE ASSESSEE WAS TO BE PAID FOR THE MEASUREMENT OF WORK COMPLETED AT RATES AGREED UPON. THE PARTIAL AND SECTIONAL NATURE OF THE PROPOSED WORK IS IMMEDIATELY CLEAR FR OM THIS NOTICE AND IT IS ALSO APPARENT FROM THIS THAT THE SECTION OF THE ROAD PROPOSED FOR IMPROVEMENT HAS NO INDEPENDENT EXISTEN CE CAPABLE OF SATISFYING THE REQUIREMENT OF SECTION 80 IA (2). THEREFORE, THIS PROJECT IS INCAPABLE OF COMMENCEMENT OF OPERATIONS BY ITSELF, OR TO QUALIFY THE LARGER INFRASTRUCTURE FACILITY OF WHICH IT IS A PART. 15. THE DR SUBMITTED THAT THE CONTRACTOR WAS GRANTED MOBILISATION ADVANCE AS WELL AS INTEREST-FREE ADVAN CE FOR MACHINERY PURCHASE, SHOULD BE REQUIRED THEM AND IT WOULD BE READILY APPARENT FROM THE AGREEMENT THAT THERE IS N O ELEMENT OF ENTREPRENEURIAL INITIATIVE OR FINANCIAL PARTICIPATI ON OF THE CONTRACTOR IN THIS KIND OF A PROJECT THE SUCCESSFU L BIDDER MERELY EXECUTES A GOVERNMENT CONTRACT AND GETS PAID FOR IT AT MUTUALLY AGREED RATES AND THE NATURE OF RESPONSIBILITIES ASS UMED UNDER THE OTHER CONTRACTS AS PER AGREEMENTS INCLUDED IN THE P APER BOOK ARE SIMILAR. IT IS FURTHER STATED THAT DURING THE HEARI NG, THE AUTHORISED ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 25 REPRESENTATIVE OF THE ASSESSEE WAS AT PAINS TO EMPH ASISE THAT THE ASSESSEE UNDERTOOK MAINTENANCE WORK AND WAS HENCE I T IS TO BE TREATED AS A DEVELOPER. HOWEVER, IT IS CLEAR FROM THE DOCUMENT AS FURNISHED IN THE PAPER BOOK THAT THE MAINTENANCE FU NCTION WAS ACTUALLY REMEDYING OF DEFECTS FOR A PRESCRIBED PERI OD. NO SEPARATE CHARGES HAVE BEEN COLLECTED AND THIS CANNOT BE SEEN AS A MAINTENANCE FUNCTION. 16. ON THESE FACTS, HAVING REGARD TO THE RESPONSIBILITI ES ASSUMED UNDER THE AGREEMENT, THE ASSESSEE CANNOT BE SEEN AS A DEVELOPER; INSTEAD HE PLAYS THE ROLE OF AN EXECUTOR /CONTRACTOR. BE THAT AS IT MAY, IT WAS URGED BY THE DEPARTMENTAL RE PRESENTATIVE IN THE REPLY THAT THE ISSUE WHETHER THE ASSESSEE WAS A DEVELOPER FOR THE PURPOSES OF SECTION 80IA AFTER THE CHANGES IN L AW W.E.F. 1-4- 2002 IS NOT MATERIAL FOR ADJUDICATION OF THE GROUND S IN THE IMPUGNED APPELLATE ORDERS. THIS IS BECAUSE IN SO F AR AS THE CONTRACTS IN QUESTION ARE IN THE NATURE OF WORKS CO NTRACTS, THE EXPLANATION INSERTED BELOW SECTION 80IA (13) WITH R ETROSPECTIVE EFFECT FROM 1-4-2000 HAS OVER-RIDING INFLUENCE AND DEBARS THE ASSESSEES CLAIM. FURTHER IT IS CONTENDED THAT TH E INTRODUCTION OF THE EXPLANATION BELOW SECTION 80 IA(13) IN 2007 WIT H RETROSPECTIVE EFFECT FROM 1-4-2000 PUTS MATTERS BEYOND DOUBT. TH E LAW ON THE SUBJECT OF APPLICATION OF A RETROSPECTIVE AMENDMENT IS CLEAR FROM THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE C ASE OF AQUARIUS TRAVELS P LTD. VS. ITO (111 ITD 53). SUCH PROVISIO NS SHOULD BE APPLIED IN PENDING PROCEEDINGS, EVEN WHEN THEY HAVE NOT BEEN INVOLVED EARLIER. AS MATTERS STAND, THEREFORE, THE MOST IMPORTANT QUESTION FOR EXAMINATION ON FACTS IS WHETHER THE BU SINESS AGREEMENT IN QUESTION CAN BE TERMED A WORKS CONTRAC T OR NOT. IF THE ANSWER IS IN AFFIRMATIVE, NOTHING ELSE MATTERS BECAUSE THE EXPLANATION TAKES OVER. IF NOT, THE OTHER NUANCES SUCH A DEVELOPMENT/OPERATION ETC., AND OTHER SPECIFIED CON DITIONS BECOME RELEVANT. RELIANCE WAS PLACED IN THIS REGARD ON TH E DECISION OF THE ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 26 MUMBAI HIGH COURT IN THE CASE OF GLENMARK PHARMA (3 24 ITR 199, 207) WHICH DIGESTS THE CASE LAW FOR ASCERTAINM ENT OF WHETHER FACTS OF THE AGREEMENT WOULD AMOUNT TO A CONTRACT FOR WORK OR FOR SALE. 17. THE LD. DR PLACED RELIANCE ON THE DECISION OF JURIS DICTIONAL HIGH COURT IN THE CASE OF DR. MRS. RENUKA DATLA VS. CIT (240 ITR 463) (AP), THAT PROVISIONS GRANTING EXEMPTIONS HAVE TO BE STRICTLY CONSTRUED. IT WAS HELD BY THE SUPREME COURT IN THE CASE OF IPCA LABORATORY LIMITED VS. DCIT (SC) 266 ITR 521 THAT W HEN THERE IS NO AMBIGUITY, PROVISIONS CANNOT BE INTERPRETED TO C ONFER A BENEFIT UPON THE ASSESSEE. THE PROVISION IS INCAPABLE OF A PPLICATION TO THE FACTS OF THE ASSESSEES CASE BECAUSE THE ASSESSEE I S ONLY AN