Case Law Details
DCIT Vs Gulermak TPL Joint Venture (ITAT Mumbai)
No deduction u/s 80IA in absence of agreement with Central Government/ State Government / Local Authority/Statutory Authority
Conclusion: Assessee-contractors were involved only in the execution of infrastructure projects which did not qualify for deduction under Section 80IA. The deduction was available to entities involved in developing, operating, and maintaining the infrastructure. Assessee did not fulfil the condition that the agreement had to be with Central Government/ State Government / Local Authority/Statutory Authority as LMRCL, did not fit in any of them.
Held: Assessee was an un-incorporated association formed between the companies M/s. Tata project Ltd. (TPL) and Gulermak Agir Sanayi Insaat Ve Taahhut Sirketi (Fulermak). Assessee had been awarded a contract with Lucknow Metro Rail Corporation Ltd. (LMRCL), for the purpose of design and construction of tunnel from start of underground ramp (near Charbagh metro station) including three underground metro stations with architectural finisheds, erection & maintenance, tunnel ventilation system, environment control system etc. on North-South Corridor of Lucknow MRTS (Mass Rapid Transit System) Phase 1 A project at Lucknow, Uttar Pradesh, India. Assessee entered into a contract agreement with LMRCL. During the course of scrutiny assessment proceedings, assessee was asked to justify that its business was an eligible business in terms of Section 80IA against which deduction had been claimed. Assessee was specifically asked to justify its claim as the agreement had to be with (a) Central Government (b) State Government (c) Local Authority or (d) Statutory Authority and LMRCL did not fit in any of the four categories. Assessee filed detailed reply justifying its claim of deduction u/s 80IA which did not find any favour with the AO who denied the claim of the deduction which was confirmed by CIT (A). It was held that assessee did not fulfil the condition that the agreement had to be with Central Government/ State Government / Local Authority/Statutory Authority as LMRCL, did not fit in any of them. It could be seen from the record that LMRCL was incorporated on 25/11/2013 under the Companies’ Act, 1956 as a special purpose vehicle between the Central and State Government with equity share of 50:50, therefore, it could not be regarded as Central Government or State Government, nor did it fall under the definition of local authority statutory. Assessee was not involved in developing, operating, and maintaining the infrastructure facility, and the agreement was not with the Central Government, State Government, Local Authority, or Statutory Authority. It was trite law that for claiming deduction u/s 80IA(4), all conditions had to be fulfilled cumulatively. Therefore, the claim of deduction u/s 80IA was not allowable.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The captioned cross-appeals by the assessee and the revenue and the cross-objections of the assessee are preferred against the very same order of the NFAC, Delhi, dated 15/09/2022 pertaining to AY 2017-18 & 2018-19. Both the appeals and cross-objections were heard together and are disposed off by this common order for the sake of convenience and brevity.
2. Since the underlying facts in the issues are identical in the captioned appeals and cross objections, the representatives were heard on the facts of AY 2017-18.
3. We first address to the appeals by the assessee which relate to the denial of deduction claimed u/s 80IA of the Act.
4. Representatives of parties were heard at length. Case records carefully perused and the relevant documentary evidence brought on record duly considered in the light of Rule 18(6) of the ITAT Rules along with the judicial decisions relied
5. The assessee is an un-incorporated association formed between the companies M/s. Tata project Ltd. (TPL) and Gulermak Agir Sanayi Insaat Ve Taahhut Sirketi (Fulermak) (hereinafter “Gulemark TPL JV”). The assessee has been awarded a contract with Lucknow Metro Rail Corporation Ltd. (LMRCL), for the purpose of design and construction of tunnel from start of underground ramp (near Charbagh metro station) including three underground metro stations, namely, Hussainganj, Sachivalaya and Hazratganj, including architectural finisheds, erection & maintenance, tunnel ventilation system, environment control system etc. on North-South Corridor of Lucknow MRTS (Mass Rapid Transit System) Phase 1 A project at Lucknow, Uttar Pradesh, India.
5.1 In this connection, the assessee entered into a contract agreement with LMRCL on 27/05/2016. During the course of scrutiny assessment proceedings, the assessee was asked to justify that its business is an eligible business in terms of Section 80IA of the Act against which deduction have been claimed. The assessee was specifically asked to justify its claim as the agreement has to be with (a) Central Government (b) State Government (c) Local Authority or (d) Statutory Authority and LMRCL does not fit in any of the four categories.
