ACIT CENT. CIR. - 3, THANE V. M/s. SMC INFRASTRUCTURE P. LTD., THANE(W)

ITA 4757/MUM/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1597 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-11-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 30-08-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Retrospective amendment
• Section: 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: MUMBAI BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO 4757/MUM/2006 (ASSESSMENT YEAR: 2003-04) ACIT CENTRAL CIRCE -3, THANE PAWAR INDUSTRIAL ESTATE, EDULJI ROAD, THANE -400 601 VS M/S SMC INFRASTRUCTURE PVT LTD, 1ST FLOOR, KONARK TOWER, OPP SAI BABA TEMPLE, GHANTALI DEVI ROAD, THANE (W) PAN: AACCS 3437 L APPELLANT RESPONDENT APPELLANT BY: SHRI SANJEEV JAIN RESPONDENT BY: SHRI M SUBRAMANIAN ORDER PER T. R. SOOD, ACCOUNTANT MEMBER IN THIS APPEAL REVENUE HAS RAISED VARIOUS GROUNDS B UT ONLY DISPUTE IS THAT CIT (A) HAS ALLOWED DEDUCTION U/S 80IA(4) OF THE INCOME TAX ACT, 1961. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT DEDU CTION U/S 80IA(4) WAS DENIED TO THE ASSESSEE BECAUSE ASSESSEE WAS ACTING ONLY AS CO NTRACTOR AND ASSESSEE HAD NO STAKES IN THE FINANCIAL VIABILITY OF THE PROJECT. 3. THE LEARNED CIT (A), ON APPEAL, ALLOWED THE DEDU CTION AFTER DETAILED DISCUSSION. 4. BEFORE US, LEARNED DEPARTMENTAL REPRESENTATIVE S UBMITTED THAT NOW ISSUE STAND FULLY COVERED IN FAVOUR OF THE REVENUE BY THE DECIS ION OF SPECIAL BENCH IN THE CASE OF B.T. PATIL & SONS BELGAUM VS ACIT IN ITA NOS 1408 & 1409 /PN/2003 FOR ASSESSMENT YEARS M/S SMC INFRASTRUCTURE PVT LTD 2 2000-01 AND 2001-02 VIDE ORDER DATED 26TH OCTOBER 2 009. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT (A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT ASSESSING OFFICER RECORDED THE FOLLOWING FACTS AND OBSERVATIONS AT PA RA 12 OF HIS ORDER, WHICH READS AS UNDER : IN THE CASE OF A CONTRACTOR WHO CONSTRUCTS THE PRO JECT ON BEHALF OF THE DEVELOPER, THE CONTRACTOR IS ASSURED A FIXED SUM DEPENDING ON THE VOLUME OF WORK INVOLVED AND HE HAS NO STAKES IN THE FINANCIAL VIABILITY OF THE PROJECT. THE CONTRACTOR EARNS THE PROFIT THROUGHOUT VARIOUS STAGES OF CONSTRUCTIO N WORK AND IS PAID PERIODICALLY FOR THE WORK DONE. EVEN THOUGH SUCH CONTRACTOR MAY BE IN CONTROL OF THE PROJECT WHILE UNDER CONSTRUCTION AND TERMS OF THE CONTRACT MAY PROVIDE THAT CONTRACTOR WILL HANDOVER THE PROJECT TO THE CONTRACTING AGENCY AFTER COMPLETION OF WORK, THIS CONTROL IS QUITE DISTINCT FROM THE CONCEPT OF OWNER SHIP ENVISAGED IN PROJECTS BUILT UNDER BOT OR BOOT SYSTEM. AT NO STAGE OF THE PROJE CT A CONTRACTOR CAN BE SAID TO BE HAVING OWNERSHIP OF THE PROJECT. OWNERSHIP ALWA YS VESTS WITH THE AGENCY AWARDING THE CONTRACT AND CONTRACTOR CAN CLAIM INTE REST ONLY TO THE EXTENT OF MONEY RECEIVABLE FROM THE