EXECUTOR OF A CONTRACT, WHICH IS IN TURN, PART OF A LARGER PROJECT UNDERTAKEN BY THE GOVERNMENT, OR ITS AGENCY. IT H AS BEEN ARGUED IN REJOINDER BY THE DEPARTMENTAL REPRESENTATIVE THA T SUCH RELIANCE IS NEITHER CORRECT NOR RELEVANT IN DECIDING THE ISS UES ON HAND. IN THE CASE OF LAXMI CIVIL ENGG. PVT. LTD., THE ARGUME NT OF THE ASSESSEE THAT WAS ACCEPTED BY THE ITAT, PUNE BENCH IS BROADLY- THE ASSESSEE IS A CONTRACTOR, EVERY CONTRACTOR IS A DEVELOPER AS PER THE MUMBAI HIGH COURT DECISION IN THE CASE OF ABG H EAVY INDUSTRIES AND A DEVELOPER NEED NOT OPERATE AND MAI NTAIN THE INFRASTRUCTURE FACILITY, AS HELD BY THE MUMBAI HIGH COURT IN THE CASE OF ABG HEAVY INDUSTRIES. 18. THE DR SUBMITTED THAT THE DECISION OF THE PUNE BENC H OF THE ITAT IN THE CASE OF LAXMI CIVIL ENGG. (SUPRA) IS O F NO HELP IN DECIDING THE ISSUES IN THE IMPUGNED APPEALS FOR THE REASON THAT THE TERMS AND CONDITIONS OF THE CONTRACTS AND THE N ATURE OF OBLIGATIONS ASSUMED THERE-UNDER, BY THE BUSINESS A RE NOT DISCUSSED IN THE SAID ORDER. THIS IS THE FACTUAL FU LCRUM ON WHICH THE DECISION OF THE ITAT (LARGER BENCH) IN B.T. PAT IL AS WELL AS THE MUMBAI HIGH COURT IN ABG CASE WAS DECIDED. WITHOUT SUCH ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 27 DETAIL, THERE IS NO POINT OF COMPARABILITY BETWEEN THE PUNE BENCH DECISION AND THE OTHER CASES. THE UNANSWERED QUEST IONS EMERGING THERE-FROM ARE I) CAN WE ASSUME THAT THERE WAS A BOLT CONTRACT OR WAS IT A WORKS CONTRACT? II) CAN WE ASSUME THAT THE ASSESSEE TOOK OWNERSHIP CONTROL OF THE ASSET CREATED? III) THE CIRCUMSTANCES UNDER WHICH THE ENTERPRISE IN ABG HEAVY INDUSTRIES BECAME AKIN TO A DEVELOPER, AND DO THEY OBTAIN IN THE CASE OF LCE? SUCH AS 10 YEAR OWNERSHIP; RETRANSFER; ASSUMPTION OF ASSURED RESPONSIBILITY REGARDING OPERATIONAL READINESS, ETC ., NOTICED IN ABG HEAVY INDUSTRIES ARE NOT NOTICED IN THE FACTS OF THE CASE AS DIGESTED BY THE AFORE MENTIONE D DECISION OF THE PUNE BENCH OF THE ITAT IN THE CASE OF LCE. IV) THE UNBUNDLING OF CONDITIONS OF DEVELOPMENT, OPERATION & MAINTENANCE, AND DEVELOPMENT OPERATION AND MAINTENANCE, IN THE SENSE OF MAKING THEM NON CUMULATIVE BY AMENDMENT OF LAW EFFECTIVE FROM 1-4- 2002 IS NOT THE ONLY RELEVANT ISSUE. THE LARGER IS SUE IS WHETHER THE ASSESSEE IS A DEVELOPER IN THE FIRST PL ACE. V) IN THE CASE OF B.T. PATIL, THE CUMULATIVE OR NON CUMULATIVE SATISFACTION OF CONDITIONS IN SECTION 80IA(4)(I) WAS NEVER A MATERIAL FACT. THIS WAS SO NOT ONLY BECAUSE THE IMPUGNED APPEALS RELATED TO PRE 1- 4- 2002 PERIOD, BUT ALSO BECAUSE THE MATTER WAS DECI9DED ON THE PRELIMINARY ISSUE OF WHETHER THE ASSESSEE WAS A DEVELOPER OR NOT IN THE FIRST PLACE. VI) SOME OF THE ATTRIBUTES OF A DEVELOPER WERE DISCUSSE D IN THE CASE OF B.T. PATIL, NONE OF WHOM WERE ABSENT IN THE CASE OF ABG HEAVY INDUSTRIES. 19. ACCORDING TO THE DR, THE DECISION OF THE MUMBAI HIG H COURT, THOUGH LATER IN TIME WAS DIFFERENT IN FACTS THAT THERE WAS NO OCCASION EVEN TO REFER TO THE ITATS DECISION IN TH E CASE OF B.T. PATIL. THEREFORE, IT CAN BE SAID THAT THE DECISION OF THE MUMBAI HIGH COURT IN THE CASE OF ABG HEAVY INDUSTRIES WILL BE BINDING IN ITS JURISDICTION FOR INFRASTRUCTURE CONTRACT CASES, ONLY IN SO FAR AS THE FACTS OF THE CASE ARE COMPATIBLE. FOR THE SAME REASON, THERE ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 28 CAN BE NO ADVERSE IMPLICATION FOR THE PRECEDENT VAL UE OF THE B T PATIL CASE. AS SUBMITTED HEREINABOVE, ON IMMEDIATE AND NECESSARY CONSEQUENCE OF THE RETROSPECTIVE AMENDMENT INTRODUC ED BY THE FINANCE ACT, 2009 INSERTING EXPLANATION BELOW SECTI ON 80 IA(13), IS THAT ANY BUSINESS TRANSACTED IN TERMS OF A WORKS CONTRACT STANDS DISQUALIFIED FROM SEEKING DEDUCTION UNDER SE CTION 80I(A(4). THE DECISION OF THE MUMBAI HIGH COURT IN THE CASE O F ABG WOULD HAVE NO APPLICATION FROM THIS POINT OF VIEW ALSO. SINCE THE AGREEMENT IN ABG WAS A BOLT AGREEMENT AND NOT A WOR KS CONTRACT THEIR LORDSHIPS HAD NO OCCASION TO CONSIDE R THE EXPLANATION INTRODUCED IN FINANCE ACT, 2009 WITH EF FECT FROM 1-4- 2001. EVEN