IN THE ITAT INDORE BENCH
Sanee Infrastructure (P.) Ltd.
Assistant Commissioner of Income-tax
IT APPEAL NO. 12 (IND.) OF 2011
[ASSESSMENT YEAR 2007-08]
JUNE 8, 2012
R.C. Sharma, Accountant Member – This is an appeal by the assessee against the order of the learned CIT(A) dated 26.10.2009 for the assessment year 2007-08.
2. The only grievance of the assessee relates to decline of claim of deduction u/s 80IA of the Income Tax Act, 1961 in respect of Infrastructure Projects developed by the assessee.
3. Rival contentions have been heard and record perused. The first, in brief, are that the assessee is engaged in the construction of roads for the Government departments. In the return of income, the assessee has claimed deduction u/s 80IA of the Act in respect of infrastructure project undertaken by the assessee. After verifying the details of project undertaken, the AO reached to the conclusion that the assessee has given payments step by step during the construction period. There is no fund mobilization by the assessee to complete the project. The assessee is relying on Government fund for construction work, hence, as per the AO, the assessee was only executing a works contract and there was no mobilization of sources of its own. After referring to the Explanation as substituted by the Finance (No. 2) Act, 2009 with retrospective effect from 1.4.2000, the AO held that the assessee has executed only works contract awarded by the State Government and Central Government, hence, no deduction under section 80IA(4) could be allowed to the assessee.
4. By the impugned order, the learned CIT(A) confirmed the disallowance by observing as under :-
“In the appellant’s case, the various government departments have issued the tenders and the work contract has been awarded to the person who quotes the minimum rates. Similarly, the appellant had filed the tenders for various projects and was awarded the contract in respect of the projects mentioned in detail in the assessment order on which deduction u/s 80IA has been claimed for the year under consideration. The AO has made the disallowance on the ground that the most of the roads built by the appellant during the year under onsideration deos not amount to creation of new infrastructure facilities as the appellant has simply executed the work for upgradation/repairing/maintenance of old roads. In addition to the above, the projects also falls squarely under the expression “works contract” awarded by various government departments of MP and hence falls within the mischief of the Explanation to section 80IA.
It is pertinent to note from the schedule of payments that the appellant is given payment for the work done step by step during the period of construction. There is no mobilization of fund by the appellant to complete the project undertaken by him. Thus, it is clear that the appellant is a work contractor and relying on the government fund for the execution of work contract. Therefore, the appellant is not entitled to the deduction u/s 80-IA. Reliance is placed in the case of Asstt. CIT v. Indore Linings (P) Ltd  122 TTJ (Chennai) 137 wherein it is held that benefit of section 80IA is available only to a developer and not a contractor, thus, where assessee took contract work of insitu cement lining for water supply project of Gujarat Water Supply and Sewerage Board it was to be held that assessee was doing only contract work and as such benefit of section 80IA could not be extended to it. This issue has also been decided by Hon’ble Indore Tribunal in the favour of the department in the case of ACIT 3(1) Bhopal v. R.K. Gupta Contractor & Engineers Pvt. Ltd. Bhopal for A.Y. 2006-07 reported in ITA No. 517/Ind/2009 wherein it is held that provisions of 80-IA is not applicable to business referred in subsection (4) of section 80IA meaning thereby that the benefit under this section will not be granted to a “work contractor”. The issue has also been decided in the case of B.T. Patil & Sons Constn. (P) Ltd. v. Asstt. CIT  35 SOT 171 (Mum) (LB).”
