Gujarat HC Allowed Section 80IA Deduction as Assessee Held to Be Infrastructure Developer

PCIT Vs Montecarlo Limited (Gujarat High Court)

The Revenue filed a tax appeal under Section 260A of the Income-tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal dated 30 November 2023 for Assessment Year 2017–18. The proposed question of law was whether the Tribunal had erred in deleting a disallowance of ₹86.52 crore made under Section 80IA(4) by holding that the assessee was a developer of infrastructure facilities and not merely a contractor, thereby being eligible for deduction under the said provision.

Read SC Judgment: SC Dismisses Tax Appeal as Developer Status Under Section 80IA Already Settled

Both parties submitted that the issue was no longer res integra, as an identical question had already been decided by the same Court in Tax Appeal No. 786 of 2023 for Assessment Year 2008–09, decided on 19 December 2023. In that case, the Court had dismissed the Revenue’s appeal after examining the very same Tribunal order that was impugned in the present appeal.

The Court noted that, in the earlier decision, it had considered the scope of Section 80IA(4) and the Explanation inserted below Section 80IA(13) by the Finance Act, 2007 and amended by the Finance (No.2) Act, 2009 with retrospective effect from 1 April 2000. The Explanation clarifies that deduction under Section 80IA(4) is not available where the business is in the nature of a works contract awarded by any person, including the Government. The Court observed that the Explanation bars deduction only for enterprises executing works contracts and does not apply to entities acting as developers of infrastructure facilities.

The Tribunal, whose findings were affirmed earlier, had analysed the statutory provisions and held that to claim deduction under Section 80IA(4), the assessee must establish that it acted as a developer and not merely as a contractor. The assessee had placed detailed material before the authorities to demonstrate its role as a developer. Concurrent factual findings were recorded by the Commissioner (Appeals) and the Tribunal that the assessee had undertaken development of infrastructure facilities.

The Court referred to the factual analysis carried out by the appellate authorities, including examination of agreements and tender documents relating to road and canal projects. The scope of work included rehabilitation, widening, upgradation, and strengthening of roads. The authorities noted several features indicating development activity, such as the assessee bearing investment responsibility, furnishing security deposits, being subject to penalties for delay, procuring materials independently, arranging labour camps and qualified engineers, bearing defect liability, and assuming responsibility for accidents and workmen compensation. Based on these aspects, the authorities concluded that the assessee executed the projects as a developer and not as a mere works contractor.

Given these concurrent findings of fact and the earlier judgment of the Court on the same issue, the High Court held that no substantial question of law arose from the Tribunal’s order. Accordingly, the appeal filed by the Revenue was dismissed.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1. This Tax Appeal is filed under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) arising out of the order dated 30^th November, 2023 passed by the Income Tax Appellate Tribunal in ITA No.310/Ahd/2020 for A.Y. 2017-18, wherein the following question of law is proposed.

(a) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the disallowance of Rs.86,52,24,043/- made u/s. 80IA(4) of the Income Tax Act, 1961 by holding that the assessee is not a contractor but a developer of infrastructure facilities and is eligible for deduction u/s. 80IA(4) of the Income Tax Act, 1961?

2. The appellant revenue has proposed the question of law with regard to deleting disallowance made under Section 80IA(4) of the Act on the ground that assessee is not a contractor but developer of the infrastructure facility and is eligible for deduction under Section 80IA(4) of the Act as per the impugned order passed by the Tribunal.

3. Learned advocates for both the sides submitted that the issue with regard to considering the respondent as developer of the infrastructure facility so as to become eligible for deduction under Section 80IA(4) is no more res intigra in view of the order passed by this Court dated 19^th December, 2023 in Tax Appeal No.786 of 2023 for the A.Y. 2008-09, whereby the Appeal filed by the revenue is dismissed on the same question of law. It was pointed out that while dismissing the Appeal of the revenue, this Court has taken into consideration the same order passed by the Tribunal which is impugned in this Appeal and on the basis of that, it was observed as under.

“3.9. With regard to the contention raised by the Revenue to the effect that the explanation to below Subsection 13 of Section 80IA of the Act is applicable and in response to such contention, the Tribunal analysed the scope of the explanation to below Subsection 13 of Section 80IA of the Act as under:

“11.6. Subsequently, an Explanation to section 80-IA of the Act was inserted by the Finance Act, 2007 and later on amended by the Finance (No.2) Act, 2009 but the same was made applicable with retrospective effect i.e. 1-4-2000. This explanation denies the benefit of deduction under section 80-IA(4) of the Act to a person who executes a project which is in the nature of works contract. At this juncture, it is pertinent to refer the provisions of the Explanation attached below section 80-IA(13) of the Act as reproduced below:

“For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub­section (1).””