IF IT IS ASSUMED, HYPOTHETICALLY, THAT THE AGREEMENT IN ABG WAS IN THE NATURE OF A WORKS CONTRACT, OR THAT EVERY CONTRACTOR WAS A DEVELOPER, THE DECISION OF THE MUM BAI HIGH COURT WITHOUT CONSIDERING THE EXPLANATION CANNOT OPERATE TO OVERRULE THE ITATS DECISION IN THE CASE OF B.T. PATIL WHERE THE BENCH OF THE TRIBUNAL CONSIDERED THE EFFECT OF THE EXPLANATION A ND IT WAS EXPLAINED BY THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF HYDERABAD CHEMICALS SUPPLIES LIMITED (ITA NO. 352/H YD/2005 AND 6 OTHERS APPEALS DATED 21-1-2011, IN THE CONTEX T OF AN APPARENT CONFLICT BETWEEN A SPECIAL BENCH (AHMEDABA D) DECISION OF THE ITAT AND MADRAS HIGH COURT AT PARA-15 ON PAG E-8 AS FOLLOWS:- FURTHER, JUDGMENT OF HIGH COURT THOUGH NOT OF THE JURISDICTIONAL HIGH COURT, PREVAILS OVER AN ORDER O F THE SPECIAL BENCH EVEN THOUGH IT IS FROM THE JURISDICTI ONAL BENCH OF THE TRIBUNAL, HOWEVER, WHERE THE JUDGMENT OF THE NON JURISDICTIONAL HIGH COURT, THOUGH THE ONLY JUDGMENT ON THE POINT, HAS BEEN RENDERED WITHOUT HAVING BEEN INFORMED ABOUT CERTAIN STATUTORY PROVIS IONS THAT ARE DIRECTLY RELEVANT, IT IS NOT TO BE FOLLOWE D. 20. WITHOUT PREJUDICE TO THE ARGUMENT THAT THE STAND TH AT THE MUMBAI HIGH COURTS ORDER IN ABG RUNS ON COMPLETELY DIFFERENT FACTS, IT IS RESPECTFULLY POINTED OUT THAT THIS DEC ISION CANNOT BE A ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 29 BINDING PRECEDENT, IN ANY CASE, FOR THE ABOVE-CITED REASON ALSO AND THIS ISSUE CAN BE SEEN IN ANOTHER PERSPECTIVE. THE RE IS NOTHING IN THE CASE OF ABG HEAVY INDUSTRIES THAT SUPPORTS THE VIEW THAT THE DEVELOPER HAS TO E SEEN DE HORS THE CONTRACT AND ITS STIPULATIONS. IN THE CASE OF ABG HEAVY INDUSTRIES THE REVENUE TOO K THE STAND THAT THE ASSESSEE WAS NOT A DEVELOPER BECAUSE IT WA S ONLY A SUPPLIER OF THE EQUIPMENT. THIS DID NOT FIND FAVOUR BECAUSE IT WAS HELD THAT THE NATURE OF THE BUSINESS HAD TO BE SEEN IN TERMS OF THE OBLIGATIONS ASSUMED UNDER THE CONTRACT WHICH INCLUD ED NOT ONLY SUPPLY AND INSTALLATION OF THE CRANES BUT ALSO TEST ING, COMMITMENT OF OPERATIONAL READINESS FOR A PERIOD OF TEN YEARS ON THE PAIN OF LIQUIDATED DAMAGES AND EVENTUAL RE-TRANSFER AFTER S UCH PERIOD. IN THE CASE OF ABG HEAVY INDUSTRIES, THE CREATION OF C ERTAIN STANDALONE PARTS OF THE PART COMPLEX QUALIFIED FOR BEING TERMED ON INFRASTRUCTURE PROJECT BECAUSE THE BOARD CIRCULAR 7 93 DATED 23-6- 2000 CLARIFIED THAT PART OF THE PROJECT WOULD QUALI FY IF SO CERTIFIED BY THE PORT AUTHORITIES. THE CONTAINER HANDLING CR ANES ASSEMBLY WAS CERTIFIED TO BE AN INTEGRAL PART OF THE PORT CO MPLEX BY THE PORT AUTHORITY. THIS IS CONTEXTUALLY VERY DIFFERENT FRO M PARTS OF THE RUNNING LENGTH OF A HIGHWAY OR IRRIGATION CANAL BEI NG EXECUTED ON A RATE CONTRACT. THE DEPARTMENTS ARGUMENT THAT TH E ASSESSEE DID NOT ACTUALLY OPERATE OR MAINTAIN THE FACILITY IN QU ESTION WAS NOT UPHELD BECAUSE THE BENEFITS OF THE SECTION WERE HEL D TO BE AVAILABLE TO BOT/BOLT CONTRACTS BY CBDT CIRCULARS, WHICH WERE ANY WAY BINDING ON THE IT AUTHORITIES. IN THE CASE OF THE PRESENT CASE, IT IS NOT EVEN CLAIMED BY THE ASSESSEE THAT T HE WORK WAS CARRIED OUT UNDER A BOT/BOLT CONTRACT, OR THAT IT W AS NOT A WORKS CONTRACT. IT IS FURTHER SUBMITTED THAT THE D ISTINCTION BETWEEN BUSINESS OF DEVELOPMENT OPERATION/MAINTENAN CE AND DEVELOPMENT/ OPERATION/ MAINTENANCE WAS REMOVED WIT H THE CHANGE IN LAW EFFECTIVE FROM 1-4-2002, AND THAT THI S WAS EXPLAINED ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 30 BY THE DECISION OF THE MUMBAI HIGH COURT IN THE CAS E OF ABG HEAVY INDUSTRIES IS FALLACIOUS FOR THE FOLLOWING RE ASONS: THE MUMBAI HIGH COURT DECISION WAS RENDERED IN THE CONTEXT OF A BOLT CONTRACT, WHICH WAS IN ANY CASE CLARIFIED BY THE BOARD CIRCULAR TO QUALIFY FOR THE DEDUCTION UNDER SECTION 80IA. IT WAS NOTICED BY TH EIR LORDSHIPS THAT THE SUBSEQUENT CHANGES IN THE LAW EFFECTIVE FROM 1-4-2002 MERELY MIRRORED THIS LIBERA LISED OUTLOOK. THAT IS NOT THE SAME THING AS SAYING THAT A BUSINESS IN THE NATURE OF A WORKS CONTRACT QUALIFIE D FOR