AGENCY. THE SAME IS THE CASE WITH THE ASSESSEE. IN ALL THE AGREEMENTS ENTERED INTO BY THE ASSESSEE, CONTRA CTING AGENCY HAS BEEN DEFINED AS OWNER AND THE ASSESSEE IS MERELY A VENDO R AS PER TERMS OF THE CONTRACTS. IT IS BEING PAID REGULARLY FOR WORK DON E BY IT AND AT NO STAGE OF WORK IT OWNS ANY OF THE PROJECTS. IT HAS NO STAKE IN THE F INANCIAL VIABILITY OF THE PROJECTS. THUS, ASSESSEE IS NOT A DEVELOPER WITHIN THE MEANIN G OF PROVISIONS OF SEC 80IA OF THE I T ACT AND IT IS INELIGIBLE TO CLAIM DEDUCTION U/S 80IA OF THE I T ACT. 6. WE FURTHER FIND THAT LEARNED CIT (A) HAS OBSERVE D AT THE FIRST PAGE OF HIS ORDER THAT THE DEDUCTION WAS CLAIMED IN RESPECT OF VARIOUS CO NTRACTS RECEIVED FROM MAHARASHTRA JEEVAN PRADHIKARAN, VARIOUS MUNICIPAL C ORPORATIONS, PUBLIC WORKS DEPARTMENT AND OTHER GOVT BODIES. NATURE OF WORK I NVOLVED IN THESE CONTRACTS WAS LAYING OF PIPE LINE FOR VARIOUS WATER SUPPLY SCHEME S, CONSTRUCTION OF ROADS AND BRIDGES ETC. THUS, IT IS CLEAR THAT ASSESSEE WAS ONLY ACTING A S A CONTRACTOR FOR VARIOUS GOVERNMENT BODIES WHICH WERE THE OWNER OF PIPE LINE S ETC. WE FURTHER FIND THAT SPECIAL BENCH HAS RECENTLY DECIDED THIS ISSUE BY HOLDING TH AT CONTRACTOR IS NOT ENTITLED TO DEDUCTION U/S 80IA (4). THE RELEVANT PARAS ARE REP RODUCED AS UNDER:- M/S SMC INFRASTRUCTURE PVT LTD 3 57. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE EXPLANATION AS INSERTED BY THE FINANCE ACT 2007 WITH RETROSPECTIVE EFFECT FROM 1.4.2000 MADE IT CLEAR TH AT THE BENEFIT OF SECTION 80- IA SHALL NOT BE EXTENDED TO A PERSON WHO EXECUTES A WORKS CONTRACT ENTERED INTO WITH THE ELIGIBLE ENTERPRISE. IT HAS BEEN CLAR IFIED THAT THE PROVISIONS OF SECTION 80-IA SHALL NOT APPLY TO A PERSON WHO EXECU TES A WORKS CONTRACT ENTERED INTO WITH THE UNDERTAKING OR ENTERPRISE REF ERRED TO IN THE SAID SECTION. THOUGH THE INTENTION WAS TO CLARIFY THAT THE BENEFI T OF DEDUCTION IS NOT TO BE ALLOWED TO A CIVIL CONTRACTOR, BUT IT WAS INTERPRET ED BY SOME QUARTERS AS APPLYING ONLY TO THE SUB-CONTRACTOR AND NOT TO THE CONTRACTOR. WITH A VIEW TO CLARIFY THE POSITION BEYOND ANY DOUBT, THE SAID EXP LANATION WAS SUBSTITUTED BY THE FINANCE ACT, 2009 WITH A NEW EXPLANATION TO CLA RIFY THAT THE DEDUCTION IS NOT AVAILABLE TO BUSINESS REFERRED TO IN SUB-SECTIO N (4) WHICH IS IN THE NATURE OF A WORKS CONTRACT AWARDED BY ANY PERSON (INCLUDING T HE CENTRAL OR STATE GOVERNMENT) AND EXECUTED BY AN ENTERPRISE REFERRED TO IN SUB-SECTION (1). NOW WITH THIS SUBSTITUTION OF EXPLANATION BELOW SEC TION 80-IA(13), THE ENTIRE CONTROVERSY, CREATED FOR NO REASON TO NEEDLESSLY DI STINGUISH BETWEEN CONTRACTOR AND DEVELOPER, HAS SUBSIDED. THE POSITI ON WHICH WAS EARLIER APPARENT ON A CAREFUL LOOK OF THE PROVISIONS OF SUB -SECTION (4) HAS NOW BEEN MADE AVAILABLE EVEN AT THE CURSORY LOOK THROUGH THE EXPLANATION BY