5. Against the above order, the assessee is in further appeal before us.
6. It was contended by the learned counsel for the assessee, Shri Anil Khabya, that the assessee has carried out development work of new roads and awarded by Government Deptt/Agencies. Complete detail has been filed on record. He further submitted that in some cases, existing old road facilities have been converted into infrastructure facility by widening the existing roads and by construction of new lanes i.e. thus converting existing single lane road to double lane roads etc. Conversion of existing roads into infrastructure facilities is also considered as ‘development of infrastructure facility. Reliance was placed on Circular 4 of 2010 dated 18-05-2010 according to which widening of an existing road by constructing additional lanes as a part of a highway project by an undertaking would be regarded as a new infrastructure facility for the purpose of section 80IA(4)(i) of Act. The most important aspect was that the entire development/construction work has been executed by the assessee. The assessee has not executed only a part of construction work of infrastructure facility. The assessee was also under obligation to maintain these new roads for number of years after development. He further submitted that the assessee contracts with Government Deptt/Agencies cannot be termed as a “work contract simpliciter” These contracts were in the nature of “development” work with attached legal obligation of maintenance. The appellant has utilized substantial financial resources, both fund based and non-fund based (such as bank guarantees , performance guarantees), to execute these projects. Merely because, the appellant has been paid for development and construction work subsequently, could not be a reason to deny the assessee the benefit of deduction u/s 80IA(4). The CIT(A) has relied upon 3 Tribunal decisions cited at Page 6 para 2 of his order. All those cases have no relevance with the facts of appellant cases and the same were decided on the basis of special facts of those particular cases. In all those cases, the appellants were engaged in performance of “part of contract” and not the entire development work. The case of Asstt CIT v. Indwel Linings (P.) Ltd.  122 TTJ 137 (Chennai) was not related to Road Construction. In the case of appellant, the appellant has constructed the entire new roads. The appellant was also under legal obligation to maintain these new roads for number of years. Thus the ratio decided in those cases cannot be applied to the facts of appellant case. As per the learned counsel for the assessee, the case of the appellant is covered by the decision of Hon’ble Mumbai Bench in the case of Asstt. CIT v. Bharat Udyog Ltd  24 SOT 412. In that case, the appellant was a contractor of infrastructure facility. The A.O. denied the benefit on the ground that the assessee which was only a contractor constructing an infrastructure facility like road on behalf of the developer for a sum of profit and was not having stake in financial viability of the project. Allowing the deduction u/s 80IA(4)(i), the Hon’ble Tribunal held that an assessee who is only engaged in the developing the infrastructural facility i.e., road and not engaged in the ‘operating and maintaining’ the said facility is entitled to the benefits of the deduction under section 80-IA(4).-Patel Engg. Ltd. v. Dy. CIT  94 ITD 411 (Mum.) 646″ Mr. Khabya further contended that ]the Explanation inserted by Finance (No. 2) Act, 2009 which has been inserted below sub-clause (13) of Section 80IA applies only in relation to a business referred to in sub-section (4) which is in the nature of work contract awarded by any person including the Central or State Government. The business of the appellant is not in the nature of work contract simpliciter. The appellant is undertaking execution of entire infrastructure facility along with obligation of maintenance for number of years. The appellant is not engaged in business of execution of only part of civil work so as to be described as “work contractor”. The Explanation relied by the A.O. does not disentitle the appellant from substantive benefit conferred by Section 80IA(4)(i) of the Act.