THE DEDUCTION IN SPITE OF NOT OPERATING/MAINTAINING THE FACILITY. THE DECISION OF THE LARGER BENCH IN THE CASE OF B.T. PATEL WAS NOT UN-WARE OF THE CHANGE IN LAW EFFECTIVE FROM 1-45-2002 AS WOULD BE EVIDENT FROM P ARA 36 OF THE ORDER. THE CHANGE MAKING THE CONDITIONS OF DEVELOPMENT/OPERATION/MAINTENANCE NON CUMULATIVE WAS NOT RELEVANT SINCE THE CASE RELATED TO PRE 1-4- 2002 PERIOD. IN THE CASE OF B.T. PATEL THE LARGER BENC H ENUNCIATED CERTAIN TESTS TO DETERMINE WHETHER THE BUSINESS WAS ONE OF A DEVELOPER OR A MERE CONTRACTOR. THE BRIEFLY STATED FACTS ARE AS FOLLO WS: THE DISTINCTION BETWEEN CREATION OF PRODUCT VS. RENDERING OF SERVICE (PARA -40), OWNER VS. EXECUTOR OF OWNERS PLAN WITH REFERENCE TO PROJECT SPECIFICATIO N (PARA-42), VESTING OF PROPERTY, SUBJECT TO RETRANSF ER IF NEED BE (PARA 46) AND NEED FOR INTERPRETATION TO AV OID ABSURD RESULTS (PARA 50). 21. THE DR SUBMITTED THAT IN VIEW OF THE TERMS OF THE R ELEVANT CONTRACT, IT WAS POSSIBLE TO GIVE A FINDING THAT TH E BUSINESS WAS NOT ONE OF DEVELOPMENT PER SE. THEREFORE, THE CH ANGES IN LAW AFTER 1-4-2002 WERE NOT EVEN CALLED INTO PLAY IN TH E CASE OF B.T. PATIL. IT IS FURTHER SUBMITTED THAT THE MUMBAI HI GH COURTS DECISION IN THE CASE OF ABG HEAVY INDUSTRIES NOT ON LY RUNS ON DIFFERENT FACTS, IT DOES NOT EVEN REFER TO THE CASE OF B T PATIL. FURTHERMORE, THE MUMBAI HIGH COURTS STAND THAT THE NATURE OF THE BUSINESS SHOULD BE SEEN IN THE CONTEXT OF THE O BLIGATIONS ASSUMED UNDER THE CONTRACT ONLY COMPLEMENTS, NOT CO NTRADICTS THE LARGER BENCHS DISTINCTION BETWEEN A DEVELOPER AND CONTRACTOR SIMPLICITER, AS NOTED HEREINABOVE. IT WOULD BE WRO NG AND THEREFORE ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 31 TO SUGGEST THAT THE CASE OF B.T. PATIL HAS BEEN IMP LIEDLY OVER-RULED BY THE HIGH COURTS DECISION. THE DEPARTMENTAL R EPRESENTATIVE ALSO PLACES RELIANCE ON ANOTHER DECISION OF THE MUM BAI BENCH OF THE TRIBUNAL IN THE CASE OF INDIAN HUME PIPE CO. LT D., VS. DCIT ITA NO. 5172/MUM/2008, DATED 29-7-2011 FOR ASSESSME NT YEAR 2004-05 WHEREIN HELD THAT THE COMPANY WAS NOT ENTIT LED TO DEDUCTION U/S 80IA(4) OF THE INCOME TAX ACT 1961 AS IT WAS ONLY A WORKS CONTRACT AND NOT A DEVELOPMENT OF ELIGIBLE IN FRASTRUCTURE PROJECTS.. THIS DECISION PRONOUNCED AFTER THE PUNE BENCH DECISION IN THE CASE OF LAXMI CIVIL ENGG.. CONSIDERS THE TRI BUNAL DECISION OF B.T. PATIL AS WELL AS ITS JURISDICTIONAL HIGH COUR T DECISION IN THE CASE OF ABG AND GOES ON TO HOLD THAT THE ASSESSEE I S NOT ENTITLED TO THE DEDUCTION UNDER SECTION 80IA (4) IN VIEW OF THE EXPLANATION INTRODUCED WITH RETROSPECTIVE EFFECT. 22. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN OUR OPINION, THIS ISSUE CAME FOR CONSID ERATION BEFORE THIS TRIBUNAL IN THE CASE OF M/S. KOYA & CO. CONSTR UCTION (P) LTD. V. ACIT, 51 SOT 203 (HYD) (URO) WHEREIN THE TRIBUNA L HELD AS FOLLOWS: 24. WE FIND THAT THE PROVISIONS OF SECTION 80IA (4) OF THE ACT WHEN INTRODUCED AFRESH BY THE FINANCE ACT, 1999, THE PROVISIONS UNDER SECTION 80IA (4A) OF THE ACT WERE DELETED FROM THE ACT. THE DEDUCTION AVAILABLE FOR ANY ENTERPRISE EARLIER UNDER SECTION 80IA (4A) ARE ALSO MADE AVAILABLE UNDER SECTION 80IA (4) ITSELF. FU RTHER, THE VERY FACT THAT THE LEGISLATURE MENTIONED THE WO RDS (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING, OPERATING AND MAINTAINING CLEARLY INDICATES THAT ANY ENTERPRISE WHICH CARRIED ON ANY OF THESE THREE ACTIVITIES WOULD BECOME ELIGIBLE FOR DEDUCTION. THEREFORE, THERE IS NO AMBIGUITY IN THE INCOME-TAX ACT. WE FIND THAT WHERE AN ASSESSEE INCURRED EXPENDITURE FOR PURCHASE OF MATERIALS HIM SELF AND EXECUTES THE DEVELOPMENT WORK I.E., CARRIES OUT THE CIVIL CONSTRUCTION WORK, HE WILL BE ELIGIBLE FOR TA X BENEFIT UNDER SECTION 80 IA OF THE ACT. IN CONTRAST TO THI S, A ASSESSEE, WHO ENTERS INTO A CONTRACT WITH ANOTHER ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 32 PERSON INCLUDING GOVERNMENT OR AN UNDERTAKING OR ENTERPRISE REFERRED TO IN SECTION 80 IA OF THE ACT, FOR EXECUTING WORKS CONTRACT, WILL NOT BE ELIGIBLE FOR THE TAX BENEFIT UNDER SECTION 80 IA OF THE ACT. WE FIND TH AT THE WORD OWNED IN SUB-CLAUSE (A) OF CLAUSE (1) OF SUB SECTION (4) OF SECTION 80IA OF THE ACT REFER TO THE ENTERPRISE. BY READING OF THE SECTION, IT IS CLEARS THAT THE ENTERPRISES CARRYING ON DEVELOPMENT OF INFRASTRUCTU RE DEVELOPMENT SHOULD BE OWNED BY THE COMPANY AND NOT THAT THE INFRASTRUCTURE FACILITY SHOULD BE OWNED BY A COMPANY. THE PROVISIONS ARE MADE APPLICABLE TO THE PERSON TO WHOM SUCH ENTERPRISE BELONGS TO IS EXPLAI NED IN SUB-CLAUSE (A). THEREFORE, THE WORD OWNERSHIP IS ATTRIBUTABLE ONLY TO THE ENTERPRISE CARRYING ON THE BUSINESS WHICH WOULD MEAN THAT ONLY COMPANIES ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA (4) AND N OT ANY OTHER PERSON LIKE INDIVIDUAL, HUF, FIRM ETC. 25. WE ALSO FIND THAT ACCORDING TO SUB-CLAUSE (A), CLAUSE (I) OF SUB SECTION (4) OF SECTION 80-IA THE WORD I T DENOTES THE ENTERPRISE CARRYING ON THE BUSINESS. T HE WORD IT CANNOT BE RELATED TO THE INFRASTRUCTURE F ACILITY, PARTICULARLY IN VIEW OF THE FACT THAT INFRASTRUCTU RE FACILITY INCLUDES RAIL SYSTEM, HIGHWAY PROJECT, WAT ER TREATMENT SYSTEM, IRRIGATION PROJECT, A PORT, AN AIRPORT OR AN INLAND PORT WHICH CANNOT BE OWNED BY ANY ONE. EVEN OTHERWISE, THE WORD IT IS USED TO DENOTE AN ENTERPRISE. THEREFORE, THERE IS NO REQUIREMENT THA T THE ASSESSEE SHOULD HAVE BEEN THE OWNER OF THE INFRASTRUCTURE FACILITY. 26. THE NEXT QUESTION IS TO BE ANSWERED IS WHETHER THE ASSESSEE IS A DEVELOPER OR MERE WORKS CONTRACTOR. THE REVENUE RELIED ON THE AMENDMENTS BROUGHT IN BY THE FINANCE ACT 2007 AND 2009 TO MENTION THAT THE ACTI VITY UNDERTAKEN BY THE ASSESSEE IS AKIN TO WORKS CONTRAC T AND HE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA (4) OF THE ACT. WHETHER THE ASSESSEE IS A DEVELOPE R 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. WE FIND THAT THE GOVERNMENT HANDED OVER THE POSSESSION OF THE ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 33 PREMISES OF PROJECTS TO THE ASSESSEE FOR THE DEVELOPMENT OF INFRASTRUCTURE FACILITY. IT IS THE ASSESSEES RESPONSIBILITY TO DO ALL ACTS TILL THE POSSESSION OF PROPERTY IS HANDED OVER TO THE GOVERNMENT. THE FIRST PHASE IS TO TAKE OVER THE EX ISTING PREMISES OF THE PROJECTS AND THEREAFTER DEVELOPING THE SAME INTO INFRASTRUCTURE FACILITY. SECONDLY, THE ASSESSEE SHALL FACILITATE THE PEOPLE TO USE THE AVA ILABLE EXISTING FACILITY EVEN WHILE THE PROCESS OF DEVELOP MENT IS IN PROGRESS. ANY LOSS TO THE PUBLIC CAUSED IN T HE PROCESS WOULD BE THE RESPONSIBILITY OF THE ASSESSEE . THE ASSESSEE HAS TO DEVELOP THE INFRASTRUCTURE FACI LITY. IN THE PROCESS, ALL THE WORKS ARE TO BE EXECUTED BY THE ASSESSEE. IT MAY BE LAYING OF A DRAINAGE SYSTEM; M AY BE CONSTRUCTION OF A PROJECT; PROVISION OF WAY FOR THE CATTLE AND BULLOCK CARTS IN THE VILLAGE; PROVISION FOR TRAFFIC WITHOUT ANY HINDRANCE, THE ASSESSEES DUTY IS TO DEVELOP INFRASTRUCTURE WHETHER IT INVOLVES CONSTRUC TION 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 I N BY THE ASSESSEE BY STICKING TO THE QUALITY AND QUANTIT Y IRRESPECTIVE OF THE COST OF SUCH MATERIAL. THE GOVERNMENT DOES NOT PROVIDE ANY MATERIAL TO THE ASSESSEE. IT PROVIDES THE WORKS IN PACKAGES AND N OT AS A WORKS CONTRACT. THE ASSESSEE UTILIZES ITS FUN DS, ITS EXPERTISE, ITS EMPLOYEES AND TAKES THE RESPONSIBILI TY OF DEVELOPING THE INFRASTRUCTURE FACILITY. THE LOSSES SUFFERED EITHER BY THE GOVT. OR THE PEOPLE IN THE P ROCESS OF SUCH DEVELOPMENT WOULD BE THAT OF THE ASSESSEE. THE ASSESSEE HANDS OVER THE DEVELOPED INFRASTRUCTUR E FACILITY TO THE GOVERNMENT ON COMPLETION OF THE DEVELOPMENT. THEREAFTER, THE ASSESSEE HAS TO UNDERTAKE MAINTENANCE OF THE SAID INFRASTRUCTURE FO R A PERIOD OF 12 TO 24 MONTHS. DURING THIS PERIOD, IF ANY DAMAGES ARE OCCURRED IT SHALL BE THE RESPONSIBILITY OF THE ASSESSEE. FURTHER, DURING THIS PERIOD, THE ENT IRE INFRASTRUCTURE SHALL HAVE TO BE MAINTAINED BY THE ASSESSEE ALONE WITHOUT HINDRANCE TO THE REGULAR TRA FFIC. THEREFORE, IT IS CLEAR THAT FROM AN UN-DEVELOPED AR EA, 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 ELIGIBL E FOR DEDUCTION UNDER SECTION 80IA (4) OF THE ACT. THIS C ANNOT BE CONSIDERED AS A MERE WORKS CONTRACT BUT HAS TO B E CONSIDERED AS A DEVELOPMENT OF INFRASTRUCTURE FACIL ITY. ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 34 THEREFORE, THE ASSESSEE IS A DEVELOPER AND NOT A WO RKS CONTRACTOR AS PRESUMED BY THE REVENUE. THE CIRCULAR ISSUED BY THE BOARD, RELIED ON BY LEARNED COUNSEL F OR THE ASSESSEE, CLEARLY INDICATE THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA (4) OF TH E ACT. THE DEPARTMENT IS NOT CORRECT IN HOLDING THAT THE ASSESSEE IS A MERE CONTRACTOR OF THE WORK AND NOT A DEVELOPER. 27. WE ALSO FIND THAT AS PER THE PROVISIONS OF THE SECTION 80IA OF THE ACT, A PERSON BEING A COMPANY H AS TO ENTER INTO AN AGREEMENT WITH THE GOVERNMENT OR GOVERNMENT UNDERTAKINGS. SUCH AN AGREEMENT IS A CONTRACT AND FOR THE PURPOSE OF THE AGREEMENT A PER SON MAY BE CALLED AS A CONTRACTOR AS HE ENTERED INTO A CONTRACT. BUT THE WORD CONTRACTOR IS USED TO DEN OTE A PERSON ENTERING INTO AN AGREEMENT FOR UNDERTAKING T HE DEVELOPMENT OF INFRASTRUCTURE FACILITY. EVERY AGRE EMENT ENTERED INTO IS A CONTRACT. THE WORD CONTRACTOR IS USED TO DENOTE THE PERSON WHO ENTERS INTO SUCH CONTRACT. EVEN A PERSON WHO ENTERS INTO A CONTRACT FOR DEVELOPMENT OF INFRASTRUCTURE FACILITY IS A CONTRAC TOR. THEREFORE, THE CONTRACTOR AND THE DEVELOPER CANNOT BE VIEWED DIFFERENTLY. EVERY CONTRACTOR MAY NOT BE A DEVELOPER BUT EVERY DEVELOPER DEVELOPING INFRASTRUC TURE FACILITY ON BEHALF OF THE GOVERNMENT IS A CONTRACTO R. 28. WE FIND THAT THE DECISION RELIED ON BY THE LEAR NED COUNSEL FOR THE ASSESSEE IN THE CASE OF CIT VS. LAX MI CIVIL ENGINEERING WORKS [SUPRA] SQUARELY APPLICABLE TO THE ISSUE UNDER DISPUTE WHICH IS IN FAVOUR OF THE ASSESSEE WHEREIN IT WAS HELD THAT MERE DEVELOPMENT OF A INFRASTRUCTURE FACILITY IS AN ELIGIBLE ACTIVITY F OR CLAIMING DEDUCTION UNDER SECTION 80IA OF THE ACT AF TER CONSIDERING THE JUDGEMENT OF THE MUMBAI HIGH COURT IN THE CASE OF ABG HEAVY ENGINEERING [SUPRA]. THE CASE OF ABG IS NOT THE PURE DEVELOPER WHEREAS, IN THE PRESE NT CASE, THE ASSESSEE IS THE PURE DEVELOPER. WE ALSO FIND THAT SECTION 80IA OF THE ACT, INTENDED TO COVER THE ENTITIES CARRYING OUT DEVELOPING, OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILITY KEEPING IN MIND THE PRESENT BUSINESS MODELS AND INTEND TO GRANT THE INCENTIVES TO SUCH ENTITIES. THE CBDT, ON SEVERAL OCCASIONS, CLARIFIED THAT PURE DEVELOPER SHOULD ALS O BE ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 80IA OF T HE ACT, WHICH ULTIMATELY CULMINATED INTO AMENDMENT UNDER SECTION 80IA OF THE ACT, IN THE FINANCE ACT 2001, T O GIVE EFFECT TO THE AFORESAID CIRCULARS ISSUED BY THE CBD T. ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 35 WE ALSO FIND THAT, TO AVOID MISUSE OF THE AFORESAID AMENDMENT, AN EXPLANATION WAS INSERTED IN SECTION 80IA OF THE ACT, IN THE FINANCE ACT-2007 AND 2009, TO CLARIFY THAT MERE WORKS CONTRACT WOULD NOT BE ELIGI BLE FOR DEDUCTIONS UNDER SECTION 80IA OF THE ACT. BUT, CERTAINLY, THE EXPLANATION CANNOT BE READ TO DO AWA Y WITH THE ELIGIBILITY OF THE DEVELOPER; OTHERWISE, T HE PARLIAMENT WOULD HAVE SIMPLY REVERSED THE AMENDMENT MADE IN THE FINANCE ACT, 2001. THUS, THE AFORESAID EXPLANATION WAS INSERTED, CERTAINLY, TO D ENY THE TAX HOLIDAY TO THE ENTITIES WHO DOES ONLY MERE WORKS CONTACT OR SUB-CONTRACT AS DISTINCT FROM THE DEVELOPER. THIS IS CLEAR FROM THE EXPRESS INTENSION OF THE PARLIAMENT WHILE INTRODUCING THE EXPLANATION. T HE EXPLANATORY MEMORANDUM TO FINANCE ACT 2007 STATES THAT THE PURPOSE OF THE TAX BENEFIT HAS ALL ALONG B EEN TO ENCOURAGE INVESTMENT IN DEVELOPMENT OF INFRASTRUCTU RE SECTOR AND NOT FOR THE PERSONS WHO MERELY EXECUTE T HE CIVIL CONSTRUCTION WORK. IT CATEGORICALLY STATES TH AT THE DEDUCTION UNDER SECTION 80IA OF THE ACT IS AVAILABL E TO DEVELOPERS WHO UNDERTAKES ENTREPRENEURIAL AND INVESTMENT RISK AND NOT FOR THE CONTRACTORS, WHO UNDERTAKES ONLY BUSINESS RISK. WITHOUT ANY DOUBT, T HE LEARNED COUNSEL FOR THE ASSESSEE CLEARLY DEMONSTRAT ED BEFORE US THAT THE ASSESSEE AT PRESENT HAS UNDERTAK EN HUGE RISKS IN TERMS OF DEPLOYMENT OF TECHNICAL PERSONNEL, PLANT AND MACHINERY, TECHNICAL KNOW-HOW, EXPERTISE AND FINANCIAL RESOURCES. 