3.10. Thus there are concurrent findings of fact arrived at by the CIT (Appeal) as well as the Tribunal that the assessee has undertaken the development of infrastructure facility and is eligible to claim the deduction under Section 80IA(4) of the Act.

3.11. Section 80IA of the Act provides

for deduction from the gross total income of the assessee which includes any profit and gains derived by an undertaking or an enterprise from any business referred to in Subsection 4 of the Act as eligible business by providing deduction of an amount equal to the 100% of the profit and gains derived from such business for 10 consecutive assessment years. Subsection 4 of Section 80IA of the Act reads as under:-

“(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 constituted under any Central or State Act;

b. it has entered into an agreement with the Central Government or a State Government or a local authority 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 1st day of April, 1995:”

3.12. Explanation below Subsection 13 of Section 80IA of the Act was introduced by the Finance (No.2) of the Act, 2009 with effect from 01.04.2000, reads as under:

“[Explanation. For the removal of doubts, it is hereby declared that nothing contained in this section shall apply in relation to a business referred to in sub-section (4) which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by the undertaking or enterprise referred to in sub-section (1).]”

Both the explanations basically emphasizes on the non allowability of deduction u/s 801A(4) to an enterprise merely executing “works contract” awarded by what so ever person including the Central or State Government.

Accordingly any person who executes the Infrastructure l’acility related work in capacity of a “Developer” shall only be allowed deduction u/s 801A(4) of the Act.

Therefore, for claiming the deduction u/ s 801A(4) after the insertion of above explanation, the Assessee has to pass the test of “being Developer of infrastructure facilities”, accordingly the Assessee was asked to prove & establish its capacity of “Developer of infrastructure facilities”, accordingly the Assessee has made a detailed submission narrating the following facts & points to prove & establish its capacity as a “Developer of
infrastructure facilities”

3.13. Sub-clause 1 of Sub-section 4 of Section 80IA of the Act provides that Section 80IA applies to any enterprise carrying on the business of “(1)developing, or (2)operating and maintaining or (3) developing operating and maintaining” any infrastructure facilities which fulfills the condition prescribed therein. In the facts of the case as held by the CIT (Appeals) as well as the Tribunal on giving a factual finding to the effect that the assessee has undertaken a work of development of infrastructure facilities by execution of the contract awarded to it as per the terms of the contract as enumerated by the CIT (Appeal) as under:-

”To examine whether the project assigned to this Appellant was in the capacity of a “Contractor” or the Appellant has executed the work as a “Developer” with respect to the ROAD PROJECTS, I have perused the terms of some of the agreements. My attention has been drawn on agreements with “Madhya Pradesh Road Development Corporation Limited”, from which the Appellant have been awarded two Road Projects, wherein the scope of the work has been defined as follows:-

18. The Appellant has drawn my attention to the relevant clauses of the Tender Documents in support of its contention of being “Developer of the Infrastructure Facilities”

3.14. The CIT (Appeal) has further examined as to whether the project assigned to the assessee was in capacity of a contractor or the same was executed as a developer with respect to the canal projects, agreements were entered into by the assessee was analysed and tendered documents containing the terms and conditions of the project were taken into consideration with respect to the following aspects as to the entire investment in the project was to be made by the assessee. Interim payment to the tune of estimated contract value in respect of the development work done for each month after retention and other adjustments were to be made, security deposit was to be paid by the assessee, there was a penalty for delay, procurement of the material was the responsibility of the assessee, procurement of land for camp, for shop, labour camp etc. also the employment of qualified engineers, action and compensation in respect of bad work, defect liability of the accidents to persons in relation to Workman Compensation Act, indemnity insurance of the workmen employed. The CIT (Appeal) and the Tribunal considering such aspects of the tendered agreement, concurrently held that the assessee has entered into a development of infrastructure facility agreement and not the works contract.”

4. Considering the above concurrent finding of facts, this Court dismissed the Tax Appeal No.786 of 2023 and therefore, this Tax Appeal is also dismissed as no question of law can be said to have arisen out of the impugned order passed by the Tribunal.