Brief of the Case
The Hon’ble High court in the present case held that the assessee developed an infrastructure facility/project and was not required to maintain or operate, it was entitled to cost, plus the margin of income or profit. Assesee would be entitled to deduction under section 80-IB (10).
Facts of the Case
Assessee is engaged in the business of building and developing of housing projects. In its return of Income, the assessee claimed deduction u/s 80-IB(10) which was declined by the AO in the course of assessment u/s 143(3). The AO observed that the assessee company had been undertaking construction activity since 1996-97. The company had been allotted in FY 2001-02 a housing project by the Indian Railway Welfare Organisation (“IRWO”). A housing Project worth had also been allotted by the Delhi Development Authority (“DDA”). Both these continued in the year under consideration. The contract receipts and profits from these works during the year under consideration were disclosed of which exemption was claimed u/s 80-IB(10) of the Act. The AO, upon a textual analysis of Section 80IB (10) was of the view that profit derived only from developing and building housing projects which are approved by local authority is eligible for deductions u/s 80IB. The AO observed that in this case, the assessee had executed works in respect of housing projects of IRWO & DDA. The project belonged to IRWO & DDA. The assessee company did not develop and build any housing project of its own but merely executed the contract work awarded to it by the principals, i.e DDA and IRWO. There was consequently no development of building of housing project of the assessee.
Contentions of the Assessee
The projects executed were development projects in respect of residential houses. The intention behind Section 80-IB (10) i.e to boost private participation in housing, ownership of lands cannot be an added condition when the plain terms of the provision do not enact such pre-condition.
Contention of the Revenue
The revenue contended that the assessee is only a civil contractor and not an infrastructure facility or project developer. According to him, infrastructure developers are IRWO and DDA, not the assessee. He relied on the conclusions of the AO that for an enterprise – to claim deduction under Section 80-IA- should own such infrastructure facility, and that the enterprise should enter into agreement with the Government or local authority for (i) development or (ii) maintaining and operating or (iii) developing, maintaining or operating a new infrastructure facility; should transfer such infrastructure facility to the Government or local authority and that such enterprise should start maintaining infrastructure facility on or after 1st April, 1995. According to the revenue, the assessee did not fulfill any of those conditions.
It was argued that deduction under Section 80-IA(4) was provided to infrastructure project developers to supplement State effort to finance and develop such facilities. Exemption under Section 80-IA(4) was provided to encourage private sector participation in infrastructure development. To qualify for exemption, the enterprise should carry on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating an infrastructure facility. Counsel also compared Section 80-IA(4A) introduced by Finance Act, 1995 with the provisions of Section 80-IA(10), to highlight the similarity in scope and content. Counsel lastly urged that the distinction between a works contract and an infrastructure development is the element of risk which necessarily always is with the owner. In the absence of that risk element, every contractor can claim to be a project developer, which defeats the intention of Section 80-IA(10).
Held by the Tribunal
The Hon’ble Tribunal after taking into consideration all the facts held that the Assessee has worked as a developer and not merely as a work contractor. Accordingly, Hon’ble tribunal did not find any merit in the action of the AO for declining claim of deduction u/s 80IB(10) of IT Act. With regard to AO’s observation that the project should be owned by the assessee for claim of exemption u/s 80IB(10) is misplaced insofar as there is no condition in Section 80IB that the project undertaken by the assessee as a developer and builder should be owned by the assessee. The only condition is with regard to the fact that only activity of developing and building a housing project would be eligible for claim of exemption u/s 80IB. It means that the assessee who is a developer and builder in substance would only be eligible for the deduction and not a contractor simplicitor. Since ownership of the project is not provided as a precondition for the claim of deduction u/s 80IB(10), there is no merit in the AO’s allegation for decline of assessee’s claim for such plea.
Held by CIT(A)
The ld. CIT(A) gave decision in the favour of the Assessee.
Held by the Hon’ble High Court
The Hon’ble High court in the present case while giving the decision in the favour of assessee on the question that whether the assessee is a developer or contractor and whether the respondent-assessee is entitled to deduction under Section 80-IB(10). The Hon’ble High Court held that since the assessee developed an infrastructure facility/project and was not required to maintain or operate, it was entitled to cost, plus the margin of income or profit. If the infrastructure facility is, after its development, transferred to the Government, naturally the cost would be paid by the Government. Therefore, the mere circumstance that the Indian Railways or DDA paid for development of a housing project carried out by the assessee, did not mean that the assessee did not develop the residential complex. If the revenue’s interpretation is accepted, no enterprise, carrying on the business of only developing the infrastructure facility, would be entitled to deduction under section 80-IB (10).