29. AS PER SUBMISSION OF THE ASSESSEES COUNSEL BROADLY THE TECHNICAL NATURE OF THE WORK UNDERTAKEN BY THE ASSESSEE IS AS FOLLOWS: I) DESIGNING AND MANUFACTURING OF PIPES: THE ASSESSEE SPECIALLY DESIGNED AND MANUFACTURED PRE-STRESSED CONCRETE PIPES AND IT HAS BEEN DONE IN ACCORDANCE WITH SPECIFIC REQUIREMENTS. II) DESIGN AND MANUFACTURING OF PIPE FITTINGS OR SPECIALS II) TRANSPORTING, LAYING AND JOINING OF PIPES CONFORMING WITH SPECIFICATIONS. THE ACTIVITY INVOLVES EARTH WORK EXCAVATION, TRENCH EXCAVATION, HARD ROOK BLASTING, LOWERING AND LAYING OF PIPES, FITTING OF SPECIALS, FITTING OF RU BBER RINGS AT THE JOINTS, TESTING PIPE JOINTS AND PIPELINE. ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 36 III) CONSTRUCTION OF PUMP HOUSE, PROVIDING AND FIT TING OF PUMP SETS. SUPPLY AND FITTING OF SUBMERSIBLE PUMPS, CENTRIFUGAL PUMPS, TURBINE PUMPS, SUBMERSIBLE MOTORS, MOTORS FOR TURBINES AND CENTRIFUGAL PUMP SETS, TRANSFORMER, GENERATOR, PANEL BOARDS ETC. IV) DESIGN AND CONSTRUCTION OF RAW WATER PUMPING STATIONS, WATER TREATMENT PLANT, TREATED WATER PUMPING STATION, TREATED WATER TRANSMISSION MAIN, CONSTRUCTION OF SURGE TANK AND PIPE CONNECTION ARRANGEMENT, BOOSTER STATIONS, INTERNAL TRANSMISSION MAIN AND FEEDER MAINS, CONSTRUCTION OF SERVICE RESERVOIRS AND MASTER RESERVOIRS. V) MOBILISATION OF LABOURERS, [PREPARATION OF PLAN S TECHNICAL EXPERTISE, SUPERVISION, CO-ORDINATION AND CONTROL, SET UP MANUFACTURING FACILITY NEARBY THE PROJECT SITE TO MANUFACTURE PROJECT SPECIFIC PIPES AS PER THE REQUIRED SPECIFICATIONS WHICH REQUIRES WELL EQUIPPED MACHINES, EMPLOYMENT OF SKILLED LABOUR AND TECHNICAL EXPERTS, EQUIPMENT TO TRANSPORT HEAVY PIPES TO LAYING SITES, EQUIPMENT TO LIFT AND LOWERING OF PIPES AT THE EXCAVATED SITES, PROVIDE QUALIFIED AND EXPERIENCE ENGINEER FOR EACH PROJECT SITE ETC TO BRING IN TO EXISTENCE AN INFRASTRUCTURE FACILITY . MANUFACTURING OF PIPES TO SITES, EXCAVATION UNDER VARIOUS CONDITIONS OF SOIL AND ROCK, LOWERING AND LAYING OF PIPES, JOINTING AND TESTING OF PIPE JOINT AND PIPE LINE AS A WHOLE, CONSTRUCTION OF PUMP HOUSES, STORAGE TANK/COLLECTION WELL, TREATMENT PLANTS, DISTRIBUTION PLANTS ETC AND ALL THESE TOGETHER DEVELOP IN TO A NEW INFRASTRUCTURE WATER SUPPLY FACILITY. 30. FURTHER, THE ORDER OF TRIBUNAL IN THE CASE OF B.T. PATIL CITED SUPRA IS PRIOR TO AMENDMENT TO SEC 80IA (4), AFTER THE AMENDMENT THE SECTION 80IA(4) READ AS (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (II I) DEVELOPING, OPERATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY, PRIOR TO AMENDMENT THE OR BETWEEN THREE ACTIVITIES WAS NOT THERE, AFTER THE AMENDMENT OR HAS BEEN INSERTED W.E.F. 1-4-2002 B Y FINANCE ACT 2001. ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 37 31. ACCORDINGLY, THE ASSESSEE IS ENTITLED FOR DEDUC TION UNDER SECTION 80IA OF THE ACT ON THE PROJECTS WHICH INVOLVE ABOVE ACTIVITIES. THEREFORE, IN OUR CONSID ERED VIEW, THE ASSESSEE SHOULD NOT BE DENIED THE DEDUCTI ON UNDER SECTION 80IA OF THE ACT IF THE CONTRACTS INVO LVES DEVELOPMENT, OPERATING, MAINTENANCE, FINANCIAL INVOLVEMENT, AND DEFECT CORRECTION AND LIABILITY PE RIOD, THEN SUCH CONTRACTS CANNOT BE CALLED AS SIMPLE WORK S CONTRACT TO DENY THE DEDUCTION U/S 80IA OF ACT. IN OUR OPINION THE CONTRACTS WHICH CONTAIN ABOVE FEATURES TO BE SEGREGATED ON THIS DEDUCTION U/S. 80-IA HAS TO B E GRANTED AND THE OTHER AGREEMENTS WHICH ARE PURE WORKS CONTRACTS HIT BY THE EXPLANATION SECTION 80IA (13), THOSE WORK ARE NOT ENTITLE FOR DEDUCTION U/S 80IA O F THE ACT. THE PROFIT FROM THE CONTRACTS WHICH INVOLVES DEVELOPMENT, OPERATING, MAINTENANCE, FINANCIAL INVOLVEMENT, AND DEFECT CORRECTION AND LIABILITY PE RIOD IS TO BE COMPUTED BY ASSESSING OFFICER ON PRO-RATA BAS IS OF TURNOVER. THE ASSESSING OFFICER IS DIRECTED TO EXAM INE THE RECORDS