6. The assessee filed detailed reply justifying its claim of deduction u/s 80IA of the Act which did not find any favour with the AO who denied the claim of The denial was confirmed by the ld. First Appellate Authority.
7. A perusal of the contract agreement shows that LMRCL has agreed to hire the contractor which is the assessee. On perusal of the above related documents we find that the metro rail, as per the contract is conceived by LMRCL who undertook the groundwork of taking necessary approvals/sanctions from the State government/local authorities and floated the tender which was successfully awarded to the The assessee was allowed mobilization advance which was 5% of the original contract value payable in two equal instalments or as mentioned in the special conditions of contract, the first instalment shall be paid after mobilisation has started and next instalment shall be paid after satisfactory utilisation of the earlier instalment. The assessee was also allowed plant and machinery advance at 5% of original contract value or as specified in the special contract. These advances were payable against planned equipment and machinery provided the same have reached the site or in case of new terms specifically meant for the work. The advance will be given only if the plant/machinery has been purchased for this contract and not for those which are already in the books of the contractor. It has been specifically provided that advances are to be used only for the work contract awarded. All this go on to show that not only the project was conceived by LMRCL but also funded by it. The assessee was acting as only a contractor for the execution of the work awarded to it on successfully completing the contract and nothing more. Once the final certificate of completion is issued, the contract is complete, the assessee has no role insofar as the revenue from Metrorail is concerned. It is not a case where the assessee will receive revenue from the Metrorail for a certain period. This fact is in contradiction to the facts considered by the Hon’ble Gujarat High Court in the case of Ranjit Projects Private Limited [2018] 408 ITR 274,
which has been heavily relied upon by the ld. Counsel in as much as in that case, the assessee entered into an agreement for road development project with GSRDC and GSRDC was treated as a statutory body since it was a government agency as defined u/s 2(e) of Gujarat Infrastructure Development Act, 1999 whereas LMRCL, is a body corporate, though the Central Government and State Government are the major shareholders.
8. The assessee may have constructed the Metrorail project as per the contract awarded to it but certainly it is not carrying on the business of developing and operating and maintaining or developing, operating and maintaining any infrastructural facility which fulfils the condition for the claim of deduction u/s 80IA of the Act.
8.1 Moreover, the Gujarat Infrastructure Development Act, 1999, contains detailed provisions of awarding contract for infrastructural development within the State through private participation. On such facts, the Hon’ble Gujarat High Court upheld that GSRDC was a nodal agency constituted by the State Government and was a government agency as defined u/s 2(e) of Gujarat Infrastructure Development Act,
9. It is a simple case of hiring a contractor by issuing a tender. It is not a case of build-own-trade (BOT). The moment the underground project is completed it has to be handed over to LMRCL. Thereafter the assessee had no role to play. The business pertains to LMRCL, the ownership vests with LMRCL and it is LMRCL which is carrying on the business of developing operating and maintaining of infrastructural facility i.e., underground Metrorail.
10. In the case of Commissioner of Income-tax, Central-II ABG Heavy Industries Ltd. [2010] 322 ITR 323 (Bombay), the Hon’ble Jurisdictional High Court was seized with the fact that the assessee was responsible for supplying, installation, testing, commissioning and maintenance of cranes for the period of 10 years after which the cranes would rest with JNPT, free of cost. On such facts the Hon’ble High Court, upheld the claim of deduction which facts are absent in the case in hand. It is true that a beneficial provision requires liberal interpretation but it is equally true that the interpretation should not be so liberal as to defeat the very purpose of the Act.
10.1 The Hon’ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai vs. M/s. Dilip Kumar and Company & Ors. [Civil Appeal No. 3327 of 2007] which has been relied upon by the AO, has held as under:-
“19. The well settled principle is that when the words in a statute are clear, plain and unambiguous and only one meaning can be inferred, the Courts are bound to give full effect to the said meaning irrespective of consequences. If the words in the statute are plain and unambiguous, it becomes necessary to expound those words in their natural and ordinary sense…….
20. In applying rule of plain meaning any hardship and inconvenience cannot be the basis to alter the meaning to the language employed by the legislation.
This is especially so in fiscal statutes and penal statutes… ambiguity..
26……….. Considerations of hardship, injustice or anomalies do not play any useful role in construing taxing statutes unless there be some real ambiguity……
27. Now coming to the other aspect, as we presently discuss, even with regard to exemption clauses or exemption notifications issued under a taxing statute, this Court in some cases has taken the view that the ambiguity in an exemption notification should be construed in favour of the subject. In subsequent cases, this Court diluted the principle saying that mandatory requirements of exemption clause should be interpreted strictly and the directory conditions of such exemption notification can be condoned if there is sufficient compliance with the main requirements.
This, however, did not in any manner tinker with the view that an ambiguous exemption clause should be interpreted favouring the revenue ”
10.2 The assessee was only awarded the contract for design and construction of tunnel as specified in the tender document and the job of the assessee was over when the construction of tunnel was done as per the design approved.
11. As mentioned elsewhere, the assessee also does not fulfil the condition that the agreement has to be with Central Government/ State Government / Local Authority/Statutory Authority as LMRCL, does not fit in any of them. It can be seen from the record that LMRCL was incorporated on 25/11/2013 under the Companies’ Act, 1956 as a special purpose vehicle between the Central and State Government with equity share of 50:50, therefore, in our understanding of the law it cannot be regarded as Central Government or State Government, nor does it fall under the definition of local authority statutory It is trite law that for claiming deduction u/s 80IA(4) of the Act, all conditions have to be fulfilled cumulatively.
12. Considering the peculiar facts of the case in hand from all possible angles we do not find any merit in the claim of deduction u/s 80IA of the Act and the lower authorities have not faulted anywhere by denying the Since we have dismissed the claim of the assessee u/s 80IA of the Act, at the very threshold treating the assessee as a contractor, we do not find it necessary to address the issues taken by the AO for denying the impugned claim. Accordingly both the appeals by the assessee are dismissed.
13. Coming to the appeals of the revenue, there is a delay and the delay is condoned.
14. The common grievance in both the appeals by the revenue relate to the deletion of the addition made by the AO on account of disallowance of legal and professional fees (fees for technical services) paid to Gulemark TPL JV. The sole reason for the disallowance is that Gulemark TPL JV, has not rendered the services, therefore, the claim was disallowed u/s 37 of the Act.
15. On perusal of the facts on record we find that the assessee entered into an agreement dated 29/01/2016, which was termed as industrial joint venture agreement by which it was decided that GLM, will not have any right in the profits of assessee but will be given fees for technical It was agreed that Gulemark TPL JV, shall be entitled to receive consultancy fee from JV which shall be 2.60% of the gross value of the awarded project. Besides this agreement, there is another agreement by which the profit sharing ratio between TPL and GLM is 99.9% and 0.1% respectively.
16. Two members visited the LMRCL site for rendering technical services in support of a work order furnished for performance of the work. Though the AO has mentioned that the assessee has not been able to give concrete proof of services actually rendered by the two persons who had visited LMRCL site and has not provided any evidence that the services where actually provided by GLM apart from the work order whereas facts on record show that the assessee has paid fees for the following services:-
“• Selection of suitable technical staff for the Project;
-
- Review of contractual documents;
- Review of design and engineering;
- Preparation and review of method statements for works;
- Preparation and review of method statements for safety;
- Preparation and review of method statements for quality management systems;
- Preparation and review of Risk Analysis and its mitigation methods;
- Contract and claims managements;
- Selection of vendors and material procurement;
17. The above details were supported by copies of bank payment advices for payment made to GLM were legal and professional fees before the AO along with copies of visa of the two employees of GLM visited India from time to time during the tenure of the project for rendering services supported with copy of leave and license agreement wherein concerned employees of GLM are accommodated in India along with vouchers of car hire charges for domestic transfer cost and two employees during the year visit to India.
18. In light of the evidences discussed hereinabove, we are of the considered view that the fees for technical services as claimed by the assessee has been incurred for the purpose of business and, therefore, eligible for deduction under section 37 of the Moreover, the AO has never treated the said claim as capital expenditure and has accepted the same as revenue expenditure, therefore, we do not find any reason to interfere with the findings of the ld. CIT(A). Accordingly, appeals of the revenue are dismissed.
19. Both the cross objections by the assessee are in support of the decision of the CIT(A) and since we have confirmed the decision, the cross objections become infructuous.
20. In the result, appeals of the assessee and the revenue are
Order pronounced in the Court on 29th January, 2025 at Mumbai.
Author Bio