CLARIFYING THE HITHERTO INTENTION OF THE LEGISLATURE THAT NO P ERSON EXECUTING THE WORKS CONTRACT SHALL BE ELIGIBLE FOR DEDUCTION U/S 80-IA , EVEN IF IT IS AN ENTERPRISE AS REFERRED TO IN SUB-SECTION (1). THE LANGUAGE OF TH IS EXPLANATION MAKES IT CRYSTAL CLEAR THAT THE BENEFIT UNDER SUB-SECTION ( 4) CANNOT BE PROVIDED TO A BUSINESS REFERRED TO IN SUB-SECTION (4) WHICH IS IN THE NATURE OF WORKS CONTRACT AWARDED BY ANY PERSON INCLUDING THE CENTRAL OR STAT E GOVERNMENT AND EXECUTED BY THE UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB-SECTION (1). FROM THE MEMORANDUM EXPLAINING THE RATIONALE BEHIND THE SUBSTITUTION OF EXPLANATION IT CAN BE EASILY SEEN THAT THE LEGISLAT URE CLARIFIED ITS INTENTION BEYOND ANY DOUBT THAT THE DEDUCTION CANNOT BE ALLOW ED IN RELATION TO AN ELIGIBLE BUSINESS WHICH IS IN THE NATURE OF WORKS C ONTRACT. EVEN IF ONE PRESUMES, FOR A MOMENT, THAT ALL THE CONDITIONS SET OUT IN SUB-SECTION (4) CLAUSE (I) ARE SATISFIED, WHICH ARE ACTUALLY NOT FU LFILLED IN THE INSTANT CASE, AND THE ENTERPRISE IS COVERED UNDER SUB-SECTION (1), TH EN ALSO DEDUCTION CANNOT BE ALLOWED IN RELATION TO A BUSINESS WHICH IS IN THE N ATURE OF A WORKS CONTRACT. 59. WITHOUT THE AID OF EXPLANATION TO THIS SE CTION WE HAVE CONCLUDED ABOVE THAT THE CONDITIONS SET OUT IN SUB-SECTION (4) CLAU SE (I) ARE NOT SATISFIED AND HENCE THE ASSESSEE CANNOT CLAIM DEDUCTION UNDER THI S SECTION. THE INSERTION AND SUBSTITUTION OF THE EXPLANATION IS ONLY TO CLAR IFY THAT THE DEDUCTION CANNOT BE ALLOWED IN RELATION TO A BUSINESS IN THE NATURE OF WORKS CONTRACT UNDER ANY CIRCUMSTANCE. IN OTHER WORDS THE VIEW EMERGING FROM THE CAREFUL CIRCUMSPECTION OF SUB-SECTION (4) HAS BEEN ENDORSED BY THE EXPLANATION AND THAT TOO WITH RETROSPECTIVE EFFECT FROM 1.4.2000 TH EREBY COVERING BOTH THE YEARS UNDER CONSIDERATION. WE, THEREFORE, ANSWER QU ESTION NO.1 IN NEGATIVE BY HOLDING THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCT ION UNDER THE PROVISIONS OF SECTION 80-IA(4) IN RESPECT OF THE PROJECTS UNDERTA KEN. M/S SMC INFRASTRUCTURE PVT LTD 4 7. RESPECTFULLY FOLLOWING THE DECISION OF THE SPECI AL BENCH, WE HOLD THAT ASSESSEE BEING A CONTRACTOR ONLY IS NOT ENTITLED TO DEDUCTIO N U/S 80IA(4). 8. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED ON 10TH DAY OF NOVEMBER 2009. SD/- (R.K. GUPTA) JUDICIAL MEMBER SD/- (T. R. SOOD) ACCOUNTANT MEMBER MUMBAI, DATE: 10TH NOVEMBER 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) I, THANE. 4) THE CIT-CENTRAL, PUNE. 5) THE D.R. C BENCH, ITAT, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR CHAVAN* I.T.A.T., MUMBAI M/S SMC INFRASTRUCTURE PVT LTD 5 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 10.11.09 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 10.11.09 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER