The Income-Tax (I-T) department will recover close to Rs 1,000 crore from infrastructure development companies after a recent tax tribunal order clarified that the exemption available for infrastructure development cannot be extended to contractors or sub-contractors. The order puts an end to the practice of contractors and sub-contractors claiming benefits under section 80 IA of Income-tax Act, which was incorporated to encourage investment in infrastructure projects.
While deciding an appeal by Belgaum-based BT Patil & Sons Construction, the three-member bench of the Income-Appellate Tribunal (ITAT), Mumbai, held that the provision in the Income-tax Act is only for enterprises engaged in infrastructure projects, and therefore cannot be extended to work contracts and sub-contracts.
With this order, issued in October-end, contractors and sub-contractors who moved ITAT and Commissioner (Appeals) against tax demand on them would now have to pay tax. In certain cases, the I-T department is planning to reopen assessments.
Significantly, the ITAT order also underscores retrospective aspect of the provision. The provision was given retrospective effect from 2000 by an amendment made in 2007.
The ITAT held that “the explanation, as inserted by Finance Act 2007 with retrospective effect from 1/4/2000, made it clear that the benefit of section 80 IA shall not apply to a person who executes a works contract entered into with the eligible enterprise”.
The ITAT Bench, comprising GC Gupta, Pramod Kumar and RS Syal, observed that the language of the provision clearly explained the intention of the legislature so much so that even if a work contract is undertaken by a sate or central government, it cannot avail the benefit under section 80 IA of the I-T Act.