7. On the other hand, the learned CIT DR, Shri Keshav Saxena, submitted that the assessee was merely a contractor and no infra-structure facilities have been developed by him on his own land. As per the learned CIT DR for claiming deduction u/s 80IA(4) of the Act, the infra-structure project should be owned by the assessee. He further relied on the observations made in the case of B.T. Patil & Sons Belgaum Construction (P.) Ltd. v. Asstt. CIT  126 TTJ 577/ 35 SOT 171 (Mum.) (LB) wherein it was held that the assessee should be involved in planning and development of infra-structure facilities as a whole. The assessee should carry out the construction work as per the requirements of State Government and cannot deviate even an inch from the plan assigned to it. Our attention was also invited to following observations in the order which read as under :-
“Another significant word used here is “owned” which indicates that the infrastructure facility should be owned by a company so as to be entitled to deduction under this section. From the copies of agreement entered into by the assessee with the State Government/statutory authorities, it is amply clear that only the concerned authority, and not the assessee, has been described as “owner” in unambiguous words. In these agreements the assessee has been referred to as a joint venture for carrying out the specified work only. It is axiomatic that the doing of work assigned to assessee, religiously in accordance with the given specifications subject to the terms and conditions of the agreement and control of the authority, cannot put it in the capacity of owner. Even if the assessee had to make some investment, for the time being, in the shape of purchase of some raw material or incurring of labour etc., which is recouped from time to time by furnishing bills, the assessee cannot claim itself as owner of the work done by it. The assessee is a mere contractor whose tender has been accepted by the competent authorities for carrying out the specified job, the property in respect of which vests with such Government or local authority. It is, therefore, clear that since the work done by the assessee is not owned by it, it does not satisfy sub-cl. (a) of s. 80IA(4)(i)”
8. The ld. CIT DR further contended that the assessee is not the owner of infrastructure facility and, therefore, did not satisfy the condition of ownership as per sub-clause (a) of Section 80IA(4)(i). For this purpose, our attention was also invited to the, decision of the B.T. Patil & Sons Belgaum Construction (P.) Ltd. (supra), according to which infrastructure facility should be owned by the company so as to be entitled for deduction under this section. As per ld. CIT DR, the assessee is a mere contractor whose tender has been accepted by competent authorities for carrying out the specific jobs, the property in respect of which vested with such Government or Local Authority. He further submitted that the decision relied by the ld. Authorized Representative in the case of Bharat Udyog Ltd. (supra) was passed on 30th June, 2008, and was based on the decision of Patel Engg. Ltd., (supra) which was over ruled by the decision of Special Bench in the case of B.D. Patil & Sons Belgaum Construction (P.) Ltd. (supra).
9. We have considered the rival submissions and have gone through the orders of the authorities below and also deliberated on the case laws cited by ld. CIT DR and ld. Authorized Representative in the context of factual matrix of the case. From the record, we found that the assessee has claimed deduction u/s 80IA(4) In respect of various contracts awarded by the Government for development of infrastructure facilities of new roads and widening of existing roads and construction of new lanes i.e. converting existing single lane to double lane roads. Relevant provisions of the law for claim of exemption u/s 80IA(4), which was amended by the Finance Act, 2002 and applicable w.e.f. 1.4.2002 i.e. assessment year 2002-03 reads as under :
“Deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.
80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.
(4) This section applies to –
(i) Any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :-
(a) It is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or consititutedn under any Central or State Act;
(b) It has entered into an agreement with the Central Government or a State Government or a local authority6 or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;
(c) It has started or starts operating and maintaining the infrastructure facility on or after the Ist day of April, 1995 :
Provided that where an infrastructure facility is transferred on or after the Ist day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter in this section referred to as the transferor enterprises) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government. State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place.
Explanation :- For the purposes of this clause, “infrastructure” means –
(a) A road including toll road, a bridge or a rail system
(b) A highway project including housing or other activities being an integral part of the highway project.
(c) A water supply project, treatment system, irrigation project, sanitation and sewerage system or solid waste management system;
(d) A port, airport, inland waterway, inland port or navigational channel in the sea.”
10. It is very clear from the amended provisions of the law that infrastructure facility, after amendment is required to be :-
(i) developed or
(ii) maintained and operated or
(iii) developed, maintained and operated.
Whereas as per the earlier law, the infrastructure facility was required to be –
(ii) maintained and operated or
(iii) developed, maintained and operated
Thus, as per the amended law, development of infrastructure facility is sufficient for claim of deduction u/s 80IA(4) w.e.f. assessment year 2002-03. The relevant assessment year under consideration is also assessment year 2002-03 for which amended provisions of law is applicable.
11. Main reason for Assessing Officer’s action for denial of the deduction was that the assessee was merely a contractor and not Developer of infrastructure facility as a whole. The Assessing Officer also observed that at some instances, the assessee has only undertaken upgradation including construction of bridge and culvert, improvement and widening of new B. T. etc, which as per Assessing Officer did not amount to development of new infrastructure. In this respect, the ld. Authorized Representative placed on record CBDT Circular No.4 of 2010 dated 18.5.2010, according to which widening of an existing road by constructing additional lane as part of a high way approach would be regarded as new infrastructure facility for the purpose of Section 80IA(4)(i) of the Income-tax Act, 1961. Now we analyze various conditions which are required to be fulfilled for claim of deduction u/s 80IA(4) as narrated above. Conditions stipulated in sub clause (a) of sub-Section (4)(i) with regard to the enterprise being owned by the company registered in India is duly fulfilled. Since the assessee is a company registered in India, therefore, this condition is duly fulfilled by the assessee. Condition stipulated in sub-clause (b) requiring that the assessee company to enter into agreement with the Central or State Government for development of new infrastructure facility is also fulfilled in this case. However, condition stipulated under sub-clause (c), which required that the assessee has started operating and maintaining infrastructure facility on or after 1st day of April, 1995, does not appear to be fulfilled and require a relook in the matter by the Assessing Officer.
12. Now coming to the main objection of the ld. CIT DR to the effect that the assessee was a Contactor and not developer in view of the fact that the assessee was paid by the Government in respect of the work undertaken by it and assessee has not invested his own funds for completing the Project nor assessee has recovered the same through operating the facility thereafter. As per our considered view, after amendment by the Finance Act, 2002 for claim of deduction u/s 80IA(4) infrastructure facility is only required to be developed and there is no condition that assessee should also operate the same. Thus, after amendment, when the assessee is not required to operate the facility, the payment for development of such infrastructure is required to be made by the Government only. However, as per pre-amended law when the assessee was not only required to develop but also required to operate and maintain the infrastructure facility, there was collection of revenue through toll tax by which assessee could have recovered not only its cost part but also profit thereon. After amendment, when assessee undertakes to develop the infrastructure facility only, it is the Government who will make payment to assessee in respect of infrastructure facility developed by it in terms of agreement so entered with Government. Thus, we do not find any infringement of conditions for claim of deduction u/s 80IA(4) when the Government has made payment to the assessee in respect of the project of infrastructure development undertaken by it in terms of respective agreement entered into with Government. It is pertinent to mention here that for claim of deduction, the infrastructure project should be completely developed by the assessee and not part of it. Even when the assessee undertakes development of only part of infrastructure facility, it shall not be entitled for claim of deduction. In the instant case, it appears that the Assessing Officer has not minutely examined the terms of the agreement executed with Government Department. It is also pertinent to mention here that the proposition advanced by ld. CIT DR with reference to the decision of the Special Bench in the case of B.T. Patil & Sons Belgaum Construction (P.) Ltd. (supra) was with respect to the assessment years 2000-01 and 2001-02, which was before the amendment brought in by the Finance Act 2002,therefore, the assessee’s eligibility for claim of deduction is required to be examined with reference to the amended provisions of law w.e.f. 1.4.2002.
13. In view of the above discussion and in the interest of justice, we restore this appeal back to the file of Assessing Officer with a direction to examine the terms and conditions of each and every contract entered by the assessee with the Government to find out whether the assessee has worked simplicitor as a contractor or as a developer of infrastructure facility as a whole. Minute examination of terms and conditions of each contract is required to be undertaken, even though the assessee has placed on record some of the letters of the Government Department, which has allotted the development work to the assessee, which, prima facie, gives impression that the assessee was given work of development of infrastructure facility. However, as per our considered view, these letters of the Department are required to be read alongwith the detailed terms and conditions of the main agreement/contract entered by the assessee with these departments while allotment of work.
14. In the result, the appeal of the assessee is allowed in part for statistical purposes.