ACCORDINGLY AND GRANT DEDUCTION ON ELIG IBLE TURNOVER AS DIRECTED ABOVE. IT IS NEEDLESS TO SAY THAT SIMILAR VIEW HAS BEEN TAKEN BY THE CHENNAI BENCH OF THE TRIBUNAL AND DEDUCTION U/S. 80IA WAS GRANTED IN THE CASE OF M/S. CHETTINAD LIGNITE TRANSPORT SERVIC ES (P) LTD., IN ITA NO. 2287/MDS/06 ORDER DATED 27 TH JULY, 2007 FOR THE ASSESSMENT YEAR 2004-05. LATER IN ITA NO. 1179/MDS/08 VIDE ORDER DATED 26 TH FEBRUARY, 2010 THE TRIBUNAL HAS TAKEN THE SAME VIEW. 23. IN THE CASE OF GVPR ENGINEERS LTD. V. ACIT, 51 SOT 207 (HYD) (URO) WHEREIN THE TRIBUNAL HELD THAT DEDUCTIO N U/S. 80IA IS AVAILABLE TO DEVELOPERS WHO UNDERTAKE ENTREPRENEURI AL INVESTMENT RISK AND NOT FOR THE CONTRACTORS, WHO UNDERTAKE ONL Y BUSINESS RISK. WITHOUT ANY DOUBT, THE ASSESSEE CLEARLY DEMO NSTRATED THAT THE PLANT AND MACHINERY, TECHNICAL KNOW-HOW, EXPERT ISE AND FINANCIAL RESOURCES. THEREFORE, IF THE CONTRACTS I NVOLVE DESIGN, DEVELOPMENT, OPERATION & MAINTENANCE, FINANCIAL INV OLVEMENT AND DEFECT CORRECTION AND LIABILITY PERIOD, THEN SUCH C ONTRACTS CANNOT BE CALLED AS SIMPLE WORKS CONTRACT, TO DENY THE DED UCTION UNDER SECTION 80IA. THE CONTRACTS WHICH CONTAIN ABOVE FE ATURES TO BE SEGREGATED HAVE TO BE GRANTED DEDUCTION UNDER SECTI ON 80IA AND THE OTHER AGREEMENTS WHICH ARE PURE WORKS CONTRACTS HIT BY THE ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 38 EXPLANATION TO SECTION 80IA(13) ARE NOT ENTITLED FO R DEDUCTION UNDER SECTION 80IA. THE PROFIT FROM THE CONTRACTS WHICH INVOLVE DESIGN, DEVELOPMENT, OPERATING & MAINTENANCE, FINAN CIAL INVOLVEMENT AND DEFECT CORRECTION AND LIABILITY PER IOD IS TO BE COMPUTED BY THE ASSESSING OFFICER ON PRO RATA BASIS OF TURNOVER. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE RE CORDS, ACCORDINGLY, AND GRANT DEDUCTION ON ELIGIBLE TURNOV ER. 24. IN THE CASE OF KMC CONSTRUCTION LTD. V. ACIT, 51 S OT 214 (HYD) (URO) WHEREIN THE TRIBUNAL HAS TAKEN THE SAM E VIEW. 25. IN THE CASE OF SUSHEE HI-TECH CONSTRUCTIONS PVT. LT D. VS. DCIT, IN ITA NOS. 269 & 1165/HYD/2009 AND ITA NO. 1171/HYD/2010 DATED 16 TH MARCH, 2012 WHEREIN THE TRIBUNAL HELD AS FOLLOWS: THE ASSESSEE SHOULD NOT BE DENIED THE DEDUCTION UNDER SECTION 80IA OF THE ACT AS THE CONTRACTS INVOLVES, DEVELOPMENT, OPERATING, MAINTENANCE, FINANCIAL INVOLVEMENT, AN D DEFECT CORRECTION AND LIABILITY PERIOD, THEN SUCH CONTRACT S CANNOT BE CALLED AS SIMPLE WORKS CONTRACT. IN OUR OPINION TH E CONTRACTS WHICH CONTAIN ABOVE FEATURES TO BE SEGREGATED AND ON THIS DEDUCTION U/S. 80-IA HAS TO BE GRANTED AND THE OTHE R AGREEMENTS WHICH ARE PURE WORKS CONTRACTS HIT BY THE EXPLANATI ON SECTION 80IA(13), THOSE WORK ARE NOT ENTITLE FOR DEDUCTION U/S 80IA OF THE ACT. THE PROFIT FROM SUCH CONTRACTS WHICH INVOLVES DEVELOPMENT, OPERATING, MAINTENANCE, FINANCIAL INVOLVEMENT, AND DEFECT CORRECTION AND LIABILITY PERIOD IS TO BE COMPUTED B Y ASSESSING OFFICER ON PRO-RATA BASIS OF TURNOVER. THE ASSESSIN G OFFICER IS DIRECTED TO EXAMINE AND GRANT DEDUCTION ON ELIGIBLE TURNOVER AS DIRECTED ABOVE. 26. IN VIEW OF THE ABOVE ORDERS OF THE TRIBUNAL ON SIMI LAR ISSUE RELATING TO DEDUCTION U/S. SECTION 80-IA(4), WE ARE INCLINED TO REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE IN THE LIGHT OF THE ABOVE ORDERS ITA NO. 1292/HYD/2010 M/S. MAYTAS-NCC (JV) ================== 39 27. IN THE RESULT, THE ASSESSEE APPEAL IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH AUGUST, 2012. SD/- (SAKTIJIT DEY) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 27 TH AUGUST, 2012 COPY FORWARDED TO: 1. M/S. MAYTAS-NCC (JV)., C/O. SRI SAMUEL NAGADESI, CHARTERED ACCOUNTANT, 302, GOLDEN GREEN APARTMENTS, ERRAM MANZIL COLONY, PUNJAGUTTA, HYDERABAD-500 082. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -6(1), 7 TH FLOOR, I.T. TOWERS, MASAB TANK, HYDERABAD-500 004. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, HYD ERABAD. 4. THE COMMISSIONER OF INCOME-TAX-III, HYDERABAD. 5. THE DEPARTMENTAL REPRESENTATIVE, B-BENCH, ITAT, HYDERABAD. TPRAO
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